[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2017 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 12
Banks and Banking
________________________
Parts 900 to 1025
Revised as of January 1, 2017
Containing a codification of documents of general
applicability and future effect
As of January 1, 2017
Published by the Office of the Federal Register
National Archives and Records Administration as a
Special Edition of the Federal Register
[[Page ii]]
U.S. GOVERNMENT OFFICIAL EDITION NOTICE
Legal Status and Use of Seals and Logos
The seal of the National Archives and Records Administration
(NARA) authenticates the Code of Federal Regulations (CFR) as
the official codification of Federal regulations established
under the Federal Register Act. Under the provisions of 44
U.S.C. 1507, the contents of the CFR, a special edition of the
Federal Register, shall be judicially noticed. The CFR is
prima facie evidence of the original documents published in
the Federal Register (44 U.S.C. 1510).
It is prohibited to use NARA's official seal and the stylized Code
of Federal Regulations logo on any republication of this
material without the express, written permission of the
Archivist of the United States or the Archivist's designee.
Any person using NARA's official seals and logos in a manner
inconsistent with the provisions of 36 CFR part 1200 is
subject to the penalties specified in 18 U.S.C. 506, 701, and
1017.
Use of ISBN Prefix
This is the Official U.S. Government edition of this publication
and is herein identified to certify its authenticity. Use of
the 0-16 ISBN prefix is for U.S. Government Publishing Office
Official Editions only. The Superintendent of Documents of the
U.S. Government Publishing Office requests that any reprinted
edition clearly be labeled as a copy of the authentic work
with a new ISBN.
U . S . G O V E R N M E N T P U B L I S H I N G O F F I C E
------------------------------------------------------------------
U.S. Superintendent of Documents Washington, DC 20402-
0001
http://bookstore.gpo.gov
Phone: toll-free (866) 512-1800; DC area (202) 512-1800
[[Page iii]]
Table of Contents
Page
Explanation................................................. v
Title 12:
Chapter IX--Federal Housing Finance Board 3
Chapter X--Bureau of Consumer Financial Protection 29
Finding Aids:
Table of CFR Titles and Chapters........................ 721
Alphabetical List of Agencies Appearing in the CFR...... 741
List of CFR Sections Affected........................... 751
[[Page iv]]
----------------------------
Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 12 CFR 900.1 refers
to title 12, part 900,
section 1.
----------------------------
[[Page v]]
EXPLANATION
The Code of Federal Regulations is a codification of the general and
permanent rules published in the Federal Register by the Executive
departments and agencies of the Federal Government. The Code is divided
into 50 titles which represent broad areas subject to Federal
regulation. Each title is divided into chapters which usually bear the
name of the issuing agency. Each chapter is further subdivided into
parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
The appropriate revision date is printed on the cover of each
volume.
LEGAL STATUS
The contents of the Federal Register are required to be judicially
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie
evidence of the text of the original documents (44 U.S.C. 1510).
HOW TO USE THE CODE OF FEDERAL REGULATIONS
The Code of Federal Regulations is kept up to date by the individual
issues of the Federal Register. These two publications must be used
together to determine the latest version of any given rule.
To determine whether a Code volume has been amended since its
revision date (in this case, January 1, 2017), consult the ``List of CFR
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative
List of Parts Affected,'' which appears in the Reader Aids section of
the daily Federal Register. These two lists will identify the Federal
Register page number of the latest amendment of any given rule.
EFFECTIVE AND EXPIRATION DATES
Each volume of the Code contains amendments published in the Federal
Register since the last revision of that volume of the Code. Source
citations for the regulations are referred to by volume number and page
number of the Federal Register and date of publication. Publication
dates and effective dates are usually not the same and care must be
exercised by the user in determining the actual effective date. In
instances where the effective date is beyond the cut-off date for the
Code a note has been inserted to reflect the future effective date. In
those instances where a regulation published in the Federal Register
states a date certain for expiration, an appropriate note will be
inserted following the text.
OMB CONTROL NUMBERS
The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires
Federal agencies to display an OMB control number with their information
collection request.
[[Page vi]]
Many agencies have begun publishing numerous OMB control numbers as
amendments to existing regulations in the CFR. These OMB numbers are
placed as close as possible to the applicable recordkeeping or reporting
requirements.
PAST PROVISIONS OF THE CODE
Provisions of the Code that are no longer in force and effect as of
the revision date stated on the cover of each volume are not carried.
Code users may find the text of provisions in effect on any given date
in the past by using the appropriate List of CFR Sections Affected
(LSA). For the convenience of the reader, a ``List of CFR Sections
Affected'' is published at the end of each CFR volume. For changes to
the Code prior to the LSA listings at the end of the volume, consult
previous annual editions of the LSA. For changes to the Code prior to
2001, consult the List of CFR Sections Affected compilations, published
for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.
``[RESERVED]'' TERMINOLOGY
The term ``[Reserved]'' is used as a place holder within the Code of
Federal Regulations. An agency may add regulatory information at a
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used
editorially to indicate that a portion of the CFR was left vacant and
not accidentally dropped due to a printing or computer error.
INCORPORATION BY REFERENCE
What is incorporation by reference? Incorporation by reference was
established by statute and allows Federal agencies to meet the
requirement to publish regulations in the Federal Register by referring
to materials already published elsewhere. For an incorporation to be
valid, the Director of the Federal Register must approve it. The legal
effect of incorporation by reference is that the material is treated as
if it were published in full in the Federal Register (5 U.S.C. 552(a)).
This material, like any other properly issued regulation, has the force
of law.
What is a proper incorporation by reference? The Director of the
Federal Register will approve an incorporation by reference only when
the requirements of 1 CFR part 51 are met. Some of the elements on which
approval is based are:
(a) The incorporation will substantially reduce the volume of
material published in the Federal Register.
(b) The matter incorporated is in fact available to the extent
necessary to afford fairness and uniformity in the administrative
process.
(c) The incorporating document is drafted and submitted for
publication in accordance with 1 CFR part 51.
What if the material incorporated by reference cannot be found? If
you have any problem locating or obtaining a copy of material listed as
an approved incorporation by reference, please contact the agency that
issued the regulation containing that incorporation. If, after
contacting the agency, you find the material is not available, please
notify the Director of the Federal Register, National Archives and
Records Administration, 8601 Adelphi Road, College Park, MD 20740-6001,
or call 202-741-6010.
CFR INDEXES AND TABULAR GUIDES
A subject index to the Code of Federal Regulations is contained in a
separate volume, revised annually as of January 1, entitled CFR Index
and Finding Aids. This volume contains the Parallel Table of Authorities
and Rules. A list of CFR titles, chapters, subchapters, and parts and an
alphabetical list of agencies publishing in the CFR are also included in
this volume.
[[Page vii]]
An index to the text of ``Title 3--The President'' is carried within
that volume.
The Federal Register Index is issued monthly in cumulative form.
This index is based on a consolidation of the ``Contents'' entries in
the daily Federal Register.
A List of CFR Sections Affected (LSA) is published monthly, keyed to
the revision dates of the 50 CFR titles.
REPUBLICATION OF MATERIAL
There are no restrictions on the republication of material appearing
in the Code of Federal Regulations.
INQUIRIES
For a legal interpretation or explanation of any regulation in this
volume, contact the issuing agency. The issuing agency's name appears at
the top of odd-numbered pages.
For inquiries concerning CFR reference assistance, call 202-741-6000
or write to the Director, Office of the Federal Register, National
Archives and Records Administration, 8601 Adelphi Road, College Park, MD
20740-6001 or e-mail [email protected].
SALES
The Government Publishing Office (GPO) processes all sales and
distribution of the CFR. For payment by credit card, call toll-free,
866-512-1800, or DC area, 202-512-1800, M-F 8 a.m. to 4 p.m. e.s.t. or
fax your order to 202-512-2104, 24 hours a day. For payment by check,
write to: US Government Publishing Office - New Orders, P.O. Box 979050,
St. Louis, MO 63197-9000.
ELECTRONIC SERVICES
The full text of the Code of Federal Regulations, the LSA (List of
CFR Sections Affected), The United States Government Manual, the Federal
Register, Public Laws, Public Papers of the Presidents of the United
States, Compilation of Presidential Documents and the Privacy Act
Compilation are available in electronic format via www.ofr.gov. For more
information, contact the GPO Customer Contact Center, U.S. Government
Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-
mail, [email protected].
The Office of the Federal Register also offers a free service on the
National Archives and Records Administration's (NARA) World Wide Web
site for public law numbers, Federal Register finding aids, and related
information. Connect to NARA's web site at www.archives.gov/federal-
register.
The e-CFR is a regularly updated, unofficial editorial compilation
of CFR material and Federal Register amendments, produced by the Office
of the Federal Register and the Government Publishing Office. It is
available at www.ecfr.gov.
Oliver A. Potts,
Director,
Office of the Federal Register.
January 1, 2017.
[[Page ix]]
THIS TITLE
Title 12--Banks and Banking is composed of ten volumes. The parts in
these volumes are arranged in the following order: Parts 1-199, 200-219,
220-229, 230-299, 300-499, 500-599, 600-899, 900-1025, 1026-1099, and
1100-end. The contents of these volumes represent all current
regulations codified under this title of the CFR as of January 1, 2017.
For this volume, Ann Worley was Chief Editor. The Code of Federal
Regulations publication program is under the direction of John Hyrum
Martinez, assisted by Stephen J. Frattini.
[[Page 1]]
TITLE 12--BANKS AND BANKING
(This book contains parts 900 to 1025)
--------------------------------------------------------------------
Part
chapter ix--Federal Housing Finance Board................... 900
chapter x-- Bureau of Consumer Financial Protection......... 1001
[[Page 3]]
CHAPTER IX--FEDERAL HOUSING FINANCE BOARD
--------------------------------------------------------------------
SUBCHAPTER A--GENERAL DEFINITIONS
Part Page
900 General definitions applying to all Finance
Board regulations....................... 5
SUBCHAPTER B--FEDERAL HOUSING FINANCE BOARD ORGANIZATION AND OPERATIONS
906 Operations.................................. 8
SUBCHAPTERS C-D [RESERVED]
SUBCHAPTER E--FEDERAL HOME LOAN BANK RISK MANAGEMENT AND CAPITAL
STANDARDS
930 Definitions applying to risk management and
capital regulations..................... 9
932 Federal Home Loan Bank capital requirements. 10
SUBCHAPTER F [RESERVED]
SUBCHAPTER G--FEDERAL HOME LOAN BANK ASSETS AND OFF-BALANCE SHEET ITEMS
955 Acquired member assets...................... 24
SUBCHAPTERS H-M [RESERVED]
956-999
[Reserved]
[[Page 5]]
SUBCHAPTER A_GENERAL DEFINITIONS
PART 900_GENERAL DEFINITIONS APPLYING TO ALL FINANCE BOARD REGULATIONS
--Table of Contents
Sec.
900.1 Basic terms relating to the Finance Board, the Bank System and
related entities.
900.2 Terms relating to Bank operations, mission and supervision.
900.3 Terms relating to other entities and concepts used throughout 12
CFR chapter IX.
Authority: 12 U.S.C. 1422b(a).
Source: 67 FR 12842, Mar. 20, 2002, unless otherwise noted.
Sec. 900.1 Basic terms relating to the Finance Board, the Bank System
and related entities.
As used throughout this chapter, the following basic terms relating
to the Finance Board, the Bank System and related entities have the
meanings set forth below, unless otherwise indicated in a particular
subchapter, part, section, or paragraph:
Act means the Federal Home Loan Bank Act, as amended (12 U.S.C. 1421
through 1449).
Bank, written in title case, means a Federal Home Loan Bank
established under section 12 of the Act (12 U.S.C. 1432).
Bank System means the Federal Home Loan Bank System, consisting of
the 12 Banks and the Office of Finance.
Board of Directors, written in title case, means the Board of
Directors of the Federal Housing Finance Board; the term board of
directors, written in lower case, has the meaning indicated in context.
Chairperson means the Chairperson of the Board of Directors of the
Finance Board.
Executive Secretary means an employee within the Office of
Management of the Finance Board who is responsible for records
management.
Finance Board means the Federal Housing Finance Board established by
section 2A of the Act (12 U.S.C. 1422a).
Financing Corporation or FICO means the Financing Corporation
established and supervised by the Finance Board under section 21 of the
Act (12 U.S.C. 1441) and part 995 of this chapter.
Housing associate means an entity that has been approved as a
housing associate pursuant to part 926 of this chapter.
Member means an institution that has been approved for membership in
a Bank and has purchased capital stock in the Bank in accordance with
Secs. 925.20 or 925.24(b) of this chapter.
Office of Finance or OF means the Office of Finance, a joint office
of the Banks referred to in section 2B of the Act (12 U.S.C. 1422b) and
established under part 985 of this chapter.
Resolution Funding Corporation or REFCORP means the Resolution
Funding Corporation established by section 21B of the Act (12 U.S.C.
1441b) and addressed in parts 996 and 997 of this chapter.
Secretary to the Board means employees within the Office of General
Counsel of the Finance Board who are responsible for issues concerning
meetings of the Board of Directors.
[67 FR 12842, Mar. 20, 2002, as amended at 68 FR 38169, June 27, 2003]
Sec. 900.2 Terms relating to Bank operations, mission and supervision.
As used throughout this chapter, the following terms relating to
Bank operations, mission and supervision have the meanings set forth
below, unless otherwise indicated in a particular subchapter, part,
section or paragraph:
Acquired member assets or AMA means those assets that may be
acquired by a Bank under part 955 of this chapter.
Advance means a loan from a Bank that is:
(1) Provided pursuant to a written agreement;
(2) Supported by a note or other written evidence of the borrower's
obligation; and
(3) Fully secured by collateral in accordance with the Act and part
950 of this chapter.
Affordable Housing Program or AHP means the Affordable Housing
Program, the CICA program that each Bank is required to establish
pursuant
[[Page 6]]
to section 10(j) of the Act (12 U.S.C. 1430(j)) and part 951 of this
chapter.
Capital plan means the capital structure plan required for each Bank
by section 6(b) of the Act, as amended (12 U.S.C. 1426(b)), and part 933
of this chapter, as approved by the Finance Board, unless the context of
the regulation refers to the capital plan prior to its approval by the
Finance Board.
CIP means the Community Investment Program, an advance program under
CICA required to be offered pursuant to section 10(i) of the Act (12
U.S.C. 1430(i)).
Community Investment Cash Advance or CICA means any advance made
through a program offered by a Bank under section 10 of the Act (12
U.S.C. 1430) and parts 951 and 952 of this chapter to provide funding
for targeted community lending and affordable housing, including
advances made under a Bank's Rural Development Funding (RDF) program,
offered under section 10(j)(10) of the Act (12 U.S.C. 1430(j)(10)); a
Bank's Urban Development Funding (UDF) program, offered under section
10(j)(10) of the Act (12 U.S.C. 1430(j)(10)); a Bank's Affordable
Housing Program (AHP), offered under section 10(j) of the Act (12 U.S.C.
1430(j)); a Bank's Community Investment Program (CIP), offered under
section 10(i) of the Act (12 U.S.C. 1430(i)); or any other program
offered by a Bank that meets the requirements of part 952 of this
chapter.
Community lending means providing financing for economic development
projects for targeted beneficiaries, and, for community financial
institutions (as defined in Sec. 925.1 of this chapter), purchasing or
funding small business loans, small farm loans or small agri-business
loans (as defined in Sec. 950.1 of this chapter).
Consolidated obligation or CO means any bond, debenture, or note
authorized under part 966 of this chapter to be issued jointly by the
Banks pursuant to section 11(a) of the Act, as amended (12 U.S.C.
1431(a)), or any bond or note issued by the Finance Board on behalf of
all Banks pursuant to section 11(c) of the Act (12 U.S.C. 1431(c)), on
which the Banks are jointly and severally liable.
Data Reporting Manual or DRM means a manual issued by the Finance
Board and amended from time to time containing reporting requirements
for the Banks.
Excess stock means that amount of a Bank's capital stock owned by a
member or other institution in excess of that member's or other
institution's minimum investment in capital stock required under the
Bank's capital plan, the Act, or the Finance Board's regulations, as
applicable.
Financial Management Policy or FMP means the Financial Management
Policy For The Federal Home Loan Bank System approved by the Finance
Board pursuant to Finance Board Resolution No. 96-45 (July 3, 1996), as
amended by Finance Board Resolution No. 96-90 (Dec. 6, 1996), Finance
Board Resolution No. 97-05 (Jan. 14, 1997), and Finance Board Resolution
No. 97-86 (Dec. 17, 1997).
[67 FR 12842, Mar. 20, 2002, as amended at 71 FR 35499, June 21, 2006;
71 FR 78050, Dec. 28, 2006]
Sec. 900.3 Terms relating to other entities and concepts used throughout
12 CFR chapter IX.
As used throughout this chapter, the following terms relating to
other entities and concepts used throughout 12 CFR chapter IX have the
meanings set forth below, unless otherwise indicated in a particular
subchapter, part, section or paragraph:
Appropriate Federal banking agency has the meaning set forth in
section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))
and, for federally-insured credit unions, means the NCUA.
Appropriate state regulator means any state officer, agency,
supervisor or other entity that has regulatory authority over, or is
empowered to institute enforcement action against, a particular
institution.
Fannie Mae means the Federal National Mortgage Association
established under authority of the Federal National Mortgage Association
Charter Act (12 U.S.C. 1716, et seq.).
FDIC means the Federal Deposit Insurance Corporation.
FRB means the Board of Governors of the Federal Reserve System.
[[Page 7]]
Freddie Mac means the Federal Home Loan Mortgage Corporation
established under authority of the Federal Home Loan Mortgage
Corporation Act (12 U.S.C. 1451, et seq.).
Generally Accepted Accounting Principles or GAAP means accounting
principles generally accepted in the United States.
Ginnie Mae means the Government National Mortgage Association
established under authority of the Federal National Mortgage Association
Charter Act (12 U.S.C. 1716, et seq.).
GLB Act means the Gramm-Leach-Bliley Act (Pub. L. 106-102 (1999)).
HUD means the United States Department of Housing and Urban
Development.
NCUA means the National Credit Union Administration.
NRSRO means a credit rating organization regarded as a Nationally
Recognized Statistical Rating Organization by the Securities and
Exchange Commission.
OCC means the Office of the Comptroller of the Currency.
OTS means the Office of Thrift Supervision.
SBIC means a small business investment company formed pursuant to
section 301 of the Small Business Investment Act (15 U.S.C. 681).
SEC means the United States Securities and Exchange Commission.
State means a state of the United States, American Samoa, the
Commonwealth of the Northern Mariana Islands, the District of Columbia,
Guam, Puerto Rico, or the United States Virgin Islands.
1934 Act means the Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.).
[67 FR 12842, Mar. 20, 2002, as amended at 69 FR 38811, June 29, 2004]
[[Page 8]]
SUBCHAPTER B_FEDERAL HOUSING FINANCE BOARD ORGANIZATION AND OPERATIONS
PART 906_OPERATIONS--Table of Contents
Subpart A [Reserved]
Subpart B_Monthly Interest Rate Survey (MIRS)
Sec.
906.5 Monthly interest rate survey.
Subpart C [Reserved]
Authority: 12 U.S.C. 4516.
Source: 70 FR 9509, Feb. 28, 2005, unless otherwise noted.
Subpart A [Reserved]
Subpart B_Monthly Interest Rate Survey (MIRS)
Sec. 906.5 Monthly interest rate survey.
The Finance Board conducts its Monthly Survey of Rates and Terms on
Conventional One-Family Non-farm Mortgage Loans in the following manner:
(a) Initial survey. Each month, the Finance Board samples savings
institutions, commercial banks, and mortgage loan companies, and asks
them to report the terms and conditions on all conventional mortgages
(i.e., those not federally insured or guaranteed) used to purchase
single-family homes that each such lender closes during the last five
working days of the month. In most cases, the information is reported
electronically in a format similar to Finance Board Form FHFB 10-91. The
initial weights are based on lender type and lender size. The data also
is weighted so that the pattern of weighted responses matches the actual
pattern of mortgage originations by lender type and by region. The
Finance Board tabulates the data and publishes standard data tables late
in the following month.
(b) Adjustable-rate mortgage index. The weighted data, tabulated and
published pursuant to paragraph (a) of this section, is used to compile
the Finance Board's adjustable-rate mortgage index, entitled the
``National Average Contract Mortgage Rate for the Purchase of Previously
Occupied Homes by Combined Lenders.'' This index is the successor to the
index maintained by the former Federal Home Loan Bank Board and is used
for determining the movement of the interest rate on renegotiable-rate
mortgages and on some other adjustable-rate mortgages.
Subpart C [Reserved]
[[Page 9]]
SUBCHAPTERS C D [RESERVED]
SUBCHAPTER E_FEDERAL HOME LOAN BANK RISK MANAGEMENT AND CAPITAL
STANDARDS
PART 930_DEFINITIONS APPLYING TO RISK MANAGEMENT AND CAPITAL
REGULATIONS--Table of Contents
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1436(a), 1440,
1443, and 1446.
Sec. 930.1 Definitions.
As used in this subchapter:
Affiliated counterparty means a counterparty of a Bank that
controls, is controlled by or is under common control with another
counterparty of the Bank. For the purposes of this definition only,
direct or indirect ownership (including beneficial ownership) of more
than 50 percent of the voting securities or voting interests of an
entity constitutes control.
Certain drawdown means a legally binding agreement that commits the
Bank to make an advance or acquire a loan, at or by a specified future
date.
Charges against the capital of the Bank means an other than
temporary decline in the Bank's total equity that causes the value of
total equity to fall below the Bank's aggregate capital stock amount.
Class A stock means capital stock issued by a Bank, including
subclasses, that has the characteristics specified by Sec. 931.1(a) of
this subchapter.
Class B stock means capital stock issued by a Bank, including
subclasses, that has the characteristics specified by Sec. 931.1(b) of
this subchapter.
Contingency liquidity means the sources of cash a Bank may use to
meet its operational requirements when its access to the capital markets
is impeded, and includes:
(1) Marketable assets with a maturity of one year or less;
(2) Self-liquidating assets with a maturity of seven days or less;
(3) Assets that are generally accepted as collateral in the
repurchase agreement market; and
(4) Irrevocable lines of credit from financial institutions rated
not lower than the second highest credit rating category by an NRSRO.
Credit derivative contract means a derivative contract that
transfers credit risk.
Credit risk means the risk that the market value, or estimated fair
value if market value is not available, of an obligation will decline as
a result of deterioration in creditworthiness.
Derivative contract means generally a financial contract the value
of which is derived from the values of one or more underlying assets,
reference rates, or indices of asset values, or credit-related events.
Derivative contracts include interest rate, foreign exchange rate,
equity, precious metals, commodity, and credit contracts, and any other
instruments that pose similar risks.
Exchange rate contracts include cross-currency interest-rate swaps,
forward foreign exchange rate contracts, currency options purchased, and
any similar instruments that give rise to similar risks.
General allowance for losses means an allowance established by a
Bank in accordance with GAAP for losses, but which does not include any
amounts held against specific assets of the Bank.
Government Sponsored Enterprise, or GSE, means a United States
Government-sponsored agency or instrumentality originally established or
chartered to serve public purposes specified by the United States
Congress, but whose obligations are not obligations of the United States
and are not guaranteed by the United States.
Interest rate contracts include, single currency interest-rate
swaps, basis swaps, forward rate agreements, interest-rate options, and
any similar instrument that gives rise to similar risks, including when-
issued securities.
Investment grade means:
(1) A credit quality rating in one of the four highest credit rating
categories by an NRSRO and not below
[[Page 10]]
the fourth highest rating category by any NRSRO; or
(2) If there is no credit quality rating by an NRSRO, a
determination by a Bank that the issuer, asset or instrument is the
credit equivalent of investment grade using credit rating standards
available from an NRSRO or other similar standards.
Market risk means the risk that the market value, or estimated fair
value if market value is not available, of a Bank's portfolio will
decline as a result of changes in interest rates, foreign exchange
rates, equity and commodity prices.
Marketable means, with respect to an asset, that the asset can be
sold with reasonable promptness at a price that corresponds reasonably
to its fair value.
Market value at risk is the loss in the market value of a Bank's
portfolio measured from a base line case, where the loss is estimated in
accordance with Sec. 932.5 of this chapter.
Minimum investment means the minimum amount of Class A and/or Class
B stock that a member is required to own in order to be a member of a
Bank and in order to obtain advances and to engage in other business
activities with the Bank in accordance with Sec. 931.3 of this chapter.
Operations risk means the risk of an unexpected loss to a Bank
resulting from human error, fraud, unenforceability of legal contracts,
or deficiencies in internal controls or information systems.
Permanent capital means the retained earnings of a Bank, determined
in accordance with GAAP, plus the amount paid-in for the Bank's Class B
stock.
Redeem or Redemption means the acquisition by a Bank of its
outstanding Class A or Class B stock at par value following the
expiration of the six-month or five-year statutory redemption period,
respectively, for the stock.
Regulatory risk-based capital requirement means the amount of
permanent capital that a Bank is required to maintain in accordance with
Sec. 932.3 of this chapter.
Regulatory total capital requirement means the amount of total
capital that a Bank is required to maintain in accordance with
Sec. 932.2 of this chapter.
Repurchase means the acquisition by a Bank of excess stock prior to
the expiration of the six-month or five-year statutory redemption period
for the stock.
Repurchase agreement means an agreement between a seller and a buyer
whereby the seller agrees to repurchase a security or similar securities
at an agreed upon price, with or without a stated time for repurchase.
Sales of federal funds subject to a continuing contract means an
overnight federal funds loan that is automatically renewed each day
unless terminated by either the lender or the borrower.
Total assets means the total assets of a Bank, as determined in
accordance with GAAP.
Total capital of a Bank means the sum of permanent capital, the
amounts paid-in for Class A stock, the amount of any general allowance
for losses, and the amount of other instruments identified in a Bank's
capital plan that the Finance Board has determined to be available to
absorb losses incurred by such Bank.
Walkaway clause means a provision in a bilateral netting contract
that permits a nondefaulting counterparty to make a lower payment than
it would make otherwise under the bilateral netting contract, or no
payment at all, to a defaulter or the estate of a defaulter, even if the
defaulter or the estate of the defaulter is a net creditor under the
bilateral netting contract.
[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54107, Oct. 26, 2001; 66
FR 66728, Dec. 27, 2001; 67 FR 12849, Mar. 20, 2002; 71 FR 78051, Dec.
28, 2006]
PART 932_FEDERAL HOME LOAN BANK CAPITAL REQUIREMENTS--Table of Contents
Sec.
932.1 Risk management.
932.2 Total capital requirement.
932.3 Risk-based capital requirement.
932.4 Credit risk capital requirement.
932.5 Market risk capital requirement.
932.6 Operations risk capital requirement.
932.7 Reporting requirements.
932.8 Minimum liquidity requirements.
932.9 Limits on unsecured extensions of credit to one counterparty or
affiliated counterparties; reporting requirements for total
extensions of credit to one
[[Page 11]]
counterparty or affiliated counterparties.
Authority: 12 U.S.C. 1426, 1440, 1443, 1446, 4513, 4526.
Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.
Sec. 932.1 Risk management.
Before its new capital plan may take effect, each Bank shall obtain
the approval of the Finance Board for the internal market risk model or
the internal cash flow model used to calculate the market risk component
of its risk-based capital requirement, and for the risk assessment
procedures and controls (whether established as part of its risk
management policy or otherwise) to be used to manage its credit, market,
and operations risks.
Sec. 932.2 Total capital requirement.
Each Bank shall maintain at all times:
(a) Total capital in an amount at least equal to 4.0 percent of the
Bank's total assets; and
(b) A leverage ratio of total capital to total assets of at least
5.0 percent of the Bank's total assets. For purposes of determining the
leverage ratio, total capital shall be computed by multiplying the
Bank's permanent capital by 1.5 and adding to this product all other
components of total capital.
[76 FR 11674, Mar. 3, 2011]
Sec. 932.3 Risk-based capital requirement.
Each Bank shall maintain at all times permanent capital in an amount
at least equal to the sum of its credit risk capital requirement, its
market risk capital requirement, and its operations risk capital
requirement, calculated in accordance with Secs. 932.4, 932.5 and 932.6,
respectively.
[76 FR 11674, Mar. 3, 2011]
Sec. 932.4 Credit risk capital requirement.
(a) General requirement. Each Bank's credit risk capital requirement
shall be equal to the sum of the Bank's credit risk capital charges for
all assets, off-balance sheet items and derivative contracts.
(b) Credit risk capital charge for assets. Except as provided in
paragraph (i) of this section, each Bank's credit risk capital charge
for an asset shall be equal to the book value of the asset multiplied by
the credit risk percentage requirement assigned to that asset pursuant
to paragraph (e)(2) of this section.
(c) Credit risk capital charge for off-balance sheet items. Each
Bank's credit risk capital charge for an off-balance sheet item shall be
equal to the credit equivalent amount of such item, as determined
pursuant to paragraph (f) of this section multiplied by the credit risk
percentage requirement assigned to that item pursuant to paragraph
(e)(2) of this section, except that the credit risk percentage
requirement applied to the credit equivalent amount for a stand-by
letter of credit shall be that for an advance with the same remaining
maturity as that stand-by letter of credit.
(d) Credit risk capital charge for derivative contracts--(1)
Derivative contracts with non-member counterparties. Except as provided
in paragraph (j) of this section, each Bank's credit risk capital charge
for a specific derivative contract entered into between a Bank and a
non-member institution shall equal the sum of :
(i) The current credit exposure for the derivative contract,
calculated in accordance with paragraph (g) or (h) of this section, as
applicable, multiplied by the credit risk percentage requirement
assigned to that derivative contract pursuant to paragraph (e)(2) of
this section, provided that:
(A) The remaining maturity of the derivative contract shall be
deemed to be less than one year for the purpose of applying Table 1.1 or
1.3 of this part; and
(B) Any collateral held against an exposure from the derivative
contract shall be applied to reduce the portion of the credit risk
capital charge corresponding to the current credit exposure in
accordance with the requirements of paragraph (e)(2)(ii)(B) of this
section; plus
(ii) The potential future credit exposure for the derivative
contract calculated in accordance with paragraph (g) or (h) of this
section, as applicable,
[[Page 12]]
multiplied by the credit risk percentage requirement assigned to that
derivative contract pursuant to paragraph (e)(2) of this section, where
the actual remaining maturity of the derivative contract is used to
apply Table 1.1 or Table 1.3 of this part.
(2) Derivative contracts with a member. Except as provided in
paragraph (j) of this section, the credit risk capital charge for any
derivative contract entered into between a Bank and one of its member
institutions shall be calculated in accordance with paragraph (d)(1) of
this section. However, the credit risk percentage requirements used in
the calculations shall be found in Table 1.1 of this part, which sets
forth the credit risk percentage requirements for advances.
(e) Determination of credit risk percentage requirements--(1)
Finance Board determination of credit risk percentage requirements. The
Finance Board shall determine, and update periodically, the credit risk
percentage requirements set forth in Tables 1.1 through 1.4 of this part
applicable to a Bank's assets, off-balance sheet items, and derivative
contracts.
(2) Bank determination of credit risk percentage requirements. (i)
Each Bank shall determine the credit risk percentage requirement
applicable to each asset, each off-balance sheet item and each
derivative contract by identifying the category set forth in Table 1.1,
Table 1.2, Table 1.3 or Table 1.4 of this part to which the asset, item
or derivative belongs, given, if applicable, its demonstrated credit
rating and remaining maturity (as determined in accordance with
paragraphs (e)(2)(ii) and (e)(2)(iii) of this section). The applicable
credit risk percentage requirement for an asset, off-balance sheet item
or derivative contract shall be used to calculate the credit risk
capital charge for such asset, item, or derivative contract in
accordance with paragraphs (b), (c) or (d) of this section respectively.
The relevant categories and credit risk percentage requirements are
provided in the following Tables 1.1 through 1.4 of this part:
Table 1.1--Requirement for Advances
------------------------------------------------------------------------
Percentage
Type of advances applicable
to advances
------------------------------------------------------------------------
Advances with:
Remaining maturity 4 years............................... 0.07
Remaining maturity >4 years to 7 years................... 0.20
Remaining maturity >7 years to 10 years.................. 0.30
Remaining maturity >10 years............................. 0.35
------------------------------------------------------------------------
Table 1.2--Requirement for Rated Residential Mortgage Assets
------------------------------------------------------------------------
Percentage
applicable
to
Type of residential mortgage asset residential
mortgage
assets
------------------------------------------------------------------------
Highest Investment Grade................................... 0.37
Second Highest Investment Grade............................ 0.60
Third Highest Investment Grade............................. 0.86
Fourth Highest Investment Grade............................ 1.20
If Downgraded to Below Investment Grade After Acquisition
By Bank:
Highest Below Investment Grade........................... 2.40
Second Highest Below Investment Grade.................... 4.80
All Other Below Investment Grade......................... 34.00
Subordinated Classes of Mortgage Assets:
Highest Investment Grade................................. 0.37
Second Highest Investment Grade.......................... 0.60
Third Highest Investment Grade........................... 1.60
Fourth Highest Investment Grade.......................... 4.45
If Downgraded to Below Investment Grade After Acquisition
By Bank:
Highest Below Investment Grade........................... 13.00
Second Highest Below Investment Grade.................... 34.00
All Other Below Investment Grade......................... 100.00
------------------------------------------------------------------------
Table 1.3--Requirement for rated Assets or Rated Items Other Than Advances or Residential Mortgage Assets
[Based on remaining maturity]
----------------------------------------------------------------------------------------------------------------
Applicable percentage
----------------------------------------------------------------
>1 yr to 3 >3 yrs to >7 yrs to
1 year yrs 7yrs 10 yrs >10 yrs
----------------------------------------------------------------------------------------------------------------
U.S. Government Securities..................... 0.00 0.00 0.00 0.00 0.00
Highest Investment Grade....................... 0.15 0.40 0.90 1.40 2.20
Second Highest Investment Grade................ 0.20 0.45 1.00 1.45 2.30
Third Highest Investment Grade................. 0.70 1.10 1.60 2.05 2.95
Fourth Highest Investment Grade................ 2.50 3.70 4.45 5.50 7.05
If Downgraded Below Investment Grade After
Acquisition by Bank:
Highest Below Investment Grade............. 10.00 13.00 13.00 13.00 13.00
Second Highest Below Investment Grade...... 26.00 34.00 34.00 34.00 34.00
[[Page 13]]
All Other.................................. 100.00 100.00 100.00 100.00 100.00
----------------------------------------------------------------------------------------------------------------
Table 1.4--Requirement for Unrated Assets
------------------------------------------------------------------------
Applicable
Type of unrated asset percentage
------------------------------------------------------------------------
Cash....................................................... 0.00
Premises, Plant, and Equipment............................. 8.00
Investments Under Sec. 940.3(e) & (f)..................... 8.00
------------------------------------------------------------------------
(ii) When determining the applicable credit risk percentage
requirement from Tables 1.2 or 1.3 of this part, each Bank shall apply
the following criteria:
(A) For assets or items that are rated directly by an NRSRO, the
credit rating shall be the NRSRO's credit rating for the asset or item
as determined in accordance with paragraph (e)(2)(iii) of this section.
(B) When using Table 1.3 of this part, for an asset, off-balance
sheet item, or derivative contract that is not rated directly by an
NRSRO, but for which an NRSRO rating has been assigned to any
corresponding obligor counterparty, third party guarantor, or collateral
backing the asset, item, or derivative, the credit rating that shall
apply to the asset, item, or derivative, or portion of the asset, item,
or derivative so guaranteed or collateralized, shall be the credit
rating corresponding to such obligor counterparty, third party
guarantor, or underlying collateral, as determined in accordance with
paragraph (e)(2)(iii) of this section. If there are multiple obligor
counterparties, third party guarantors, or collateral instruments
backing an asset, item, or derivative not rated directly by an NRSRO, or
any specific portion thereof, then the credit rating that shall apply to
that asset, item, or derivative or specific portion thereof, shall be
the highest credit rating among such obligor counterparties, third party
guarantors, or collateral instruments, as determined in accordance with
paragraph (e)(2)(iii) of this section. Assets, items or derivatives
shall be deemed to be backed by collateral for purposes of this
paragraph if the collateral is:
(1) Actually held by the Bank or an independent, third-party
custodian, or, if permitted under the Bank's collateral agreement with
such party, by the Bank's member or an affiliate of that member where
the term ``affiliate'' has the same meaning as in Sec. 950.1 of this
chapter;
(2) Legally available to absorb losses;
(3) Of a readily determinable value at which it can be liquidated by
the Bank;
(4) Held in accordance with the provisions of the Bank's member
products policy established pursuant to Sec. 917.4 of this chapter; and
(5) Subject to an appropriate discount to protect against price
decline during the holding period, as well as the costs likely to be
incurred in the liquidation of the collateral.
(C) When using Table 1.3 of this part, for an asset with a short-
term credit rating from a given NRSRO, the credit risk percentage
requirement shall be based on the remaining maturity of the asset and
the long-term credit rating provided for the issuer of the asset by the
same NRSRO. Should the issuer of the short-term asset not have a long-
term credit rating, the long-term equivalent rating shall be determined
as follows:
(1) The highest short-term credit rating shall be equivalent to the
third highest long-term rating;
(2) The second highest short-term rating shall be equivalent to the
fourth highest long-term rating;
(3) The third highest short-term rating shall be equivalent to the
fourth highest long-term rating; and
(4) If the short-term rating is downgraded to below investment grade
after acquisition by the Bank, the short-term rating shall be equivalent
to the second highest below investment grade long-term rating.
[[Page 14]]
(D) For residential mortgage assets and other assets or items, or
relevant portion of an asset or item, that do not meet the requirements
of paragraphs (e)(2)(ii)(A), (e)(2)(ii)(B) or (e)(2)(ii)(C) of this
section, and are not identified in Tables 1.1 or Table 1.4 of this part,
each Bank shall determine its own credit rating for such assets or
items, or relevant portion thereof, using credit rating standards
available from an NRSRO or other similar standards. This credit rating,
as determined by the Bank, shall be used to identify the applicable
credit risk percentage requirement under Table 1.2 of this part for
residential mortgage assets, or under Table 1.3 of this part for all
other assets or items.
(E) The credit risk percentage requirement for mortgage assets that
are acquired member assets described in Sec. 955.2 of this chapter shall
be assigned from Table 1.2 of this part based on the rating of those
assets after taking into account any credit enhancement required by
Sec. 955.3 of this chapter. Should a Bank further enhance a pool of
loans through the purchase of insurance or by some other means, the
credit risk percentage requirement shall be based on the rating of such
pool after the supplemental credit enhancement, except that the Finance
Board retains the right to adjust the credit capital charge to account
for any deficiencies with the supplemental enhancement on a case-by-case
basis.
(iii) In determining the credit ratings under paragraph
(e)(2)(ii)(A), (e)(2)(ii)(B) and (e)(2)(ii)(C) of this section, each
Bank shall apply the following criteria:
(A) The most recent credit rating from a given NRSRO shall be
considered. If only one NRSRO has rated an asset or item, that NRSRO's
rating shall be used. If an asset or item has received credit ratings
from more than one NRSRO, the lowest credit rating from among those
NRSROs shall be used.
(B) Where a credit rating has a modifier (e.g., A-1 + for short-term
ratings and A + or A- for long-term ratings) the credit rating is deemed
to be the credit rating without the modifier (e.g., A-1 + = A-1 and A +
or A-= A);
(f) Calculation of credit equivalent amount for off-balance sheet
items--(1) General requirement. The credit equivalent amount for an off-
balance sheet item shall be determined by a Finance Board approved model
or shall be equal to the face amount of the instrument multiplied by the
credit conversion factor assigned to such risk category of instruments,
subject to the exceptions in paragraph (f)(2) of this section, provided
in the following Table 2 of this part:
Table 2--Credit Conversion Factors for Off-Balance Sheet Items
------------------------------------------------------------------------
Credit
conversion
Instrument factor (In
percent)
------------------------------------------------------------------------
Asset sales with recourse where the credit risk remains 100
with the Bank..........................................
Commitments to make advances subject to certain drawdown
Commitments to acquire loans subject to certain drawdown
Standby letters of credit............................... 50
Other commitments with original maturity of over one
year...................................................
Other commitments with original maturity of one year or 20
less...................................................
------------------------------------------------------------------------
(2) Exceptions. The credit conversion factor shall be zero for Other
Commitments With Original Maturity of Over One Year and Other
Commitments With Original Maturity of One Year or Less, for which credit
conversion factors of 50 percent or 20 percent would otherwise apply,
that are unconditionally cancelable, or that effectively provide for
automatic cancellation, due to the deterioration in a borrower's
creditworthiness, at any time by the Bank without prior notice.
(g) Calculation of current and potential future credit exposures for
single derivative contracts--(1) Current credit exposure. The current
credit exposure for a derivative contract that is not subject to a
qualifying bilateral netting contract described in paragraph (h)(3) of
this section shall be:
(i) If the mark-to-market value of the contract is positive, the
mark-to-market value of the contract; or
(ii) If the mark-to-market value of the contract is zero or
negative, zero.
(2) Potential future credit exposure. (i) The potential future
credit exposure
[[Page 15]]
for a single derivative contract, including a derivative contract with a
negative mark-to-market value, shall be calculated using an internal
model approved by the Finance Board or, in the alternative, by
multiplying the effective notional amount of the derivative contract by
one of the assigned credit conversion factors, modified as may be
required by paragraph (g)(2)(ii) of this section, for the appropriate
category as provided in the following Table 3 of this part:
Table 3--Credit Conversion Factors for Potential Future Credit Exposure Derivative Contracts
[In percent]
----------------------------------------------------------------------------------------------------------------
Foreign Precious
Residual maturity Interest exchange and Equity metals Other
rate gold except gold commodities
----------------------------------------------------------------------------------------------------------------
One year or less............................. 0 1 6 7 10
Over 1 year to five years.................... .5 5 8 7 12
Over five years.............................. 1.5 7.5 10 8 15
----------------------------------------------------------------------------------------------------------------
(ii) In applying the credit conversion factors in Table 3 of this
part the following modifications shall be made:
(A) For derivative contracts with multiple exchanges of principal,
the conversion factors are multiplied by the number of remaining
payments in the derivative contract; and
(B) For derivative contracts that automatically reset to zero value
following a payment, the residual maturity equals the time until the
next payment; however, interest rate contracts with remaining maturities
of greater than one year shall be subject to a minimum conversion factor
of 0.5 percent.
(iii) If a Bank uses an internal model to determine the potential
future credit exposure for a particular type of derivative contract, the
Bank shall use the same model for all other similar types of contracts.
However, the Bank may use an internal model for one type of derivative
contract and Table 3 of this part for another type of derivative
contract.
(iv) Forwards, swaps, purchased options and similar derivative
contracts not included in the Interest Rate, Foreign Exchange and Gold,
Equity, or Precious Metals Except Gold categories shall be treated as
other commodities contracts when determining potential future credit
exposures using Table 3 of this part.
(v) If a Bank uses Table 3 of this part to determine the potential
future credit exposures for credit derivative contracts, the credit
conversion factors provided in Table 3 for equity contracts shall also
apply to the credit derivative contracts entered into with investment
grade counterparties. If the counterparty is downgraded to below
investment grade, the credit conversion factor provided in Table 3 of
this part for other commodity contracts shall apply.
(h) Calculation of current and potential future credit exposures for
multiple derivative contracts subject to a qualifying bilateral netting
contract--(1) Current credit exposure. The current credit exposure for
multiple derivative contracts executed with a single counterparty and
subject to a qualifying bilateral netting contract described in
paragraph (h)(3) of this section, shall be calculated on a net basis and
shall equal:
(i) The net sum of all positive and negative mark-to-market values
of the individual derivative contracts subject to a qualifying bilateral
netting contract, if the net sum of the mark-to-market values is
positive; or
(ii) Zero, if the net sum of the mark-to-market values is zero or
negative.
(2) Potential future credit exposure. The potential future credit
exposure for each individual derivative contract from among a group of
derivative contracts that are executed with a single counterparty and
subject to a qualifying bilateral netting contract described in
paragraph (h)(3) of this section shall be calculated as follows:
Anet = 0.4 x Agross + (0.6 x NGR x
Agross),
where:
[[Page 16]]
(i) Anet is the potential future credit exposure for an
individual derivative contract subject to the qualifying bilateral
netting contract;
(ii) Agross is the gross potential future credit
exposure, i.e., the potential future credit exposure for the individual
derivative contract, calculated in accordance with paragraph (g)(2) of
this section but without regard to the fact that the contract is subject
to the qualifying bilateral netting contract;
(iii) NGR is the net to gross ratio, i.e., the ratio of the net
current credit exposure of all the derivative contracts subject to the
qualifying bilateral netting contract, calculated in accordance with
paragraph (h)(1) of this section, to the gross current credit exposure;
and
(iv) The gross current credit exposure is the sum of the positive
current credit exposures of all the individual derivative contracts
subject to the qualifying bilateral netting contract, calculated in
accordance with paragraph (g)(1) of this section but without regard to
the fact that the contract is subject to the qualifying bilateral
netting contract.
(3) Qualifying bilateral netting contract. A bilateral netting
contract shall be considered a qualifying bilateral netting contract if
the following conditions are met:
(i) The netting contract is in writing;
(ii) The netting contract is not subject to a walkaway clause;
(iii) The netting contract provides that the Bank would have a
single legal claim or obligation either to receive or to pay only the
net amount of the sum of the positive and negative mark-to-market values
on the individual derivative contracts covered by the netting contract
in the event that a counterparty, or a counterparty to whom the netting
contract has been assigned, fails to perform due to default, insolvency,
bankruptcy, or other similar circumstance;
(iv) The Bank obtains a written and reasoned legal opinion that
represents, with a high degree of certainty, that in the event of a
legal challenge, including one resulting from default, insolvency,
bankruptcy, or similar circumstances, the relevant court and
administrative authorities would find the Bank's exposure to be the net
amount under:
(A) The law of the jurisdiction by which the counterparty is
chartered or the equivalent location in the case of non-corporate
entities, and if a branch of the counterparty is involved, then also
under the law of the jurisdiction in which the branch is located;
(B) The law of the jurisdiction that governs the individual
derivative contracts covered by the netting contract; and
(C) The law of the jurisdiction that governs the netting contract;
(v) The Bank establishes and maintains procedures to monitor
possible changes in relevant law and to ensure that the netting contract
continues to satisfy the requirements of this section; and
(vi) The Bank maintains in its files documentation adequate to
support the netting of a derivative contract.
(i) Credit risk capital charge for assets hedged with credit
derivatives--(1) Credit derivatives with a remaining maturity of one
year or more. The credit risk capital charge for an asset that is hedged
with a credit derivative that has a remaining maturity of one year or
more may be reduced only in accordance with paragraph (i)(3) or (i)(4)
of this section and only if the credit derivative provides substantial
protection against credit losses.
(2) Credit derivatives with a remaining maturity of less than one
year. The credit risk capital charge for an asset that is hedged with a
credit derivative that has a remaining maturity of less than one year
may be reduced only in accordance with paragraph (i)(3) of this section
and only if the remaining maturity on the credit derivative is identical
to or exceeds the remaining maturity of the hedged asset and the credit
derivative provides substantial protection against credit losses.
(3) Capital charge reduced to zero. The credit risk capital charge
for an asset shall be zero if a credit derivative is used to hedge the
credit risk on that asset in accordance with paragraph (i)(1) or (i)(2)
of this section, provided that:
(i) The remaining maturity for the credit derivative used for the
hedge is identical to or exceeds the remaining
[[Page 17]]
maturity for the hedged asset, and either:
(A) The asset referenced in the credit derivative is identical to
the hedged asset; or
(B) The asset referenced in the credit derivative is different from
the hedged asset, but only if the asset referenced in the credit
derivative and the hedged asset have been issued by the same obligor,
the asset referenced in the credit derivative ranks pari passu to or
more junior than the hedged asset and has the same maturity as the
hedged asset, and cross-default clauses apply; and
(ii) The credit risk capital charge for the credit derivative
contract calculated pursuant to paragraph (d) of this section is still
applied.
(4) Capital charge reduction in certain other cases. The credit risk
capital charge for an asset hedged with a credit derivative in
accordance with paragraph (i)(1) of this section shall equal the sum of
the credit risk capital charges for the hedged and unhedged portion of
the asset provided that:
(i) The remaining maturity for the credit derivative is less than
the remaining maturity for the hedged asset and either:
(A) The asset referenced in the credit derivative is identical to
the hedged asset; or
(B) The asset referenced in the credit derivative is different from
the hedged asset, but only if the asset referenced in the credit
derivative and the hedged asset have been issued by the same obligor,
the asset referenced in the credit derivative ranks pari passu to or
more junior than the hedged asset and has the same maturity as the
hedged asset, and cross-default clauses apply; and
(ii) The credit risk capital charge for the unhedged portion of the
asset equals:
(A) The credit risk capital charge for the hedged asset, calculated
as the book value of the hedged asset multiplied by the hedged asset's
credit risk percentage requirement assigned pursuant to paragraph (e)(2)
of this section where the appropriate credit rating is that for the
hedged asset and the appropriate maturity is the remaining maturity of
the hedged asset; minus
(B) The credit risk capital charge for the hedged asset, calculated
as the book value of the hedged asset multiplied by the hedged asset's
credit risk percentage requirement assigned pursuant to paragraph (e)(2)
of this section where the appropriate credit rating is that for the
hedged asset but the appropriate maturity is deemed to be the remaining
maturity of the credit derivative; and
(iii) The credit risk capital charge for the hedged portion of the
asset is equal to the credit risk capital charge for the credit
derivative, calculated in accordance with paragraph (d) of this section.
(j) Zero Credit risk capital charge for certain derivative
contracts. The credit risk capital charge for the following derivative
contracts shall be zero:
(1) A foreign exchange rate contract with an original maturity of 14
calendar days or less (gold contracts do not qualify for this
exception); and
(2) A derivative contract that is traded on an organized exchange
requiring the daily payment of any variations in the market value of the
contract.
(k) Date of calculations. Unless otherwise directed by the Finance
Board, each Bank shall perform all calculations required by this section
using the assets, off-balance sheet items, and derivative contracts held
by the Bank, and, if applicable, the values or credit ratings of such
assets, items, or derivatives as of the close of business of the last
business day of the month for which the credit risk capital charge is
being calculated.
[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]
Sec. 932.5 Market risk capital requirement.
(a) General requirement. (1) Each Bank's market risk capital
requirement shall equal the sum of:
(i) The market value of the Bank's portfolio at risk from movements
in interest rates, foreign exchange rates, commodity prices, and equity
prices that could occur during periods of market stress, where the
market value of the Bank's portfolio at risk is determined using an
internal market risk model that fulfills the requirements of paragraph
(b) of this section and that has been approved by the Finance Board; and
[[Page 18]]
(ii) The amount, if any, by which the Bank's current market value of
total capital is less than 85 percent of the Bank's book value of total
capital, where:
(A) The current market value of the total capital is calculated by
the Bank using the internal market risk model approved by the Finance
Board under paragraph (d) of this section; and
(B) The book value of total capital is the same as the amount of
total capital reported by the Bank to the Finance Board under Sec. 932.7
of this part.
(2) A Bank may substitute an internal cash flow model to derive a
market risk capital requirement in place of that calculated using an
internal market risk model under paragraph (a)(1) of this section,
provided that:
(i) The Bank obtains Finance Board approval of the internal cash
flow model and of the assumptions to be applied to the model; and
(ii) The Bank demonstrates to the Finance Board that the internal
cash flow model subjects the Bank's assets and liabilities, off-balance
sheet items and derivative contracts, including related options, to a
comparable degree of stress for such factors as will be required for an
internal market risk model.
(b) Measurement of market value at risk under a Bank's internal
market risk model. (1) Except as provided under paragraph (a)(2) of this
section, each Bank shall use an internal market risk model that
estimates the market value of the Bank's assets and liabilities, off-
balance sheet items, and derivative contracts, including any related
options, and measures the market value of the Bank's portfolio at risk
of its assets and liabilities, off-balance sheet items, and derivative
contracts, including related options, from all sources of the Bank's
market risks, except that the Bank's model need only incorporate those
risks that are material.
(2) The Bank's internal market risk model may use any generally
accepted measurement technique, such as variance-covariance models,
historical simulations, or Monte Carlo simulations, for estimating the
market value of the Bank's portfolio at risk, provided that any
measurement technique used must cover the Bank's material risks.
(3) The measures of the market value of the Bank's portfolio at risk
shall include the risks arising from the non-linear price
characteristics of options and the sensitivity of the market value of
options to changes in the volatility of the options' underlying rates or
prices.
(4) The Bank's internal market risk model shall use interest rate
and market price scenarios for estimating the market value of the Bank's
portfolio at risk, but at a minimum:
(i) The Bank's internal market risk model shall provide an estimate
of the market value of the Bank's portfolio at risk such that the
probability of a loss greater than that estimated shall be no more than
one percent;
(ii) The Bank's internal market risk model shall incorporate
scenarios that reflect changes in interest rates, interest rate
volatility, and shape of the yield curve, and changes in market prices,
equivalent to those that have been observed over 120-business day
periods of market stress. For interest rates, the relevant historical
observations should be drawn from the period that starts at the end of
the previous month and goes back to the beginning of 1978;
(iii) The total number of, and specific historical observations
identified by the Bank as, stress scenarios shall be:
(A) Satisfactory to the Finance Board;
(B) Representative of the periods of the greatest potential market
stress given the Bank's portfolio, and
(C) Comprehensive given the modeling capabilities available to the
Bank; and
(iv) The measure of the market value of the Bank's portfolio at risk
may incorporate empirical correlations among interest rates.
(5) For any consolidated obligations denominated in a currency other
than U.S. Dollars or linked to equity or commodity prices, each Bank
shall, in addition to fulfilling the criteria of paragraph (b)(4) of
this section, calculate an estimate of the market value of its portfolio
at risk due to the material foreign exchange, equity price or commodity
price risk, such that, at a minimum:
[[Page 19]]
(i) The probability of a loss greater than that estimated shall not
exceed one percent;
(ii) The scenarios reflect changes in foreign exchange, equity, or
commodity market prices that have been observed over 120-business day
periods of market stress, as determined using historical data that is
from an appropriate period; and
(iii) The total number of, and specific historical observations
identified by the Bank as, stress scenarios shall be:
(A) Satisfactory to the Finance Board;
(B) Representative of the periods of greatest potential stress given
the Bank's portfolio; and
(C) Comprehensive given the modeling capabilities available to the
Bank; and
(iv) The measure of the market value of the Bank's portfolio at risk
may incorporate empirical correlations within or among foreign exchange
rates, equity prices, or commodity prices.
(c) Independent validation of Bank internal market risk model or
internal cash flow model. (1) Each Bank shall conduct an independent
validation of its internal market risk model or internal cash flow model
within the Bank that is carried out by personnel not reporting to the
business line responsible for conducting business transactions for the
Bank. Alternatively, the Bank may obtain independent validation by an
outside party qualified to make such determinations. Validations shall
be done on an annual basis, or more frequently as required by the
Finance Board.
(2) The results of such independent validations shall be reviewed by
the Bank's board of directors and provided promptly to the Finance
Board.
(d) Finance Board approval of Bank internal market risk model or
internal cash flow model. Each Bank shall obtain Finance Board approval
of an internal market risk model or an internal cash flow model,
including subsequent material adjustments to the model made by the Bank,
prior to the use of any model. Each Bank shall make such adjustments to
its model as may be directed by the Finance Board.
(e) Date of calculations. Unless otherwise directed by the Finance
Board, each Bank shall perform any calculations or estimates required
under this section using the assets and liabilities, off-balance sheet
items, and derivative contracts held by the Bank, and if applicable, the
values of any such holdings, as of the close of business of the last
business day of the month for which the market risk capital requirement
is being calculated.
Sec. 932.6 Operations risk capital requirement.
(a) General requirement. Except as authorized under paragraph (b) of
this section, each Bank's operations risk capital requirement shall at
all times equal 30 percent of the sum of the Bank's credit risk capital
requirement and market risk capital requirement.
(b) Alternative requirements. With the approval of the Finance
Board, each Bank may have an operations risk capital requirement equal
to less than 30 percent but no less than 10 percent of the sum of the
Bank's credit risk capital requirement and market risk capital
requirement if:
(1) The Bank provides an alternative methodology for assessing and
quantifying an operations risk capital requirement; or
(2) The Bank obtains insurance to cover operations risk from an
insurer rated at least the second highest investment grade credit rating
by an NRSRO.
Sec. 932.7 Reporting requirements.
Each Bank shall report to the Finance Board by the 15th business day
of each month its risk-based capital requirement by component amounts,
and its actual total capital amount and permanent capital amount,
calculated as of the close of business of the last business day of the
preceding month, or more frequently, as may be required by the Finance
Board.
Sec. 932.8 Minimum liquidity requirements.
In addition to meeting the deposit liquidity requirements contained
in Sec. 965.3 of this chapter, each Bank shall hold contingency
liquidity in an amount sufficient to enable the Bank to meet its
liquidity needs, which
[[Page 20]]
shall, at a minimum, cover five business days of inability to access the
consolidated obligation debt markets. An asset that has been pledged
under a repurchase agreement cannot be used to satisfy minimum liquidity
requirements.
Sec. 932.9 Limits on unsecured extensions of credit to one counterparty
or affiliated counterparties; reporting requirements for total extensions
of credit to one counterparty or affiliated counterparties.
(a) Unsecured extensions of credit to a single counterparty. A Bank
shall not extend unsecured credit to any single counterparty (other than
a GSE) in an amount that would exceed the limits of this paragraph. A
Bank shall not extend unsecured credit to a GSE in an amount that would
exceed the limits set forth in paragraph (c) of this section. If a
third-party provides an irrevocable, unconditional guarantee of
repayment of a credit (or any part thereof), the third-party guarantor
shall be considered the counterparty for purposes of calculating and
applying the unsecured credit limits of this section with respect the to
guaranteed portion of the transaction.
(1) Term limits. All unsecured extensions of credit by a Bank to a
single counterparty that arise from the Bank's on- and off-balance sheet
and derivative transactions (but excluding the amount of sales of
federal funds with a maturity of one day or less and sales of federal
funds subject to a continuing contract) shall not exceed the product of
the maximum capital exposure limit applicable to such counterparty, as
determined in accordance with paragraph (a)(4) of this section and Table
4 of this part, multiplied by the lesser of:
(i) The Bank's total capital; or
(ii) The counterparty's Tier 1 capital, or if Tier 1 capital is not
available, total capital (as defined by the counterparty's principal
regulator) or some similar comparable measure identified by the Bank.
(2) Overall limits including sales of overnight federal funds. All
unsecured extensions of credit by a Bank to a single counterparty that
arise from the Bank's on- and off-balance sheet and derivative
transactions, including the amounts of sales of federal funds with a
maturity of one day or less and sales of federal funds subject to a
continuing contract, shall not exceed twice the limit calculated
pursuant to paragraph (a)(1) of this section.
(3) Limits for certain obligations issued by state, local or tribal
governmental agencies. The term limit set forth in paragraph (a)(1) of
this section when applied to the marketable direct obligations of state,
local or tribal government unit or agencies that are acquired member
assets identified in Sec. 955.2(a)(3) of this chapter or are otherwise
excluded from the prohibition against investments in whole mortgages or
whole loan or interests in such mortgages or loans by
Sec. 956.3(a)(4)(iii) of this chapter shall be calculated based on the
Bank's total capital and the credit rating assigned to the particular
obligation as determined in accordance with paragraph (a)(5) of this
section. If a Bank owns series or classes of obligations issued by a
particular state, local or tribal government unit or agency or has
extended other forms of unsecured credit to such entity falling into
different rating categories, the total amount of unsecured credit
extended by the Bank to that government unit or agency shall not exceed
the term limit associated with the highest-rated obligation issued by
the entity and actually purchased by the Bank.
(4) Bank determination of applicable maximum capital exposure
limits. (i) Except as set forth in paragraph (a)(4)(ii) or (a)(4)(iii)
of this section, the applicable maximum capital exposure limits are
assigned to each counterparty based upon the long-term credit rating of
the counterparty, as determined in accordance with paragraph (a)(5) of
this section, and are provided in the following Table 4 of this part:
Table 4--Maximum Limits on Unsecured Extensions of Credit to a Single
Counterparty by Counterparty Long-Term Credit Rating Category
------------------------------------------------------------------------
Maximum
capital
Long-term credit rating of counterparty category exposure limit
(in percent)
------------------------------------------------------------------------
Highest Investment Grade................................ 15
Second Highest Investment Grade......................... 14
Third Highest Investment Grade.......................... 9
[[Page 21]]
Fourth Highest Investment Grade......................... 3
Below Investment Grade or Other......................... 1
------------------------------------------------------------------------
(ii) If a counterparty does not have a long-term credit rating but
has received a short-term credit rating from an NRSRO, the maximum
capital exposure limit applicable to that counterparty shall be based
upon the short-term credit rating, as determined in accordance with
paragraph (a)(5) of this section, as follows:
(A) The highest short-term investment grade credit rating shall
correspond to the maximum capital exposure limit provided in Table 4 of
this part for the third highest long-term investment grade rating;
(B) The second highest short-term investment grade rating shall
correspond to the maximum capital exposure limit provided in Table 4 of
this part for the fourth highest long-term investment grade rating; and
(C) The third highest short-term investment grade rating shall
correspond to the maximum capital exposure limit provided in Table 4 of
this part for the fourth highest long-term investment grade rating.
(iii) If a specific debt obligation issued by a counterparty
receives a credit rating from an NRSRO that is lower than the
counterparty's long-term credit rating, the total amount of the lower-
rated obligation held by the Bank may not exceed a sub-limit calculated
in accordance with paragraph (a)(1) of this section, except that the
Bank shall use the credit rating associated with the specific obligation
to determine the applicable maximum capital exposure limit. For purposes
of this paragraph, the credit rating of the debt obligation shall be
determined in accordance with paragraph (a)(5) of this section.
(5) Bank determination of applicable credit ratings. The following
criteria shall be applied to determine a counterparty's credit rating:
(i) The counterparty's most recent credit rating from a given NRSRO
shall be considered;
(ii) If only one NRSRO has rated the counterparty, that NRSRO's
rating shall be used. If a counterparty has received credit ratings from
more than one NRSRO, the lowest credit rating from among those NRSROs
shall be used;
(iii) Where a credit rating has a modifier, the credit rating is
deemed to be the credit rating without the modifier;
(iv) If a counterparty is placed on a credit watch for a potential
downgrade by an NRSRO, the credit rating from that NRSRO at the next
lower grade shall be used; and
(v) If a counterparty is not rated by an NRSRO, the Bank shall
determine the applicable credit rating by using credit rating standards
available from an NRSRO or other similar standards.
(b) Unsecured extensions of credit to affiliated counterparties--(1)
In general. The total amount of unsecured extensions of credit by a Bank
to a group of affiliated counterparties that arise from the Bank's on-
and off-balance sheet and derivative transactions, including sales of
federal funds with a maturity of one day or less and sales of federal
funds subject to a continuing contract, shall not exceed thirty percent
of the Bank's total capital.
(2) Relation to individual limits. The aggregate limits calculated
under this paragraph shall apply in addition to the limits on extensions
of unsecured credit to a single counterparty imposed by paragraph (a) of
this section.
(c) Special limits for GSEs--(1) In general. Unsecured extensions of
credit by a Bank to a GSE that arise from the Bank's on- and off-balance
sheet and derivative transactions, including from the purchase of any
subordinated debt subject to the sub-limit set forth in paragraph (c)(2)
of this section, from any sales of federal funds with a maturity of one
day or less and from sales of federal funds subject to a continuing
contract, shall not exceed the lesser of:
(i) The Bank's total capital; or
(ii) The GSE's total capital (as defined by the GSE's principal
regulator) or some similar comparable measure identified by the Bank.
[[Page 22]]
(2) Sub-limit for subordinated debt. The maximum amount of
subordinated debt issued by a GSE and held by a Bank shall not exceed
the term limit calculated under paragraph (a)(1) of this section, except
that a Bank shall use the credit rating of the GSE's subordinated debt
to determine the applicable maximum capital exposure limit. The credit
rating of the subordinated debt shall be determined in accordance with
paragraph (a)(5) of this section.
(3) Limits applying to a GSE after a downgrade. If any NRSRO assigns
a credit rating to any senior debt obligation issued (or to be issued)
by a GSE that is below the highest investment grade or downgrades, or
places on a credit watch for a potential downgrade of the credit rating
on any senior unsecured obligation issued by a GSE to below the highest
investment grade, the special limits on unsecured extensions of credit
under paragraph (c)(1) of this section shall cease to apply, and
instead, the Bank shall calculate the maximum amount of its unsecured
extensions of credit to that GSE in accordance with paragraphs (a)(1)
and (a)(2) of this section.
(4) Extensions of unsecured credit to other Banks. The limits of
this section do not apply to unsecured credit extended by one Bank to
another Bank.
(d) Extensions of unsecured credit after downgrade or placement on
credit watch. If an NRSRO downgrades the credit rating applicable to any
counterparty or places any counterparty on a credit watch for a
potential downgrade, a Bank need not unwind or liquidate any existing
transaction or position with that counterparty that complied with the
limits of this section at the time it was entered. In such a case,
however, a Bank may extend any additional unsecured credit to such a
counterparty only in compliance with the limitations that are calculated
using the lower maximum exposure limits. For the purposes of this
section, the renewal of an existing unsecured extension of credit,
including any decision not to terminate any sales of federal funds
subject to a continuing contract, shall be considered an additional
extension of unsecured credit that can be undertaken only in accordance
with the lower limit.
(e) Reporting requirements--(1) Total unsecured extensions of
credit. Each Bank shall report monthly to the Finance Board the amount
of the Bank's total unsecured extensions of credit arising from on- and
off-balance sheet and derivative transactions to any single counterparty
or group of affiliated counterparties that exceeds 5 percent of:
(i) The Bank's total capital; or
(ii) The counterparty's, or affiliated counterparties' combined,
Tier 1 capital, or if Tier 1 capital is not available, total capital (as
defined by each counterparty's principal regulator) or some similar
comparable measure identified by the Bank.
(2) Total secured and unsecured extensions of credit. Each Bank
shall report monthly to the Finance Board the amount of the Bank's total
secured and unsecured extensions of credit arising from on- and off-
balance sheet and derivative transactions to any single counterparty or
group of affiliated counterparties that exceeds 5 percent of the Bank's
total assets.
(3) Extensions of credit in excess of limits. A Bank shall report
promptly to the Finance Board any extensions of unsecured credit that
exceeds any limit set forth in paragraphs (a), (b) or (c) of this
section. In making this report, a Bank shall provide the name of the
counterparty or group of affiliated counterparties to which the excess
unsecured credit has been extended, the dollar amount of the applicable
limit which has been exceeded, the dollar amount by which the Bank's
extension of unsecured credit exceeds such limit, the dates for which
the Bank was not in compliance with the limit, and, if applicable, a
brief explanation of any extenuating circumstances which caused the
limit to be exceeded.
(f) Measurement of unsecured extensions of credit--(1) In general.
For purposes of this section, unsecured extensions of credit will be
measured as follows:
(i) For on-balance sheet transactions, an amount equal to the sum of
the book value of the item plus net payments due the Bank;
(ii) For off-balance sheet transactions, an amount equal to the
credit
[[Page 23]]
equivalent amount of such item, calculated in accordance with
Sec. 932.4(f) of this part; and
(iii) For derivative transactions, an amount equal to the sum of the
current and potential future credit exposures for the derivative
contract, where those values are calculated in accordance with
Secs. 932.4(g) or 932.4(h) of this part, as applicable, less the amount
of any collateral that is held in accordance with the requirements of
Sec. 932.4(e)(2)(ii)(B) of this part against the credit exposure from
the derivative contract.
(2) Status of debt obligations purchased by the Bank. Any debt
obligation or debt security (other than mortgage-backed securities or
acquired member assets that are identified in Secs. 955.2(a)(1) and (2)
of this chapter) purchased by a Bank shall be considered an unsecured
extension of credit for the purposes of this section, except:
(i) Any amount owed the Bank against which the Bank holds collateral
in accordance with Sec. 932.4(e)(2)(ii)(B) of this part; or
(ii) Any amount which the Finance Board has determined on a case-by-
case basis shall not be considered an unsecured extension of credit.
(g) Obligations of the United States. Obligations of, or guaranteed
by, the United States are not subject to the requirements of this
section.
[66728, Dec. 27, 2002]
SUBCHAPTER F [RESERVED]
[[Page 24]]
SUBCHAPTER G_FEDERAL HOME LOAN BANK ASSETS AND OFF-BALANCE SHEET ITEMS
PART 955_ACQUIRED MEMBER ASSETS--Table of Contents
Sec.
955.1 Definitions.
955.2 Authorization to hold acquired member assets.
955.3 Required credit-risk sharing structure.
955.4 Reporting requirements for acquired member assets.
955.5 Administrative and investment transactions between Banks.
955.6 Risk-based capital requirement for acquired member assets.
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1430, 1430b, 1431.
Source: 65 FR 43981, July 17, 2000, unless otherwise noted.
Effective Date Note: At 81 FR 91688, Dec. 19, 2016, subchapter G,
consisting of part 955, was removed and reserved, effective Jan. 18,
2017.
Sec. 955.1 Definitions.
As used in this part:
Affiliate means any business entity that controls, is controlled by,
or is under common control with, a member.
Expected losses means the base loss scenario in the methodology of
an NRSRO applicable to that type of AMA asset.
Residential real property has the meaning set forth in Sec. 950.1 of
this chapter.
[67 FR 12852, Mar. 20, 2002]
Sec. 955.2 Authorization to hold acquired member assets.
Subject to the requirements of part 980 of this chapter, each Bank
may hold assets acquired from or through Bank System members or housing
associates by means of either a purchase or a funding transaction (AMA),
subject to each of the following requirements:
(a) Loan type requirement. The assets are either:
(1) Whole loans that are eligible to secure advances under
Secs. 950.7(a)(1)(i), (a)(2)(ii), (a)(4), or (b)(1) of this chapter,
excluding:
(i) Single-family mortgages where the loan amount exceeds the limits
established pursuant to 12 U.S.C. 1717(b)(2); and
(ii) Loans made to an entity, or secured by property, not located in
a state;
(2) Whole loans secured by manufactured housing, regardless of
whether such housing qualifies as residential real property; or
(3) State and local housing finance agency bonds;
(b) Member or housing associate nexus requirement. The assets are:
(1) Either:
(i) Originated or issued by, through, or on behalf of a Bank System
member or housing associate, or an affiliate thereof; or
(ii) Held for a valid business purpose by a Bank System member or
housing associate, or an affiliate thereof, prior to acquisition by a
Bank; and
(2) Acquired either:
(i) From a member or housing associate of the acquiring Bank;
(ii) From a member or housing associate of another Bank, pursuant to
an arrangement with that Bank, which, in the case of state and local
finance agency bonds only, may be reached in accordance with the
following process:
(A) The housing finance agency shall first offer the Bank in whose
district the agency is located (local Bank) a right of first refusal to
purchase, or negotiate the terms of, its proposed bond offering;
(B) If the local Bank indicates, within a three day period, that it
will negotiate in good faith to purchase the bonds, the agency may not
offer to sell or negotiate the terms of a purchase with another Bank;
and
(C) If the local Bank declines the offer, or has failed to respond
within the three day period, the acquiring Bank will be considered to
have an arrangement with the local Bank for purposes of this section and
may offer to buy or negotiate the terms of a bond sale with the agency;
(iii) From another Bank; and
[[Page 25]]
(c) Credit risk-sharing requirement. The transactions through which
the Bank acquires the assets either:
(1) Meet the credit risk-sharing requirements of Sec. 955.3 of this
part; or
(2) Were authorized by the Finance Board under section II.B.12 of
the FMP and are within any total dollar cap established by the Finance
Board at the time of such authorization.
Sec. 955.3 Required credit risk-sharing structure.
(a) Determination of necessary credit enhancement. At the earlier of
270 days from the date of the Bank's acquisition of the first loan in a
pool, or the date at which the amount of a pool's assets reaches $100
million, a Bank shall determine the total credit enhancement necessary
to enhance the asset or pool of assets to a credit quality that is
equivalent to that of an instrument having at least the fourth highest
credit rating from an NRSRO, or such higher credit rating as the Bank
may require. The Bank shall make this determination for each AMA product
using a methodology that is confirmed in writing by an NRSRO to be
comparable to a methodology that the NRSRO would use in determining
credit enhancement levels when conducting a rating review of the asset
or pool of assets in a securitization transaction.
(b) Credit risk-sharing structure. A Bank acquiring AMA shall
implement, and have in place at all times, a credit risk-sharing
structure for each AMA product under which a member or housing associate
of the Bank or, with the approval of both Banks, a member or housing
associate of another Bank, provides a sufficient credit enhancement from
the first dollar of credit loss for each asset or pool of assets such
that the acquiring Bank's exposure to credit risk for the life of the
asset or pool of assets is no greater than that of an asset rated in the
fourth highest credit rating category, as determined pursuant to
paragraph (a) of this section, or such higher rating as the acquiring
Bank may require. This credit enhancement structure shall meet the
following requirements:
(1) A portion of the credit enhancement may be provided by:
(i) Contracting with an insurance affiliate of that member or
housing associate to provide an enhancement or undertaking against
losses to the Bank, but only where such insurance is positioned in the
credit enhancement structure so as to cover only losses remaining after
the member or housing associate has borne losses as required under
paragraph (b)(2) of this section;
(ii) Purchasing loan-level insurance, which may include United
States government insurance or guarantee, but only where:
(A) The member or housing associate is legally obligated at all
times to maintain such insurance with an insurer rated not lower than
the second highest credit rating category; and
(B) Such insurance is positioned in the credit enhancement structure
so as to cover only losses remaining after the member or housing
associate has borne losses as required under paragraph (b)(2) of this
section;
(iii) Purchasing pool-level insurance, but only where such
insurance:
(A) Insures that portion of the required credit enhancement
attributable to the geographic concentration and size of the pool; and
(B) Is positioned last in the credit enhancement structure so as to
cover only those losses remaining after all other elements of the credit
enhancement structure have been exhausted; or
(iv) Contracting with another member or housing associate in the
Bank's district or in another Bank's district, pursuant to an
arrangement with that Bank, to provide an enhancement or undertaking
against losses to the Bank in return for some compensation;
(2) The member or housing associate that is providing the credit
enhancement required under paragraph (b)(1) of this section shall in all
cases bear the direct economic consequences of actual credit losses on
the asset or pool of assets:
(i) From the first dollar of loss up to the amount of expected
losses; or
(ii) Immediately following expected losses, but in an amount equal
to or exceeding the amount of expected losses;
(3) The portion of the credit enhancement that is an obligation of a
Bank System member or housing associate shall be fully secured; and
[[Page 26]]
(4) The Bank shall obtain written verification from an NRSRO that
concludes to the satisfaction of the Finance Board, based on the
underlying economic terms of the credit enhancement structure as
represented by the Bank for each AMA product, that either:
(i) The level of credit enhancement provided by the member or
housing associate is generally sufficient to enhance the asset or pool
of assets to a credit quality that is equivalent to that of an
instrument having the fourth highest credit rating from an NRSRO, or
such higher rating as the Bank may require; or
(ii) The methodology used by the Bank for estimating the level of
credit enhancement provided by the member or housing associate is in
accordance with the practices established by the NRSRO.
(c) Timing of NRSRO opinions. For AMA programs already in operation
at the time of the effective date of this rule, a Bank shall have 90
days from the effective date of this rule to obtain the NRSRO
verifications required under paragraphs (a) and (b)(4) of this section.
[65 FR 43981, July 17, 2000, as amended at 67 FR 12852, Mar. 20, 2002]
Sec. 955.4 Reporting requirement for acquired member assets.
Each Bank shall report information related to AMA in accordance with
the instructions provided in the Data Reporting Manual issued by the
Finance Board, as amended from time to time.
[71 FR 35500, June 21, 2006]
Sec. 955.5 Administrative and investment transactions between Banks.
(a) Delegation of administrative duties. A Bank may delegate the
administration of an AMA program to another Bank whose administrative
office has been examined and approved by the Finance Board to process
AMA transactions. The existence of such a delegation, or the possibility
that such a delegation may be made, must be disclosed to any potential
participating member or housing associate as part of any AMA-related
agreements are signed with that member or housing associate.
(b) Terminability of Agreements. Any agreement made between two or
more Banks in connection with any AMA program shall be made terminable
by either party after a reasonable notice period.
(c) Delegation of Pricing Authority. A Bank that has delegated its
AMA pricing function to another Bank shall retain a right to refuse to
acquire AMA at prices it does not consider appropriate.
Sec. 955.6 Risk-based capital requirement for acquired member assets.
(a) General. Each Bank shall hold retained earnings plus general
allowance for losses as support for the credit risk of all AMA estimated
by the Bank to represent a credit risk that is greater than that of
comparable instruments that have received the second highest credit
rating from an NRSRO in an amount equal to or greater than the
outstanding balance of the assets or pools of assets times a factor
associated with the putative credit rating of the assets or pools of
assets as determined by the Finance Board on a case-by-case basis. For
single-family mortgage assets, the factors are as set forth in Table 1
of this part.
Table 1
------------------------------------------------------------------------
Percentage
applicable to on-
Putative rating of single-family mortgage assets balance sheet
equivalent value
of AMA
------------------------------------------------------------------------
Third Highest Investment Grade........................ 0.90
Fourth Highest Investment Grade....................... 1.50
If Downgraded to Below Investment Grade After
Acquisition By Bank:
Highest Below Investment Grade.................... 2.25
Second Highest Below Investment Grade............. 2.60
All Other Below Investment Grade.................. 100.00
------------------------------------------------------------------------
[[Page 27]]
(b) Recalculation of credit enhancement. For risk-based capital
purposes, each Bank shall recalculate the estimated credit rating of a
pool of AMA if there is evidence that a decline in the credit quality of
that pool may have occurred.
SUBCHAPTERS H M [RESERVED]
PARTS 956 999 [RESERVED]
[[Page 29]]
CHAPTER X--BUREAU OF CONSUMER FINANCIAL PROTECTION
--------------------------------------------------------------------
Part Page
1000
[Reserved]
1001 Financial products or services.............. 31
1002 Equal Credit Opportunity Act (Regulation B). 31
1003 Home mortgage disclosure (Regulation C)..... 89
1004 Alternative mortgage transaction parity
(Regulation D).......................... 162
1005 Electronic fund transfers (Regulation E).... 166
1006 Fair Debt Collection Practices Act
(Regulation F).......................... 345
1007 S.A.F.E. Mortgage Licensing Act--Federal
registration of residential mortgage
loan originators (Regulation G)......... 348
1008 S.A.F.E. Mortgage Licensing Act--State
compliance and bureau registration
system (Regulation H)................... 356
1009 Disclosure requirements for depository
institutions lacking Federal deposit
insurance (Regulation I)................ 370
1010 Land registration (Regulation J)............ 372
1011 Purchasers' revocation rights, sales
practices and standards (Regulation K).. 430
1012 Special rules of practice (Regulation L).... 434
1013 Consumer leasing (Regulation M)............. 438
1014 Mortgage acts and practices--Advertising
(Regulation N).......................... 464
1015 Mortgage assistance relief services
(Regulation O).......................... 467
1016 Privacy of consumer financial information
(Regulation P).......................... 474
1022 Fair credit reporting (Regulation V)........ 508
1024 Real Estate Settlement Procedures Act
(Regulation X).......................... 600
1025
[Reserved]
[[Page 31]]
PART 1000 [RESERVED]
PART 1001_FINANCIAL PRODUCTS OR SERVICES--Table of Contents
Sec.
1001.1 Authority and purpose.
1001.2 Definitions.
Authority: 12 U.S.C. 5481(15)(A)(xi); and 12 U.S.C. 5512(b)(1).
Source: 80 FR 37526, June 30, 2015, unless otherwise noted.
Sec. 1001.1 Authority and purpose.
Under 12 U.S.C. 5481(15)(A)(xi), the Bureau is authorized to define
certain financial products or services for purposes of title X of the
Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376 (2010) (Title X) in
addition to those defined in 12 U.S.C. 5481(15)(A)(i)-(x). The purpose
of this part is to implement that authority.
Sec. 1001.2 Definitions.
Except as otherwise provided in Title X, in addition to the
definitions set forth in 12 U.S.C. 5481(15)(A)(i)-(x), the term
``financial product or service'' means, for purposes of Title X:
(a) Extending or brokering leases of an automobile, as automobile is
defined by 12 CFR 1090.108(a), where the lease:
(1) Qualifies as a full-payout lease and a net lease, as provided by
12 CFR 23.3(a), and has an initial term of not less than 90 days, as
provided by 12 CFR 23.11; and
(2) Is not a financial product or service under 12 U.S.C.
5481(15)(A)(ii).
(b) [Reserved]
PART 1002_EQUAL CREDIT OPPORTUNITY ACT (REGULATION B)--Table of Contents
Sec.
1002.1 Authority, scope and purpose.
1002.2 Definitions.
1002.3 Limited exceptions for certain classes of transactions.
1002.4 General rules.
1002.5 Rules concerning requests for information.
1002.6 Rules concerning evaluation of applications.
1002.7 Rules concerning extensions of credit.
1002.8 Special purpose credit programs.
1002.9 Notifications.
1002.10 Furnishing of credit information.
1002.11 Relation to state law.
1002.12 Record retention.
1002.13 Information for monitoring purposes.
1002.14 Rules on providing appraisal reports.
1002.15 Incentives for self-testing and self-correction.
1002.16 Enforcement, penalties and liabilities.
Appendix A to Part 1002--Federal Agencies to be Listed in Adverse Action
Notices
Appendix B to Part 1002--Model Application Forms
Appendix C to Part 1002--Sample Notification Forms
Appendix D to Part 1002--Issuance of Official Interpretations
Supplement I to Part 1002--Official Interpretations
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1691b.
Source: 76 FR 79445, Dec. 21, 2011, unless otherwise noted.
Sec. 1002.1 Authority, scope and purpose.
(a) Authority and scope. This part, known as Regulation B, is issued
by the Bureau of Consumer Financial Protection (Bureau) pursuant to
title VII (Equal Credit Opportunity Act) of the Consumer Credit
Protection Act, as amended (15 U.S.C. 1601 et seq.). Except as otherwise
provided herein, this part applies to all persons who are creditors, as
defined in Sec. 1002.2(l), other than a person excluded from coverage of
this part by section 1029 of the Consumer Financial Protection Act of
2010, title X of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203, 124 Stat. 1376. Information
collection requirements contained in this part have been approved by the
Office of Management and Budget under the provisions of 44 U.S.C. 3501
et seq. and have been assigned OMB No. 3170-0013.
(b) Purpose. The purpose of this part is to promote the availability
of credit to all creditworthy applicants without regard to race, color,
religion, national origin, sex, marital status, or age (provided the
applicant has the capacity to contract); to the fact that all or part of
the applicant's income derives from a public assistance program; or to
the fact that the applicant has in good faith exercised any right under
the
[[Page 32]]
Consumer Credit Protection Act. The regulation prohibits creditor
practices that discriminate on the basis of any of these factors. The
regulation also requires creditors to notify applicants of action taken
on their applications; to report credit history in the names of both
spouses on an account; to retain records of credit applications; to
collect information about the applicant's race and other personal
characteristics in applications for certain dwelling-related loans; and
to provide applicants with copies of appraisal reports used in
connection with credit transactions.
Sec. 1002.2 Definitions.
For the purposes of this part, unless the context indicates
otherwise, the following definitions apply.
(a) Account means an extension of credit. When employed in relation
to an account, the word use refers only to open-end credit.
(b) Act means the Equal Credit Opportunity Act (Title VII of the
Consumer Credit Protection Act).
(c) Adverse action. (1) The term means:
(i) A refusal to grant credit in substantially the amount or on
substantially the terms requested in an application unless the creditor
makes a counteroffer (to grant credit in a different amount or on other
terms) and the applicant uses or expressly accepts the credit offered;
(ii) A termination of an account or an unfavorable change in the
terms of an account that does not affect all or substantially all of a
class of the creditor's accounts; or
(iii) A refusal to increase the amount of credit available to an
applicant who has made an application for an increase.
(2) The term does not include:
(i) A change in the terms of an account expressly agreed to by an
applicant;
(ii) Any action or forbearance relating to an account taken in
connection with inactivity, default, or delinquency as to that account;
(iii) A refusal or failure to authorize an account transaction at
point of sale or loan, except when the refusal is a termination or an
unfavorable change in the terms of an account that does not affect all
or substantially all of a class of the creditor's accounts, or when the
refusal is a denial of an application for an increase in the amount of
credit available under the account;
(iv) A refusal to extend credit because applicable law prohibits the
creditor from extending the credit requested; or
(v) A refusal to extend credit because the creditor does not offer
the type of credit or credit plan requested.
(3) An action that falls within the definition of both paragraphs
(c)(1) and (c)(2) of this section is governed by paragraph (c)(2) of
this section.
(d) Age refers only to the age of natural persons and means the
number of fully elapsed years from the date of an applicant's birth.
(e) Applicant means any person who requests or who has received an
extension of credit from a creditor, and includes any person who is or
may become contractually liable regarding an extension of credit. For
purposes of Sec. 1002.7(d), the term includes guarantors, sureties,
endorsers, and similar parties.
(f) Application means an oral or written request for an extension of
credit that is made in accordance with procedures used by a creditor for
the type of credit requested. The term application does not include the
use of an account or line of credit to obtain an amount of credit that
is within a previously established credit limit. A completed application
means an application in connection with which a creditor has received
all the information that the creditor regularly obtains and considers in
evaluating applications for the amount and type of credit requested
(including, but not limited to, credit reports, any additional
information requested from the applicant, and any approvals or reports
by governmental agencies or other persons that are necessary to
guarantee, insure, or provide security for the credit or collateral).
The creditor shall exercise reasonable diligence in obtaining such
information.
[[Page 33]]
(g) Business credit refers to extensions of credit primarily for
business or commercial (including agricultural) purposes, but excluding
extensions of credit of the types described in Secs. 1002.3(a)-(d).
(h) Consumer credit means credit extended to a natural person
primarily for personal, family, or household purposes.
(i) Contractually liable means expressly obligated to repay all
debts arising on an account by reason of an agreement to that effect.
(j) Credit means the right granted by a creditor to an applicant to
defer payment of a debt, incur debt and defer its payment, or purchase
property or services and defer payment therefor.
(k) Credit card means any card, plate, coupon book, or other single
credit device that may be used from time to time to obtain money,
property, or services on credit.
(l) Creditor means a person who, in the ordinary course of business,
regularly participates in a credit decision, including setting the terms
of the credit. The term creditor includes a creditor's assignee,
transferee, or subrogee who so participates. For purposes of
Secs. 1002.4(a) and (b), the term creditor also includes a person who,
in the ordinary course of business, regularly refers applicants or
prospective applicants to creditors, or selects or offers to select
creditors to whom requests for credit may be made. A person is not a
creditor regarding any violation of the Act or this part committed by
another creditor unless the person knew or had reasonable notice of the
act, policy, or practice that constituted the violation before becoming
involved in the credit transaction. The term does not include a person
whose only participation in a credit transaction involves honoring a
credit card.
(m) Credit transaction means every aspect of an applicant's dealings
with a creditor regarding an application for credit or an existing
extension of credit (including, but not limited to, information
requirements; investigation procedures; standards of creditworthiness;
terms of credit; furnishing of credit information; revocation,
alteration, or termination of credit; and collection procedures).
(n) Discriminate against an applicant means to treat an applicant
less favorably than other applicants.
(o) Elderly means age 62 or older.
(p) Empirically derived and other credit scoring systems--(1) A
credit scoring system is a system that evaluates an applicant's
creditworthiness mechanically, based on key attributes of the applicant
and aspects of the transaction, and that determines, alone or in
conjunction with an evaluation of additional information about the
applicant, whether an applicant is deemed creditworthy. To qualify as an
empirically derived, demonstrably and statistically sound, credit
scoring system, the system must be:
(i) Based on data that are derived from an empirical comparison of
sample groups or the population of creditworthy and non-creditworthy
applicants who applied for credit within a reasonable preceding period
of time;
(ii) Developed for the purpose of evaluating the creditworthiness of
applicants with respect to the legitimate business interests of the
creditor utilizing the system (including, but not limited to, minimizing
bad debt losses and operating expenses in accordance with the creditor's
business judgment);
(iii) Developed and validated using accepted statistical principles
and methodology; and
(iv) Periodically revalidated by the use of appropriate statistical
principles and methodology and adjusted as necessary to maintain
predictive ability.
(2) A creditor may use an empirically derived, demonstrably and
statistically sound, credit scoring system obtained from another person
or may obtain credit experience from which to develop such a system. Any
such system must satisfy the criteria set forth in paragraph (p)(1)(i)
through (iv) of this section; if the creditor is unable during the
development process to validate the system based on its own credit
experience in accordance with paragraph (p)(1) of this section, the
system must be validated when sufficient credit experience becomes
available. A system that fails this validity test is no longer an
empirically derived, demonstrably and statistically sound, credit
scoring system for that creditor.
[[Page 34]]
(q) Extend credit and extension of credit mean the granting of
credit in any form (including, but not limited to, credit granted in
addition to any existing credit or credit limit; credit granted pursuant
to an open-end credit plan; the refinancing or other renewal of credit,
including the issuance of a new credit card in place of an expiring
credit card or in substitution for an existing credit card; the
consolidation of two or more obligations; or the continuance of existing
credit without any special effort to collect at or after maturity).
(r) Good faith means honesty in fact in the conduct or transaction.
(s) Inadvertent error means a mechanical, electronic, or clerical
error that a creditor demonstrates was not intentional and occurred
notwithstanding the maintenance of procedures reasonably adapted to
avoid such errors.
(t) Judgmental system of evaluating applicants means any system for
evaluating the creditworthiness of an applicant other than an
empirically derived, demonstrably and statistically sound, credit
scoring system.
(u) Marital status means the state of being unmarried, married, or
separated, as defined by applicable state law. The term ``unmarried''
includes persons who are single, divorced, or widowed.
(v) Negative factor or value, in relation to the age of elderly
applicants, means utilizing a factor, value, or weight that is less
favorable regarding elderly applicants than the creditor's experience
warrants or is less favorable than the factor, value, or weight assigned
to the class of applicants that are not classified as elderly and are
most favored by a creditor on the basis of age.
(w) Open-end credit means credit extended under a plan in which a
creditor may permit an applicant to make purchases or obtain loans from
time to time directly from the creditor or indirectly by use of a credit
card, check, or other device.
(x) Person means a natural person, corporation, government or
governmental subdivision or agency, trust, estate, partnership,
cooperative, or association.
(y) Pertinent element of creditworthiness, in relation to a
judgmental system of evaluating applicants, means any information about
applicants that a creditor obtains and considers and that has a
demonstrable relationship to a determination of creditworthiness.
(z) Prohibited basis means race, color, religion, national origin,
sex, marital status, or age (provided that the applicant has the
capacity to enter into a binding contract); the fact that all or part of
the applicant's income derives from any public assistance program; or
the fact that the applicant has in good faith exercised any right under
the Consumer Credit Protection Act or any state law upon which an
exemption has been granted by the Bureau.
(aa) State means any state, the District of Columbia, the
Commonwealth of Puerto Rico, or any territory or possession of the
United States.
Sec. 1002.3 Limited exceptions for certain classes of transactions.
(a) Public utilities credit--(1) Definition. Public utilities credit
refers to extensions of credit that involve public utility services
provided through pipe, wire, or other connected facilities, or radio or
similar transmission (including extensions of such facilities), if the
charges for service, delayed payment, and any discount for prompt
payment are filed with or regulated by a government unit.
(2) Exceptions. The following provisions of this part do not apply
to public utilities credit:
(i) Section 1002.5(d)(1) concerning information about marital
status; and
(ii) Section 1002.12(b) relating to record retention.
(b) Securities credit--(1) Definition. Securities credit refers to
extensions of credit subject to regulation under section 7 of the
Securities Exchange Act of 1934 or extensions of credit by a broker or
dealer subject to regulation as a broker or dealer under the Securities
Exchange Act of 1934.
(2) Exceptions. The following provisions of this part do not apply
to securities credit:
(i) Section 1002.5(b) concerning information about the sex of an
applicant;
(ii) Section 1002.5(c) concerning information about a spouse or
former spouse;
[[Page 35]]
(iii) Section 1002.5(d)(1) concerning information about marital
status;
(iv) Section 1002.7(b) relating to designation of name to the extent
necessary to comply with rules regarding an account in which a broker or
dealer has an interest, or rules regarding the aggregation of accounts
of spouses to determine controlling interests, beneficial interests,
beneficial ownership, or purchase limitations and restrictions;
(v) Section 1002.7(c) relating to action concerning open-end
accounts, to the extent the action taken is on the basis of a change of
name or marital status;
(vi) Section 1002.7(d) relating to the signature of a spouse or
other person;
(vii) Section 1002.10 relating to furnishing of credit information;
and
(viii) Section 1002.12(b) relating to record retention.
(c) Incidental credit--(1) Definition. Incidental credit refers to
extensions of consumer credit other than the types described in
paragraphs (a) and (b) of this section:
(i) That are not made pursuant to the terms of a credit card
account;
(ii) That are not subject to a finance charge (as defined in
Regulation Z, 12 CFR 1026.4); and
(iii) That are not payable by agreement in more than four
installments.
(2) Exceptions. The following provisions of this part do not apply
to incidental credit:
(i) Section 1002.5(b) concerning information about the sex of an
applicant, but only to the extent necessary for medical records or
similar purposes;
(ii) Section 1002.5(c) concerning information about a spouse or
former spouse;
(iii) Section 1002.5(d)(1) concerning information about marital
status;
(iv) Section 1002.5(d)(2) concerning information about income
derived from alimony, child support, or separate maintenance payments;
(v) Section 1002.7(d) relating to the signature of a spouse or other
person;
(vi) Section 1002.9 relating to notifications;
(vii) Section 1002.10 relating to furnishing of credit information;
and
(viii) Section 1002.12(b) relating to record retention.
(d) Government credit--(1) Definition. Government credit refers to
extensions of credit made to governments or governmental subdivisions,
agencies, or instrumentalities.
(2) Applicability of regulation. Except for Sec. 1002.4(a), the
general rule against discrimination on a prohibited basis, the
requirements of this part do not apply to government credit.
Sec. 1002.4 General rules.
(a) Discrimination. A creditor shall not discriminate against an
applicant on a prohibited basis regarding any aspect of a credit
transaction.
(b) Discouragement. A creditor shall not make any oral or written
statement, in advertising or otherwise, to applicants or prospective
applicants that would discourage on a prohibited basis a reasonable
person from making or pursuing an application.
(c) Written applications. A creditor shall take written applications
for the dwelling-related types of credit covered by Sec. 1002.13(a).
(d) Form of disclosures--(1) General rule. A creditor that provides
in writing any disclosures or information required by this part must
provide the disclosures in a clear and conspicuous manner and, except
for the disclosures required by Secs. 1002.5 and 1002.13, in a form the
applicant may retain.
(2) Disclosures in electronic form. The disclosures required by this
part that are required to be given in writing may be provided to the
applicant 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.).
Where the disclosures under Secs. 1002.5(b)(1), 1002.5(b)(2),
1002.5(d)(1), 1002.5(d)(2), 1002.13, and 1002.14(a)(2) accompany an
application accessed by the applicant in electronic form, these
disclosures may be provided to the applicant in electronic form on or
with the application form, without regard to the consumer consent or
other provisions of the E-Sign Act.
(e) Foreign-language disclosures. Disclosures may be made in
languages
[[Page 36]]
other than English, provided they are available in English upon request.
[76 FR 79445, Dec. 21, 2011, as amended at 78 FR 7248, Jan. 31, 2013]
Sec. 1002.5 Rules concerning requests for information.
(a) General rules--(1) Requests for information. Except as provided
in paragraphs (b) through (d) of this section, a creditor may request
any information in connection with a credit transaction. This paragraph
does not limit or abrogate any Federal or state law regarding privacy,
privileged information, credit reporting limitations, or similar
restrictions on obtainable information.
(2) Required collection of information. Notwithstanding paragraphs
(b) through (d) of this section, a creditor shall request information
for monitoring purposes as required by Sec. 1002.13 for credit secured
by the applicant's dwelling. In addition, a creditor may obtain
information required by a regulation, order, or agreement issued by, or
entered into with, a court or an enforcement agency (including the
Attorney General of the United States or a similar state official) to
monitor or enforce compliance with the Act, this part, or other Federal
or state statutes or regulations.
(3) Special-purpose credit. A creditor may obtain information that
is otherwise restricted to determine eligibility for a special purpose
credit program, as provided in Secs. 1002.8(b), (c), and (d).
(b) Limitation on information about race, color, religion, national
origin, or sex. A creditor shall not inquire about the race, color,
religion, national origin, or sex of an applicant or any other person in
connection with a credit transaction, except as provided in paragraphs
(b)(1) and (b)(2) of this section.
(1) Self-test. A creditor may inquire about the race, color,
religion, national origin, or sex of an applicant or any other person in
connection with a credit transaction for the purpose of conducting a
self-test that meets the requirements of Sec. 1002.15. A creditor that
makes such an inquiry shall disclose orally or in writing, at the time
the information is requested, that:
(i) The applicant will not be required to provide the information;
(ii) The creditor is requesting the information to monitor its
compliance with the Federal Equal Credit Opportunity Act;
(iii) Federal law prohibits the creditor from discriminating on the
basis of this information, or on the basis of an applicant's decision
not to furnish the information; and
(iv) If applicable, certain information will be collected based on
visual observation or surname if not provided by the applicant or other
person.
(2) Sex. An applicant may be requested to designate a title on an
application form (such as Ms., Miss, Mr., or Mrs.) if the form discloses
that the designation of a title is optional. An application form shall
otherwise use only terms that are neutral as to sex.
(c) Information about a spouse or former spouse--(1) General rule.
Except as permitted in this paragraph, a creditor may not request any
information concerning the spouse or former spouse of an applicant.
(2) Permissible inquiries. A creditor may request any information
concerning an applicant's spouse (or former spouse under paragraph
(c)(2)(v) of this section) that may be requested about the applicant if:
(i) The spouse will be permitted to use the account;
(ii) The spouse will be contractually liable on the account;
(iii) The applicant is relying on the spouse's income as a basis for
repayment of the credit requested;
(iv) The applicant resides in a community property state or is
relying on property located in such a state as a basis for repayment of
the credit requested; or
(v) The applicant is relying on alimony, child support, or separate
maintenance payments from a spouse or former spouse as a basis for
repayment of the credit requested.
(3) Other accounts of the applicant. A creditor may request that an
applicant list any account on which the applicant is contractually
liable and to provide the name and address of the person in whose name
the account is held. A creditor may also ask an applicant to list the
names in which the applicant has previously received credit.
[[Page 37]]
(d) Other limitations on information requests--(1) Marital status.
If an applicant applies for individual unsecured credit, a creditor
shall not inquire about the applicant's marital status unless the
applicant resides in a community property state or is relying on
property located in such a state as a basis for repayment of the credit
requested. If an application is for other than individual unsecured
credit, a creditor may inquire about the applicant's marital status, but
shall use only the terms married, unmarried, and separated. A creditor
may explain that the category unmarried includes single, divorced, and
widowed persons.
(2) Disclosure about income from alimony, child support, or separate
maintenance. A creditor shall not inquire whether income stated in an
application is derived from alimony, child support, or separate
maintenance payments unless the creditor discloses to the applicant that
such income need not be revealed if the applicant does not want the
creditor to consider it in determining the applicant's creditworthiness.
(3) Childbearing, childrearing. A creditor shall not inquire about
birth control practices, intentions concerning the bearing or rearing of
children, or capability to bear children. A creditor may inquire about
the number and ages of an applicant's dependents or about dependent-
related financial obligations or expenditures, provided such information
is requested without regard to sex, marital status, or any other
prohibited basis.
(e) Permanent residency and immigration status. A creditor may
inquire about the permanent residency and immigration status of an
applicant or any other person in connection with a credit transaction.
Sec. 1002.6 Rules concerning evaluation of applications.
(a) General rule concerning use of information. Except as otherwise
provided in the Act and this part, a creditor may consider any
information obtained, so long as the information is not used to
discriminate against an applicant on a prohibited basis. The legislative
history of the Act indicates that the Congress intended an ``effects
test'' concept, as outlined in the employment field by the Supreme Court
in the cases of Griggs v. Duke Power Co., 401 U.S. 424 (1971), and
Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975), to be applicable to a
creditor's determination of creditworthiness.
(b) Specific rules concerning use of information. (1) Except as
provided in the Act and this part, a creditor shall not take a
prohibited basis into account in any system of evaluating the
creditworthiness of applicants.
(2) Age, receipt of public assistance. (i) Except as permitted in
this paragraph, a creditor shall not take into account an applicant's
age (provided that the applicant has the capacity to enter into a
binding contract) or whether an applicant's income derives from any
public assistance program.
(ii) In an empirically derived, demonstrably and statistically
sound, credit scoring system, a creditor may use an applicant's age as a
predictive variable, provided that the age of an elderly applicant is
not assigned a negative factor or value.
(iii) In a judgmental system of evaluating creditworthiness, a
creditor may consider an applicant's age or whether an applicant's
income derives from any public assistance program only for the purpose
of determining a pertinent element of creditworthiness.
(iv) In any system of evaluating creditworthiness, a creditor may
consider the age of an elderly applicant when such age is used to favor
the elderly applicant in extending credit.
(3) Childbearing, childrearing. In evaluating creditworthiness, a
creditor shall not make assumptions or use aggregate statistics relating
to the likelihood that any category of persons will bear or rear
children or will, for that reason, receive diminished or interrupted
income in the future.
(4) Telephone listing. A creditor shall not take into account
whether there is a telephone listing in the name of an applicant for
consumer credit but may take into account whether there is a telephone
in the applicant's residence.
(5) Income. A creditor shall not discount or exclude from
consideration the income of an applicant or the spouse of an applicant
because of a prohibited basis or because the income is
[[Page 38]]
derived from part-time employment or is an annuity, pension, or other
retirement benefit; a creditor may consider the amount and probable
continuance of any income in evaluating an applicant's creditworthiness.
When an applicant relies on alimony, child support, or separate
maintenance payments in applying for credit, the creditor shall consider
such payments as income to the extent that they are likely to be
consistently made.
(6) Credit history. To the extent that a creditor considers credit
history in evaluating the creditworthiness of similarly qualified
applicants for a similar type and amount of credit, in evaluating an
applicant's creditworthiness a creditor shall consider:
(i) The credit history, when available, of accounts designated as
accounts that the applicant and the applicant's spouse are permitted to
use or for which both are contractually liable;
(ii) On the applicant's request, any information the applicant may
present that tends to indicate the credit history being considered by
the creditor does not accurately reflect the applicant's
creditworthiness; and
(iii) On the applicant's request, the credit history, when
available, of any account reported in the name of the applicant's spouse
or former spouse that the applicant can demonstrate accurately reflects
the applicant's creditworthiness.
(7) Immigration status. A creditor may consider the applicant's
immigration status or status as a permanent resident of the United
States, and any additional information that may be necessary to
ascertain the creditor's rights and remedies regarding repayment.
(8) Marital status. Except as otherwise permitted or required by
law, a creditor shall evaluate married and unmarried applicants by the
same standards; and in evaluating joint applicants, a creditor shall not
treat applicants differently based on the existence, absence, or
likelihood of a marital relationship between the parties.
(9) Race, color, religion, national origin, sex. Except as otherwise
permitted or required by law, a creditor shall not consider race, color,
religion, national origin, or sex (or an applicant's or other person's
decision not to provide the information) in any aspect of a credit
transaction.
(c) State property laws. A creditor's consideration or application
of state property laws directly or indirectly affecting creditworthiness
does not constitute unlawful discrimination for the purposes of the Act
or this part.
Sec. 1002.7 Rules concerning extensions of credit.
(a) Individual accounts. A creditor shall not refuse to grant an
individual account to a creditworthy applicant on the basis of sex,
marital status, or any other prohibited basis.
(b) Designation of name. A creditor shall not refuse to allow an
applicant to open or maintain an account in a birth-given first name and
a surname that is the applicant's birth-given surname, the spouse's
surname, or a combined surname.
(c) Action concerning existing open-end accounts--(1) Limitations.
In the absence of evidence of the applicant's inability or unwillingness
to repay, a creditor shall not take any of the following actions
regarding an applicant who is contractually liable on an existing open-
end account on the basis of the applicant's reaching a certain age or
retiring or on the basis of a change in the applicant's name or marital
status:
(i) Require a reapplication, except as provided in paragraph (c)(2)
of this section;
(ii) Change the terms of the account; or
(iii) Terminate the account.
(2) Requiring reapplication. A creditor may require a reapplication
for an open-end account on the basis of a change in the marital status
of an applicant who is contractually liable if the credit granted was
based in whole or in part on income of the applicant's spouse and if
information available to the creditor indicates that the applicant's
income may not support the amount of credit currently available.
(d) Signature of spouse or other person--(1) Rule for qualified
applicant. Except as provided in this paragraph, a creditor shall not
require the signature of an applicant's spouse or other person, other
than a joint applicant, on any credit instrument if the applicant
[[Page 39]]
qualifies under the creditor's standards of creditworthiness for the
amount and terms of the credit requested. A creditor shall not deem the
submission of a joint financial statement or other evidence of jointly
held assets as an application for joint credit.
(2) Unsecured credit. If an applicant requests unsecured credit and
relies in part upon property that the applicant owns jointly with
another person to satisfy the creditor's standards of creditworthiness,
the creditor may require the signature of the other person only on the
instrument(s) necessary, or reasonably believed by the creditor to be
necessary, under the law of the state in which the property is located,
to enable the creditor to reach the property being relied upon in the
event of the death or default of the applicant.
(3) Unsecured credit--community property states. If a married
applicant requests unsecured credit and resides in a community property
state, or if the applicant is relying on property located in such a
state, a creditor may require the signature of the spouse on any
instrument necessary, or reasonably believed by the creditor to be
necessary, under applicable state law to make the community property
available to satisfy the debt in the event of default if:
(i) Applicable state law denies the applicant power to manage or
control sufficient community property to qualify for the credit
requested under the creditor's standards of creditworthiness; and
(ii) The applicant does not have sufficient separate property to
qualify for the credit requested without regard to community property.
(4) Secured credit. If an applicant requests secured credit, a
creditor may require the signature of the applicant's spouse or other
person on any instrument necessary, or reasonably believed by the
creditor to be necessary, under applicable state law to make the
property being offered as security available to satisfy the debt in the
event of default, for example, an instrument to create a valid lien,
pass clear title, waive inchoate rights, or assign earnings.
(5) Additional parties. If, under a creditor's standards of
creditworthiness, the personal liability of an additional party is
necessary to support the credit requested, a creditor may request a
cosigner, guarantor, endorser, or similar party. The applicant's spouse
may serve as an additional party, but the creditor shall not require
that the spouse be the additional party.
(6) Rights of additional parties. A creditor shall not impose
requirements upon an additional party that the creditor is prohibited
from imposing upon an applicant under this section.
(e) Insurance. A creditor shall not refuse to extend credit and
shall not terminate an account because credit life, health, accident,
disability, or other credit-related insurance is not available on the
basis of the applicant's age.
Sec. 1002.8 Special purpose credit programs.
(a) Standards for programs. Subject to the provisions of paragraph
(b) of this section, the Act and this part permit a creditor to extend
special purpose credit to applicants who meet eligibility requirements
under the following types of credit programs:
(1) Any credit assistance program expressly authorized by Federal or
state law for the benefit of an economically disadvantaged class of
persons;
(2) Any credit assistance program offered by a not-for-profit
organization, as defined under section 501(c) of the Internal Revenue
Code of 1954, as amended, for the benefit of its members or for the
benefit of an economically disadvantaged class of persons; or
(3) Any special purpose credit program offered by a for-profit
organization, or in which such an organization participates to meet
special social needs, if:
(i) The program is established and administered pursuant to a
written plan that identifies the class of persons that the program is
designed to benefit and sets forth the procedures and standards for
extending credit pursuant to the program; and
(ii) The program is established and administered to extend credit to
a class of persons who, under the organization's customary standards of
creditworthiness, probably would not receive such credit or would
receive it on less
[[Page 40]]
favorable terms than are ordinarily available to other applicants
applying to the organization for a similar type and amount of credit.
(b) Rules in other sections--(1) General applicability. All the
provisions of this part apply to each of the special purpose credit
programs described in paragraph (a) of this section except as modified
by this section.
(2) Common characteristics. A program described in paragraph (a)(2)
or (a)(3) of this section qualifies as a special purpose credit program
only if it was established and is administered so as not to discriminate
against an applicant on any prohibited basis; however, all program
participants may be required to share one or more common characteristics
(for example, race, national origin, or sex) so long as the program was
not established and is not administered with the purpose of evading the
requirements of the Act or this part.
(c) Special rule concerning requests and use of information. If
participants in a special purpose credit program described in paragraph
(a) of this section are required to possess one or more common
characteristics (for example, race, national origin, or sex) and if the
program otherwise satisfies the requirements of paragraph (a) of this
section, a creditor may request and consider information regarding the
common characteristic(s) in determining the applicant's eligibility for
the program.
(d) Special rule in the case of financial need. If financial need is
one of the criteria under a special purpose credit program described in
paragraph (a) of this section, the creditor may request and consider, in
determining an applicant's eligibility for the program, information
regarding the applicant's marital status; alimony, child support, and
separate maintenance income; and the spouse's financial resources. In
addition, a creditor may obtain the signature of an applicant's spouse
or other person on an application or credit instrument relating to a
special purpose credit program if the signature is required by Federal
or state law.
Sec. 1002.9 Notifications.
(a) Notification of action taken, ECOA notice, and statement of
specific reasons--(1) When notification is required. A creditor shall
notify an applicant of action taken within:
(i) 30 days after receiving a completed application concerning the
creditor's approval of, counteroffer to, or adverse action on the
application;
(ii) 30 days after taking adverse action on an incomplete
application, unless notice is provided in accordance with paragraph (c)
of this section;
(iii) 30 days after taking adverse action on an existing account; or
(iv) 90 days after notifying the applicant of a counteroffer if the
applicant does not expressly accept or use the credit offered.
(2) Content of notification when adverse action is taken. A
notification given to an applicant when adverse action is taken shall be
in writing and shall contain a statement of the action taken; the name
and address of the creditor; a statement of the provisions of section
701(a) of the Act; the name and address of the Federal agency that
administers compliance with respect to the creditor; and either:
(i) A statement of specific reasons for the action taken; or
(ii) A disclosure of the applicant's right to a statement of
specific reasons within 30 days, if the statement is requested within 60
days of the creditor's notification. The disclosure shall include the
name, address, and telephone number of the person or office from which
the statement of reasons can be obtained. If the creditor chooses to
provide the reasons orally, the creditor shall also disclose the
applicant's right to have them confirmed in writing within 30 days of
receiving the applicant's written request for confirmation.
(3) Notification to business credit applicants. For business credit,
a creditor shall comply with the notification requirements of this
section in the following manner:
(i) With regard to a business that had gross revenues of $1 million
or less in its preceding fiscal year (other than an extension of trade
credit, credit incident to a factoring agreement, or other similar types
of business credit), a creditor shall comply with paragraphs (a)(1) and
(2) of this section, except that:
[[Page 41]]
(A) The statement of the action taken may be given orally or in
writing, when adverse action is taken;
(B) Disclosure of an applicant's right to a statement of reasons may
be given at the time of application, instead of when adverse action is
taken, provided the disclosure contains the information required by
paragraph (a)(2)(ii) of this section and the ECOA notice specified in
paragraph (b)(1) of this section;
(C) For an application made entirely by telephone, a creditor
satisfies the requirements of paragraph (a)(3)(i) of this section by an
oral statement of the action taken and of the applicant's right to a
statement of reasons for adverse action.
(ii) With regard to a business that had gross revenues in excess of
$1 million in its preceding fiscal year or an extension of trade credit,
credit incident to a factoring agreement, or other similar types of
business credit, a creditor shall:
(A) Notify the applicant, within a reasonable time, orally or in
writing, of the action taken; and
(B) Provide a written statement of the reasons for adverse action
and the ECOA notice specified in paragraph (b)(1) of this section if the
applicant makes a written request for the reasons within 60 days of the
creditor's notification.
(b) Form of ECOA notice and statement of specific reasons--(1) ECOA
notice. To satisfy the disclosure requirements of paragraph (a)(2) of
this section regarding section 701(a) of the Act, the creditor shall
provide a notice that is substantially similar to the following: The
Federal Equal Credit Opportunity Act prohibits creditors from
discriminating against credit applicants on the basis of race, color,
religion, national origin, sex, marital status, age (provided the
applicant has the capacity to enter into a binding contract); because
all or part of the applicant's income derives from any public assistance
program; or because the applicant has in good faith exercised any right
under the Consumer Credit Protection Act. The Federal agency that
administers compliance with this law concerning this creditor is [name
and address as specified by the appropriate agency or agencies listed in
appendix A of this part]. Until January 1, 2013, a creditor may comply
with this paragraph (b)(1) and paragraph (a)(2) of this section by
including in the notice the name and address as specified by the
appropriate agency in appendix A to 12 CFR part 202, as in effect on
October 1, 2011.
(2) Statement of specific reasons. The statement of reasons for
adverse action required by paragraph (a)(2)(i) of this section must be
specific and indicate the principal reason(s) for the adverse action.
Statements that the adverse action was based on the creditor's internal
standards or policies or that the applicant, joint applicant, or similar
party failed to achieve a qualifying score on the creditor's credit
scoring system are insufficient.
(c) Incomplete applications--(1) Notice alternatives. Within 30 days
after receiving an application that is incomplete regarding matters that
an applicant can complete, the creditor shall notify the applicant
either:
(i) Of action taken, in accordance with paragraph (a) of this
section; or
(ii) Of the incompleteness, in accordance with paragraph (c)(2) of
this section.
(2) Notice of incompleteness. If additional information is needed
from an applicant, the creditor shall send a written notice to the
applicant specifying the information needed, designating a reasonable
period of time for the applicant to provide the information, and
informing the applicant that failure to provide the information
requested will result in no further consideration being given to the
application. The creditor shall have no further obligation under this
section if the applicant fails to respond within the designated time
period. If the applicant supplies the requested information within the
designated time period, the creditor shall take action on the
application and notify the applicant in accordance with paragraph (a) of
this section.
(3) Oral request for information. At its option, a creditor may
inform the applicant orally of the need for additional information. If
the application remains incomplete the creditor shall send a notice in
accordance with paragraph (c)(1) of this section.
[[Page 42]]
(d) Oral notifications by small-volume creditors. In the case of a
creditor that did not receive more than 150 applications during the
preceding calendar year, the requirements of this section (including
statements of specific reasons) are satisfied by oral notifications.
(e) Withdrawal of approved application. When an applicant submits an
application and the parties contemplate that the applicant will inquire
about its status, if the creditor approves the application and the
applicant has not inquired within 30 days after applying, the creditor
may treat the application as withdrawn and need not comply with
paragraph (a)(1) of this section.
(f) Multiple applicants. When an application involves more than one
applicant, notification need only be given to one of them but must be
given to the primary applicant where one is readily apparent.
(g) Applications submitted through a third party. When an
application is made on behalf of an applicant to more than one creditor
and the applicant expressly accepts or uses credit offered by one of the
creditors, notification of action taken by any of the other creditors is
not required. If no credit is offered or if the applicant does not
expressly accept or use the credit offered, each creditor taking adverse
action must comply with this section, directly or through a third party.
A notice given by a third party shall disclose the identity of each
creditor on whose behalf the notice is given.
Sec. 1002.10 Furnishing of credit information.
(a) Designation of accounts. A creditor that furnishes credit
information shall designate:
(1) Any new account to reflect the participation of both spouses if
the applicant's spouse is permitted to use or is contractually liable on
the account (other than as a guarantor, surety, endorser, or similar
party); and
(2) Any existing account to reflect such participation, within 90
days after receiving a written request to do so from one of the spouses.
(b) Routine reports to consumer reporting agency. If a creditor
furnishes credit information to a consumer reporting agency concerning
an account designated to reflect the participation of both spouses, the
creditor shall furnish the information in a manner that will enable the
agency to provide access to the information in the name of each spouse.
(c) Reporting in response to inquiry. If a creditor furnishes credit
information in response to an inquiry, concerning an account designated
to reflect the participation of both spouses, the creditor shall furnish
the information in the name of the spouse about whom the information is
requested.
Sec. 1002.11 Relation to state law.
(a) Inconsistent state laws. Except as otherwise provided in this
section, this part alters, affects, or preempts only those state laws
that are inconsistent with the Act and this part and then only to the
extent of the inconsistency. A state law is not inconsistent if it is
more protective of an applicant.
(b) Preempted provisions of state law. (1) A state law is deemed to
be inconsistent with the requirements of the Act and this part and less
protective of an applicant within the meaning of section 705(f) of the
Act to the extent that the law:
(i) Requires or permits a practice or act prohibited by the Act or
this part;
(ii) Prohibits the individual extension of consumer credit to both
parties to a marriage if each spouse individually and voluntarily
applies for such credit;
(iii) Prohibits inquiries or collection of data required to comply
with the Act or this part;
(iv) Prohibits asking about or considering age in an empirically
derived, demonstrably and statistically sound, credit scoring system to
determine a pertinent element of creditworthiness, or to favor an
elderly applicant; or
(v) Prohibits inquiries necessary to establish or administer a
special purpose credit program as defined by Sec. 1002.8.
(2) A creditor, state, or other interested party may request that
the Bureau determine whether a state law is inconsistent with the
requirements of the Act and this part.
(c) Laws on finance charges, loan ceilings. If married applicants
voluntarily
[[Page 43]]
apply for and obtain individual accounts with the same creditor, the
accounts shall not be aggregated or otherwise combined for purposes of
determining permissible finance charges or loan ceilings under any
Federal or state law. Permissible loan ceiling laws shall be construed
to permit each spouse to become individually liable up to the amount of
the loan ceilings, less the amount for which the applicant is jointly
liable.
(d) State and Federal laws not affected. This section does not alter
or annul any provision of state property laws, laws relating to the
disposition of decedents' estates, or Federal or state banking
regulations directed only toward insuring the solvency of financial
institutions.
(e) Exemption for state-regulated transactions--(1) Applications. A
state may apply to the Bureau for an exemption from the requirements of
the Act and this part for any class of credit transactions within the
state. The Bureau will grant such an exemption if the Bureau determines
that:
(i) The class of credit transactions is subject to state law
requirements substantially similar to those of the Act and this part or
that applicants are afforded greater protection under state law; and
(ii) There is adequate provision for state enforcement.
(2) Liability and enforcement. (i) No exemption will extend to the
civil liability provisions of section 706 of the Act or the
administrative enforcement provisions of section 704 of the Act.
(ii) After an exemption has been granted, the requirements of the
applicable state law (except for additional requirements not imposed by
Federal law) will constitute the requirements of the Act and this part.
Sec. 1002.12 Record retention.
(a) Retention of prohibited information. A creditor may retain in
its files information that is prohibited by the Act or this part for use
in evaluating applications, without violating the Act or this part, if
the information was obtained:
(1) From any source prior to March 23, 1977;
(2) From consumer reporting agencies, an applicant, or others
without the specific request of the creditor; or
(3) As required to monitor compliance with the Act and this part or
other Federal or state statutes or regulations.
(b) Preservation of records--(1) Applications. For 25 months (12
months for business credit, except as provided in paragraph (b)(5) of
this section) after the date that a creditor notifies an applicant of
action taken on an application or of incompleteness, the creditor shall
retain in original form or a copy thereof:
(i) Any application that it receives, any information required to be
obtained concerning characteristics of the applicant to monitor
compliance with the Act and this part or other similar law, and any
other written or recorded information used in evaluating the application
and not returned to the applicant at the applicant's request;
(ii) A copy of the following documents if furnished to the applicant
in written form (or, if furnished orally, any notation or memorandum
made by the creditor):
(A) The notification of action taken; and
(B) The statement of specific reasons for adverse action; and
(iii) Any written statement submitted by the applicant alleging a
violation of the Act or this part.
(2) Existing accounts. For 25 months (12 months for business credit,
except as provided in paragraph (b)(5) of this section) after the date
that a creditor notifies an applicant of adverse action regarding an
existing account, the creditor shall retain as to that account, in
original form or a copy thereof:
(i) Any written or recorded information concerning the adverse
action; and
(ii) Any written statement submitted by the applicant alleging a
violation of the Act or this part.
(3) Other applications. For 25 months (12 months for business
credit, except as provided in paragraph (b)(5) of this section) after
the date that a creditor receives an application for which the creditor
is not required to comply with the notification requirements of
[[Page 44]]
Sec. 1002.9, the creditor shall retain all written or recorded
information in its possession concerning the applicant, including any
notation of action taken.
(4) Enforcement proceedings and investigations. A creditor shall
retain the information beyond 25 months (12 months for business credit,
except as provided in paragraph (b)(5) of this section) if the creditor
has actual notice that it is under investigation or is subject to an
enforcement proceeding for an alleged violation of the Act or this part,
by the Attorney General of the United States or by an enforcement agency
charged with monitoring that creditor's compliance with the Act and this
part, or if it has been served with notice of an action filed pursuant
to section 706 of the Act and Sec. 1002.16 of this part. The creditor
shall retain the information until final disposition of the matter,
unless an earlier time is allowed by order of the agency or court.
(5) Special rule for certain business credit applications. With
regard to a business that had gross revenues in excess of $1 million in
its preceding fiscal year, or an extension of trade credit, credit
incident to a factoring agreement, or other similar types of business
credit, the creditor shall retain records for at least 60 days after
notifying the applicant of the action taken. If within that time period
the applicant requests in writing the reasons for adverse action or that
records be retained, the creditor shall retain records for 12 months.
(6) Self-tests. For 25 months after a self-test (as defined in
Sec. 1002.15) has been completed, the creditor shall retain all written
or recorded information about the self-test. A creditor shall retain
information beyond 25 months if it has actual notice that it is under
investigation or is subject to an enforcement proceeding for an alleged
violation, or if it has been served with notice of a civil action. In
such cases, the creditor shall retain the information until final
disposition of the matter, unless an earlier time is allowed by the
appropriate agency or court order.
(7) Prescreened solicitations. For 25 months after the date on which
an offer of credit is made to potential customers (12 months for
business credit, except as provided in paragraph (b)(5) of this
section), the creditor shall retain in original form or a copy thereof:
(i) The text of any prescreened solicitation;
(ii) The list of criteria the creditor used to select potential
recipients of the solicitation; and
(iii) Any correspondence related to complaints (formal or informal)
about the solicitation.
Sec. 1002.13 Information for monitoring purposes.
(a) Information to be requested. (1) A creditor that receives an
application for credit primarily for the purchase or refinancing of a
dwelling occupied or to be occupied by the applicant as a principal
residence, where the extension of credit will be secured by the
dwelling, shall request as part of the application the following
information regarding the applicant(s):
(i) Ethnicity, using the categories Hispanic or Latino, and not
Hispanic or Latino; and race, using the categories American Indian or
Alaska Native, Asian, Black or African American, Native Hawaiian or
Other Pacific Islander, and White;
(ii) Sex;
(iii) Marital status, using the categories married, unmarried, and
separated; and
(iv) Age.
(2) Dwelling means a residential structure that contains one to four
units, whether or not that structure is attached to real property. The
term includes, but is not limited to, an individual condominium or
cooperative unit and a mobile or other manufactured home.
(b) Obtaining information. Questions regarding ethnicity, race, sex,
marital status, and age may be listed, at the creditor's option, on the
application form or on a separate form that refers to the application.
The applicant(s) shall be asked but not required to supply the requested
information. If the applicant(s) chooses not to provide the information
or any part of it, that fact shall be noted on the form. The creditor
shall then also note on the form, to the extent possible, the ethnicity,
race, and sex of the applicant(s) on the basis of visual observation or
surname.
[[Page 45]]
(c) Disclosure to applicant(s). The creditor shall inform the
applicant(s) that the information regarding ethnicity, race, sex,
marital status, and age is being requested by the Federal Government for
the purpose of monitoring compliance with Federal statutes that prohibit
creditors from discriminating against applicants on those bases. The
creditor shall also inform the applicant(s) that if the applicant(s)
chooses not to provide the information, the creditor is required to note
the ethnicity, race and sex on the basis of visual observation or
surname.
(d) Substitute monitoring program. A monitoring program required by
an agency charged with administrative enforcement under section 704 of
the Act may be substituted for the requirements contained in paragraphs
(a), (b), and (c) of this section.
Sec. 1002.14 Rules on providing appraisals and other valuations.
(a) Providing appraisals and other valuations--(1) In general. A
creditor shall provide an applicant a copy of all appraisals and other
written valuations developed in connection with an application for
credit that is to be secured by a first lien on a dwelling. A creditor
shall provide a copy of each such appraisal or other written valuation
promptly upon completion, or three business days prior to consummation
of the transaction (for closed-end credit) or account opening (for open-
end credit), whichever is earlier. An applicant may waive the timing
requirement in this paragraph (a)(1) and agree to receive any copy at or
before consummation or account opening, except where otherwise
prohibited by law. Any such waiver must be obtained at least three
business days prior to consummation or account opening, unless the
waiver pertains solely to the applicant's receipt of a copy of an
appraisal or other written valuation that contains only clerical changes
from a previous version of the appraisal or other written valuation
provided to the applicant three or more business days prior to
consummation or account opening. If the applicant provides a waiver and
the transaction is not consummated or the account is not opened, the
creditor must provide these copies no later than 30 days after the
creditor determines consummation will not occur or the account will not
be opened.
(2) Disclosure. For applications subject to paragraph (a)(1) of this
section, a creditor shall mail or deliver to an applicant, not later
than the third business day after the creditor receives an application
for credit that is to be secured by a first lien on a dwelling, a notice
in writing of the applicant's right to receive a copy of all written
appraisals developed in connection with the application. In the case of
an application for credit that is not to be secured by a first lien on a
dwelling at the time of application, if the creditor later determines
the credit will be secured by a first lien on a dwelling, the creditor
shall mail or deliver the same notice in writing not later than the
third business day after the creditor determines that the loan is to be
secured by a first lien on a dwelling.
(3) Reimbursement. A creditor shall not charge an applicant for
providing a copy of appraisals and other written valuations as required
under this section, but may require applicants to pay a reasonable fee
to reimburse the creditor for the cost of the appraisal or other written
valuation unless otherwise provided by law.
(4) Withdrawn, denied, or incomplete applications. The requirements
set forth in paragraph (a)(1) of this section apply whether credit is
extended or denied or if the application is incomplete or withdrawn.
(5) Copies in electronic form. The copies required by
Sec. 1002.14(a)(1) may be provided to the applicant 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.).
(b) Definitions. For purposes of paragraph (a) of this section:
(1) Consummation. The term ``consummation'' means the time that a
consumer becomes contractually obligated on a closed-end credit
transaction.
(2) Dwelling. The term ``dwelling'' means a residential structure
that contains one to four units whether or not
[[Page 46]]
that structure is attached to real property. The term includes, but is
not limited to, an individual condominium or cooperative unit, and a
mobile or other manufactured home.
(3) Valuation. The term ``valuation'' means any estimate of the
value of a dwelling developed in connection with an application for
credit.
[78 FR 7248, Jan. 31, 2013]
Sec. 1002.15 Incentives for self-testing and self-correction.
(a) General rules--(1) Voluntary self-testing and correction. The
report or results of a self-test that a creditor voluntarily conducts
(or authorizes) are privileged as provided in this section. Data
collection required by law or by any governmental authority is not a
voluntary self-test.
(2) Corrective action required. The privilege in this section
applies only if the creditor has taken or is taking appropriate
corrective action.
(3) Other privileges. The privilege created by this section does not
preclude the assertion of any other privilege that may also apply.
(b) Self-test defined--(1) Definition. A self-test is any program,
practice, or study that:
(i) Is designed and used specifically to determine the extent or
effectiveness of a creditor's compliance with the Act or this part; and
(ii) Creates data or factual information that is not available and
cannot be derived from loan or application files or other records
related to credit transactions.
(2) Types of information privileged. The privilege under this
section applies to the report or results of the self-test, data or
factual information created by the self-test, and any analysis,
opinions, and conclusions pertaining to the self-test report or results.
The privilege covers workpapers or draft documents as well as final
documents.
(3) Types of information not privileged. The privilege under this
section does not apply to:
(i) Information about whether a creditor conducted a self-test, the
methodology used or the scope of the self-test, the time period covered
by the self-test, or the dates it was conducted; or
(ii) Loan and application files or other business records related to
credit transactions, and information derived from such files and
records, even if the information has been aggregated, summarized, or
reorganized to facilitate analysis.
(c) Appropriate corrective action--(1) General requirement. For the
privilege in this section to apply, appropriate corrective action is
required when the self-test shows that it is more likely than not that a
violation occurred, even though no violation has been formally
adjudicated.
(2) Determining the scope of appropriate corrective action. A
creditor must take corrective action that is reasonably likely to remedy
the cause and effect of a likely violation by:
(i) Identifying the policies or practices that are the likely cause
of the violation; and
(ii) Assessing the extent and scope of any violation.
(3) Types of relief. Appropriate corrective action may include both
prospective and remedial relief, except that to establish a privilege
under this section:
(i) A creditor is not required to provide remedial relief to a
tester used in a self-test;
(ii) A creditor is only required to provide remedial relief to an
applicant identified by the self-test as one whose rights were more
likely than not violated; and
(iii) A creditor is not required to provide remedial relief to a
particular applicant if the statute of limitations applicable to the
violation expired before the creditor obtained the results of the self-
test or the applicant is otherwise ineligible for such relief.
(4) No admission of violation. Taking corrective action is not an
admission that a violation occurred.
(d) Scope of privilege--(1) General rule. The report or results of a
privileged self-test may not be obtained or used:
(i) By a government agency in any examination or investigation
relating to compliance with the Act or this part; or
(ii) By a government agency or an applicant (including a prospective
applicant who alleges a violation of Sec. 1002.4(b)) in any proceeding
or civil
[[Page 47]]
action in which a violation of the Act or this part is alleged.
(2) Loss of privilege. The report or results of a self-test are not
privileged under paragraph (d)(1) of this section if the creditor or a
person with lawful access to the report or results:
(i) Voluntarily discloses any part of the report or results, or any
other information privileged under this section, to an applicant or
government agency or to the public;
(ii) Discloses any part of the report or results, or any other
information privileged under this section, as a defense to charges that
the creditor has violated the Act or regulation; or
(iii) Fails or is unable to produce written or recorded information
about the self-test that is required to be retained under
Sec. 1002.12(b)(6) when the information is needed to determine whether
the privilege applies. This paragraph does not limit any other penalty
or remedy that may be available for a violation of Sec. 1002.12.
(3) Limited use of privileged information. Notwithstanding paragraph
(d)(1) of this section, the self-test report or results and any other
information privileged under this section may be obtained and used by an
applicant or government agency solely to determine a penalty or remedy
after a violation of the Act or this part has been adjudicated or
admitted. Disclosures for this limited purpose may be used only for the
particular proceeding in which the adjudication or admission was made.
Information disclosed under this paragraph (d)(3) remains privileged
under paragraph (d)(1) of this section.
Sec. 1002.16 Enforcement, penalties and liabilities.
(a) Administrative enforcement. (1) As set forth more fully in
section 704 of the Act, administrative enforcement of the Act and this
part regarding certain creditors is assigned to the Comptroller of the
Currency, Board of Governors of the Federal Reserve System, Board of
Directors of the Federal Deposit Insurance Corporation, National Credit
Union Administration, Surface Transportation Board, Civil Aeronautics
Board, Secretary of Agriculture, Farm Credit Administration, Securities
and Exchange Commission, Small Business Administration, Secretary of
Transportation, and Bureau of Consumer Financial Protection.
(2) Except to the extent that administrative enforcement is
specifically assigned to some government agency other than the Bureau,
and subject to subtitle B of the Consumer Financial Protection Act of
2010, the Federal Trade Commission is authorized to enforce the
requirements imposed under the Act and this part.
(b) Penalties and liabilities. (1) Sections 702(g) and 706(a) and
(b) of the Act provide that any creditor that fails to comply with a
requirement imposed by the Act or this part is subject to civil
liability for actual and punitive damages in individual or class
actions. Pursuant to sections 702(g) and 704(b), (c), and (d) of the
Act, violations of the Act or this part also constitute violations of
other Federal laws. Liability for punitive damages can apply only to
nongovernmental entities and is limited to $10,000 in individual actions
and the lesser of $500,000 or 1 percent of the creditor's net worth in
class actions. Section 706(c) provides for equitable and declaratory
relief and section 706(d) authorizes the awarding of costs and
reasonable attorney's fees to an aggrieved applicant in a successful
action.
(2) As provided in section 706(f) of the Act, a civil action under
the Act or this part may be brought in the appropriate United States
district court without regard to the amount in controversy or in any
other court of competent jurisdiction within five years after the date
of the occurrence of the violation, or within one year after the
commencement of an administrative enforcement proceeding or of a civil
action brought by the Attorney General of the United States within five
years after the alleged violation.
(3) If an agency responsible for administrative enforcement is
unable to obtain compliance with the Act or this part, it may refer the
matter to the Attorney General of the United States. If the Bureau, the
Comptroller of the Currency, the Federal Deposit Insurance Corporation,
the Board of Governors of the Federal Reserve System, or the National
Credit Union Administration has reason to believe that one
[[Page 48]]
or more creditors have engaged in a pattern or practice of discouraging
or denying applications in violation of the Act or this part, the agency
shall refer the matter to the Attorney General. If the agency has reason
to believe that one or more creditors violated section 701(a) of the
Act, the agency may refer a matter to the Attorney General.
(4) On referral, or whenever the Attorney General has reason to
believe that one or more creditors have engaged in a pattern or practice
in violation of the Act or this part, the Attorney General may bring a
civil action for such relief as may be appropriate, including actual and
punitive damages and injunctive relief.
(5) If the Comptroller of the Currency, the Federal Deposit
Insurance Corporation, the Board of Governors of the Federal Reserve
System, or the National Credit Union Administration has reason to
believe (as a result of a consumer complaint, a consumer compliance
examination, or some other basis) that a violation of the Act or this
part has occurred which is also a violation of the Fair Housing Act, and
the matter is not referred to the Attorney General, the agency shall:
(i) Notify the Secretary of Housing and Urban Development; and
(ii) Inform the applicant that the Secretary of Housing and Urban
Development has been notified and that remedies may be available under
the Fair Housing Act.
(c) Failure of compliance. A creditor's failure to comply with
Sec. 1002.6(b)(6), Sec. 1002.9, Sec. 1002.10, Sec. 1002.12 or
Sec. 1002.13 is not a violation if it results from an inadvertent error.
On discovering an error under Secs. 1002.9 and 1002.10, the creditor
shall correct it as soon as possible. If a creditor inadvertently
obtains the monitoring information regarding the ethnicity, race, and
sex of the applicant in a dwelling-related transaction not covered by
Sec. 1002.13, the creditor may retain information and act on the
application without violating the regulation.
Sec. Appendix A to Part 1002--Federal Agencies to be Listed in Adverse
Action Notices
The following list indicates the Federal agency or agencies that
should be listed in notices provided by creditors pursuant to
Sec. 1002.9(b)(1). Any questions concerning a particular creditor may be
directed to such agencies. This list is not intended to describe
agencies' enforcement authority for ECOA and Regulation B. Terms that
are not defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(s))
shall have the meaning given to them in the International Banking Act of
1978 (12 U.S.C. 3101).
1. Banks, savings associations, and credit unions with total assets
of over $10 billion and their affiliates: Bureau of Consumer Financial
Protection, 1700 G Street NW., Washington DC 20006. Such affiliates that
are not banks, savings associations, or credit unions also should list,
in addition to the Bureau: FTC Regional Office for region in which the
creditor operates or Federal Trade Commission, Equal Credit Opportunity,
Washington, DC 20580.
2. To the extent not included in item 1 above:
a. National banks, Federal savings associations, and Federal
branches and Federal agencies of foreign banks: Office of the
Comptroller of the Currency, Customer Assistance Group, 1301 McKinney
Street, Suite 3450, Houston, TX 77010-9050
b. State member banks, branches and agencies of foreign banks (other
than Federal branches, Federal agencies, and insured state branches of
foreign banks), commercial lending companies owned or controlled by
foreign banks, and organizations operating under section 25 or 25A of
the Federal Reserve Act: Federal Reserve Consumer Help Center, P.O. Box
1200, Minneapolis, MN 55480.
c. Nonmember Insured Banks, Insured State Branches of Foreign Banks,
and Insured State Savings Associations: FDIC Consumer Response Center,
1100 Walnut Street, Box 11, Kansas City, MO 64106.
d. Federal Credit Unions: National Credit Union Administration,
Office of Consumer Protection, 1775 Duke Street, Alexandria, VA 22314.
3. Air carriers: Assistant General Counsel for Aviation Enforcement
and Proceedings, Department of Transportation, 400 Seventh Street SW.,
Washington, DC 20590.
4. Creditors Subject to Surface Transportation Board: Office of
Proceedings, Surface Transportation Board, Department of Transportation,
1925 K Street NW., Washington, DC 20423.
5. Creditors Subject to Packers and Stockyards Act: Nearest Packers
and Stockyards Administration area supervisor.
6. Small Business Investment Companies: Associate Deputy
Administrator for Capital Access, United States Small Business
Administration, 409 Third Street SW., 8th Floor, Washington, DC 20416.
7. Brokers and Dealers: Securities and Exchange Commission,
Washington, DC 20549.
[[Page 49]]
8. Federal Land Banks, Federal Land Bank Associations, Federal
Intermediate Credit Banks, and Production Credit Associations: Farm
Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090.
9. Retailers, Finance Companies, and All Other Creditors Not Listed
Above: FTC Regional Office for region in which the creditor operates or
Federal Trade Commission, Equal Credit Opportunity, Washington, DC
20580.
Sec. Appendix B to Part 1002--Model Application Forms
1. This appendix contains five model credit application forms, each
designated for use in a particular type of consumer credit transaction
as indicated by the bracketed caption on each form. The first sample
form is intended for use in open-end, unsecured transactions; the second
for closed-end, secured transactions; the third for closed-end
transactions, whether unsecured or secured; the fourth in transactions
involving community property or occurring in community property states;
and the fifth in residential mortgage transactions which contains a
model disclosure for use in complying with Sec. 1002.13 for certain
dwelling-related loans. All forms contained in this appendix are models;
their use by creditors is optional.
2. The use or modification of these forms is governed by the
following instructions. A creditor may change the forms: by asking for
additional information not prohibited by Sec. 1002.5; by deleting any
information request; or by rearranging the format without modifying the
substance of the inquiries. In any of these three instances, however,
the appropriate notices regarding the optional nature of courtesy
titles, the option to disclose alimony, child support, or separate
maintenance, and the limitation concerning marital status inquiries must
be included in the appropriate places if the items to which they relate
appear on the creditor's form.
3. If a creditor uses an appropriate appendix B model form, or
modifies a form in accordance with the above instructions, that creditor
shall be deemed to be acting in compliance with the provisions of
paragraphs (b), (c) and (d) of Sec. 1002.5 of this part.
[[Page 50]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.046
[[Page 51]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.047
[[Page 52]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.048
[[Page 53]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.049
[[Page 54]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.050
[[Page 55]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.051
[[Page 56]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.052
[[Page 57]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.053
[[Page 58]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.054
[[Page 59]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.055
[[Page 60]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.056
[[Page 61]]
[GRAPHIC] [TIFF OMITTED] TR21DE11.057
[[Page 62]]
Sec. Appendix C to Part 1002--Sample Notification Forms
1. This Appendix contains ten sample notification forms. Forms C-1
through C-4 are intended for use in notifying an applicant that adverse
action has been taken on an application or account under
Secs. 1002.9(a)(1) and (2)(i) of this part. Form C-5 is a notice of
disclosure of the right to request specific reasons for adverse action
under Secs. 1002.9(a)(1) and (2)(ii). Form C-6 is designed for use in
notifying an applicant, under Sec. 1002.9(c)(2), that an application is
incomplete. Forms C-7 and C-8 are intended for use in connection with
applications for business credit under Sec. 1002.9(a)(3). Form C-9 is
designed for use in notifying an applicant of the right to receive a
copy of appraisals under Sec. 1002.14. Form C-10 is designed for use in
notifying an applicant for nonmortgage credit that the creditor is
requesting applicant characteristic information.
2. Form C-1 contains the Fair Credit Reporting Act disclosure as
required by sections 615(a) and (b) of that act. Forms C-2 through C-5
contain only the section 615(a) disclosure (that a creditor obtained
information from a consumer reporting agency that was considered in the
credit decision). A creditor must provide the section 615(a) disclosure
when adverse action is taken against a consumer based on information
from a consumer reporting agency. A creditor must provide the section
615(b) disclosure when adverse action is taken based on information from
an outside source other than a consumer reporting agency. In addition, a
creditor must provide the section 615(b) disclosure if the creditor
obtained information from an affiliate other than information in a
consumer report or other than information concerning the affiliate's own
transactions or experiences with the consumer. Creditors may comply with
the disclosure requirements for adverse action based on information in a
consumer report obtained from an affiliate by providing either the
section 615(a) or section 615(b) disclosure. Optional language in Forms
C-1 through C-5 may be used to direct the consumer to the entity that
provided the credit score for any questions about the credit score,
along with the entity's contact information. Creditors may use or not
use this additional language without losing the safe harbor, since the
language is optional.
3. The sample forms are illustrative and may not be appropriate for
all creditors. They were designed to include some of the factors that
creditors most commonly consider. If a creditor chooses to use the
checklist of reasons provided in one of the sample forms in this
appendix and if reasons commonly used by the creditor are not provided
on the form, the creditor should modify the checklist by substituting or
adding other reasons. For example, if ``inadequate down payment'' or
``no deposit relationship with us'' are common reasons for taking
adverse action on an application, the creditor ought to add or
substitute such reasons for those presently contained on the sample
forms.
4. If the reasons listed on the forms are not the factors actually
used, a creditor will not satisfy the notice requirement by simply
checking the closest identifiable factor listed. For example, some
creditors consider only references from banks or other depository
institutions and disregard finance company references altogether; their
statement of reasons should disclose ``insufficient bank references,''
not ``insufficient credit references.'' Similarly, a creditor that
considers bank references and other credit references as distinct
factors should treat the two factors separately and disclose them as
appropriate. The creditor should either add such other factors to the
form or check ``other'' and include the appropriate explanation. The
creditor need not, however, describe how or why a factor adversely
affected the application. For example, the notice may say ``length of
residence'' rather than ``too short a period of residence.''
5. A creditor may design its own notification forms or use all or a
portion of the forms contained in this Appendix. Proper use of Forms C-1
through C-4 will satisfy the requirement of Sec. 1002.9(a)(2)(i). Proper
use of Forms C-5 and C-6 constitutes full compliance with
Secs. 1002.9(a)(2)(ii) and 1002.9(c)(2), respectively. Proper use of
Forms C-7 and C-8 will satisfy the requirements of Secs. 1002.9(a)(2)(i)
and (ii), respectively, for applications for business credit. Proper use
of Form C-9 will satisfy the requirements of Sec. 1002.14 of this part.
Proper use of Form C-10 will satisfy the requirements of
Sec. 1002.5(b)(1).
Form C-1--Sample Notice of Action Taken and Statement of Reasons
Statement of Credit Denial, Termination or Change
Date:__________________________________________________________________
Applicant's Name:______________________________________________________
Applicant's Address:___________________________________________________
Description of Account, Transaction, or Requested Credit:______________
Description of Action Taken:___________________________________________
Part I--Principal Reason(s) for Credit Denial, Termination, or Other
Action Taken Concerning Credit
This section must be completed in all instances.
__Credit application incomplete
__Insufficient number of credit references provided
__Unacceptable type of credit references provided
__Unable to verify credit references
__Temporary or irregular employment
[[Page 63]]
__Unable to verify employment
__Length of employment
__Income insufficient for amount of credit requested
__Excessive obligations in relation to income
__Unable to verify income
__Length of residence
__Temporary residence
__Unable to verify residence
__No credit file
__Limited credit experience
__Poor credit performance with us
__Delinquent past or present credit obligations with others
__Collection action or judgment
__Garnishment or attachment
__Foreclosure or repossession
__Bankruptcy
__Number of recent inquiries on credit bureau report
__Value or type of collateral not sufficient
__Other, specify: ___
Part II--Disclosure of Use of Information Obtained From an Outside
Source
This section should be completed if the credit decision was based in
whole or in part on information that has been obtained from an outside
source.
__Our credit decision was based in whole or in part on information
obtained in a report from the consumer reporting agency listed below.
You have a right under the Fair Credit Reporting Act to know the
information contained in your credit file at the consumer reporting
agency. The reporting agency played no part in our decision and is
unable to supply specific reasons why we have denied credit to you. You
also have a right to a free copy of your report from the reporting
agency, if you request it no later than 60 days after you receive this
notice. In addition, if you find that any information contained in the
report you receive is inaccurate or incomplete, you have the right to
dispute the matter with the reporting agency.
Name:__________________________________________________________________
Address:_______________________________________________________________
[Toll-free] Telephone number:__________________________________________
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score is a
number that reflects the information in your consumer report. Your
credit score can change, depending on how the information in your
consumer report changes.
Your credit score:_____________________________________________________
Date:__________________________________________________________________
Scores range from a low of ____ to a high of ____.
Key factors that adversely affected your credit score:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you should
contact [entity that provided the credit score] at:
Address:_______________________________________________________________
[[Toll-free] Telephone number: ____]
__Our credit decision was based in whole or in part on information
obtained from an affiliate or from an outside source other than a
consumer reporting agency. Under the Fair Credit Reporting Act, you have
the right to make a written request, no later than 60 days after you
receive this notice, for disclosure of the nature of this information.
If you have any questions regarding this notice, you should contact:
Creditor's name:_______________________________________________________
Creditor's address:____________________________________________________
Creditor's telephone number:___________________________________________
Notice: The Federal Equal Credit Opportunity Act prohibits creditors
from discriminating against credit applicants on the basis of race,
color, religion, national origin, sex, marital status, age (provided the
applicant has the capacity to enter into a binding contract); because
all or part of the applicant's income derives from any public assistance
program; or because the applicant has in good faith exercised any right
under the Consumer Credit Protection Act. The Federal agency that
administers compliance with this law concerning this creditor is (name
and address as specified by the appropriate agency listed in appendix
A).
Form C-2--Sample Notice of Action Taken and Statement of Reasons
Date
Dear Applicant: Thank you for your recent application. Your request
for [a loan/a credit card/an increase in your credit limit] was
carefully considered, and we regret that we are unable to approve your
application at this time, for the following reason(s):
Your Income:
__is below our minimum requirement.
__is insufficient to sustain payments on the amount of credit requested.
__could not be verified.
Your Employment:
__is not of sufficient length to qualify.
__could not be verified.
Your Credit History:
__of making payments on time was not satisfactory.
__could not be verified.
Your Application:
__lacks a sufficient number of credit references.
__lacks acceptable types of credit references.
[[Page 64]]
__reveals that current obligations are excessive in relation to income.
Other:_________________________________________________________________
The consumer reporting agency contacted that provided information
that influenced our decision in whole or in part was [name, address and
[toll-free] telephone number of the reporting agency]. The reporting
agency played no part in our decision and is unable to supply specific
reasons why we have denied credit to you. You have a right under the
Fair Credit Reporting Act to know the information contained in your
credit file at the consumer reporting agency. You also have a right to a
free copy of your report from the reporting agency, if you request it no
later than 60 days after you receive this notice. In addition, if you
find that any information contained in the report you receive is
inaccurate or incomplete, you have the right to dispute the matter with
the reporting agency. Any questions regarding such information should be
directed to [consumer reporting agency]. If you have any questions
regarding this letter, you should contact us at [creditor's name,
address and telephone number].
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score is a
number that reflects the information in your consumer report. Your
credit score can change, depending on how the information in your
consumer report changes.
Your credit score:_____________________________________________________
Date:__________________________________________________________________
Scores range from a low of ____ to a high of ____.
Key factors that adversely affected your credit score:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you should
contact [entity that provided the credit score] at:
Address:_______________________________________________________________
[[Toll-free] Telephone number: ____]
Notice: The Federal Equal Credit Opportunity Act prohibits creditors
from discriminating against credit applicants on the basis of race,
color, religion, national origin, sex, marital status, age (provided the
applicant has the capacity to enter into a binding contract); because
all or part of the applicant's income derives from any public assistance
program; or because the applicant has in good faith exercised any right
under the Consumer Credit Protection Act. The Federal agency that
administers compliance with this law concerning this creditor is (name
and address as specified by the appropriate agency listed in appendix
A).
Form C-3--Sample Notice of Action Taken and Statement of Reasons (Credit
Scoring)
Date
Dear Applicant: Thank you for your recent application for _____. We
regret that we are unable to approve your request.
[Reasons for Denial of Credit]
Your application was processed by a [credit scoring] system that
assigns a numerical value to the various items of information we
consider in evaluating an application. These numerical values are based
upon the results of analyses of repayment histories of large numbers of
customers.
The information you provided in your application did not score a
sufficient number of points for approval of the application. The reasons
you did not score well compared with other applicants were:
Insufficient bank references
Type of occupation
Insufficient credit experience
Number of recent inquiries on credit bureau report
[Your Right to Get Your Consumer Report]
In evaluating your application the consumer reporting agency listed
below provided us with information that in whole or in part influenced
our decision. The consumer reporting agency played no part in our
decision and is unable to supply specific reasons why we have denied
credit to you. You have a right under the Fair Credit Reporting Act to
know the information contained in your credit file at the consumer
reporting agency. It can be obtained by contacting: [Name, address, and
[toll-free] telephone number of the consumer reporting agency]. You also
have a right to a free copy of your report from the reporting agency, if
you request it no later than 60 days after you receive this notice. In
addition, if you find that any information contained in the report you
receive is inaccurate or incomplete, you have the right to dispute the
matter with the reporting agency.
[Information about Your Credit Score]
[Information about Your Credit Score]
We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score is a
number that reflects the information in your consumer report. Your
credit score can change, depending on how the information in your
consumer report changes.
Your credit score:_____________________________________________________
Date:__________________________________________________________________
Scores range from a low of ____ to a high of ____.
Key factors that adversely affected your credit score:
________________________________________________________________________
[[Page 65]]
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you should
contact [entity that provided the credit score] at:
Address:_______________________________________________________________
[Toll-free] Telephone number: ____]
If you have any questions regarding this letter, you should contact
us at
Creditor's Name:_______________________________________________________
Address:_______________________________________________________________
Telephone:_____________________________________________________________
Sincerely,
Notice: The Federal Equal Credit Opportunity Act prohibits creditors
from discriminating against credit applicants on the basis of race,
color, religion, national origin, sex, marital status, age (with certain
limited exceptions); because all or part of the applicant's income
derives from any public assistance program; or because the applicant has
in good faith exercised any right under the Consumer Credit Protection
Act. The Federal agency that administers compliance with this law
concerning this creditor is (name and address as specified by the
appropriate agency listed in appendix A).
Form C-4--Sample Notice of Action Taken, Statement of Reasons and
Counteroffer
Date
Dear Applicant: Thank you for your application for _____. We are
unable to offer you credit on the terms that you requested for the
following reason(s):_____
We can, however, offer you credit on the following terms: _____
If this offer is acceptable to you, please notify us within [amount
of time] at the following address: _____.
Our credit decision on your application was based in whole or in
part on information obtained in a report from [name, address and [toll-
free] telephone number of the consumer reporting agency]. You have a
right under the Fair Credit Reporting Act to know the information
contained in your credit file at the consumer reporting agency. The
reporting agency played no part in our decision and is unable to supply
specific reasons why we have denied credit to you. You also have a right
to a free copy of your report from the reporting agency, if you request
it no later than 60 days after you receive this notice. In addition, if
you find that any information contained in the report you receive is
inaccurate or incomplete, you have the right to dispute the matter with
the reporting agency.
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score is a
number that reflects the information in your consumer report. Your
credit score can change, depending on how the information in your
consumer report changes.
Your credit score:_____________________________________________________
Date:__________________________________________________________________
Scores range from a low of ____ to a high of ____.
Key factors that adversely affected your credit score:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you should
contact [entity that provided the credit score] at:
Address:_______________________________________________________________
[Toll-free] Telephone number:____]
You should know that the Federal Equal Credit Opportunity Act
prohibits creditors, such as ourselves, from discriminating against
credit applicants on the basis of their race, color, religion, national
origin, sex, marital status, age (provided the applicant has the
capacity to enter into a binding contract), because they receive income
from a public assistance program, or because they may have exercised
their rights under the Consumer Credit Protection Act. If you believe
there has been discrimination in handling your application you should
contact the [name and address of the appropriate Federal enforcement
agency listed in appendix A].
Sincerely,
Form C-5--Sample Disclosure of Right To Request Specific Reasons for
Credit Denial
Date
Dear Applicant: Thank you for applying to us for _____.
After carefully reviewing your application, we are sorry to advise
you that we cannot [open an account for you/grant a loan to you/increase
your credit limit] at this time. If you would like a statement of
specific reasons why your application was denied, please contact [our
credit service manager] shown below within 60 days of the date of this
letter. We will provide you with the statement of reasons within 30 days
after receiving your request.
Creditor's name
Address
Telephone number
If we obtained information from a consumer reporting agency as part
of our consideration of your application, its name, address, and [toll-
free] telephone number is shown below. The reporting agency played
[[Page 66]]
no part in our decision and is unable to supply specific reasons why we
have denied credit to you. [You have a right under the Fair Credit
Reporting Act to know the information contained in your credit file at
the consumer reporting agency.] You have a right to a free copy of your
report from the reporting agency, if you request it no later than 60
days after you receive this notice. In addition, if you find that any
information contained in the report you received is inaccurate or
incomplete, you have the right to dispute the matter with the reporting
agency. You can find out about the information contained in your file
(if one was used) by contacting:
Consumer reporting agency's name
Address
[Toll-free] Telephone number
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score is a
number that reflects the information in your consumer report. Your
credit score can change, depending on how the information in your
consumer report changes.
Your credit score:_____________________________________________________
Date:__________________________________________________________________
Scores range from a low of ____ to a high of ____.
Key factors that adversely affected your credit score:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you should
contact [entity that provided the credit score] at:
Address:_______________________________________________________________
[Toll-free] Telephone number: ____]
Sincerely,
Notice: The Federal Equal Credit Opportunity Act prohibits creditors
from discriminating against credit applicants on the basis of race,
color, religion, national origin, sex, marital status, age (provided the
applicant has the capacity to enter into a binding contract); because
all or part of the applicant's income derives from any public assistance
program; or because the applicant has in good faith exercised any right
under the Consumer Credit Protection Act. The Federal agency that
administers compliance with this law concerning this creditor is (name
and address as specified by the appropriate agency listed in appendix
A).
Form C-6--Sample Notice of Incomplete Application and Request for
Additional Information
Creditor's name
Address
Telephone number
Date
Dear Applicant: Thank you for your application for credit. The
following information is needed to make a decision on your application:
_____
We need to receive this information by _____ (date). If we do not
receive it by that date, we will regrettably be unable to give further
consideration to your credit request.
Sincerely,
Form C-7--Sample Notice of Action Taken and Statement of Reasons
(Business Credit)
Creditor's name
Creditor's address
Date
Dear Applicant: Thank you for applying to us for credit. We have
given your request careful consideration, and regret that we are unable
to extend credit to you at this time for the following reasons:
(Insert appropriate reason, such as: Value or type of collateral not
sufficient; Lack of established earnings record; Slow or past due in
trade or loan payments)
Sincerely,
Notice: The Federal Equal Credit Opportunity Act prohibits creditors
from discriminating against credit applicants on the basis of race,
color, religion, national origin, sex, marital status, age (provided the
applicant has the capacity to enter into a binding contract); because
all or part of the applicant's income derives from any public assistance
program; or because the applicant has in good faith exercised any right
under the Consumer Credit Protection Act. The Federal agency that
administers compliance with this law concerning this creditor is [name
and address as specified by the appropriate agency listed in appendix
A].
Form C-8--Sample Disclosure of Right To Request Specific Reasons for
Credit Denial Given at Time of Application (Business Credit)
Creditor's name
Creditor's address
If your application for business credit is denied, you have the
right to a written statement of the specific reasons for the denial. To
obtain the statement, please contact [name, address and telephone number
of the person or office from which the statement of reasons can be
obtained] within 60 days from the date you are notified of our decision.
We will send you a written statement of reasons for the denial within 30
days of receiving your request for the statement.
Notice: The Federal Equal Credit Opportunity Act prohibits creditors
from discriminating against credit applicants on the basis of race,
color, religion, national origin, sex,
[[Page 67]]
marital status, age (provided the applicant has the capacity to enter
into a binding contract); because all or part of the applicant's income
derives from any public assistance program; or because the applicant has
in good faith exercised any right under the Consumer Credit Protection
Act. The Federal agency that administers compliance with this law
concerning this creditor is [name and address as specified by the
appropriate agency listed in appendix A].
Form C-9--Sample Disclosure of Right To Receive a Copy of Appraisals
We may order an appraisal to determine the property's value and
charge you for this appraisal. We will promptly give you a copy of any
appraisal, even if your loan does not close.
You can pay for an additional appraisal for your own use at your own
cost.
[In your letter, give us the following information:]
Form C-10--Sample Disclosure About Voluntary Data Notation
We are requesting the following information to monitor our
compliance with the Federal Equal Credit Opportunity Act, which
prohibits unlawful discrimination. You are not required to provide this
information. We will not take this information (or your decision not to
provide this information) into account in connection with your
application or credit transaction. The law provides that a creditor may
not discriminate based on this information, or based on whether or not
you choose to provide it. [If you choose not to provide the information,
we will note it by visual observation or surname].
[76 FR 79445, Dec. 21, 2011, as amended at 78 FR 7248, Jan. 31, 2013]
Sec. Appendix D to Part 1002--Issuance of Official Interpretations
1.Official Interpretations. Interpretations of this part issued by
officials of the Bureau provide the protection afforded under section
706(e) of the Act. Except in unusual circumstances, such interpretations
will not be issued separately but will be incorporated in an official
commentary to the regulation, which will be amended periodically.
2. Requests for Issuance of Official Interpretations. A request for
an official interpretation should be in writing and addressed to the
Assistant Director, Office of Regulations, Division of Research,
Markets, and Regulations, Bureau of Consumer Financial Protection, 1700
G Street, NW., Washington, DC 20006. The request should contain a
complete statement of all relevant facts concerning the issue, including
copies of all pertinent documents.
3. Scope of Interpretations. No interpretations will be issued
approving creditors' forms or statements. This restriction does not
apply to forms or statements whose use is required or sanctioned by a
government agency.
Sec. Supplement I to Part 1002--Official Interpretations
Following is an official interpretation of Regulation B (12 CFR part
1002) issued by the Bureau of Consumer Financial Protection. References
are to sections of the regulation or the Equal Credit Opportunity Act
(15 U.S.C. 1601 et seq.).
Introduction
1.Official status. Section 706(e) of the Equal Credit Opportunity
Act protects a creditor from civil liability for any act done or omitted
in good faith in conformity with an interpretation issued by a duly
authorized official of the Bureau. This commentary is the means by which
the Bureau of Consumer Financial Protection issues official
interpretations of Regulation B. Good-faith compliance with this
commentary affords a creditor protection under section 706(e) of the
Act.
2. Issuance of interpretations. Under appendix D to the regulation,
any person may request an official interpretation. Interpretations will
be issued at the discretion of designated officials and incorporated in
this commentary following publication for comment in the Federal
Register. Except in unusual circumstances, official interpretations will
be issued only by means of this commentary.
3. Comment designations. The comments are designated with as much
specificity as possible according to the particular regulatory provision
addressed. Each comment in the commentary is identified by a number and
the regulatory section or paragraph that it interprets. For example,
comments to Sec. 1002.2(c) are further divided by subparagraph, such as
comment 2(c)(1)(ii)-1 and comment 2(c)(2)(ii-1.
Section 1002.1--Authority, Scope, and Purpose
1(a) Authority and scope.
1. Scope. The Equal Credit Opportunity Act and Regulation B apply to
all credit--commercial as well as personal--without regard to the nature
or type of the credit or the creditor, except for an entity excluded
from coverage of this part (but not the Act) by section 1029 of the
Consumer Financial Protection Act of 2010 (12 U.S.C. 5519). If a
transaction provides for the deferral of the payment of a debt, it is
credit covered by Regulation B even though it may not be a credit
transaction covered by Regulation Z (Truth in Lending) (12 CFR part
1026). Further, the definition of creditor is not restricted to the
[[Page 68]]
party or person to whom the obligation is initially payable, as is the
case under Regulation Z. Moreover, the Act and regulation apply to all
methods of credit evaluation, whether performed judgmentally or by use
of a credit scoring system.
2. Foreign applicability. Regulation B generally does not apply to
lending activities that occur outside the United States. The regulation
does apply to lending activities that take place within the United
States (as well as the Commonwealth of Puerto Rico and any territory or
possession of the United States), whether or not the applicant is a
citizen.
3. Bureau. The term Bureau, as used in this part, means the Bureau
of Consumer Financial Protection.
Section 1002.2--Definitions
2(c) Adverse action.
Paragraph 2(c)(1)(i).
1. Application for credit. If the applicant applied in accordance
with the creditor's procedures, a refusal to refinance or extend the
term of a business or other loan is adverse action.
Paragraph 2(c)(1)(ii).
1. Move from service area. If a credit card issuer terminates the
open-end account of a customer because the customer has moved out of the
card issuer's service area, the termination is adverse action unless
termination on this ground was explicitly provided for in the credit
agreement between the parties. In cases where termination is adverse
action, notification is required under Sec. 1002.9.
2. Termination based on credit limit. If a creditor terminates
credit accounts that have low credit limits (for example, under $400)
but keeps open accounts with higher credit limits, the termination is
adverse action and notification is required under Sec. 1002.9.
Paragraph 2(c)(2)(ii).
1. Default--exercise of due-on-sale clause. If a mortgagor sells or
transfers mortgaged property without the consent of the mortgagee, and
the mortgagee exercises its contractual right to accelerate the mortgage
loan, the mortgagee may treat the mortgagor as being in default. An
adverse action notice need not be given to the mortgagor or the
transferee. (See comment 2(e)-1 for treatment of a purchaser who
requests to assume the loan.)
2. Current delinquency or default. The term adverse action does not
include a creditor's termination of an account when the accountholder is
currently in default or delinquent on that account. Notification in
accordance with Sec. 1002.9 of the regulation generally is required,
however, if the creditor's action is based on a past delinquency or
default on the account.
Paragraph 2(c)(2)(iii).
1. Point-of-sale transactions. Denial of credit at point of sale is
not adverse action except under those circumstances specified in the
regulation. For example, denial at point of sale is not adverse action
in the following situations:
i. A credit cardholder presents an expired card or a card that has
been reported to the card issuer as lost or stolen.
ii. The amount of a transaction exceeds a cash advance or credit
limit.
iii. The circumstances (such as excessive use of a credit card in a
short period of time) suggest that fraud is involved.
iv. The authorization facilities are not functioning.
v. Billing statements have been returned to the creditor for lack of
a forwarding address.
2. Application for increase in available credit. A refusal or
failure to authorize an account transaction at the point of sale or loan
is not adverse action except when the refusal is a denial of an
application, submitted in accordance with the creditor's procedures, for
an increase in the amount of credit.
Paragraph 2(c)(2)(v).
1. Terms of credit versus type of credit offered. When an applicant
applies for credit and the creditor does not offer the credit terms
requested by the applicant (for example, the interest rate, length of
maturity, collateral, or amount of downpayment), a denial of the
application for that reason is adverse action (unless the creditor makes
a counteroffer that is accepted by the applicant) and the applicant is
entitled to notification under Sec. 1002.9.
2(e) Applicant.
1. Request to assume loan. If a mortgagor sells or transfers the
mortgaged property and the buyer makes an application to the creditor to
assume the mortgage loan, the mortgagee must treat the buyer as an
applicant unless its policy is not to permit assumptions.
2(f) Application.
1. General. A creditor has the latitude under the regulation to
establish its own application process and to decide the type and amount
of information it will require from credit applicants.
2. Procedures used. The term ``procedures'' refers to the actual
practices followed by a creditor for making credit decisions as well as
its stated application procedures. For example, if a creditor's stated
policy is to require all applications to be in writing on the creditor's
application form, but the creditor also makes credit decisions based on
oral requests, the creditor's procedures are to accept both oral and
written applications.
3. When an inquiry or prequalification request becomes an
application. A creditor is encouraged to provide consumers with
information about loan terms. However, if in giving information to the
consumer the creditor also evaluates information about the consumer,
[[Page 69]]
decides to decline the request, and communicates this to the consumer,
the creditor has treated the inquiry or prequalification request as an
application and must then comply with the notification requirements
under Sec. 1002.9. Whether the inquiry or prequalification request
becomes an application depends on how the creditor responds to the
consumer, not on what the consumer says or asks. (See comment 9-5 for
further discussion of prequalification requests; see comment 2(f)-5 for
a discussion of preapproval requests.)
4. Examples of inquiries that are not applications. The following
examples illustrate situations in which only an inquiry has taken place:
i. A consumer calls to ask about loan terms and an employee explains
the creditor's basic loan terms, such as interest rates, loan-to-value
ratio, and debt-to-income ratio.
ii. A consumer calls to ask about interest rates for car loans, and,
in order to quote the appropriate rate, the loan officer asks for the
make and sales price of the car and the amount of the downpayment, then
gives the consumer the rate.
iii. A consumer asks about terms for a loan to purchase a home and
tells the loan officer her income and intended downpayment, but the loan
officer only explains the creditor's loan-to-value ratio policy and
other basic lending policies, without telling the consumer whether she
qualifies for the loan.
iv. A consumer calls to ask about terms for a loan to purchase
vacant land and states his income and the sales price of the property to
be financed, and asks whether he qualifies for a loan; the employee
responds by describing the general lending policies, explaining that he
would need to look at all of the consumer's qualifications before making
a decision, and offering to send an application form to the consumer.
5. Examples of an application. An application for credit includes
the following situations:
i. A person asks a financial institution to ``preapprove'' her for a
loan (for example, to finance a house or a vehicle she plans to buy) and
the institution reviews the request under a program in which the
institution, after a comprehensive analysis of her creditworthiness,
issues a written commitment valid for a designated period of time to
extend a loan up to a specified amount. The written commitment may not
be subject to conditions other than conditions that require the
identification of adequate collateral, conditions that require no
material change in the applicant's financial condition or
creditworthiness prior to funding the loan, and limited conditions that
are not related to the financial condition or creditworthiness of the
applicant that the lender ordinarily attaches to a traditional
application (such as certification of a clear termite inspection for a
home purchase loan, or a maximum mileage requirement for a used car
loan). But if the creditor's program does not provide for giving written
commitments, requests for preapprovals are treated as prequalification
requests for purposes of the regulation.
ii. Under the same facts as above, the financial institution
evaluates the person's creditworthiness and determines that she does not
qualify for a preapproval.
6. Completed application--diligence requirement. The regulation
defines a completed application in terms that give a creditor the
latitude to establish its own information requirements. Nevertheless,
the creditor must act with reasonable diligence to collect information
needed to complete the application. For example, the creditor should
request information from third parties, such as a credit report,
promptly after receiving the application. If additional information is
needed from the applicant, such as an address or a telephone number to
verify employment, the creditor should contact the applicant promptly.
(But see comment 9(a)(1)-3, which discusses the creditor's option to
deny an application on the basis of incompleteness.)2(g) Business
credit.
1. Definition. The test for deciding whether a transaction qualifies
as business credit is one of primary purpose. For example, an open-end
credit account used for both personal and business purposes is not
business credit unless the primary purpose of the account is business-
related. A creditor may rely on an applicant's statement of the purpose
for the credit requested.
2(j) Credit.
1. General. Regulation B covers a wider range of credit transactions
than Regulation Z (Truth in Lending). Under Regulation B, a transaction
is credit if there is a right to defer payment of a debt--regardless of
whether the credit is for personal or commercial purposes, the number of
installments required for repayment, or whether the transaction is
subject to a finance charge.
2(l) Creditor.
1. Assignees. The term creditor includes all persons participating
in the credit decision. This may include an assignee or a potential
purchaser of the obligation who influences the credit decision by
indicating whether or not it will purchase the obligation if the
transaction is consummated.
2. Referrals to creditors. For certain purposes, the term creditor
includes persons such as real estate brokers, automobile dealers, home
builders, and home-improvement contractors who do not participate in
credit decisions but who only accept applications and refer applicants
to creditors, or select or offer to select creditors to whom credit
requests can be made. These persons must
[[Page 70]]
comply with Sec. 1002.4(a), the general rule prohibiting discrimination,
and with Sec. 1002.4(b), the general rule against discouraging
applications.
2(p) Empirically derived and other credit scoring systems.
1. Purpose of definition. The definition under Secs. 1002.2(p)(1)(i)
through (iv) sets the criteria that a credit system must meet in order
to use age as a predictive factor. Credit systems that do not meet these
criteria are judgmental systems and may consider age only for the
purpose of determining a ``pertinent element of creditworthiness.''
(Both types of systems may favor an elderly applicant. See
Sec. 1002.6(b)(2).)
2. Periodic revalidation. The regulation does not specify how often
credit scoring systems must be revalidated. The credit scoring system
must be revalidated frequently enough to ensure that it continues to
meet recognized professional statistical standards for statistical
soundness. To ensure that predictive ability is being maintained, the
creditor must periodically review the performance of the system. This
could be done, for example, by analyzing the loan portfolio to determine
the delinquency rate for each score interval, or by analyzing population
stability over time to detect deviations of recent applications from the
applicant population used to validate the system. If this analysis
indicates that the system no longer predicts risk with statistical
soundness, the system must be adjusted as necessary to reestablish its
predictive ability. A creditor is responsible for ensuring its system is
validated and revalidated based on the creditor's own data.
3. Pooled data scoring systems. A scoring system or the data from
which to develop such a system may be obtained from either a single
credit grantor or multiple credit grantors. The resulting system will
qualify as an empirically derived, demonstrably and statistically sound,
credit scoring system provided the criteria set forth in paragraph
(p)(1)(i) through (iv) of this section are met. A creditor is
responsible for ensuring its system is validated and revalidated based
on the creditor's own data when it becomes available.
4. Effects test and disparate treatment. An empirically derived,
demonstrably and statistically sound, credit scoring system may include
age as a predictive factor (provided that the age of an elderly
applicant is not assigned a negative factor or value). Besides age, no
other prohibited basis may be used as a variable. Generally, credit
scoring systems treat all applicants objectively and thus avoid problems
of disparate treatment. In cases where a credit scoring system is used
in conjunction with individual discretion, disparate treatment could
conceivably occur in the evaluation process. In addition, neutral
factors used in credit scoring systems could nonetheless be subject to
challenge under the effects test. (See comment 6(a)-2 for a discussion
of the effects test).
2(w) Open-end credit.
1. Open-end real estate mortgages. The term ``open-end credit'' does
not include negotiated advances under an open-end real estate mortgage
or a letter of credit.
2(z) Prohibited basis.
1. Persons associated with applicant. As used in this part,
prohibited basis refers not only to characteristics--the race, color,
religion, national origin, sex, marital status, or age--of an applicant
(or officers of an applicant in the case of a corporation) but also to
the characteristics of individuals with whom an applicant is affiliated
or with whom the applicant associates. This means, for example, that
under the general rule stated in Sec. 1002.4(a), a creditor may not
discriminate against an applicant because of that person's personal or
business dealings with members of a certain religion, because of the
national origin of any persons associated with the extension of credit
(such as the tenants in the apartment complex being financed), or
because of the race of other residents in the neighborhood where the
property offered as collateral is located.
2. National origin. A creditor may not refuse to grant credit
because an applicant comes from a particular country but may take the
applicant's immigration status into account. A creditor may also take
into account any applicable law, regulation, or executive order
restricting dealings with citizens (or the government) of a particular
country or imposing limitations regarding credit extended for their use.
3. Public assistance program. Any Federal, state, or local
governmental assistance program that provides a continuing, periodic
income supplement, whether premised on entitlement or need, is ``public
assistance'' for purposes of the regulation. The term includes (but is
not limited to) Temporary Aid to Needy Families, food stamps, rent and
mortgage supplement or assistance programs, social security and
supplemental security income, and unemployment compensation. Only
physicians, hospitals, and others to whom the benefits are payable need
consider Medicare and Medicaid as public assistance.
Section 1002.3--Limited Exceptions for Certain Classes of Transactions
1. Scope. Under this section, procedural requirements of the
regulation do not apply to certain types of credit. All classes of
transactions remain subject to Sec. 1002.4(a), the general rule barring
discrimination on a prohibited basis, and to any other provision not
specifically excepted.
3(a) Public-utilities credit.
1. Definition. This definition applies only to credit for the
purchase of a utility service,
[[Page 71]]
such as electricity, gas, or telephone service. Credit provided or
offered by a public utility for some other purpose--such as for
financing the purchase of a gas dryer, telephone equipment, or other
durable goods, or for insulation or other home improvements--is not
excepted.
2. Security deposits. A utility company is a creditor when it
supplies utility service and bills the user after the service has been
provided. Thus, any credit term (such as a requirement for a security
deposit) is subject to the regulation's bar against discrimination on a
prohibited basis.
3. Telephone companies. A telephone company's credit transactions
qualify for the exceptions provided in Sec. 1002.3(a)(2) only if the
company is regulated by a government unit or files the charges for
service, delayed payment, or any discount for prompt payment with a
government unit.
3(c) Incidental credit.
1. Examples. If a service provider (such as a hospital, doctor,
lawyer, or merchant) allows the client or customer to defer the payment
of a bill, this deferral of debt is credit for purposes of the
regulation, even though there is no finance charge and no agreement for
payment in installments. Because of the exceptions provided by this
section, however, these particular credit extensions are excepted from
compliance with certain procedural requirements as specified in
Sec. 1002.3(c).
3(d) Government credit.
1. Credit to governments. The exception relates to credit extended
to (not by) governmental entities. For example, credit extended to a
local government is covered by this exception, but credit extended to
consumers by a Federal or state housing agency does not qualify for
special treatment under this category.
Section 1002.4--General Rules
Paragraph 4(a).
1. Scope of rule. The general rule stated in Sec. 1002.4(a) covers
all dealings, without exception, between an applicant and a creditor,
whether or not addressed by other provisions of the regulation. Other
provisions of the regulation identify specific practices that the Bureau
has decided are impermissible because they could result in credit
discrimination on a basis prohibited by the Act. The general rule
covers, for example, application procedures, criteria used to evaluate
creditworthiness, administration of accounts, and treatment of
delinquent or slow accounts. Thus, whether or not specifically
prohibited elsewhere in the regulation, a credit practice that treats
applicants differently on a prohibited basis violates the law because it
violates the general rule. Disparate treatment on a prohibited basis is
illegal whether or not it results from a conscious intent to
discriminate.
2. Examples.
i. Disparate treatment would exist, for example, in the following
situations:
A. A creditor provides information only on ``subprime'' and similar
products to minority applicants who request information about the
creditor's mortgage products, but provides information on a wider
variety of mortgage products to similarly situated nonminority
applicants.
B. A creditor provides more comprehensive information to men than to
similarly situated women.
C. A creditor requires a minority applicant to provide greater
documentation to obtain a loan than a similarly situated nonminority
applicant.
D. A creditor waives or relaxes credit standards for a nonminority
applicant but not for a similarly situated minority applicant.
ii. Treating applicants differently on a prohibited basis is
unlawful if the creditor lacks a legitimate nondiscriminatory reason for
its action, or if the asserted reason is found to be a pretext for
discrimination.
Paragraph 4(b).
1. Prospective applicants. Generally, the regulation's protections
apply only to persons who have requested or received an extension of
credit. In keeping with the purpose of the Act--to promote the
availability of credit on a nondiscriminatory basis--Sec. 1002.4(b)
covers acts or practices directed at prospective applicants that could
discourage a reasonable person, on a prohibited basis, from applying for
credit. Practices prohibited by this section include:
i. A statement that the applicant should not bother to apply, after
the applicant states that he is retired.
ii. The use of words, symbols, models or other forms of
communication in advertising that express, imply, or suggest a
discriminatory preference or a policy of exclusion in violation of the
Act.
iii. The use of interview scripts that discourage applications on a
prohibited basis.
2. Affirmative advertising. A creditor may affirmatively solicit or
encourage members of traditionally disadvantaged groups to apply for
credit, especially groups that might not normally seek credit from that
creditor.
Paragraph 4(c).
1. Requirement for written applications. Model application forms are
provided in appendix B to the regulation, although use of a printed form
is not required. A creditor will satisfy the requirement by writing down
the information that it normally considers in making a credit decision.
The creditor may complete an application on behalf of an applicant and
need not require the applicant to sign the application.
2. Telephone applications. A creditor that accepts applications by
telephone for dwelling-related credit covered by Sec. 1002.13 can
[[Page 72]]
meet the requirement for written applications by writing down pertinent
information that is provided by the applicant.
3. Computerized entry. Information entered directly into and
retained by a computerized system qualifies as a written application
under this paragraph. (See the commentary to Sec. 1002.13(b),
Applications through electronic media and Applications through video.)
Paragraph 4(d).
1. Clear and conspicuous. This standard requires that disclosures be
presented in a reasonably understandable format in a way that does not
obscure the required information. No minimum type size is mandated, but
the disclosures must be legible, whether typewritten, handwritten, or
printed by computer.
2. Form of disclosures. Whether the disclosures required to be on or
with an application must be in electronic form depends upon the
following:
i. If an applicant accesses a credit application electronically
(other than as described under ii below), such as online at a home
computer, the creditor must provide the disclosures in electronic form
(such as with the application form on its Web site) in order to meet the
requirement to provide disclosures in a timely manner on or with the
application. If the creditor instead mailed paper disclosures to the
applicant, this requirement would not be met.
ii. In contrast, if an applicant is physically present in the
creditor's office, and accesses a credit application electronically,
such as via a terminal or kiosk (or if the applicant uses a terminal or
kiosk located on the premises of an affiliate or third party that has
arranged with the creditor to provide applications to consumers), the
creditor may provide disclosures in either electronic or paper form,
provided the creditor complies with the timing, delivery, and
retainability requirements of the regulation.
Section 1002.5--Rules Concerning Requests for Information
5(a) General rules.
Paragraph 5(a)(1).
1. Requests for information. This section governs the types of
information that a creditor may gather. Section1002.6 governs how
information may be used.
Paragraph 5(a)(2).
1. Local laws. Information that a creditor is allowed to collect
pursuant to a ``state'' statute or regulation includes information
required by a local statute, regulation, or ordinance.
2. Information required by Regulation C. Regulation C generally
requires creditors covered by the Home Mortgage Disclosure Act (HMDA) to
collect and report information about the race, ethnicity, and sex of
applicants for home-improvement loans and home-purchase loans, including
some types of loans not covered by Sec. 1002.13.
3. Collecting information on behalf of creditors. Persons such as
loan brokers and correspondents do not violate the ECOA or Regulation B
if they collect information that they are otherwise prohibited from
collecting, where the purpose of collecting the information is to
provide it to a creditor that is subject to the Home Mortgage Disclosure
Act or another Federal or state statute or regulation requiring data
collection.
5(d) Other limitations on information requests.
Paragraph 5(d)(1).
1. Indirect disclosure of prohibited information. The fact that
certain credit-related information may indirectly disclose marital
status does not bar a creditor from seeking such information. For
example, the creditor may ask about:
i. The applicant's obligation to pay alimony, child support, or
separate maintenance income.
ii. The source of income to be used as the basis for repaying the
credit requested, which could disclose that it is the income of a
spouse.
iii. Whether any obligation disclosed by the applicant has a co-
obligor, which could disclose that the co-obligor is a spouse or former
spouse.
iv. The ownership of assets, which could disclose the interest of a
spouse.
Paragraph 5(d)(2).
1. Disclosure about income. The sample application forms in appendix
B to the regulation illustrate how a creditor may inform an applicant of
the right not to disclose alimony, child support, or separate
maintenance income.
2. General inquiry about source of income. Since a general inquiry
about the source of income may lead an applicant to disclose alimony,
child support, or separate maintenance income, a creditor making such an
inquiry on an application form should preface the request with the
disclosure required by this paragraph.
3. Specific inquiry about sources of income. A creditor need not
give the disclosure if the inquiry about income is specific and worded
in a way that is unlikely to lead the applicant to disclose the fact
that income is derived from alimony, child support, or separate
maintenance payments. For example, an application form that asks about
specific types of income such as salary, wages, or investment income
need not include the disclosure.
Section 1002.6--Rules Concerning Evaluation of Applications
6(a) General rule concerning use of information.
1. General. When evaluating an application for credit, a creditor
generally may consider
[[Page 73]]
any information obtained. However, a creditor may not consider in its
evaluation of creditworthiness any information that it is barred by
Sec. 1002.5 from obtaining or from using for any purpose other than to
conduct a self-test under Sec. 1002.15.
2. Effects test. The effects test is a judicial doctrine that was
developed in a series of employment cases decided by the U.S. Supreme
Court under title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e
et seq.,) and the burdens of proof for such employment cases were
codified by Congress in the Civil Rights Act of 1991 (42 U.S.C. 2000e-
2). Congressional intent that this doctrine apply to the credit area is
documented in the Senate Report that accompanied H.R. 6516, No. 94-589,
pp. 4-5; and in the House Report that accompanied H.R. 6516, No. 94-210,
p.5. The Act and regulation may prohibit a creditor practice that is
discriminatory in effect because it has a disproportionately negative
impact on a prohibited basis, even though the creditor has no intent to
discriminate and the practice appears neutral on its face, unless the
creditor practice meets a legitimate business need that cannot
reasonably be achieved as well by means that are less disparate in their
impact. For example, requiring that applicants have income in excess of
a certain amount to qualify for an overdraft line of credit could mean
that women and minority applicants will be rejected at a higher rate
than men and nonminority applicants. If there is a demonstrable
relationship between the income requirement and creditworthiness for the
level of credit involved, however, use of the income standard would
likely be permissible.
6(b) Specific rules concerning use of information.
Paragraph 6(b)(1).
1. Prohibited basis--special purpose credit. In a special purpose
credit program, a creditor may consider a prohibited basis to determine
whether the applicant possesses a characteristic needed for eligibility.
(See Sec. 1002.8.)
Paragraph 6(b)(2).
1. Favoring the elderly. Any system of evaluating creditworthiness
may favor a credit applicant who is age 62 or older. A credit program
that offers more favorable credit terms to applicants age 62 or older is
also permissible; a program that offers more favorable credit terms to
applicants at an age lower than 62 is permissible only if it meets the
special-purpose credit requirements of Sec. 1002.8.
2. Consideration of age in a credit scoring system. Age may be taken
directly into account in a credit scoring system that is ``demonstrably
and statistically sound,'' as defined in Sec. 1002.2(p), with one
limitation: Applicants age 62 years or older must be treated at least as
favorably as applicants who are under age 62. If age is scored by
assigning points to an applicant's age category, elderly applicants must
receive the same or a greater number of points as the most favored class
of nonelderly applicants.
i. Age-split scorecards. Some credit systems segment the population
and use different scorecards based on the age of an applicant. In such a
system, one card may cover a narrow age range (for example, applicants
in their twenties or younger) who are evaluated under attributes
predictive for that age group. A second card may cover all other
applicants, who are evaluated under the attributes predictive for that
broader class. When a system uses a card covering a wide age range that
encompasses elderly applicants, the credit scoring system is not deemed
to score age. Thus, the system does not raise the issue of assigning a
negative factor or value to the age of elderly applicants. But if a
system segments the population by age into multiple scorecards, and
includes elderly applicants in a narrower age range, the credit scoring
system does score age. To comply with the Act and regulation in such a
case, the creditor must ensure that the system does not assign a
negative factor or value to the age of elderly applicants as a class.
3. Consideration of age in a judgmental system. In a judgmental
system, defined in Sec. 1002.2(t), a creditor may not decide whether to
extend credit or set the terms and conditions of credit based on age or
information related exclusively to age. Age or age-related information
may be considered only in evaluating other ``pertinent elements of
creditworthiness'' that are drawn from the particular facts and
circumstances concerning the applicant. For example, a creditor may not
reject an application or terminate an account because the applicant is
60 years old. But a creditor that uses a judgmental system may relate
the applicant's age to other information about the applicant that the
creditor considers in evaluating creditworthiness. As the following
examples illustrate, the evaluation must be made in an individualized,
case-by-case manner:
i. A creditor may consider the applicant's occupation and length of
time to retirement to ascertain whether the applicant's income
(including retirement income) will support the extension of credit to
its maturity.
ii. A creditor may consider the adequacy of any security offered
when the term of the credit extension exceeds the life expectancy of the
applicant and the cost of realizing on the collateral could exceed the
applicant's equity. An elderly applicant might not qualify for a 5
percent down, 30-year mortgage loan but might qualify with a larger
downpayment or a shorter loan maturity.
iii. A creditor may consider the applicant's age to assess the
significance of length of employment (a young applicant may have just
entered the job market) or length of time at an address (an elderly
applicant may
[[Page 74]]
recently have retired and moved from a long-term residence).
4. Consideration of age in a reverse mortgage. A reverse mortgage is
a home-secured loan in which the borrower receives payments from the
creditor, and does not become obligated to repay these amounts (other
than in the case of default) until the borrower dies, moves permanently
from the home, or transfers title to the home, or upon a specified
maturity date. Disbursements to the borrower under a reverse mortgage
typically are determined by considering the value of the borrower's
home, the current interest rate, and the borrower's life expectancy. A
reverse mortgage program that requires borrowers to be age 62 or older
is permissible under Sec. 1002.6(b)(2)(iv). In addition, under
Sec. 1002.6(b)(2)(iii), a creditor may consider a borrower's age to
evaluate a pertinent element of creditworthiness, such as the amount of
the credit or monthly payments that the borrower will receive, or the
estimated repayment date.
5. Consideration of age in a combined system. A creditor using a
credit scoring system that qualifies as ``empirically derived'' under
Sec. 1002.2(p) may consider other factors (such as a credit report or
the applicant's cash flow) on a judgmental basis. Doing so will not
negate the classification of the credit scoring component of the
combined system as ``demonstrably and statistically sound.'' While age
could be used in the credit scoring portion, however, in the judgmental
portion age may not be considered directly. It may be used only for the
purpose of determining a ``pertinent element of creditworthiness.'' (See
comment 6(b)(2)-3.)
6. Consideration of public assistance. When considering income
derived from a public assistance program, a creditor may take into
account, for example:
i. The length of time an applicant will likely remain eligible to
receive such income.
ii. Whether the applicant will continue to qualify for benefits
based on the status of the applicant's dependents (as in the case of
Temporary Aid to Needy Families, or social security payments to a
minor).
iii. Whether the creditor can attach or garnish the income to assure
payment of the debt in the event of default.
Paragraph 6(b)(5).
1. Consideration of an individual applicant. A creditor must
evaluate income derived from part-time employment, alimony, child
support, separate maintenance payments, retirement benefits, or public
assistance on an individual basis, not on the basis of aggregate
statistics; and must assess its reliability or unreliability by
analyzing the applicant's actual circumstances, not by analyzing
statistical measures derived from a group.
2. Payments consistently made. In determining the likelihood of
consistent payments of alimony, child support, or separate maintenance,
a creditor may consider factors such as whether payments are received
pursuant to a written agreement or court decree; the length of time that
the payments have been received; whether the payments are regularly
received by the applicant; the availability of court or other procedures
to compel payment; and the creditworthiness of the payor, including the
credit history of the payor when it is available to the creditor.
3. Consideration of income.
i. A creditor need not consider income at all in evaluating
creditworthiness. If a creditor does consider income, there are several
acceptable methods, whether in a credit scoring or a judgmental system:
A. A creditor may score or take into account the total sum of all
income stated by the applicant without taking steps to evaluate the
income for reliability.
B. A creditor may evaluate each component of the applicant's income,
and then score or take into account income determined to be reliable
separately from other income; or the creditor may disregard that portion
of income that is not reliable when it aggregates reliable income.
C. A creditor that does not evaluate all income components for
reliability must treat as reliable any component of protected income
that is not evaluated.
ii. In considering the separate components of an applicant's income,
the creditor may not automatically discount or exclude from
consideration any protected income. Any discounting or exclusion must be
based on the applicant's actual circumstances.
4. Part-time employment, sources of income. A creditor may score or
take into account the fact that an applicant has more than one source of
earned income--a full-time and a part-time job or two part-time jobs. A
creditor may also score or treat earned income from a secondary source
differently than earned income from a primary source. The creditor may
not, however, score or otherwise take into account the number of sources
for income such as retirement income, social security, supplemental
security income, and alimony. Nor may the creditor treat negatively the
fact that an applicant's only earned income is derived from, for
example, a part-time job.
Paragraph 6(b)(6).
1. Types of credit references. A creditor may restrict the types of
credit history and credit references that it will consider, provided
that the restrictions are applied to all credit applicants without
regard to sex, marital status, or any other prohibited basis. On the
applicant's request, however, a creditor must consider credit
information not reported
[[Page 75]]
through a credit bureau when the information relates to the same types
of credit references and history that the creditor would consider if
reported through a credit bureau.
Paragraph 6(b)(7).
1. National origin--immigration status. The applicant's immigration
status and ties to the community (such as employment and continued
residence in the area) could have a bearing on a creditor's ability to
obtain repayment. Accordingly, the creditor may consider immigration
status and differentiate, for example, between a noncitizen who is a
long-time resident with permanent resident status and a noncitizen who
is temporarily in this country on a student visa.
2. National origin--citizenship. A denial of credit on the ground
that an applicant is not a United States citizen is not per se
discrimination based on national origin.
Paragraph 6(b)(8).
1. Prohibited basis--marital status. A creditor may consider the
marital status of an applicant or joint applicant for the purpose of
ascertaining the creditor's rights and remedies applicable to the
particular extension of credit. For example, in a secured transaction
involving real property, a creditor could take into account whether
state law gives the applicant's spouse an interest in the property being
offered as collateral.
Section 1002.7--Rules Concerning Extensions of Credit
7(a) Individual accounts.
1. Open-end credit--authorized user. A creditor may not require a
creditworthy applicant seeking an individual credit account to provide
additional signatures. But the creditor may condition the designation of
an authorized user by the account holder on the authorized user's
becoming contractually liable for the account, as long as the creditor
does not differentiate on any prohibited basis in imposing this
requirement.
2. Open-end credit--choice of authorized user. A creditor that
permits an account holder to designate an authorized user may not
restrict this designation on a prohibited basis. For example, if the
creditor allows the designation of spouses as authorized users, the
creditor may not refuse to accept a non-spouse as an authorized user.
3. Overdraft authority on transaction accounts. If a transaction
account (such as a checking account or NOW account) includes an
overdraft line of credit, the creditor may require that all persons
authorized to draw on the transaction account assume liability for any
overdraft.
7(b) Designation of name.
1. Single name on account. A creditor may require that joint
applicants on an account designate a single name for purposes of
administering the account and that a single name be embossed on any
credit cards issued on the account. But the creditor may not require
that the name be the husband's name. (See Sec. 1002.10 for rules
governing the furnishing of credit history on accounts held by spouses.)
7(c) Action concerning existing open-end accounts.
Paragraph 7(c)(1).
1. Termination coincidental with marital status change. When an
account holder's marital status changes, a creditor generally may not
terminate the account unless it has evidence that the account holder is
now unable or unwilling to repay. But the creditor may terminate an
account on which both spouses are jointly liable, even if the action
coincides with a change in marital status, when one or both spouses:
i. Repudiate responsibility for future charges on the joint account.
ii. Request separate accounts in their own names.
iii. Request that the joint account be closed.
2. Updating information. A creditor may periodically request updated
information from applicants but may not use events related to a
prohibited basis--such as an applicant's retirement or reaching a
particular age, or a change in name or marital status--to trigger such a
request.
Paragraph 7(c)(2).
1. Procedure pending reapplication. A creditor may require a
reapplication from an account holder, even when there is no evidence of
unwillingness or inability to repay, if (1) the credit was based on the
qualifications of a person who is no longer available to support the
credit and (2) the creditor has information indicating that the account
holder's income may be insufficient to support the credit. While a
reapplication is pending, the creditor must allow the account holder
full access to the account under the existing contract terms. The
creditor may specify a reasonable time period within which the account
holder must submit the required information.
7(d) Signature of spouse or other person.
1. Qualified applicant. The signature rules ensure that qualified
applicants are able to obtain credit in their own names. Thus, when an
applicant requests individual credit, a creditor generally may not
require the signature of another person unless the creditor has first
determined that the applicant alone does not qualify for the credit
requested.
2. Unqualified applicant. When an applicant requests individual
credit but does not meet a creditor's standards, the creditor may
require a cosigner, guarantor, endorser, or similar party--but cannot
require that it be the spouse. (See commentary to Secs. 1002.7(d)(5) and
(6).)
Paragraph 7(d)(1).
[[Page 76]]
1. Signature of another person. It is impermissible for a creditor
to require an applicant who is individually creditworthy to provide a
cosigner--even if the creditor applies the requirement without regard to
sex, marital status, or any other prohibited basis. (But see comment
7(d)(6)-1 concerning guarantors of closely held corporations.)
2. Joint applicant. The term ``joint applicant'' refers to someone
who applies contemporaneously with the applicant for shared or joint
credit. It does not refer to someone whose signature is required by the
creditor as a condition for granting the credit requested.
3. Evidence of joint application. A person's intent to be a joint
applicant must be evidenced at the time of application. Signatures on a
promissory note may not be used to show intent to apply for joint
credit. On the other hand, signatures or initials on a credit
application affirming applicants' intent to apply for joint credit may
be used to establish intent to apply for joint credit. (See appendix B.)
The method used to establish intent must be distinct from the means used
by individuals to affirm the accuracy of information. For example,
signatures on a joint financial statement affirming the veracity of
information are not sufficient to establish intent to apply for joint
credit.
Paragraph 7(d)(2).
1. Jointly owned property. If an applicant requests unsecured
credit, does not own sufficient separate property, and relies on joint
property to establish creditworthiness, the creditor must value the
applicant's interest in the jointly owned property. A creditor may not
request that a nonapplicant joint owner sign any instrument as a
condition of the credit extension unless the applicant's interest does
not support the amount and terms of the credit sought.
i. Valuation of applicant's interest. In determining the value of an
applicant's interest in jointly owned property, a creditor may consider
factors such as the form of ownership and the property's susceptibility
to attachment, execution, severance, or partition; the value of the
applicant's interest after such action; and the cost associated with the
action. This determination must be based on the existing form of
ownership, and not on the possibility of a subsequent change. For
example, in determining whether a married applicant's interest in
jointly owned property is sufficient to satisfy the creditor's standards
of creditworthiness for individual credit, a creditor may not consider
that the applicant's separate property could be transferred into tenancy
by the entirety after consummation. Similarly, a creditor may not
consider the possibility that the couple may divorce. Accordingly, a
creditor may not require the signature of the non-applicant spouse in
these or similar circumstances.
ii. Other options to support credit. If the applicant's interest in
jointly owned property does not support the amount and terms of credit
sought, the creditor may offer the applicant other options to qualify
for the extension of credit. For example:
A. Providing a co-signer or other party (Sec. 1002.7(d)(5));
B. Requesting that the credit be granted on a secured basis
(Sec. 1002.7(d)(4)); or
C. Providing the signature of the joint owner on an instrument that
ensures access to the property in the event of the applicant's death or
default, but does not impose personal liability unless necessary under
state law (such as a limited guarantee). A creditor may not routinely
require, however, that a joint owner sign an instrument (such as a
quitclaim deed) that would result in the forfeiture of the joint owner's
interest in the property.
2. Need for signature--reasonable belief. A creditor's reasonable
belief as to what instruments need to be signed by a person other than
the applicant should be supported by a thorough review of pertinent
statutory and decisional law or an opinion of the state attorney
general.
Paragraph 7(d)(3).
1. Residency. In assessing the creditworthiness of a person who
applies for credit in a community property state, a creditor may assume
that the applicant is a resident of the state unless the applicant
indicates otherwise.
Paragraph 7(d)(4).
1. Creation of enforceable lien. Some state laws require that both
spouses join in executing any instrument by which real property is
encumbered. If an applicant offers such property as security for credit,
a creditor may require the applicant's spouse to sign the instruments
necessary to create a valid security interest in the property. The
creditor may not require the spouse to sign the note evidencing the
credit obligation if signing only the mortgage or other security
agreement is sufficient to make the property available to satisfy the
debt in the event of default. However, if under state law both spouses
must sign the note to create an enforceable lien, the creditor may
require the signatures.
2. Need for signature--reasonable belief. Generally, a signature to
make the secured property available will only be needed on a security
agreement. A creditor's reasonable belief that, to ensure access to the
property, the spouse's signature is needed on an instrument that imposes
personal liability should be supported by a thorough review of pertinent
statutory and decisional law or an opinion of the state attorney
general.
3. Integrated instruments. When a creditor uses an integrated
instrument that combines the note and the security agreement, the
[[Page 77]]
spouse cannot be asked to sign the integrated instrument if the
signature is only needed to grant a security interest. But the spouse
could be asked to sign an integrated instrument that makes clear--for
example, by a legend placed next to the spouse's signature--that the
spouse's signature is only to grant a security interest and that signing
the instrument does not impose personal liability.
Paragraph 7(d)(5).
1. Qualifications of additional parties. In establishing guidelines
for eligibility of guarantors, cosigners, or similar additional parties,
a creditor may restrict the applicant's choice of additional parties but
may not discriminate on the basis of sex, marital status, or any other
prohibited basis. For example, the creditor could require that the
additional party live in the creditor's market area.
2. Reliance on income of another person--individual credit. An
applicant who requests individual credit relying on the income of
another person (including a spouse in a non-community property state)
may be required to provide the signature of the other person to make the
income available to pay the debt. In community property states, the
signature of a spouse may be required if the applicant relies on the
spouse's separate income. If the applicant relies on the spouse's future
earnings that as a matter of state law cannot be characterized as
community property until earned, the creditor may require the spouse's
signature, but need not do so--even if it is the creditor's practice to
require the signature when an applicant relies on the future earnings of
a person other than a spouse. (See Sec. 1002.6(c) on consideration of
state property laws.)
3. Renewals. If the borrower's creditworthiness is reevaluated when
a credit obligation is renewed, the creditor must determine whether an
additional party is still warranted and, if not warranted, release the
additional party.
Paragraph 7(d)(6).
1. Guarantees. A guarantee on an extension of credit is part of a
credit transaction and therefore subject to the regulation. A creditor
may require the personal guarantee of the partners, directors, or
officers of a business, and the shareholders of a closely held
corporation, even if the business or corporation is creditworthy. The
requirement must be based on the guarantor's relationship with the
business or corporation, however, and not on a prohibited basis. For
example, a creditor may not require guarantees only for women-owned or
minority-owned businesses. Similarly, a creditor may not require
guarantees only of the married officers of a business or the married
shareholders of a closely held corporation.
2. Spousal guarantees. The rules in Sec. 1002.7(d) bar a creditor
from requiring the signature of a guarantor's spouse just as they bar
the creditor from requiring the signature of an applicant's spouse. For
example, although a creditor may require all officers of a closely held
corporation to personally guarantee a corporate loan, the creditor may
not automatically require that spouses of married officers also sign the
guarantee. If an evaluation of the financial circumstances of an officer
indicates that an additional signature is necessary, however, the
creditor may require the signature of another person in appropriate
circumstances in accordance with Sec. 1002.7(d)(2).
7(e) Insurance.
1. Differences in terms. Differences in the availability, rates, and
other terms on which credit-related casualty insurance or credit life,
health, accident, or disability insurance is offered or provided to an
applicant does not violate Regulation B.
2. Insurance information. A creditor may obtain information about an
applicant's age, sex, or marital status for insurance purposes. The
information may only be used for determining eligibility and premium
rates for insurance, however, and not in making the credit decision.
Section 1002.8--Special Purpose Credit Programs
8(a) Standards for programs.
1. Determining qualified programs. The Bureau does not determine
whether individual programs qualify for special purpose credit status,
or whether a particular program benefits an ``economically disadvantaged
class of persons.'' The agency or creditor administering or offering the
loan program must make these decisions regarding the status of its
program.
2. Compliance with a program authorized by Federal or state law. A
creditor does not violate Regulation B when it complies in good faith
with a regulation promulgated by a government agency implementing a
special purpose credit program under Sec. 1002.8(a)(1). It is the
agency's responsibility to promulgate a regulation that is consistent
with Federal and state law.
3. Expressly authorized. Credit programs authorized by Federal or
state law include programs offered pursuant to Federal, state, or local
statute, regulation or ordinance, or pursuant to judicial or
administrative order.
4. Creditor liability. A refusal to grant credit to an applicant is
not a violation of the Act or regulation if the applicant does not meet
the eligibility requirements under a special purpose credit program.
5. Determining need. In designing a special purpose credit program
under Sec. 1002.8(a), a for-profit organization must determine that the
program will benefit a class of people who would otherwise be denied
credit or would receive it on less favorable terms. This determination
can be based on a broad analysis using the organization's own research
or
[[Page 78]]
data from outside sources, including governmental reports and studies.
For example, a creditor might design new products to reach consumers who
would not meet, or have not met, its traditional standards of
creditworthiness due to such factors as credit inexperience or the use
of credit sources that may not report to consumer reporting agencies.
Or, a bank could review Home Mortgage Disclosure Act data along with
demographic data for its assessment area and conclude that there is a
need for a special purpose credit program for low-income minority
borrowers.
6. Elements of the program. The written plan must contain
information that supports the need for the particular program. The plan
also must either state a specific period of time for which the program
will last, or contain a statement regarding when the program will be
reevaluated to determine if there is a continuing need for it.
8(b) Rules in other sections.
1. Applicability of rules. A creditor that rejects an application
because the applicant does not meet the eligibility requirements (common
characteristic or financial need, for example) must nevertheless notify
the applicant of action taken as required by Sec. 1002.9.
8(c) Special rule concerning requests and use of information.
1. Request of prohibited basis information. This section permits a
creditor to request and consider certain information that would
otherwise be prohibited by Secs. 1002.5 and 1002.6 to determine an
applicant's eligibility for a particular program.
2. Examples. Examples of programs under which the creditor can ask
for and consider information about a prohibited basis are:
i. Energy conservation programs to assist the elderly, for which the
creditor must consider the applicant's age.
ii. Programs under a Minority Enterprise Small Business Investment
Corporation, for which a creditor must consider the applicant's minority
status.
8(d) Special rule in the case of financial need.
1. Request of prohibited basis information. This section permits a
creditor to request and consider certain information that would
otherwise be prohibited by Secs. 1002.5 and 1002.6, and to require
signatures that would otherwise be prohibited by Sec. 1002.7(d).
2. Examples. Examples of programs in which financial need is a
criterion are:
i. Subsidized housing programs for low-to moderate-income
households, for which a creditor may have to consider the applicant's
receipt of alimony or child support, the spouse's or parents' income,
etc.
ii. Student loan programs based on the family's financial need, for
which a creditor may have to consider the spouse's or parents' financial
resources.
3. Student loans. In a guaranteed student loan program, a creditor
may obtain the signature of a parent as a guarantor when required by
Federal or state law or agency regulation, or when the student does not
meet the creditor's standards of creditworthiness. (See
Secs. 1002.7(d)(1) and (5).) The creditor may not require an additional
signature when a student has a work or credit history that satisfies the
creditor's standards.
Section 1002.9--Notifications
1. Use of the term adverse action. The regulation does not require
that a creditor use the term adverse action in communicating to an
applicant that a request for an extension of credit has not been
approved. In notifying an applicant of adverse action as defined by
Sec. 1002.2(c)(1), a creditor may use any words or phrases that describe
the action taken on the application.
2. Expressly withdrawn applications. When an applicant expressly
withdraws a credit application, the creditor is not required to comply
with the notification requirements under Sec. 1002.9. (The creditor must
comply, however, with the record retention requirements of the
regulation. See Sec. 1002.12(b)(3).)
3. When notification occurs. Notification occurs when a creditor
delivers or mails a notice to the applicant's last known address or, in
the case of an oral notification, when the creditor communicates the
credit decision to the applicant.
4. Location of notice. The notifications required under Sec. 1002.9
may appear on either or both sides of a form or letter.
5. Prequalification requests. Whether a creditor must provide a
notice of action taken for a prequalification request depends on the
creditor's response to the request, as discussed in comment 2(f)-3. For
instance, a creditor may treat the request as an inquiry if the creditor
evaluates specific information about the consumer and tells the consumer
the loan amount, rate, and other terms of credit the consumer could
qualify for under various loan programs, explaining the process the
consumer must follow to submit a mortgage application and the
information the creditor will analyze in reaching a credit decision. On
the other hand, a creditor has treated a request as an application, and
is subject to the adverse action notice requirements of Sec. 1002.9 if,
after evaluating information, the creditor decides that it will not
approve the request and communicates that decision to the consumer. For
example, if the creditor tells the consumer that it would not approve an
application for a mortgage because of a bankruptcy in the consumer's
record, the creditor has denied an application for credit.
9(a) Notification of action taken, ECOA notice, and statement of
specific reasons.
Paragraph 9(a)(1).
[[Page 79]]
1. Timing of notice--when an application is complete. Once a
creditor has obtained all the information it normally considers in
making a credit decision, the application is complete and the creditor
has 30 days in which to notify the applicant of the credit decision.
(See also comment 2(f)-6.)
2. Notification of approval. Notification of approval may be express
or by implication. For example, the creditor will satisfy the
notification requirement when it gives the applicant the credit card,
money, property, or services requested.
3. Incomplete application--denial for incompleteness. When an
application is incomplete regarding information that the applicant can
provide and the creditor lacks sufficient data for a credit decision,
the creditor may deny the application giving as the reason for denial
that the application is incomplete. The creditor has the option,
alternatively, of providing a notice of incompleteness under
Sec. 1002.9(c).
4. Incomplete application--denial for reasons other than
incompleteness. When an application is missing information but provides
sufficient data for a credit decision, the creditor may evaluate the
application, make its credit decision, and notify the applicant
accordingly. If credit is denied, the applicant must be given the
specific reasons for the credit denial (or notice of the right to
receive the reasons); in this instance missing information or
``incomplete application'' cannot be given as the reason for the denial.
5. Length of counteroffer. Section 1002.9(a)(1)(iv) does not require
a creditor to hold a counteroffer open for 90 days or any other
particular length of time.
6. Counteroffer combined with adverse action notice. A creditor that
gives the applicant a combined counteroffer and adverse action notice
that complies with Sec. 1002.9(a)(2) need not send a second adverse
action notice if the applicant does not accept the counteroffer. A
sample of a combined notice is contained in form C-4 of appendix C to
the regulation.
7. Denial of a telephone application. When an application is made by
telephone and adverse action is taken, the creditor must request the
applicant's name and address in order to provide written notification
under this section. If the applicant declines to provide that
information, then the creditor has no further notification
responsibility.
Paragraph 9(a)(3).
1. Coverage. In determining which rules in this paragraph apply to a
given business credit application, a creditor may rely on the
applicant's assertion about the revenue size of the business.
(Applications to start a business are governed by the rules in
Sec. 1002.9(a)(3)(i).) If an applicant applies for credit as a sole
proprietor, the revenues of the sole proprietorship will determine which
rules govern the application. However, if an applicant applies for
business credit as an individual, the rules in Sec. 1002.9(a)(3)(i)
apply unless the application is for trade or similar credit.
2. Trade credit. The term trade credit generally is limited to a
financing arrangement that involves a buyer and a seller--such as a
supplier who finances the sale of equipment, supplies, or inventory; it
does not apply to an extension of credit by a bank or other financial
institution for the financing of such items.
3. Factoring. Factoring refers to a purchase of accounts receivable,
and thus is not subject to the Act or regulation. If there is a credit
extension incident to the factoring arrangement, the notification rules
in Sec. 1002.9(a)(3)(ii) apply, as do other relevant sections of the Act
and regulation.
4. Manner of compliance. In complying with the notice provisions of
the Act and regulation, creditors offering business credit may follow
the rules governing consumer credit. Similarly, creditors may elect to
treat all business credit the same (irrespective of revenue size) by
providing notice in accordance with Sec. 1002.9(a)(3)(i).
5. Timing of notification. A creditor subject to
Sec. 1002.9(a)(3)(ii)(A) is required to notify a business credit
applicant, orally or in writing, of action taken on an application
within a reasonable time of receiving a completed application. Notice
provided in accordance with the timing requirements of Sec. 1002.9(a)(1)
is deemed reasonable in all instances.
9(b) Form of ECOA notice and statement of specific reasons.
Paragraph 9(b)(1).
1. Substantially similar notice. The ECOA notice sent with a
notification of a credit denial or other adverse action will comply with
the regulation if it is ``substantially similar'' to the notice
contained in Sec. 1002.9(b)(1). For example, a creditor may add a
reference to the fact that the ECOA permits age to be considered in
certain credit scoring systems, or add a reference to a similar state
statute or regulation and to a state enforcement agency.
Paragraph 9(b)(2).
1. Number of specific reasons. A creditor must disclose the
principal reasons for denying an application or taking other adverse
action. The regulation does not mandate that a specific number of
reasons be disclosed, but disclosure of more than four reasons is not
likely to be helpful to the applicant.
2. Source of specific reasons. The specific reasons disclosed under
Secs. 1002.9(a)(2) and (b)(2) must relate to and accurately describe the
factors actually considered or scored by a creditor.
3. Description of reasons. A creditor need not describe how or why a
factor adversely
[[Page 80]]
affected an applicant. For example, the notice may say ``length of
residence'' rather than ``too short a period of residence.''
4. Credit scoring system. If a creditor bases the denial or other
adverse action on a credit scoring system, the reasons disclosed must
relate only to those factors actually scored in the system. Moreover, no
factor that was a principal reason for adverse action may be excluded
from disclosure. The creditor must disclose the actual reasons for
denial (for example, ``age of automobile'') even if the relationship of
that factor to predicting creditworthiness may not be clear to the
applicant.
5. Credit scoring--method for selecting reasons. The regulation does
not require that any one method be used for selecting reasons for a
credit denial or other adverse action that is based on a credit scoring
system. Various methods will meet the requirements of the regulation.
One method is to identify the factors for which the applicant's score
fell furthest below the average score for each of those factors achieved
by applicants whose total score was at or slightly above the minimum
passing score. Another method is to identify the factors for which the
applicant's score fell furthest below the average score for each of
those factors achieved by all applicants. These average scores could be
calculated during the development or use of the system. Any other method
that produces results substantially similar to either of these methods
is also acceptable under the regulation.
6. Judgmental system. If a creditor uses a judgmental system, the
reasons for the denial or other adverse action must relate to those
factors in the applicant's record actually reviewed by the person making
the decision.
7. Combined credit scoring and judgmental system. If a creditor
denies an application based on a credit evaluation system that employs
both credit scoring and judgmental components, the reasons for the
denial must come from the component of the system that the applicant
failed. For example, if a creditor initially credit scores an
application and denies the credit request as a result of that scoring,
the reasons disclosed to the applicant must relate to the factors scored
in the system. If the application passes the credit scoring stage but
the creditor then denies the credit request based on a judgmental
assessment of the applicant's record, the reasons disclosed must relate
to the factors reviewed judgmentally, even if the factors were also
considered in the credit scoring component. If the application is not
approved or denied as a result of the credit scoring, but falls into a
gray band, and the creditor performs a judgmental assessment and denies
the credit after that assessment, the reasons disclosed must come from
both components of the system. The same result applies where a
judgmental assessment is the first component of the combined system. As
provided in comment 9(b)(2)-1, disclosure of more than a combined total
of four reasons is not likely to be helpful to the applicant.
8. Automatic denial. Some credit decision methods contain features
that call for automatic denial because of one or more negative factors
in the applicant's record (such as the applicant's previous bad credit
history with that creditor, the applicant's declaration of bankruptcy,
or the fact that the applicant is a minor). When a creditor denies the
credit request because of an automatic-denial factor, the creditor must
disclose that specific factor.
9. Combined ECOA-FCRA disclosures. The ECOA requires disclosure of
the principal reasons for denying or taking other adverse action on an
application for an extension of credit. The Fair Credit Reporting Act
(FCRA) requires a creditor to disclose when it has based its decision in
whole or in part on information from a source other than the applicant
or its own files. Disclosing that a credit report was obtained and used
in the denial of the application, as the FCRA requires, does not satisfy
the ECOA requirement to disclose specific reasons. For example, if the
applicant's credit history reveals delinquent credit obligations and the
application is denied for that reason, to satisfy Sec. 1002.9(b)(2) the
creditor must disclose that the application was denied because of the
applicant's delinquent credit obligations. The FCRA also requires a
creditor to disclose, as applicable, a credit score it used in taking
adverse action along with related information, including up to four key
factors that adversely affected the consumer's credit score (or up to
five factors if the number of inquiries made with respect to that
consumer report is a key factor). Disclosing the key factors that
adversely affected the consumer's credit score does not satisfy the ECOA
requirement to disclose specific reasons for denying or taking other
adverse action on an application or extension of credit. Sample forms C-
1 through C-5 of appendix C of the regulation provide for both the ECOA
and FCRA disclosures. See also comment 9(b)(2)-1.
9(c) Incomplete applications.
Paragraph 9(c)(1).
1. Exception for preapprovals. The requirement to provide a notice
of incompleteness does not apply to preapprovals that constitute
applications under Sec. 1002.2(f).
Paragraph 9(c)(2).
1. Reapplication. If information requested by a creditor is
submitted by an applicant after the expiration of the time period
designated by the creditor, the creditor may require the applicant to
make a new application.
Paragraph 9(c)(3).
[[Page 81]]
1. Oral inquiries for additional information. If an applicant fails
to provide the information in response to an oral request, a creditor
must send a written notice to the applicant within the 30-day period
specified in Secs. 1002.9(c)(1) and (2). If the applicant provides the
information, the creditor must take action on the application and notify
the applicant in accordance with Sec. 1002.9(a).
9(g) Applications submitted through a third party.
1. Third parties. The notification of adverse action may be given by
one of the creditors to whom an application was submitted, or by a
noncreditor third party. If one notification is provided on behalf of
multiple creditors, the notice must contain the name and address of each
creditor. The notice must either disclose the applicant's right to a
statement of specific reasons within 30 days, or give the primary
reasons each creditor relied upon in taking the adverse action--clearly
indicating which reasons relate to which creditor.
2. Third party notice--enforcement agency. If a single adverse
action notice is being provided to an applicant on behalf of several
creditors and they are under the jurisdiction of different Federal
enforcement agencies, the notice need not name each agency; disclosure
of any one of them will suffice.
3. Third-party notice--liability. When a notice is to be provided
through a third party, a creditor is not liable for an act or omission
of the third party that constitutes a violation of the regulation if the
creditor accurately and in a timely manner provided the third party with
the information necessary for the notification and maintains reasonable
procedures adapted to prevent such violations.
Section 1002.10--Furnishing of Credit Information
1. Scope. The requirements of Sec. 1002.10 for designating and
reporting credit information apply only to consumer credit transactions.
Moreover, they apply only to creditors that opt to furnish credit
information to credit bureaus or to other creditors; there is no
requirement that a creditor furnish credit information on its accounts.
2. Reporting on all accounts. The requirements of Sec. 1002.10 apply
only to accounts held or used by spouses. However, a creditor has the
option to designate all joint accounts (or all accounts with an
authorized user) to reflect the participation of both parties, whether
or not the accounts are held by persons married to each other.
3. Designating accounts. In designating accounts and reporting
credit information, a creditor need not distinguish between accounts on
which the spouse is an authorized user and accounts on which the spouse
is a contractually liable party.
4. File and index systems. The regulation does not require the
creation or maintenance of separate files in the name of each
participant on a joint or user account, or require any other particular
system of recordkeeping or indexing. It requires only that a creditor be
able to report information in the name of each spouse on accounts
covered by Sec. 1002.10. Thus, if a creditor receives a credit inquiry
about the wife, it should be able to locate her credit file without
asking the husband's name.
10(a) Designation of accounts.
1. New parties. When new parties who are spouses undertake a legal
obligation on an account, as in the case of a mortgage loan assumption,
the creditor must change the designation on the account to reflect the
new parties and must furnish subsequent credit information on the
account in the new names.
2. Request to change designation of account. A request to change the
manner in which information concerning an account is furnished does not
alter the legal liability of either spouse on the account and does not
require a creditor to change the name in which the account is
maintained.
Section 1002.11--Relation to State Law
11(a) Inconsistent state laws.
1. Preemption determination--New York. The Bureau recognizes state
law preemption determinations made by the Board of Governors of the
Federal Reserve System prior to July 21, 2011, until and unless the
Bureau makes and publishes any contrary determination. The Board of
Governors determined that the following provisions in the state law of
New York are preempted by the Federal law, effective November 11, 1988:
i. Article 15, section 296a(1)(b). Unlawful discriminatory practices
in relation to credit on the basis of race, creed, color, national
origin, age, sex, marital status, or disability. This provision is
preempted to the extent that it bars taking a prohibited basis into
account when establishing eligibility for certain special-purpose credit
programs.
ii. Article 15, section 296a(1)(c). Unlawful discriminatory practice
to make any record or inquiry based on race, creed, color, national
origin, age, sex, marital status, or disability. This provision is
preempted to the extent that it bars a creditor from requesting and
considering information regarding the particular characteristics (for
example, race, national origin, or sex) required for eligibility for
special-purpose credit programs.
2. Preemption determination--Ohio. The Bureau recognizes state law
preemption determinations made by the Board of Governors of the Federal
Reserve System prior to July 21, 2011, until and unless the Bureau makes
and publishes any contrary determination. The Board of Governors
determined that the following provision in the state law of Ohio
[[Page 82]]
is preempted by the Federal law, effective July 23, 1990:
i. Section 4112.021(B)(1)--Unlawful discriminatory practices in
credit transactions. This provision is preempted to the extent that it
bars asking or favorably considering the age of an elderly applicant;
prohibits the consideration of age in a credit scoring system; permits
without limitation the consideration of age in real estate transactions;
and limits the consideration of age in special-purpose credit programs
to certain government-sponsored programs identified in the state law.
Section 1002.12--Record Retention
12(a) Retention of prohibited information.
1. Receipt of prohibited information. Unless the creditor
specifically requested such information, a creditor does not violate
this section when it receives prohibited information from a consumer
reporting agency.
2. Use of retained information. Although a creditor may keep in its
files prohibited information as provided in Sec. 1002.12(a), the
creditor may use the information in evaluating credit applications only
if permitted to do so by Sec. 1002.6.
12(b) Preservation of records.
1. Copies. Copies of the original record include carbon copies,
photocopies, microfilm or microfiche copies, or copies produced by any
other accurate retrieval system, such as documents stored and reproduced
by computer. A creditor that uses a computerized or mechanized system
need not keep a paper copy of a document (for example, of an adverse
action notice) if it can regenerate all pertinent information in a
timely manner for examination or other purposes.
2. Computerized decisions. A creditor that enters information items
from a written application into a computerized or mechanized system and
makes the credit decision mechanically, based only on the items of
information entered into the system, may comply with Sec. 1002.12(b) by
retaining the information actually entered. It is not required to store
the complete written application, nor is it required to enter the
remaining items of information into the system. If the transaction is
subject to Sec. 1002.13, however, the creditor is required to enter and
retain the data on personal characteristics in order to comply with the
requirements of that section.
Paragraph 12(b)(3).
1. Withdrawn and brokered applications. In most cases, the 25-month
retention period for applications runs from the date a notification is
sent to the applicant granting or denying the credit requested. In
certain transactions, a creditor is not obligated to provide a notice of
the action taken. (See, for example, comment 9-2.) In such cases, the
25-month requirement runs from the date of application, as when:
i. An application is withdrawn by the applicant.
ii. An application is submitted to more than one creditor on behalf
of the applicant, and the application is approved by one of the other
creditors.
12(b)(6) Self-tests.
1. The rule requires all written or recorded information about a
self-test to be retained for 25 months after a self-test has been
completed. For this purpose, a self-test is completed after the creditor
has obtained the results and made a determination about what corrective
action, if any, is appropriate. Creditors are required to retain
information about the scope of the self-test, the methodology used and
time period covered by the self-test, the report or results of the self-
test including any analysis or conclusions, and any corrective action
taken in response to the self-test.
12(b)(7) Preapplication marketing information.
1. Prescreened credit solicitations. The rule requires creditors to
retain copies of prescreened credit solicitations. For purposes of this
part, a prescreened solicitation is an ``offer of credit'' as described
in 15 U.S.C. 1681a(1) of the Fair Credit Reporting Act. A creditor
complies with this rule if it retains a copy of each solicitation
mailing that contains different terms, such as the amount of credit
offered, annual percentage rate, or annual fee.
2. List of criteria. A creditor must retain the list of criteria
used to select potential recipients. This includes the criteria used by
the creditor both to determine the potential recipients of the
particular solicitation and to determine who will actually be offered
credit.
3. Correspondence. A creditor may retain correspondence relating to
consumers' complaints about prescreened solicitations in any manner that
is reasonably accessible and is understandable to examiners. There is no
requirement to establish a separate database or set of files for such
correspondence, or to match consumer complaints with specific
solicitation programs.
Section 1002.13--Information for Monitoring Purposes
13(a) Information to be requested.
1. Natural person. Section1002.13 applies only to applications from
natural persons.
2. Principal residence. The requirements of Sec. 1002.13 apply only
if an application relates to a dwelling that is or will be occupied by
the applicant as the principal residence. A credit application related
to a vacation home or a rental unit is not covered. In the case of a
two-to four-unit dwelling, the application is covered if the applicant
intends to occupy one of the units as a principal residence.
[[Page 83]]
3. Temporary financing. An application for temporary financing to
construct a dwelling is not subject to Sec. 1002.13. But an application
for both a temporary loan to finance construction of a dwelling and a
permanent mortgage loan to take effect upon the completion of
construction is subject to Sec. 1002.13.
4. New principal residence. A person can have only one principal
residence at a time. However, if a person buys or builds a new dwelling
that will become that person's principal residence within a year or upon
completion of construction, the new dwelling is considered the principal
residence for purposes of Sec. 1002.13.
5. Transactions not covered. The information-collection requirements
of this section apply to applications for credit primarily for the
purchase or refinancing of a dwelling that is or will become the
applicant's principal residence. Therefore, applications for credit
secured by the applicant's principal residence but made primarily for a
purpose other than the purchase or refinancing of the principal
residence (such as loans for home improvement and debt consolidation)
are not subject to the information-collection requirements. An
application for an open-end home equity line of credit is not subject to
this section unless it is readily apparent to the creditor when the
application is taken that the primary purpose of the line is for the
purchase or refinancing of a principal dwelling.
6. Refinancings. A refinancing occurs when an existing obligation is
satisfied and replaced by a new obligation undertaken by the same
borrower. A creditor that receives an application to refinance an
existing extension of credit made by that creditor for the purchase of
the applicant's dwelling may request the monitoring information again
but is not required to do so if it was obtained in the earlier
transaction.
7. Data collection under Regulation C. See comment 5(a)(2)-2.
13(b) Obtaining of information.
1. Forms for collecting data. A creditor may collect the information
specified in Sec. 1002.13(a) either on an application form or on a
separate form referring to the application. The applicant must be
offered the option to select more than one racial designation.
2. Written applications. The regulation requires written
applications for the types of credit covered by Sec. 1002.13. A creditor
can satisfy this requirement by recording on paper or by means of
computer the information that the applicant provides orally and that the
creditor normally considers in a credit decision.
3. Telephone, mail applications.
i. A creditor that accepts an application by telephone or mail must
request the monitoring information.
ii. A creditor that accepts an application by mail need not make a
special request for the monitoring information if the applicant has
failed to provide it on the application form returned to the creditor.
iii. If it is not evident on the face of an application that it was
received by mail, telephone, or via an electronic medium, the creditor
should indicate on the form or other application record how the
application was received.
4. Video and other electronic-application processes.
i. If a creditor takes an application through an electronic medium
that allows the creditor to see the applicant, the creditor must treat
the application as taken in person. The creditor must note the
monitoring information on the basis of visual observation or surname, if
the applicant chooses not to provide the information.
ii. If an applicant applies through an electronic medium without
video capability, the creditor treats the application as if it were
received by mail.
5. Applications through loan-shopping services. When a creditor
receives an application through an unaffiliated loan-shopping service,
it does not have to request the monitoring information for purposes of
the ECOA or Regulation B. Creditors subject to the Home Mortgage
Disclosure Act should be aware, however, that data collection may be
called for under Regulation C (12 CFR part 1003), which generally
requires creditors to report, among other things, the sex and race of an
applicant on brokered applications or applications received through a
correspondent.
6. Inadvertent notation. If a creditor inadvertently obtains the
monitoring information in a dwelling-related transaction not covered by
Sec. 1002.13, the creditor may process and retain the application
without violating the regulation.
13(c) Disclosure to applicants.
1. Procedures for providing disclosures. The disclosure to an
applicant regarding the monitoring information may be provided in
writing. appendix B contains a sample disclosure. A creditor may devise
its own disclosure so long as it is substantially similar. The creditor
need not orally request the monitoring information if it is requested in
writing.
13(d) Substitute monitoring program.
1. Substitute program. An enforcement agency may adopt, under its
established rulemaking or enforcement procedures, a program requiring
creditors under its jurisdiction to collect information in addition to
information required by this section.
Section 1002.14--Rules on Providing Appraisals and Valuations
14(a) Providing appraisals and other valuations.
[[Page 84]]
1. Multiple applicants. If there is more than one applicant, the
written disclosure about written appraisals, and the copies of
appraisals and other written valuations, need only be given to one
applicant. However, these materials must be given to the primary
applicant where one is readily apparent. Similarly, if there is more
than one applicant for credit in the transaction, one applicant may
provide a waiver under Sec. 1002.14(a)(1), but it must be the primary
applicant where one is readily apparent.
14(a)(1) In general.
1. Coverage. Section 1002.14 covers applications for credit to be
secured by a first lien on a dwelling, as that term is defined in
Sec. 1002.14(b)(2), whether the credit is for a business purpose (for
example, a loan to start a business) or a consumer purpose (for example,
a loan to purchase a home).
2. Renewals. Section 1002.14(a)(1) applies when an applicant
requests the renewal of an existing extension of credit and the creditor
develops a new appraisal or other written valuation. Section
1002.14(a)(1) does not apply to the extent a creditor uses the
appraisals and other written valuations that were previously developed
in connection with the prior extension of credit to evaluate the renewal
request.
3. Written. For purposes of Sec. 1002.14, an ``appraisal or other
written valuation'' includes, without limitation, an appraisal or other
valuation received or developed by the creditor in paper form (hard
copy); electronically, such as CD or email; or by any other similar
media. See Sec. 1002.14(a)(5) regarding the provision of copies of
appraisals and other written valuations to applicants via electronic
means.
4. Timing. Section 1002.14(a)(1) requires that the creditor
``provide'' copies of appraisals and other written valuations to the
applicant ``promptly upon completion,'' or no later than three business
days before consummation (for closed-end credit) or account opening (for
open-end credit), whichever is earlier.
i. For purposes of this timing requirement, ``provide'' means
``deliver.'' Delivery occurs three business days after mailing or
delivering the copies to the last-known address of the applicant, or
when evidence indicates actual receipt by the applicant, whichever is
earlier. Delivery to or actual receipt by the applicant by electronic
means must comply with the E-Sign Act, as provided for in
Sec. 1002.14(a)(5).
ii. The application and meaning of the ``promptly upon completion''
standard depends upon the facts and circumstances, including but not
limited to when the creditor receives the appraisal or other written
valuation, and the extent of any review or revision after the creditor
receives it.
iii. ``Completion'' occurs when the last version is received by the
creditor, or when the creditor has reviewed and accepted the appraisal
or other written valuation to include any changes or corrections
required, whichever is later. See also comment 14(a)(1)-7.
iv. In a transaction that is being consummated (for closed-end
credit) or in which the account is being opened (for open-end credit),
if an appraisal or other written valuation has been developed but is not
yet complete, the deadline for providing a copy of three business days
before consummation or account opening still applies, unless the
applicant waived that deadline as provided under Sec. 1002.14(a)(1), in
which case the copy must be provided at or before consummation or
account opening.
v. Even if the transaction will not be consummated (for closed-end
credit) or the account will not be opened (for open-end credit), the
copy must be provided ``promptly upon completion'' as provided for in
Sec. 1002.14(a)(1), unless the applicant has waived that deadline as
provided under Sec. 1002.14(a)(1), in which case as provided for in
Sec. 1002.14(a)(1) the copy must be provided to the applicant no later
than 30 days after the creditor determines the transaction will not be
consummated or the account will not be opened.
5. Promptly upon completion-examples. Examples in which the
``promptly upon completion'' standard would be satisfied include, but
are not limited to, those in subparagraphs i, ii, and iii below.
Examples in which the ``promptly upon completion'' standard would not be
satisfied include, but are not limited to, those in subparagraphs iv and
v below.
i. Sending a copy of an appraisal within a week of completion with
sufficient time before consummation (or account opening for open-end
credit). On day 15 after receipt of the application, the creditor's
underwriting department reviews an appraisal and determines it is
acceptable. One week later, the creditor sends a copy of the appraisal
to the applicant. The applicant actually receives the copy more than
three business days before the date of consummation (or account
opening). The creditor has provided the copy of the appraisal promptly
upon completion.
ii. Sending a copy of a revised appraisal within a week after
completion and with sufficient time before consummation (or account
opening for open-end credit). An appraisal is being revised, and the
creditor does not receive the revised appraisal until day 45 after the
application, when the creditor immediately determines the revised
appraisal is acceptable. A week later, the creditor sends a copy of the
revised appraisal to the applicant, and does not send a copy of the
initial appraisal to the applicant. The applicant actually receives the
copy of the revised appraisal three business days before the date of
consummation
[[Page 85]]
(or account opening). The creditor has provided the appraisal copy
promptly upon completion.
iii. Sending a copy of an AVM report within a week after its receipt
and with sufficient time before consummation (or account opening for
open-end credit). The creditor receives an automated valuation model
(AVM) report on day 5 after receipt of the application and treats the
AVM report as complete when it is received. On day 12 after receipt of
the application, the creditor sends the applicant a copy of the
valuation. The applicant actually receives the valuation more than three
business days before the date of consummation (or account opening). The
creditor has provided the copy of the AVM report promptly upon
completion.
iv. Delay in sending an appraisal. On day 12 after receipt of the
application, the creditor's underwriting department reviews an appraisal
and determines it is acceptable. Although the creditor has determined
the appraisal is complete, the creditor waits to provide a copy to the
applicant until day 42, when the creditor schedules the consummation (or
account opening) to occur on day 50. The creditor has not provided the
copy of the appraisal promptly upon completion.
v. Delay in sending an AVM report while waiting for completion of a
second valuation. The creditor receives an AVM report on day 5 after
application and completes its review of the AVM report the day it is
received. The creditor also has ordered an appraisal, but the initial
version of the appraisal received by the creditor is found to be
deficient and is sent for review. The creditor waits 30 days to provide
a copy of the completed AVM report, until the appraisal is completed on
day 35. The creditor then provides the applicant with copies of the AVM
report and the revised appraisal. While the appraisal report was
provided promptly upon completion, the AVM report was not.
6. Waiver. Section 1002.14(a)(1) permits the applicant to waive the
timing requirement if the creditor provides the copies at or before
consummation or account opening, except where otherwise prohibited by
law. Except where otherwise prohibited by law, an applicant's waiver is
effective under Sec. 1002.14(a)(1) in either of the following two
situations:
i. If, no later than three business days prior to consummation or
account opening, the applicant provides the creditor an affirmative oral
or written statement waiving the timing requirement under this rule; or
ii. If, within three business days of consummation or account
opening, the applicant provides the creditor an affirmative oral or
written statement waiving the timing requirement under this rule and the
waiver pertains solely to the applicant's receipt of a copy of an
appraisal or other written valuation that contains only clerical changes
from a previous version of the appraisal or other written valuation
provided to the applicant three or more business days prior to
consummation or account opening. For purpose of this second type of
waiver, revisions will only be considered to be clerical in nature if
they have no impact on the estimated value, and have no impact on the
calculation or methodology used to derive the estimate. In addition,
under Sec. 1002.14(a)(1) the applicant still must receive the copy of
the revision at or prior to consummation or account opening.
7. Multiple versions of appraisals or valuations. For purposes of
Sec. 1002.14(a)(1), the reference to ``all'' appraisals and other
written valuations does not refer to all versions of the same appraisal
or other valuation. If a creditor has received multiple versions of an
appraisal or other written valuation, the creditor is required to
provide only a copy of the latest version received. If, however, a
creditor already has provided a copy of one version of an appraisal or
other written valuation to an applicant, and the creditor later receives
a revision of that appraisal or other written valuation, then the
creditor also must provide the applicant with a copy of the revision to
comply with Sec. 1002.14(a)(1). If a creditor receives only one version
of an appraisal or other valuation that is developed in connection with
the applicant's application, then that version must be provided to the
applicant to comply with Sec. 1002.14(a)(1). See also comment 14(a)(1)-4
above.
14(a)(2) Disclosure.
1. Appraisal independence requirements not affected. Nothing in the
text of the disclosure required by Sec. 1002.14(a)(2) should be
construed to affect, modify, limit, or supersede the operation of any
legal, regulatory, or other requirements or standards relating to
independence in the conduct of appraisers or the use of applicant-
ordered appraisals by creditors.
14(a)(3) Reimbursement.
1. Photocopy, postage, or other costs. Creditors may not charge for
photocopy, postage, or other costs incurred in providing a copy of an
appraisal or other written valuation in accordance with section
14(a)(1).
2. Reasonable fee for reimbursement. Section 1002.14(a)(3) does not
prohibit a creditor from imposing a reasonable fee to reimburse the
creditor's costs of the appraisal or other written valuation, so long as
the fee is not increased to cover the costs of providing copies of such
appraisals or other written valuations under Sec. 1002.14(a)(1). A
creditor's cost may include an administration fee charged to the
creditor by an appraisal management company as defined in 12 U.S.C.
3350(11). Section 1002.14(a)(3) does not, however, legally obligate the
applicant to pay such fees. Further, creditors may not impose fees for
reimbursement of the costs of an appraisal or other valuation where
otherwise prohibited by law. For instance, a creditor may not
[[Page 86]]
charge a consumer a fee for the performance of a second appraisal if the
second appraisal is required under 15 U.S.C. 1639h(b)(2) and 12 CFR
1026.35(c).
14(b) Definitions.
14(b)(1) Consummation.
1. State law governs. When a contractual obligation on the
consumer's part is created is a matter to be determined under applicable
law; Sec. 1002.14 does not make this determination. A contractual
commitment agreement, for example, that under applicable law binds the
consumer to the credit terms would be consummation. Consummation,
however, does not occur merely because the consumer has made some
financial investment in the transaction (for example, by paying a
nonrefundable fee) unless, of course, applicable law holds otherwise.
2. Credit vs. sale. Consummation does not occur when the consumer
becomes contractually committed to a sale transaction, unless the
consumer also becomes legally obligated to accept a particular credit
arrangement.
14(b)(2) Dwelling.
1. ``Motor vehicles'' not covered. The requirements of Sec. 1002.14
do not apply to ``motor vehicles'' as defined by 12 U.S.C. 5519(f)(1).
14(b)(3) Valuation.
1. Valuations--examples. Examples of valuations include but are not
limited to:
i. A report prepared by an appraiser (whether or not licensed or
certified) including the appraiser's estimate of the property's value or
opinion of value.
ii. A document prepared by the creditor's staff that assigns value
to the property.
iii. A report approved by a government-sponsored enterprise for
describing to the applicant the estimate of the property's value
developed pursuant to the proprietary methodology or mechanism of the
government-sponsored enterprise.
iv. A report generated by use of an automated valuation model to
estimate the property's value.
v. A broker price opinion prepared by a real estate broker, agent,
or sales person to estimate the property's value.
2. Attachments and exhibits. The term ``valuation'' includes any
attachments and exhibits that are an integrated part of the valuation.
3. Other documentation. Not all documents that discuss or restate a
valuation of an applicant's property constitute a ``valuation'' for
purposes of Sec. 1002.14(b)(3). Examples of documents that discuss the
valuation of the applicant's property or may reflect its value but
nonetheless are not ``valuations'' include but are not limited to:
i. Internal documents that merely restate the estimated value of the
dwelling contained in an appraisal or written valuation being provided
to the applicant.
ii. Governmental agency statements of appraised value that are
publically available.
iii. Publicly-available lists of valuations (such as published sales
prices or mortgage amounts, tax assessments, and retail price ranges).
iv. Manufacturers' invoices for manufactured homes.
v. Reports reflecting property inspections that do not provide an
estimate of the value of the property and are not used to develop an
estimate of the value of the property.
vi. Appraisal reviews that do not include the appraiser's estimate
of the property's value or opinion of value.
Section 1002.15--Incentives for Self-Testing and Self-Correction
15(a) General rules.
15(a)(1) Voluntary self-testing and correction.
1. Activities required by any governmental authority are not
voluntary self-tests. A governmental authority includes both
administrative and judicial authorities for Federal, State, and local
governments.
15(a)(2) Corrective action required.
1. To qualify for the privilege, appropriate corrective action is
required when the results of a self-test show that it is more likely
than not that there has been a violation of the ECOA or this part. A
self-test is also privileged when it identifies no violations.
2. In some cases, the issue of whether certain information is
privileged may arise before the self-test is complete or corrective
actions are fully under way. This would not necessarily prevent a
creditor from asserting the privilege. In situations where the self-test
is not complete, for the privilege to apply the lender must satisfy the
regulation's requirements within a reasonable period of time. To assert
the privilege where the self-test shows a likely violation, the rule
requires, at a minimum, that the creditor establish a plan for
corrective action and a method to demonstrate progress in implementing
the plan. Creditors must take appropriate corrective action on a timely
basis after the results of the self-test are known.
3. A creditor's determination about the type of corrective action
needed, or a finding that no corrective action is required, is not
conclusive in determining whether the requirements of this paragraph
have been satisfied. If a creditor's claim of privilege is challenged,
an assessment of the need for corrective action or the type of
corrective action that is appropriate must be based on a review of the
self-testing results, which may require an in camera inspection of the
privileged documents.
15(a)(3) Other privileges.
1. A creditor may assert the privilege established under this
section in addition to asserting any other privilege that may apply,
such as the attorney-client privilege or the work-product privilege.
Self-testing
[[Page 87]]
data may be privileged under this section whether or not the creditor's
assertion of another privilege is upheld.
15(b) Self-test defined.
15(b)(1) Definition.
Paragraph 15(b)(1)(i).
1. To qualify for the privilege, a self-test must be sufficient to
constitute a determination of the extent or effectiveness of the
creditor's compliance with the Act and Regulation B. Accordingly, a
self-test is only privileged if it was designed and used for that
purpose. A self-test that is designed or used to determine compliance
with other laws or regulations or for other purposes is not privileged
under this rule. For example, a self-test designed to evaluate employee
efficiency or customers' satisfaction with the level of service provided
by the creditor is not privileged even if evidence of discrimination is
uncovered incidentally. If a self-test is designed for multiple
purposes, only the portion designed to determine compliance with the
ECOA is eligible for the privilege.
Paragraph 15(b)(1)(ii).
1. The principal attribute of self-testing is that it constitutes a
voluntary undertaking by the creditor to produce new data or factual
information that otherwise would not be available and could not be
derived from loan or application files or other records related to
credit transactions. Self-testing includes, but is not limited to, the
practice of using fictitious applicants for credit (testers), either
with or without the use of matched pairs. A creditor may elect to test a
defined segment of its business, for example, loan applications
processed by a specific branch or loan officer, or applications made for
a particular type of credit or loan program. A creditor also may use
other methods of generating information that is not available in loan
and application files, such as surveying mortgage loan applicants. To
the extent permitted by law, creditors might also develop new methods
that go beyond traditional pre-application testing, such as hiring
testers to submit fictitious loan applications for processing.
2. The privilege does not protect a creditor's analysis performed as
part of processing or underwriting a credit application. A creditor's
evaluation or analysis of its loan files, Home Mortgage Disclosure Act
data, or similar types of records (such as broker or loan officer
compensation records) does not produce new information about a
creditor's compliance and is not a self-test for purposes of this
section. Similarly, a statistical analysis of data derived from existing
loan files is not privileged.
15(b)(3) Types of information not privileged.
Paragraph 15(b)(3)(i).
1. The information listed in this paragraph is not privileged and
may be used to determine whether the prerequisites for the privilege
have been satisfied. Accordingly, a creditor might be asked to identify
the self-testing method, for example, whether preapplication testers
were used or data were compiled by surveying loan applicants.
Information about the scope of the self-test (such as the types of
credit transactions examined, or the geographic area covered by the
test) also is not privileged.
Paragraph 15(b)(3)(ii).
1. Property appraisal reports, minutes of loan committee meetings or
other documents reflecting the basis for a decision to approve or deny
an application, loan policies or procedures, underwriting standards, and
broker compensation records are examples of the types of records that
are not privileged. If a creditor arranges for testers to submit loan
applications for processing, the records are not related to actual
credit transactions for purposes of this paragraph and may be privileged
self-testing records.
15(c) Appropriate corrective action.
1. The rule only addresses the corrective actions required for a
creditor to take advantage of the privilege in this section. A creditor
may be required to take other actions or provide additional relief if a
formal finding of discrimination is made.
15(c)(1) General requirement.
1. Appropriate corrective action is required even though no
violation has been formally adjudicated or admitted by the creditor. In
determining whether it is more likely than not that a violation
occurred, a creditor must treat testers as if they are actual applicants
for credit. A creditor may not refuse to take appropriate corrective
action under this section because the self-test used fictitious loan
applicants. The fact that a tester's agreement with the creditor waives
the tester's legal right to assert a violation does not eliminate the
requirement for the creditor to take corrective action, although no
remedial relief for the tester is required under paragraph 15(c)(3).
15(c)(2) Determining the scope of appropriate corrective action.
1. Whether a creditor has taken or is taking corrective action that
is appropriate will be determined on a case-by-case basis. Generally,
the scope of the corrective action that is needed to preserve the
privilege is governed by the scope of the self-test. For example, a
creditor that self-tests mortgage loans and discovers evidence of
discrimination may focus its corrective actions on mortgage loans, and
is not required to expand its testing to other types of loans.
2. In identifying the policies or practices that are a likely cause
of the violation, a creditor might identify inadequate or improper
lending policies, failure to implement established policies, employee
conduct, or other causes. The extent and scope of a likely violation may
be assessed by determining
[[Page 88]]
which areas of operations are likely to be affected by those policies
and practices, for example, by determining the types of loans and stages
of the application process involved and the branches or offices where
the violations may have occurred.
3. Depending on the method and scope of the self-test and the
results of the test, appropriate corrective action may include one or
more of the following:
i. If the self-test identifies individuals whose applications were
inappropriately processed, offering to extend credit if the application
was improperly denied and compensating such persons for out-of-pocket
costs and other compensatory damages;
ii. Correcting institutional policies or procedures that may have
contributed to the likely violation, and adopting new policies as
appropriate;
iii. Identifying and then training and/or disciplining the employees
involved;
iv. Developing outreach programs, marketing strategies, or loan
products to serve more effectively segments of the lender's markets that
may have been affected by the likely discrimination; and
v. Improving audit and oversight systems to avoid a recurrence of
the likely violations.
15(c)(3) Types of relief.
Paragraph 15(c)(3)(ii).
1. The use of pre-application testers to identify policies and
practices that illegally discriminate does not require creditors to
review existing loan files for the purpose of identifying and
compensating applicants who might have been adversely affected.
2. If a self-test identifies a specific applicant who was
discriminated against on a prohibited basis, to qualify for the
privilege in this section the creditor must provide appropriate remedial
relief to that applicant; the creditor is not required to identify other
applicants who might also have been adversely affected.
Paragraph 15(c)(3)(iii).
1. A creditor is not required to provide remedial relief to an
applicant that would not be available by law. An applicant might also be
ineligible for certain types of relief due to changed circumstances. For
example, a creditor is not required to offer credit to a denied
applicant if the applicant no longer qualifies for the credit due to a
change in financial circumstances, although some other type of relief
might be appropriate.
15(d)(1) Scope of privilege.
1. The privilege applies with respect to any examination,
investigation or proceeding by Federal, State, or local government
agencies relating to compliance with the Act or this part. Accordingly,
in a case brought under the ECOA, the privilege established under this
section preempts any inconsistent laws or court rules to the extent they
might require disclosure of privileged self-testing data. The privilege
does not apply in other cases (such as in litigation filed solely under
a State's fair lending statute). In such cases, if a court orders a
creditor to disclose self-test results, the disclosure is not a
voluntary disclosure or waiver of the privilege for purposes of
paragraph 15(d)(2); a creditor may protect the information by seeking a
protective order to limit availability and use of the self-testing data
and prevent dissemination beyond what is necessary in that case.
Paragraph 15(d)(1) precludes a party who has obtained privileged
information from using it in a case brought under the ECOA, provided the
creditor has not lost the privilege through voluntary disclosure under
paragraph 15(d)(2).
15(d)(2) Loss of privilege.
Paragraph 15(d)(2)(i).
1. A creditor's corrective action, by itself, is not considered a
voluntary disclosure of the self-test report or results. For example, a
creditor does not disclose the results of a self-test merely by offering
to extend credit to a denied applicant or by inviting the applicant to
reapply for credit. Voluntary disclosure could occur under this
paragraph, however, if the creditor disclosed the self-test results in
connection with a new offer of credit.
2. The disclosure of self-testing results to an independent
contractor acting as an auditor or consultant for the creditor on
compliance matters does not result in loss of the privilege.
Paragraph 15(d)(2)(ii).
1. The privilege is lost if the creditor discloses privileged
information, such as the results of the self-test. The privilege is not
lost if the creditor merely reveals or refers to the existence of the
self-test.
Paragraph 15(d)(2)(iii).
1. A creditor's claim of privilege may be challenged in a court or
administrative law proceeding with appropriate jurisdiction. In
resolving the issue, the presiding officer may require the creditor to
produce privileged information about the self-test.
Paragraph 15(d)(3) Limited use of privileged information.
1. A creditor may be required to produce privileged documents for
the purpose of determining a penalty or remedy after a violation of the
ECOA or Regulation B has been formally adjudicated or admitted. A
creditor's compliance with such a requirement does not evidence the
creditor's intent to forfeit the privilege.
Section 1002.16--Enforcement, Penalties, and Liabilities
16(c) Failure of compliance.
1. Inadvertent errors. Inadvertent errors include, but are not
limited to, clerical mistake, calculation error, computer malfunction,
and printing error. An error of legal
[[Page 89]]
judgment is not an inadvertent error under the regulation.
2. Correction of error. For inadvertent errors that occur under
Secs. 1002.12 and 1002.13, this section requires that they be corrected
prospectively.
Appendix B--Model Application Forms
1. Freddie Mac/Fannie Mae form--residential loan application. The
uniform residential loan application form (Freddie Mac 65/Fannie Mae
1003), including supplemental form (Freddie Mac 65A/Fannie Mae 1003A),
prepared by the Federal Home Loan Mortgage Corporation and the Federal
National Mortgage Association and dated October 1992 may be used by
creditors without violating this part. Creditors that are governed by
the monitoring requirements of this part (which limits collection to
applications primarily for the purchase or refinancing of the
applicant's principal residence) should delete, strike, or modify the
data-collection section on the form when using it for transactions not
covered by Sec. 1002.13(a) to ensure that they do not collect the
information. Creditors that are subject to more extensive collection
requirements by a substitute monitoring program under Sec. 1002.13(d) or
by the Home Mortgage Disclosure Act (HMDA) may use the form as issued,
in compliance with the substitute program or HMDA.
2. FHLMC/FNMA form--home improvement loan application. The home-
improvement and energy loan application form (FHLMC 703/FNMA 1012),
prepared by the Federal Home Loan Mortgage Corporation and the Federal
National Mortgage Association and dated October 1986, complies with the
requirements of the regulation for some creditors but not others because
of the form's section ``Information for Government Monitoring
Purposes.'' Creditors that are governed by Sec. 1002.13(a) of the
regulation (which limits collection to applications primarily for the
purchase or refinancing of the applicant's principal residence) should
delete, strike, or modify the data-collection section on the form when
using it for transactions not covered by Sec. 1002.13(a) to ensure that
they do not collect the information. Creditors that are subject to more
extensive collection requirements by a substitute monitoring program
under Sec. 1002.13(d) may use the form as issued, in compliance with
that substitute program.
Appendix C--Sample Notification Forms
1. Form C-9. If not otherwise provided under other applicable
disclosure requirements, creditors may design their own form, add to, or
modify the model form to reflect their individual policies and
procedures. For example, a creditor may want to add:
i. A telephone number that applicants may call to leave their name
and the address to which a copy of the appraisal or other written
valuation should be sent.
ii. A notice of the cost the applicant will be required to pay the
creditor for the appraisal or other valuation
[76 FR 79445, Dec. 21, 2011, as amended at 78 FR 7248, Jan. 31, 2013]
PART 1003_HOME MORTGAGE DISCLOSURE (REGULATION C)--Table of Contents
Sec.
1003.1 Authority, purpose, and scope.
1003.2 Definitions.
1003.3 Exempt institutions.
1003.4 Compilation of loan data.
1003.5 Disclosure and reporting.
1003.6 Enforcement.
Appendix A to Part 1003--Form and Instructions for Completion of HMDA
Loan/Application Register
Appendix B to Part 1003--Form and Instructions for Data Collection on
Ethnicity, Race, and Sex
Appendix C to Part 1003--Procedures for Generating a Check Digit and
Validating a ULI
Supplement I to Part 1003--Staff Commentary
Authority: 12 U.S.C. 2803, 2804, 2805, 5512, 5581.
Source: 76 FR 78468, Dec. 19, 2011, unless otherwise noted.
Sec. 1003.1 Authority, purpose, and scope.
(a) Authority. This part, known as Regulation C, is issued by the
Bureau of Consumer Financial Protection (Bureau) pursuant to the Home
Mortgage Disclosure Act (HMDA) (12 U.S.C. 2801 et seq.,) as amended. The
information-collection requirements have been approved by the U.S.
Office of Management and Budget (OMB) under 44 U.S.C. 3501 et seq. and
have been assigned OMB numbers for institutions reporting data to the
Office of the Comptroller of the Currency (1557-0159), the Federal
Deposit Insurance Corporation (3064-0046), the Federal Reserve System
(7100-0247), the Department of Housing and Urban Development (HUD)
(2502-0529), the National Credit Union Administration (3133-0166), and
the Bureau of Consumer Financial Protection (3170-0008).
(b) Purpose. (1) This part implements the Home Mortgage Disclosure
Act, which is intended to provide the public with loan data that can be
used:
[[Page 90]]
(i) To help determine whether financial institutions are serving the
housing needs of their communities;
(ii) To assist public officials in distributing public-sector
investment so as to attract private investment to areas where it is
needed; and
(iii) To assist in identifying possible discriminatory lending
patterns and enforcing antidiscrimination statutes.
(2) Neither the act nor this part is intended to encourage unsound
lending practices or the allocation of credit.
(c) Scope. This part applies to certain financial institutions,
including banks, savings associations, credit unions, and other mortgage
lending institutions, as defined in Sec. 1003.2. The regulation requires
an institution to report data to the appropriate Federal agency about
home purchase loans, home improvement loans, and refinancings that it
originates or purchases, or for which it receives applications; and to
disclose certain data to the public.
Effective Date Note: At 80 FR 66308, Oct. 28, 2015, Sec. 1003.1 was
amended by revising paragraph (c), effective Jan. 1, 2018. For the
convenience of the user, the revised text is set forth as follows:
Sec. 1003.1 Authority, purpose, and scope.
* * * * *
(c) Scope. This part applies to financial institutions as defined in
Sec. 1003.2(g). This part requires a financial institution to submit
data to the appropriate Federal agency for the financial institution as
defined in Sec. 1003.5(a)(4), and to disclose certain data to the
public, about covered loans for which the financial institution receives
applications, or that it originates or purchases, and that are secured
by a dwelling located in a State of the United States of America, the
District of Columbia, or the Commonwealth of Puerto Rico.
Sec. 1003.2 Definitions.
In this part:
Act means the Home Mortgage Disclosure Act (HMDA) (12 U.S.C. 2801 et
seq.,) as amended.
Application--(1) In general. Application means an oral or written
request for a home purchase loan, a home improvement loan, or a
refinancing that is made in accordance with procedures used by a
financial institution for the type of credit requested.
(2) Preapproval programs. A request for preapproval for a home
purchase loan is an application under this section if the request is
reviewed under a program in which the financial institution, after a
comprehensive analysis of the creditworthiness of the applicant, issues
a written commitment to the applicant valid for a designated period of
time to extend a home purchase loan up to a specified amount. The
written commitment may not be subject to conditions other than:
(i) Conditions that require the identification of a suitable
property;
(ii) Conditions that require that no material change has occurred in
the applicant's financial condition or creditworthiness prior to
closing; and
(iii) Limited conditions that are not related to the financial
condition or creditworthiness of the applicant that the lender
ordinarily attaches to a traditional home mortgage application (such as
certification of a clear termite inspection).
Branch office means:
(1) Any office of a bank, savings association, or credit union that
is approved as a branch by a Federal or state supervisory agency, but
excludes free-standing electronic terminals such as automated teller
machines; and
(2) Any office of a for-profit mortgage-lending institution (other
than a bank, savings association, or credit union) that takes
applications from the public for home purchase loans, home improvement
loans, or refinancings. A for-profit mortgage-lending institution is
also deemed to have a branch office in an MSA or in a Metropolitan
Division, if, in the preceding calendar year, it received applications
for, originated, or purchased five or more home purchase loans, home
improvement loans, or refinancings related to property located in that
MSA or Metropolitan Division, respectively.
Dwelling means a residential structure (whether or not attached to
real property) located in a state of the United States of America, the
District of Columbia, or the Commonwealth of Puerto Rico. The term
includes an individual condominium unit, cooperative unit, or mobile or
manufactured home.
Financial institution means:
[[Page 91]]
(1) A bank, savings association, or credit union that:
(i) On the preceding December 31 had assets in excess of the asset
threshold established and published annually by the Bureau for coverage
by the act, 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 twelve month period ending in November,
with rounding to the nearest million;
(ii) On the preceding December 31, had a home or branch office in an
MSA;
(iii) In the preceding calendar year, originated at least one home
purchase loan (excluding temporary financing such as a construction
loan) or refinancing of a home purchase loan, secured by a first lien on
a one- to four-family dwelling;
(iv) Meets one or more of the following three criteria:
(A) The institution is Federally insured or regulated;
(B) The mortgage loan referred to in paragraph (1)(iii) of this
definition was insured, guaranteed, or supplemented by a Federal agency;
or
(C) The mortgage loan referred to in paragraph (1)(iii) of this
definition was intended by the institution for sale to Fannie Mae or
Freddie Mac; and
(v) In each of the two preceding calendar years, originated at least
25 home purchase loans, including refinancings of home purchase loans,
that are not excluded from this part pursuant to Sec. 1003.4(d); and
(2) A for-profit mortgage-lending institution (other than a bank,
savings association, or credit union) that:
(i) In the preceding calendar year, either:
(A) Originated home purchase loans, including refinancings of home
purchase loans, that equaled at least 10 percent of its loan-origination
volume, measured in dollars; or
(B) Originated home purchase loans, including refinancings of home
purchase loans, that equaled at least $25 million; and
(ii) On the preceding December 31, had a home or branch office in an
MSA; and
(iii) Either:
(A) On the preceding December 31, had total assets of more than $10
million, counting the assets of any parent corporation; or
(B) In the preceding calendar year, originated at least 100 home
purchase loans, including refinancings of home purchase loans.
Home-equity line of credit means an open-end credit plan secured by
a dwelling as defined in Regulation Z (Truth in Lending), 12 CFR part
1026.
Home improvement loan means:
(1) A loan secured by a lien on a dwelling that is for the purpose,
in whole or in part, of repairing, rehabilitating, remodeling, or
improving a dwelling or the real property on which it is located; and
(2) A non-dwelling secured loan that is for the purpose, in whole or
in part, of repairing, rehabilitating, remodeling, or improving a
dwelling or the real property on which it is located, and that is
classified by the financial institution as a home improvement loan.
Home purchase loan means a loan secured by and made for the purpose
of purchasing a dwelling.
Manufactured home means any residential structure as defined under
regulations of the Department of Housing and Urban Development
establishing manufactured home construction and safety standards (24 CFR
3280.2).
Metropolitan Statistical Area or MSA and Metropolitan Division or
MD--(1) Metropolitan Statistical Area or MSA means a metropolitan
statistical area as defined by the U.S. Office of Management and Budget.
(2) Metropolitan Division or MD means a metropolitan division of an
MSA, as defined by the U.S. Office of Management and Budget.
Refinancing means a new obligation that satisfies and replaces an
existing obligation by the same borrower, in which:
(1) For coverage purposes, the existing obligation is a home
purchase loan (as determined by the lender, for example, by reference to
available documents; or as stated by the applicant), and both the
existing obligation and the new obligation are secured by first liens on
dwellings; and
[[Page 92]]
(2) For reporting purposes, both the existing obligation and the new
obligation are secured by liens on dwellings.
[76 FR 78468, Dec. 19, 2011, as amended at 80 FR 66308, Oct. 28, 2015]
Effective Date Note: At 80 FR 66308, Oct. 28, 2015, Sec. 1003.2 was
revised, effective Jan. 1, 2018. For the convenience of the user, the
revised text is set forth as follows:
Sec. 1003.2 Definitions.
In this part:
(a) Act means the Home Mortgage Disclosure Act (HMDA) (12 U.S.C.
2801 et seq.), as amended.
(b) Application--(1) In general. Application means an oral or
written request for a covered loan that is made in accordance with
procedures used by a financial institution for the type of credit
requested.
(2) Preapproval programs. A request for preapproval for a home
purchase loan, other than a home purchase loan that will be an open-end
line of credit, a reverse mortgage, or secured by a multifamily
dwelling, is an application under this section if the request is
reviewed under a program in which the financial institution, after a
comprehensive analysis of the creditworthiness of the applicant, issues
a written commitment to the applicant valid for a designated period of
time to extend a home purchase loan up to a specified amount. The
written commitment may not be subject to conditions other than:
(i) Conditions that require the identification of a suitable
property;
(ii) Conditions that require that no material change has occurred in
the applicant's financial condition or creditworthiness prior to
closing; and
(iii) Limited conditions that are not related to the financial
condition or creditworthiness of the applicant that the financial
institution ordinarily attaches to a traditional home mortgage
application.
(c) Branch office means:
(1) Any office of a bank, savings association, or credit union that
is considered a branch by the Federal or State supervisory agency
applicable to that institution, excluding automated teller machines and
other free-standing electronic terminals; and
(2) Any office of a for-profit mortgage-lending institution (other
than a bank, savings association, or credit union) that takes
applications from the public for covered loans. A for-profit mortgage-
lending institution (other than a bank, savings association, or credit
union) is also deemed to have a branch office in an MSA or in an MD, if,
in the preceding calendar year, it received applications for,
originated, or purchased five or more covered loans related to property
located in that MSA or MD, respectively.
(d) Closed-end mortgage loan means an extension of credit that is
secured by a lien on a dwelling and that is not an open-end line of
credit under paragraph (o) of this section.
(e) Covered loan means a closed-end mortgage loan or an open-end
line of credit that is not an excluded transaction under Sec. 1003.3(c).
(f) Dwelling means a residential structure, whether or not attached
to real property. The term includes but is not limited to a detached
home, an individual condominium or cooperative unit, a manufactured home
or other factory-built home, or a multifamily residential structure or
community.
(g) Financial institution means a depository financial institution
or a nondepository financial institution, where:
(1) Depository financial institution means a bank, savings
association, or credit union that:
(i) On the preceding December 31 had assets in excess of the asset
threshold established and published annually by the Bureau for coverage
by the Act, 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 twelve month period ending in November,
with rounding to the nearest million;
(ii) On the preceding December 31, had a home or branch office in an
MSA;
(iii) In the preceding calendar year, originated at least one home
purchase loan or refinancing of a home purchase loan, secured by a first
lien on a one- to four-unit dwelling;
(iv) Meets one or more of the following two criteria:
(A) The institution is federally insured or regulated; or
(B) Any loan referred to in paragraph (g)(1)(iii) of this section
was insured, guaranteed, or supplemented by a Federal agency, or was
intended by the institution for sale to the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation; and
(v) Meets at least one of the following criteria:
(A) In each of the two preceding calendar years, originated at least
25 closed-end mortgage loans that are not excluded from this part
pursuant to Sec. 1003.3(c)(1) through (10); or
(B) In each of the two preceding calendar years, originated at least
100 open-end lines of credit that are not excluded from this part
pursuant to Sec. 1003.3(c)(1) through (10); and
(2) Nondepository financial institution means a for-profit mortgage-
lending institution (other than a bank, savings association, or credit
union) that:
(i) On the preceding December 31, had a home or branch office in an
MSA; and
(ii) Meets at least one of the following criteria:
[[Page 93]]
(A) In each of the two preceding calendar years, originated at least
25 closed-end mortgage loans that are not excluded from this part
pursuant to Sec. 1003.3(c)(1) through (10); or
(B) In each of the two preceding calendar years, originated at least
100 open-end lines of credit that are not excluded from this part
pursuant to Sec. 1003.3(c)(1) through (10).
(h) [Reserved]
(i) Home improvement loan means a closed-end mortgage loan or an
open-end line of credit that is for the purpose, in whole or in part, of
repairing, rehabilitating, remodeling, or improving a dwelling or the
real property on which the dwelling is located.
(j) Home purchase loan means a closed-end mortgage loan or an open-
end line of credit that is for the purpose, in whole or in part, of
purchasing a dwelling.
(k) Loan/Application Register means both the record of information
required to be collected pursuant to Sec. 1003.4 and the record
submitted annually or quarterly, as applicable, pursuant to
Sec. 1003.5(a).
(l) Manufactured home means any residential structure as defined
under regulations of the U.S. Department of Housing and Urban
Development establishing manufactured home construction and safety
standards (24 CFR 3280.2). For purposes of Sec. 1003.4(a)(5), the term
also includes a multifamily dwelling that is a manufactured home
community.
(m) Metropolitan Statistical Area (MSA) and Metropolitan Division
(MD). (1) Metropolitan Statistical Area or MSA means a Metropolitan
Statistical Area as defined by the U.S. Office of Management and Budget.
(2) Metropolitan Division (MD) means a Metropolitan Division of an
MSA, as defined by the U.S. Office of Management and Budget.
(n) Multifamily dwelling means a dwelling, regardless of
construction method, that contains five or more individual dwelling
units.
(o) Open-end line of credit means an extension of credit that:
(1) Is secured by a lien on a dwelling; and
(2) Is an open-end credit plan as defined in Regulation Z, 12 CFR
1026.2(a)(20), but without regard to whether the credit is consumer
credit, as defined in Sec. 1026.2(a)(12), is extended by a creditor, as
defined in Sec. 1026.2(a)(17), or is extended to a consumer, as defined
in Sec. 1026.2(a)(11).
(p) Refinancing means a closed-end mortgage loan or an open-end line
of credit in which a new, dwelling-secured debt obligation satisfies and
replaces an existing, dwelling-secured debt obligation by the same
borrower.
(q) Reverse mortgage means a closed-end mortgage loan or an open-end
line of credit that is a reverse mortgage transaction as defined in
Regulation Z, 12 CFR 1026.33(a), but without regard to whether the
security interest is created in a principal dwelling.
Sec. 1003.3 Exempt institutions.
(a) Exemption based on state law. (1) A state-chartered or state-
licensed financial institution is exempt from the requirements of this
part if the Bureau determines that the institution is subject to a state
disclosure law that contains requirements substantially similar to those
imposed by this part and that contains adequate provisions for
enforcement.
(2) Any state, state-chartered or state-licensed financial
institution, or association of such institutions, may apply to the
Bureau for an exemption under paragraph (a) of this section.
(3) An institution that is exempt under paragraph (a) of this
section shall use the disclosure form required by its state law and
shall submit the data required by that law to its state supervisory
agency for purposes of aggregation.
(b) Loss of exemption. An institution losing a state-law exemption
under paragraph (a) of this section shall comply with this part
beginning with the calendar year following the year for which it last
reported loan data under the state disclosure law.
Effective Date Note: At 80 FR 66309, Oct. 28, 2015, Sec. 1003.3 was
amended by revising the section heading and adding paragraph (c),
effective Jan. 1, 2018. For the convenience of the user, the added and
revised text is set forth as follows:
Sec. 1003.3 Exempt institutions and excluded transactions.
* * * * *
(c) Excluded transactions. The requirements of this part do not
apply to:
(1) A closed-end mortgage loan or open-end line of credit originated
or purchased by a financial institution acting in a fiduciary capacity;
(2) A closed-end mortgage loan or open-end line of credit secured by
a lien on unimproved land;
(3) Temporary financing;
(4) The purchase of an interest in a pool of closed-end mortgage
loans or open-end lines of credit;
(5) The purchase solely of the right to service closed-end mortgage
loans or open-end lines of credit;
(6) The purchase of closed-end mortgage loans or open-end lines of
credit as part of a
[[Page 94]]
merger or acquisition, or as part of the acquisition of all of the
assets and liabilities of a branch office as defined in Sec. 1003.2(c);
(7) A closed-end mortgage loan or open-end line of credit, or an
application for a closed-end mortgage loan or open-end line of credit,
for which the total dollar amount is less than $500;
(8) The purchase of a partial interest in a closed-end mortgage loan
or open-end line of credit;
(9) A closed-end mortgage loan or open-end line of credit used
primarily for agricultural purposes;
(10) A closed-end mortgage loan or open-end line of credit that is
or will be made primarily for a business or commercial purpose, unless
the closed-end mortgage loan or open-end line of credit is a home
improvement loan under Sec. 1003.2(i), a home purchase loan under
Sec. 1003.2(j), or a refinancing under Sec. 1003.2(p);
(11) A closed-end mortgage loan, if the financial institution
originated fewer than 25 closed-end mortgage loans in each of the two
preceding calendar years; or
(12) An open-end line of credit, if the financial institution
originated fewer than 100 open-end lines of credit in each of the two
preceding calendar years.
Sec. 1003.4 Compilation of loan data.
(a) Data format and itemization. A financial institution shall
collect data regarding applications for, and originations and purchases
of, home purchase loans, home improvement loans, and refinancings for
each calendar year. An institution is required to collect data regarding
requests under a preapproval program (as defined in Sec. 1003.2) only if
the preapproval request is denied or results in the origination of a
home purchase loan. All reportable transactions shall be recorded,
within thirty calendar days after the end of the calendar quarter in
which final action is taken (such as origination or purchase of a loan,
or denial or withdrawal of an application), on a register in the format
prescribed in appendix A of this part. The data recorded shall include
the following items:
(1) An identifying number for the loan or loan application, and the
date the application was received.
(2) The type of loan or application.
(3) The purpose of the loan or application.
(4) Whether the application is a request for preapproval and whether
it resulted in a denial or in an origination.
(5) The property type to which the loan or application relates.
(6) The owner-occupancy status of the property to which the loan or
application relates.
(7) The amount of the loan or the amount applied for.
(8) The type of action taken, and the date.
(9) The location of the property to which the loan or application
relates, by MSA or by Metropolitan Division, by state, by county, and by
census tract, if the institution has a home or branch office in that MSA
or Metropolitan Division.
(10) The ethnicity, race, and sex of the applicant or borrower, and
the gross annual income relied on in processing the application.
(11) The type of entity purchasing a loan that the institution
originates or purchases and then sells within the same calendar year
(this information need not be included in quarterly updates).
(12)(i) For originated loans subject to Regulation Z, 12 CFR part
1026, the difference between the loan's annual percentage rate (APR) and
the average prime offer rate for a comparable transaction as of the date
the interest rate is set, if that difference is equal to or greater than
1.5 percentage points for loans secured by a first lien on a dwelling,
or equal to or greater than 3.5 percentage points for loans secured by a
subordinate lien on a dwelling.
(ii) ``Average prime offer rate'' means an annual percentage rate
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 loans that have low-risk pricing
characteristics. The Bureau publishes average prime offer rates for a
broad range of types of transactions in tables updated at least weekly,
as well as the methodology the Bureau uses to derive these rates.
(13) Whether the loan is subject to the Home Ownership and Equity
Protection Act of 1994, as implemented in Regulation Z (12 CFR 1026.32).
(14) The lien status of the loan or application (first lien,
subordinate lien, or not secured by a lien on a dwelling).
[[Page 95]]
(b) Collection of data on ethnicity, race, sex, and income. (1) A
financial institution shall collect data about the ethnicity, race, and
sex of the applicant or borrower as prescribed in appendix B of this
part.
(2) Ethnicity, race, sex, and income data may but need not be
collected for loans purchased by the financial institution.
(c) Optional data. A financial institution may report:
(1) The reasons it denied a loan application;
(2) Requests for preapproval that are approved by the institution
but not accepted by the applicant; and
(3) Home-equity lines of credit made in whole or in part for the
purpose of home improvement or home purchase.
(d) Excluded data. A financial institution shall not report:
(1) Loans originated or purchased by the financial institution
acting in a fiduciary capacity (such as trustee);
(2) Loans on unimproved land;
(3) Temporary financing (such as bridge or construction loans);
(4) The purchase of an interest in a pool of loans (such as
mortgage-participation certificates, mortgage-backed securities, or real
estate mortgage investment conduits);
(5) The purchase solely of the right to service loans; or
(6) Loans acquired as part of a merger or acquisition, or as part of
the acquisition of all of the assets and liabilities of a branch office
as defined in Sec. 1003.2.
(e) Data reporting for banks and savings associations that are
required to report data on small business, small farm, and community
development lending under CRA. Banks and savings associations that are
required to report data on small business, small farm, and community
development lending under regulations that implement the Community
Reinvestment Act of 1977 (12 U.S.C. 2901 et seq.) shall also collect the
location of property located outside MSAs and Metropolitan Divisions in
which the institution has a home or branch office, or outside any MSA.
Effective Date Note: At 80 FR 66310, Oct. 28, 2015, Sec. 1003.4 was
revised, effective Jan. 1, 2018. For the convenience of the user, the
revised text is set forth as follows:
Sec. 1003.4 Compilation of reportable data.
(a) Data format and itemization. A financial institution shall
collect data regarding applications for covered loans that it receives,
covered loans that it originates, and covered loans that it purchases
for each calendar year. A financial institution shall collect data
regarding requests under a preapproval program, as defined in
Sec. 1003.2(b)(2), only if the preapproval request is denied, is
approved by the financial institution but not accepted by the applicant,
or results in the origination of a home purchase loan. The data
collected shall include the following items:
(1)(i) A universal loan identifier (ULI) for the covered loan or
application that can be used to identify and retrieve the covered loan
or application file. Except for a purchased covered loan or application
described in paragraphs (a)(1)(i)(D) and (E) of this section, the
financial institution shall assign and report a ULI that:
(A) Begins with the financial institution's Legal Entity Identifier
(LEI) that is issued by:
(1) A utility endorsed by the LEI Regulatory Oversight Committee; or
(2) A utility endorsed or otherwise governed by the Global LEI
Foundation (GLEIF) (or any successor of the GLEIF) after the GLEIF
assumes operational governance of the global LEI system.
(B) Follows the LEI with up to 23 additional characters to identify
the covered loan or application, which:
(1) May be letters, numerals, or a combination of letters and
numerals;
(2) Must be unique within the financial institution; and
(3) Must not include any information that could be used to directly
identify the applicant or borrower; and
(C) Ends with a two-character check digit, as prescribed in appendix
C to this part.
(D) For a purchased covered loan that any financial institution has
previously assigned or reported with a ULI under this part, the
financial institution that purchases the covered loan must use the ULI
that was assigned or previously reported for the covered loan.
(E) For an application that was previously reported with a ULI under
this part and that results in an origination during the same calendar
year that is reported in a subsequent reporting period pursuant to
Sec. 1003.5(a)(1)(ii), the financial institution may report the same ULI
for the origination that was previously reported for the application.
(ii) Except for purchased covered loans, the date the application
was received or the date shown on the application form.
[[Page 96]]
(2) Whether the covered loan is, or in the case of an application
would have been, insured by the Federal Housing Administration,
guaranteed by the Veterans Administration, or guaranteed by the Rural
Housing Service or the Farm Service Agency.
(3) Whether the covered loan is, or the application is for, a home
purchase loan, a home improvement loan, a refinancing, a cash-out
refinancing, or for a purpose other than home purchase, home
improvement, refinancing, or cash-out refinancing.
(4) Whether the application or covered loan involved a request for a
preapproval of a home purchase loan under a preapproval program.
(5) Whether the construction method for the dwelling related to the
property identified in paragraph (a)(9) of this section is site-built or
a manufactured home.
(6) Whether the property identified in paragraph (a)(9) of this
section is or will be used by the applicant or borrower as a principal
residence, as a second residence, or as an investment property.
(7) The amount of the covered loan or the amount applied for, as
applicable.
(i) For a closed-end mortgage loan, other than a purchased loan, an
assumption, or a reverse mortgage, the amount to be repaid as disclosed
on the legal obligation. For a purchased closed-end mortgage loan or an
assumption of a closed-end mortgage loan, the unpaid principal balance
at the time of purchase or assumption.
(ii) For an open-end line of credit, other than a reverse mortgage
open-end line of credit, the amount of credit available to the borrower
under the terms of the plan.
(iii) For a reverse mortgage, the initial principal limit, as
determined pursuant to section 255 of the National Housing Act (12
U.S.C. 1715z-20) and implementing regulations and mortgagee letters
issued by the U.S. Department of Housing and Urban Development.
(8) The following information about the financial institution's
action:
(i) The action taken by the financial institution, recorded as one
of the following:
(A) Whether a covered loan was originated or purchased;
(B) Whether an application for a covered loan that did not result in
the origination of a covered loan was approved but not accepted, denied,
withdrawn by the applicant, or closed for incompleteness; and
(C) Whether a preapproval request that did not result in the
origination of a home purchase loan was denied or approved but not
accepted.
(ii) The date of the action taken by the financial institution.
(9) The following information about the location of the property
securing the covered loan or, in the case of an application, proposed to
secure the covered loan:
(i) The property address; and
(ii) If the property is located in an MSA or MD in which the
financial institution has a home or branch office, or if the institution
is subject to paragraph (e) of this section, the location of the
property by:
(A) State;
(B) County; and
(C) Census tract if the property is located in a county with a
population of more than 30,000 according to the most recent decennial
census conducted by the U.S. Census Bureau.
(10) The following information about the applicant or borrower:
(i) Ethnicity, race, and sex, and whether this information was
collected on the basis of visual observation or surname;
(ii) Age; and
(iii) Except for covered loans or applications for which the credit
decision did not consider or would not have considered income, the gross
annual income relied on in making the credit decision or, if a credit
decision was not made, the gross annual income relied on in processing
the application.
(11) The type of entity purchasing a covered loan that the financial
institution originates or purchases and then sells within the same
calendar year.
(12)(i) For covered loans subject to Regulation Z, 12 CFR part 1026,
other than assumptions, purchased covered loans, and reverse mortgages,
the difference between the covered loan's annual percentage rate and the
average prime offer rate for a comparable transaction as of the date the
interest rate is set.
(ii) ``Average prime offer rate'' means an annual percentage rate
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 loans that have low-risk pricing
characteristics. The Bureau publishes average prime offer rates for a
broad range of types of transactions in tables updated at least weekly,
as well as the methodology the Bureau uses to derive these rates.
(13) For covered loans subject to the Home Ownership and Equity
Protection Act of 1994, as implemented in Regulation Z, 12 CFR 1026.32,
whether the covered loan is a high-cost mortgage under Regulation Z, 12
CFR 1026.32(a).
(14) The lien status (first or subordinate lien) of the property
identified under paragraph (a)(9) of this section.
(15)(i) Except for purchased covered loans, the credit score or
scores relied on in making the credit decision and the name and version
of the scoring model used to generate each credit score.
(ii) For purposes of this paragraph (a)(15), ``credit score'' has
the meaning set forth in 15 U.S.C. 1681g(f)(2)(A).
[[Page 97]]
(16) The principal reason or reasons the financial institution
denied the application, if applicable.
(17) For covered loans subject to Regulation Z, 12 CFR 1026.43(c),
the following information:
(i) If a disclosure is provided for the covered loan pursuant to
Regulation Z, 12 CFR 1026.19(f), the amount of total loan costs, as
disclosed pursuant to Regulation Z, 12 CFR 1026.38(f)(4); or
(ii) If the covered loan is not subject to the disclosure
requirements in Regulation Z, 12 CFR 1026.19(f), and is not a purchased
covered loan, the total points and fees charged in connection with the
covered loan, expressed in dollars and calculated pursuant to Regulation
Z, 12 CFR 1026.32(b)(1).
(18) For covered loans subject to the disclosure requirements in
Regulation Z, 12 CFR 1026.19(f), the total of all itemized amounts that
are designated borrower-paid at or before closing, as disclosed pursuant
to Regulation Z, 12 CFR 1026.38(f)(1).
(19) For covered loans subject to the disclosure requirements in
Regulation Z, 12 CFR 1026.19(f), the points paid to the creditor to
reduce the interest rate, expressed in dollars, as described in
Regulation Z, 12 CFR 1026.37(f)(1)(i), and disclosed pursuant to
Regulation Z, 12 CFR 1026.38(f)(1).
(20) For covered loans subject to the disclosure requirements in
Regulation Z, 12 CFR 1026.19(f), the amount of lender credits, as
disclosed pursuant to Regulation Z, 12 CFR 1026.38(h)(3).
(21) The interest rate applicable to the approved application, or to
the covered loan at closing or account opening.
(22) For covered loans or applications subject to Regulation Z, 12
CFR part 1026, other than reverse mortgages or purchased covered loans,
the term in months of any prepayment penalty, as defined in Regulation
Z, 12 CFR 1026.32(b)(6)(i) or (ii), as applicable.
(23) Except for purchased covered loans, the ratio of the
applicant's or borrower's total monthly debt to the total monthly income
relied on in making the credit decision.
(24) Except for purchased covered loans, the ratio of the total
amount of debt secured by the property to the value of the property
relied on in making the credit decision.
(25) The scheduled number of months after which the legal obligation
will mature or terminate or would have matured or terminated.
(26) The number of months, or proposed number of months in the case
of an application, until the first date the interest rate may change
after closing or account opening.
(27) Whether the contractual terms include or would have included
any of the following:
(i) A balloon payment as defined in Regulation Z, 12 CFR
1026.18(s)(5)(i);
(ii) Interest-only payments as defined in Regulation Z, 12 CFR
1026.18(s)(7)(iv);
(iii) A contractual term that would cause the covered loan to be a
negative amortization loan as defined in Regulation Z, 12 CFR
1026.18(s)(7)(v); or
(iv) Any other contractual term that would allow for payments other
than fully amortizing payments, as defined in Regulation Z, 12 CFR
1026.43(b)(2), during the loan term, other than the contractual terms
described in this paragraph (a)(27)(i), (ii), and (iii).
(28) The value of the property securing the covered loan or, in the
case of an application, proposed to secure the covered loan relied on in
making the credit decision.
(29) If the dwelling related to the property identified in paragraph
(a)(9) of this section is a manufactured home and not a multifamily
dwelling, whether the covered loan is, or in the case of an application
would have been, secured by a manufactured home and land, or by a
manufactured home and not land.
(30) If the dwelling related to the property identified in paragraph
(a)(9) of this section is a manufactured home and not a multifamily
dwelling, whether the applicant or borrower:
(i) Owns the land on which it is or will be located or, in the case
of an application, did or would have owned the land on which it would
have been located, through a direct or indirect ownership interest; or
(ii) Leases or, in the case of an application, leases or would have
leased the land through a paid or unpaid leasehold.
(31) The number of individual dwelling units related to the property
securing the covered loan or, in the case of an application, proposed to
secure the covered loan.
(32) If the property securing the covered loan or, in the case of an
application, proposed to secure the covered loan includes a multifamily
dwelling, the number of individual dwelling units related to the
property that are income-restricted pursuant to Federal, State, or local
affordable housing programs.
(33) Except for purchased covered loans, the following information
about the application channel of the covered loan or application:
(i) Whether the applicant or borrower submitted the application for
the covered loan directly to the financial institution; and
(ii) Whether the obligation arising from the covered loan was, or in
the case of an application, would have been initially payable to the
financial institution.
(34) For a covered loan or application, the unique identifier
assigned by the Nationwide Mortgage Licensing System and Registry for
the mortgage loan originator, as defined in Regulation G, 12 CFR
1007.102, or Regulation H, 12 CFR 1008.23, as applicable.
[[Page 98]]
(35)(i) Except for purchased covered loans, the name of the
automated underwriting system used by the financial institution to
evaluate the application and the result generated by that automated
underwriting system.
(ii) For purposes of this paragraph (a)(35), an ``automated
underwriting system'' means an electronic tool developed by a
securitizer, Federal government insurer, or Federal government guarantor
that provides a result regarding the credit risk of the applicant and
whether the covered loan is eligible to be originated, purchased,
insured, or guaranteed by that securitizer, Federal government insurer,
or Federal government guarantor.
(36) Whether the covered loan is, or the application is for, a
reverse mortgage.
(37) Whether the covered loan is, or the application is for, an
open-end line of credit.
(38) Whether the covered loan is, or the application is for a
covered loan that will be, made primarily for a business or commercial
purpose.
(b) Collection of data on ethnicity, race, sex, age, and income. (1)
A financial institution shall collect data about the ethnicity, race,
and sex of the applicant or borrower as prescribed in appendix B to this
part.
(2) Ethnicity, race, sex, age, and income data may but need not be
collected for covered loans purchased by a financial institution.
(c)-(d) [Reserved]
(e) Data reporting for banks and savings associations that are
required to report data on small business, small farm, and community
development lending under CRA. Banks and savings associations that are
required to report data on small business, small farm, and community
development lending under regulations that implement the Community
Reinvestment Act of 1977 (12 U.S.C. 2901 et seq.) shall also collect the
information required by paragraph 4(a)(9) of this section for property
located outside MSAs and MDs in which the institution has a home or
branch office, or outside any MSA.
(f) Quarterly recording of data. A financial institution shall
record the data collected pursuant to this section on a loan/application
register within 30 calendar days after the end of the calendar quarter
in which final action is taken (such as origination or purchase of a
covered loan, sale of a covered loan in the same calendar year it is
originated or purchased, or denial or withdrawal of an application).
Sec. 1003.5 Disclosure and reporting.
(a) Reporting to agency. (1) By March 1 following the calendar year
for which the loan data are compiled, a financial institution shall send
its complete loan/application register to the agency office specified in
appendix A of this part. The institution shall retain a copy for its
records for at least three years.
(2) A subsidiary of a bank or savings association shall complete a
separate loan/application register. The subsidiary shall submit the
register, directly or through its parent, to the same agency as its
parent.
(b) Public disclosure of statement. (1) The Federal Financial
Institutions Examination Council (FFIEC) will prepare a disclosure
statement from the data each financial institution submits.
(2) An institution shall make its disclosure statement (prepared by
the FFIEC) available to the public at the institution's home office no
later than three business days after receiving the disclosure statement
from the FFIEC.
(3) In addition, an institution shall either:
(i) Make its disclosure statement available to the public, within
ten business days of receiving it, in at least one branch office in each
other MSA and each other Metropolitan Division where the institution has
offices (the disclosure statement need only contain data relating to the
MSA or Metropolitan Division where the branch is located); or
(ii) Post the address for sending written requests in the lobby of
each branch office in other MSAs and Metropolitan Divisions where the
institution has offices; and mail or deliver a copy of the disclosure
statement within fifteen calendar days of receiving a written request
(the disclosure statement need only contain data relating to the MSA or
Metropolitan Division for which the request is made). Including the
address in the general notice required under paragraph (e) of this
section satisfies this requirement.
(c) Public disclosure of modified loan/application register. A
financial institution shall make its loan/application register available
to the public after removing the following information regarding each
entry: The application or loan number, the date that the application was
received, and the date action was taken. An institution shall make its
modified register available following the calendar year for which the
[[Page 99]]
data are compiled, by March 31 for a request received on or before March
1, and within thirty calendar days for a request received after March 1.
The modified register need only contain data relating to the MSA or
Metropolitan Division for which the request is made.
(d) Availability of data. A financial institution shall make its
modified register available to the public for a period of three years
and its disclosure statement available for a period of five years. An
institution shall make the data available for inspection and copying
during the hours the office is normally open to the public for business.
It may impose a reasonable fee for any cost incurred in providing or
reproducing the data.
(e) Notice of availability. A financial institution shall post a
general notice about the availability of its HMDA data in the lobby of
its home office and of each branch office located in an MSA and
Metropolitan Division. An institution shall provide promptly upon
request the location of the institution's offices where the statement is
available for inspection and copying, or it may include the location in
the lobby notice.
(f) Loan aggregation and central data depositories. Using the loan
data submitted by financial institutions, the FFIEC will produce reports
for individual institutions and reports of aggregate data for each MSA
and Metropolitan Division, showing lending patterns by property
location, age of housing stock, and income level, sex, ethnicity, and
race. These reports will be available to the public at central data
depositories located in each MSA and Metropolitan Division. A listing of
central data depositories can be obtained from the Federal Financial
Institutions Examination Council, Washington, DC 20006.
Effective Date Note 1: At 80 FR 66312, Oct. 28, 2015, Sec. 1003.5
was amended by revising paragraphs (b) through (f), effective Jan. 1,
2018. For the convenience of the user, the revised text is set forth as
follows:
Sec. 1003.5 Disclosure and reporting.
* * * * *
(b) Disclosure statement--(1) The Federal Financial Institutions
Examination Council (FFIEC) will make available a disclosure statement
based on the data each financial institution submits for the preceding
calendar year pursuant to paragraph (a) of this section.
(2) No later than three business days after receiving notice from
the FFIEC that a financial institution's disclosure statement is
available, the financial institution shall make available to the public
upon request at its home office, and each branch office physically
located in each MSA and each MD, a written notice that clearly conveys
that the institution's disclosure statement may be obtained on the
Bureau's Web site at www.consumerfinance.gov/hmda.
(c) Modified loan/application register. (1) A financial institution
shall make available to the public upon request at its home office, and
each branch office physically located in each MSA and each MD, a written
notice that clearly conveys that the institution's loan/application
register, as modified by the Bureau to protect applicant and borrower
privacy, may be obtained on the Bureau's Web site at
www.consumerfinance.gov/hmda.
(2) A financial institution shall make available the notice required
by paragraph (c)(1) of this section following the calendar year for
which the data are collected.
(d) Availability of written notices. (1) A financial institution
shall make the notice required by paragraph (c) of this section
available to the public for a period of three years and the notice
required by paragraph (b)(2) of this section available to the public for
a period of five years. An institution shall make these notices
available during the hours the office is normally open to the public for
business.
(2) A financial institution may make available to the public, at its
discretion and in addition to the written notices required by paragraphs
(b)(2) or (c)(1) of this section, as applicable, its disclosure
statement or its loan/application register, as modified by the Bureau to
protect applicant and borrower privacy. A financial institution may
impose a reasonable fee for any cost incurred in providing or
reproducing these data.
(e) Posted notice of availability of data. A financial institution
shall post a general notice about the availability of its HMDA data in
the lobby of its home office and of each branch office physically
located in each MSA and each MD. This notice must clearly convey that
the institution's HMDA data is available on the Bureau's Web site at
www.consumerfinance.gov/hmda.
(f) Aggregated data. Using data submitted by financial institutions
pursuant to paragraph (a) of this section, the FFIEC will make available
aggregate data for each MSA
[[Page 100]]
and MD, showing lending patterns by property location, age of housing
stock, and income level, sex, ethnicity, and race.
Effective Date Note 2: At 80 FR 66312, Oct. 28, 2015, Sec. 1003.5
was revised, effective Jan. 1, 2019. For the convenience of the user,
the revised text is set forth as follows:
Sec. 1003.5 Disclosure and reporting.
(a) Reporting to agency. (1)(i) Annual reporting. By March 1
following the calendar year for which data are collected and recorded as
required by Sec. 1003.4, a financial institution shall submit its annual
loan/application register in electronic format to the appropriate
Federal agency at the address identified by such agency. An authorized
representative of the financial institution with knowledge of the data
submitted shall certify to the accuracy and completeness of data
submitted pursuant to this paragraph (a)(1)(i). The financial
institution shall retain a copy of its annual loan/application register
submitted pursuant to this paragraph (a)(1)(i) for its records for at
least three years.
(ii) [Reserved]
(iii) When the last day for submission of data prescribed under this
paragraph (a)(1) falls on a Saturday or Sunday, a submission shall be
considered timely if it is submitted on the next succeeding Monday.
(2) A financial institution that is a subsidiary of a bank or
savings association shall complete a separate loan/application register.
The subsidiary shall submit the loan/application register, directly or
through its parent, to the appropriate Federal agency for the
subsidiary's parent at the address identified by the agency.
(3) A financial institution shall provide with its submission:
(i) Its name;
(ii) The calendar year the data submission covers pursuant to
paragraph (a)(1)(i) of this section or calendar quarter and year the
data submission covers pursuant to paragraph (a)(1)(ii) of this section;
(iii) The name and contact information of a person who may be
contacted with questions about the institution's submission;
(iv) Its appropriate Federal agency;
(v) The total number of entries contained in the submission;
(vi) Its Federal Taxpayer Identification number; and
(vii) Its Legal Entity Identifier (LEI) as described in
Sec. 1003.4(a)(1)(i)(A).
(4) For purposes of paragraph (a) of this section, ``appropriate
Federal agency'' means the appropriate agency for the financial
institution as determined pursuant to section 304(h)(2) of the Home
Mortgage Disclosure Act (12 U.S.C. 2803(h)(2)) or, with respect to a
financial institution subject to the Bureau's supervisory authority
under section 1025(a) of the Consumer Financial Protection Act of 2010
(12 U.S.C. 5515(a)), the Bureau.
(5) Procedures for the submission of data pursuant to paragraph (a)
of this section are available at www.consumerfinance.gov/hmda.
(b) Disclosure statement. (1) The Federal Financial Institutions
Examination Council (FFIEC) will make available a disclosure statement
based on the data each financial institution submits for the preceding
calendar year pursuant to paragraph (a)(1)(i) of this section.
(2) No later than three business days after receiving notice from
the FFIEC that a financial institution's disclosure statement is
available, the financial institution shall make available to the public
upon request at its home office, and each branch office physically
located in each MSA and each MD, a written notice that clearly conveys
that the institution's disclosure statement may be obtained on the
Bureau's Web site at www.consumerfinance.gov/hmda.
(c) Modified loan/application register. (1) A financial institution
shall make available to the public upon request at its home office, and
each branch office physically located in each MSA and each MD, a written
notice that clearly conveys that the institution's loan/application
register, as modified by the Bureau to protect applicant and borrower
privacy, may be obtained on the Bureau's Web site at
www.consumerfinance.gov/hmda.
(2) A financial institution shall make available the notice required
by paragraph (c)(1) of this section following the calendar year for
which the data are collected.
(d) Availability of written notices. (1) A financial institution
shall make the notice required by paragraph (c) of this section
available to the public for a period of three years and the notice
required by paragraph (b)(2) of this section available to the public for
a period of five years. An institution shall make these notices
available during the hours the office is normally open to the public for
business.
(2) A financial institution may make available to the public, at its
discretion and in addition to the written notices required by paragraphs
(b)(2) or (c)(1) of this section, as applicable, its disclosure
statement or its loan/application register, as modified by the Bureau to
protect applicant and borrower privacy. A financial institution may
impose a reasonable fee for any cost incurred in providing or
reproducing these data.
(e) Posted notice of availability of data. A financial institution
shall post a general notice about the availability of its HMDA data in
the lobby of its home office and of each branch office physically
located in each MSA and each MD. This notice must clearly convey that
the institution's HMDA data is available on the Bureau's Web site at
www.consumerfinance.gov/hmda.
[[Page 101]]
(f) Aggregated data. Using data submitted by financial institutions
pursuant to paragraph (a)(1)(i) of this section, the FFIEC will make
available aggregate data for each MSA and MD, showing lending patterns
by property location, age of housing stock, and income level, sex,
ethnicity, and race.
Effective Date Note 3: At 80 FR 66313, Oct. 28, 2015, Sec. 1003.5
was amended by adding paragraph (a)(1)(ii), effective Jan. 1, 2020. For
the convenience of the user, the added text is set forth as follows:
Sec. 1003.5 Disclosure and reporting.
(a) * * *
(1) * * *
(ii) Quarterly reporting. Within 60 calendar days after the end of
each calendar quarter except the fourth quarter, a financial institution
that reported for the preceding calendar year at least 60,000 covered
loans and applications, combined, excluding purchased covered loans,
shall submit to the appropriate Federal agency its loan/application
register containing all data required to be recorded for that quarter
pursuant to Sec. 1003.4(f). The financial institution shall submit its
quarterly loan/application register pursuant to this paragraph
(a)(1)(ii) in electronic format at the address identified by the
appropriate Federal agency for the institution.
* * * * *
Sec. 1003.6 Enforcement.
(a) Administrative enforcement. A violation of the Act or this part
is subject to administrative sanctions as provided in section 305 of the
Act, including the imposition of civil money penalties, where
applicable. Compliance is enforced by the agencies listed in section 305
of the Act (12 U.S.C. 2804).
(b) Bona fide errors. (1) An error in compiling or recording loan
data is not a violation of the act or this part if the error was
unintentional and occurred despite the maintenance of procedures
reasonably adapted to avoid such errors.
(2) An incorrect entry for a census tract number is deemed a bona
fide error, and is not a violation of the act or this part, provided
that the institution maintains procedures reasonably adapted to avoid
such errors.
(3) If an institution makes a good-faith effort to record all data
concerning covered transactions fully and accurately within thirty
calendar days after the end of each calendar quarter, and some data are
nevertheless inaccurate or incomplete, the error or omission is not a
violation of the act or this part provided that the institution corrects
or completes the information prior to submitting the loan/application
register to its regulatory agency.
Effective Date Note: At 80 FR 66313, Oct. 28, 2015, Sec. 1003.6 was
revised, effective Jan. 1, 2019. For the convenience of the user, the
revised text is set forth as follows:
Sec. 1003.6 Enforcement.
(a) Administrative enforcement. A violation of the Act or this part
is subject to administrative sanctions as provided in section 305 of the
Act (12 U.S.C. 2804), including the imposition of civil money penalties,
where applicable. Compliance is enforced by the agencies listed in
section 305 of the Act.
(b) Bona fide errors. (1) An error in compiling or recording data
for a covered loan or application is not a violation of the Act or this
part if the error was unintentional and occurred despite the maintenance
of procedures reasonably adapted to avoid such an error.
(2) An incorrect entry for a census tract number is deemed a bona
fide error, and is not a violation of the Act or this part, provided
that the financial institution maintains procedures reasonably adapted
to avoid such an error.
(c) Quarterly recording and reporting. (1) If a financial
institution makes a good-faith effort to record all data required to be
recorded pursuant to Sec. 1003.4(f) fully and accurately within 30
calendar days after the end of each calendar quarter, and some data are
nevertheless inaccurate or incomplete, the inaccuracy or omission is not
a violation of the Act or this part provided that the institution
corrects or completes the data prior to submitting its annual loan/
application register pursuant to Sec. 1003.5(a)(1)(i).
(2) If a financial institution required to comply with
Sec. 1003.5(a)(1)(ii) makes a good-faith effort to report all data
required to be reported pursuant to Sec. 1003.5(a)(1)(ii) fully and
accurately within 60 calendar days after the end of each calendar
quarter, and some data are nevertheless inaccurate or incomplete, the
inaccuracy or omission is not a violation of the Act or this part
provided that the institution corrects or completes the data prior to
submitting its annual loan/application register pursuant to
Sec. 1003.5(a)(1)(i).
[[Page 102]]
Sec. Appendix A to Part 1003--Form and Instructions for Completion of
HMDA Loan/Application Register
Paperwork Reduction Act Notice
This report is required by law (12 U.S.C. 2801-2810 and 12 CFR
1003). An agency may not conduct or sponsor, and an organization is not
required to respond to, a collection of information unless it displays a
valid Office of Management and Budget (OMB) Control Number. See 12 CFR
1003.1(a) for the valid OMB Control Numbers applicable to this
information collection. Send comments regarding this burden estimate or
any other aspect of this collection of information, including
suggestions for reducing the burden, to the respective agencies and to
OMB, Office of Information and Regulatory Affairs, Paperwork Reduction
Project, Washington, DC 20503. Be sure to reference the applicable
agency and the OMB Control Number, as found in 12 CFR 1003.1(a), when
submitting comments to OMB.
I. Instructions for Completion of Loan/Application Register
A. Application or Loan Information
1. Application or Loan Number. Enter an identifying loan number that
can be used later to retrieve the loan or application file. It can be
any number of your institution's choosing (not exceeding 25 characters).
You may use letters, numerals, or a combination of both.
2. Date Application Received. Enter the date the loan application
was received by your institution by month, day, and year. If your
institution normally records the date shown on the application form you
may use that date instead. Enter ``NA'' for loans purchased by your
institution. For paper submissions only, use numerals in the form MM/DD/
YYYY (for example, 01/15/2003). For submissions in electronic form, the
proper format is YYYYMMDD.
3. Type of Loan or Application. Indicate the type of loan or
application by entering the applicable Code from the following:
Code 1--Conventional (any loan other than FHA, VA, FSA, or RHS loans)
Code 2--FHA-insured (Federal Housing Administration)
Code 3--VA-guaranteed (Veterans Administration)
Code 4--FSA/RHS-guaranteed (Farm Service Agency or Rural Housing
Service)
4. Property Type. Indicate the property type by entering the
applicable Code from the following:
Code 1--One-to four-family dwelling (other than manufactured housing)
Code 2--Manufactured housing
Code 3--Multifamily dwelling
a. Use Code 1, not Code 3, for loans on individual condominium or
cooperative units.
b. If you cannot determine (despite reasonable efforts to find out)
whether the loan or application relates to a manufactured home, use Code
1.
5. Purpose of Loan or Application. Indicate the purpose of the loan
or application by entering the applicable Code from the following:
Code 1--Home purchase
Code 2--Home improvement
Code 3--Refinancing
a. Do not report a refinancing if, under the loan agreement, you
were unconditionally obligated to refinance the obligation, or you were
obligated to refinance the obligation subject to conditions within the
borrower's control.
6. Owner Occupancy. Indicate whether the property to which the loan
or loan application relates is to be owner-occupied as a principal
residence by entering the applicable Code from the following:
Code 1--Owner-occupied as a principal dwelling
Code 2--Not owner-occupied as a principal dwelling
Code 3--Not applicable
a. For purchased loans, use Code 1 unless the loan documents or
application indicate that the property will not be owner-occupied as a
principal residence.
b. Use Code 2 for second homes or vacation homes, as well as for
rental properties.
c. Use Code 3 if the property to which the loan relates is a
multifamily dwelling; is not located in an MSA; or is located in an MSA
or an MD in which your institution has neither a home nor a branch
office. Alternatively, at your institution's option, you may report the
actual occupancy status, using Code 1 or 2 as applicable.
7. Loan Amount. Enter the amount of the loan or application. Do not
report loans below $500. Show the amount in thousands, rounding to the
nearest thousand (round $500 up to the next $1,000). For example, a loan
for $167,300 should be entered as 167 and one for $15,500 as 16.
a. For a home purchase loan that you originated, enter the principal
amount of the loan.
b. For a home purchase loan that you purchased, enter the unpaid
principal balance of the loan at the time of purchase.
c. For a home improvement loan, enter the entire amount of the
loan--including unpaid finance charges if that is how such loans are
recorded on your books--even if only a part of the proceeds is intended
for home improvement.
[[Page 103]]
d. If you opt to report home-equity lines of credit, report only the
portion of the line intended for home improvement or home purchase.
e. For a refinancing, indicate the total amount of the refinancing,
including both the amount outstanding on the original loan and any
amount of ``new money.''
f. For a loan application that was denied or withdrawn, enter the
amount for which the applicant applied.
8. Request for Preapproval of a Home Purchase Loan. Indicate whether
the application or loan involved a request for preapproval of a home
purchase loan by entering the applicable Code from the following:
Code 1--Preapproval requested
Code 2--Preapproval not requested
Code 3--Not applicable
a. Enter Code 2 if your institution has a covered preapproval
program but the applicant does not request a preapproval.
b. Enter Code 3 if your institution does not have a preapproval
program as defined in Sec. 1003.2.
c. Enter Code 3 for applications or loans for home improvement or
refinancing, and for purchased loans.
B. Action Taken
1. Type of Action. Indicate the type of action taken on the
application or loan by using one of the following Codes.
Code 1--Loan originated
Code 2--Application approved but not accepted
Code 3--Application denied
Code 4--Application withdrawn
Code 5--File closed for incompleteness
Code 6--Loan purchased by your institution
Code 7--Preapproval request denied
Code 8--Preapproval request approved but not accepted (optional
reporting)
a. Use Code 1 for a loan that is originated, including one resulting
from a request for preapproval.
b. For a counteroffer (your offer to the applicant to make the loan
on different terms or in a different amount from the terms or amount
applied for), use Code 1 if the applicant accepts. Use Code 3 if the
applicant turns down the counteroffer or does not respond.
c. Use Code 2 when the application is approved but the applicant (or
the loan broker or correspondent) fails to respond to your notification
of approval or your commitment letter within the specified time. Do not
use this Code for a preapproval request.
d. Use Code 4 only when the application is expressly withdrawn by
the applicant before a credit decision is made. Do not use Code 4 if a
request for preapproval is withdrawn; preapproval requests that are
withdrawn are not reported under HMDA.
e. Use Code 5 if you sent a written notice of incompleteness under
Sec. 1002.9(c)(2) of Regulation B (Equal Credit Opportunity) and the
applicant did not respond to your request for additional information
within the period of time specified in your notice. Do not use this Code
for requests for preapproval that are incomplete; these preapproval
requests are not reported under HMDA.
2. Date of Action. For paper submissions only, enter the date by
month, day, and year, using numerals in the form MM/DD/YYYY (for
example, 02/22/2003). For submissions in electronic form, the proper
format is YYYYMMDD.
a. For loans originated, enter the settlement or closing date.
b. For loans purchased, enter the date of purchase by your
institution.
c. For applications and preapprovals denied, applications and
preapprovals approved but not accepted by the applicant, and files
closed for incompleteness, enter the date that the action was taken by
your institution or the date the notice was sent to the applicant.
d. For applications withdrawn, enter the date you received the
applicant's express withdrawal, or enter the date shown on the
notification from the applicant, in the case of a written withdrawal.
e. For preapprovals that lead to a loan origination, enter the date
of the origination.
C. Property Location
Except as otherwise provided, enter in these columns the applicable
Codes for the MSA, or the MD if the MSA is divided into MDs, state,
county, and census tract to indicate the location of the property to
which a loan relates.
1. MSA or Metropolitan Division.--For each loan or loan application,
enter the MSA, or the MD number if the MSA is divided into MDs. MSA and
MD boundaries are defined by OMB; use the boundaries that were in effect
on January 1 of the calendar year for which you are reporting. A listing
of MSAs and MDs is available from the appropriate Federal agency to
which you report data or the FFIEC.
2. State and County. Use the Federal Information Processing Standard
(FIPS) two-digit numerical code for the state and the three-digit
numerical code for the county. These codes are available from the
appropriate Federal agency to which you report data or the FFIEC.
3. Census Tract.--Indicate the census tract where the property is
located. Notwithstanding paragraph 6, if the property is located in a
county with a population of 30,000 or less in the 2000 Census, enter
``NA'' (even if the population has increased above 30,000 since 2000),
or enter the census tract number.
[[Page 104]]
County population data can be obtained from the U.S. Census Bureau.
4. Census Tract Number.--For the census tract number, consult the
resources provided by the U.S. Census Bureau or the FFIEC.
5. Property Located Outside MSAs or Metropolitan Divisions.--For
loans on property located outside the MSAs and MDs in which an
institution has a home or branch office, or for property located outside
of any MSA or MD, the institution may choose one of the following two
options. Under option one, the institution may enter the MSA or MD,
state and county codes and the census tract number; and if the property
is not located in any MSA or MD, the institution may enter ``NA'' in the
MSA or MD column. (Codes exist for all states and counties and numbers
exist for all census tracts.) Under this first option, the codes and
census tract number must accurately identify the property location.
Under the second option, which is not available if paragraph 6 applies,
an institution may enter ``NA'' in all four columns, whether or not the
codes or numbers exist for the property location.
6. Data Reporting for Banks and Savings Associations Required To
Report Data on Small Business, Small Farm, and Community Development
Lending Under the CRA Regulations.--If your institution is a bank or
savings association that is required to report data under the
regulations that implement the CRA, you must enter the property location
on your HMDA/LAR even if the property is outside the MSAs or MDs in
which you have a home or branch office, or is not located in any MSA.
7. Requests for Preapproval. Notwithstanding paragraphs 1 through 6,
if the application is a request for preapproval that is denied or that
is approved but not accepted by the applicant, you may enter ``NA'' in
all four columns.
D. Applicant Information--Ethnicity, Race, Sex, and Income
Appendix B contains instructions for the collection of data on
ethnicity, race, and sex, and also contains a sample form for data
collection.
1. Applicability. Report this information for loans that you
originate as well as for applications that do not result in an
origination.
a. You need not collect or report this information for loans
purchased. If you choose not to report this information, use the Codes
for ``not applicable.''
b. If the borrower or applicant is not a natural person (a
corporation or partnership, for example), use the Codes for ``not
applicable.''
2. Mail, Internet, or Telephone Applications.--All loan
applications, including applications taken by mail, internet, or
telephone must use a collection form similar to that shown in appendix B
regarding ethnicity, race, and sex. For applications taken by telephone,
the information in the collection form must be stated orally by the
lender, except for information that pertains uniquely to applications
taken in writing. If the applicant does not provide these data in an
application taken by mail or telephone or on the internet, enter the
Code for ``information not provided by applicant in mail, internet, or
telephone application'' specified in paragraphs I.D.3., 4., and 5. of
this appendix. (See appendix B for complete information on the
collection of these data in mail, Internet, or telephone applications.)
3. Ethnicity of Borrower or Applicant. Use the following Codes to
indicate the ethnicity of the applicant or borrower under column ``A''
and of any co-applicant or co-borrower under column ``CA.''
Code 1--Hispanic or Latino
Code 2--Not Hispanic or Latino
Code 3--Information not provided by applicant in mail, internet, or
telephone application
Code 4--Not applicable
Code 5--No co-applicant
4. Race of Borrower or Applicant. Use the following Codes to
indicate the race of the applicant or borrower under column ``A'' and of
any co-applicant or co-borrower under column ``CA.''
Code 1--American Indian or Alaska Native
Code 2--Asian
Code 3--Black or African American
Code 4--Native Hawaiian or Other Pacific Islander
Code 5--White
Code 6--Information not provided by applicant in mail, internet, or
telephone application
Code 7--Not applicable
Code 8--No co-applicant
a. If an applicant selects more than one racial designation, enter
all Codes corresponding to the applicant's selections.
b. Use Code 4 (for ethnicity) and Code 7 (for race) for ``not
applicable'' only when the applicant or co-applicant is not a natural
person or when applicant or co-applicant information is unavailable
because the loan has been purchased by your institution.
c. If there is more than one co-applicant, provide the required
information only for the first co-applicant listed on the application
form. If there are no co-applicants or co-borrowers, use Code 5 (for
ethnicity) and Code 8 (for race) for ``no co-applicant'' in the co-
applicant column.
5. Sex of Borrower or Applicant. Use the following Codes to indicate
the sex of the applicant or borrower under column ``A'' and of any co-
applicant or co-borrower under column ``CA.''
Code 1--Male
Code 2--Female
[[Page 105]]
Code 3--Information not provided by applicant in mail, internet, or
telephone application
Code 4--Not applicable
Code 5--No co-applicant or co-borrower
a. Use Code 4 for ``not applicable'' only when the applicant or co-
applicant is not a natural person or when applicant or co-applicant
information is unavailable because the loan has been purchased by your
institution.
b. If there is more than one co-applicant, provide the required
information only for the first co-applicant listed on the application
form. If there are no co-applicants or co-borrowers, use Code 5 for ``no
co-applicant'' in the co-applicant column.
6. Income. Enter the gross annual income that your institution
relied on in making the credit decision.
a. Round all dollar amounts to the nearest thousand (round $500 up
to the next $1,000), and show in thousands. For example, report $35,500
as 36.
b. For loans on multifamily dwellings, enter ``NA.''
c. If no income information is asked for or relied on in the credit
decision, enter ``NA.''
d. If the applicant or co-applicant is not a natural person or the
applicant or co-applicant information is unavailable because the loan
has been purchased by your institution, enter ``NA.''
E. Type of Purchaser
Enter the applicable Code to indicate whether a loan that your
institution originated or purchased was then sold to a secondary market
entity within the same calendar year:
Code 0--Loan was not originated or was not sold in calendar year covered
by register
Code 1--Fannie Mae
Code 2--Ginnie Mae
Code 3--Freddie Mac
Code 4--Farmer Mac
Code 5--Private securitization
Code 6--Commercial bank, savings bank, or savings association
Code 7--Life insurance company, credit union, mortgage bank, or finance
company
Code 8--Affiliate institution
Code 9--Other type of purchaser
a. Use Code 0 for applications that were denied, withdrawn, or
approved but not accepted by the applicant; and for files closed for
incompleteness.
b. Use Code 0 if you originated or purchased a loan and did not sell
it during that same calendar year. If you sell the loan in a succeeding
year, you need not report the sale.
c. Use Code 2 if you conditionally assign a loan to Ginnie Mae in
connection with a mortgage-backed security transaction.
d. Use Code 8 for loans sold to an institution affiliated with you,
such as your subsidiary or a subsidiary of your parent corporation.
F. Reasons for Denial
1. You may report the reason for denial, and you may indicate up to
three reasons, using the following Codes. Leave this column blank if the
``action taken'' on the application is not a denial. For example, do not
complete this column if the application was withdrawn or the file was
closed for incompleteness.
Code 1--Debt-to-income ratio
Code 2--Employment history
Code 3--Credit history
Code 4--Collateral
Code 5--Insufficient cash (downpayment, closing costs)
Code 6--Unverifiable information
Code 7--Credit application incomplete
Code 8--Mortgage insurance denied
Code 9--Other
2. If your institution uses the model form for adverse action
contained in appendix C to Regulation B (Form C-1, Sample Notification
Form), use the foregoing Codes as follows:
a. Code 1 for: Income insufficient for amount of credit requested,
and Excessive obligations in relation to income.
b. Code 2 for: Temporary or irregular employment, and Length of
employment.
c. Code 3 for: Insufficient number of credit references provided;
Unacceptable type of credit references provided; No credit file; Limited
credit experience; Poor credit performance with us; Delinquent past or
present credit obligations with others; Garnishment, attachment,
foreclosure, repossession, collection action, or judgment; and
Bankruptcy.
d. Code 4 for: Value or type of collateral not sufficient.
e. Code 6 for: Unable to verify credit references; Unable to verify
employment; Unable to verify income; and Unable to verify residence.
f. Code 7 for: Credit application incomplete.
g. Code 9 for: Length of residence; Temporary residence; and Other
reasons specified on notice.
G. Pricing-Related Data
1. Rate Spread. a. For a home-purchase loan, a refinancing, or a
dwelling-secured home improvement loan that you originated, report the
spread between the annual percentage rate (APR) and the average prime
offer rate for a comparable transaction if the spread is equal to or
greater than 1.5 percentage points for first-lien loans or 3.5
percentage points for subordinate-lien loans. To determine whether the
rate spread meets this threshold, use the average prime offer rate in
effect for the type of transaction as
[[Page 106]]
of the date the interest rate was set, and use the APR for the loan, as
calculated and disclosed to the consumer under Secs. 1026.6 or 1026.18,
as applicable, of Regulation Z (12 CFR part 1026). Current and historic
average prime offer rates are set forth in the tables published on the
FFIEC's Web site (http://www.ffiec.gov/hmda) entitled ``Average Prime
Offer Rates-Fixed'' and ``Average Prime Offer Rates-Adjustable.'' Use
the most recently available average prime offer rate. ``Most recently
available'' means the average prime offer rate set forth in the
applicable table with the most recent effective date as of the date the
interest rate was set. Do not use an average prime offer rate before its
effective date.
b. If the loan is not subject to Regulation Z, or is a home
improvement loan that is not dwelling-secured, or is a loan that you
purchased, enter ``NA.''
c. Enter ``NA'' in the case of an application that does not result
in a loan origination.
d. Enter the rate spread to two decimal places, and use a leading
zero. For example, enter 03.29. If the difference between the APR and
the average prime offer rate is a figure with more than two decimal
places, round the figure or truncate the digits beyond two decimal
places.
e. If the difference between the APR and the average prime offer
rate is less than 1.5 percentage points for a first-lien loan and less
than 3.5 percentage points for a subordinate-lien loan, enter ``NA.''
2. Date the interest rate was set. The relevant date to use to
determine the average prime offer rate for a comparable transaction is
the date on which the loan's interest rate was set by the financial
institution for the final time before closing. If an interest rate is
set pursuant to a ``lock-in'' agreement between the lender and the
borrower, then the date on which the agreement fixes the interest rate
is the date the rate was set. If a rate is re-set after a lock-in
agreement is executed (for example, because the borrower exercises a
float-down option or the agreement expires), then the relevant date is
the date the rate is re-set for the final time before closing. If no
lock-in agreement is executed, then the relevant date is the date on
which the institution sets the rate for the final time before closing.
3. HOEPA Status. a. For a loan that you originated or purchased that
is subject to the Home Ownership and Equity Protection Act of 1994
(HOEPA), as implemented in Regulation Z (12 CFR 1026.32), because the
APR or the points and fees on the loan exceed the HOEPA triggers, enter
Code 1.
b. Enter Code 2 in all other cases. For example, enter Code 2 for a
loan that you originated or purchased that is not subject to the
requirements of HOEPA for any reason; also enter Code 2 in the case of
an application that does not result in a loan origination.
H. Lien Status
Use the following Codes for loans that you originate and for
applications that do not result in an origination:
Code 1--Secured by a first lien.
Code 2--Secured by a subordinate lien.
Code 3--Not secured by a lien.
Code 4--Not applicable (purchased loan).
a. Use Codes 1 through 3 for loans that you originate, as well as
for applications that do not result in an origination (applications that
are approved but not accepted, denied, withdrawn, or closed for
incompleteness).
b. Use Code 4 for loans that you purchase.
II. Appropriate Federal Agencies for HMDA Reporting
A. You are strongly encouraged to submit your loan/application
register via email. If you elect to use this method of transmission and
the appropriate Federal agency for your institution is the Bureau of
Consumer Financial Protection, the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, or the National
Credit Union Administration, then you should submit your institution's
files to the email address dedicated to that purpose by the Bureau,
which can be found on the Web site of the FFIEC. If one of the foregoing
agencies is the appropriate Federal agency for your institution and you
elect to submit your data by regular mail, then use the following
address: HMDA, Federal Reserve Board, Attention: HMDA Processing,
(insert name of the appropriate Federal agency for your institution),
20th & Constitution Ave NW., MS N502, Washington, DC 20551-0001.
B. If the Federal Reserve System (but not the Bureau of Consumer
Financial Protection) is the appropriate Federal agency for your
institution, you should use the email or regular mail address of your
district bank indicated on the Web site of the FFIEC. If the Department
of Housing and Urban Development is the appropriate Federal agency for
your institution, then you should use the email or regular mail address
indicated on the Web site of the FFIEC.
[[Page 107]]
[GRAPHIC] [TIFF OMITTED] TR19DE11.016
[[Page 108]]
[GRAPHIC] [TIFF OMITTED] TR19DE11.017
[[Page 109]]
[GRAPHIC] [TIFF OMITTED] TR19DE11.018
Effective Date Note 1: At 80 FR 66313, Oct. 28, 2015, appendix A to
part 1003 was amended by adding a new subheading and paragraph 1 under
that subheading, revising paragraphs II.A and B, and adding paragraph
II.C , effective Jan. 1, 2018. For the convenience of the user, the
added and revised text is set forth as follows:
[[Page 110]]
Sec. Appendix A to Part 1003--Form and Instructions for Completion of
HMDA Loan/Application Register
Paperwork Reduction Act Notice
* * * * *
Transition Requirements for Data Collected in 2017 and Submitted in 2018
1. The instructions for completion of the loan/application register
in part I of this appendix applies to data collected during the 2017
calendar year and reported in 2018. Part I of this appendix does not
apply to data collected pursuant to the amendments to Regulation C
effective January 1, 2018.
* * * * *
II. Appropriate Federal Agencies for HMDA Reporting
A. A financial institution shall submit its loan/application
register in electronic format to the appropriate Federal agency at the
address identified by such agency. The appropriate Federal agency for a
financial institution is determined pursuant to section 304(h)(2) of the
Home Mortgage Disclosure Act (12 U.S.C. 2803(h)(2)) or, with respect to
a financial institution subject to the Bureau's supervisory authority
under section 1025(a) of the Consumer Financial Protection Act of 2010
(12 U.S.C. 5515(a)), is the Bureau.
B. Procedures for the submission of the loan/application register
are available at www.consumerfinance.gov/hmda.
C. An authorized representative of the financial institution with
knowledge of the data submitted shall certify to the accuracy and
completeness of the data submitted.
* * * * *
Effective Date Note 2: At 80 FR 66314, Oct. 28, 2015, appendix A to
part 1003 was removed and reserved, effective Jan. 1, 2019.
Sec. Appendix B to Part 1003--Form and Instructions for Data Collection
on Ethnicity, Race, and Sex
I. Instructions on Collection of Data on Ethnicity, Race, and Sex
You may list questions regarding the ethnicity, race, and sex of the
applicant on your loan application form, or on a separate form that
refers to the application. (See the sample form below for model
language.)
II. Procedures
A. You must ask the applicant for this information (but you cannot
require the applicant to provide it) whether the application is taken in
person, by mail or telephone, or on the internet. For applications taken
by telephone, the information in the collection form must be stated
orally by the lender, except for that information which pertains
uniquely to applications taken in writing.
B. Inform the applicant that the Federal government requests this
information in order to monitor compliance with Federal statutes that
prohibit lenders from discriminating against applicants on these bases.
Inform the applicant that if the information is not provided where the
application is taken in person, you are required to note the data on the
basis of visual observation or surname.
C. You must offer the applicant the option of selecting one or more
racial designations.
D. If the applicant chooses not to provide the information for an
application taken in person, note this fact on the form and then note
the applicant's ethnicity, race, and sex on the basis of visual
observation and surname, to the extent possible.
E. If the applicant declines to answer these questions or fails to
provide the information on an application taken by mail or telephone or
on the internet, the data need not be provided. In such a case, indicate
that the application was received by mail, telephone, or Internet, if it
is not otherwise evident on the face of the application.
[[Page 111]]
[GRAPHIC] [TIFF OMITTED] TR19DE11.019
[76 FR 78468, Dec. 19, 2011, as amended at 77 FR 8722, Feb. 15, 2012]
Effective Date Note: At 80 FR 66314, Oct. 28, 2015, appendix B to
part 1003 was revised, effective Jan. 1, 2018. For the convenience of
the user, the revised text is set forth as follows:
Sec. Appendix B to Part 1003--Form and Instructions for Data Collection
on Ethnicity, Race, and Sex
You may list questions regarding the ethnicity, race, and sex of the
applicant on your loan application form, or on a separate form that
refers to the application. (See the sample data collection form below
for model language.)
[[Page 112]]
1. You must ask the applicant for this information (but you cannot
require the applicant to provide it) whether the application is taken in
person, by mail or telephone, or on the internet. For applications taken
by telephone, you must state the information in the collection form
orally, except for that information which pertains uniquely to
applications taken in writing, for example, the italicized language in
the sample data collection form.
2. Inform the applicant that Federal law requires this information
to be collected in order to protect consumers and to monitor compliance
with Federal statutes that prohibit discrimination against applicants on
these bases. Inform the applicant that if the information is not
provided where the application is taken in person, you are required to
note the information on the basis of visual observation or surname.
3. If you accept an application through electronic media with a
video component, you must treat the application as taken in person. If
you accept an application through electronic media without a video
component (for example, facsimile), you must treat the application as
accepted by mail.
4. For purposes of Sec. 1003.4(a)(10)(i), if a covered loan or
application includes a guarantor, you do not report the guarantor's
ethnicity, race, and sex.
5. If there are no co-applicants, you must report that there is no
co-applicant. If there is more than one co-applicant, you must provide
the ethnicity, race, and sex only for the first co-applicant listed on
the collection form. A co-applicant may provide an absent co-applicant's
ethnicity, race, and sex on behalf of the absent co-applicant. If the
information is not provided for an absent co-applicant, you must report
``information not provided by applicant in mail, internet, or telephone
application'' for the absent co-applicant.
6. When you purchase a covered loan and you choose not to report the
applicant's or co-applicant's ethnicity, race, and sex, you must report
that the requirement is not applicable.
7. You must report that the requirement to report the applicant's or
co-applicant's ethnicity, race, and sex is not applicable when the
applicant or co-applicant is not a natural person (for example, a
corporation, partnership, or trust). For example, for a transaction
involving a trust, you must report that the requirement to report the
applicant's ethnicity, race, and sex is not applicable if the trust is
the applicant. On the other hand, if the applicant is a natural person,
and is the beneficiary of a trust, you must report the applicant's
ethnicity, race, and sex.
8. You must report the ethnicity, race, and sex of an applicant as
provided by the applicant. For example, if an applicant selects the
``Mexican'' box the institution reports ``Mexican'' for the ethnicity of
the applicant. If an applicant selects the ``Asian'' box the institution
reports ``Asian'' for the race of the applicant. Only an applicant may
self-identify as being of a particular Hispanic or Latino subcategory
(Mexican, Puerto Rican, Cuban, Other Hispanic or Latino) or of a
particular Asian subcategory (Asian Indian, Chinese, Filipino, Japanese,
Korean, Vietnamese, Other Asian) or of a particular Native Hawaiian or
Other Pacific Islander subcategory (Native Hawaiian, Guamanian or
Chamorro, Samoan, Other Pacific Islander) or of a particular American
Indian or Alaska Native enrolled or principal tribe.
9. You must offer the applicant the option of selecting more than
one ethnicity or race. If an applicant selects more than one ethnicity
or race, you must report each selected designation, subject to the
limits described below.
i. Ethnicity--Aggregate categories and subcategories. There are two
aggregate ethnicity categories: Hispanic or Latino; and Not Hispanic or
Latino. If an applicant selects Hispanic or Latino, the applicant may
also select up to four ethnicity subcategories: Mexican; Puerto Rican;
Cuban; and Other Hispanic or Latino. You must report each aggregate
ethnicity category and each ethnicity subcategory selected by the
applicant.
ii. Ethnicity--Other subcategories. If an applicant selects the
Other Hispanic or Latino ethnicity subcategory, the applicant may also
provide a particular Hispanic or Latino ethnicity not listed in the
standard subcategories. In such a case, you must report both the
selection of Other Hispanic or Latino and the additional information
provided by the applicant.
iii. Race--Aggregate categories and subcategories. There are five
aggregate race categories: American Indian or Alaska Native; Asian;
Black or African American; Native Hawaiian or Other Pacific Islander;
and White. The Asian and the Native Hawaiian or Other Pacific Islander
aggregate categories have seven and four subcategories, respectively.
The Asian race subcategories are: Asian Indian; Chinese, Filipino;
Japanese; Korean; Vietnamese; and Other Asian. The Native Hawaiian or
Other Pacific Islander race subcategories are: Native Hawaiian;
Guamanian or Chamorro; Samoan; and Other Pacific Islander. You must
report every aggregate race category selected by the applicant. If the
applicant also selects one or more race subcategories, you must report
each race subcategory selected by the applicant, except that you must
not report more than a total of five aggregate race categories and race
subcategories combined. For example, if the applicant selects all five
aggregate race categories and also selects some race subcategories, you
report only the five aggregate race categories. On the other
[[Page 113]]
hand, if the applicant selects the White, Asian, and Native Hawaiian or
Other Pacific Islander aggregate race categories, and the applicant also
selects the Korean, Vietnamese, and Samoan race subcategories, you must
report White, Asian, Native Hawaiian or Other Pacific Islander, and any
two, at your option, of the three race subcategories selected by the
applicant. In this example, you must report White, Asian, and Native
Hawaiian or Other Pacific Islander, and in addition you must report (at
your option) either Korean and Vietnamese, Korean and Samoan, or
Vietnamese and Samoan. To determine how to report an Other race
subcategory for purposes of the five-race maximum, see paragraph 9.iv
below.
iv. Race--Other subcategories. If an applicant selects the Other
Asian race subcategory or the Other Pacific Islander race subcategory,
the applicant may also provide a particular Other Asian or Other Pacific
Islander race not listed in the standard subcategories. In either such
case, you must report both the selection of Other Asian or Other Pacific
Islander, as applicable, and the additional information provided by the
applicant, subject to the five-race maximum. In all such cases where the
applicant has selected an Other race subcategory and also provided
additional information, for purposes of the maximum of five reportable
race categories and race subcategories combined set forth above, the
Other race subcategory and additional information provided by the
applicant together constitute only one selection. Thus, using the same
facts in the example offered in paragraph 9.iii above, if the applicant
also selected Other Asian and entered ``Thai'' in the space provided,
Other Asian and Thai are considered one selection. You must report any
two (at your option) of the four race subcategories selected by the
applicant, Korean, Vietnamese, Other Asian-Thai, and Samoan, in addition
to the three aggregate race categories selected by the applicant.
10. If the applicant chooses not to provide the information for an
application taken in person, note this fact on the collection form and
then collect the applicant's ethnicity, race, and sex on the basis of
visual observation or surname. You must report whether the applicant's
ethnicity, race, and sex was collected on the basis of visual
observation or surname. When you collect an applicant's ethnicity, race,
and sex on the basis of visual observation or surname, you must select
from the following aggregate categories: Ethnicity (Hispanic or Latino;
not Hispanic or Latino); race (American Indian or Alaska Native; Asian;
Black or African American; Native Hawaiian or Other Pacific Islander;
White); sex (male; female).
11. If the applicant declines to answer these questions by checking
the ``I do not wish to provide this information'' box on an application
that is taken by mail or on the internet, or declines to provide this
information by stating orally that he or she does not wish to provide
this information on an application that is taken by telephone, you must
report ``information not provided by applicant in mail, internet, or
telephone application.''
12. If the applicant begins an application by mail, internet, or
telephone, and does not provide the requested information on the
application but does not check or select the ``I do not wish to provide
this information'' box on the application, and the applicant meets in
person with you to complete the application, you must request the
applicant's ethnicity, race, and sex. If the applicant does not provide
the requested information during the in-person meeting, you must collect
the information on the basis of visual observation or surname. If the
meeting occurs after the application process is complete, for example,
at closing or account opening, you are not required to obtain the
applicant's ethnicity, race, and sex.
13. When an applicant provides the requested information for some
but not all fields, you report the information that was provided by the
applicant, whether partial or complete. If an applicant provides partial
or complete information on ethnicity, race, and sex and also checks the
``I do not wish to provide this information'' box on an application that
is taken by mail or on the internet, or makes that selection when
applying by telephone, you must report the information on ethnicity,
race, and sex that was provided by the applicant.
[[Page 114]]
[GRAPHIC] [TIFF OMITTED] TR28OC15.011
[[Page 115]]
Sec. Appendix C to Part 1003--Procedures for Generating a Check Digit
and Validating a ULI
The check digit for the Universal Loan Identifier (ULI) pursuant to
Sec. 1003.4(a)(1)(i)(C) is calculated using the ISO/IEC 7064, MOD 97-10
as it appears on the International Standard ISO/IEC 7064:2003, which is
published by the International Organization for Standardization (ISO).
(copyright)ISO. This material is reproduced from ISO/IEC 7064:2003
with permission of the American National Standards Institute (ANSI) on
behalf of ISO. All rights reserved.
Generating A Check Digit
Step 1: Starting with the leftmost character in the string that
consists of the combination of the Legal Entity Identifier (LEI)
pursuant to Sec. 1003.4(a)(1)(i)(A) and the additional characters
identifying the covered loan or application pursuant to
Sec. 1003.4(a)(1)(i)(B), replace each alphabetic character with numbers
in accordance with Table I below to obtain all numeric values in the
string.
Table I--Alphabetic To Numeric Conversion Table
The alphabetic characters are not case-sensitive and each letter,
whether it is capitalized or in lower-case, is equal to the same value
as each letter illustrates in the conversion table. For example, A and a
are each equal to 10.
------------------------------------------------------------------------
------------------------------------------------------------------------
A = 10 H = 17 O = 24 V = 31
B = 11 I = 18 P = 25 W = 32
C = 12 J = 19 Q = 26 X = 33
D = 13 K = 20 R = 27 Y = 34
E = 14 L = 21 S = 28 Z = 35
F = 15 M = 22 T = 29
G = 16 N = 23 U = 30
------------------------------------------------------------------------
Step 2: After converting the combined string of characters to all
numeric values, append two zeros to the rightmost positions.
Step 3: Apply the mathematical function mod=(n,97) where n= the
number obtained in step 2 above and 97 is the divisor.
Alternatively, to calculate without using the modulus operator,
divide the numbers in step 2 above by 97. Truncate the remainder to
three digits and multiply it by .97. Round the result to the nearest
whole number.
Step 4: Subtract the result in step 3 from 98. If the result is one
digit, add a leading 0 to make it two digits.
Step 5: The two digits in the result from step 4 is the check digit.
Append the resulting check digit to the rightmost position in the
combined string of characters described in step 1 above to generate the
ULI.
Example
For example, assume the LEI for a financial institution is
10Bx939c5543TqA1144M and the financial institution assigned the
following string of characters to identify the covered loan: 999143X.
The combined string of characters is 10Bx939c5543TqA1144M999143X.
Step 1: Starting with the leftmost character in the combined string
of characters, replace each alphabetic character with numbers in
accordance with Table I above to obtain all numeric values in the
string. The result is 1011339391 25543292610114 42299914333.
Step 2: Append two zeros to the rightmost positions in the combined
string. The result is 10113393912 55432926101144 229991433300.
Step 3: Apply the mathematical function mod=(n,97) where n= the
number obtained in step 2 above and 97 is the divisor. The result is 60.
Alternatively, to calculate without using the modulus operator,
divide the numbers in step 2 above by 97. The result is 1042617929
129312294946 332267952920.618556 701030928. Truncate the remainder to
three digits, which is .618, and multiply it by .97. The result is
59.946. Round this result to the nearest whole number, which is 60.
Step 4: Subtract the result in step 3 from 98. The result is 38.
Step 5: The two digits in the result from step 4 is the check digit.
Append the check digit to the rightmost positions in the combined string
of characters that consists of the LEI and the string of characters
assigned by the financial institution to identify the covered loan to
obtain the ULI. In this example, the ULI would be 10Bx939c5543T
qA1144M999143X38.
Validating A ULI
To determine whether the ULI contains a transcription error using
the check digit calculation, the procedures are described below.
Step 1: Starting with the leftmost character in the ULI, replace
each alphabetic character with numbers in accordance with Table I above
to obtain all numeric values in the string.
Step 2: Apply the mathematical function mod=(n,97) where n=the
number obtained in step 1 above and 97 is the divisor.
Step 3: If the result is 1, the ULI does not contain transcription
errors.
Example
For example, the ULI assigned to a covered loan is 10Bx939c5543T
qA1144M999143X38.
Step 1: Starting with the leftmost character in the ULI, replace
each alphabetic character with numbers in accordance with Table I above
to obtain all numeric values in the string. The result is 10113393
912554329 26101144 229991433338.
[[Page 116]]
Step 2: Apply the mathematical function mod=(n,97) where n is the
number obtained in step 1 above and 97 is the divisor.
Step 3: The result is 1. The ULI does not contain transcription
errors.
Effective Date Note: At 80 FR 66316, Oct. 28, 2015, appendix C to
part 1003 was added, effective Jan. 1, 2018.
Sec. Supplement I to Part 1003--Staff Commentary
Introduction
1. Status. The commentary in this supplement is the vehicle by which
the Bureau of Consumer Financial Protection issues formal staff
interpretations of Regulation C (12 CFR part 1003).
Section 1003.1--Authority, Purpose, and Scope
1(c) Scope.
1. General. The comments in this section address issues affecting
coverage of institutions and exemptions from coverage.
2. The broker rule and the meaning of ``broker'' and ``investor.''
For the purposes of the guidance given in this commentary, an
institution that takes and processes a loan application and arranges for
another institution to acquire the loan at or after closing is acting as
a ``broker,'' and an institution that acquires a loan from a broker at
or after closing is acting as an ``investor.'' (The terms used in this
commentary may have different meanings in certain parts of the mortgage
lending industry, and other terms may be used in place of these terms,
for example in the Federal Housing Administration mortgage insurance
programs.) Depending on the facts, a broker may or may not make a credit
decision on an application (and thus it may or may not have reporting
responsibilities). If the broker makes a credit decision, it reports
that decision; if it does not make a credit decision, it does not
report. If an investor reviews an application and makes a credit
decision prior to closing, the investor reports that decision. If the
investor does not review the application prior to closing, it reports
only the loans that it purchases; it does not report the loans it does
not purchase. An institution that makes a credit decision on an
application prior to closing reports that decision regardless of whose
name the loan closes in.
3. Illustrations of the broker rule. Assume that, prior to closing,
four investors receive the same application from a broker; two deny it,
one approves it, and one approves it and acquires the loan. In these
circumstances, the first two report denials, the third reports the
transaction as approved but not accepted, and the fourth reports an
origination (whether the loan closes in the name of the broker or the
investor). Alternatively, assume that the broker denies a loan before
sending it to an investor; in this situation, the broker reports a
denial.
4. Broker's use of investor's underwriting criteria. If a broker
makes a credit decision based on underwriting criteria set by an
investor, but without the investor's review prior to closing, the broker
has made the credit decision. The broker reports as an origination a
loan that it approves and closes, and reports as a denial an application
that it turns down (either because the application does not meet the
investor's underwriting guidelines or for some other reason). The
investor reports as purchases only those loans it purchases.
5. Insurance and other criteria. If an institution evaluates an
application based on the criteria or actions of a third party other than
an investor (such as a government or private insurer or guarantor), the
institution must report the action taken on the application (loan
originated, approved but not accepted, or denied, for example).
6. Credit decision of agent is decision of principal. If an
institution approves loans through the actions of an agent, the
institution must report the action taken on the application (loan
originated, approved but not accepted, or denied, for example). State
law determines whether one party is the agent of another.
7. Affiliate bank underwriting (250.250 review). If an institution
makes an independent evaluation of the creditworthiness of an applicant
(for example, as part of a preclosing review by an affiliate bank under
12 CFR 250.250, a regulation of the Board of Governors of the Federal
Reserve System that interprets section 23A of the Federal Reserve Act),
the institution is making a credit decision. If the institution then
acquires the loan, it reports the loan as an origination whether the
loan closes in the name of the institution or its affiliate. An
institution that does not acquire the loan but takes some other action
reports that action.
8. Participation loan. An institution that originates a loan and
then sells partial interests to other institutions reports the loan as
an origination. An institution that acquires only a partial interest in
such a loan does not report the transaction even if it has participated
in the underwriting and origination of the loan.
9. Assumptions. An assumption occurs when an institution enters into
a written agreement accepting a new borrower as the obligor on an
existing obligation. An institution reports an assumption (or an
application for an assumption) as a home purchase loan in the amount of
the outstanding principal. If a transaction does not involve a written
agreement between a new borrower and the institution, it is not an
assumption for HMDA purposes and is not reported.
[[Page 117]]
Section 1003.2--Definitions
Application.
1. Consistency With Regulation B. Bureau interpretations that appear
in the official staff commentary to Regulation B (Equal Credit
Opportunity, 12 CFR part 1002, Supplement I) are generally applicable to
the definition of an application under Regulation C. However, under
Regulation C the definition of an application does not include
prequalification requests.
2. Prequalification. A prequalification request is a request by a
prospective loan applicant (other than a request for preapproval) for a
preliminary determination on whether the prospective applicant would
likely qualify for credit under an institution's standards, or for a
determination on the amount of credit for which the prospective
applicant would likely qualify. Some institutions evaluate
prequalification requests through a procedure that is separate from the
institution's normal loan application process; others use the same
process. In either case, Regulation C does not require an institution to
report prequalification requests on the HMDA/LAR, even though these
requests may constitute applications under Regulation B for purposes of
adverse action notices.
3. Requests for preapproval. To be a covered preapproval program,
the written commitment issued under the program must result from a full
review of the creditworthiness of the applicant, including such
verification of income, resources and other matters as is typically done
by the institution as part of its normal credit evaluation program. In
addition to conditions involving the identification of a suitable
property and verification that no material change has occurred in the
applicant's financial condition or creditworthiness, the written
commitment may be subject only to other conditions (unrelated to the
financial condition or creditworthiness of the applicant) that the
lender ordinarily attaches to a traditional home mortgage application
approval. These conditions are limited to conditions such as requiring
an acceptable title insurance binder or a certificate indicating clear
termite inspection, and, in the case where the applicant plans to use
the proceeds from the sale of the applicant's present home to purchase a
new home, a settlement statement showing adequate proceeds from the sale
of the present home.
Branch office.
1. Credit union. For purposes of Regulation C, a ``branch'' of a
credit union is any office where member accounts are established or
loans are made, whether or not the office has been approved as a branch
by a Federal or state agency. (See 12 U.S.C. 1752.)
2. Depository institution. A branch of a depository institution does
not include a loan-production office, the office of an affiliate, or the
office of a third party such as a loan broker. (But see appendix A,
paragraph I.C.6, which requires certain depository institutions to
report property location even for properties located outside those MSAs
or Metropolitan Divisions in which the institution has a home or branch
office.)
3. Nondepository institution. For a nondepository institution,
``branch office'' does not include the office of an affiliate or other
third party such as a loan broker. (But note that certain nondepository
institutions must report property location even in MSAs or Metropolitan
Divisions where they do not have a physical location.)
Dwelling.
1. Coverage. The definition of ``dwelling'' is not limited to the
principal or other residence of the applicant or borrower, and thus
includes vacation or second homes and rental properties. A dwelling also
includes a multifamily structure such as an apartment building.
2. Exclusions. Recreational vehicles such as boats or campers are
not dwellings for purposes of HMDA. Also excluded are transitory
residences such as hotels, hospitals, and college dormitories, whose
occupants have principal residences elsewhere.
Financial institution.
1. General. An institution that met the test for coverage under HMDA
in year 1, and then ceases to meet the test (for example, because its
assets fall below the threshold on December 31 of year 2) stops
collecting HMDA data beginning with year 3. Similarly, an institution
that did not meet the coverage test for a given year, and then meets the
test in the succeeding year, begins collecting HMDA data in the calendar
year following the year in which it meets the test for coverage. For
example, a for-profit mortgage lending institution (other than a bank,
savings association, or credit union) that, in year 1, falls below the
thresholds specified in the definition of Financial institution in
Sec. 1003.2, but meets one of them in year 2, need not collect data in
year 2, but begins collecting data in year 3.
2. Adjustment of exemption threshold for banks, savings
associations, and credit unions. For data collection in 2017, the asset-
size exemption threshold is $44 million. Banks, savings associations,
and credit unions with assets at or below $44 million as of December 31,
2016, are exempt from collecting data for 2017.
3. Coverage after a merger. Several scenarios of data-collection
responsibilities for the calendar year of a merger are described below.
Under all the scenarios, if the merger results in a covered institution,
that institution must begin data collection January 1 of the following
calendar year.
i. Two institutions are not covered by Regulation C because of asset
size. The institutions merge. No data collection is required
[[Page 118]]
for the year of the merger (even if the merger results in a covered
institution).
ii. A covered institution and an exempt institution merge. The
covered institution is the surviving institution. For the year of the
merger, data collection is required for the covered institution's
transactions. Data collection is optional for transactions handled in
offices of the previously exempt institution.
iii. A covered institution and an exempt institution merge. The
exempt institution is the surviving institution, or a new institution is
formed. Data collection is required for transactions of the covered
institution that take place prior to the merger. Data collection is
optional for transactions taking place after the merger date.
iv. Two covered institutions merge. Data collection is required for
the entire year. The surviving or resulting institution files either a
consolidated submission or separate submissions for that year.
4. Originations. HMDA coverage depends in part on whether an
institution has originated home purchase loans. To determine whether
activities with respect to a particular loan constitute an origination,
institutions should consult, among other parts of the staff commentary,
the discussion of the broker rule under Secs. 1003.1(c) and 1003.4(a).
5. Branches of foreign banks--treated as banks. A Federal branch or
a state-licensed insured branch of a foreign bank is a ``bank'' under
section 3(a)(1) of the Federal Deposit Insurance Act (12 U.S.C.
1813(a)), and is covered by HMDA if it meets the tests for a depository
institution found in Sec. 1003.2 of Regulation C.
6. Branches and offices of foreign banks--treated as for-profit
mortgage lending institutions. Federal agencies, state-licensed
agencies, state-licensed uninsured branches of foreign banks, commercial
lending companies owned or controlled by foreign banks, and entities
operating under section 25 or 25A of the Federal Reserve Act, 12 U.S.C.
601 and 611 (Edge Act and agreement corporations) are not ``banks''
under the Federal Deposit Insurance Act. These entities are nonetheless
covered by HMDA if they meet the tests for a for-profit nondepository
mortgage lending institution found in Sec. 1003.2 of Regulation C.
Home improvement loan.
1. Classification requirement for loans not secured by a lien on a
dwelling. An institution has ``classified'' a loan that is not secured
by a lien on a dwelling as a home improvement loan if it has entered the
loan on its books as a home improvement loan, or has otherwise coded or
identified the loan as a home improvement loan. For example, an
institution that has booked a loan or reported it on a ``call report''
as a home improvement loan has classified it as a home improvement loan.
An institution may also classify loans as home improvement loans in
other ways (for example, by color-coding loan files).
2. Improvements to real property. Home improvements include
improvements both to a dwelling and to the real property on which the
dwelling is located (for example, installation of a swimming pool,
construction of a garage, or landscaping).
3. Commercial and other loans. A home improvement loan may include a
loan originated outside an institution's residential mortgage lending
division (such as a loan to improve an apartment building made through
the commercial loan department).
4. Mixed-use property. A loan to improve property used for
residential and commercial purposes (for example, a building containing
apartment units and retail space) is a home improvement loan if the loan
proceeds are used primarily to improve the residential portion of the
property. If the loan proceeds are used to improve the entire property
(for example, to replace the heating system), the loan is a home
improvement loan if the property itself is primarily residential. An
institution may use any reasonable standard to determine the primary use
of the property, such as by square footage or by the income generated.
An institution may select the standard to apply on a case-by-case basis.
If the loan is unsecured, to report the loan as a home improvement loan
the institution must also have classified it as such.
5. Multiple-category loans. If a loan is a home improvement loan as
well as a refinancing, an institution reports the loan as a home
improvement loan.
Home purchase loan.
1. Multiple properties. A home purchase loan includes a loan secured
by one dwelling and used to purchase another dwelling.
2. Mixed-use property. A dwelling-secured loan to purchase property
used primarily for residential purposes (for example, an apartment
building containing a convenience store) is a home purchase loan. An
institution may use any reasonable standard to determine the primary use
of the property, such as by square footage or by the income generated.
An institution may select the standard to apply on a case-by-case basis.
3. Farm loan. A loan to purchase property used primarily for
agricultural purposes is not a home purchase loan even if the property
includes a dwelling. An institution may use any reasonable standard to
determine the primary use of the property, such as by reference to the
exemption from Regulation X (Real Estate Settlement Procedures, 12 CFR
1024.5(b)(1)) for a loan on property of 25 acres or more. An institution
may select the standard to apply on a case-by-case basis.
4. Commercial and other loans. A home purchase loan may include a
loan originated outside an institution's residential mortgage
[[Page 119]]
lending division (such as a loan for the purchase of an apartment
building made through the commercial loan department).
5. Construction and permanent financing. A home purchase loan
includes both a combined construction/permanent loan and the permanent
financing that replaces a construction-only loan. It does not include a
construction-only loan, which is considered ``temporary financing''
under Regulation C and is not reported.
6. Second mortgages that finance the downpayments on first
mortgages. If an institution making a first mortgage loan to a home
purchaser also makes a second mortgage loan to the same purchaser to
finance part or all of the home purchaser's downpayment, the institution
reports each loan separately as a home purchase loan.
7. Multiple-category loans. If a loan is a home purchase loan as
well as a home improvement loan, or a refinancing, an institution
reports the loan as a home purchase loan.
Manufactured home.
1. Definition of a manufactured home. The definition in Sec. 1003.2
refers to the Federal building code for factory-built housing
established by the Department of Housing and Urban Development (HUD).
The HUD code requires generally that housing be essentially ready for
occupancy upon leaving the factory and being transported to a building
site. Modular homes that meet all of the HUD code standards are included
in the definition because they are ready for occupancy upon leaving the
factory. Other factory-built homes, such as panelized and pre-cut homes,
generally do not meet the HUD code because they require a significant
amount of construction on site before they are ready for occupancy.
Loans and applications relating to manufactured homes that do not meet
the HUD code should not be identified as manufactured housing under
HMDA.
Metropolitan Statistical Areas and Metropolitan Divisions.
1. Use of terms ``Metropolitan Statistical Area'' and ``Metropolitan
Division.'' The U.S. Office of Management and Budget defines
Metropolitan Statistical Areas and Metropolitan Divisions to provide
nationally consistent definitions for collecting, tabulating, and
publishing Federal statistics for a set of geographic areas. OMB divides
every Metropolitan Statistical Area (MSA) with a population of 2.5
million or more into Metropolitan Divisions (MDs); MSAs with populations
under 2.5 million population are not so divided. 67 FR 82228 (December
27, 2000). For all purposes under Regulation C, if an MSA is divided by
OMB into MDs, the appropriate geographic unit to be used is the MD; if
an MSA is not so divided by OMB into MDs, the appropriate geographic
unit to be used is the MSA.
Section 1003.4--Compilation of Loan Data
4(a) Data format and itemization.
1. Reporting requirements. i. An institution reports data on loans
that it originated and loans that it purchased during the calendar year
described in the report. An institution reports these data even if the
loans were subsequently sold by the institution.
ii. An institution reports the data for loan applications that did
not result in originations--for example, applications that the
institution denied or that the applicant withdrew during the calendar
year covered by the report.
iii. In the case of brokered loan applications or applications
forwarded through a correspondent, the institution reports as
originations the loans that it approved and subsequently acquired per a
pre-closing arrangement (whether or not they closed in the institution's
name). Additionally, the institution reports the data for all
applications that did not result in originations--for example,
applications that the institution denied or that the applicant withdrew
during the calendar year covered by the report (whether or not they
would have closed in the institution's name). For all of these loans and
applications, the institution reports the required data regarding the
borrower's or applicant's ethnicity, race, sex, and income.
iv. Loan originations are to be reported only once. If the
institution is the loan broker or correspondent, it does not report as
originations the loans that it forwarded to another lender for approval
prior to closing, and that were approved and subsequently acquired by
that lender (whether or not they closed in the institution's name).
v. An institution reports applications that were received in the
previous calendar year but were acted upon during the calendar year
covered by the current register.
vi. A financial institution submits all required data to the
appropriate Federal agency in one package, with the prescribed
transmittal sheet. An officer of the institution certifies to the
accuracy of the data.
vii. The transmittal sheet states the total number of line entries
contained in the accompanying data transmission.
2. Updating--agency requirements. Certain state or Federal
regulations, such as the Federal Deposit Insurance Corporation's
regulations, may require an institution to update its data more
frequently than is required under Regulation C.
3. Form of quarterly updating. An institution may maintain the
quarterly updates of the HMDA/LAR in electronic or any other format,
provided the institution can make the information available to its
regulatory agency in a timely manner upon request.
Paragraph 4(a)(1).
[[Page 120]]
1. Application date--consistency. In reporting the date of
application, an institution reports the date the application was
received or the date shown on the application. Although an institution
need not choose the same approach for its entire HMDA submission, it
should be generally consistent (such as by routinely using one approach
within a particular division of the institution or for a category of
loans).
2. Application date--application forwarded by a broker. For an
application forwarded by a broker, an institution reports the date the
application was received by the broker, the date the application was
received by the institution, or the date shown on the application.
Although an institution need not choose the same approach for its entire
HMDA submission, it should be generally consistent (such as by routinely
using one approach within a particular division of the institution or
for a category of loans).
3. Application date--reinstated application. If, within the same
calendar year, an applicant asks an institution to reinstate a
counteroffer that the applicant previously did not accept (or asks the
institution to reconsider an application that was denied, withdrawn, or
closed for incompleteness), the institution may treat that request as
the continuation of the earlier transaction or as a new transaction. If
the institution treats the request for reinstatement or reconsideration
as a new transaction, it reports the date of the request as the
application date.
4. Application or loan number. An institution must ensure that each
identifying number is unique within the institution. If an institution's
register contains data for branch offices, for example, the institution
could use a letter or a numerical code to identify the loans or
applications of different branches, or could assign a certain series of
numbers to particular branches to avoid duplicate numbers. Institutions
are strongly encouraged not to use the applicant's or borrower's name or
social security number, for privacy reasons.
5. Application--year action taken. An institution must report an
application in the calendar year in which the institution takes final
action on the application.
Paragraph 4(a)(3).
1. Purpose--statement of applicant. An institution may rely on the
oral or written statement of an applicant regarding the proposed use of
loan proceeds. For example, a lender could use a check-box, or a purpose
line, on a loan application to determine whether or not the applicant
intends to use loan proceeds for home improvement purposes.
2. Purpose--multiple-purpose loan. If a loan is a home purchase loan
as well as a home improvement loan, or a refinancing, an institution
reports the loan as a home purchase loan. If a loan is a home
improvement loan as well as a refinancing, an institution reports the
loan as a home improvement loan.
Paragraph 4(a)(6).
1. Occupancy--multiple properties. If a loan relates to multiple
properties, the institution reports the owner occupancy status of the
property for which property location is being reported. (See the
comments to paragraph 4(a)(9)).
Paragraph 4(a)(7).
1. Loan amount--counteroffer. If an applicant accepts a counteroffer
for an amount different from the amount initially requested, the
institution reports the loan amount granted. If an applicant does not
accept a counteroffer or fails to respond, the institution reports the
loan amount initially requested.
2. Loan amount--multiple-purpose loan. Except in the case of a home-
equity line of credit, an institution reports the entire amount of the
loan, even if only a part of the proceeds is intended for home purchase
or home improvement.
3. Loan amount--home-equity line. An institution that has chosen to
report home-equity lines of credit reports only the part that is
intended for home-improvement or home-purchase purposes.
4. Loan amount--assumption. An institution that enters into a
written agreement accepting a new party as the obligor on a loan reports
the amount of the outstanding principal on the assumption as the loan
amount.
Paragraph 4(a)(8).
1. Action taken--counteroffers. If an institution makes a
counteroffer to lend on terms different from the applicant's initial
request (for example, for a shorter loan maturity or in a different
amount) and the applicant does not accept the counteroffer or fails to
respond, the institution reports the action taken as a denial on the
original terms requested by the applicant.
2. Action taken--rescinded transactions. If a borrower rescinds a
transaction after closing, the institution may report the transaction
either as an origination or as an application that was approved but not
accepted.
3. Action taken--purchased loans. An institution reports the loans
that it purchased during the calendar year, and does not report the
loans that it declined to purchase.
4. Action taken--conditional approvals. If an institution issues a
loan approval subject to the applicant's meeting underwriting conditions
(other than customary loan commitment or loan-closing conditions, such
as a clear-title requirement or an acceptable property survey) and the
applicant does not meet them, the institution reports the action taken
as a denial.
5. Action taken date--approved but not accepted. For a loan approved
by an institution but not accepted by the applicant, the institution
reports any reasonable date, such as
[[Page 121]]
the approval date, the deadline for accepting the offer, or the date the
file was closed. Although an institution need not choose the same
approach for its entire HMDA submission, it should be generally
consistent (such as by routinely using one approach within a particular
division of the institution or for a category of loans).
6. Action taken date--originations. For loan originations, an
institution generally reports the settlement or closing date. For loan
originations that an institution acquires through a broker, the
institution reports either the settlement or closing date, or the date
the institution acquired the loan from the broker. If the disbursement
of funds takes place on a date later than the settlement or closing
date, the institution may use the date of disbursement. For a
construction/permanent loan, the institution reports either the
settlement or closing date, or the date the loan converts to the
permanent financing. Although an institution need not choose the same
approach for its entire HMDA submission, it should be generally
consistent (such as by routinely using one approach within a particular
division of the institution or for a category of loans). Notwithstanding
this flexibility regarding the use of the closing date in connection
with reporting the date action was taken, the year in which an
origination goes to closing is the year in which the institution must
report the origination.
7. Action taken--pending applications. An institution does not
report any loan application still pending at the end of the calendar
year; it reports that application on its register for the year in which
final action is taken.
Paragraph 4(a)(9).
1. Property location--multiple properties (home improvement/
refinance of home improvement). For a home improvement loan, an
institution reports the property being improved. If more than one
property is being improved, the institution reports the location of one
of the properties or reports the loan using multiple entries on its
HMDA/LAR (with unique identifiers) and allocating the loan amount among
the properties.
2. Property location--multiple properties (home purchase/refinance
of home purchase). For a home purchase loan, an institution reports the
property taken as security. If an institution takes more than one
property as security, the institution reports the location of the
property being purchased if there is just one. If the loan is to
purchase multiple properties and is secured by multiple properties, the
institution reports the location of one of the properties or reports the
loan using multiple entries on its HMDA/LAR (with unique identifiers)
and allocating the loan amount among the properties.
3. Property location--loans purchased from another institution. The
requirement to report the property location by census tract in an MSA or
Metropolitan Division where the institution has a home or branch office
applies not only to loan applications and originations but also to loans
purchased from another institution. This includes loans purchased from
an institution that did not have a home or branch office in that MSA or
Metropolitan Division and did not collect the property-location
information.
4. Property location--mobile or manufactured home. If information
about the potential site of a mobile or manufactured home is not
available, an institution reports using the Code for ``not applicable.''
Paragraph 4(a)(10).
1. Applicant data--completion by applicant. An institution reports
the monitoring information as provided by the applicant. For example, if
an applicant checks the ``Asian'' box the institution reports using the
``Asian'' Code.
2. Applicant data--completion by lender. If an applicant fails to
provide the requested information for an application taken in person,
the institution reports the data on the basis of visual observation or
surname.
3. Applicant data--application completed in person. When an
applicant meets in person with a lender to complete an application that
was begun by mail, internet, or telephone, the institution must request
the monitoring information. If the meeting occurs after the application
process is complete, for example, at closing, the institution is not
required to obtain monitoring information.
4. Applicant data--joint applicant. A joint applicant may enter the
government monitoring information on behalf of an absent joint
applicant. If the information is not provided, the institution reports
using the Code for ``information not provided by applicant in mail,
internet, or telephone application.''
5. Applicant data--video and other electronic-application processes.
An institution that accepts applications through electronic media with a
video component treats the applications as taken in person and collects
the information about the ethnicity, race, and sex of applicants. An
institution that accepts applications through electronic media without a
video component (for example, the internet or facsimile) treats the
applications as accepted by mail.
6. Income data--income relied on. An institution reports the gross
annual income relied on in evaluating the creditworthiness of
applicants. For example, if an institution relies on an applicant's
salary to compute a debt-to-income ratio but also relies on the
applicant's annual bonus to evaluate creditworthiness, the institution
reports the salary and the bonus to the extent relied upon. Similarly,
if an institution relies on the income of a cosigner to evaluate
creditworthiness, the institution includes this income to the extent
relied upon. But an institution
[[Page 122]]
does not include the income of a guarantor who is only secondarily
liable.
7. Income data--co-applicant. If two persons jointly apply for a
loan and both list income on the application, but the institution relies
only on the income of one applicant in computing ratios and in
evaluating creditworthiness, the institution reports only the income
relied on.
8. Income data--loan to employee. An institution may report ``NA''
in the income field for loans to its employees to protect their privacy,
even though the institution relied on their income in making its credit
decisions.
Paragraph 4(a)(11).
1. Type of purchaser--loan-participation interests sold to more than
one entity. An institution that originates a loan, and then sells it to
more than one entity, reports the ``type of purchaser'' based on the
entity purchasing the greatest interest, if any. If an institution
retains a majority interest, it does not report the sale.
2. Type of purchaser--swapped loans. Loans ``swapped'' for mortgage-
backed securities are to be treated as sales; the purchaser is the type
of entity receiving the loans that are swapped.
Paragraph 4(a)(12)(ii).
1. Average prime offer rate. Average prime offer rates are annual
percentage rates derived from average interest rates, points, and other
loan pricing terms offered to borrowers by a representative sample of
lenders for mortgage loans that have low-risk pricing characteristics.
Other pricing terms include commonly used indices, margins, and initial
fixed-rate periods for variable-rate transactions. Relevant pricing
characteristics include a consumer's credit history and transaction
characteristics such as the loan-to-value ratio, owner-occupant status,
and purpose of the transaction. To obtain average prime offer rates, the
Bureau uses a survey of lenders that both meets the criteria of
Sec. 1003.4(a)(12)(ii) and provides pricing terms for at least two types
of variable-rate transactions and at least two types of non-variable-
rate transactions. An example of such a survey is the Freddie Mac
Primary Mortgage Market Survey[supreg].
2. Comparable transaction. The rate spread reporting requirement
applies to a reportable loan with an annual percentage rate that exceeds
by the specified margin (or more) the average prime offer rate for a
comparable transaction as of the date the interest rate is set. The
tables of average prime offer rates published by the Bureau (see comment
4(a)(12)(ii)-3) indicate how to identify the comparable transaction.
3. Bureau tables. The Bureau publishes on the FFIEC's Web site
(http://www.ffiec.gov/hmda), in table form, average prime offer rates
for a wide variety of transaction types. The Bureau calculates an annual
percentage rate, consistent with Regulation Z (see 12 CFR 1026.22 and
part 1026, appendix J), for each transaction type for which pricing
terms are available from the survey described in comment 4(a)(12)(ii)-1.
The Bureau estimates annual percentage rates for other types of
transactions for which direct survey data are not available based on the
loan pricing terms available in the survey and other information. The
Bureau publishes on the FFIEC's Web site the methodology it uses to
arrive at these estimates.
Paragraph 4(a)(14).
1. Determining lien status for applications and loans originated. i.
Lenders are required to report lien status for loans they originate and
applications that do not result in originations. Lien status is
determined by reference to the best information readily available to the
lender at the time final action is taken and to the lender's own
procedures. Thus, lenders may rely on the title search they routinely
perform as part of their underwriting procedures--for example, for home
purchase loans. Regulation C does not require lenders to perform title
searches solely to comply with HMDA reporting requirements. Lenders may
rely on other information that is readily available to them at the time
final action is taken and that they reasonably believe is accurate, such
as the applicant's statement on the application or the applicant's
credit report. For example, where the applicant indicates on the
application that there is a mortgage on the property or where the
applicant's credit report shows that the applicant has a mortgage--and
that mortgage is not going to be paid off as part of the transaction--
the lender may assume that the loan it originates is secured by a
subordinate lien. If the same application did not result in an
origination--for example, because the application is denied or
withdrawn--the lender would report the application as an application for
a subordinate-lien loan.
ii. Lenders may also consider their established procedures when
determining lien status for applications that do not result in
originations. For example, a consumer applies to a lender to refinance a
$100,000 first mortgage; the consumer also has a home equity line of
credit for $20,000. If the lender's practice in such a case is to ensure
that it will have first-lien position--through a subordination agreement
with the holder of the mortgage on the home equity line--then the lender
should report the application as an application for a first-lien loan.
Paragraph 4(c)(3).
1. An institution that opts to report home-equity lines reports the
disposition of all applications, not just originations.
4(d) Excluded data.
1. Mergers, purchases in bulk, and branch acquisitions. If a covered
institution acquires loans in bulk from another institution (for
[[Page 123]]
example, from the receiver for a failed institution) but no merger or
acquisition of the institution, or acquisition of a branch, is involved,
the institution reports the loans as purchased loans.
Section 1003.5(a)--Disclosure and Reporting
5(a) Reporting to agency.
1. Submission of data. Institutions submit data to the appropriate
Federal agencies in an automated, machine-readable form. The format must
conform to that of the HMDA/LAR. An institution should contact the
appropriate Federal agency for information regarding procedures and
technical specifications for automated data submission; in some cases,
agencies also make software available for automated data submission. The
data are edited before submission, using the edits included in the
agency-supplied software or equivalent edits in software available from
vendors or developed in-house.
2. Submission in paper form. Institutions that report twenty-five or
fewer entries on their HMDA/LAR may collect and report the data in paper
form. An institution that submits its register in non-automated form
sends two copies that are typed or computer printed and must use the
format of the HMDA/LAR (but need not use the form itself). Each page
must be numbered along with the total number of pages (for example,
``Page 1 of 3'').
3. Procedures for entering data. The required data are entered in
the register for each loan origination, each application acted on, and
each loan purchased during the calendar year. The institution should
decide on the procedure it wants to follow--for example, whether to
begin entering the required data, when an application is received, or to
wait until final action is taken (such as when a loan goes to closing or
an application is denied).
4. Options for collection. An institution may collect data on
separate registers at different branches, or on separate registers for
different loan types (such as for home purchase or home improvement
loans, or for loans on multifamily dwellings). Entries need not be
grouped on the register by MSA or Metropolitan Division, or
chronologically, or by census tract numbers, or in any other particular
order.
5. Change in appropriate Federal agency. If the appropriate Federal
agency for a covered institution changes (as a consequence of a merger
or a change in the institution's charter, for example), the institution
must report data to the new appropriate Federal agency beginning with
the year of the change.
6. Subsidiaries. An institution is a subsidiary of a bank or savings
association (for purposes of reporting HMDA data to the same agency as
the parent) if the bank or savings association holds or controls an
ownership interest that is greater than 50 percent of the institution.
7. Transmittal sheet--additional data submissions. If an additional
data submission becomes necessary (for example, because the institution
discovers that data were omitted from the initial submission, or because
revisions are called for), that submission must be accompanied by a
transmittal sheet.
8. Transmittal sheet--revisions or deletions. If a data submission
involves revisions or deletions of previously submitted data, it must
state the total of all line entries contained in that submission,
including both those representing revisions or deletions of previously
submitted entries, and those that are being resubmitted unchanged or are
being submitted for the first time. Depository institutions must provide
a list of the MSAs or Metropolitan Divisions in which they have home or
branch offices.
5(b) Public disclosure of statement.
1. Business day. For purposes of Sec. 1003.5, a business day is any
calendar day other than a Saturday, Sunday, or legal public holiday.
2. Format. An institution may make the disclosure statement
available in paper form or, if the person requesting the data agrees, in
electronic form.
5(c) Public disclosure of modified loan/application register.
1. Format. An institution may make the modified register available
in paper or electronic form. Although institutions are not required to
make the modified register available in census tract order, they are
strongly encouraged to do so in order to enhance its utility to users.
5(e) Notice of availability.
1. Poster--suggested text. An institution may use any text that
meets the requirements of the regulation. Some of the Federal agencies
that receive HMDA data provide HMDA posters that an institution can use
to inform the public of the availability of its HMDA data, or the
institution may create its own posters. If an institution prints its
own, the following language is suggested but is not required:
Home Mortgage Disclosure Act Notice
The HMDA data about our residential mortgage lending are available
for review. The data show geographic distribution of loans and
applications; ethnicity, race, sex, and income of applicants and
borrowers; and information about loan approvals and denials. Inquire at
this office regarding the locations where HMDA data may be inspected.
2. Additional language for institutions making the disclosure
statement available on request. An institution that posts a notice
informing the public of the address to which a request should be sent
could include the following sentence, for example, in its general
notice: ``To receive a copy of these data send a written request to
[address].''
[[Page 124]]
Section 1003.6--Enforcement
6(b) Bona fide errors.
1. Bona fide error--information from third parties. An institution
that obtains the property-location information for applications and
loans from third parties (such as appraisers or vendors of ``geocoding''
services) is responsible for ensuring that the information reported on
its HMDA/LAR is correct.
[76 FR 78468, Dec. 19, 2011, as amended at 78 FR 79286, Dec. 30, 2013;
79 FR 77855, Dec. 29, 2014; 80 FR 79674, Dec. 23, 2015; 81 FR 93581,
Dec. 21, 2016]
Effective Date Note 1: At 80 FR 66317, Oct. 28, 2015, supplement I
to part 1003 was revised, effective Jan. 1, 2018. For the convenience of
the user, the revised text is set forth as follows:
Sec. Supplement I to Part 1003--Official Interpretations
Introduction
1. Status. The commentary in this supplement is the vehicle by which
the Bureau of Consumer Financial Protection issues formal
interpretations of Regulation C (12 CFR part 1003).
Section 1003.2--Definitions
2(b) Application
1. Consistency with Regulation B. Bureau interpretations that appear
in the official commentary to Regulation B (Equal Credit Opportunity
Act, 12 CFR part 1002, Supplement I) are generally applicable to the
definition of application under Regulation C. However, under Regulation
C the definition of an application does not include prequalification
requests.
2. Prequalification. A prequalification request is a request by a
prospective loan applicant (other than a request for preapproval) for a
preliminary determination on whether the prospective loan applicant
would likely qualify for credit under an institution's standards, or for
a determination on the amount of credit for which the prospective
applicant would likely qualify. Some institutions evaluate
prequalification requests through a procedure that is separate from the
institution's normal loan application process; others use the same
process. In either case, Regulation C does not require an institution to
report prequalification requests on the loan/application register, even
though these requests may constitute applications under Regulation B for
purposes of adverse action notices.
3. Requests for preapproval. To be a preapproval program as defined
in Sec. 1003.2(b)(2), the written commitment issued under the program
must result from a comprehensive review of the creditworthiness of the
applicant, including such verification of income, resources, and other
matters as is typically done by the institution as part of its normal
credit evaluation program. In addition to conditions involving the
identification of a suitable property and verification that no material
change has occurred in the applicant's financial condition or
creditworthiness, the written commitment may be subject only to other
conditions (unrelated to the financial condition or creditworthiness of
the applicant) that the lender ordinarily attaches to a traditional home
mortgage application approval. These conditions are limited to
conditions such as requiring an acceptable title insurance binder or a
certificate indicating clear termite inspection, and, in the case where
the applicant plans to use the proceeds from the sale of the applicant's
present home to purchase a new home, a settlement statement showing
adequate proceeds from the sale of the present home. Regardless of its
name, a program that satisfies the definition of a preapproval program
in Sec. 1003.2(b)(2) is a preapproval program for purposes of Regulation
C. Conversely, a program that a financial institution describes as a
``preapproval program'' that does not satisfy the requirements of
Sec. 1003.2(b)(2) is not a preapproval program for purposes of
Regulation C. If a financial institution does not regularly use the
procedures specified in Sec. 1003.2(b)(2), but instead considers
requests for preapprovals on an ad hoc basis, the financial institution
need not treat ad hoc requests as part of a preapproval program for
purposes of Regulation C. A financial institution should, however, be
generally consistent in following uniform procedures for considering
such ad hoc requests.
2(c) Branch Office
Paragraph 2(c)(1)
1. Credit unions. For purposes of Regulation C, a ``branch'' of a
credit union is any office where member accounts are established or
loans are made, whether or not the office has been approved as a branch
by a Federal or State agency. (See 12 U.S.C. 1752.)
2. Bank, savings association, or credit unions. A branch office of a
bank, savings association, or credit union does not include a loan-
production office if the loan-production office is not considered a
branch by the Federal or State supervisory authority applicable to that
institution. A branch office also does not include the office of an
affiliate or of a third party, such as a third-party broker.
Paragraph 2(c)(2)
1. General. A branch office of a for-profit mortgage lending
institution, other than a bank savings association or credit union, does
not include the office of an affiliate or
[[Page 125]]
of a third party, such as a third-party broker.
2(d) Closed-end Mortgage Loan
1. Dwelling-secured. Section 1003.2(d) defines a closed-end mortgage
loan as an extension of credit that is secured by a lien on a dwelling
and that is not an open-end line of credit under Sec. 1003.2(o). Thus,
for example, a loan to purchase a dwelling and secured only by a
personal guarantee is not a closed-end mortgage loan because it is not
dwelling-secured.
2. Extension of credit. Under Sec. 1003.2(d), a dwelling-secured
loan is not a closed-end mortgage loan unless it involves an extension
of credit. Thus, some transactions completed pursuant to installment
sales contracts, such as some land contracts, are not closed-end
mortgage loans because no credit is extended. For example, if a land
contract provides that, upon default, the contract terminates, all
previous payments will be treated as rent, and the borrower is under no
obligation to make further payments, the transaction is not a closed-end
mortgage loan. In general, extension of credit under Sec. 1003.2(d)
refers to the granting of credit only pursuant to a new debt obligation.
Thus, except as described in comments 2(d)-2.i and .ii, if a transaction
modifies, renews, extends, or amends the terms of an existing debt
obligation, but the existing debt obligation is not satisfied and
replaced, the transaction is not a closed-end mortgage loan under
Sec. 1003.2(d) because there has been no new extension of credit. The
phrase extension of credit thus is defined differently under Regulation
C than under Regulation B, 12 CFR part 1002.
i. Assumptions. For purposes of Regulation C, an assumption is a
transaction in which an institution enters into a written agreement
accepting a new borrower in place of an existing borrower as the obligor
on an existing debt obligation. For purposes of Regulation C,
assumptions include successor-in-interest transactions, in which an
individual succeeds the prior owner as the property owner and then
assumes the existing debt secured by the property. Under Sec. 1003.2(d),
assumptions are extensions of credit even if the new borrower merely
assumes the existing debt obligation and no new debt obligation is
created. See also comment 2(j)-5.
ii. New York State consolidation, extension, and modification
agreements. A transaction completed pursuant to a New York State
consolidation, extension, and modification agreement and classified as a
supplemental mortgage under New York Tax Law section 255, such that the
borrower owes reduced or no mortgage recording taxes, is an extension of
credit under Sec. 1003.2(d). Comments 2(i)-1, 2(j)-5, and 2(p)-2 clarify
whether such transactions are home improvement loans, home purchase
loans, or refinancings, respectively.
2(f) Dwelling
1. General. The definition of a dwelling is not limited to the
principal or other residence of the applicant or borrower, and thus
includes vacation or second homes and investment properties.
2. Multifamily residential structures and communities. A dwelling
also includes a multifamily residential structure or community such as
an apartment, condominium, cooperative building or complex, or a
manufactured home community. A loan related to a manufactured home
community is secured by a dwelling for purposes of Sec. 1003.2(f) even
if it is not secured by any individual manufactured homes, but only by
the land that constitutes the manufactured home community including
sites for manufactured homes. However, a loan related to a multifamily
residential structure or community that is not a manufactured home
community is not secured by a dwelling for purposes of Sec. 1003.2(f) if
it is not secured by any individual dwelling units and is, for example,
instead secured only by property that only includes common areas, or is
secured only by an assignment of rents or dues.
3. Exclusions. Recreational vehicles, including boats, campers,
travel trailers, and park model recreational vehicles, are not
considered dwellings for purposes of Sec. 1003.2(f), regardless of
whether they are used as residences. Houseboats, floating homes, and
mobile homes constructed before June 15, 1976, are also excluded,
regardless of whether they are used as residences. Also excluded are
transitory residences such as hotels, hospitals, college dormitories,
and recreational vehicle parks, and structures originally designed as
dwellings but used exclusively for commercial purposes, such as homes
converted to daycare facilities or professional offices.
4. Mixed-use properties. A property used for both residential and
commercial purposes, such as a building containing apartment units and
retail space, is a dwelling if the property's primary use is
residential. An institution may use any reasonable standard to determine
the primary use of the property, such as by square footage or by the
income generated. An institution may select the standard to apply on a
case-by-case basis.
5. Properties with service and medical components. For purposes of
Sec. 1003.2(f), a property used for both long-term housing and to
provide related services, such as assisted living for senior citizens or
supportive housing for persons with disabilities, is a dwelling and does
not have a non-residential purpose merely because the property is used
for both housing and to provide services. However, transitory residences
that are used to provide such services are not dwellings. See comment
2(f)-3. Properties that are used to
[[Page 126]]
provide medical care, such as skilled nursing, rehabilitation, or long-
term medical care, also are not dwellings. See comment 2(f)-3. If a
property that is used for both long-term housing and to provide related
services also is used to provide medical care, the property is a
dwelling if its primary use is residential. An institution may use any
reasonable standard to determine the property's primary use, such as by
square footage, income generated, or number of beds or units allocated
for each use. An institution may select the standard to apply on a case-
by-case basis.
2(g) Financial Institution
1. Preceding calendar year and preceding December 31. The definition
of financial institution refers both to the preceding calendar year and
the preceding December 31. These terms refer to the calendar year and
the December 31 preceding the current calendar year. For example, in
2019, the preceding calendar year is 2018 and the preceding December 31
is December 31, 2018. Accordingly, in 2019, Financial Institution A
satisfies the asset-size threshold described in Sec. 1003.2(g)(1)(i) if
its assets exceeded the threshold specified in comment 2(g)-2 on
December 31, 2018. Likewise, in 2020, Financial Institution A does not
meet the loan-volume test described in Sec. 1003.2(g)(1)(v)(A) if it
originated fewer than 25 closed-end mortgage loans during either 2018 or
2019.
2. [Reserved]
3. Merger or acquisition--coverage of surviving or newly formed
institution. After a merger or acquisition, the surviving or newly
formed institution is a financial institution under Sec. 1003.2(g) if
it, considering the combined assets, location, and lending activity of
the surviving or newly formed institution and the merged or acquired
institutions or acquired branches, satisfies the criteria included in
Sec. 1003.2(g). For example, A and B merge. The surviving or newly
formed institution meets the loan threshold described in
Sec. 1003.2(g)(1)(v)(B) if the surviving or newly formed institution, A,
and B originated a combined total of at least 100 open-end lines of
credit in each of the two preceding calendar years. Likewise, the
surviving or newly formed institution meets the asset-size threshold in
Sec. 1003.2(g)(1)(i) if its assets and the combined assets of A and B on
December 31 of the preceding calendar year exceeded the threshold
described in Sec. 1003.2(g)(1)(i). Comment 2(g)-4 discusses a financial
institution's responsibilities during the calendar year of a merger.
4. Merger or acquisition--coverage for calendar year of merger or
acquisition. The scenarios described below illustrate a financial
institution's responsibilities for the calendar year of a merger or
acquisition. For purposes of these illustrations, a ``covered
institution'' means a financial institution, as defined in
Sec. 1003.2(g), that is not exempt from reporting under Sec. 1003.3(a),
and ``an institution that is not covered'' means either an institution
that is not a financial institution, as defined in Sec. 1003.2(g), or an
institution that is exempt from reporting under Sec. 1003.3(a).
i. Two institutions that are not covered merge. The surviving or
newly formed institution meets all of the requirements necessary to be a
covered institution. No data collection is required for the calendar
year of the merger (even though the merger creates an institution that
meets all of the requirements necessary to be a covered institution).
When a branch office of an institution that is not covered is acquired
by another institution that is not covered, and the acquisition results
in a covered institution, no data collection is required for the
calendar year of the acquisition.
ii. A covered institution and an institution that is not covered
merge. The covered institution is the surviving institution, or a new
covered institution is formed. For the calendar year of the merger, data
collection is required for covered loans and applications handled in the
offices of the merged institution that was previously covered and is
optional for covered loans and applications handled in offices of the
merged institution that was previously not covered. When a covered
institution acquires a branch office of an institution that is not
covered, data collection is optional for covered loans and applications
handled by the acquired branch office for the calendar year of the
acquisition.
iii. A covered institution and an institution that is not covered
merge. The institution that is not covered is the surviving institution,
or a new institution that is not covered is formed. For the calendar
year of the merger, data collection is required for covered loans and
applications handled in offices of the previously covered institution
that took place prior to the merger. After the merger date, data
collection is optional for covered loans and applications handled in the
offices of the institution that was previously covered. When an
institution remains not covered after acquiring a branch office of a
covered institution, data collection is required for transactions of the
acquired branch office that take place prior to the acquisition. Data
collection by the acquired branch office is optional for transactions
taking place in the remainder of the calendar year after the
acquisition.
iv. Two covered institutions merge. The surviving or newly formed
institution is a covered institution. Data collection is required for
the entire calendar year of the merger. The surviving or newly formed
institution files either a consolidated submission or separate
submissions for that calendar year. When a covered institution acquires
a branch office of a covered institution, data collection is required
for the entire calendar
[[Page 127]]
year of the merger. Data for the acquired branch office may be submitted
by either institution.
5. Originations. Whether an institution is a financial institution
depends in part on whether the institution originated at least 25
closed-end mortgage loans in each of the two preceding calendar years or
at least 100 open-end lines of credit in each of the two preceding
calendar years. Comments 4(a)-2 through -4 discuss whether activities
with respect to a particular closed-end mortgage loan or open-end line
of credit constitute an origination for purposes of Sec. 1003.2(g).
6. Branches of foreign banks--treated as banks. A Federal branch or
a State-licensed or insured branch of a foreign bank that meets the
definition of a ``bank'' under section 3(a)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(a)) is a bank for the purposes of
Sec. 1003.2(g).
7. Branches and offices of foreign banks and other entities--treated
as nondepository financial institutions. A Federal agency, State-
licensed agency, State-licensed uninsured branch of a foreign bank,
commercial lending company owned or controlled by a foreign bank, or
entity operating under section 25 or 25A of the Federal Reserve Act, 12
U.S.C. 601 and 611 (Edge Act and agreement corporations) may not meet
the definition of ``bank'' under the Federal Deposit Insurance Act and
may thereby fail to satisfy the definition of a depository financial
institution under Sec. 1003.2(g)(1). An entity is nonetheless a
financial institution if it meets the definition of nondepository
financial institution under Sec. 1003.2(g)(2).
2(i) Home Improvement Loan
1. General. Section 1003.2(i) defines a home improvement loan as a
closed-end mortgage loan or an open-end line of credit that is for the
purpose, in whole or in part, of repairing, rehabilitating, remodeling,
or improving a dwelling or the real property on which the dwelling is
located. For example, a closed-end mortgage loan obtained to repair a
dwelling by replacing a roof is a home improvement loan under
Sec. 1003.2(i). A loan or line of credit is a home improvement loan even
if only a part of the purpose is for repairing, rehabilitating,
remodeling, or improving a dwelling. For example, an open-end line of
credit obtained in part to remodel a kitchen and in part to pay college
tuition is a home improvement loan under Sec. 1003.2(i). Similarly, for
example, a loan that is completed pursuant to a New York State
consolidation, extension, and modification agreement and that is
classified as a supplemental mortgage under New York Tax Law section
255, such that the borrower owes reduced or no mortgage recording taxes,
is a home improvement loan if any of the loan's funds are for home
improvement purposes. See also comment 2(d)-2.ii.
2. Improvements to real property. Home improvements include
improvements both to a dwelling and to the real property on which the
dwelling is located (for example, installation of a swimming pool,
construction of a garage, or landscaping).
3. Commercial and other loans. A home improvement loan may include a
closed-end mortgage loan or an open-end line of credit originated
outside an institution's residential mortgage lending division, such as
a loan or line of credit to improve an apartment building originated in
the commercial loan department.
4. Mixed-use property. A closed-end mortgage loan or an open-end
line of credit to improve a dwelling used for residential and commercial
purposes (for example, a building containing apartment units and retail
space), or the real property on which such a dwelling is located, is a
home improvement loan if the loan's proceeds are used either to improve
the entire property (for example, to replace the heating system), or if
the proceeds are used primarily to improve the residential portion of
the property. An institution may use any reasonable standard to
determine the primary use of the loan proceeds. An institution may
select the standard to apply on a case-by-case basis.
5. Multiple-purpose loans. A closed-end mortgage loan or an open-end
line of credit may be used for multiple purposes. For example, a closed-
end mortgage loan that is a home improvement loan under Sec. 1003.2(i)
may also be a refinancing under Sec. 1003.2(p) if the transaction is a
cash-out refinancing and the funds will be used to improve a home. Such
a transaction is a multiple-purpose loan. Comment 4(a)(3)-3 provides
details about how to report multiple-purpose covered loans.
6. Statement of borrower. In determining whether a closed-end
mortgage loan or an open-end line of credit, or an application for a
closed-end mortgage loan or an open-end line of credit, is for home
improvement purposes, an institution may rely on the applicant's or
borrower's stated purpose(s) for the loan or line of credit at the time
the application is received or the credit decision is made. An
institution need not confirm that the borrower actually uses any of the
funds for the stated purpose(s).
2(j) Home Purchase Loan
1. Multiple properties. A home purchase loan includes a closed-end
mortgage loan or an open-end line of credit secured by one dwelling and
used to purchase another dwelling. For example, if a person obtains a
home-equity loan or a reverse mortgage secured by dwelling A to purchase
dwelling B, the home-equity loan or the reverse mortgage is a home
purchase loan under Sec. 1003.2(j).
[[Page 128]]
2. Commercial and other loans. A home purchase loan may include a
closed-end mortgage loan or an open-end line of credit originated
outside an institution's residential mortgage lending division, such as
a loan or line of credit to purchase an apartment building originated in
the commercial loan department.
3. Construction and permanent financing. A home purchase loan
includes both a combined construction/permanent loan and the permanent
financing that replaces a construction-only loan. A home purchase loan
does not include a construction-only loan that is designed to be
replaced by permanent financing at a later time, which is excluded from
Regulation C as temporary financing under Sec. 1003.3(c)(3). Comment
3(c)(3)-1 provides additional details about transactions that are
excluded as temporary financing.
4. Second mortgages that finance the downpayments on first
mortgages. If an institution making a first mortgage loan to a home
purchaser also makes a second mortgage loan or line of credit to the
same purchaser to finance part or all of the home purchaser's
downpayment, both the first mortgage loan and the second mortgage loan
or line of credit are home purchase loans.
5. Assumptions. Under Sec. 1003.2(j), an assumption is a home
purchase loan when an institution enters into a written agreement
accepting a new borrower as the obligor on an existing obligation to
finance the new borrower's purchase of the dwelling securing the
existing obligation, if the resulting obligation is a closed-end
mortgage loan or an open-end line of credit. A transaction in which
borrower B finances the purchase of borrower A's dwelling by assuming
borrower A's existing debt obligation and that is completed pursuant to
a New York State consolidation, extension, and modification agreement
and is classified as a supplemental mortgage under New York Tax Law
section 255, such that the borrower owes reduced or no mortgage
recording taxes, is an assumption and a home purchase loan. See comment
2(d)-2.ii. On the other hand, a transaction in which borrower B, a
successor-in-interest, assumes borrower A's existing debt obligation
only after acquiring title to borrower A's dwelling is not a home
purchase loan because borrower B did not assume the debt obligation for
the purpose of purchasing a dwelling. See Sec. 1003.4(a)(3) and comment
4(a)(3)-4 for guidance about how to report covered loans that are not
home improvement loans, home purchase loans, or refinancings.
6. Multiple-purpose loans. A closed-end mortgage loan or an open-end
line of credit may be used for multiple purposes. For example, a closed-
end mortgage loan that is a home purchase loan under Sec. 1003.2(j) may
also be a home improvement loan under Sec. 1003.2(i) and a refinancing
under Sec. 1003.2(p) if the transaction is a cash-out refinancing and
the funds will be used to purchase and improve a dwelling. Such a
transaction is a multiple-purpose loan. Comment 4(a)(3)-3 provides
details about how to report multiple-purpose covered loans.
2(l) Manufactured Home
1. Definition of a manufactured home. The definition in
Sec. 1003.2(l) refers to the Federal building code for manufactured
housing established by the U.S. Department of Housing and Urban
Development (HUD) (24 CFR part 3280.2). Modular or other factory-built
homes that do not meet the HUD code standards are not manufactured homes
for purposes of Sec. 1003.2(l). Recreational vehicles are excluded from
the HUD code standards pursuant to 24 CFR 3282.8(g) and are also
excluded from the definition of dwelling for purposes of Sec. 1003.2(f).
See comment 2(f)-3.
2. Identification. A manufactured home will generally bear a data
plate affixed in a permanent manner near the main electrical panel or
other readily accessible and visible location noting its compliance with
the Federal Manufactured Home Construction and Safety Standards in force
at the time of manufacture and providing other information about its
manufacture pursuant to 24 CFR 3280.5. A manufactured home will
generally also bear a HUD Certification Label pursuant to 24 CFR
3280.11.
2(m) Metropolitan Statistical Area (MD) or Metropolitan Division (MD).
1. Use of terms ``Metropolitan Statistical Area (MSA)'' and
``Metropolitan Division (MD).'' The U.S. Office of Management and Budget
(OMB) defines Metropolitan Statistical Areas (MSAs) and Metropolitan
Divisions (MDs) to provide nationally consistent definitions for
collecting, tabulating, and publishing Federal statistics for a set of
geographic areas. For all purposes under Regulation C, if an MSA is
divided by OMB into MDs, the appropriate geographic unit to be used is
the MD; if an MSA is not so divided by OMB into MDs, the appropriate
geographic unit to be used is the MSA.
2(n) Multifamily Dwelling
1. Multifamily residential structures. The definition of dwelling in
Sec. 1003.2(f) includes multifamily residential structures and the
corresponding commentary provides guidance on when such residential
structures are included in that definition. See comments 2(f)-2 through
-5.
2. Special reporting requirements for multifamily dwellings. The
definition of multifamily dwelling in Sec. 1003.2(n) includes a
dwelling, regardless of construction method,
[[Page 129]]
that contains five or more individual dwelling units. Covered loans
secured by a multifamily dwelling are subject to additional reporting
requirements under Sec. 1003.4(a)(32), but are not subject to reporting
requirements under Sec. 1003.4(a)(4), (10)(iii), (23), (29), or (30).
2(o) Open-End Line of Credit
1. General. Section 1003.2(o) defines an open-end line of credit as
an extension of credit that is secured by a lien on a dwelling and that
is an open-end credit plan as defined in Regulation Z, 12 CFR
1026.2(a)(20), but without regard to whether the credit is consumer
credit, as defined in Sec. 1026.2(a)(12), is extended by a creditor, as
defined in Sec. 1026.2(a)(17), or is extended to a consumer, as defined
in Sec. 1026.2(a)(11). Aside from these distinctions, institutions may
rely on 12 CFR 1026.2(a)(20) and its related commentary in determining
whether a transaction is an open-end line of credit under
Sec. 1003.2(o). For example, assume a business-purpose transaction that
is exempt from Regulation Z pursuant to Sec. 1026.3(a)(1) but that
otherwise is open-end credit under Regulation Z Sec. 1026.2(a)(20). The
business-purpose transaction is an open-end line of credit under
Regulation C, provided the other requirements of Sec. 1003.2(o) are met.
Similarly, assume a transaction in which the person extending open-end
credit is a financial institution under Sec. 1003.2(g) but is not a
creditor under Regulation Z, Sec. 1026.2(a)(17). In this example, the
transaction is an open-end line of credit under Regulation C, provided
the other requirements of Sec. 1003.2(o) are met.
2. Extension of credit. Extension of credit has the same meaning
under Sec. 1003.2(o) as under Sec. 1003.2(d) and comment 2(d)-2. Thus,
for example, a renewal of an open-end line of credit is not an extension
of credit under Sec. 1003.2(o) and is not covered by Regulation C unless
the existing debt obligation is satisfied and replaced. Likewise, under
Sec. 1003.2(o), each draw on an open-end line of credit is not an
extension of credit.
2(p) Refinancing
1. General. Section 1003.2(p) defines a refinancing as a closed-end
mortgage loan or an open-end line of credit in which a new, dwelling-
secured debt obligation satisfies and replaces an existing, dwelling-
secured debt obligation by the same borrower. Except as described in
comment 2(p)-2, whether a refinancing has occurred is determined by
reference to whether, based on the parties' contract and applicable law,
the original debt obligation has been satisfied or replaced by a new
debt obligation. Whether the original lien is satisfied is irrelevant.
For example:
i. A new closed-end mortgage loan that satisfies and replaces one or
more existing closed-end mortgage loans is a refinancing under
Sec. 1003.2(p).
ii. A new open-end line of credit that satisfies and replaces an
existing closed-end mortgage loan is a refinancing under Sec. 1003.2(p).
iii. Except as described in comment 2(p)-2, a new debt obligation
that renews or modifies the terms of, but that does not satisfy and
replace, an existing debt obligation, is not a refinancing under
Sec. 1003.2(p).
2. New York State consolidation, extension, and modification
agreements. Where a transaction is completed pursuant to a New York
State consolidation, extension, and modification agreement and is
classified as a supplemental mortgage under New York Tax Law
sectionSec. 255, such that the borrower owes reduced or no mortgage
recording taxes, and where, but for the agreement, the transaction would
have met the definition of a refinancing under Sec. 1003.2(p), the
transaction is considered a refinancing under Sec. 1003.2(p). See also
comment 2(d)-2.ii.
3. Existing debt obligation. A closed-end mortgage loan or an open-
end line of credit that satisfies and replaces one or more existing debt
obligations is not a refinancing under Sec. 1003.2(p) unless the
existing debt obligation (or obligations) also was secured by a
dwelling. For example, assume that a borrower has an existing $30,000
closed-end mortgage loan and obtains a new $50,000 closed-end mortgage
loan that satisfies and replaces the existing $30,000 loan. The new
$50,000 loan is a refinancing under Sec. 1003.2(p). However, if the
borrower obtains a new $50,000 closed-end mortgage loan that satisfies
and replaces an existing $30,000 loan secured only by a personal
guarantee, the new $50,000 loan is not a refinancing under
Sec. 1003.2(p). See Sec. 1003.4(a)(3) and related commentary for
guidance about how to report the loan purpose of such transactions, if
they are not otherwise excluded under Sec. 1003.3(c).
4. Same borrower. Section 1003.2(p) provides that, even if all of
the other requirements of Sec. 1003.2(p) are met, a closed-end mortgage
loan or an open-end line of credit is not a refinancing unless the same
borrower undertakes both the existing and the new obligation(s). Under
Sec. 1003.2(p), the ``same borrower'' undertakes both the existing and
the new obligation(s) even if only one borrower is the same on both
obligations. For example, assume that an existing closed-end mortgage
loan (obligation X) is satisfied and replaced by a new closed-end
mortgage loan (obligation Y). If borrowers A and B both are obligated on
obligation X, and only borrower B is obligated on obligation Y, then
obligation Y is a refinancing under Sec. 1003.2(p), assuming the other
requirements of Sec. 1003.2(p) are met, because borrower B is obligated
on both transactions. On the other hand, if only borrower A is obligated
on obligation X, and only borrower B is obligated on obligation Y,
[[Page 130]]
then obligation Y is not a refinancing under Sec. 1003.2(p). For
example, assume that two spouses are divorcing. If both spouses are
obligated on obligation X, but only one spouse is obligated on
obligation Y, then obligation Y is a refinancing under Sec. 1003.2(p),
assuming the other requirements of Sec. 1003.2(p) are met. On the other
hand, if only spouse A is obligated on obligation X, and only spouse B
is obligated on obligation Y, then obligation Y is not a refinancing
under Sec. 1003.2(p). See Sec. 1003.4(a)(3) and related commentary for
guidance about how to report the loan purpose of such transactions, if
they are not otherwise excluded under Sec. 1003.3(c).
5. Two or more debt obligations. Section 1003.2(p) provides that, to
be a refinancing, a new debt obligation must satisfy and replace an
existing debt obligation. Where two or more new obligations replace an
existing obligation, each new obligation is a refinancing if, taken
together, the new obligations satisfy the existing obligation.
Similarly, where one new obligation replaces two or more existing
obligations, the new obligation is a refinancing if it satisfies each of
the existing obligations.
6. Multiple-purpose loans. A closed-end mortgage loan or an open-end
line of credit may be used for multiple purposes. For example, a closed-
end mortgage loan that is a refinancing under Sec. 1003.2(p) may also be
a home improvement loan under Sec. 1003.2(i) and be used for other
purposes if the refinancing is a cash-out refinancing and the funds will
be used both for home improvement and to pay college tuition. Such a
transaction is a multiple-purpose loan. Comment 4(a)(3)-3 provides
details about how to report multiple-purpose covered loans.
Section 1003.3--Exempt Institutions and Excluded Transactions
3(c) Excluded Transactions
Paragraph 3(c)(1)
1. Financial institution acting in a fiduciary capacity. Section
1003.3(c)(1) provides that a closed-end mortgage loan or an open-end
line of credit originated or purchased by a financial institution acting
in a fiduciary capacity is an excluded transaction. A financial
institution acts in a fiduciary capacity if, for example, the financial
institution acts as a trustee.
Paragraph 3(c)(2)
1. Loan or line of credit secured by a lien on unimproved land.
Section 1003.3(c)(2) provides that a closed-end mortgage loan or an
open-end line of credit secured by a lien on unimproved land is an
excluded transaction. A loan or line of credit is secured by a lien on
unimproved land if the loan or line of credit is secured by vacant or
unimproved property, unless the institution knows, based on information
that it receives from the applicant or borrower at the time the
application is received or the credit decision is made, that the
proceeds of that loan or credit line will be used within two years after
closing or account opening to construct a dwelling on, or to purchase a
dwelling to be placed on, the land. A loan or line of credit that is not
excludable under Sec. 1003.3(c)(2) nevertheless may be excluded, for
example, as temporary financing under Sec. 1003.3(c)(3).
Paragraph 3(c)(3)
1. Temporary financing. Section 1003.3(c)(3) provides that closed-
end mortgage loans or open-end lines of credit obtained for temporary
financing are excluded transactions. A loan or line of credit is
considered temporary financing and excluded under Sec. 1003.3(c)(3) if
the loan or line of credit is designed to be replaced by permanent
financing at a later time. For example:
i. Lender A extends credit in the form of a bridge or swing loan to
finance a borrower's down payment on a home purchase. The borrower pays
off the bridge or swing loan with funds from the sale of his or her
existing home and obtains permanent financing for his or her new home
from Lender A. The bridge or swing loan is excluded as temporary
financing under Sec. 1003.3(c)(3).
ii. Lender A extends credit to finance construction of a dwelling. A
new extension of credit for permanent financing for the dwelling will be
obtained, either from Lender A or from another lender, and either
through a refinancing of the initial construction loan or a separate
loan. The initial construction loan is excluded as temporary financing
under Sec. 1003.3(c)(3).
iii. Assume the same scenario as in comment 3(c)(3)-1.ii, except
that the initial construction loan is, or may be, renewed one or more
times before the permanent financing is made. The initial construction
loan, including any renewal thereof, is excluded as temporary financing
under Sec. 1003.3(c)(3).
iv. Lender A extends credit to finance construction of a dwelling.
The loan automatically will convert to permanent financing with Lender A
once the construction phase is complete. Under Sec. 1003.3(c)(3), the
loan is not designed to be replaced by permanent financing and therefore
the temporary financing exclusion does not apply. See also comment 2(j)-
3.
v. Lender A originates a loan with a nine-month term to enable an
investor to purchase a home, renovate it, and re-sell it before the term
expires. Under Sec. 1003.3(c)(3), the loan is not designed to be
replaced by permanent financing and therefore the temporary financing
exclusion does not apply. Such a transaction is not temporary financing
under Sec. 1003.3(c)(3) merely because its term is short.
[[Page 131]]
Paragraph 3(c)(4)
1. Purchase of an interest in a pool of loans. Section 1003.3(c)(4)
provides that the purchase of an interest in a pool of closed-end
mortgage loans or open-end lines of credit is an excluded transaction.
The purchase of an interest in a pool of loans or lines of credit
includes, for example, mortgage-participation certificates, mortgage-
backed securities, or real estate mortgage investment conduits.
Paragraph 3(c)(6)
1. Mergers and acquisitions. Section 1003.3(c)(6) provides that the
purchase of closed-end mortgage loans or open-end lines of credit as
part of a merger or acquisition, or as part of the acquisition of all of
the assets and liabilities of a branch office, are excluded
transactions. If a financial institution acquires loans or lines of
credit in bulk from another institution (for example, from the receiver
for a failed institution), but no merger or acquisition of an
institution, or acquisition of a branch office, is involved and no other
exclusion applies, the acquired loans or lines of credit are covered
loans and are reported as described in comment 4(a)-1.iii.
Paragraph 3(c)(8)
1. Partial interest. Section 1003.3(c)(8) provides that the purchase
of a partial interest in a closed-end mortgage loan or an open-end line
of credit is an excluded transaction. If an institution acquires only a
partial interest in a loan or line of credit, the institution does not
report the transaction even if the institution participated in the
underwriting and origination of the loan or line of credit. If an
institution acquires a 100 percent interest in a loan or line of credit,
the transaction is not excluded under Sec. 1003.3(c)(8).
Paragraph 3(c)(9)
1. Loan or line of credit used primarily for agricultural purposes.
Section 1003.3(c)(9) provides that an institution does not report a
closed-end mortgage loan or an open-end line of credit used primarily
for agricultural purposes. A loan or line of credit is used primarily
for agricultural purposes if its funds will be used primarily for
agricultural purposes, or if the loan or line of credit is secured by a
dwelling that is located on real property that is used primarily for
agricultural purposes (e.g., a farm). An institution may refer to
comment 3(a)-8 in the official interpretations of Regulation Z, 12 CFR
part 1026, supplement I, for guidance on what is an agricultural
purpose. An institution may use any reasonable standard to determine the
primary use of the property. An institution may select the standard to
apply on a case-by-case basis.
Paragraph 3(c)(10)
1. General. Section 1003.3(c)(10) provides a special rule for
reporting a closed-end mortgage loan or an open-end line of credit that
is or will be made primarily for a business or commercial purpose. If an
institution determines that a closed-end mortgage loan or an open-end
line of credit primarily is for a business or commercial purpose, then
the loan or line of credit is a covered loan only if it is a home
improvement loan under Sec. 1003.2(i), a home purchase loan under
Sec. 1003.2(j), or a refinancing under Sec. 1003.2(p) and no other
exclusion applies. Section 1003.3(c)(10) does not categorically exclude
all business- or commercial-purpose loans and lines of credit from
coverage.
2. Primary purpose. An institution must determine in each case if a
closed-end mortgage loan or an open-end line of credit primarily is for
a business or commercial purpose. If a closed-end mortgage loan or an
open-end line of credit is deemed to be primarily for a business,
commercial, or organizational purpose under Regulation Z, 12 CFR
1026.3(a) and its related commentary, then the loan or line of credit
also is deemed to be primarily for a business or commercial purpose
under Sec. 1003.3(c)(10).
3. Examples--covered business- or commercial-purpose transactions.
The following are examples of closed-end mortgage loans and open-end
lines of credit that are not excluded from reporting under
Sec. 1003.3(c)(10), because they primarily are for a business or
commercial purpose, but they also meet the definition of a home
improvement loan under Sec. 1003.2(i), a home purchase loan under
Sec. 1003.2(j), or a refinancing under Sec. 1003.2(p):
i. A closed-end mortgage loan or an open-end line of credit to
purchase or to improve a multifamily dwelling or a single-family
investment property, or a refinancing of a closed-end mortgage loan or
an open-end line of credit secured by a multifamily dwelling or a
single-family investment property;
ii. A closed-end mortgage loan or an open-end line of credit to
improve an office, for example a doctor's office, that is located in a
dwelling; and
iii. A closed-end mortgage loan or an open-end line of credit to a
corporation, if the funds from the loan or line of credit will be used
to purchase or to improve a dwelling, or if the transaction is a
refinancing.
4. Examples--excluded business- or commercial-purpose transactions.
The following are examples of closed-end mortgage loans and open-end
lines of credit that are not covered loans because they primarily are
for a business or commercial purpose, but they do not meet the
definition of a home improvement loan under Sec. 1003.2(i), a home
purchase loan under Sec. 1003.2(j), or a refinancing under
Sec. 1003.2(p):
[[Page 132]]
i. A closed-end mortgage loan or an open-end line of credit whose
funds will be used primarily to improve or expand a business, for
example to renovate a family restaurant that is not located in a
dwelling, or to purchase a warehouse, business equipment, or inventory;
ii. A closed-end mortgage loan or an open-end line of credit to a
corporation whose funds will be used primarily for business purposes,
such as to purchase inventory; and
iii. A closed-end mortgage loan or an open-end line of credit whose
funds will be used primarily for business or commercial purposes other
than home purchase, home improvement, or refinancing, even if the loan
or line of credit is cross-collateralized by a covered loan.
Paragraph 3(c)(11)
1. General. Section 1003.3(c)(11) provides that a closed-end
mortgage loan is an excluded transaction if a financial institution
originated fewer than 25 closed-end mortgage loans in each of the two
preceding calendar years. For example, assume that a bank is a financial
institution in 2022 under Sec. 1003.2(g) because it originated 200 open-
end lines of credit in 2020, 250 open-end lines of credit in 2021, and
met all of the other requirements under Sec. 1003.2(g)(1). Also assume
that the bank originated 10 and 20 closed-end mortgage loans in 2020 and
2021, respectively. The open-end lines of credit that the bank
originated, or for which it received applications, during 2022 are
covered loans and must be reported, unless they otherwise are excluded
transactions under Sec. 1003.3(c). However, the closed-end mortgage
loans that the bank originated, or for which it received applications,
during 2022 are excluded transactions under Sec. 1003.3(c)(11) and need
not be reported. See comments 4(a)-2 through -4 for guidance about the
activities that constitute an origination.
Paragraph 3(c)(12)
1. General. Section 1003.3(c)(12) provides that an open-end line of
credit is an excluded transaction if a financial institution originated
fewer than 100 open-end lines of credit in each of the two preceding
calendar years. For example, assume that a bank is a financial
institution in 2022 under Sec. 1003.2(g) because it originated 50
closed-end mortgage loans in 2020, 75 closed-end mortgage loans in 2021,
and met all of the other requirements under Sec. 1003.2(g)(1). Also
assume that the bank originated 75 and 85 open-end lines of credit in
2020 and 2021, respectively. The closed-end mortgage loans that the bank
originated, or for which it received applications, during 2022 are
covered loans and must be reported, unless they otherwise are excluded
transactions under Sec. 1003.3(c). However, the open-end lines of credit
that the bank originated, or for which it received applications, during
2022 are excluded transactions under Sec. 1003.3(c)(12) and need not be
reported. See comments 4(a)-2 through -4 for guidance about the
activities that constitute an origination.
Section 1003.4--Compilation of Reportable Data
4(a) Data Format and Itemization
1. General. Section 1003.4(a) describes a financial institution's
obligation to collect data on applications it received, on covered loans
that it originated, and on covered loans that it purchased during the
calendar year covered by the loan/application register.
i. A financial institution reports these data even if the covered
loans were subsequently sold by the institution.
ii. A financial institution reports data for applications that did
not result in an origination but on which actions were taken-for
example, an application that the institution denied, that it approved
but that was not accepted, that it closed for incompleteness, or that
the applicant withdrew during the calendar year covered by the loan/
application register. A financial institution is required to report data
regarding requests under a preapproval program (as defined in
Sec. 1003.2(b)(2)) only if the preapproval request is denied, results in
the origination of a home purchase loan, or was approved but not
accepted.
iii. If a financial institution acquires covered loans in bulk from
another institution (for example, from the receiver for a failed
institution), but no merger or acquisition of an institution, or
acquisition of a branch office, is involved, the acquiring financial
institution reports the covered loans as purchased loans.
iv. A financial institution reports the data for an application on
the loan/application register for the calendar year during which the
application was acted upon even if the institution received the
application in a previous calendar year.
2. Originations and applications involving more than one
institution. Section 1003.4(a) requires a financial institution to
collect certain information regarding applications for covered loans
that it receives and regarding covered loans that it originates. The
following provides guidance on how to report originations and
applications involving more than one institution. The discussion below
assumes that all of the parties are financial institutions as defined by
Sec. 1003.2(g). The same principles apply if any of the parties is not a
financial institution. Comment 4(a)-3 provides examples of transactions
involving more than one institution, and comment 4(a)-4 discusses how to
report actions taken by agents.
[[Page 133]]
i. Only one financial institution reports each originated covered
loan as an origination. If more than one institution was involved in the
origination of a covered loan, the financial institution that made the
credit decision approving the application before closing or account
opening reports the loan as an origination. It is not relevant whether
the loan closed or, in the case of an application, would have closed in
the institution's name. If more than one institution approved an
application prior to closing or account opening and one of those
institutions purchased the loan after closing, the institution that
purchased the loan after closing reports the loan as an origination. If
a financial institution reports a transaction as an origination, it
reports all of the information required for originations, even if the
covered loan was not initially payable to the financial institution that
is reporting the covered loan as an origination.
ii. In the case of an application for a covered loan that did not
result in an origination, a financial institution reports the action it
took on that application if it made a credit decision on the application
or was reviewing the application when the application was withdrawn or
closed for incompleteness. It is not relevant whether the financial
institution received the application from the applicant or from another
institution, such as a broker, or whether another financial institution
also reviewed and reported an action taken on the same application.
3. Examples--originations and applications involving more than one
institution. The following scenarios illustrate how an institution
reports a particular application or covered loan. The illustrations
assume that all of the parties are financial institutions as defined by
Sec. 1003.2(g). However, the same principles apply if any of the parties
is not a financial institution.
i. Financial Institution A received an application for a covered
loan from an applicant and forwarded that application to Financial
Institution B. Financial Institution B reviewed the application and
approved the loan prior to closing. The loan closed in Financial
Institution A's name. Financial Institution B purchased the loan from
Financial Institution A after closing. Financial Institution B was not
acting as Financial Institution A's agent. Since Financial Institution B
made the credit decision prior to closing, Financial Institution B
reports the transaction as an origination, not as a purchase. Financial
Institution A does not report the transaction.
ii. Financial Institution A received an application for a covered
loan from an applicant and forwarded that application to Financial
Institution B. Financial Institution B reviewed the application before
the loan would have closed, but the application did not result in an
origination because Financial Institution B denied the application.
Financial Institution B was not acting as Financial Institution A's
agent. Since Financial Institution B made the credit decision, Financial
Institution B reports the application as a denial. Financial Institution
A does not report the application. If, under the same facts, the
application was withdrawn before Financial Institution B made a credit
decision, Financial Institution B would report the application as
withdrawn and Financial Institution A would not report the application.
iii. Financial Institution A received an application for a covered
loan from an applicant and approved the application before closing the
loan in its name. Financial Institution A was not acting as Financial
Institution B's agent. Financial Institution B purchased the covered
loan from Financial Institution A. Financial Institution B did not
review the application before closing. Financial Institution A reports
the loan as an origination. Financial Institution B reports the loan as
a purchase.
iv. Financial Institution A received an application for a covered
loan from an applicant. If approved, the loan would have closed in
Financial Institution B's name. Financial Institution A denied the
application without sending it to Financial Institution B for approval.
Financial Institution A was not acting as Financial Institution B's
agent. Since Financial Institution A made the credit decision before the
loan would have closed, Financial Institution A reports the application.
Financial Institution B does not report the application.
v. Financial Institution A reviewed an application and made the
credit decision to approve a covered loan using the underwriting
criteria provided by a third party (e.g., another financial institution,
Fannie Mae, or Freddie Mac). The third party did not review the
application and did not make a credit decision prior to closing.
Financial Institution A was not acting as the third party's agent.
Financial Institution A reports the application or origination. If the
third party purchased the loan and is subject to Regulation C, the third
party reports the loan as a purchase whether or not the third party
reviewed the loan after closing. Assume the same facts, except that
Financial Institution A approved the application, and the applicant
chose not to accept the loan from Financial Institution A. Financial
Institution A reports the application as approved but not accepted and
the third party, assuming the third party is subject to Regulation C,
does not report the application.
vi. Financial Institution A reviewed and made the credit decision on
an application based on the criteria of a third-party insurer or
guarantor (for example, a government or
[[Page 134]]
private insurer or guarantor). Financial Institution A reports the
action taken on the application.
vii. Financial Institution A received an application for a covered
loan and forwarded it to Financial Institutions B and C. Financial
Institution A made a credit decision, acting as Financial Institution
D's agent, and approved the application. The applicant did not accept
the loan from Financial Institution D. Financial Institution D reports
the application as approved but not accepted. Financial Institution A
does not report the application. Financial Institution B made a credit
decision, approving the application, the applicant accepted the offer of
credit from Financial Institution B, and credit was extended. Financial
Institution B reports the origination. Financial Institution C made a
credit decision and denied the application. Financial Institution C
reports the application as denied.
4. Agents. If a financial institution made the credit decision on a
covered loan or application through the actions of an agent, the
institution reports the application or origination. State law determines
whether one party is the agent of another. For example, acting as
Financial Institution A's agent, Financial Institution B approved an
application prior to closing and a covered loan was originated.
Financial Institution A reports the loan as an origination.
5. Purchased loans. i. A financial institution is required to
collect data regarding covered loans it purchases. For purposes of
Sec. 1003.4(a), a purchase includes a repurchase of a covered loan,
regardless of whether the institution chose to repurchase the covered
loan or was required to repurchase the covered loan because of a
contractual obligation and regardless of whether the repurchase occurs
within the same calendar year that the covered loan was originated or in
a different calendar year. For example, assume that Financial
Institution A originates or purchases a covered loan and then sells it
to Financial Institution B, who later requires Financial Institution A
to repurchase the covered loan pursuant to the relevant contractual
obligations. Financial Institution B reports the purchase from Financial
Institution A, assuming it is a financial institution as defined under
Sec. 1003.2(g). Financial Institution A reports the repurchase from
Financial Institution B as a purchase.
ii. In contrast, for purposes of Sec. 1003.4(a), a purchase does not
include a temporary transfer of a covered loan to an interim funder or
warehouse creditor as part of an interim funding agreement under which
the originating financial institution is obligated to repurchase the
covered loan for sale to a subsequent investor. Such agreements, often
referred to as ``repurchase agreements,'' are sometimes employed as
functional equivalents of warehouse lines of credit. Under these
agreements, the interim funder or warehouse creditor acquires legal
title to the covered loan, subject to an obligation of the originating
institution to repurchase at a future date, rather than taking a
security interest in the covered loan as under the terms of a more
conventional warehouse line of credit. To illustrate, assume Financial
Institution A has an interim funding agreement with Financial
Institution B to enable Financial Institution B to originate loans.
Assume further that Financial Institution B originates a covered loan
and that, pursuant to this agreement, Financial Institution A takes a
temporary transfer of the covered loan until Financial Institution B
arranges for the sale of the covered loan to a subsequent investor and
that Financial Institution B repurchases the covered loan to enable it
to complete the sale to the subsequent investor (alternatively,
Financial Institution A may transfer the covered loan directly to the
subsequent investor at Financial Institution B's direction, pursuant to
the interim funding agreement). The subsequent investor could be, for
example, a financial institution or other entity that intends to hold
the loan in portfolio, a GSE or other securitizer, or a financial
institution or other entity that intends to package and sell multiple
loans to a GSE or other securitizer. In this example, the temporary
transfer of the covered loan from Financial Institution B to Financial
Institution A is not a purchase, and any subsequent transfer back to
Financial Institution B for delivery to the subsequent investor is not a
purchase, for purposes of Sec. 1003.4(a). Financial Institution B
reports the origination of the covered loan as well as its sale to the
subsequent investor. If the subsequent investor is a financial
institution under Sec. 1003.2(g), it reports a purchase of the covered
loan pursuant to Sec. 1003.4(a), regardless of whether it acquired the
covered loan from Financial Institution B or directly from Financial
Institution A.
Paragraph 4(a)(1)(i)
1. ULI--uniqueness. Section 1003.4(a)(1)(i)(B)(2) requires a
financial institution that assigns a universal loan identifier (ULI) to
each covered loan or application (except as provided in
Sec. 1003.4(a)(1)(i)(D) and (E)) to ensure that the character sequence
it assigns is unique within the institution and used only for the
covered loan or application. A financial institution should assign only
one ULI to any particular covered loan or application, and each ULI
should correspond to a single application and ensuing loan in the case
that the application is approved and a loan is originated. A financial
institution may use a ULI that was reported previously to refer only to
the same loan or application for which the ULI was used previously or a
loan that ensues from an application for
[[Page 135]]
which the ULI was used previously. A financial institution may not
report an application for a covered loan in 2030 using the same ULI that
was reported for a covered loan that was originated in 2020. Similarly,
refinancings or applications for refinancing should be assigned a
different ULI than the loan that is being refinanced. A financial
institution with multiple branches must ensure that its branches do not
use the same ULI to refer to multiple covered loans or applications.
2. ULI--privacy. Section 1003.4(a)(1)(i)(B)(3) prohibits a financial
institution from including information that could be used to directly
identify the applicant or borrower in the identifier that it assigns for
the application or covered loan of the applicant or borrower.
Information that could be used to directly identify the applicant or
borrower includes, but is not limited to, the applicant's or borrower's
name, date of birth, Social Security number, official government-issued
driver's license or identification number, alien registration number,
government passport number, or employer or taxpayer identification
number.
3. ULI--purchased covered loan. If a financial institution has
previously reported a covered loan with a ULI under this part, a
financial institution that purchases that covered loan must use the ULI
that was previously reported under this part. For example, if a loan
origination was previously reported under this part with a ULI, the
financial institution that purchases the covered loan would report the
purchase of the covered loan using the same ULI. A financial institution
that purchases a covered loan must use the ULI that was assigned by the
financial institution that originated the covered loan. For example, if
a financial institution that submits an annual loan/application register
pursuant to Sec. 1003.5(a)(1)(i) originates a covered loan that is
purchased by a financial institution that submits a quarterly loan/
application register pursuant to Sec. 1003.5(a)(1)(ii), the financial
institution that purchased the covered loan must use the ULI that was
assigned by the financial institution that originated the covered loan.
A financial institution that purchases a covered loan assigns a ULI and
records and submits it in its loan/application register pursuant to
Sec. 1003.5(a)(1)(i) or (ii), whichever is applicable, if the covered
loan was not assigned a ULI by the financial institution that originated
the loan because, for example, the loan was originated prior to January
1, 2018.
4. ULI--reinstated or reconsidered application. A financial
institution may, at its option, use a ULI previously reported under this
part if, during the same calendar year, an applicant asks the
institution to reinstate a counteroffer that the applicant previously
did not accept or asks the financial institution to reconsider an
application that was previously denied, withdrawn, or closed for
incompleteness. For example, if a financial institution reports a denied
application in its second-quarter 2020 data submission, pursuant to
Sec. 1003.5(a)(1)(ii), but then reconsiders the application, which
results in an origination in the third quarter of 2020, the financial
institution may report the origination in its third-quarter 2020 data
submission using the same ULI that was reported for the denied
application in its second-quarter 2020 data submission, so long as the
financial institution treats the transaction as a continuation of the
application. However, a financial institution may not use a ULI
previously reported if it reinstates or reconsiders an application that
occurred and was reported in a prior calendar year. For example, if a
financial institution reports a denied application in its fourth-quarter
2020 data submission, pursuant to Sec. 1003.5(a)(1)(ii), but then
reconsiders the application resulting in an origination in the first
quarter of 2021, the financial institution reports a denied application
under the original ULI in its fourth-quarter 2020 data submission and an
approved application with a different ULI in its first-quarter 2021 data
submission, pursuant to Sec. 1003.5(a)(1)(ii).
5. ULI--check digit. Section 1003.(4)(a)(1)(i)(C) requires that the
two right-most characters in the ULI represent the check digit. Appendix
C prescribes the requirements for generating a check digit and
validating a ULI.
Paragraph 4(a)(1)(ii)
1. Application date--consistency. Section 1003.4(a)(1)(ii) requires
that, in reporting the date of application, a financial institution
report the date it received the application, as defined under
Sec. 1003.2(b), or the date shown on the application form. Although a
financial institution need not choose the same approach for its entire
HMDA submission, it should be generally consistent (such as by routinely
using one approach within a particular division of the institution or
for a category of loans). If the financial institution chooses to report
the date shown on the application form and the institution retains
multiple versions of the application form, the institution reports the
date shown on the first application form satisfying the application
definition provided under Sec. 1003.2(b).
2. Application date--indirect application. For an application that
was not submitted directly to the financial institution, the institution
may report the date the application was received by the party that
initially received the application, the date the application was
received by the institution, or the date shown on the application form.
Although an institution need not choose the same approach for its entire
HMDA submission, it should be generally consistent (such
[[Page 136]]
as by routinely using one approach within a particular division of the
institution or for a category of loans).
3. Application date--reinstated application. If, within the same
calendar year, an applicant asks a financial institution to reinstate a
counteroffer that the applicant previously did not accept (or asks the
institution to reconsider an application that was denied, withdrawn, or
closed for incompleteness), the institution may treat that request as
the continuation of the earlier transaction using the same ULI or as a
new transaction with a new ULI. If the institution treats the request
for reinstatement or reconsideration as a new transaction, it reports
the date of the request as the application date. If the institution does
not treat the request for reinstatement or reconsideration as a new
transaction, it reports the original application date.
Paragraph 4(a)(2)
1. Loan type--general. If a covered loan is not, or in the case of
an application would not have been, insured by the Federal Housing
Administration, guaranteed by the Veterans Administration, or guaranteed
by the Rural Housing Service or the Farm Service Agency, an institution
complies with Sec. 1003.4(a)(2) by reporting the covered loan as not
insured or guaranteed by the Federal Housing Administration, Veterans
Administration, Rural Housing Service, or Farm Service Agency.
Paragraph 4(a)(3)
1. Purpose--statement of applicant. A financial institution may rely
on the oral or written statement of an applicant regarding the proposed
use of covered loan proceeds. For example, a lender could use a check-
box or a purpose line on a loan application to determine whether the
applicant intends to use covered loan proceeds for home improvement
purposes. If an applicant provides no statement as to the proposed use
of covered loan proceeds and the covered loan is not a home purchase
loan, cash-out refinancing, or refinancing, a financial institution
reports the covered loan as for a purpose other than home purchase, home
improvement, refinancing, or cash-out refinancing for purposes of
Sec. 1003.4(a)(3).
2. Purpose--refinancing and cash-out refinancing. Section
1003.4(a)(3) requires a financial institution to report whether a
covered loan is, or an application is for, a refinancing or a cash-out
refinancing. A financial institution reports a covered loan or an
application as a cash-out refinancing if it is a refinancing as defined
by Sec. 1003.2(p) and the institution considered it to be a cash-out
refinancing in processing the application or setting the terms (such as
the interest rate or origination charges) under its guidelines or an
investor's guidelines. For example:
i. Assume a financial institution considers an application for a
loan product to be a cash-out refinancing under an investor's guidelines
because of the amount of cash received by the borrower at closing or
account opening. Assume also that under the investor's guidelines, the
applicant qualifies for the loan product and the financial institution
approves the application, originates the covered loan, and sets the
terms of the covered loan consistent with the loan product. In this
example, the financial institution would report the covered loan as a
cash-out refinancing for purposes of Sec. 1003.4(a)(3).
ii. Assume a financial institution does not consider an application
for a covered loan to be a cash-out refinancing under its own guidelines
because the amount of cash received by the borrower does not exceed a
certain threshold. Assume also that the institution approves the
application, originates the covered loan, and sets the terms of the
covered loan consistent with its own guidelines applicable to
refinancings other than cash-out refinancings. In this example, the
financial institution would report the covered loan as a refinancing for
purposes of Sec. 1003.4(a)(3).
iii. Assume a financial institution does not distinguish between a
cash-out refinancing and a refinancing under its own guidelines, and
sets the terms of all refinancings without regard to the amount of cash
received by the borrower at closing or account opening, and does not
offer loan products under investor guidelines. In this example, the
financial institution reports all covered loans and applications for
covered loans that are defined by Sec. 1003.2(p) as refinancings for
purposes of Sec. 1003.4(a)(3).
3. Purpose--multiple-purpose loan. Section 1003.4(a)(3) requires a
financial institution to report the purpose of a covered loan or
application. If a covered loan is a home purchase loan as well as a home
improvement loan, a refinancing, or a cash-out refinancing, an
institution complies with Sec. 1003.4(a)(3) by reporting the loan as a
home purchase loan. If a covered loan is a home improvement loan as well
as a refinancing or cash-out refinancing, but the covered loan is not a
home purchase loan, an institution complies with Sec. 1003.4(a)(3) by
reporting the covered loan as a refinancing or a cash-out refinancing,
as appropriate. If a covered loan is a refinancing or cash-out
refinancing as well as for another purpose, such as for the purpose of
paying educational expenses, but the covered loan is not a home purchase
loan, an institution complies with Sec. 1003.4(a)(3) by reporting the
covered loan as a refinancing or a cash-out refinancing, as appropriate.
See comment 4(a)(3)-2. If a covered loan is a home improvement loan as
well as for another purpose, but the covered loan is not a
[[Page 137]]
home purchase loan, a refinancing, or cash-out refinancing, an
institution complies with Sec. 1003.4(a)(3) by reporting the covered
loan as a home improvement loan. See comment 2(i)-1.
4. Purpose--other. If a covered loan is not, or an application is
not for, a home purchase loan, a home improvement loan, a refinancing,
or a cash-out refinancing, a financial institution complies with
Sec. 1003.4(a)(3) by reporting the covered loan or application as for a
purpose other than home purchase, home improvement, refinancing, or
cash-out refinancing. For example, if a covered loan is for the purpose
of paying educational expenses, the financial institution complies with
Sec. 1003.4(a)(3) by reporting the covered loan as for a purpose other
than home purchase, home improvement, refinancing, or cash-out
refinancing. Section 1003.4(a)(3) also requires an institution to report
a covered loan or application as for a purpose other than home purchase,
home improvement, refinancing, or cash-out refinancing if it is a
refinancing but, under the terms of the agreement, the financial
institution was unconditionally obligated to refinance the obligation
subject to conditions within the borrower's control.
5. Purpose--business or commercial purpose loans. If a covered loan
primarily is for a business or commercial purpose as described in
Sec. 1003.3(c)(10) and comment 3(c)(10)-2 and is a home purchase loan,
home improvement loan, or a refinancing, Sec. 1003.4(a)(3) requires the
financial institution to report the applicable loan purpose. If a loan
primarily is for a business or commercial purpose but is not a home
purchase loan, home improvement loan, or a refinancing, the loan is an
excluded transaction under Sec. 1003.3(c)(10).
Paragraph 4(a)(4)
1. Request under a preapproval program. Section 1003.4(a)(4)
requires a financial institution to report whether an application or
covered loan involved a request for a preapproval of a home purchase
loan under a preapproval program as defined by Sec. 1003.2(b)(2). If an
application or covered loan did not involve a request for a preapproval
of a home purchase loan under a preapproval program as defined by
Sec. 1003.2(b)(2), a financial institution complies with
Sec. 1003.4(a)(4) by reporting that the application or covered loan did
not involve such a request, regardless of whether the institution has
such a program and the applicant did not apply through that program or
the institution does not have a preapproval program as defined by
Sec. 1003.2(b)(2).
2. Scope of requirement. A financial institution reports that the
application or covered loan did not involve a preapproval request for a
purchased covered loan; an application or covered loan for any purpose
other than a home purchase loan; an application for a home purchase loan
or a covered loan that is a home purchase loan secured by a multifamily
dwelling; an application or covered loan that is an open-end line of
credit or a reverse mortgage; or an application that is denied,
withdrawn by the applicant, or closed for incompleteness.
Paragraph 4(a)(5)
1. Modular homes and prefabricated components. Covered loans or
applications related to modular homes should be reported with a
construction method of site-built, regardless of whether they are on-
frame or off-frame modular homes. Modular homes comply with local or
other recognized buildings codes rather than standards established by
the National Manufactured Housing Construction and Safety Standards Act,
42 U.S.C. 5401 et seq. Modular homes are not required to have HUD
Certification Labels under 24 CFR 3280.11 or data plates under 24 CFR
3280.5. Modular homes may have a certification from a State licensing
agency that documents compliance with State or other applicable building
codes. On-frame modular homes are constructed on permanent metal chassis
similar to those used in manufactured homes. The chassis are not removed
on site and are secured to the foundation. Off-frame modular homes
typically have floor construction similar to the construction of other
site-built homes, and the construction typically includes wooden floor
joists and does not include permanent metal chassis. Dwellings built
using prefabricated components assembled at the dwelling's permanent
site should also be reported with a construction method of site-built.
2. Multifamily dwelling. For a covered loan or an application for a
covered loan related to a multifamily dwelling, the financial
institution should report the construction method as site-built unless
the multifamily dwelling is a manufactured home community, in which case
the financial institution should report the construction method as
manufactured home.
3. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
Paragraph 4(a)(6)
1. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
2. Principal residence. Section 1003.4(a)(6) requires a financial
institution to identify whether the property to which the covered loan
or application relates is or will be used as a residence that the
applicant or borrower physically occupies and uses, or will occupy and
use, as his or her principal residence. For purposes of
Sec. 1003.4(a)(6), an applicant or
[[Page 138]]
borrower can have only one principal residence at a time. Thus, a
vacation or other second home would not be a principal residence.
However, if an applicant or borrower buys or builds a new dwelling that
will become the applicant's or borrower's principal residence within a
year or upon the completion of construction, the new dwelling is
considered the principal residence for purposes of applying this
definition to a particular transaction.
3. Second residences. Section 1003.4(a)(6) requires a financial
institution to identify whether the property to which the loan or
application relates is or will be used as a second residence. For
purposes of Sec. 1003.4(a)(6), a property is a second residence of an
applicant or borrower if the property is or will be occupied by the
applicant or borrower for a portion of the year and is not the
applicant's or borrower's principal residence. For example, if a person
purchases a property, occupies the property for a portion of the year,
and rents the property for the remainder of the year, the property is a
second residence for purposes of Sec. 1003.4(a)(6). Similarly, if a
couple occupies a property near their place of employment on weekdays,
but the couple returns to their principal residence on weekends, the
property near the couple's place of employment is a second residence for
purposes of Sec. 1003.4(a)(6).
4. Investment properties. Section 1003.4(a)(6) requires a financial
institution to identify whether the property to which the covered loan
or application relates is or will be used as an investment property. For
purposes of Sec. 1003.4(a)(6), a property is an investment property if
the borrower does not, or the applicant will not, occupy the property.
For example, if a person purchases a property, does not occupy the
property, and generates income by renting the property, the property is
an investment property for purposes of Sec. 1003.4(a)(6). Similarly, if
a person purchases a property, does not occupy the property, and does
not generate income by renting the property, but intends to generate
income by selling the property, the property is an investment property
for purposes of Sec. 1003.4(a)(6). Section 1003.4(a)(6) requires a
financial institution to identify a property as an investment property
if the borrower or applicant does not or will not occupy the property,
even if the borrower or applicant does not consider the property as
owned for investment purposes. For example, if a corporation purchases a
property that is a dwelling under Sec. 1003.2(f), that it does not
occupy, but that is for the long-term residential use of its employees,
the property is an investment property for purposes of
Sec. 1003.4(a)(6), even if the corporation considers the property as
owned for business purposes rather than investment purposes, does not
generate income by renting the property, and does not intend to generate
income by selling the property at some point in time. If the property is
for transitory use by employees, the property would not be considered a
dwelling under Sec. 1003.2(f). See comment 2(f)-3.
5. Purchased covered loans. For purchased covered loans, a financial
institution may report principal residence unless the loan documents or
application indicate that the property will not be occupied as a
principal residence.
Paragraph 4(a)(7)
1. Covered loan amount--counteroffer. If an applicant accepts a
counteroffer for an amount different from the amount for which the
applicant applied, the financial institution reports the covered loan
amount granted. If an applicant does not accept a counteroffer or fails
to respond, the institution reports the amount initially requested.
2. Covered loan amount--application approved but not accepted or
preapproval request approved but not accepted. A financial institution
reports the covered loan amount that was approved.
3. Covered loan amount--preapproval request denied, application
denied, closed for incompleteness or withdrawn. For a preapproval
request that was denied, and for an application that was denied, closed
for incompleteness, or withdrawn, a financial institution reports the
amount for which the applicant applied.
4. Covered loan amount--multiple-purpose loan. A financial
institution reports the entire amount of the covered loan, even if only
a part of the proceeds is intended for home purchase, home improvement,
or refinancing.
5. Covered loan amount--closed-end mortgage loan. For a closed-end
mortgage loan, other than a purchased loan, an assumption, or a reverse
mortgage, a financial institution reports the amount to be repaid as
disclosed on the legal obligation. For a purchased closed-end mortgage
loan or an assumption of a closed-end mortgage loan, a financial
institution reports the unpaid principal balance at the time of purchase
or assumption.
6. Covered loan amount--open-end line of credit. For an open-end
line of credit, a financial institution reports the entire amount of
credit available to the borrower under the terms of the open-end plan,
including a purchased open-end line of credit and an assumption of an
open-end line of credit, but not for a reverse mortgage open-end line of
credit.
7. Covered loan amount--refinancing. For a refinancing, a financial
institution reports the amount of credit extended under the terms of the
new debt obligation.
8. Covered loan amount--home improvement loan. A financial
institution reports the entire amount of a home improvement loan, even
if only a part of the proceeds is intended for home improvement.
[[Page 139]]
9. Covered loan amount--non-federally insured reverse mortgage. A
financial institution reports the initial principal limit of a non-
federally insured reverse mortgage as set forth in
Sec. 1003.4(a)(7)(iii).
Paragraph 4(a)(8)(i)
1. Action taken--covered loan originated. A financial institution
reports that the covered loan was originated if the financial
institution made a credit decision approving the application before
closing or account opening and that credit decision results in an
extension of credit. The same is true for an application that began as a
request for a preapproval that subsequently results in a covered loan
being originated. See comments 4(a)-2 through -4 for guidance on
transactions in which more than one institution is involved.
2. Action taken--covered loan purchased. A financial institution
reports that the covered loan was purchased if the covered loan was
purchased by the financial institution after closing or account opening
and the financial institution did not make a credit decision on the
application prior to closing or account opening, or if the financial
institution did make a credit decision on the application prior to
closing or account opening, but is repurchasing the loan from another
entity that the loan was sold to. See comment 4(a)-5. See comments 4(a)-
2 through -4 for guidance on transactions in which more than one
financial institution is involved.
3. Action taken--application approved but not accepted. A financial
institution reports application approved but not accepted if the
financial institution made a credit decision approving the application
before closing or account opening, subject solely to outstanding
conditions that are customary commitment or closing conditions, but the
applicant or the party that initially received the application fails to
respond to the financial institution's approval within the specified
time, or the closed-end mortgage loan was not otherwise consummated or
the account was not otherwise opened. See comment 4(a)(8)(i)-13.
4. Action taken--application denied. A financial institution reports
that the application was denied if it made a credit decision denying the
application before an applicant withdraws the application or the file is
closed for incompleteness. See comments 4(a)-2 through -4 for guidance
on transactions in which more than one institution is involved.
5. Action taken--application withdrawn. A financial institution
reports that the application was withdrawn when the application is
expressly withdrawn by the applicant before the financial institution
makes a credit decision denying the application, before the financial
institution makes a credit decision approving the application, or before
the file is closed for incompleteness. A financial institution also
reports application withdrawn if the financial institution provides a
conditional approval specifying underwriting or creditworthiness
conditions, pursuant to comment 4(a)(8)(i)-13, and the application is
expressly withdrawn by the applicant before the applicant satisfies all
specified underwriting or creditworthiness conditions. A preapproval
request that is withdrawn is not reportable under HMDA. See
Sec. 1003.4(a).
6. Action taken--file closed for incompleteness. A financial
institution reports that the file was closed for incompleteness if the
financial institution sent a written notice of incompleteness under
Regulation B, 12 CFR 1002.9(c)(2), and the applicant did not respond to
the request for additional information within the period of time
specified in the notice before the applicant satisfies all underwriting
or creditworthiness conditions. See comment 4(a)(8)(i)-13. If a
financial institution then provides a notification of adverse action on
the basis of incompleteness under Regulation B, 12 CFR 1002.9(c)(i), the
financial institution may report the action taken as either file closed
for incompleteness or application denied. A preapproval request that is
closed for incompleteness is not reportable under HMDA. See
Sec. 1003.4(a).
7. Action taken--preapproval request denied. A financial institution
reports that the preapproval request was denied if the application was a
request for a preapproval under a preapproval program as defined in
Sec. 1003.2(b)(2) and the institution made a credit decision denying the
preapproval request.
8. Action taken--preapproval request approved but not accepted. A
financial institution reports that the preapproval request was approved
but not accepted if the application was a request for a preapproval
under a preapproval program as defined in Sec. 1003.2(b)(2) and the
institution made a credit decision approving the preapproval request but
the application did not result in a covered loan originated by the
financial institution.
9. Action taken--counteroffers. If a financial institution makes a
counteroffer to lend on terms different from the applicant's initial
request (for example, for a shorter loan maturity, with a different
interest rate, or in a different amount) and the applicant does not
accept the counteroffer or fails to respond, the institution reports the
action taken as a denial on the original terms requested by the
applicant. If the applicant accepts, the financial institution reports
the action taken as covered loan originated.
10. Action taken--rescinded transactions. If a borrower rescinds a
transaction after closing and before a financial institution is required
to submit its loan/application register containing the information for
the transaction under Sec. 1003.5(a), the institution reports the
transaction as an application that was approved but not accepted.
[[Page 140]]
11. Action taken--purchased covered loans. An institution reports
the covered loans that it purchased during the calendar year. An
institution does not report the covered loans that it declined to
purchase, unless, as discussed in comments 4(a)-2 through -4, the
institution reviewed the application prior to closing, in which case it
reports the application or covered loan according to comments 4(a)-2
through -4.
12. Action taken--repurchased covered loans. See comment 4(a)-5
regarding reporting requirements when a covered loan is repurchased by
the originating financial institution.
13. Action taken--conditional approvals. If an institution issues an
approval other than a commitment pursuant to a preapproval program as
defined under Sec. 1003.2(b)(2), and that approval is subject to the
applicant meeting certain conditions, the institution reports the action
taken as provided below dependent on whether the conditions are solely
customary commitment or closing conditions or if the conditions include
any underwriting or creditworthiness conditions.
i. Action taken examples. If the approval is conditioned on
satisfying underwriting or creditworthiness conditions and they are not
met, the institution reports the action taken as a denial. If, however,
the conditions involve submitting additional information about
underwriting or creditworthiness that the institution needs to make the
credit decision, and the institution has sent a written notice of
incompleteness under Regulation B, 12 CFR 1002.9(c)(2), and the
applicant did not respond within the period of time specified in the
notice, the institution reports the action taken as file closed for
incompleteness. See comment 4(a)(8)(i)-6. If the conditions are solely
customary commitment or closing conditions and the conditions are not
met, the institution reports the action taken as approved but not
accepted. If all the conditions (underwriting, creditworthiness, or
customary commitment or closing conditions) are satisfied and the
institution agrees to extend credit but the covered loan is not
originated, the institution reports the action taken as application
approved but not accepted. If the applicant expressly withdraws before
satisfying all underwriting or creditworthiness conditions and before
the institution denies the application or closes the file for
incompleteness, the institution reports the action taken as application
withdrawn. If all underwriting and creditworthiness conditions have been
met, and the outstanding conditions are solely customary commitment or
closing conditions and the applicant expressly withdraws before the
covered loan is originated, the institution reports the action taken as
application approved but not accepted.
ii. Customary commitment or closing conditions. Customary commitment
or closing conditions include, for example: a clear-title requirement,
an acceptable property survey, acceptable title insurance binder, clear
termite inspection, a subordination agreement from another lienholder,
and, where the applicant plans to use the proceeds from the sale of one
home to purchase another, a settlement statement showing adequate
proceeds from the sale.
iii. Underwriting or creditworthiness conditions. Underwriting or
creditworthiness conditions include, for example: conditions that
constitute a counter-offer, such as a demand for a higher down-payment;
satisfactory debt-to-income or loan-to-value ratios, a determination of
need for private mortgage insurance, or a satisfactory appraisal
requirement; or verification or confirmation, in whatever form the
institution requires, that the applicant meets underwriting conditions
concerning applicant creditworthiness, including documentation or
verification of income or assets.
14. Action taken--pending applications. An institution does not
report any covered loan application still pending at the end of the
calendar year; it reports that application on its loan/application
register for the year in which final action is taken.
Paragraph 4(a)(8)(ii)
1. Action taken date--general. A financial institution reports the
date of the action taken.
2. Action taken date--applications denied and files closed for
incompleteness. For applications, including requests for a preapproval,
that are denied or for files closed for incompleteness, the financial
institution reports either the date the action was taken or the date the
notice was sent to the applicant.
3. Action taken date--application withdrawn. For applications
withdrawn, the financial institution may report the date the express
withdrawal was received or the date shown on the notification form in
the case of a written withdrawal.
4. Action taken date--approved but not accepted. For a covered loan
approved by an institution but not accepted by the applicant, the
institution reports any reasonable date, such as the approval date, the
deadline for accepting the offer, or the date the file was closed.
Although an institution need not choose the same approach for its entire
HMDA submission, it should be generally consistent (such as by routinely
using one approach within a particular division of the institution or
for a category of covered loans).
5. Action taken date--originations. For covered loan originations,
including a preapproval request that leads to an origination by the
financial institution, an institution generally reports the closing or
account opening date. For covered loan originations that an institution
acquires from a party
[[Page 141]]
that initially received the application, the institution reports either
the closing or account opening date, or the date the institution
acquired the covered loan from the party that initially received the
application. If the disbursement of funds takes place on a date later
than the closing or account opening date, the institution may use the
date of initial disbursement. For a construction/permanent covered loan,
the institution reports either the closing or account opening date, or
the date the covered loan converts to the permanent financing. Although
an institution need not choose the same approach for its entire HMDA
submission, it should be generally consistent (such as by routinely
using one approach within a particular division of the institution or
for a category of covered loans). Notwithstanding this flexibility
regarding the use of the closing or account opening date in connection
with reporting the date action was taken, the institution must report
the origination as occurring in the year in which the origination goes
to closing or the account is opened.
6. Action taken date--loan purchased. For covered loans purchased, a
financial institution reports the date of purchase.
Paragraph 4(a)(9)
1. Multiple properties with one property taken as security. If a
covered loan is related to more than one property, but only one property
is taken as security (or, in the case of an application, proposed to be
taken as security), a financial institution reports the information
required by Sec. 1003.4(a)(9) for the property taken as or proposed to
be taken as security. A financial institution does not report the
information required by Sec. 1003.4(a)(9) for the property or properties
related to the loan that are not taken as or proposed to be taken as
security. For example, if a covered loan is secured by property A, and
the proceeds are used to purchase or rehabilitate (or to refinance home
purchase or home improvement loans related to) property B, the
institution reports the information required by Sec. 1003.4(a)(9) for
property A and does not report the information required by
Sec. 1003.4(a)(9) for property B.
2. Multiple properties with more than one property taken as
security. If more than one property is taken or, in the case of an
application, proposed to be taken as security for a single covered loan,
a financial institution reports the covered loan or application in a
single entry on its loan/application register and provides the
information required by Sec. 1003.4(a)(9) for one of the properties
taken as security that contains a dwelling. A financial institution does
not report information about the other properties taken as security. If
an institution is required to report specific information about the
property identified in Sec. 1003.4(a)(9), the institution reports the
information that relates to the property identified in
Sec. 1003.4(a)(9). For example, Financial Institution A originated a
covered loan that is secured by both property A and property B, each of
which contains a dwelling. Financial Institution A reports the loan as
one entry on its loan/application register, reporting the information
required by Sec. 1003.4(a)(9) for either property A or property B. If
Financial Institution A elects to report the information required by
Sec. 1003.4(a)(9) about property A, Financial Institution A also reports
the information required by Sec. 1003.4(a)(5), (6), (14), (29), and (30)
related to property A. For aspects of the entries that do not refer to
the property identified in Sec. 1003.4(a)(9) (i.e., Sec. 1003.4(a)(1)
through (4), (7), (8), (10) through (13), (15) through (28), (31)
through (38)), Financial Institution A reports the information
applicable to the covered loan or application and not information that
relates only to the property identified in Sec. 1003.4(a)(9).
3. Multifamily dwellings. A single multifamily dwelling may have
more than one postal address. For example, three apartment buildings,
each with a different street address, comprise a single multifamily
dwelling that secures a covered loan. For the purposes of
Sec. 1003.4(a)(9), a financial institution reports the information
required by Sec. 1003.4(a)(9) in the same manner described in comment
4(a)(9)-2.
4. Loans purchased from another institution. The requirement to
report the property location information required by Sec. 1003.4(a)(9)
applies not only to applications and originations but also to purchased
covered loans.
5. Manufactured home. If the site of a manufactured home has not
been identified, a financial institution complies by reporting that the
information required by Sec. 1003.4(a)(9) is not applicable.
Paragraph 4(a)(9)(i)
1. General. Section 1003.4(a)(9)(i) requires a financial institution
to report the property address of the location of the property securing
a covered loan or, in the case of an application, proposed to secure a
covered loan. The address should correspond to the property identified
on the legal obligation related to the covered loan. For applications
that did not result in an origination, the address should correspond to
the location of the property proposed to secure the loan as identified
by the applicant. For example, assume a loan is secured by a property
located at 123 Main Street, and the applicant's or borrower's mailing
address is a post office box. The financial institution should not
report the post office box, and should report 123 Main Street.
2. Property address--format. A financial institution complies with
the requirements in Sec. 1003.4(a)(9)(i) by reporting the following
information about the physical location of the property securing the
loan.
[[Page 142]]
i. Street address. When reporting the street address of the
property, a financial institution complies by including, as applicable,
the primary address number, the predirectional, the street name, street
prefixes and/or suffixes, the postdirectional, the secondary address
identifier, and the secondary address, as applicable. For example, 100 N
Main ST Apt 1.
ii. City name. A financial institution complies by reporting the
name of the city in which the property is located.
iii. State name. A financial institution complies by reporting the
two letter State code for the State in which the property is located,
using the U.S. Postal Service official State abbreviations.
iv. Zip Code. A financial institution complies by reporting the five
or nine digit Zip Code in which the property is located.
3. Property address--not applicable. A financial institution
complies with Sec. 1003.4(a)(9)(i) by indicating that the requirement is
not applicable if the property address of the property securing the
covered loan is not known. For example, if the property did not have a
property address at closing or if the applicant did not provide the
property address of the property to the financial institution before the
application was denied, withdrawn, or closed for incompleteness, the
financial institution complies with Sec. 1003.4(a)(9)(i) by indicating
that the requirement is not applicable.
Paragraph 4(a)(9)(ii)(B)
1. General. A financial institution complies by reporting the five-
digit Federal Information Processing Standards (FIPS) numerical county
code.
Paragraph 4(a)(9)(ii)(C)
1. General. Census tract numbers are defined by the U.S. Census
Bureau. A financial institution complies with Sec. 1003.4(a)(9)(ii)(C)
if it uses the boundaries and codes in effect on January 1 of the
calendar year covered by the loan/application register that it is
reporting.
Paragraph 4(a)(10)(i)
1. Applicant data--general. Refer to appendix B to this part for
instructions on collection of an applicant's ethnicity, race, and sex.
2. Transition rule for applicant data collected prior to January 1,
2018. If a financial institution receives an application prior to
January 1, 2018, but final action is taken on or after January 1, 2018,
the financial institution complies with Sec. 1003.4(a)(10)(i) and (b) if
it collects the information in accordance with the requirements in
effect at the time the information was collected. For example, if a
financial institution receives an application on November 15, 2017,
collects the applicant's ethnicity, race, and sex in accordance with the
instructions in effect on that date, and takes final action on the
application on January 5, 2018, the financial institution has complied
with the requirements of Sec. 1003.4(a)(10)(i) and (b), even though
those instructions changed after the information was collected but
before the date of final action. However, if, in this example, the
financial institution collected the applicant's ethnicity, race, and sex
on or after January 1, 2018, Sec. 1003.4(a)(10)(i) and (b) requires the
financial institution to collect the information in accordance with the
amended instructions.
Paragraph 4(a)(10)(ii)
1. Applicant data--completion by financial institution. A financial
institution complies with Sec. 1003.4(a)(10)(ii) by reporting the
applicant's age, as of the application date under Sec. 1003.4(a)(1)(ii),
as the number of whole years derived from the date of birth as shown on
the application form. For example, if an applicant provides a date of
birth of 01/15/1970 on the application form that the financial
institution receives on 01/14/2015, the institution reports 44 as the
applicant's age.
2. Applicant data--co-applicant. If there are no co-applicants, the
financial institution reports that there is no co-applicant. If there is
more than one co-applicant, the financial institution reports the age
only for the first co-applicant listed on the application form. A co-
applicant may provide an absent co-applicant's age on behalf of the
absent co-applicant.
3. Applicant data--purchased loan. A financial institution complies
with Sec. 1003.4(a)(10)(ii) by reporting that the requirement is not
applicable when reporting a purchased loan for which the institution
chooses not to report the income.
4. Applicant data--non-natural person. A financial institution
complies with Sec. 1003.4(a)(10)(ii) by reporting that the requirement
is not applicable if the applicant or co-applicant is not a natural
person (for example, a corporation, partnership, or trust). For example,
for a transaction involving a trust, a financial institution reports
that the requirement to report the applicant's age is not applicable if
the trust is the applicant. On the other hand, if the applicant is a
natural person, and is the beneficiary of a trust, a financial
institution reports the applicant's age.
5. Applicant data--guarantor. For purposes of
Sec. 1003.4(a)(10)(ii), if a covered loan or application includes a
guarantor, a financial institution does not report the guarantor's age.
Paragraph 4(a)(10)(iii)
1. Income data--income relied on. When a financial institution
evaluates income as part
[[Page 143]]
of a credit decision, it reports the gross annual income relied on in
making the credit decision. For example, if an institution relies on an
applicant's salary to compute a debt-to-income ratio but also relies on
the applicant's annual bonus to evaluate creditworthiness, the
institution reports the salary and the bonus to the extent relied upon.
If an institution relies on only a portion of an applicant's income in
its determination, it does not report that portion of income not relied
on. For example, if an institution, pursuant to lender and investor
guidelines, does not rely on an applicant's commission income because it
has been earned for less than 12 months, the institution does not
include the applicant's commission income in the income reported.
Likewise, if an institution relies on the verified gross income of the
applicant in making the credit decision, then the institution reports
the verified gross income. Similarly, if an institution relies on the
income of a cosigner to evaluate creditworthiness, the institution
includes the cosigner's income to the extent relied upon. An
institution, however, does not include the income of a guarantor who is
only secondarily liable.
2. Income data--co-applicant. If two persons jointly apply for a
covered loan and both list income on the application, but the financial
institution relies on the income of only one applicant in evaluating
creditworthiness, the institution reports only the income relied on.
3. Income data--loan to employee. A financial institution complies
with Sec. 1003.4(a)(10)(iii) by reporting that the requirement is not
applicable for a covered loan to, or an application from, its employee
to protect the employee's privacy, even though the institution relied on
the employee's income in making the credit decision.
4. Income data--assets. A financial institution does not include as
income amounts considered in making a credit decision based on factors
that an institution relies on in addition to income, such as amounts
derived from annuitization or depletion of an applicant's remaining
assets.
5. Income data--credit decision not made. Section 1003.4(a)(10)(iii)
requires a financial institution to report the gross annual income
relied on in processing the application if a credit decision was not
made. For example, assume an institution received an application that
included an applicant's self-reported income, but the application was
withdrawn before a credit decision that would have considered income was
made. The financial institution reports the income information relied on
in processing the application at the time that the application was
withdrawn or the file was closed for incompleteness.
6. Income data--credit decision not requiring consideration of
income. A financial institution complies with Sec. 1003.4(a)(10)(iii) by
reporting that the requirement is not applicable if the application did
not or would not have required a credit decision that considered income
under the financial institution's policies and procedures. For example,
if the financial institution's policies and procedures do not consider
income for a streamlined refinance program, the institution reports that
the requirement is not applicable, even if the institution received
income information from the applicant.
7. Income data--non-natural person. A financial institution reports
that the requirement is not applicable when the applicant or co-
applicant is not a natural person (e.g., a corporation, partnership, or
trust). For example, for a transaction involving a trust, a financial
institution reports that the requirement to report income data is not
applicable if the trust is the applicant. On the other hand, if the
applicant is a natural person, and is the beneficiary of a trust, a
financial institution is required to report the information described in
Sec. 1003.4(a)(10)(iii).
8. Income data--multifamily properties. A financial institution
complies with Sec. 1003.4(a)(10)(iii) by reporting that the requirement
is not applicable when the covered loan is secured by, or application is
proposed to be secured by, a multifamily dwelling.
9. Income data--purchased loans. A financial institution complies
with Sec. 1003.4(a)(10)(iii) by reporting that the requirement is not
applicable when reporting a purchased covered loan for which the
institution chooses not to report the income.
10. Income data--rounding. A financial institution complies by
reporting the dollar amount of the income in thousands, rounded to the
nearest thousand ($500 rounds up to the next $1,000). For example,
$35,500 is reported as 36.
Paragraph 4(a)(11)
1. Type of purchaser--loan-participation interests sold to more than
one entity. A financial institution that originates a covered loan, and
then sells it to more than one entity, reports the ``type of purchaser''
based on the entity purchasing the greatest interest, if any. For
purposes of Sec. 1003.4(a)(11), if a financial institution sells some
interest or interests in a covered loan but retains a majority interest
in that loan, it does not report the sale.
2. Type of purchaser--swapped covered loans. Covered loans
``swapped'' for mortgage-backed securities are to be treated as sales;
the purchaser is the entity receiving the covered loans that are
swapped.
3. Type of purchaser--affiliate institution. For purposes of
complying with Sec. 1003.4(a)(11), the term ``affiliate'' means any
company that controls, is controlled by, or is
[[Page 144]]
under common control with, another company, as set forth in the Bank
Holding Company Act of 1956 (12 U.S.C. 1841 et seq.).
4. Type of purchaser--private securitizations. A financial
institution that knows or reasonably believes that the covered loan it
is selling will be securitized by the entity purchasing the covered
loan, other than by one of the government-sponsored enterprises, reports
the purchasing entity type as a private securitizer regardless of the
type or affiliation of the purchasing entity. Knowledge or reasonable
belief could, for example, be based on the purchase agreement or other
related documents, the financial institution's previous transactions
with the purchaser, or the purchaser's role as a securitizer (such as an
investment bank). If a financial institution selling a covered loan does
not know or reasonably believe that the purchaser will securitize the
loan, and the seller knows that the purchaser frequently holds or
disposes of loans by means other than securitization, then the financial
institution should report the covered loan as purchased by, as
appropriate, a commercial bank, savings bank, savings association, life
insurance company, credit union, mortgage company, finance company,
affiliate institution, or other type of purchaser.
5. Type of purchaser--mortgage company. For purposes of complying
with Sec. 1003.4(a)(11), a mortgage company means a nondepository
institution that purchases covered loans and typically originates such
loans. A mortgage company might be an affiliate or a subsidiary of a
bank holding company or thrift holding company, or it might be an
independent mortgage company. Regardless, a financial institution
reports the purchasing entity type as a mortgage company, unless the
mortgage company is an affiliate of the seller institution, in which
case the seller institution should report the loan as purchased by an
affiliate institution.
6. Purchases by subsidiaries. A financial institution that sells a
covered loan to its subsidiary that is a commercial bank, savings bank,
or savings association, should report the covered loan as purchased by a
commercial bank, savings bank, or savings association. A financial
institution that sells a covered loan to its subsidiary that is a life
insurance company, should report the covered loan as purchased by a life
insurance company. A financial institution that sells a covered loan to
its subsidiary that is a credit union, mortgage company, or finance
company, should report the covered loan as purchased by a credit union,
mortgage company, or finance company. If the subsidiary that purchases
the covered loan is not a commercial bank, savings bank, savings
association, life insurance company, credit union, mortgage company, or
finance company, the seller institution should report the loan as
purchased by other type of purchaser. The financial institution should
report the covered loan as purchased by an affiliate institution when
the subsidiary is an affiliate of the seller institution.
7. Type of purchaser--bank holding company or thrift holding
company. When a financial institution sells a covered loan to a bank
holding company or thrift holding company (rather than to one of its
subsidiaries), it should report the loan as purchased by other type of
purchaser, unless the bank holding company or thrift holding company is
an affiliate of the seller institution, in which case the seller
institution should report the loan as purchased by an affiliate
institution.
8. Repurchased covered loans. See comment 4(a)-5 regarding reporting
requirements when a covered loan is repurchased by the originating
financial institution.
9. Type of purchaser--quarterly recording. For purposes of recording
the type of purchaser within 30 calendar days after the end of the
calendar quarter pursuant to Sec. 1003.4(f), a financial institution
records that the requirement is not applicable if the institution
originated or purchased a covered loan and did not sell it during the
calendar quarter for which the institution is recording the data. If the
financial institution sells the covered loan in a subsequent quarter of
the same calendar year, the financial institution records the type of
purchaser on its loan/application register for the quarter in which the
covered loan was sold. If a financial institution sells the covered loan
in a succeeding year, the financial institution should not record the
sale.
10. Type of purchaser--not applicable. A financial institution
reports that the requirement is not applicable for applications that
were denied, withdrawn, closed for incompleteness or approved but not
accepted by the applicant; and for preapproval requests that were denied
or approved but not accepted by the applicant. A financial institution
also reports that the requirement is not applicable if the institution
originated or purchased a covered loan and did not sell it during that
same calendar year.
Paragraph 4(a)(12)
1. Average prime offer rate. Average prime offer rates are annual
percentage rates derived from average interest rates, points, and other
loan pricing terms offered to borrowers by a representative sample of
lenders for mortgage loans that have low-risk pricing characteristics.
Other pricing terms include commonly used indices, margins, and initial
fixed-rate periods for variable-rate transactions. Relevant pricing
characteristics include a consumer's credit history and transaction
characteristics such as the loan-to-value ratio, owner-occupant status,
and purpose of the transaction. To obtain average prime offer rates, the
Bureau uses a survey of lenders that both meets the criteria of
[[Page 145]]
Sec. 1003.4(a)(12)(ii) and provides pricing terms for at least two types
of variable-rate transactions and at least two types of non-variable-
rate transactions. An example of such a survey is the Freddie Mac
Primary Mortgage Market Survey[supreg].
2. Bureau tables. The Bureau publishes on the FFIEC's Web site
(http://www.ffiec.gov/hmda), in tables entitled ``Average Prime Offer
Rates-Fixed'' and ``Average Prime Offer Rates-Adjustable,'' current and
historic average prime offer rates for a wide variety of closed-end
transaction types. The Bureau calculates an annual percentage rate,
consistent with Regulation Z (see 12 CFR 1026.22 and part 1026, appendix
J), for each transaction type for which pricing terms are available from
the survey described in comment 4(a)(12)-1. The Bureau uses loan pricing
terms available in the survey and other information to estimate annual
percentage rates for other types of transactions for which direct survey
data are not available. The Bureau publishes on the FFIEC's Web site the
methodology it uses to arrive at these estimates. A financial
institution may either use the average prime offer rates published by
the Bureau or may determine average prime offer rates itself by
employing the methodology published on the FFIEC Web site. A financial
institution that determines average prime offer rates itself, however,
is responsible for correctly determining the rates in accordance with
the published methodology.
3. Rate spread calculation--annual percentage rate. The requirements
of Sec. 1003.4(a)(12)(i) refer to the covered loan's annual percentage
rate. A financial institution complies with Sec. 1003.4(a)(12)(i) by
relying on the annual percentage rate for the covered loan, as
calculated and disclosed pursuant to Regulation Z, 12 CFR 1026.18 or
1026.38 (for closed-end mortgage loans) or 1026.40 (for open-end credit
lines of credit), as applicable.
4. Rate spread calculation--comparable transaction. The rate spread
calculation in Sec. 1003.4(a)(12)(i) is defined by reference to a
comparable transaction, which is determined according to the covered
loan's amortization type (i.e., fixed- or variable-rate) and loan term.
For covered loans that are open-end lines of credit,
Sec. 1003.4(a)(12)(i) requires a financial institution to identify the
most closely comparable closed-end transaction. The tables of average
prime offer rates published by the Bureau (see comment 4(a)(12)-2)
provide additional detail about how to identify the comparable
transaction.
i. Fixed-rate transactions. For fixed-rate covered loans, the term
for identifying the comparable transaction is the transaction's maturity
(i.e., the period until the last payment will be due under the closed-
end mortgage loan contract or open-end line of credit agreement). If an
open-end credit plan has a fixed rate but no definite plan length, a
financial institution complies with Sec. 1003.4(a)(12)(i) by using a 30-
year fixed-rate loan as the most closely comparable closed-end
transaction. Financial institutions may refer to the table on the FFIEC
Web site entitled ``Average Prime Offer Rates-Fixed'' when identifying a
comparable fixed-rate transaction.
ii. Variable-rate transactions. For variable-rate covered loans, the
term for identifying the comparable transaction is the initial, fixed-
rate period (i.e., the period until the first scheduled rate
adjustment). For example, five years is the relevant term for a
variable-rate transaction with a five-year, fixed-rate introductory
period that is amortized over thirty years. Financial institutions may
refer to the table on the FFIEC Web site entitled ``Average Prime Offer
Rates-Variable'' when identifying a comparable variable-rate
transaction. If an open-end line of credit has a variable rate and an
optional, fixed-rate feature, a financial institution uses the rate
table for variable-rate transactions.
iii. Term not in whole years. When a covered loan's term to maturity
(or, for a variable-rate transaction, the initial fixed-rate period) is
not in whole years, the financial institution uses the number of whole
years closest to the actual loan term or, if the actual loan term is
exactly halfway between two whole years, by using the shorter loan term.
For example, for a loan term of ten years and three months, the relevant
term is ten years; for a loan term of ten years and nine months, the
relevant term is 11 years; for a loan term of ten years and six months,
the relevant term is ten years. If a loan term includes an odd number of
days, in addition to an odd number of months, the financial institution
rounds to the nearest whole month, or rounds down if the number of odd
days is exactly halfway between two months. The financial institution
rounds to one year any covered loan with a term shorter than six months,
including variable-rate covered loans with no initial, fixed-rate
periods. For example, if an open-end covered loan has a rate that varies
according to an index plus a margin, with no introductory, fixed-rate
period, the transaction term is one year.
iv. Amortization period longer than loan term. If the amortization
period of a covered loan is longer than the term of the transaction to
maturity, Sec. 1003.4(a)(12)(i) requires a financial institution to use
the loan term to determine the applicable average prime offer rate. For
example, assume a financial institution originates a closed-end, fixed-
rate loan that has a term to maturity of five years and a thirty-year
amortization period that results in a balloon payment. The financial
institution complies with Sec. 1003.4(a)(12)(i) by using the five-year
loan term.
5. Rate-set date. The relevant date to use to determine the average
prime offer rate for a
[[Page 146]]
comparable transaction is the date on which the covered loan's interest
rate was set by the financial institution for the final time before
closing or account opening.
i. Rate-lock agreement. If an interest rate is set pursuant to a
``lock-in'' agreement between the financial institution and the
borrower, then the date on which the agreement fixes the interest rate
is the date the rate was set. Except as provided in comment 4(a)(12)-
5.ii, if a rate is reset after a lock-in agreement is executed (for
example, because the borrower exercises a float-down option or the
agreement expires), then the relevant date is the date the financial
institution exercises discretion in setting the rate for the final time
before closing or account opening. The same rule applies when a rate-
lock agreement is extended and the rate is reset at the same rate,
regardless of whether market rates have increased, decreased, or
remained the same since the initial rate was set. If no lock-in
agreement is executed, then the relevant date is the date on which the
institution sets the rate for the final time before closing or account
opening.
ii. Change in loan program. If a financial institution issues a
rate-lock commitment under one loan program, the borrower subsequently
changes to another program that is subject to different pricing terms,
and the financial institution changes the rate promised to the borrower
under the rate-lock commitment accordingly, the rate-set date is the
date of the program change. However, if the financial institution
changes the promised rate to the rate that would have been available to
the borrower under the new program on the date of the original rate-lock
commitment, then that is the date the rate is set, provided the
financial institution consistently follows that practice in all such
cases or the original rate-lock agreement so provided. For example,
assume that a borrower locks a rate of 2.5 percent on June 1 for a 30-
year, variable-rate loan with a 5-year, fixed-rate introductory period.
On June 15, the borrower decides to switch to a 30-year, fixed-rate
loan, and the rate available to the borrower for that product on June 15
is 4.0 percent. On June 1, the 30-year, fixed-rate loan would have been
available to the borrower at a rate of 3.5 percent. If the financial
institution offers the borrower the 3.5 percent rate (i.e., the rate
that would have been available to the borrower for the fixed-rate
product on June 1, the date of the original rate-lock) because the
original agreement so provided or because the financial institution
consistently follows that practice for borrowers who change loan
programs, then the financial institution should use June 1 as the rate-
set date. In all other cases, the financial institution should use June
15 as the rate-set date.
iii. Brokered loans. When a financial institution has reporting
responsibility for an application for a covered loan that it received
from a broker, as discussed in comment 4(a)-4 (e.g., because the
financial institution makes a credit decision prior to closing or
account opening), the rate-set date is the last date the financial
institution set the rate with the broker, not the date the broker set
the borrower's rate.
6. Compare the annual percentage rate to the average prime offer
rate. Section 1003.4(a)(12)(i) requires a financial institution to
compare the covered loan's annual percentage rate to the most recently
available average prime offer rate that was in effect for the comparable
transaction as of the rate-set date. For purposes of
Sec. 1003.4(a)(12)(i), the most recently available rate means the
average prime offer rate set forth in the applicable table with the most
recent effective date as of the date the interest rate was set. However,
Sec. 1003.4(a)(12)(i) does not permit a financial institution to use an
average prime offer rate before its effective date.
7. Rate spread--not applicable. If the covered loan is an
assumption, reverse mortgage, a purchased loan, or is not subject to
Regulation Z, 12 CFR part 1026, a financial institution complies with
Sec. 1003.4(a)(12) by reporting that the requirement is not applicable.
If the application did not result in an origination for a reason other
than the application was approved but not accepted by the applicant, a
financial institution complies with Sec. 1003.4(a)(12) by reporting that
the requirement is not applicable.
8. Application approved but not accepted or preapproval request
approved but not accepted. In the case of an application approved but
not accepted or a preapproval request that was approved but not
accepted, Sec. 1003.4(a)(12) requires a financial institution to report
the applicable rate spread.
Paragraph 4(a)(13)
1. HOEPA status--not applicable. If the covered loan is not subject
to the Home Ownership and Equity Protection Act of 1994, as implemented
in Regulation Z, 12 CFR 1026.32, a financial institution complies with
Sec. 1003.4(a)(13) by reporting that the requirement is not applicable.
If an application did not result in an origination, a financial
institution complies with Sec. 1003.4(a)(13) by reporting that the
requirement is not applicable.
Paragraph 4(a)(14)
1. Determining lien status for applications and covered loans
originated and purchased. i. Financial institutions are required to
report lien status for covered loans they originate and purchase and
applications that do not result in originations (preapproval requests
that are approved but not accepted,
[[Page 147]]
preapproval requests that are denied, applications that are approved but
not accepted, denied, withdrawn, or closed for incompleteness). For
covered loans purchased by a financial institution, lien status is
determined by reference to the best information readily available to the
financial institution at the time of purchase. For covered loans that a
financial institution originates and applications that do not result in
originations, lien status is determined by reference to the best
information readily available to the financial institution at the time
final action is taken and to the financial institution's own procedures.
Thus, financial institutions may rely on the title search they routinely
perform as part of their underwriting procedures--for example, for home
purchase loans. Regulation C does not require financial institutions to
perform title searches solely to comply with HMDA reporting
requirements. Financial institutions may rely on other information that
is readily available to them at the time final action is taken and that
they reasonably believe is accurate, such as the applicant's statement
on the application or the applicant's credit report. For example, where
the applicant indicates on the application that there is a mortgage on
the property or where the applicant's credit report shows that the
applicant has a mortgage--and that mortgage will not be paid off as part
of the transaction--the financial institution may assume that the loan
it originates is secured by a subordinate lien. If the same application
did not result in an origination--for example, because the application
was denied or withdrawn--the financial institution would report the
application as an application for a subordinate-lien loan.
ii. Financial institutions may also consider their established
procedures when determining lien status for applications that do not
result in originations. For example, assume an applicant applies to a
financial institution to refinance a $100,000 first mortgage; the
applicant also has an open-end line of credit for $20,000. If the
financial institution's practice in such a case is to ensure that it
will have first-lien position--through a subordination agreement with
the holder of the lien securing the open-end line of credit--then the
financial institution should report the application as an application
for a first-lien covered loan.
2. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
Paragraph 4(a)(15)
1. Credit score--relied on. Except for purchased covered loans,
Sec. 1003.4(a)(15) requires a financial institution to report the credit
score or scores relied on in making the credit decision and information
about the scoring model used to generate each score. A financial
institution relies on a credit score in making the credit decision if
the credit score was a factor in the credit decision even if it was not
a dispositive factor. For example, if a credit score is one of multiple
factors in a financial institution's credit decision, the financial
institution has relied on the credit score even if the financial
institution denies the application because one or more underwriting
requirements other than the credit score are not satisfied.
2. Credit score--multiple credit scores. When a financial
institution obtains or creates two or more credit scores for a single
applicant or borrower but relies on only one score in making the credit
decision (for example, by relying on the lowest, highest, most recent,
or average of all of the scores), the financial institution complies
with Sec. 1003.4(a)(15) by reporting that credit score and information
about the scoring model used. When a financial institution obtains or
creates two or more credit scores for an applicant or borrower and
relies on multiple scores for the applicant or borrower in making the
credit decision (for example, by relying on a scoring grid that
considers each of the scores obtained or created for the applicant or
borrower without combining the scores into a composite score),
Sec. 1003.4(a)(15) requires the financial institution to report one of
the credit scores for the applicant or borrower that was relied on in
making the credit decision. In choosing which credit score to report in
this circumstance, a financial institution need not use the same
approach for its entire HMDA submission, but it should be generally
consistent (such as by routinely using one approach within a particular
division of the institution or for a category of covered loans). In
instances such as these, the financial institution should report the
name and version of the credit scoring model for the score reported.
3. Credit score--multiple applicants or borrowers. In a transaction
involving two or more applicants or borrowers for which the financial
institution obtains or creates a single credit score, and relies on that
credit score in making the credit decision for the transaction, the
institution complies with Sec. 1003.4(a)(15) by reporting that credit
score for either the applicant or first co-applicant. Otherwise, a
financial institution complies with Sec. 1003.4(a)(15) by reporting a
credit score for the applicant that it relied on in making the credit
decision, if any, and a credit score for the first co-applicant that it
relied on in making the credit decision, if any. To illustrate, assume a
transaction involves one applicant and one co-applicant and that the
financial institution obtains or creates two credit scores for the
applicant and two credit scores for the co-applicant. Assume further
that the financial institution relies on the lowest, highest, most
recent, or average of
[[Page 148]]
all of the credit scores obtained or created to make the credit decision
for the transaction. The financial institution complies with
Sec. 1003.4(a)(15) by reporting that credit score and information about
the scoring model used. Alternatively, assume a transaction involves one
applicant and one co-applicant and that the financial institution
obtains or creates three credit scores for the applicant and three
credit scores for the co-applicant. Assume further that the financial
institution relies on the middle credit score for the applicant and the
middle credit score for the co-applicant to make the credit decision for
the transaction. The financial institution complies with
Sec. 1003.4(a)(15) by reporting both the middle score for the applicant
and the middle score for the co-applicant.
4. Transactions for which no credit decision was made. If a file was
closed for incompleteness or the application was withdrawn before a
credit decision was made, the financial institution complies with
Sec. 1003.4(a)(15) by reporting that the requirement is not applicable,
even if the financial institution had obtained or created a credit score
for the applicant or co-applicant. For example, if a file is closed for
incompleteness and is so reported in accordance with Sec. 1003.4(a)(8),
the financial institution complies with Sec. 1003.4(a)(15) by reporting
that the requirement is not applicable, even if the financial
institution had obtained or created a credit score for the applicant or
co-applicant. Similarly, if an application was withdrawn by the
applicant before a credit decision was made and is so reported in
accordance with Sec. 1003.4(a)(8), the financial institution complies
with Sec. 1003.4(a)(15) by reporting that the requirement is not
applicable, even if the financial institution had obtained or created a
credit score for the applicant or co-applicant.
5. Transactions for which no credit score was relied on. If a
financial institution makes a credit decision without relying on a
credit score for the applicant or borrower, the financial institution
complies with Sec. 1003.4(a)(15) by reporting that the requirement is
not applicable.
6. Purchased covered loan. A financial institution complies with
Sec. 1003.4(a)(15) by reporting that the requirement is not applicable
when the covered loan is a purchased covered loan.
7. Non-natural person. When the applicant and co-applicant, if
applicable, are not natural persons, a financial institution complies
with Sec. 1003.4(a)(15) by reporting that the requirement is not
applicable.
Paragraph 4(a)(16)
1. Reason for denial--general. A financial institution complies with
Sec. 1003.4(a)(16) by reporting the principal reason or reasons it
denied the application, indicating up to four reasons. The financial
institution should report only the principal reason or reasons it denied
the application, even if there are fewer than four reasons. For example,
if a financial institution denies the application because of the
applicant's credit history and debt-to-income ratio, the financial
institution need only report these two principal reasons. The reasons
reported must be specific and accurately describe the principal reason
or reasons the financial institution denied the application.
2. Reason for denial--preapproval request denied. Section
1003.4(a)(16) requires a financial institution to report the principal
reason or reasons it denied the application. A request for a preapproval
under a preapproval program as defined by Sec. 1003.2(b)(2) is an
application. If a financial institution denies a preapproval request,
the financial institution complies with Sec. 1003.4(a)(16) by reporting
the reason or reasons it denied the preapproval request.
3. Reason for denial--adverse action model form or similar form. If
a financial institution chooses to provide the applicant the reason or
reasons it denied the application using the model form contained in
appendix C to Regulation B (Form C-1, Sample Notice of Action Taken and
Statement of Reasons) or a similar form, Sec. 1003.4(a)(16) requires the
financial institution to report the reason or reasons that were
specified on the form by the financial institution, which includes
reporting the ``Other'' reason or reasons that were specified on the
form by the financial institution, if applicable. If a financial
institution chooses to provide a disclosure of the applicant's right to
a statement of specific reasons using the model form contained in
appendix C to Regulation B (Form C-5, Sample Disclosure of Right to
Request Specific Reasons for Credit Denial) or a similar form, or
chooses to provide the denial reason or reasons orally under Regulation
B, 12 CFR 1002.9(a)(2)(ii), the financial institution complies with
Sec. 1003.4(a)(16) by entering the principal reason or reasons it denied
the application.
4. Reason for denial--not applicable. A financial institution
complies with Sec. 1003.4(a)(16) by reporting that the requirement is
not applicable if the action taken on the application, pursuant to
Sec. 1003.4(a)(8), is not a denial. For example, a financial institution
complies with Sec. 1003.4(a)(16) by reporting that the requirement is
not applicable if the loan is originated or purchased by the financial
institution, or the application or preapproval request was approved but
not accepted, or the application was withdrawn before a credit decision
was made, or the file was closed for incompleteness.
Paragraph 4(a)(17)(i)
1. Total loan costs--not applicable. Section 1003.4(a)(17)(i) does
not require financial institutions to report the total loan costs for
applications, or for transactions not subject to Regulation Z, 12 CFR
1026.43(c), and 12
[[Page 149]]
CFR 1026.19(f), such as open-end lines of credit, reverse mortgages, or
loans or lines of credit made primarily for business or commercial
purposes. In these cases, a financial institution complies with
Sec. 1003.4(a)(17)(i) by reporting that the requirement is not
applicable to the transaction.
2. Purchased loans--applications received prior to the integrated
disclosure effective date. For purchased covered loans subject to this
reporting requirement for which applications were received by the
selling entity prior to the effective date of Regulation Z, 12 CFR
1026.19(f), a financial institution complies with Sec. 1003.4(a)(17)(i)
by reporting that the requirement is not applicable to the transaction.
3. Revised disclosures. If the amount of total loan costs changes
because a financial institution provides a revised version of the
disclosures required under Regulation Z, 12 CFR 1026.19(f), pursuant to
Regulation Z, 12 CFR 1026.19(f)(2), the financial institution complies
with Sec. 1003.4(a)(17)(i) by reporting the revised amount, provided
that the revised disclosure was provided to the borrower during the same
reporting period in which closing occurred. For example, in the case of
a financial institution's quarterly submission made pursuant to
Sec. 1003.5(a)(1)(ii), if the financial institution provides a corrected
disclosure to reflect a refund made pursuant to Regulation Z, 12 CFR
1026.19(f)(2)(v), the financial institution reports the corrected amount
of total loan costs only if the corrected disclosure was provided prior
to the end of the quarter in which closing occurred. The financial
institution does not report the corrected amount of total loan costs in
its quarterly submission if the corrected disclosure was provided after
the end of the quarter, even if the corrected disclosure was provided
prior to the deadline for timely submission of the financial
institution's quarterly data. However, the financial institution reports
the corrected amount of total loan costs on its annual loan/application
register.
Paragraph 4(a)(17)(ii)
1. Total points and fees--not applicable. Section 1003.4(a)(17)(ii)
does not require financial institutions to report the total points and
fees for transactions not subject to Regulation Z, 12 CFR 1026.43(c),
such as open-end lines of credit, reverse mortgages, or loans or lines
of credit made primarily for business or commercial purposes, or for
applications or purchased covered loans. In these cases, a financial
institution complies with Sec. 1003.4(a)(17)(ii) by reporting that the
requirement is not applicable to the transaction.
2. Total points and fees cure mechanism. For covered loans subject
to this reporting requirement, if a financial institution determines
that the transaction's total points and fees exceeded the applicable
limit and cures the overage pursuant to Regulation Z, 12 CFR
1026.43(e)(3)(iii) and (iv), a financial institution complies with
Sec. 1003.4(a)(17)(ii) by reporting the correct amount of total points
and fees, provided that the cure was effected during the same reporting
period in which closing occurred. For example, in the case of a
financial institution's quarterly submission, the financial institution
reports the revised amount of total points and fees only if it cured the
overage prior to the end of the quarter in which closing occurred. The
financial institution does not report the revised amount of total points
and fees in its quarterly submission if it cured the overage after the
end of the quarter, even if the cure was effected prior to the deadline
for timely submission of the financial institution's quarterly data.
However, the financial institution reports the revised amount of total
points and fees on its annual loan/application register.
Paragraph 4(a)(18)
1. Origination charges--not applicable. Section 1003.4(a)(18) does
not require financial institutions to report the total borrower-paid
origination charges for applications, or for transactions not subject to
Regulation Z, 12 CFR 1026.19(f), such as open-end lines of credit,
reverse mortgages, or loans or lines of credit made primarily for
business or commercial purposes. In these cases, a financial institution
complies with Sec. 1003.4(a)(18) by reporting that the requirement is
not applicable to the transaction.
2. Purchased loans--applications received prior to the integrated
disclosure effective date. For purchased covered loans subject to this
reporting requirement for which applications were received by the
selling entity prior to the effective date of Regulation Z, 12 CFR
1026.19(f), a financial institution complies with Sec. 1003.4(a)(18) by
reporting that the requirement is not applicable to the transaction.
3. Revised disclosures. If the total amount of borrower-paid
origination charges changes because a financial institution provides a
revised version of the disclosures required under Regulation Z, 12 CFR
1026.19(f), pursuant to Regulation Z, 12 CFR 1026.19(f)(2), the
financial institution complies with Sec. 1003.4(a)(18) by reporting the
revised amount, provided that the revised disclosure was provided to the
borrower during the same reporting period in which closing occurred. For
example, in the case of a financial institution's quarterly submission
made pursuant to Sec. 1003.5(a)(1)(ii), if the financial institution
provides a corrected disclosure to reflect a refund made pursuant to
Regulation
[[Page 150]]
Z, 12 CFR 1026.19(f)(2)(v), the financial institution reports the
corrected amount of origination charges only if the corrected disclosure
was provided prior to the end of the quarter in which closing occurred.
The financial institution does not report the corrected amount of
origination charges in its quarterly submission if the corrected
disclosure was provided after the end of the quarter, even if the
corrected disclosure was provided prior to the deadline for timely
submission of the financial institution's quarterly data. However, the
financial institution reports the corrected amount of origination
charges on its annual loan/application register.
Paragraph 4(a)(19)
1. Discount points--not applicable. Section 1003.4(a)(19) does not
require financial institutions to report the discount points for
applications, or for transactions not subject to Regulation Z, 12 CFR
1026.19(f), such as open-end lines of credit, reverse mortgages, or
loans or lines of credit made primarily for business or commercial
purposes. In these cases, a financial institution complies with
Sec. 1003.4(a)(19) by reporting that the requirement is not applicable
to the transaction.
2. Purchased loans--applications received prior to the integrated
disclosure effective date. For purchased covered loans subject to this
reporting requirement for which applications were received by the
selling entity prior to the effective date of Regulation Z, 12 CFR
1026.19(f), a financial institution complies with Sec. 1003.4(a)(19) by
reporting that the requirement is not applicable to the transaction.
3. Revised disclosures. If the amount of discount points changes
because a financial institution provides a revised version of the
disclosures required under Regulation Z, 12 CFR 1026.19(f), pursuant to
Regulation Z, 12 CFR 1026.19(f)(2), the financial institution complies
with Sec. 1003.4(a)(19) by reporting the revised amount, provided that
the revised disclosure was provided to the borrower during the same
reporting period in which closing occurred. For example, in the case of
a financial institution's quarterly submission made pursuant to
Sec. 1003.5(a)(ii), if the financial institution provides a corrected
disclosure to reflect a refund made pursuant to Regulation Z, 12 CFR
1026.19(f)(2)(v), the financial institution reports the corrected amount
of discount points only if the corrected disclosure was provided prior
to the end of the quarter in which closing occurred. The financial
institution does not report the corrected amount of discount points in
its quarterly submission if the corrected disclosure was provided after
the end of the quarter, even if the corrected disclosure was provided
prior to the deadline for timely submission of the financial
institution's quarterly data. However, the financial institution reports
the corrected amount of discount points on its annual loan/application
register.
Paragraph 4(a)(20)
1. Lender credits--not applicable. Section 1003.4(a)(20) does not
require financial institutions to report lender credits for
applications, or for transactions not subject to Regulation Z, 12 CFR
1026.19(f), such as open-end lines of credit, reverse mortgages, or
loans or lines of credit made primarily for business or commercial
purposes. In these cases, a financial institution complies with
Sec. 1003.4(a)(20) by reporting that the requirement is not applicable
to the transaction.
2. Purchased loans--applications received prior to the integrated
disclosure effective date. For purchased covered loans subject to this
reporting requirement for which applications were received by the
selling entity prior to the effective date of Regulation Z, 12 CFR
1026.19(f), a financial institution complies with Sec. 1003.4(a)(20) by
reporting that the requirement is not applicable to the transaction.
3. Revised disclosures. If the amount of lender credits changes
because a financial institution provides a revised version of the
disclosures required under Regulation Z, 12 CFR 1026.19(f), pursuant to
Regulation Z, 12 CFR 1026.19(f)(2), the financial institution complies
with Sec. 1003.4(a)(20) by reporting the revised amount, provided that
the revised disclosure was provided to the borrower during the same
reporting period in which closing occurred. For example, in the case of
a financial institution's quarterly submission made pursuant to
Sec. 1003.5(a)(1)(ii), if the financial institution provides a corrected
disclosure to reflect a refund made pursuant to Regulation Z, 12 CFR
1026.19(f)(2)(v), the financial institution reports the corrected amount
of lender credits only if the corrected disclosure was provided prior to
the end of the quarter in which closing occurred. The financial
institution does not report the corrected amount of lender credits in
its quarterly submission if the corrected disclosure was provided after
the end of the quarter, even if the corrected disclosure was provided
prior to the deadline for timely submission of the financial
institution's quarterly data. However, the financial institution reports
the corrected amount of lender credits on its annual loan/application
register.
Paragraph 4(a)(21)
1. Interest rate--disclosures. Section 1003.4(a)(21) requires a
financial institution to identify the interest rate applicable to the
approved application, or to the covered loan at closing or account
opening. For covered loans or applications subject to the disclosure
requirements of Regulation Z, 12 CFR
[[Page 151]]
1026.19(e) or (f), a financial institution complies with
Sec. 1003.4(a)(21) by reporting the interest rate disclosed on the
applicable disclosure. For covered loans for which disclosures were
provided pursuant to both 12 CFR 1026.19(e) and 12 CFR 1026.19(f), a
financial institution reports the interest rate disclosed pursuant to 12
CFR 1026.19(f). A financial institution may rely on the definitions and
commentary to the sections of Regulation Z relevant to the disclosure of
the interest rate pursuant to 12 CFR 1026.19(e) or 12 CFR 1026.19(f).
2. Applications. In the case of an application, Sec. 1003.4(a)(21)
requires a financial institution to report the applicable interest rate
only if the application has been approved by the financial institution
but not accepted by the borrower. In such cases, a financial institution
reports the interest rate applicable at the time that the application
was approved by the financial institution. A financial institution may
report the interest rate appearing on the disclosure provided pursuant
to 12 CFR 1026.19(e) or (f) if such disclosure accurately reflects the
interest rate at the time the application was approved. For applications
that have been denied or withdrawn, or files closed for incompleteness,
a financial institution reports that no interest rate was applicable to
the application.
3. Adjustable rate--interest rate unknown. Except as provided in
comment 4(a)(21)-1, for adjustable-rate covered loans or applications,
if the interest rate is unknown at the time that the application was
approved, or at closing or account opening, a financial institution
reports the fully-indexed rate based on the index applicable to the
covered loan or application. For purposes of Sec. 1003.4(a)(21), the
fully-indexed rate is the index value and margin at the time that the
application was approved, or, for covered loans, at closing or account
opening.
Paragraph 4(a)(22)
1. Prepayment penalty term--not applicable. Section 1003.4(a)(22)
does not require financial institutions to report the term of any
prepayment penalty for transactions not subject to Regulation Z, 12 CFR
part 1026, such as loans or lines of credit made primarily for business
or commercial purposes, or for reverse mortgages or purchased covered
loans. In these cases, a financial institution complies with
Sec. 1003.4(a)(22) by reporting that the requirement is not applicable
to the transaction.
2. Transactions for which no prepayment penalty exists. For covered
loans or applications that have no prepayment penalty, a financial
institution complies with Sec. 1003.4(a)(22) by reporting that the
requirement is not applicable to the transaction. A financial
institution may rely on the definitions and commentary to Regulation Z,
12 CFR 1026.32(b)(6)(i) or (ii) in determining whether the terms of a
transaction contain a prepayment penalty.
Paragraph 4(a)(23)
1. General. For covered loans that are not purchased covered loans,
Sec. 1003.4(a)(23) requires a financial institution to report the ratio
of the applicant's or borrower's total monthly debt to total monthly
income (debt-to-income ratio) relied on in making the credit decision.
For example, if a financial institution calculated the applicant's or
borrower's debt-to-income ratio twice--once according to the financial
institution's own requirements and once according to the requirements of
a secondary market investor--and the financial institution relied on the
debt-to-income ratio calculated according to the secondary market
investor's requirements in making the credit decision,
Sec. 1003.4(a)(23) requires the financial institution to report the
debt-to-income ratio calculated according to the requirements of the
secondary market investor.
2. Transactions for which a debt-to-income ratio was one of multiple
factors. A financial institution relies on the ratio of the applicant's
or borrower's total monthly debt to total monthly income (debt-to-income
ratio) in making the credit decision if the debt-to-income ratio was a
factor in the credit decision even if it was not a dispositive factor.
For example, if the debt-to-income ratio was one of multiple factors in
a financial institution's credit decision, the financial institution has
relied on the debt-to-income ratio and complies with Sec. 1003.4(a)(23)
by reporting the debt-to-income ratio, even if the financial institution
denied the application because one or more underwriting requirements
other than the debt-to-income ratio were not satisfied.
3. Transactions for which no credit decision was made. If a file was
closed for incompleteness, or if an application was withdrawn before a
credit decision was made, a financial institution complies with
Sec. 1003.4(a)(23) by reporting that the requirement is not applicable,
even if the financial institution had calculated the ratio of the
applicant's total monthly debt to total monthly income (debt-to-income
ratio). For example, if a file was closed for incompleteness and was so
reported in accordance with Sec. 1003.4(a)(8), the financial institution
complies with Sec. 1003.4(a)(23) by reporting that the requirement is
not applicable, even if the financial institution had calculated the
applicant's debt-to-income ratio. Similarly, if an application was
withdrawn by the applicant before a credit decision was made, the
financial institution complies with Sec. 1003.4(a)(23) by reporting that
the requirement is not applicable, even if the financial institution had
calculated the applicant's debt-to-income ratio.
4. Transactions for which no debt-to-income ratio was relied on.
Section 1003.4(a)(23) does
[[Page 152]]
not require a financial institution to calculate the ratio of an
applicant's or borrower's total monthly debt to total monthly income
(debt-to-income ratio), nor does it require a financial institution to
rely on an applicant's or borrower's debt-to-income ratio in making a
credit decision. If a financial institution made a credit decision
without relying on the applicant's or borrower's debt-to-income ratio,
the financial institution complies with Sec. 1003.4(a)(23) by reporting
that the requirement is not applicable since no debt-to-income ratio was
relied on in connection with the credit decision.
5. Non-natural person. A financial institution complies with
Sec. 1003.4(a)(23) by reporting that the requirement is not applicable
when the applicant and co-applicant, if applicable, are not natural
persons.
6. Multifamily dwellings. A financial institution complies with
Sec. 1003.4(a)(23) by reporting that the requirement is not applicable
for a covered loan secured by, or an application proposed to be secured
by, a multifamily dwelling.
7. Purchased covered loans. A financial institution complies with
Sec. 1003.4(a)(23) by reporting that the requirement is not applicable
when reporting a purchased covered loan.
Paragraph 4(a)(24)
1. General. Section 1003.4(a)(24) requires a financial institution
to report, except for purchased covered loans, the ratio of the total
amount of debt secured by the property to the value of the property
(combined loan-to-value ratio) relied on in making the credit decision.
For example, if a financial institution calculated a combined loan-to-
value ratio twice--once according to the financial institution's own
requirements and once according to the requirements of a secondary
market investor--and the financial institution relied on the combined
loan-to-value ratio calculated according to the secondary market
investor's requirements in making the credit decision,
Sec. 1003.4(a)(24) requires the financial institution to report the
combined loan-to-value ratio calculated according to the requirements of
the secondary market investor.
2. Transactions for which a combined loan-to-value ratio was one of
multiple factors. A financial institution relies on the total amount of
debt secured by the property to the value of the property (combined
loan-to-value ratio) in making the credit decision if the combined loan-
to-value ratio was a factor in the credit decision even if it was not a
dispositive factor. For example, if the combined loan-to-value ratio is
one of multiple factors in a financial institution's credit decision,
the financial institution has relied on the combined loan-to-value ratio
and complies with Sec. 1003.4(a)(24) by reporting the combined loan-to-
value ratio, even if the financial institution denies the application
because one or more underwriting requirements other than the combined
loan-to-value ratio are not satisfied.
3. Transactions for which no credit decision was made. If a file was
closed for incompleteness, or if an application was withdrawn before a
credit decision was made, a financial institution complies with
Sec. 1003.4(a)(24) by reporting that the requirement is not applicable,
even if the financial institution had calculated the ratio of the total
amount of debt secured by the property to the value of the property
(combined loan-to-value ratio). For example, if a file is closed for
incompleteness and is so reported in accordance with Sec. 1003.4(a)(8),
the financial institution complies with Sec. 1003.4(a)(24) by reporting
that the requirement is not applicable, even if the financial
institution had calculated a combined loan-to-value ratio. Similarly, if
an application was withdrawn by the applicant before a credit decision
was made and is so reported in accordance with Sec. 1003.4(a)(8), the
financial institution complies with Sec. 1003.4(a)(24) by reporting that
the requirement is not applicable, even if the financial institution had
calculated a combined loan-to-value ratio.
4. Transactions for which no combined loan-to-value ratio was relied
on. Section 1003.4(a)(24) does not require a financial institution to
calculate the ratio of the total amount of debt secured by the property
to the value of the property (combined loan-to-value ratio), nor does it
require a financial institution to rely on a combined loan-to-value
ratio in making a credit decision. If a financial institution makes a
credit decision without relying on a combined loan-to-value ratio, the
financial institution complies with Sec. 1003.4(a)(24) by reporting that
the requirement is not applicable since no combined loan-to-value ratio
was relied on in making the credit decision.
5. Purchased covered loan. A financial institution complies with
Sec. 1003.4(a)(24) by reporting that the requirement is not applicable
when the covered loan is a purchased covered loan.
Paragraph 4(a)(25)
1. Amortization and maturity. For a fully amortizing covered loan,
the number of months after which the legal obligation matures is the
number of months in the amortization schedule, ending with the final
payment. Some covered loans do not fully amortize during the maturity
term, such as covered loans with a balloon payment; such loans should
still be reported using the maturity term rather than the amortization
term, even in the case of covered loans that mature before fully
amortizing but have reset options. For example, a 30-year fully
amortizing covered loan would be reported
[[Page 153]]
with a term of ``360,'' while a five year balloon covered loan would be
reported with a loan term of ``60.''
2. Non-monthly repayment periods. If a covered loan or application
includes a schedule with repayment periods measured in a unit of time
other than months, the financial institution should report the covered
loan or application term using an equivalent number of whole months
without regard for any remainder.
3. Purchased loans. For a covered loan that was purchased, a
financial institution reports the number of months after which the legal
obligation matures as measured from the covered loan's origination.
4. Open-end line of credit. For an open-end line of credit with a
definite term, a financial institution reports the number of months from
origination until the account termination date, including both the draw
and repayment period.
5. Loan or application without a definite term. For a covered loan
or application without a definite term, such as a reverse mortgage, a
financial institution complies with Sec. 1003.4(a)(25) by reporting that
the requirement is not applicable.
Paragraph 4(a)(26)
1. Types of introductory rates. Section 1003.4(a)(26) requires a
financial institution to report the number of months, or proposed number
of months in the case of an application, from closing or account opening
until the first date the interest rate may change. For example, assume
an open-end line of credit contains an introductory or ``teaser''
interest rate for two months after the date of account opening, after
which the interest rate may adjust. In this example, the financial
institution complies with Sec. 1003.4(a)(26) by reporting the number of
months as ``2.'' Section 1003.4(a)(26) requires a financial institution
to report the number of months based on when the first interest rate
adjustment may occur, even if an interest rate adjustment is not
required to occur at that time and even if the rates that will apply, or
the periods for which they will apply, are not known at closing or
account opening. For example, if a closed-end mortgage loan with a 30-
year term has an adjustable-rate product with an introductory interest
rate for the first 60 months, after which the interest rate is
permitted, but not required to vary, according to the terms of an index
rate, the financial institution complies with Sec. 1003.4(a)(26) by
reporting the number of months as ``60.'' Similarly, if a closed-end
mortgage loan with a 30-year term is a step-rate product with an
introductory interest rate for the first 24 months, after which the
interest rate will increase to a different known interest rate for the
next 36 months, the financial institution complies with
Sec. 1003.4(a)(26) by reporting the number of months as ``24.''
2. Preferred rates. Section 1003.4(a)(26) does not require reporting
of introductory interest rate periods based on preferred rates unless
the terms of the legal obligation provide that the preferred rate will
expire at a certain defined date. Preferred rates include terms of the
legal obligation that provide that the initial underlying rate is fixed
but that it may increase or decrease upon the occurrence of some future
event, such as an employee leaving the employ of the financial
institution, the borrower closing an existing deposit account with the
financial institution, or the borrower revoking an election to make
automated payments. In these cases, because it is not known at the time
of closing or account opening whether the future event will occur, and
if so, when it will occur, Sec. 1003.4(a)(26) does not require reporting
of an introductory interest rate period.
3. Loan or application with a fixed rate. A financial institution
complies with Sec. 1003.4(a)(26) by reporting that the requirement is
not applicable for a covered loan with a fixed rate or an application
for a covered loan with a fixed rate.
4. Purchased loan. A financial institution complies with
Sec. 1003.4(a)(26) by reporting that requirement is not applicable when
the covered loan is a purchased covered loan with a fixed rate.
Paragraph 4(a)(27)
1. General. Section 1003.4(a)(27) requires reporting of contractual
features that would allow payments other than fully amortizing payments.
Section 1003.4(a)(27) defines the contractual features by reference to
Regulation Z, 12 CFR part 1026, but without regard to whether the
covered loan is consumer credit, as defined in Sec. 1026.2(a)(12), is
extended by a creditor, as defined in Sec. 1026.2(a)(17), or is extended
to a consumer, as defined in Sec. 1026.2(a)(11), and without regard to
whether the property is a dwelling as defined in Sec. 1026.2(a)(19). For
example, assume that a financial institution originates a business-
purpose transaction that is exempt from Regulation Z pursuant to 12 CFR
1026.3(a)(1), to finance the purchase of a multifamily dwelling, and
that there is a balloon payment, as defined by Regulation Z, 12 CFR
1026.18(s)(5)(i), at the end of the loan term. The multifamily dwelling
is a dwelling under Sec. 1003.2(f), but not under Regulation Z, 12 CFR
1026.2(a)(19). In this example, the financial institution should report
the business-purpose transaction as having a balloon payment under
Sec. 1003.4(a)(27)(i), assuming the other requirements of this part are
met. Aside from these distinctions, financial institutions may rely on
the definitions and related commentary provided in the appropriate
sections of Regulation Z referenced in Sec. 1003.4(a)(27) of this part
in determining
[[Page 154]]
whether the contractual feature should be reported.
Paragraph 4(a)(28).
1. General. A financial institution reports the property value
relied on in making the credit decision. For example, if the institution
relies on an appraisal or other valuation for the property in
calculating the loan-to-value ratio, it reports that value; if the
institution relies on the purchase price of the property in calculating
the loan-to-value ratio, it reports that value.
2. Multiple property values. When a financial institution obtains
two or more valuations of the property securing or proposed to secure
the covered loan, the financial institution complies with
Sec. 1003.4(a)(28) by reporting the value relied on in making the credit
decision. For example, when a financial institution obtains an
appraisal, an automated valuation model report, and a broker price
opinion with different values for the property, it reports the value
relied on in making the credit decision. Section Sec. 1003.4(a)(28) does
not require a financial institution to use a particular property
valuation method, but instead requires a financial institution to report
the valuation relied on in making the credit decision.
3. Transactions for which no credit decision was made. If a file was
closed for incompleteness or the application was withdrawn before a
credit decision was made, the financial institution complies with
Sec. 1003.4(a)(28) by reporting that the requirement is not applicable,
even if the financial institution had obtained a property value. For
example, if a file is closed for incompleteness and is so reported in
accordance with Sec. 1003.4(a)(8), the financial institution complies
with Sec. 1003.4(a)(28) by reporting that the requirement is not
applicable, even if the financial institution had obtained a property
value. Similarly, if an application was withdrawn by the applicant
before a credit decision was made and is so reported in accordance with
Sec. 1003.4(a)(8), the financial institution complies with
Sec. 1003.4(a)(28) by reporting that the requirement is not applicable,
even if the financial institution had obtained a property value.
4. Transactions for which no property value was relied on. Section
1003.4(a)(28) does not require a financial institution to obtain a
property valuation, nor does it require a financial institution to rely
on a property value in making a credit decision. If a financial
institution makes a credit decision without relying on a property value,
the financial institution complies with Sec. 1003.4(a)(28) by reporting
that the requirement is not applicable since no property value was
relied on in making the credit decision.
Paragraph 4(a)(29)
1. Classification under State law. A financial institution should
report a covered loan that is or would have been secured only by a
manufactured home but not the land on which it is sited as secured by a
manufactured home and not land, even if the manufactured home is
considered real property under applicable State law.
2. Manufactured home community. A manufactured home community that
is a multifamily dwelling is not considered a manufactured home for
purposes of Sec. 1003.4(a)(29).
3. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
4. Scope of requirement. A financial institution reports that the
requirement is not applicable for a covered loan where the dwelling
related to the property identified in Sec. 1003.4(a)(9) is not a
manufactured home.
Paragraph 4(a)(30)
1. Indirect land ownership. Indirect land ownership can occur when
the applicant or borrower is or will be a member of a resident-owned
community structured as a housing cooperative in which the occupants own
an entity that holds the underlying land of the manufactured home
community. In such communities, the applicant or borrower may still have
a lease and pay rent for the lot on which his or her manufactured home
is or will be located, but the property interest type for such an
arrangement should be reported as indirect ownership if the applicant is
or will be a member of the cooperative that owns the underlying land of
the manufactured home community. If an applicant resides or will reside
in such a community but is not a member, the property interest type
should be reported as a paid leasehold.
2. Leasehold interest. A leasehold interest could be formalized in a
lease with a defined term and specified rent payments, or could arise as
a tenancy at will through permission of a land owner without any
written, formal arrangement. For example, assume a borrower will locate
the manufactured home in a manufactured home community, has a written
lease for a lot in that park, and the lease specifies rent payments. In
this example, a financial institution complies with Sec. 1003.4(a)(30)
by reporting a paid leasehold. However, if instead the borrower will
locate the manufactured home on land owned by a family member without a
written lease and with no agreement as to rent payments, a financial
institution complies with Sec. 1003.4(a)(30) by reporting an unpaid
leasehold.
3. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
[[Page 155]]
4. Manufactured home community. A manufactured home community that
is a multifamily dwelling is not considered a manufactured home for
purposes of Sec. 1003.4(a)(30).
5. Direct ownership. An applicant or borrower has a direct ownership
interest in the land on which the dwelling is or is to be located when
it has a more than possessory real property ownership interest in the
land such as fee simple ownership.
6. Scope of requirement. A financial institution reports that the
requirement is not applicable for a covered loan where the dwelling
related to the property identified in Sec. 1003.4(a)(9) is not a
manufactured home.
Paragraph 4(a)(31)
1. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
2. Manufactured home community. For an application or covered loan
secured by a manufactured home community, the financial institution
should include in the number of individual dwelling units the total
number of manufactured home sites that secure the loan and are available
for occupancy, regardless of whether the sites are currently occupied or
have manufactured homes currently attached. A financial institution may
include in the number of individual dwelling units other units such as
recreational vehicle pads, manager apartments, rental apartments, site-
built homes or other rentable space that are ancillary to the operation
of the secured property if it considers such units under its
underwriting guidelines or the guidelines of an investor, or if it
tracks the number of such units for its own internal purposes. For a
loan secured by a single manufactured home that is or will be located in
a manufactured home community, the financial institution should report
one individual dwelling unit.
3. Condominium and cooperative projects. For a covered loan secured
by a condominium or cooperative property, the financial institution
reports the total number of individual dwelling units securing the
covered loan or proposed to secure the covered loan in the case of an
application. For example:
i. Assume that a loan is secured by the entirety of a cooperative
property. The financial institution would report the number of
individual dwelling units in the cooperative property.
ii. Assume that a covered loan is secured by 30 individual dwelling
units in a condominium property that contains 100 individual dwelling
units and that the loan is not exempt from Regulation C under
Sec. 1003.3(c)(3). The financial institution reports 30 individual
dwelling units.
4. Best information available. A financial institution may rely on
the best information readily available to the financial institution at
the time final action is taken and on the financial institution's own
procedures in reporting the information required by Sec. 1003.4(a)(31).
Information readily available could include, for example, information
provided by an applicant that the financial institution reasonably
believes, information contained in a property valuation or inspection,
or information obtained from public records.
Paragraph 4(a)(32)
1. Affordable housing income restrictions. For purposes of
Sec. 1003.4(a)(32), affordable housing income-restricted units are
individual dwelling units that have restrictions based on the income
level of occupants pursuant to restrictive covenants encumbering the
property. Such income levels are frequently expressed as a percentage of
area median income by household size as established by the U.S.
Department of Housing and Urban Development or another agency
responsible for implementing the applicable affordable housing program.
Such restrictions are frequently part of compliance with programs that
provide public funds, special tax treatment, or density bonuses to
encourage development or preservation of affordable housing. Such
restrictions are frequently evidenced by a use agreement, regulatory
agreement, land use restriction agreement, housing assistance payments
contract, or similar agreement. Rent control or rent stabilization laws,
and the acceptance by the owner or manager of a multifamily dwelling of
Housing Choice Vouchers (24 CFR part 982) or other similar forms of
portable housing assistance that are tied to an occupant and not an
individual dwelling unit, are not affordable housing income-restricted
dwelling units for purposes of Sec. 1003.4(a)(32).
2. Federal affordable housing sources. Examples of Federal programs
and funding sources that may result in individual dwelling units that
are reportable under Sec. 1003.4(a)(32) include, but are not limited to:
i. Affordable housing programs pursuant to Section 8 of the United
States Housing Act of 1937 (42 U.S.C. 1437f);
ii. Public housing (42 U.S.C. 1437a(b)(6));
iii. The HOME Investment Partnerships program (24 CFR part 92);
iv. The Community Development Block Grant program (24 CFR part 570);
v. Multifamily tax subsidy project funding through tax-exempt bonds
or tax credits (26 U.S.C. 42; 26 U.S.C. 142(d));
vi. Project-based vouchers (24 CFR part 983);
vii. Federal Home Loan Bank affordable housing program funding (12
CFR part 1291); and
viii. Rural Housing Service multifamily housing loans and grants (7
CFR part 3560).
3. State and local government affordable housing sources. Examples
of State and local
[[Page 156]]
sources that may result in individual dwelling units that are reportable
under Sec. 1003.4(a)(32) include, but are not limited to: State or local
administration of Federal funds or programs; State or local funding
programs for affordable housing or rental assistance, including programs
operated by independent public authorities; inclusionary zoning laws;
and tax abatement or tax increment financing contingent on affordable
housing requirements.
4. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
5. Best information available. A financial institution may rely on
the best information readily available to the financial institution at
the time final action is taken and on the financial institution's own
procedures in reporting the information required by Sec. 1003.4(a)(32).
Information readily available could include, for example, information
provided by an applicant that the financial institution reasonably
believes, information contained in a property valuation or inspection,
or information obtained from public records.
6. Scope of requirement. A financial institution reports that the
requirement is not applicable if the property securing the covered loan
or, in the case of an application, proposed to secure the covered loan
is not a multifamily dwelling.
Paragraph 4(a)(33)
1. Agents. If a financial institution is reporting actions taken by
its agent consistent with comment 4(a)-4, the agent is not considered
the financial institution for the purposes of Sec. 1003.4(a)(33). For
example, assume that an applicant submitted an application to Financial
Institution A, and Financial Institution A made the credit decision
acting as Financial Institution B's agent under State law. A covered
loan was originated and the obligation arising from a covered loan was
initially payable to Financial Institution A. Financial Institution B
purchased the loan. Financial Institution B reports the origination and
not the purchase, and indicates that the application was not submitted
directly to the financial institution and that the transaction was not
initially payable to the financial institution.
Paragraph 4(a)(33)(i)
1. General. Section 4(a)(33)(i) requires a financial institution to
indicate whether the applicant or borrower submitted the application
directly to the financial institution that is reporting the covered loan
or application. The following scenarios demonstrate whether an
application was submitted directly to the financial institution that is
reporting the covered loan or application.
i. The application was submitted directly to the financial
institution if the mortgage loan originator identified pursuant to
Sec. 1003.4(a)(34) was an employee of the reporting financial
institution when the originator performed the origination activities for
the covered loan or application that is being reported.
ii. The application was also submitted directly to the financial
institution reporting the covered loan or application if the reporting
financial institution directed the applicant to a third-party agent
(e.g., a credit union service organization) that performed loan
origination activities on behalf of the financial institution and did
not assist the applicant with applying for covered loans with other
institutions.
iii. If an applicant contacted and completed an application with a
broker or correspondent that forwarded the application to a financial
institution for approval, an application was not submitted to the
financial institution.
Paragraph 4(a)(33)(ii)
1. General. Section 1003.4(a)(33)(ii) requires financial
institutions to report whether the obligation arising from a covered
loan was or, in the case of an application, would have been initially
payable to the institution. An obligation is initially payable to the
institution if the obligation is initially payable either on the face of
the note or contract to the financial institution that is reporting the
covered loan or application. For example, if a financial institution
reported an origination of a covered loan that it approved prior to
closing, that closed in the name of a third-party, such as a
correspondent lender, and that the financial institution purchased after
closing, the covered loan was not initially payable to the financial
institution.
2. Applications. A financial institution complies with
Sec. 1003.4(a)(33)(ii) by reporting that the requirement is not
applicable if the institution had not determined whether the covered
loan would have been initially payable to the institution reporting the
application when the application was withdrawn, denied, or closed for
incompleteness.
Paragraph 4(a)(34)
1. NMLSR ID. Section 1003.4(a)(34) requires a financial institution
to report the Nationwide Mortgage Licensing System and Registry unique
identifier (NMLSR ID) for the mortgage loan originator, as defined in
Regulation G, 12 CFR 1007.102, or Regulation H, 12 CFR 1008.23, as
applicable. The NMLSR ID is a unique number or other identifier
generally assigned to individuals registered or licensed through NMLSR
to provide loan originating services. For more information, see the
Secure and Fair Enforcement for
[[Page 157]]
Mortgage Licensing Act of 2008, title V of the Housing and Economic
Recovery Act of 2008 (S.A.F.E. Act), 12 U.S.C. 5101 et seq., and its
implementing regulations (12 CFR part 1007 and 12 CFR part 1008).
2. Mortgage loan originator without NMLSR ID. An NMLSR ID for the
mortgage loan originator is not required by Sec. 1003.4(a)(34) to be
reported by a financial institution if the mortgage loan originator is
not required to obtain and has not been assigned an NMLSR ID. For
example, certain individual mortgage loan originators may not be
required to obtain an NMLSR ID for the particular transaction being
reported by the financial institution, such as a commercial loan.
However, some mortgage loan originators may have obtained an NMLSR ID
even if they are not required to obtain one for that particular
transaction. If a mortgage loan originator has been assigned an NMLSR
ID, a financial institution complies with Sec. 1003.4(a)(34) by
reporting the mortgage loan originator's NMLSR ID regardless of whether
the mortgage loan originator is required to obtain an NMLSR ID for the
particular transaction being reported by the financial institution. In
the event that the mortgage loan originator is not required to obtain
and has not been assigned an NMLSR ID, a financial institution complies
with Sec. 1003.4(a)(34) by reporting that the requirement is not
applicable.
3. Multiple mortgage loan originators. If more than one individual
associated with a covered loan or application meets the definition of a
mortgage loan originator, as defined in Regulation G, 12 CFR 1007.102,
or Regulation H, 12 CFR 1008.23, a financial institution complies with
Sec. 1003.4(a)(34) by reporting the NMLSR ID of the individual mortgage
loan originator with primary responsibility for the transaction as of
the date of action taken pursuant to Sec. 1003.4(a)(8)(ii). A financial
institution that establishes and follows a reasonable, written policy
for determining which individual mortgage loan originator has primary
responsibility for the reported transaction as of the date of action
taken complies with Sec. 1003.4(a)(34).
Paragraph 4(a)(35)
1. Automated underwriting system data--general. A financial
institution complies with Sec. 1003.4(a)(35) by reporting, except for
purchased covered loans, the name of the automated underwriting system
(AUS) used by the financial institution to evaluate the application and
the result generated by that AUS. The following scenarios illustrate
when a financial institution reports the name of the AUS used by the
financial institution to evaluate the application and the result
generated by that AUS.
i. A financial institution that uses an AUS, as defined in
Sec. 1003.4(a)(35)(ii), to evaluate an application, must report the name
of the AUS used by the financial institution to evaluate the application
and the result generated by that system, regardless of whether the AUS
was used in its underwriting process. For example, if a financial
institution uses an AUS to evaluate an application prior to submitting
the application through its underwriting process, the financial
institution complies with Sec. 1003.4(a)(35) by reporting the name of
the AUS it used to evaluate the application and the result generated by
that system.
ii. A financial institution that uses an AUS, as defined in
Sec. 1003.4(a)(35)(ii), to evaluate an application, must report the name
of the AUS it used to evaluate the application and the result generated
by that system, regardless of whether the financial institution intends
to hold the covered loan in its portfolio or sell the covered loan. For
example, if a financial institution uses an AUS developed by a
securitizer to evaluate an application and intends to sell the covered
loan to that securitizer but ultimately does not sell the covered loan
and instead holds the covered loan in its portfolio, the financial
institution complies with Sec. 1003.4(a)(35) by reporting the name of
the securitizer's AUS that the institution used to evaluate the
application and the result generated by that system. Similarly, if a
financial institution uses an AUS developed by a securitizer to evaluate
an application to determine whether to originate the covered loan but
does not intend to sell the covered loan to that securitizer and instead
holds the covered loan in its portfolio, the financial institution
complies with Sec. 1003.4(a)(35) by reporting the name of the
securitizer's AUS that the institution used to evaluate the application
and the result generated by that system.
iii. A financial institution that uses an AUS, as defined in
Sec. 1003.4(a)(35)(ii), that is developed by a securitizer to evaluate
an application, must report the name of the AUS it used to evaluate the
application and the result generated by that system, regardless of
whether the securitizer intends to hold the covered loan it purchased
from the financial institution in its portfolio or securitize the
covered loan. For example, if a financial institution uses an AUS
developed by a securitizer to evaluate an application and the financial
institution sells the covered loan to that securitizer but the
securitizer holds the covered loan it purchased in its portfolio, the
financial institution complies with Sec. 1003.4(a)(35) by reporting the
name of the securitizer's AUS that the institution used to evaluate the
application and the result generated by that system.
iv. A financial institution, which is also a securitizer, that uses
its own AUS, as defined in Sec. 1003.4(a)(35)(ii), to evaluate an
application, must report the name of the AUS it used to evaluate the
application and the result generated by that system, regardless of
[[Page 158]]
whether the financial institution intends to hold the covered loan it
originates in its portfolio, purchase the covered loan, or securitize
the covered loan. For example, if a financial institution, which is also
a securitizer, has developed its own AUS and uses that AUS to evaluate
an application that it intends to originate and hold in its portfolio
and not purchase or securitize the covered loan, the financial
institution complies with Sec. 1003.4(a)(35) by reporting the name of
its AUS that it used to evaluate the application and the result
generated by that system.
2. Definition of automated underwriting system. A financial
institution must report the information required by
Sec. 1003.4(a)(35)(i) if the financial institution uses an automated
underwriting system (AUS), as defined in Sec. 1003.4(a)(35)(ii), to
evaluate an application. In order for an AUS to be covered by the
definition in Sec. 1003.4(a)(35)(ii), the system must be an electronic
tool that has been developed by a securitizer, Federal government
insurer, or a Federal government guarantor. For example, if a financial
institution has developed its own proprietary system that it uses to
evaluate an application and the financial institution is also a
securitizer, then the financial institution complies with
Sec. 1003.4(a)(35) by reporting the name of that system and the result
generated by that system. On the other hand, if a financial institution
has developed its own proprietary system that it uses to evaluate an
application but the financial institution is not a securitizer, then the
financial institution is not required by Sec. 1003.4(a)(35) to report
the use of that system and the result generated by that system. In
addition, in order for an AUS to be covered by the definition in
Sec. 1003.4(a)(35)(ii), the system must provide a result regarding both
the credit risk of the applicant and the eligibility of the covered loan
to be originated, purchased, insured, or guaranteed by the securitizer,
Federal government insurer, or Federal government guarantor that
developed the system being used to evaluate the application. For
example, if a system is an electronic tool that provides a determination
of the eligibility of the covered loan to be originated, purchased,
insured, or guaranteed by the securitizer, Federal government insurer,
or Federal government guarantor that developed the system being used by
a financial institution to evaluate the application, but the system does
not also provide an assessment of the creditworthiness of the
applicant--such as, an evaluation of the applicant's income, debt, and
credit history--then that system does not qualify as an AUS, as defined
in Sec. 1003.4(a)(35)(ii). A financial institution that uses a system
that is not an AUS, as defined in Sec. 1003.4(a)(35)(ii), to evaluate an
application does not report the information required by
Sec. 1003.4(a)(35)(i).
3. Reporting automated underwriting system data--multiple results.
When a financial institution uses one or more automated underwriting
systems (AUS) to evaluate the application and the system or systems
generate two or more results, the financial institution complies with
Sec. 1003.4(a)(35) by reporting, except for purchased covered loans, the
name of the AUS used by the financial institution to evaluate the
application and the result generated by that AUS as determined by the
following principles. To determine what AUS (or AUSs) and result (or
results) to report under Sec. 1003.4(a)(35), a financial institution
follows each of the principles that is applicable to the application in
question, in the order in which they are set forth below.
i. If a financial institution obtains two or more AUS results and
the AUS generating one of those results corresponds to the loan type
reported pursuant to Sec. 1003.4(a)(2), the financial institution
complies with Sec. 1003.4(a)(35) by reporting that AUS name and result.
For example, if a financial institution evaluates an application using
the Federal Housing Administration's (FHA) Technology Open to Approved
Lenders (TOTAL) Scorecard and subsequently evaluates the application
with an AUS used to determine eligibility for a non-FHA loan, but
ultimately originates an FHA loan, the financial institution complies
with Sec. 1003.4(a)(35) by reporting TOTAL Scorecard and the result
generated by that system. If a financial institution obtains two or more
AUS results and more than one of those AUS results is generated by a
system that corresponds to the loan type reported pursuant to
Sec. 1003.4(a)(2), the financial institution identifies which AUS result
should be reported by following the principle set forth below in comment
4(a)(35)-3.ii.
ii. If a financial institution obtains two or more AUS results and
the AUS generating one of those results corresponds to the purchaser,
insurer, or guarantor, if any, the financial institution complies with
Sec. 1003.4(a)(35) by reporting that AUS name and result. For example,
if a financial institution evaluates an application with the AUS of
Securitizer A and subsequently evaluates the application with the AUS of
Securitizer B, but the financial institution ultimately originates a
covered loan that it sells within the same calendar year to Securitizer
A, the financial institution complies with Sec. 1003.4(a)(35) by
reporting the name of Securitizer A's AUS and the result generated by
that system. If a financial institution obtains two or more AUS results
and more than one of those AUS results is generated by a system that
corresponds to the purchaser, insurer, or guarantor, if any, the
financial institution identifies which AUS result should be reported by
following the principle set forth below in comment 4(a)(35)-3.iii.
[[Page 159]]
iii. If a financial institution obtains two or more AUS results and
none of the systems generating those results correspond to the
purchaser, insurer, or guarantor, if any, or the financial institution
is following this principle because more than one AUS result is
generated by a system that corresponds to either the loan type or the
purchaser, insurer, or guarantor, the financial institution complies
with Sec. 1003.4(a)(35) by reporting the AUS result generated closest in
time to the credit decision and the name of the AUS that generated that
result. For example, if a financial institution evaluates an application
with the AUS of Securitizer A, subsequently again evaluates the
application with Securitizer A's AUS, the financial institution complies
with Sec. 1003.4(a)(35) by reporting the name of Securitizer A's AUS and
the second AUS result. Similarly, if a financial institution obtains a
result from an AUS that requires the financial institution to underwrite
the loan manually, but the financial institution subsequently processes
the application through a different AUS that also generates a result,
the financial institution complies with Sec. 1003.4(a)(35) by reporting
the name of the second AUS that it used to evaluate the application and
the AUS result generated by that system.
iv. If a financial institution obtains two or more AUS results at
the same time and the principles in comment 4(a)(35)-3.i through .iii do
not apply, the financial institution complies with Sec. 1003.4(a)(35) by
reporting the name of all of the AUSs used by the financial institution
to evaluate the application and the results generated by each of those
systems. For example, if a financial institution simultaneously
evaluates an application with the AUS of Securitizer A and the AUS of
Securitizer B, the financial institution complies with
Sec. 1003.4(a)(35) by reporting the name of both Securitizer A's AUS and
Securitizer B's AUS and the results generated by each of those systems.
In any event, however, the financial institution does not report more
than five AUSs and five results. If more than five AUSs and five results
meet the criteria in this principle, the financial institution complies
with Sec. 1003.4(a)(35) by choosing any five among them to report.
4. Transactions for which an automated underwriting system was not
used to evaluate the application. Section 1003.4(a)(35) does not require
a financial institution to evaluate an application using an automated
underwriting system (AUS), as defined in Sec. 1003.4(a)(35)(ii). For
example, if a financial institution only manually underwrites an
application and does not use an AUS to evaluate the application, the
financial institution complies with Sec. 1003.4(a)(35) by reporting that
the requirement is not applicable since an AUS was not used to evaluate
the application.
5. Purchased covered loan. A financial institution complies with
Sec. 1003.4(a)(35) by reporting that the requirement is not applicable
when the covered loan is a purchased covered loan.
6. Non-natural person. When the applicant and co-applicant, if
applicable, are not natural persons, a financial institution complies
with Sec. 1003.4(a)(35) by reporting that the requirement is not
applicable.
Paragraph 4(a)(37)
1. Open-end line of credit. Section 1003.4(a)(37) requires a
financial institution to identify whether the covered loan or the
application is for an open-end line of credit. See comments 2(o)-1 and -
2 for a discussion of open-end line of credit and extension of credit.
Paragraph 4(a)(38)
1. Primary purpose. Section 1003.4(a)(38) requires a financial
institution to identify whether the covered loan is, or the application
is for a covered loan that will be, made primarily for a business or
commercial purpose. See comment 3(c)(10)-2 for a discussion of how to
determine the primary purpose of the transaction and the standard
applicable to financial institution's determination of the primary
purpose of the transaction. See comments 3(c)(10)-3 and -4 for examples
of excluded and reportable business- or commercial-purpose transactions.
4(f) Quarterly Recording of Data
1. General. Section 1003.4(f) requires a financial institution to
record the data collected pursuant to Sec. 1003.4 on a loan/application
register within 30 calendar days after the end of the calendar quarter
in which final action is taken. Section 1003.4(f) does not require a
financial institution to record data on a single loan/application
register on a quarterly basis. Rather, for purposes of Sec. 1003.4(f), a
financial institution may record data on a single loan/application
register or separately for different branches or different loan types
(such as home purchase or home improvement loans, or loans on
multifamily dwellings).
2. Agency requirements. Certain State or Federal regulations may
require a financial institution to record its data more frequently than
is required under Regulation C.
3. Form of quarterly records. A financial institution may maintain
the records required by Sec. 1003.4(f) in electronic or any other
format, provided the institution can make the information available to
its regulatory agency in a timely manner upon request.
Section 1003.5--Disclosure and Reporting
5(a) Reporting to Agency
1. [Reserved]
[[Page 160]]
2. [Reserved]
3. [Reserved]
4. [Reserved]
5. Change in appropriate Federal agency. If the appropriate Federal
agency for a covered institution changes (as a consequence of a merger
or a change in the institution's charter, for example), the institution
must report data to the new appropriate Federal agency beginning with
the year of the change.
6. Subsidiaries. An institution is a subsidiary of a bank or savings
association (for purposes of reporting HMDA data to the same agency as
the parent) if the bank or savings association holds or controls an
ownership interest that is greater than 50 percent of the institution.
7. Transmittal sheet--additional data submissions. If an additional
data submission becomes necessary (for example, because the institution
discovers that data were omitted from the initial submission, or because
revisions are called for), that submission must be accompanied by a
transmittal sheet.
8. Transmittal sheet--revisions or deletions. If a data submission
involves revisions or deletions of previously submitted data, it must
state the total of all line entries contained in that submission,
including both those representing revisions or deletions of previously
submitted entries, and those that are being resubmitted unchanged or are
being submitted for the first time. Depository institutions must provide
a list of the MSAs or Metropolitan Divisions in which they have home or
branch offices.
5(b) Disclosure Statement
1. Business day. For purposes of Sec. 1003.5(b), a business day is
any calendar day other than a Saturday, Sunday, or legal public holiday.
2. Format of notice. A financial institution may make the written
notice required under Sec. 1003.5(b)(2) available in paper or electronic
form.
3. Notice--suggested text. A financial institution may use any text
that meets the requirements of Sec. 1003.5(b)(2). The following language
is suggested but is not required:
Home Mortgage Disclosure Act Notice
The HMDA data about our residential mortgage lending are available
online for review. The data show geographic distribution of loans and
applications; ethnicity, race, sex, age, and income of applicants and
borrowers; and information about loan approvals and denials. These data
are available online at the Consumer Financial Protection Bureau's Web
site (www.consumerfinance.gov/hmda). HMDA data for many other financial
institutions are also available at this Web site.
4. Combined notice. A financial institution may use the same notice
to satisfy the requirements of both Sec. 1003.5(b)(2) and
Sec. 1003.5(c).
5(c) Modified loan/application Register
1. Format of notice. A financial institution may make the written
notice required under Sec. 1003.5(c)(1) available in paper or electronic
form.
2. Notice--suggested text. A financial institution may use any text
that meets the requirements of Sec. 1003.5(c)(1). The following language
is suggested but is not required:
Home Mortgage Disclosure Act Notice
The HMDA data about our residential mortgage lending are available
online for review. The data show geographic distribution of loans and
applications; ethnicity, race, sex, age, and income of applicants and
borrowers; and information about loan approvals and denials. These data
are available online at the Consumer Financial Protection Bureau's Web
site (www.consumerfinance.gov/hmda). HMDA data for many other financial
institutions are also available at this Web site.
3. Combined notice. A financial institution may use the same notice
to satisfy the requirements of both Sec. 1003.5(c) and
Sec. 1003.5(b)(2).
5(e) Posted Notice of Availability of Data
1. Posted notice--suggested text. A financial institution may post
any text that meets the requirements of Sec. 1003.5(e). The Bureau or
other appropriate Federal agency for a financial institution may provide
a notice that the institution can post to inform the public of the
availability of its HMDA data, or an institution may create its own
notice. The following language is suggested but is not required:
Home Mortgage Disclosure Act Notice
The HMDA data about our residential mortgage lending are available
online for review. The data show geographic distribution of loans and
applications; ethnicity, race, sex, age, and income of applicants and
borrowers; and information about loan approvals and denials. HMDA data
for many other financial institutions are also available online. For
more information, visit the Consumer Financial Protection Bureau's Web
site (www.consumerfinance.gov/hmda).
Section 1003.6--Enforcement
6(b) Bona Fide Errors
1. Bona fide error--information from third parties. An institution
that obtains the property-location information for applications and
loans from third parties (such as appraisers or vendors of ``geocoding''
services) is responsible for ensuring that the information reported on
its HMDA/LAR is correct.
Effective Date Note 2: At 80 FR 66339, Oct. 28, 2015, supplement I
to part 1003 was amended: a. under the heading ``Section
[[Page 161]]
1003.5`` by adding paragraphs 1 through 4, revising paragraph 5, and
removing paragraphs 6 through 8, and b. under the heading ``Section
1003.6'', under the subheading ``6(b) Bona Fide Errors'' by revising
paragraph 1, effective Jan. 1, 2019. For the convenience of the user,
the added and revised text is set forth as follows:
Sec. Supplement I to Part 1003--Official Interpretations
* * * * *
Section 1003.5--Disclosure and Reporting
5(a) Reporting to Agency
1. Quarterly reporting--coverage. i. Section 1003.5(a)(1)(ii)
requires that, within 60 calendar days after the end of each calendar
quarter except the fourth quarter, a financial institution that reported
for the preceding calendar year at least 60,000 covered loans and
applications, combined, excluding purchased covered loans, must submit
its loan/application register containing all data required to be
recorded for that quarter pursuant to Sec. 1003.4(f). For example, if
for calendar year 2019 Financial Institution A reports 60,000 covered
loans, excluding purchased covered loans, it must comply with
Sec. 1003.5(a)(1)(ii) in calendar year 2020. Similarly, if for calendar
year 2019 Financial Institution A reports 20,000 applications and 40,000
covered loans, combined, excluding purchased covered loans, it must
comply with Sec. 1003.5(a)(1)(ii) in calendar year 2020. If for calendar
year 2020 Financial Institution A reports fewer than 60,000 covered
loans and applications, combined, excluding purchased covered loans, it
is not required to comply with Sec. 1003.5(a)(1)(ii) in calendar year
2021.
ii. In the calendar year of a merger or acquisition, the surviving
or newly formed financial institution is required to comply with
Sec. 1003.5(a)(1)(ii), effective the date of the merger or acquisition,
if a combined total of at least 60,000 covered loans and applications,
combined, excluding purchased covered loans, is reported for the
preceding calendar year by or for the surviving or newly formed
financial institution and each financial institution or branch office
merged or acquired. For example, Financial Institution A and Financial
Institution B merge to form Financial Institution C in 2020. Financial
Institution A reports 40,000 covered loans and applications, combined,
excluding purchased covered loans, for 2019. Financial Institution B
reports 21,000 covered loans and applications, combined, excluding
purchased covered loans, for 2019. Financial Institution C is required
to comply with Sec. 1003.5(a)(1)(ii) effective the date of the merger.
Similarly, for example, Financial Institution A acquires a branch office
of Financial Institution B in 2020. Financial Institution A reports
58,000 covered loans and applications, combined, excluding purchased
covered loans, for 2019. Financial Institution B reports 3,000 covered
loans and applications, combined, excluding purchased covered loans, for
2019 for the branch office acquired by Financial Institution A.
Financial Institution A is required to comply with Sec. 1003.5(a)(1)(ii)
in 2020 effective the date of the branch acquisition.
iii. In the calendar year following a merger or acquisition, the
surviving or newly formed financial institution is required to comply
with Sec. 1003.5(a)(1)(ii) if a combined total of at least 60,000
covered loans and applications, combined, excluding purchased covered
loans, is reported for the preceding calendar year by or for the
surviving or newly formed financial institution and each financial
institution or branch office merged or acquired. For example, Financial
Institution A and Financial Institution B merge to form Financial
Institution C in 2019. Financial Institution C reports 21,000 covered
loans and applications, combined, excluding purchased covered loans,
each for Financial Institution A, B, and C for 2019, for a combined
total of 63,000 covered loans and applications reported, excluding
purchased covered loans. Financial Institution C is required to comply
with Sec. 1003.5(a)(1)(ii) in 2020. Similarly, for example, Financial
Institution A acquires a branch office of Financial Institution B in
2019. Financial Institution A reports 58,000 covered loans and
applications, combined, excluding purchased covered loans, for 2019.
Financial Institution A or B reports 3,000 covered loans and
applications, combined, excluding purchased covered loans, for 2019 for
the branch office acquired by Financial Institution A. Financial
Institution A is required to comply with Sec. 1003.5(a)(1)(ii) in 2020.
2. Change in appropriate Federal agency. If the appropriate Federal
agency for a financial institution changes (as a consequence of a merger
or a change in the institution's charter, for example), the institution
must identify its new appropriate Federal agency in its annual
submission of data pursuant to Sec. 1003.5(a)(1)(i) for the year of the
change. For example, if an institution's appropriate Federal agency
changes in February 2018, it must identify its new appropriate Federal
agency beginning with the annual submission of its 2018 data by March 1,
2019 pursuant to Sec. 1003.5(a)(1)(i). For an institution required to
comply with Sec. 1003.5(a)(1)(ii), the institution also must identify
its new appropriate Federal agency in its quarterly submission of data
pursuant to Sec. 1003.5(a)(1)(ii) beginning with its submission for the
quarter of the change, unless the change occurs during the fourth
quarter. For example, if the appropriate Federal agency for an
institution required to comply with Sec. 1003.5(a)(1)(ii) changes during
February 2020,
[[Page 162]]
the institution must identify its new appropriate Federal agency
beginning with its quarterly submission pursuant to
Sec. 1003.5(a)(1)(ii) for the first quarter of 2020. If the appropriate
Federal agency for an institution required to comply with
Sec. 1003.5(a)(1)(ii) changes during December 2020, the institution must
identify its new appropriate Federal agency beginning with the annual
submission of its 2020 data by March 1, 2021 pursuant to
Sec. 1003.5(a)(1)(i).
3. Subsidiaries. A financial institution is a subsidiary of a bank
or savings association (for purposes of reporting HMDA data to the same
agency as the parent) if the bank or savings association holds or
controls an ownership interest in the institution that is greater than
50 percent.
4. Retention. A financial institution may satisfy the requirement
under Sec. 1003.5(a)(1)(i) that it retain a copy of its submitted annual
loan/application register for three years by retaining a copy of the
annual loan/application register in either electronic or paper form.
5. Federal Taxpayer Identification Number. Section 1003.5(a)(3)
requires a financial institution to provide its Federal Taxpayer
Identification Number with its data submission. If a financial
institution obtains a new Federal Taxpayer Identification Number, it
should provide the new number in its subsequent data submission. For
example, if two financial institutions that previously reported HMDA
data under this part merge and the surviving institution retained its
Legal Entity Identifier but obtained a new Federal Taxpayer
Identification Number, then the surviving institution should report the
new Federal Taxpayer Identification Number with its HMDA data
submission.
* * * * *
Section 1003.6--Enforcement
6(b) Bona Fide Errors
1. Information from third parties. Section 1003.6(b) provides that
an error in compiling or recording data for a covered loan or
application is not a violation of the Act or this part if the error was
unintentional and occurred despite the maintenance of procedures
reasonably adapted to avoid such an error. A financial institution that
obtains the required data, such as property-location information, from
third parties is responsible for ensuring that the information reported
pursuant to Sec. 1003.5 is correct.
PART 1004_ALTERNATIVE MORTGAGE TRANSACTION PARITY (REGULATION D)
--Table of Contents
Sec.
1004.1 Authority, purpose, and scope.
1004.2 Definitions.
1004.3 Preemption of State law.
1004.4 Requirements for alternative mortgage transactions.
Appendix A to Part 1004--Official Commentary on Regulation D
Authority: 12 U.S.C. 3802, 3803; 15 U.S.C. 1604, 1639b; Pub. L. No.
111-203, 124 Stat. 1376.
Source: 76 FR 44242, July 22, 2011, unless otherwise noted.
Sec. 1004.1 Authority, purpose, and scope.
(a) Authority. This regulation, known as Regulation D, is issued by
the Bureau of Consumer Financial Protection to implement the Alternative
Mortgage Transaction Parity Act, 12 U.S.C. 3801 et seq., as amended by
title X, Section 1083 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Pub. L. 111-203, 124 Stat. 1376). Section 1004.4 is
issued pursuant to the Alternative Mortgage Transaction Parity Act (as
amended) and the Truth in Lending Act, 15 U.S.C. 1601 et seq.
(b) Purpose. Consistent with the Alternative Mortgage Transaction
Parity Act, the Truth in Lending Act, and the Dodd-Frank Wall Street
Reform and Consumer Protection Act, the purpose of this regulation is to
balance access to responsible credit and enhanced parity between State
and federal housing creditors regarding the making, purchase, and
enforcement of alternative mortgage transactions with consumer
protection and the interests of the States in regulating mortgage
transactions generally.
(c) Scope. This regulation applies to an alternative mortgage
transaction if the creditor received an application for that transaction
on or after July 22, 2011. This regulation does not apply to a
transaction if the creditor received the application for that
transaction before July 22, 2011.
Sec. 1004.2 Definitions.
For purposes of this part:
Alternative mortgage transaction means a loan, credit sale, or
account:
[[Page 163]]
(1) That is secured by an interest in a residential structure that
contains one to four units, whether or not that structure is attached to
real property, including an individual condominium unit, cooperative
unit, mobile home, or trailer, if it is used as a residence;
(2) That is made primarily for personal, family, or household
purposes; and
(3) In which the interest rate or finance charge may be adjusted or
renegotiated.
Creditor shall have the same meaning as in 12 CFR 226.2.
Housing creditor means:
(1) A depository institution, as defined in section 501(a)(2) of the
Depository Institutions Deregulation and Monetary Control Act of 1980;
(2) A lender approved by the Secretary of Housing and Urban
Development for participation in any mortgage insurance program under
the National Housing Act;
(3) Any person who regularly makes loans, credit sales, or advances
on an account secured by an interest in a residential structure that
contains one to four units, whether or not the structure is attached to
real property, including an individual condominium unit, cooperative
unit, mobile home, or trailer, if it is used as a residence; and
(4) Any transferee of a party listed in paragraph (c)(1), (2), or
(3) of this section.
State means any State of the United States of America, the District
of Columbia, Puerto Rico, the Virgin Islands, the Northern Mariana
Islands, American Samoa, Guam, and any other territory or possession of
the United States.
State law means a State constitution, statute, or regulation or any
provision thereof.
Sec. 1004.3 Preemption of State law.
Pursuant to 12 U.S.C. 3803, a State-chartered or -licensed housing
creditor may make, purchase, and enforce alternative mortgage
transactions in accordance with Sec. 1004.4(a) through (c) of this part
(as applicable), notwithstanding any provision of State law that
restricts the ability of the housing creditor to adjust or renegotiate
an interest rate or finance charge with respect to the transaction or to
change the amount of interest or finance charges included in a regular
periodic payment as a result of such an adjustment or renegotiation.
Sec. 1004.4 Requirements for alternative mortgage transactions.
(a) Mortgages with adjustable rates or finance charges and home
equity lines of credit. A creditor that makes an alternative mortgage
transaction with an adjustable rate or finance charge may only increase
the interest rate or finance charge as follows:
(1) If the transaction is subject to 12 CFR 226.5b, the creditor
must comply with 12 CFR 226.5b(f)(1).
(2) For all other transactions, the creditor must use either:
(i) An index to which changes in the interest rate are tied that is
readily available to and verifiable by the borrower and beyond the
control of the creditor; or
(ii) A formula or schedule identifying the amount that the interest
rate or finance charge may increase and the times at which, or
circumstances under which, a change may be made.
(b) Renegotiable rates for renewable balloon-payment mortgages. A
creditor that makes an alternative mortgage transaction with payments
based on an amortization period and a large final payment due after a
shorter term may negotiate an increase or decrease in the interest rate
when the transaction is renewed only if the creditor makes a written
commitment to renew the transaction at specified intervals throughout
the amortization period. However, the creditor is not required to renew
the transaction if:
(1) Any action or inaction by the consumer materially and adversely
affects the creditor's security for the transaction or any right of the
creditor in such security;
(2) There is a material failure by the consumer to meet the
repayment terms of the transaction;
(3) There is fraud or a willful or knowing material
misrepresentation by the consumer in connection with the transaction; or
(4) Federal law dealing with credit extended by a depository
institution to
[[Page 164]]
its executive officers specifically requires that as a condition of the
extension the credit shall become due and payable on demand, provided
that the creditor includes such a provision in the initial agreement.
(c) Requirements for high-cost and higher-priced mortgage loans. (1)
If an alternative mortgage transaction is subject to 12 CFR 226.32, the
creditor must comply with 12 CFR 226.32 and 12 CFR 226.34.
(2) If an alternative mortgage transaction is subject to 12 CFR
226.35, the creditor must comply with 12 CFR 226.35.
(d) Other applicable law. Notwithstanding paragraphs (a) through (c)
of this section, a housing creditor that is not making an alternative
mortgage transaction pursuant to Sec. 1004.3 of this part may make that
transaction consistent with applicable State or Federal law other than
this section.
(e) Reductions in interest rate or finance charge. Nothing in this
section prohibits a creditor from decreasing the interest rate or
finance charge on an alternative mortgage transaction.
Sec. Appendix A to Part 1004--Official Commentary on Regulation D
Sec. 1004.1 Authority, Purpose, and Scope
1(c) Scope.
1. Application received before July 22, 2011. This part does not
apply to a transaction if the creditor received the application for that
transaction before July 22, 2011, even if the transaction was
consummated or completed on or after July 22, 2011. Whether 12 U.S.C.
3803(c) preempts State law with respect to such a transaction depends on
whether: (1) The transaction was an alternative mortgage transaction as
defined by the version of 12 U.S.C. 3802(1) in effect at the time of
application; and (2) the State housing creditor complied with applicable
federal regulations issued by the Office of the Comptroller of the
Currency, the National Credit Union Administration, the Office of Thrift
Supervision, or the Federal Home Loan Bank Board in effect at the time
of application.
2. Subsequent modifications and other actions. If applicable
regulations under 12 U.S.C. 3803(c) (including this Part) preempted
State law with respect to an alternative mortgage transaction at the
time the application was received, the following actions with respect to
that transaction are entitled to the same degree of preemption under
such regulations:
i. The subsequent consummation, completion, purchase, or enforcement
of the transaction by a housing creditor.
ii. The subsequent modification, renewal, or extension of the
transaction. However, if such a transaction is satisfied and replaced by
another transaction, the second transaction must independently meet the
requirements for preemption in effect at the time the application for
the second transaction was received.
Sec. 1004.2 Definitions
2(a) Alternative Mortgage Transaction
1. Alternative mortgage transaction. For purposes of this Part, an
alternative mortgage transaction that meets the definition in
Sec. 1004.2(a) includes any consumer credit transaction that is secured
by a mortgage, deed of trust, or other equivalent consensual security
interest in a dwelling or in residential real property that includes a
dwelling. The dwelling need not be the primary dwelling of the consumer.
Home equity lines of credit and subordinate lien mortgages are
alternative mortgage transactions for purposes of this part to the
extent they meet the definition in Sec. 1004.2(a).
2. Examples of alternative mortgage transactions. Examples of
alternative mortgage transactions include:
i. Transactions in which the interest rate changes in accordance
with fluctuations in an index.
ii. Transactions in which the interest rate or finance charge may be
increased or decreased after a specified period of time or under
specified circumstances.
iii. Balloon transactions in which payments are based on an
amortization schedule and a large final payment is due after a shorter
term, where the creditor makes a commitment to renew the transaction at
specified intervals throughout the amortization period, but the interest
rate may be renegotiated at renewal. For example, a fixed-rate mortgage
loan with a 30-year amortization period but a balloon payment due five
years after consummation is an alternative mortgage transaction under
Sec. 1004.2(a) if the creditor commits to renew the mortgage at five-
year intervals for the entire 30-year amortization period.
iv. Transactions in which the creditor and the consumer agree to
share some or all of the appreciation in the value of the property
(shared equity/shared appreciation).
However, this part preempts State law only to the extent provided in
Sec. 1004.3 and only to the extent that the requirements of
Sec. 1004.4(a) through (c) (as applicable) are met.
3. Examples of transactions that are not alternative mortgage
transactions. The following are examples of transactions that are not
alternative mortgage transactions:
[[Page 165]]
i. Transactions with a fixed interest rate where one or more of the
regular periodic payments may be applied solely to accrued interest and
not to loan principal (an interest-only feature).
ii. Balloon transactions with a fixed interest rate where payments
are based on an amortization schedule and a large final payment is due
after a shorter term, where the creditor does not make a commitment to
renew the transaction at specified intervals throughout the amortization
period.
iii. Transactions with a fixed interest rate where one or more of
the regular periodic payments may result in an increase in the principal
balance (a negative amortization feature).
2(b) Creditor
1. Creditor. As defined in 12 CFR 226.2, ``creditor'' includes
federally and State-chartered banks, thrifts, and credit unions, as well
as non-depository institutions, such as State-licensed lenders. The
Official Staff Commentary to 12 CFR 226.2 contains additional guidance
on the definition of the term ``creditor.'' See 12 CFR 226.2, Supp. I.
Sec. 1004.3 Preemption of State Law
1. Scope of State laws. Regardless of whether a State law applies
solely to alternative mortgage transactions or applies to both
alternative mortgage transactions and other mortgage or consumer credit
transactions, that law is preempted by Sec. 1004.3 only to the extent
that it restricts the ability of a State-chartered or -licensed housing
creditor to adjust or renegotiate an interest rate or finance charge
with respect to an alternative mortgage transaction or to change the
amount of interest or finance charges included in a regular periodic
payment as a result of such an adjustment or renegotiation.
2. Examples of State laws that are preempted. The following are
examples of State laws that are preempted by Sec. 1004.3:
i. Restrictions on the adjustment or renegotiation of an interest
rate or finance charge, including restrictions on the circumstances
under which a rate or charge may be adjusted, the method by which a rate
or charge may be adjusted, and the amount of the adjustment to the rate
or charge. For example, if a provision of State law prohibits creditors
from increasing an adjustable rate more than two percentage points or
from increasing an adjustable rate more than once during a year, that
provision is preempted by Sec. 1004.3 with respect to alternative
mortgage transactions that comply with Sec. 1004.4(a) through (c), as
applicable. Similarly, if a provision of State law prohibits housing
creditors from renewing balloon transactions that meet the definition of
an alternative mortgage transaction in Sec. 1004.2(a) on different
terms, that provision is preempted by Sec. 1004.3 only to the extent
that it restricts a state housing creditor's ability to adjust or
renegotiate the interest rate or finance charge at renewal. See also
comment 1004.3-3.i.
ii. Restrictions on the ability of a housing creditor to change the
amount of interest or finance charges included in regular periodic
payments as a result of the adjustment or renegotiation of an interest
rate or finance charge. For example, if a provision of State law
prohibits housing creditors from increasing payments or limits the
amount of such increases with respect to both alternative mortgage
transactions and other mortgage or consumer credit transactions, that
provision is preempted by Sec. 1004.3 to the extent that it restricts a
housing creditor's ability to adjust payments as a result of the
adjustment or renegotiation of an interest rate on an alternative
mortgage transaction. Other restrictions on changes to payments are not
preempted, including restrictions on transactions in which one or more
of the regular periodic payments may result in an increase in the
principal balance (a negative amortization feature) or may be applied
solely to accrued interest and not to loan principal (an interest-only
feature).
iii. Restrictions on the creditor and the consumer sharing some or
all of the appreciation in the value of the property (shared equity/
shared appreciation).
iv. Underwriting requirements that address the adjustment or
renegotiation of interest rates or finance charges. For example, if a
provision of State law requires housing creditors to underwrite based on
the maximum contractual rate, that provision is preempted by Sec. 1004.3
with respect to alternative mortgage transactions, regardless of whether
the provision applies solely to alternative mortgage transactions or to
both alternative mortgage transactions and other mortgage or consumer
credit transactions.
3. Examples of State laws that are not preempted. The following are
examples of State laws that are not preempted by Sec. 1004.3 regardless
of whether the provision applies solely to alternative mortgage
transactions or to both alternative mortgage transactions and other
mortgage or consumer credit transactions:
i. Restrictions on prepayment penalties or late charges (including
an increase in an interest rate or finance charge as a result of a late
payment).
ii. Restrictions on transactions in which one or more of the regular
periodic payments may result in an increase in the principal balance (a
negative amortization feature) or may be applied solely to accrued
interest and not to loan principal (an interest-only feature).
iii. Requirements that disclosures be provided.
[[Page 166]]
Sec. 1004.4 Requirements for Alternative Mortgage Transactions
4(a) Mortgages With Adjustable or Renegotiable Rates or Finance Charges
and Home Equity Lines of Credit
1. Index values. A creditor may use any measure of index values that
meets the requirements in Sec. 1004.4(a)(2)(i). For example, the index
may be either single values as of a specific date or an average of
values calculated over a specified period.
2. Index beyond creditor's control. A creditor may increase an
adjustable interest rate pursuant to Sec. 1004.4(a)(2)(i) only if the
increase is based on an index that is beyond the creditor's control. For
purposes of Sec. 1004.4(a)(2)(i), an index is not beyond the creditor's
control if the index is the creditor's own prime rate or cost of funds.
A creditor is permitted, however, to use a published prime rate, such as
the prime rate published in the Wall Street Journal, even if the
creditor's own prime rate is one of several rates used to establish the
published rate.
3. Publicly available. For purposes of Sec. 1004.4(a)(2)(i), the
index must be available to the public. A publicly available index need
not be published in a newspaper, but it must be one the consumer can
independently obtain (by telephone, for example) and use to verify the
annual percentage rate applied to the alternative mortgage transaction.
4(c) Requirements for High-Cost and Higher-Priced Mortgage Loans
1. Prepayment penalties. If applicable, creditors must comply with
12 CFR 226.32, including 12 CFR 226.32(d)(6) and (d)(7) which provide
limitations on prepayment penalties. Similarly, if applicable, creditors
must comply with 12 CFR 226.35, including 12 CFR 226.35(b)(2), which
also provides limitations on prepayment penalties. However, under
Sec. 1004.3, State laws regarding prepayment penalties are not
preempted. See comment 1004.3-3.i. Accordingly, creditors must also
comply with any State laws regarding prepayment penalties unless an
independent basis for preemption exists, such as because the State law
is inconsistent with the requirements of Regulation Z, 12 CFR part 226.
See 12 CFR 226.28.
4(d) Other Applicable Law
1. Other applicable law. Section 1004.4(d) permits state housing
creditors that do not seek preemption under Sec. 1004.3 and federal
housing creditors to make alternative mortgage transactions consistent
with applicable State or federal law other than Sec. 1004.4(a) through
(c). However, Sec. 1004.4(d) does not exempt those housing creditors
from complying with the provisions of federal law that are incorporated
by reference in Sec. 1004.4 and are otherwise applicable to the
creditor. Specifically, nothing in Sec. 1004.4(d) exempts a housing
creditor from complying with 12 CFR 226.5b, 226.32, 226.34, or 226.35.
PART 1005_ELECTRONIC FUND TRANSFERS (REGULATION E)--Table of Contents
Subpart A_General
Sec.
1005.1 Authority and purpose.
1005.2 Definitions.
1005.3 Coverage.
1005.4 General disclosure requirements; jointly offered services.
1005.5 Issuance of access devices.
1005.6 Liability of consumer for unauthorized transfers.
1005.7 Initial disclosures.
1005.8 Change in terms notice; error resolution notice.
1005.9 Receipts at electronic terminals; periodic statements.
1005.10 Preauthorized transfers.
1005.11 Procedures for resolving errors.
1005.12 Relation to other laws.
1005.13 Administrative enforcement; record retention.
1005.14 Electronic fund transfer service provider not holding
consumer's account.
1005.15 Electronic fund transfer of government benefits.
1005.16 Disclosures at automated teller machines.
1005.17 Requirements for overdraft services.
1005.18 Requirements for financial institutions offering payroll card
accounts.
1005.19 Internet posting of prepaid account agreements.
1005.20 Requirements for gift cards and gift certificates.
Subpart B_Requirements for Remittance Transfers
1005.30 Remittance transfer definitions.
1005.31 Disclosures.
1005.32 Estimates.
1005.33 Procedures for resolving errors.
1005.34 Procedures for cancellation and refund of remittance
transfers.
1005.35 Acts of agents.
1005.36 Transfers scheduled before the date of transfer.
Appendix A to Part 1005--Model Disclosure Clauses and Forms
Appendix B to Part 1005 [Reserved]
Appendix C to Part 1005--Issuance of Official Interpretations
Supplement I to Part 1005--Official Interpretations
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1693b. Subpart B is also
issued under 12 U.S.C. 5601 and 15 U.S.C. 1693o-1.
[[Page 167]]
Source: 76 FR 81023, Dec. 27, 2011, unless otherwise noted.
Subpart A_General
Sec. 1005.1 Authority and purpose.
(a) Authority. The regulation in this part, known as Regulation E,
is issued by the Bureau of Consumer Financial Protection (Bureau)
pursuant to the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.).
The information-collection requirements have been approved by the Office
of Management and Budget under 44 U.S.C. 3501 et seq. and have been
assigned OMB No. 3170-0014.
(b) Purpose. This part carries out the purposes of the Electronic
Fund Transfer Act, which establishes the basic rights, liabilities, and
responsibilities of consumers who use electronic fund transfer and
remittance transfer services and of financial institutions or other
persons that offer these services. The primary objective of the act and
this part is the protection of individual consumers engaging in
electronic fund transfers and remittance transfers.
[76 FR 81023, Dec. 27, 2011, as amended at 77 FR 6285, Feb. 7, 2012]
Sec. 1005.2 Definitions.
Except as otherwise provided in subpart B, for purposes of this
part, the following definitions apply:
(a)(1) ``Access device'' means a card, code, or other means of
access to a consumer's account, or any combination thereof, that may be
used by the consumer to initiate electronic fund transfers.
(2) An access device becomes an ``accepted access device'' when the
consumer:
(i) Requests and receives, or signs, or uses (or authorizes another
to use) the access device to transfer money between accounts or to
obtain money, property, or services;
(ii) Requests validation of an access device issued on an
unsolicited basis; or
(iii) Receives an access device in renewal of, or in substitution
for, an accepted access device from either the financial institution
that initially issued the device or a successor.
(b)(1) ``Account'' means a demand deposit (checking), savings, or
other consumer asset account (other than an occasional or incidental
credit balance in a credit plan) held directly or indirectly by a
financial institution and established primarily for personal, family, or
household purposes.
(2) The term includes a ``payroll card account'' which is an account
that is directly or indirectly established through an employer and to
which electronic fund transfers of the consumer's wages, salary, or
other employee compensation (such as commissions), are made on a
recurring basis, whether the account is operated or managed by the
employer, a third-party payroll processor, a depository institution or
any other person. For rules governing payroll card accounts, see
Sec. 1005.18.
(3) The term does not include an account held by a financial
institution under a bona fide trust agreement.
(c) ``Act'' means the Electronic Fund Transfer Act (Title IX of the
Consumer Credit Protection Act, 15 U.S.C. 1693 et seq.).
(d) ``Business day'' means any day on which the offices of the
consumer's financial institution are open to the public for carrying on
substantially all business functions.
(e) ``Consumer'' means a natural person.
(f) ``Credit'' means the right granted by a financial institution to
a consumer to defer payment of debt, incur debt and defer its payment,
or purchase property or services and defer payment therefor.
(g) ``Electronic fund transfer'' is defined in Sec. 1005.3.
(h) ``Electronic terminal'' means an electronic device, other than a
telephone operated by a consumer, through which a consumer may initiate
an electronic fund transfer. The term includes, but is not limited to,
point-of-sale terminals, automated teller machines (ATMs), and cash
dispensing machines.
(i) ``Financial institution'' means a bank, savings association,
credit union, or any other person that directly or indirectly holds an
account belonging to a consumer, or that issues an access device and
agrees with a consumer to
[[Page 168]]
provide electronic fund transfer services, other than a person excluded
from coverage of this part by section 1029 of the Consumer Financial
Protection Act of 2010, title X of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111-203, 124 Stat. 1376.
(j) ``Person'' means a natural person or an organization, including
a corporation, government agency, estate, trust, partnership,
proprietorship, cooperative, or association.
(k) ``Preauthorized electronic fund transfer'' means an electronic
fund transfer authorized in advance to recur at substantially regular
intervals.
(l) ``State'' means any state, territory, or possession of the
United States; the District of Columbia; the Commonwealth of Puerto
Rico; or any political subdivision of the thereof in this paragraph (l).
(m) ``Unauthorized electronic fund transfer'' means an electronic
fund transfer from a consumer's account initiated by a person other than
the consumer without actual authority to initiate the transfer and from
which the consumer receives no benefit. The term does not include an
electronic fund transfer initiated:
(1) By a person who was furnished the access device to the
consumer's account by the consumer, unless the consumer has notified the
financial institution that transfers by that person are no longer
authorized;
(2) With fraudulent intent by the consumer or any person acting in
concert with the consumer; or
(3) By the financial institution or its employee.
[76 FR 81023, Dec. 27, 2011, as amended at 77 FR 6285, Feb. 7, 2012]
Effective Date Note: At 81 FR 84325, Nov. 22, 2016, Sec. 1005.2 was
amended by revising paragraphs (b)(2) and (3), effective Oct. 1, 2017.
For the convenience of the user, the revised text is set forth as
follows:
Sec. 1005.2 Definitions.
* * * * *
(b) * * *
(2) The term does not include an account held by a financial
institution under a bona fide trust agreement.
(3) The term includes a prepaid account.
(i) ``Prepaid account'' means:
(A) A ``payroll card account,'' which is an account that is directly
or indirectly established through an employer and to which electronic
fund transfers of the consumer's wages, salary, or other employee
compensation (such as commissions) are made on a recurring basis,
whether the account is operated or managed by the employer, a third-
party payroll processor, a depository institution, or any other person;
or
(B) A ``government benefit account,'' as defined in
Sec. 1005.15(a)(2); or
(C) An account that is marketed or labeled as ``prepaid'' and that
is redeemable upon presentation at multiple, unaffiliated merchants for
goods or services or usable at automated teller machines; or
(D) An account:
(1) That is issued on a prepaid basis in a specified amount or not
issued on a prepaid basis but capable of being loaded with funds
thereafter,
(2) Whose primary function is to conduct transactions with multiple,
unaffiliated merchants for goods or services, or at automated teller
machines, or to conduct person-to-person transfers, and
(3) That is not a checking account, share draft account, or
negotiable order of withdrawal account.
(ii) For purposes of paragraphs (b)(3)(i)(C) and (D) of this
section, the term ``prepaid account'' does not include:
(A) An account that is loaded only with funds from a health savings
account, flexible spending arrangement, medical savings account, health
reimbursement arrangement, dependent care assistance program, or transit
or parking reimbursement arrangement;
(B) An account that is directly or indirectly established through a
third party and loaded only with qualified disaster relief payments;
(C) The person-to-person functionality of an account established by
or through the United States government whose primary function is to
conduct closed-loop transactions on U.S. military installations or
vessels, or similar government facilities;
(D)(1) A gift certificate as defined in Sec. 1005.20(a)(1) and (b);
(2) A store gift card as defined in Sec. 1005.20(a)(2) and (b);
(3) A loyalty, award, or promotional gift card as defined in
Sec. 1005.20(a)(4) and (b); or
(4) A general-use prepaid card as defined in Sec. 1005.20(a)(3) and
(b) that is both marketed and labeled as a gift card or gift
certificate; or
(E) An account established for distributing needs-tested benefits in
a program established under state or local law or administered by a
state or local agency, as set forth in Sec. 1005.15(a)(2).
* * * * *
[[Page 169]]
Sec. 1005.3 Coverage.
(a) General. This part applies to any electronic fund transfer that
authorizes a financial institution to debit or credit a consumer's
account. Generally, this part applies to financial institutions. For
purposes of Secs. 1005.3(b)(2) and (3), 1005.10(b), (d), and (e),
1005.13, and 1005.20, this part applies to any person, other than a
person excluded from coverage of this part by section 1029 of the
Consumer Financial Protection Act of 2010, Title X of the Dodd-Frank
Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124
Stat. 1376. The requirements of subpart B apply to remittance transfer
providers.
(b) Electronic fund transfer--(1) Definition. The term ``electronic
fund transfer'' means any transfer of funds that is initiated through an
electronic terminal, telephone, computer, or magnetic tape for the
purpose of ordering, instructing, or authorizing a financial institution
to debit or credit a consumer's account. The term includes, but is not
limited to:
(i) Point-of-sale transfers;
(ii) Automated teller machine transfers;
(iii) Direct deposits or withdrawals of funds;
(iv) Transfers initiated by telephone; and
(v) Transfers resulting from debit card transactions, whether or not
initiated through an electronic terminal.
(2) Electronic fund transfer using information from a check. (i)
This part applies where a check, draft, or similar paper instrument is
used as a source of information to initiate a one-time electronic fund
transfer from a consumer's account. The consumer must authorize the
transfer.
(ii) The person initiating an electronic fund transfer using the
consumer's check as a source of information for the transfer must
provide a notice that the transaction will or may be processed as an
electronic fund transfer, and obtain a consumer's authorization for each
transfer. A consumer authorizes a one-time electronic fund transfer (in
providing a check to a merchant or other payee for the MICR encoding,
that is, the routing number of the financial institution, the consumer's
account number and the serial number) when the consumer receives notice
and goes forward with the underlying transaction. For point-of-sale
transfers, the notice must be posted in a prominent and conspicuous
location, and a copy thereof, or a substantially similar notice, must be
provided to the consumer at the time of the transaction.
(iii) A person may provide notices that are substantially similar to
those set forth in appendix A-6 to comply with the requirements of this
paragraph (b)(2).
(3) Collection of returned item fees via electronic fund transfer--
(i) General. The person initiating an electronic fund transfer to
collect a fee for the return of an electronic fund transfer or a check
that is unpaid, including due to insufficient or uncollected funds in
the consumer's account, must obtain the consumer's authorization for
each transfer. A consumer authorizes a one-time electronic fund transfer
from his or her account to pay the fee for the returned item or transfer
if the person collecting the fee provides notice to the consumer stating
that the person may electronically collect the fee, and the consumer
goes forward with the underlying transaction. The notice must state that
the fee will be collected by means of an electronic fund transfer from
the consumer's account if the payment is returned unpaid and must
disclose the dollar amount of the fee. If the fee may vary due to the
amount of the transaction or due to other factors, then, except as
otherwise provided in paragraph (b)(3)(ii) of this section, the person
collecting the fee may disclose, in place of the dollar amount of the
fee, an explanation of how the fee will be determined.
(ii) Point-of-sale transactions. If a fee for an electronic fund
transfer or check returned unpaid may be collected electronically in
connection with a point-of-sale transaction, the person initiating an
electronic fund transfer to collect the fee must post the notice
described in paragraph (b)(3)(i) of this section in a prominent and
conspicuous location. The person also must either provide the consumer
with a copy of the posted notice (or a substantially similar notice) at
the time of the
[[Page 170]]
transaction, or mail the copy (or a substantially similar notice) to the
consumer's address as soon as reasonably practicable after the person
initiates the electronic fund transfer to collect the fee. If the amount
of the fee may vary due to the amount of the transaction or due to other
factors, the posted notice may explain how the fee will be determined,
but the notice provided to the consumer must state the dollar amount of
the fee if the amount can be calculated at the time the notice is
provided or mailed to the consumer.
(c) Exclusions from coverage. The term ``electronic fund transfer''
does not include:
(1) Checks. Any transfer of funds originated by check, draft, or
similar paper instrument; or any payment made by check, draft, or
similar paper instrument at an electronic terminal.
(2) Check guarantee or authorization. Any transfer of funds that
guarantees payment or authorizes acceptance of a check, draft, or
similar paper instrument but that does not directly result in a debit or
credit to a consumer's account.
(3) Wire or other similar transfers. Any transfer of funds through
Fedwire or through a similar wire transfer system that is used primarily
for transfers between financial institutions or between businesses.
(4) Securities and commodities transfers. Any transfer of funds the
primary purpose of which is the purchase or sale of a security or
commodity, if the security or commodity is:
(i) Regulated by the Securities and Exchange Commission or the
Commodity Futures Trading Commission;
(ii) Purchased or sold through a broker-dealer regulated by the
Securities and Exchange Commission or through a futures commission
merchant regulated by the Commodity Futures Trading Commission; or
(iii) Held in book-entry form by a Federal Reserve Bank or Federal
agency.
(5) Automatic transfers by account-holding institution. Any transfer
of funds under an agreement between a consumer and a financial
institution which provides that the institution will initiate individual
transfers without a specific request from the consumer:
(i) Between a consumer's accounts within the financial institution;
(ii) From a consumer's account to an account of a member of the
consumer's family held in the same financial institution; or
(iii) Between a consumer's account and an account of the financial
institution, except that these transfers remain subject to
Sec. 1005.10(e) regarding compulsory use and sections 916 and 917 of the
Act regarding civil and criminal liability.
(6) Telephone-initiated transfers. Any transfer of funds that:
(i) Is initiated by a telephone communication between a consumer and
a financial institution making the transfer; and
(ii) Does not take place under a telephone bill-payment or other
written plan in which periodic or recurring transfers are contemplated.
(7) Small institutions. Any preauthorized transfer to or from an
account if the assets of the account-holding financial institution were
$100 million or less on the preceding December 31. If assets of the
account-holding institution subsequently exceed $100 million, the
institution's exemption for preauthorized transfers terminates one year
from the end of the calendar year in which the assets exceed $100
million. Preauthorized transfers exempt under this paragraph (c)(7)
remain subject to Sec. 1005.10(e) regarding compulsory use and sections
916 and 917 of the Act regarding civil and criminal liability.
[76 FR 81023, Dec. 27, 2011, as amended at 77 FR 6285, Feb. 7, 2012]
Sec. 1005.4 General disclosure requirements; jointly offered services.
(a)(1) Form of disclosures. Disclosures required under this part
shall be clear and readily understandable, in writing, and in a form the
consumer may keep, except as otherwise provided in this part. The
disclosures required by this part 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
[[Page 171]]
U.S.C. 7001 et seq.). A financial institution may use commonly accepted
or readily understandable abbreviations in complying with the disclosure
requirements of this part.
(2) Foreign language disclosures. Disclosures required under this
part may be made in a language other than English, provided that the
disclosures are made available in English upon the consumer's request.
(b) Additional information; disclosures required by other laws. A
financial institution may include additional information and may combine
disclosures required by other laws (such as the Truth in Lending Act (15
U.S.C. 1601 et seq.) or the Truth in Savings Act (12 U.S.C. 4301 et
seq.) with the disclosures required by this part.
(c) Multiple accounts and account holders--(1) Multiple accounts. A
financial institution may combine the required disclosures into a single
statement for a consumer who holds more than one account at the
institution.
(2) Multiple account holders. For joint accounts held by two or more
consumers, a financial institution need provide only one set of the
required disclosures and may provide them to any of the account holders.
(d) Services offered jointly. Financial institutions that provide
electronic fund transfer services jointly may contract among themselves
to comply with the requirements that this part imposes on any or all of
them. An institution need make only the disclosures required by
Secs. 1005.7 and 1005.8 that are within its knowledge and within the
purview of its relationship with the consumer for whom it holds an
account.
Sec. 1005.5 Issuance of access devices.
(a) Solicited issuance. Except as provided in paragraph (b) of this
section, a financial institution may issue an access device to a
consumer only:
(1) In response to an oral or written request for the device; or
(2) As a renewal of, or in substitution for, an accepted access
device whether issued by the institution or a successor.
(b) Unsolicited issuance. A financial institution may distribute an
access device to a consumer on an unsolicited basis if the access device
is:
(1) Not validated, meaning that the institution has not yet
performed all the procedures that would enable a consumer to initiate an
electronic fund transfer using the access device;
(2) Accompanied by a clear explanation that the access device is not
validated and how the consumer may dispose of it if validation is not
desired;
(3) Accompanied by the disclosures required by Sec. 1005.7, of the
consumer's rights and liabilities that will apply if the access device
is validated; and
(4) Validated only in response to the consumer's oral or written
request for validation, after the institution has verified the
consumer's identity by a reasonable means.
Sec. 1005.6 Liability of consumer for unauthorized transfers.
(a) Conditions for liability. A consumer may be held liable, within
the limitations described in paragraph (b) of this section, for an
unauthorized electronic fund transfer involving the consumer's account
only if the financial institution has provided the disclosures required
by Sec. 1005.7(b)(1), (2), and (3). If the unauthorized transfer
involved an access device, it must be an accepted access device and the
financial institution must have provided a means to identify the
consumer to whom it was issued.
(b) Limitations on amount of liability. A consumer's liability for
an unauthorized electronic fund transfer or a series of related
unauthorized transfers shall be determined as follows:
(1) Timely notice given. If the consumer notifies the financial
institution within two business days after learning of the loss or theft
of the access device, the consumer's liability shall not exceed the
lesser of $50 or the amount of unauthorized transfers that occur before
notice to the financial institution.
(2) Timely notice not given. If the consumer fails to notify the
financial institution within two business days after learning of the
loss or theft of the access device, the consumer's liability shall not
exceed the lesser of $500 or the sum of:
[[Page 172]]
(i) $50 or the amount of unauthorized transfers that occur within
the two business days, whichever is less; and
(ii) The amount of unauthorized transfers that occur after the close
of two business days and before notice to the institution, provided the
institution establishes that these transfers would not have occurred had
the consumer notified the institution within that two-day period.
(3) Periodic statement; timely notice not given. A consumer must
report an unauthorized electronic fund transfer that appears on a
periodic statement within 60 days of the financial institution's
transmittal of the statement to avoid liability for subsequent
transfers. If the consumer fails to do so, the consumer's liability
shall not exceed the amount of the unauthorized transfers that occur
after the close of the 60 days and before notice to the institution, and
that the institution establishes would not have occurred had the
consumer notified the institution within the 60-day period. When an
access device is involved in the unauthorized transfer, the consumer may
be liable for other amounts set forth in paragraphs (b)(1) or (b)(2) of
this section, as applicable.
(4) Extension of time limits. If the consumer's delay in notifying
the financial institution was due to extenuating circumstances, the
institution shall extend the times specified above to a reasonable
period.
(5) Notice to financial institution. (i) Notice to a financial
institution is given when a consumer takes steps reasonably necessary to
provide the institution with the pertinent information, whether or not a
particular employee or agent of the institution actually receives the
information.
(ii) The consumer may notify the institution in person, by
telephone, or in writing.
(iii) Written notice is considered given at the time the consumer
mails the notice or delivers it for transmission to the institution by
any other usual means. Notice may be considered constructively given
when the institution becomes aware of circumstances leading to the
reasonable belief that an unauthorized transfer to or from the
consumer's account has been or may be made.
(6) Liability under state law or agreement. If state law or an
agreement between the consumer and the financial institution imposes
less liability than is provided by this section, the consumer's
liability shall not exceed the amount imposed under the state law or
agreement.
Sec. 1005.7 Initial disclosures.
(a) Timing of disclosures. A financial institution shall make the
disclosures required by this section at the time a consumer contracts
for an electronic fund transfer service or before the first electronic
fund transfer is made involving the consumer's account.
(b) Content of disclosures. A financial institution shall provide
the following disclosures, as applicable:
(1) Liability of consumer. A summary of the consumer's liability,
under Sec. 1005.6 or under state or other applicable law or agreement,
for unauthorized electronic fund transfers.
(2) Telephone number and address. The telephone number and address
of the person or office to be notified when the consumer believes that
an unauthorized electronic fund transfer has been or may be made.
(3) Business days. The financial institution's business days.
(4) Types of transfers; limitations. The type of electronic fund
transfers that the consumer may make and any limitations on the
frequency and dollar amount of transfers. Details of the limitations
need not be disclosed if confidentiality is essential to maintain the
security of the electronic fund transfer system.
(5) Fees. Any fees imposed by the financial institution for
electronic fund transfers or for the right to make transfers.
(6) Documentation. A summary of the consumer's right to receipts and
periodic statements, as provided in Sec. 1005.9 of this part, and
notices regarding preauthorized transfers as provided in Sec. 1005.10(a)
and (d).
(7) Stop payment. A summary of the consumer's right to stop payment
of a preauthorized electronic fund transfer and the procedure for
placing a stop-
[[Page 173]]
payment order, as provided in Sec. 1005.10(c).
(8) Liability of institution. A summary of the financial
institution's liability to the consumer under section 910 of the Act for
failure to make or to stop certain transfers.
(9) Confidentiality. The circumstances under which, in the ordinary
course of business, the financial institution may provide information
concerning the consumer's account to third parties.
(10) Error resolution. A notice that is substantially similar to
Model Form A-3 as set out in appendix A of this part concerning error
resolution.
(11) ATM fees. A notice that a fee may be imposed by an automated
teller machine operator as defined in Sec. 1005.16(a), when the consumer
initiates an electronic fund transfer or makes a balance inquiry, and by
any network used to complete the transaction.
(c) Addition of electronic fund transfer services. If an electronic
fund transfer service is added to a consumer's account and is subject to
terms and conditions different from those described in the initial
disclosures, disclosures for the new service are required.
[76 FR 81023, Dec. 27, 2011, as amended at 81 FR 70320, Oct. 12, 2016]
Sec. 1005.8 Change in terms notice; error resolution notice.
(a) Change in terms notice--(1) Prior notice required. A financial
institution shall mail or deliver a written notice to the consumer, at
least 21 days before the effective date, of any change in a term or
condition required to be disclosed under Sec. 1005.7(b) of this part if
the change would result in:
(i) Increased fees for the consumer;
(ii) Increased liability for the consumer;
(iii) Fewer types of available electronic fund transfers; or
(iv) Stricter limitations on the frequency or dollar amount of
transfers.
(2) Prior notice exception. A financial institution need not give
prior notice if an immediate change in terms or conditions is necessary
to maintain or restore the security of an account or an electronic fund
transfer system. If the institution makes such a change permanent and
disclosure would not jeopardize the security of the account or system,
the institution shall notify the consumer in writing on or with the next
regularly scheduled periodic statement or within 30 days of making the
change permanent.
(b) Error resolution notice. For accounts to or from which
electronic fund transfers can be made, a financial institution shall
mail or deliver to the consumer, at least once each calendar year, an
error resolution notice substantially similar to the model form set
forth in appendix A of this part (Model Form A-3). Alternatively, an
institution may include an abbreviated notice substantially similar to
the model form error resolution notice set forth in appendix A of this
part (Model Form A-3), on or with each periodic statement required by
Sec. 1005.9(b).
Sec. 1005.9 Receipts at electronic terminals; periodic statements.
(a) Receipts at electronic terminals--General. Except as provided in
paragraph (e) of this section, a financial institution shall make a
receipt available to a consumer at the time the consumer initiates an
electronic fund transfer at an electronic terminal. The receipt shall
set forth the following information, as applicable:
(1) Amount. The amount of the transfer. A transaction fee may be
included in this amount, provided the amount of the fee is disclosed on
the receipt and displayed on or at the terminal.
(2) Date. The date the consumer initiates the transfer.
(3) Type. The type of transfer and the type of the consumer's
account(s) to or from which funds are transferred. The type of account
may be omitted if the access device used is able to access only one
account at that terminal.
(4) Identification. A number or code that identifies the consumer's
account or accounts, or the access device used to initiate the transfer.
The number or code need not exceed four digits or letters to comply with
the requirements of this paragraph (a)(4).
(5) Terminal location. The location of the terminal where the
transfer is initiated, or an identification such as a code or terminal
number. Except in limited circumstances where all terminals are located
in the same city or state, if the location is disclosed, it
[[Page 174]]
shall include the city and state or foreign country and one of the
following:
(i) The street address; or
(ii) A generally accepted name for the specific location; or
(iii) The name of the owner or operator of the terminal if other
than the account-holding institution.
(6) Third party transfer. The name of any third party to or from
whom funds are transferred.
(b) Periodic statements. For an account to or from which electronic
fund transfers can be made, a financial institution shall send a
periodic statement for each monthly cycle in which an electronic fund
transfer has occurred; and shall send a periodic statement at least
quarterly if no transfer has occurred. The statement shall set forth the
following information, as applicable:
(1) Transaction information. For each electronic fund transfer
occurring during the cycle:
(i) The amount of the transfer;
(ii) The date the transfer was credited or debited to the consumer's
account;
(iii) The type of transfer and type of account to or from which
funds were transferred;
(iv) For a transfer initiated by the consumer at an electronic
terminal (except for a deposit of cash or a check, draft, or similar
paper instrument), the terminal location described in paragraph (a)(5)
of this section; and
(v) The name of any third party to or from whom funds were
transferred.
(2) Account number. The number of the account.
(3) Fees. The amount of any fees assessed against the account during
the statement period for electronic fund transfers, the right to make
transfers, or account maintenance.
(4) Account balances. The balance in the account at the beginning
and at the close of the statement period.
(5) Address and telephone number for inquiries. The address and
telephone number to be used for inquiries or notice of errors, preceded
by ``Direct inquiries to'' or similar language. The address and
telephone number provided on an error resolution notice under
Sec. 1005.8(b) given on or with the statement satisfies this
requirement.
(6) Telephone number for preauthorized transfers. A telephone number
the consumer may call to ascertain whether preauthorized transfers to
the consumer's account have occurred, if the financial institution uses
the telephone-notice option under Sec. 1005.10(a)(1)(iii).
(c) Exceptions to the periodic statement requirement for certain
accounts--(1) Preauthorized transfers to accounts. For accounts that may
be accessed only by preauthorized transfers to the account the following
rules apply:
(i) Passbook accounts. For passbook accounts, the financial
institution need not provide a periodic statement if the institution
updates the passbook upon presentation or enters on a separate document
the amount and date of each electronic fund transfer since the passbook
was last presented.
(ii) Other accounts. For accounts other than passbook accounts, the
financial institution must send a periodic statement at least quarterly.
(2) Intra-institutional transfers. For an electronic fund transfer
initiated by the consumer between two accounts of the consumer in the
same institution, documenting the transfer on a periodic statement for
one of the two accounts satisfies the periodic statement requirement.
(3) Relationship between paragraphs (c)(1) and (2) of this section.
An account that is accessed by preauthorized transfers to the account
described in paragraph (c)(1) of this section and by intra-institutional
transfers described in paragraph (c)(2) of this section, but by no other
type of electronic fund transfers, qualifies for the exceptions provided
by paragraph (c)(1) of this section.
(d) Documentation for foreign-initiated transfers. The failure by a
financial institution to provide a terminal receipt for an electronic
fund transfer or to document the transfer on a periodic statement does
not violate this part if:
(1) The transfer is not initiated within a state; and
(2) The financial institution treats an inquiry for clarification or
documentation as a notice of error in accordance with Sec. 1005.11.
(e) Exception for receipts in small-value transfers. A financial
institution is not
[[Page 175]]
subject to the requirement to make available a receipt under paragraph
(a) of this section if the amount of the transfer is $15 or less.
Sec. 1005.10 Preauthorized transfers.
(a) Preauthorized transfers to consumer's account--(1) Notice by
financial institution. When a person initiates preauthorized electronic
fund transfers to a consumer's account at least once every 60 days, the
account-holding financial institution shall provide notice to the
consumer by:
(i) Positive notice. Providing oral or written notice of the
transfer within two business days after the transfer occurs; or
(ii) Negative notice. Providing oral or written notice, within two
business days after the date on which the transfer was scheduled to
occur, that the transfer did not occur; or
(iii) Readily-available telephone line. Providing a readily
available telephone line that the consumer may call to determine whether
the transfer occurred and disclosing the telephone number on the initial
disclosure of account terms and on each periodic statement.
(2) Notice by payor. A financial institution need not provide notice
of a transfer if the payor gives the consumer positive notice that the
transfer has been initiated.
(3) Crediting. A financial institution that receives a preauthorized
transfer of the type described in paragraph (a)(1) of this section shall
credit the amount of the transfer as of the date the funds for the
transfer are received.
(b) Written authorization for preauthorized transfers from
consumer's account. Preauthorized electronic fund transfers from a
consumer's account may be authorized only by a writing signed or
similarly authenticated by the consumer. The person that obtains the
authorization shall provide a copy to the consumer.
(c) Consumer's right to stop payment--(1) Notice. A consumer may
stop payment of a preauthorized electronic fund transfer from the
consumer's account by notifying the financial institution orally or in
writing at least three business days before the scheduled date of the
transfer.
(2) Written confirmation. The financial institution may require the
consumer to give written confirmation of a stop-payment order within 14
days of an oral notification. An institution that requires written
confirmation shall inform the consumer of the requirement and provide
the address where confirmation must be sent when the consumer gives the
oral notification. An oral stop-payment order ceases to be binding after
14 days if the consumer fails to provide the required written
confirmation.
(d) Notice of transfers varying in amount--(1) Notice. When a
preauthorized electronic fund transfer from the consumer's account will
vary in amount from the previous transfer under the same authorization
or from the preauthorized amount, the designated payee or the financial
institution shall send the consumer written notice of the amount and
date of the transfer at least 10 days before the scheduled date of
transfer.
(2) Range. The designated payee or the institution shall inform the
consumer of the right to receive notice of all varying transfers, but
may give the consumer the option of receiving notice only when a
transfer falls outside a specified range of amounts or only when a
transfer differs from the most recent transfer by more than an agreed-
upon amount.
(e) Compulsory use--(1) Credit. No financial institution or other
person may condition an extension of credit to a consumer on the
consumer's repayment by preauthorized electronic fund transfers, except
for credit extended under an overdraft credit plan or extended to
maintain a specified minimum balance in the consumer's account.
(2) Employment or government benefit. No financial institution or
other person may require a consumer to establish an account for receipt
of electronic fund transfers with a particular institution as a
condition of employment or receipt of a government benefit.
Effective Date Note: At 81 FR 84326, Nov. 22, 2016, Sec. 1005.10 was
amended by revising paragraph (e)(1), effective Oct. 1, 2017. For the
convenience of the user, the revised text is set forth as follows:
[[Page 176]]
Sec. 1005.10 Preauthorized transfers.
* * * * *
(e) Compulsory use--(1) Credit. No financial institution or other
person may condition an extension of credit to a consumer on the
consumer's repayment by preauthorized electronic fund transfers, except
for credit extended under an overdraft credit plan or extended to
maintain a specified minimum balance in the consumer's account. This
exception does not apply to a covered separate credit feature accessible
by a hybrid prepaid-credit card as defined in Regulation Z, 12 CFR
1026.61.
* * * * *
Sec. 1005.11 Procedures for resolving errors.
(a) Definition of error--(1) Types of transfers or inquiries
covered. The term ``error'' means:
(i) An unauthorized electronic fund transfer;
(ii) An incorrect electronic fund transfer to or from the consumer's
account;
(iii) The omission of an electronic fund transfer from a periodic
statement;
(iv) A computational or bookkeeping error made by the financial
institution relating to an electronic fund transfer;
(v) The consumer's receipt of an incorrect amount of money from an
electronic terminal;
(vi) An electronic fund transfer not identified in accordance with
Sec. 1005.9 or Sec. 1005.10(a); or
(vii) The consumer's request for documentation required by
Sec. 1005.9 or Sec. 1005.10(a) or for additional information or
clarification concerning an electronic fund transfer, including a
request the consumer makes to determine whether an error exists under
paragraphs (a)(1)(i) through (vi) of this section.
(2) Types of inquiries not covered. The term ``error'' does not
include:
(i) A routine inquiry about the consumer's account balance;
(ii) A request for information for tax or other recordkeeping
purposes; or
(iii) A request for duplicate copies of documentation.
(b) Notice of error from consumer--(1) Timing; contents. A financial
institution shall comply with the requirements of this section with
respect to any oral or written notice of error from the consumer that:
(i) Is received by the institution no later than 60 days after the
institution sends the periodic statement or provides the passbook
documentation, required by Sec. 1005.9, on which the alleged error is
first reflected;
(ii) Enables the institution to identify the consumer's name and
account number; and
(iii) Indicates why the consumer believes an error exists and
includes to the extent possible the type, date, and amount of the error,
except for requests described in paragraph (a)(1)(vii) of this section.
(2) Written confirmation. A financial institution may require the
consumer to give written confirmation of an error within 10 business
days of an oral notice. An institution that requires written
confirmation shall inform the consumer of the requirement and provide
the address where confirmation must be sent when the consumer gives the
oral notification.
(3) Request for documentation or clarifications. When a notice of
error is based on documentation or clarification that the consumer
requested under paragraph (a)(1)(vii) of this section, the consumer's
notice of error is timely if received by the financial institution no
later than 60 days after the institution sends the information
requested.
(c) Time limits and extent of investigation--(1) Ten-day period. A
financial institution shall investigate promptly and, except as
otherwise provided in this paragraph (c), shall determine whether an
error occurred within 10 business days of receiving a notice of error.
The institution shall report the results to the consumer within three
business days after completing its investigation. The institution shall
correct the error within one business day after determining that an
error occurred.
(2) Forty-five day period. If the financial institution is unable to
complete its investigation within 10 business days, the institution may
take up to 45 days from receipt of a notice of error to investigate and
determine whether an
[[Page 177]]
error occurred, provided the institution does the following:
(i) Provisionally credits the consumer's account in the amount of
the alleged error (including interest where applicable) within 10
business days of receiving the error notice. If the financial
institution has a reasonable basis for believing that an unauthorized
electronic fund transfer has occurred and the institution has satisfied
the requirements of Sec. 1005.6(a), the institution may withhold a
maximum of $50 from the amount credited. An institution need not
provisionally credit the consumer's account if:
(A) The institution requires but does not receive written
confirmation within 10 business days of an oral notice of error; or
(B) The alleged error involves an account that is subject to
Regulation T of the Board of Governors of the Federal Reserve System
(Securities Credit by Brokers and Dealers, 12 CFR part 220);
(ii) Informs the consumer, within two business days after the
provisional crediting, of the amount and date of the provisional
crediting and gives the consumer full use of the funds during the
investigation;
(iii) Corrects the error, if any, within one business day after
determining that an error occurred; and
(iv) Reports the results to the consumer within three business days
after completing its investigation (including, if applicable, notice
that a provisional credit has been made final).
(3) Extension of time periods. The time periods in paragraphs (c)(1)
and (c)(2) of this section are extended as follows:
(i) The applicable time is 20 business days in place of 10 business
days under paragraphs (c)(1) and (2) of this section if the notice of
error involves an electronic fund transfer to or from the account within
30 days after the first deposit to the account was made.
(ii) The applicable time is 90 days in place of 45 days under
paragraph (c)(2) of this section, for completing an investigation, if a
notice of error involves an electronic fund transfer that:
(A) Was not initiated within a state;
(B) Resulted from a point-of-sale debit card transaction; or
(C) Occurred within 30 days after the first deposit to the account
was made.
(4) Investigation. With the exception of transfers covered by
Sec. 1005.14 of this part, a financial institution's review of its own
records regarding an alleged error satisfies the requirements of this
section if:
(i) The alleged error concerns a transfer to or from a third party;
and
(ii) There is no agreement between the institution and the third
party for the type of electronic fund transfer involved.
(d) Procedures if financial institution determines no error or
different error occurred. In addition to following the procedures
specified in paragraph (c) of this section, the financial institution
shall follow the procedures set forth in this paragraph (d) if it
determines that no error occurred or that an error occurred in a manner
or amount different from that described by the consumer:
(1) Written explanation. The institution's report of the results of
its investigation shall include a written explanation of the
institution's findings and shall note the consumer's right to request
the documents that the institution relied on in making its
determination. Upon request, the institution shall promptly provide
copies of the documents.
(2) Debiting provisional credit. Upon debiting a provisionally
credited amount, the financial institution shall:
(i) Notify the consumer of the date and amount of the debiting;
(ii) Notify the consumer that the institution will honor checks,
drafts, or similar instruments payable to third parties and
preauthorized transfers from the consumer's account (without charge to
the consumer as a result of an overdraft) for five business days after
the notification. The institution shall honor items as specified in the
notice, but need honor only items that it would have paid if the
provisionally credited funds had not been debited.
(e) Reassertion of error. A financial institution that has fully
complied with the error resolution requirements has no further
responsibilities under this section should the consumer later reassert
the same error, except in the case of an error asserted by the consumer
following receipt of information
[[Page 178]]
provided under paragraph (a)(1)(vii) of this section.
Effective Date Note: At 81 FR 84326, Nov. 22, 2016, Sec. 1005.11 was
amended by revising paragraphs (c)(2)(i)(A) and (B) and adding paragraph
(c)(2)(i)(C), effective Oct. 1, 2017. For the convenience of the user,
the added and revised text is set forth as follows:
Sec. 1005.11 Procedures for resolving errors.
* * * * *
(c) * * *
(2) * * *
(i) * * *
(A) The institution requires but does not receive written
confirmation within 10 business days of an oral notice of error;
(B) The alleged error involves an account that is subject to
Regulation T of the Board of Governors of the Federal Reserve System
(Securities Credit by Brokers and Dealers, 12 CFR part 220); or
(C) The alleged error involves a prepaid account, other than a
payroll card account or government benefit account, for which the
financial institution has not completed its consumer identification and
verification process, as set forth in Sec. 1005.18(e)(3)(ii).
* * * * *
Sec. 1005.12 Relation to other laws.
(a) Relation to Truth in Lending. (1) The Electronic Fund Transfer
Act and this part govern:
(i) The addition to an accepted credit card, as defined in
Regulation Z (12 CFR 1026.12, comment 12-2), of the capability to
initiate electronic fund transfers;
(ii) The issuance of an access device that permits credit extensions
(under a preexisting agreement between a consumer and a financial
institution) only when the consumer's account is overdrawn or to
maintain a specified minimum balance in the consumer's account, or under
an overdraft service, as defined in Sec. 1005.17(a) of this part;
(iii) The addition of an overdraft service, as defined in
Sec. 1005.17(a), to an accepted access device; and
(iv) A consumer's liability for an unauthorized electronic fund
transfer and the investigation of errors involving an extension of
credit that occurs under an agreement between the consumer and a
financial institution to extend credit when the consumer's account is
overdrawn or to maintain a specified minimum balance in the consumer's
account, or under an overdraft service, as defined in Sec. 1005.17(a).
(2) The Truth in Lending Act and Regulation Z (12 CFR part 1026),
which prohibit the unsolicited issuance of credit cards, govern:
(i) The addition of a credit feature to an accepted access device;
and
(ii) Except as provided in paragraph (a)(1)(ii) of this section, the
issuance of a credit card that is also an access device.
(b) Preemption of inconsistent state laws--(1) Inconsistent
requirements. The Bureau shall determine, upon its own motion or upon
the request of a state, financial institution, or other interested
party, whether the Act and this part preempt state law relating to
electronic fund transfers, or dormancy, inactivity, or service fees, or
expiration dates in the case of gift certificates, store gift cards, or
general-use prepaid cards.
(2) Standards for determination. State law is inconsistent with the
requirements of the Act and this part if state law:
(i) Requires or permits a practice or act prohibited by the Federal
law;
(ii) Provides for consumer liability for unauthorized electronic
fund transfers that exceeds the limits imposed by the Federal law;
(iii) Allows longer time periods than the Federal law for
investigating and correcting alleged errors, or does not require the
financial institution to credit the consumer's account during an error
investigation in accordance with Sec. 1005.11(c)(2)(i) of this part; or
(iv) Requires initial disclosures, periodic statements, or receipts
that are different in content from those required by the Federal law
except to the extent that the disclosures relate to consumer rights
granted by the state law and not by the Federal law.
(c) State exemptions--(1) General rule. Any state may apply for an
exemption from the requirements of the Act or this part for any class of
electronic fund transfers within the state. The Bureau shall grant an
exemption if it determines that:
[[Page 179]]
(i) Under state law the class of electronic fund transfers is
subject to requirements substantially similar to those imposed by the
Federal law; and
(ii) There is adequate provision for state enforcement.
(2) Exception. To assure that the Federal and state courts continue
to have concurrent jurisdiction, and to aid in implementing the Act:
(i) No exemption shall extend to the civil liability provisions of
section 916 of the Act; and
(ii) When the Bureau grants an exemption, the state law requirements
shall constitute the requirements of the Federal law for purposes of
section 916 of the Act, except for state law requirements not imposed by
the Federal law.
Effective Date Note: At 81 FR 84326, Nov. 22, 2016, Sec. 1005.12 was
amended by revising paragraphs (a)(1)(ii), (a)(1)(iv), and (a)(2)(i) and
(ii) and adding paragraph (a)(2)(iii), effective Oct. 1, 2017. For the
convenience of the user, the added and revised text is set forth as
follows:
Sec. 1005.12 Relation to other laws.
(a) * * *
(1) * * *
(ii) The issuance of an access device (other than an access device
for a prepaid account) that permits credit extensions (under a
preexisting agreement between a consumer and a financial institution)
only when the consumer's account is overdrawn or to maintain a specified
minimum balance in the consumer's account, or under an overdraft
service, as defined in Sec. 1005.17(a) of this part;
* * * * *
(iv) A consumer's liability for an unauthorized electronic fund
transfer and the investigation of errors involving:
(A) Except with respect to a prepaid account, an extension of credit
that is incident to an electronic fund transfer that occurs under an
agreement between the consumer and a financial institution to extend
credit when the consumer's account is overdrawn or to maintain a
specified minimum balance in the consumer's account, or under an
overdraft service, as defined in Sec. 1005.17(a);
(B) With respect to transactions that involve a covered separate
credit feature and an asset feature on a prepaid account that are both
accessible by a hybrid prepaid-credit card as those terms are defined in
Regulation Z, 12 CFR 1026.61, an extension of credit that is incident to
an electronic fund transfer that occurs when the hybrid prepaid-credit
card accesses both funds in the asset feature of the prepaid account and
a credit extension from the credit feature with respect to a particular
transaction;
(C) Transactions that involves credit extended through a negative
balance to the asset feature of a prepaid account that meets the
conditions set forth in Regulation Z, 12 CFR 1026.61(a)(4); and
(D) With respect to transactions involving a prepaid account and a
non-covered separate credit feature as defined in Regulation Z, 12 CFR
1026.61, transactions that access the prepaid account, as applicable.
(2) * * *
(i) The addition of a credit feature or plan to an accepted access
device, including an access device for a prepaid account, that would
make the access device into a credit card under Regulation Z (12 CFR
part 1026);
(ii) Except as provided in paragraph (a)(1)(ii) of this section, the
issuance of a credit card that is also an access device; and
(iii) With respect to transactions involving a prepaid account and a
non-covered separate credit feature as defined in Regulation Z, 12 CFR
1026.61, a consumer's liability for unauthorized use and the
investigation of errors involving transactions that access the non-
covered separate credit feature, as applicable.
* * * * *
Sec. 1005.13 Administrative enforcement; record retention.
(a) Enforcement by Federal agencies. Compliance with this part is
enforced in accordance with section 918 of the Act.
(b) Record retention. (1) Any person subject to the Act and this
part shall retain evidence of compliance with the requirements imposed
by the Act and this part for a period of not less than two years from
the date disclosures are required to be made or action is required to be
taken.
(2) Any person subject to the Act and this part having actual notice
that it is the subject of an investigation or an enforcement proceeding
by its enforcement agency, or having been served with notice of an
action filed under sections 910, 916, or 917(a) of the Act, shall retain
the records that pertain to the investigation, action, or proceeding
until final disposition of the matter unless an earlier time is allowed
by court or agency order.
[[Page 180]]
Sec. 1005.14 Electronic fund transfer service provider not holding
consumer's account.
(a) Provider of electronic fund transfer service. A person that
provides an electronic fund transfer service to a consumer but that does
not hold the consumer's account is subject to all requirements of this
part if the person:
(1) Issues a debit card (or other access device) that the consumer
can use to access the consumer's account held by a financial
institution; and
(2) Has no agreement with the account-holding institution regarding
such access.
(b) Compliance by service provider. In addition to the requirements
generally applicable under this part, the service provider shall comply
with the following special rules:
(1) Disclosures and documentation. The service provider shall give
the disclosures and documentation required by Secs. 1005.7, 1005.8, and
1005.9 of this part that are within the purview of its relationship with
the consumer. The service provider need not furnish the periodic
statement required by Sec. 1005.9(b) if the following conditions are
met:
(i) The debit card (or other access device) issued to the consumer
bears the service provider's name and an address or telephone number for
making inquiries or giving notice of error;
(ii) The consumer receives a notice concerning use of the debit card
that is substantially similar to the notice contained in appendix A of
this part;
(iii) The consumer receives, on or with the receipts required by
Sec. 1005.9(a), the address and telephone number to be used for an
inquiry, to give notice of an error, or to report the loss or theft of
the debit card;
(iv) The service provider transmits to the account-holding
institution the information specified in Sec. 1005.9(b)(1), in the
format prescribed by the automated clearinghouse (ACH) system used to
clear the fund transfers;
(v) The service provider extends the time period for notice of loss
or theft of a debit card, set forth in Sec. 1005.6(b)(1) and (2), from
two business days to four business days after the consumer learns of the
loss or theft; and extends the time periods for reporting unauthorized
transfers or errors, set forth in Secs. 1005.6(b)(3) and
1005.11(b)(1)(i), from 60 days to 90 days following the transmittal of a
periodic statement by the account-holding institution.
(2) Error resolution. (i) The service provider shall extend by a
reasonable time the period in which notice of an error must be received,
specified in Sec. 1005.11(b)(1)(i), if a delay resulted from an initial
attempt by the consumer to notify the account-holding institution.
(ii) The service provider shall disclose to the consumer the date on
which it initiates a transfer to effect a provisional credit in
accordance with Sec. 1005.11(c)(2)(ii).
(iii) If the service provider determines an error occurred, it shall
transfer funds to or from the consumer's account, in the appropriate
amount and within the applicable time period, in accordance with
Sec. 1005.11(c)(2)(i).
(iv) If funds were provisionally credited and the service provider
determines no error occurred, it may reverse the credit. The service
provider shall notify the account-holding institution of the period
during which the account-holding institution must honor debits to the
account in accordance with Sec. 1005.11(d)(2)(ii). If an overdraft
results, the service provider shall promptly reimburse the account-
holding institution in the amount of the overdraft.
(c) Compliance by account-holding institution. The account-holding
institution need not comply with the requirements of the Act and this
part with respect to electronic fund transfers initiated through the
service provider except as follows:
(1) Documentation. The account-holding institution shall provide a
periodic statement that describes each electronic fund transfer
initiated by the consumer with the access device issued by the service
provider. The account-holding institution has no liability for the
failure to comply with this requirement if the service provider did not
provide the necessary information; and
(2) Error resolution. Upon request, the account-holding institution
shall provide information or copies of documents needed by the service
provider to investigate errors or to furnish copies of documents to the
consumer. The account-holding institution shall also
[[Page 181]]
honor debits to the account in accordance with Sec. 1005.11(d)(2)(ii).
Sec. 1005.15 Electronic fund transfer of government benefits.
(a) Government agency subject to regulation. (1) A government agency
is deemed to be a financial institution for purposes of the Act and this
part if directly or indirectly it issues an access device to a consumer
for use in initiating an electronic fund transfer of government benefits
from an account, other than needs-tested benefits in a program
established under state or local law or administered by a state or local
agency. The agency shall comply with all applicable requirements of the
Act and this part, except as provided in this section.
(2) For purposes of this section, the term ``account'' means an
account established by a government agency for distributing government
benefits to a consumer electronically, such as through automated teller
machines or point-of-sale terminals, but does not include an account for
distributing needs-tested benefits in a program established under state
or local law or administered by a state or local agency.
(b) Issuance of access devices. For purposes of this section, a
consumer is deemed to request an access device when the consumer applies
for government benefits that the agency disburses or will disburse by
means of an electronic fund transfer. The agency shall verify the
identity of the consumer receiving the device by reasonable means before
the device is activated.
(c) Alternative to periodic statement. A government agency need not
furnish the periodic statement required by Sec. 1005.9(b) if the agency
makes available to the consumer:
(1) The consumer's account balance, through a readily available
telephone line and at a terminal (such as by providing balance
information at a balance-inquiry terminal or providing it, routinely or
upon request, on a terminal receipt at the time of an electronic fund
transfer); and
(2) A written history of the consumer's account transactions that is
provided promptly in response to an oral or written request and that
covers at least 60 days preceding the date of a request by the consumer.
(d) Modified requirements. A government agency that does not furnish
periodic statements, in accordance with paragraph (c) of this section,
shall comply with the following special rules:
(1) Initial disclosures. The agency shall modify the disclosures
under Sec. 1005.7(b) by disclosing:
(i) Account balance. The means by which the consumer may obtain
information concerning the account balance, including a telephone
number. The agency provides a notice substantially similar to the notice
contained in paragraph A-5 in appendix A of this part.
(ii) Written account history. A summary of the consumer's right to
receive a written account history upon request, in place of the periodic
statement required by Sec. 1005.7(b)(6), and the telephone number to
call to request an account history. This disclosure may be made by
providing a notice substantially similar to the notice contained in
paragraph A-5 in appendix A of this part.
(iii) Error resolution. A notice concerning error resolution that is
substantially similar to the notice contained in paragraph A-5 in
appendix A of this part, in place of the notice required by
Sec. 1005.7(b)(10).
(2) Annual error resolution notice. The agency shall provide an
annual notice concerning error resolution that is substantially similar
to the notice contained in paragraph A-5 in appendix A, in place of the
notice required by Sec. 1005.8(b).
(3) Limitations on liability. For purposes of Sec. 1005.6(b)(3),
regarding a 60-day period for reporting any unauthorized transfer that
appears on a periodic statement, the 60-day period shall begin with
transmittal of a written account history or other account information
provided to the consumer under paragraph (c) of this section.
(4) Error resolution. The agency shall comply with the requirements
of Sec. 1005.11 of this part in response to an oral or written notice of
an error from the consumer that is received no later
[[Page 182]]
than 60 days after the consumer obtains the written account history or
other account information, under paragraph (c) of this section, in which
the error is first reflected.
Effective Date Note: At 81 FR 84326, Nov. 22, 2016, Sec. 1005.15 was
revised, effective Oct. 1, 2017. For the convenience of the user, the
revised text is set forth as follows:
Sec. 1005.15 Electronic fund transfer of government benefits.
(a) Government agency subject to regulation. (1) A government agency
is deemed to be a financial institution for purposes of the Act and this
part if directly or indirectly it issues an access device to a consumer
for use in initiating an electronic fund transfer of government benefits
from an account, other than needs-tested benefits in a program
established under state or local law or administered by a state or local
agency. The agency shall comply with all applicable requirements of the
Act and this part except as modified by this section.
(2) For purposes of this section, the term ``account'' or
``government benefit account'' means an account established by a
government agency for distributing government benefits to a consumer
electronically, such as through automated teller machines or point-of-
sale terminals, but does not include an account for distributing needs-
tested benefits in a program established under state or local law or
administered by a state or local agency.
(b) Issuance of access devices. For purposes of this section, a
consumer is deemed to request an access device when the consumer applies
for government benefits that the agency disburses or will disburse by
means of an electronic fund transfer. The agency shall verify the
identity of the consumer receiving the device by reasonable means before
the device is activated.
(c) Pre-acquisition disclosure requirements. (1) Before a consumer
acquires a government benefit account, a government agency shall comply
with the pre-acquisition disclosure requirements applicable to prepaid
accounts as set forth in Sec. 1005.18(b).
(2) Additional content for government benefit accounts--(i)
Statement regarding consumer's payment options. As part of its short
form pre-acquisition disclosures, the agency must provide a statement
that the consumer does not have to accept the government benefit account
and directing the consumer to ask about other ways to receive their
benefit payments from the agency instead of receiving them via the
account, using the following clause or a substantially similar clause:
``You do not have to accept this benefits card. Ask about other ways to
receive your benefits.'' Alternatively, an agency may provide a
statement that the consumer has several options to receive benefit
payments, followed by a list of the options available to the consumer,
and directing the consumer to indicate which option the consumer chooses
using the following clause or a substantially similar clause: ``You have
several options to receive your payments: [list of options available to
the consumer]; or this benefits card. Tell the benefits office which
option you choose.'' This statement must be located above the
information required by Sec. 1005.18(b)(2)(i) through (iv). This
statement must appear in a minimum type size of eight points (or 11
pixels) and appear in no larger a type size than what is used for the
fee headings required by Sec. 1005.18(b)(2)(i) through (iv).
(ii) Statement regarding state-required information or other fee
discounts and waivers. An agency may, but is not required to, include a
statement in one additional line of text in the short form disclosure
directing the consumer to a particular location outside the short form
disclosure for information on ways the consumer may access government
benefit account funds and balance information for free or for a reduced
fee. This statement must be located directly below any statements
disclosed pursuant to Sec. 1005.18(b)(3)(i) and (ii), or, if no such
statements are disclosed, above the statement required by
Sec. 1005.18(b)(2)(x). This statement must appear in the same type size
used to disclose variable fee information pursuant to
Sec. 1005.18(b)(3)(i) and (ii), or, if none, the same type size used for
the information required by Sec. 1005.18(b)(2)(x) through (xiii).
(3) Form of disclosures. When a short form disclosure required by
paragraph (c) of this section is provided in writing or electronically,
the information required by Sec. 1005.18(b)(2)(i) through (ix) shall be
provided in the form of a table. Except as provided in
Sec. 1005.18(b)(6)(iii)(B), the short form disclosure required by
Sec. 1005.18(b)(2) shall be provided in a form substantially similar to
Model Form A-10(a) of appendix A of this part. Sample Form A-10(f) in
appendix A of this part provides an example of the long form disclosure
required by Sec. 1005.18(b)(4) when the agency does not offer multiple
service plans.
(d) Access to account information--(1) Periodic statement
alternative. A government agency need not furnish periodic statements
required by Sec. 1005.9(b) if the agency makes available to the
consumer:
(i) The consumer's account balance, through a readily available
telephone line and at a terminal (such as by providing balance
information at a balance-inquiry terminal or providing it, routinely or
upon request, on a terminal receipt at the time of an electronic fund
transfer);
(ii) An electronic history of the consumer's account transactions,
such as through a Web site, that covers at least 12 months preceding
[[Page 183]]
the date the consumer electronically accesses the account; and
(iii) A written history of the consumer's account transactions that
is provided promptly in response to an oral or written request and that
covers at least 24 months preceding the date the agency receives the
consumer's request.
(2) Additional access to account information requirements. For
government benefit accounts, a government agency shall comply with the
account information requirements applicable to prepaid accounts as set
forth in Sec. 1005.18(c)(3) through (5).
(e) Modified disclosure, limitations on liability, and error
resolution requirements. A government agency that provides information
under paragraph (d)(1) of this section shall comply with the following:
(1) Initial disclosures. The agency shall modify the disclosures
under Sec. 1005.7(b) by disclosing:
(i) Access to account information. A telephone number that the
consumer may call to obtain the account balance, the means by which the
consumer can obtain an electronic account history, such as the address
of a Web site, and a summary of the consumer's right to receive a
written account history upon request (in place of the summary of the
right to receive a periodic statement required by Sec. 1005.7(b)(6)),
including a telephone number to call to request a history. The
disclosure required by this paragraph (e)(1)(i) may be made by providing
a notice substantially similar to the notice contained in paragraph (a)
of appendix A-5 of this part.
(ii) Error resolution. A notice concerning error resolution that is
substantially similar to the notice contained in paragraph (b) of
appendix A-5 of this part, in place of the notice required by
Sec. 1005.7(b)(10).
(2) Annual error resolution notice. The agency shall provide an
annual notice concerning error resolution that is substantially similar
to the notice contained in paragraph (b) of appendix A-5 of this part,
in place of the notice required by Sec. 1005.8(b). Alternatively, the
agency may include on or with each electronic or written history
provided in accordance with paragraph (d)(1) of this section, a notice
substantially similar to the abbreviated notice for periodic statements
contained in paragraph (b) in appendix A-3 of this part, modified as
necessary to reflect the error resolution provisions set forth in this
section.
(3) Modified limitations on liability requirements. (i) For purposes
of Sec. 1005.6(b)(3), the 60-day period for reporting any unauthorized
transfer shall begin on the earlier of:
(A) The date the consumer electronically accesses the consumer's
account under paragraph (d)(1)(ii) of this section, provided that the
electronic history made available to the consumer reflects the
unauthorized transfer; or
(B) The date the agency sends a written history of the consumer's
account transactions requested by the consumer under paragraph
(d)(1)(iii) of this section in which the unauthorized transfer is first
reflected.
(ii) An agency may comply with paragraph (e)(3)(i) of this section
by limiting the consumer's liability for an unauthorized transfer as
provided under Sec. 1005.6(b)(3) for any transfer reported by the
consumer within 120 days after the transfer was credited or debited to
the consumer's account.
(4) Modified error resolution requirements. (i) The agency shall
comply with the requirements of Sec. 1005.11 in response to an oral or
written notice of an error from the consumer that is received by the
earlier of:
(A) Sixty days after the date the consumer electronically accesses
the consumer's account under paragraph (d)(1)(ii) of this section,
provided that the electronic history made available to the consumer
reflects the alleged error; or
(B) Sixty days after the date the agency sends a written history of
the consumer's account transactions requested by the consumer under
paragraph (d)(1)(iii) of this section in which the alleged error is
first reflected.
(ii) In lieu of following the procedures in paragraph (e)(4)(i) of
this section, an agency complies with the requirements for resolving
errors in Sec. 1005.11 if it investigates any oral or written notice of
an error from the consumer that is received by the agency within 120
days after the transfer allegedly in error was credited or debited to
the consumer's account.
(f) Disclosure of fees and other information. For government benefit
accounts, a government agency shall comply with the disclosure and
change-in-terms requirements applicable to prepaid accounts as set forth
in Sec. 1005.18(f).
(g) Government benefit accounts accessible by hybrid prepaid-credit
cards. For government benefit accounts accessible by hybrid prepaid-
credit cards as defined in Regulation Z, 12 CFR 1026.61, a government
agency shall comply with prohibitions and requirements applicable to
prepaid accounts as set forth in Sec. 1005.18(g).
Sec. 1005.16 Disclosures at automated teller machines.
(a) Definition. ``Automated teller machine operator'' means any
person that operates an automated teller machine at which a consumer
initiates an electronic fund transfer or a balance inquiry and that does
not hold the account to or from which the transfer is made, or about
which an inquiry is made.
[[Page 184]]
(b) General. An automated teller machine operator that imposes a fee
on a consumer for initiating an electronic fund transfer or a balance
inquiry must provide a notice that a fee will be imposed for providing
electronic fund transfer services or a balance inquiry that discloses
the amount of the fee.
(c) Notice requirement. An automated teller machine operator must
provide the notice required by paragraph (b) of this section either by
showing it on the screen of the automated teller machine or by providing
it on paper, before the consumer is committed to paying a fee.
(d) Imposition of fee. An automated teller machine operator may
impose a fee on a consumer for initiating an electronic fund transfer or
a balance inquiry only if:
(1) The consumer is provided the notice required under paragraph (c)
of this section, and
(2) The consumer elects to continue the transaction or inquiry after
receiving such notice.
[76 FR 81023, Dec. 27, 2011, as amended at 78 FR 18224, Mar. 26, 2013]
Sec. 1005.17 Requirements for overdraft services.
(a) Definition. For purposes of this section, the term ``overdraft
service'' means a service under which a financial institution assesses a
fee or charge on a consumer's account held by the institution for paying
a transaction (including a check or other item) when the consumer has
insufficient or unavailable funds in the account. The term ``overdraft
service'' does not include any payment of overdrafts pursuant to:
(1) A line of credit subject to Regulation Z (12 CFR part 1026),
including transfers from a credit card account, home equity line of
credit, or overdraft line of credit;
(2) A service that transfers funds from another account held
individually or jointly by a consumer, such as a savings account; or
(3) A line of credit or other transaction exempt from Regulation Z
(12 CFR part 1026) pursuant to 12 CFR 1026.3(d).
(b) Opt-in requirement--(1) General. Except as provided under
paragraph (c) of this section, a financial institution holding a
consumer's account shall not assess a fee or charge on a consumer's
account for paying an ATM or one-time debit card transaction pursuant to
the institution's overdraft service, unless the institution:
(i) Provides the consumer with a notice in writing, or if the
consumer agrees, electronically, segregated from all other information,
describing the institution's overdraft service;
(ii) Provides a reasonable opportunity for the consumer to
affirmatively consent, or opt in, to the service for ATM and one-time
debit card transactions;
(iii) Obtains the consumer's affirmative consent, or opt-in, to the
institution's payment of ATM or one-time debit card transactions; and
(iv) Provides the consumer with confirmation of the consumer's
consent in writing, or if the consumer agrees, electronically, which
includes a statement informing the consumer of the right to revoke such
consent.
(2) Conditioning payment of other overdrafts on consumer's
affirmative consent. A financial institution shall not:
(i) Condition the payment of any overdrafts for checks, ACH
transactions, and other types of transactions on the consumer
affirmatively consenting to the institution's payment of ATM and one-
time debit card transactions pursuant to the institution's overdraft
service; or
(ii) Decline to pay checks, ACH transactions, and other types of
transactions that overdraw the consumer's account because the consumer
has not affirmatively consented to the institution's overdraft service
for ATM and one-time debit card transactions.
(3) Same account terms, conditions, and features. A financial
institution shall provide to consumers who do not affirmatively consent
to the institution's overdraft service for ATM and one-time debit card
transactions the same account terms, conditions, and features that it
provides to consumers who affirmatively consent, except for the
overdraft service for ATM and one-time debit card transactions.
(c) Timing--(1) Existing account holders. For accounts opened prior
to July 1, 2010, the financial institution must
[[Page 185]]
not assess any fees or charges on a consumer's account on or after
August 15, 2010, for paying an ATM or one-time debit card transaction
pursuant to the overdraft service, unless the institution has complied
with Sec. 1005.17(b)(1) and obtained the consumer's affirmative consent.
(2) New account holders. For accounts opened on or after July 1,
2010, the financial institution must comply with Sec. 1005.17(b)(1) and
obtain the consumer's affirmative consent before the institution
assesses any fee or charge on the consumer's account for paying an ATM
or one-time debit card transaction pursuant to the institution's
overdraft service.
(d) Content and format. The notice required by paragraph (b)(1)(i)
of this section shall be substantially similar to Model Form A-9 set
forth in appendix A of this part, include all applicable items in this
paragraph, and may not contain any information not specified in or
otherwise permitted by this paragraph.
(1) Overdraft service. A brief description of the financial
institution's overdraft service and the types of transactions for which
a fee or charge for paying an overdraft may be imposed, including ATM
and one-time debit card transactions.
(2) Fees imposed. The dollar amount of any fees or charges assessed
by the financial institution for paying an ATM or one-time debit card
transaction pursuant to the institution's overdraft service, including
any daily or other overdraft fees. If the amount of the fee is
determined on the basis of the number of times the consumer has
overdrawn the account, the amount of the overdraft, or other factors,
the institution must disclose the maximum fee that may be imposed.
(3) Limits on fees charged. The maximum number of overdraft fees or
charges that may be assessed per day, or, if applicable, that there is
no limit.
(4) Disclosure of opt-in right. An explanation of the consumer's
right to affirmatively consent to the financial institution's payment of
overdrafts for ATM and one-time debit card transactions pursuant to the
institution's overdraft service, including the methods by which the
consumer may consent to the service; and
(5) Alternative plans for covering overdrafts. If the institution
offers a line of credit subject to Regulation Z (12 CFR part 1026) or a
service that transfers funds from another account of the consumer held
at the institution to cover overdrafts, the institution must state that
fact. An institution may, but is not required to, list additional
alternatives for the payment of overdrafts.
(6) Permitted modifications and additional content. If applicable,
the institution may modify the content required by Sec. 1005.17(d) to
indicate that the consumer has the right to opt into, or opt out of, the
payment of overdrafts under the institution's overdraft service for
other types of transactions, such as checks, ACH transactions, or
automatic bill payments; to provide a means for the consumer to exercise
this choice; and to disclose the associated returned item fee and that
additional merchant fees may apply. The institution may also disclose
the consumer's right to revoke consent. For notices provided to
consumers who have opened accounts prior to July 1, 2010, the financial
institution may describe the institution's overdraft service with
respect to ATM and one-time debit card transactions with a statement
such as ``After August 15, 2010, we will not authorize and pay
overdrafts for the following types of transactions unless you ask us to
(see below).''
(e) Joint relationships. If two or more consumers jointly hold an
account, the financial institution shall treat the affirmative consent
of any of the joint consumers as affirmative consent for that account.
Similarly, the financial institution shall treat a revocation of
affirmative consent by any of the joint consumers as revocation of
consent for that account.
(f) Continuing right to opt in or to revoke the opt-in. A consumer
may affirmatively consent to the financial institution's overdraft
service at any time in the manner described in the notice required by
paragraph (b)(1)(i) of this section. A consumer may also revoke consent
at any time in the manner made available to the consumer for
[[Page 186]]
providing consent. A financial institution must implement a consumer's
revocation of consent as soon as reasonably practicable.
(g) Duration and revocation of opt-in. A consumer's affirmative
consent to the institution's overdraft service is effective until
revoked by the consumer, or unless the financial institution terminates
the service.
Effective Date Note: At 81 FR 84328, Nov. 22, 2016, Sec. 1005.17 was
amended by revising paragraphs (a)(2) and (3) and adding paragraph
(a)(4), effective Oct. 1, 2017. For the convenience of the user, the
added and revised text is set forth as follows:
Sec. 1005.17 Requirements for overdraft services.
(a) * * *
(2) A service that transfers funds from another account held
individually or jointly by a consumer, such as a savings account;
(3) A line of credit or other transaction exempt from Regulation Z
(12 CFR part 1026) pursuant to 12 CFR 1026.3(d); or
(4) A covered separate credit feature accessible by a hybrid
prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61; or
credit extended through a negative balance on the asset feature of the
prepaid account that meets the conditions of 12 CFR 1026.61(a)(4).
* * * * *
Sec. 1005.18 Requirements for financial institutions offering payroll
card accounts.
(a) Coverage. A financial institution shall comply with all
applicable requirements of the Act and this part with respect to payroll
card accounts except as provided in this section.
(b) Alternative to periodic statements. (1) A financial institution
need not furnish periodic statements required by Sec. 1005.9(b) if the
institution makes available to the consumer:
(i) The consumer's account balance, through a readily available
telephone line;
(ii) An electronic history of the consumer's account transactions,
such as through a Web site, that covers at least 60 days preceding the
date the consumer electronically accesses the account; and
(iii) A written history of the consumer's account transactions that
is provided promptly in response to an oral or written request and that
covers at least 60 days preceding the date the financial institution
receives the consumer's request.
(2) The history of account transactions provided under paragraphs
(b)(1)(ii) and (iii) of this section must include the information set
forth in Sec. 1005.9(b).
(c) Modified requirements. A financial institution that provides
information under paragraph (b) of this section, shall comply with the
following:
(1) Initial disclosures. The financial institution shall modify the
disclosures under Sec. 1005.7(b) by disclosing:
(i) Account information. A telephone number that the consumer may
call to obtain the account balance, the means by which the consumer can
obtain an electronic account history, such as the address of a Web site,
and a summary of the consumer's right to receive a written account
history upon request (in place of the summary of the right to receive a
periodic statement required by Sec. 1005.7(b)(6)), including a telephone
number to call to request a history. The disclosure required by this
paragraph (c)(1)(i) may be made by providing a notice substantially
similar to the notice contained in paragraph A-7(a) in appendix A of
this part.
(ii) Error resolution. A notice concerning error resolution that is
substantially similar to the notice contained in paragraph A-7(b) in
appendix A of this part, in place of the notice required by
Sec. 1005.7(b)(10).
(2) Annual error resolution notice. The financial institution shall
provide an annual notice concerning error resolution that is
substantially similar to the notice contained in paragraph A-7(b) in
appendix A of this part, in place of the notice required by
Sec. 1005.8(b). Alternatively, a financial institution may include on or
with each electronic and written history provided in accordance with
Sec. 1005.18(b)(1), a notice substantially similar to the abbreviated
notice for periodic statements contained in paragraph A-3(b) in appendix
A of this part, modified as necessary to reflect the error resolution
provisions set forth in this section.
(3) Limitations on liability. (i) For purposes of Sec. 1005.6(b)(3),
the 60-day period for reporting any unauthorized transfer shall begin on
the earlier of:
[[Page 187]]
(A) The date the consumer electronically accesses the consumer's
account under paragraph (b)(1)(ii) of this section, provided that the
electronic history made available to the consumer reflects the transfer;
or
(B) The date the financial institution sends a written history of
the consumer's account transactions requested by the consumer under
paragraph (b)(1)(iii) of this section in which the unauthorized transfer
is first reflected.
(ii) A financial institution may comply with paragraph (c)(3)(i) of
this section by limiting the consumer's liability for an unauthorized
transfer as provided under Sec. 1005.6(b)(3) for any transfer reported
by the consumer within 120 days after the transfer was credited or
debited to the consumer's account.
(4) Error resolution. (i) The financial institution shall comply
with the requirements of Sec. 1005.11 in response to an oral or written
notice of an error from the consumer that is received by the earlier of:
(A) Sixty days after the date the consumer electronically accesses
the consumer's account under paragraph (b)(1)(ii) of this section,
provided that the electronic history made available to the consumer
reflects the alleged error; or
(B) Sixty days after the date the financial institution sends a
written history of the consumer's account transactions requested by the
consumer under paragraph (b)(1)(iii) of this section in which the
alleged error is first reflected.
(ii) In lieu of following the procedures in paragraph (c)(4)(i) of
this section, a financial institution complies with the requirements for
resolving errors in Sec. 1005.11 if it investigates any oral or written
notice of an error from the consumer that is received by the institution
within 120 days after the transfer allegedly in error was credited or
debited to the consumer's account.
Effective Date Note: At 81 FR 84328, Nov. 22, 2016, Sec. 1005.18 was
revised, effective Oct. 1, 2017. For the convenience of the user, the
revised text is set forth as follows:
Sec. 1005.18 Requirements for financial institutions offering prepaid
accounts.
(a) Coverage. A financial institution shall comply with all
applicable requirements of the Act and this part with respect to prepaid
accounts except as modified by this section. For rules governing
government benefit accounts, see Sec. 1005.15.
(b) Pre-acquisition disclosure requirements--(1) Timing of
disclosures--(i) General. Except as provided in paragraphs (b)(1)(ii) or
(iii) of this section, a financial institution shall provide the
disclosures required by paragraph (b) of this section before a consumer
acquires a prepaid account.
(ii) Disclosures for prepaid accounts acquired in retail locations.
A financial institution is not required to provide the long form
disclosures required by paragraph (b)(4) of this section before a
consumer acquires a prepaid account in person at a retail location if
the following conditions are met:
(A) The prepaid account access device is contained inside the
packaging material.
(B) The disclosures required by paragraph (b)(2) of this section are
provided on or are visible through an outward-facing, external surface
of a prepaid account access device's packaging material.
(C) The disclosures required by paragraph (b)(2) of this section
include the information set forth in paragraph (b)(2)(xiii) of this
section that allows a consumer to access the information required to be
disclosed by paragraph (b)(4) of this section by telephone and via a Web
site.
(D) The long form disclosures required by paragraph (b)(4) of this
section are provided after the consumer acquires the prepaid account.
(iii) Disclosures for prepaid accounts acquired orally by telephone.
A financial institution is not required to provide the long form
disclosures required by paragraph (b)(4) of this section before a
consumer acquires a prepaid account orally by telephone if the following
conditions are met:
(A) The financial institution communicates to the consumer orally,
before the consumer acquires the prepaid account, that the information
required to be disclosed by paragraph (b)(4) of this section is
available both by telephone and on a Web site.
(B) The financial institution makes the information required to be
disclosed by paragraph (b)(4) of this section available both by
telephone and on a Web site.
(C) The long form disclosures required by paragraph (b)(4) of this
section are provided after the consumer acquires the prepaid account.
(2) Short form disclosure content. In accordance with paragraph
(b)(1) of this section, a financial institution shall provide a
disclosure setting forth the following fees and information for a
prepaid account, as applicable:
(i) Periodic fee. The periodic fee charged for holding the prepaid
account, assessed on a monthly or other periodic basis, using the term
``Monthly fee,'' ``Annual fee,'' or a substantially similar term.
[[Page 188]]
(ii) Per purchase fee. The fee for making a purchase using the
prepaid account, using the term ``Per purchase'' or a substantially
similar term.
(iii) ATM withdrawal fees. Two fees for using an automated teller
machine to initiate a withdrawal of cash in the United States from the
prepaid account, both within and outside of the financial institution's
network or a network affiliated with the financial institution, using
the term ``ATM withdrawal'' or a substantially similar term, and ``in-
network'' or ``out-of-network,'' respectively, or substantially similar
terms.
(iv) Cash reload fee. The fee for reloading cash into the prepaid
account using the term ``Cash reload'' or a substantially similar term.
The fee disclosed must be the total of all charges from the financial
institution and any third parties for a cash reload.
(v) ATM balance inquiry fees. Two fees for using an automated teller
machine to check the balance of the prepaid account in the United
States, both within and outside of the financial institution's network
or a network affiliated with the financial institution, using the term
``ATM balance inquiry'' or a substantially similar term, and ``in-
network'' or ``out-of-network,'' respectively, or substantially similar
terms.
(vi) Customer service fees. Two fees for calling the financial
institution about the prepaid account, both for calling an interactive
voice response system and a live customer service agent, using the term
``Customer service'' or a substantially similar term, and ``automated''
or ``live agent,'' or substantially similar terms, respectively, and
``per call'' or a substantially similar term. When providing a short
form disclosure for multiple service plans pursuant to paragraph
(b)(6)(iii)(B)(2) of this section, disclose only the fee for calling the
live agent customer service about the prepaid account, using the term
``Live customer service'' or a substantially similar term and ``per
call'' or a substantially similar term.
(vii) Inactivity fee. The fee for non-use, dormancy, or inactivity
of the prepaid account, using the term ``Inactivity'' or a substantially
similar term, as well as the conditions that trigger the financial
institution to impose that fee.
(viii) Statements regarding additional fee types--(A) Statement
regarding number of additional fee types charged. A statement disclosing
the number of additional fee types the financial institution may charge
consumers with respect to the prepaid account, using the following
clause or a substantially similar clause: ``We charge [x] other types of
fees.'' The number of additional fee types disclosed must reflect the
total number of fee types under which the financial institution may
charge fees, excluding:
(1) Fees required to be disclosed pursuant to paragraphs (b)(2)(i)
through (vii) and (b)(5) of this section; and
(2) Any finance charges as described in Regulation Z, 12 CFR
1026.4(b)(11), imposed in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in 12 CFR
1026.61.
(B) Statement directing consumers to disclosure of additional fee
types. If a financial institution makes a disclosure pursuant to
paragraph (b)(2)(ix) of this section, a statement directing consumers to
that disclosure, located after but on the same line of text as the
statement regarding the number of additional fee types required by
paragraph (b)(2)(viii)(A) of this section, using the following clause or
a substantially similar clause: ``Here are some of them:''.
(ix) Disclosure of additional fee types--(A) Determination of which
additional fee types to disclose. The two fee types that generate the
highest revenue from consumers for the prepaid account program or across
prepaid account programs that share the same fee schedule during the
time period provided in paragraphs (b)(2)(ix)(D) and (E) of this
section, excluding:
(1) Fees required to be disclosed pursuant to paragraphs (b)(2)(i)
through (vii) and (b)(5) of this section;
(2) Any fee types that generated less than 5 percent of the total
revenue from consumers for the prepaid account program or across prepaid
account programs that share the same fee schedule during the time period
provided in paragraphs (b)(2)(ix)(D) and (E) of this section; and
(3) Any finance charges as described in Regulation Z, 12 CFR
1026.4(b)(11), imposed in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in 12 CFR
1026.61.
(B) Disclosure of fewer than two additional fee types. A financial
institution that has only one additional fee type that satisfies the
criteria in paragraph (b)(2)(ix)(A) of this section must disclose that
one additional fee type; it may, but is not required to, also disclose
another additional fee type of its choice. A financial institution that
has no additional fee types that satisfy the criteria in paragraph
(b)(2)(ix)(A) of this section is not required to make a disclosure under
this paragraph (b)(2)(ix); it may, but is not required to, disclose one
or two fee types of its choice.
(C) Fee variations in additional fee types. If an additional fee
type required to be disclosed pursuant to paragraph (b)(2)(ix)(A) of
this section has more than two fee variations, or when providing a short
form disclosure for multiple service plans pursuant to paragraph
(b)(6)(iii)(B)(2) of this section, the financial institution must
disclose the name of the additional fee type and the highest fee amount
in accordance with paragraph
[[Page 189]]
(b)(3)(i) of this section. Except when providing a short form disclosure
for multiple service plans pursuant to paragraph (b)(6)(iii)(B)(2) of
this section, if an additional fee type has two fee variations, the
financial institution must disclose the name of the additional fee type
together with the names of the two fee variations and the fee amounts in
a format substantially similar to that used to disclose the two-tier
fees required by paragraphs (b)(2)(v) and (vi) of this section and in
accordance with paragraph (b)(7)(ii)(B)(1) of this section. If a
financial institution only charges one fee under a particular fee type,
the financial institution must disclose the name of the additional fee
type and the fee amount; it may, but is not required to, disclose also
the name of the one fee variation for which the fee amount is charged,
in a format substantially similar to that used to disclose the two-tier
fees required by paragraphs (b)(2)(v) and (vi) of this section, except
that the financial institution would disclose only the one fee variation
name and fee amount instead of two.
(D) Timing of initial assessment of additional fee type disclosure--
(1) Existing prepaid account programs as of October 1, 2017. For a
prepaid account program in effect as of October 1, 2017, the financial
institution must disclose the additional fee types based on revenue for
a 24-month period that begins no earlier than October 1, 2014.
(2) Existing prepaid account programs as of October 1, 2017 with
unavailable data. If a financial institution does not have 24 months of
fee revenue data for a particular prepaid account program from which to
calculate the additional fee types disclosure in advance of October 1,
2017, the financial institution must disclose the additional fee types
based on revenue it reasonably anticipates the prepaid account program
will generate over the 24-month period that begins on October 1, 2017.
(3) New prepaid account programs created on or after October 1,
2017. For a prepaid account program created on or after October 1, 2017,
the financial institution must disclose the additional fee types based
on revenue it reasonably anticipates the prepaid account program will
generate over the first 24 months of the program.
(E) Timing of periodic reassessment and update of additional fee
types disclosure--(1) General. A financial institution must reassess its
additional fee types disclosure periodically as described in paragraph
(b)(2)(ix)(E)(2) of this section and upon a fee schedule change as
described in paragraph (b)(2)(ix)(E)(3) of this section. The financial
institution must update its additional fee types disclosure if the
previous disclosure no longer complies with the requirements of this
paragraph (b)(2)(ix).
(2) Periodic reassessment. A financial institution must reassess
whether its previously disclosed additional fee types continue to comply
with the requirements of this paragraph (b)(2)(ix) every 24 months based
on revenue for the previous 24-month period. The financial institution
must complete this reassessment and update its disclosures, if
applicable, within three months of the end of the 24-month period,
except as provided in the update printing exception in paragraph
(b)(2)(ix)(E)(4) of this section. A financial institution may, but is
not required to, carry out this reassessment and update, if applicable,
more frequently than every 24 months, at which time a new 24-month
period commences.
(3) Fee schedule change. If a financial institution revises the fee
schedule for a prepaid account program, it must determine whether it
reasonably anticipates that the previously disclosed additional fee
types will continue to comply with the requirements of this paragraph
(b)(2)(ix) for the 24 months following implementation of the fee
schedule change. If the financial institution reasonably anticipates
that the previously disclosed additional fee types will not comply with
the requirements of this paragraph (b)(2)(ix), it must update the
disclosure based on its reasonable anticipation of what those additional
fee types will be at the time the fee schedule change goes into effect,
except as provided in the update printing exception in paragraph
(b)(2)(ix)(E)(4) of this section. If an immediate change in terms and
conditions is necessary to maintain or restore the security of an
account or an electronic fund transfer system as described in
Sec. 1005.8(a)(2) and that change affects the prepaid account program's
fee schedule, the financial institution must complete its reassessment
and update its disclosures, if applicable, within three months of the
date it makes the change permanent, except as provided in the update
printing exception in paragraph (b)(2)(ix)(E)(4) of this section.
(4) Update printing exception. Notwithstanding the requirements to
update additional fee types disclosures in paragraph (b)(2)(ix)(E) of
this section, a financial institution is not required to update the
listing of additional fee types that are provided on, in, or with
prepaid account packaging materials that were manufactured, printed, or
otherwise produced prior to a periodic reassessment and update pursuant
to paragraph (b)(2)(ix)(E)(2) of this section or prior to a fee schedule
change pursuant to paragraph (b)(2)(ix)(E)(3) of this section.
(x) Statement regarding overdraft credit features. If a covered
separate credit feature accessible by a hybrid prepaid-credit card as
defined in Regulation Z, 12 CFR 1026.61, may be offered at any point to
a consumer in connection with the prepaid account, a statement that
overdraft/credit may be offered, the time period after which it may be
offered, and that fees would apply, using the
[[Page 190]]
following clause or a substantially similar clause: ``You may be offered
overdraft/credit after [x] days. Fees would apply.'' If no such credit
feature will be offered at any point to a consumer in connection with
the prepaid account, a statement that no overdraft credit feature is
offered, using the following clause or a substantially similar clause:
``No overdraft/credit feature.''
(xi) Statement regarding registration and FDIC or NCUA insurance. A
statement regarding the prepaid account program's eligibility for FDIC
deposit insurance or NCUA share insurance, as appropriate, and directing
the consumer to register the prepaid account for insurance and other
account protections, where applicable, as follows:
(A) Account is insurance eligible and does not have pre-acquisition
customer identification/verification. If a prepaid account program is
set up to be eligible for FDIC deposit or NCUA share insurance, and
customer identification and verification does not occur before the
account is opened, using the following clause or a substantially similar
clause: ``Register your card for [FDIC insurance eligibility] [NCUA
insurance, if eligible,] and other protections.''
(B) Account is not insurance eligible and does not have pre-
acquisition customer identification/verification. If a prepaid account
program is not set up to be eligible for FDIC deposit or NCUA share
insurance, and customer identification and verification does not occur
before the account is opened, using the following clause or a
substantially similar clause: ``Not [FDIC] [NCUA] insured. Register your
card for other protections.''
(C) Account is insurance eligible and has pre-acquisition customer
identification/verification. If a prepaid account program is set up to
be eligible for FDIC deposit or NCUA share insurance, and customer
identification and verification occurs for all prepaid accounts within
the prepaid program before the account is opened, using the following
clause or a substantially similar clause: ``Your funds are [eligible for
FDIC insurance] [NCUA insured, if eligible].''
(D) Account is not insurance eligible and has pre-acquisition
customer identification/verification. If a prepaid account program is
not set up to be eligible for FDIC deposit or NCUA share insurance, and
customer identification and verification occurs for all prepaid accounts
within the prepaid account program before the account is opened, using
the following clause or a substantially similar clause: ``Your funds are
not [FDIC] [NCUA] insured.''
(E) No customer identification/verification. If a prepaid account
program is set up such that there is no customer identification and
verification process for any prepaid accounts within the prepaid account
program, using the following clause or a substantially similar clause:
``Treat this card like cash. Not [FDIC] [NCUA] insured.''
(xii) Statement regarding CFPB Web site. A statement directing the
consumer to a Web site URL of the Consumer Financial Protection Bureau
(cfpb.gov/prepaid) for general information about prepaid accounts, using
the following clause or a substantially similar clause: ``For general
information about prepaid accounts, visit cfpb.gov/prepaid.''
(xiii) Statement regarding information on all fees and services. A
statement directing the consumer to the location of the long form
disclosure required by paragraph (b)(4) of this section to find details
and conditions for all fees and services. For a financial institution
offering prepaid accounts at a retail location pursuant to the retail
location exception in paragraph (b)(1)(ii) of this section, this
statement must also include a telephone number and a Web site URL that a
consumer may use to directly access, respectively, an oral and an
electronic version of the long form disclosure required under paragraph
(b)(4) of this section. The disclosure required by this paragraph must
be made using the following clause or a substantially similar clause:
``Find details and conditions for all fees and services in [location]''
or, for prepaid accounts offered at retail locations pursuant to
paragraph (b)(1)(ii) of this section, made using the following clause or
a substantially similar clause: ``Find details and conditions for all
fees and services inside the package, or call [telephone number] or
visit [Web site].'' The Web site URL may not exceed 22 characters and
must be meaningfully named. A financial institution may, but is not
required to, disclose an SMS code at the end of the statement disclosing
the telephone number and Web site URL, if the SMS code can be
accommodated on the same line of text as the statement required by this
paragraph.
(xiv) Additional content for payroll card accounts--(A) Statement
regarding wage or salary payment options. For payroll card accounts, a
statement that the consumer does not have to accept the payroll card
account and directing the consumer to ask about other ways to receive
wages or salary from the employer instead of receiving them via the
payroll card account using the following clause or a substantially
similar clause: ``You do not have to accept this payroll card. Ask your
employer about other ways to receive your wages.'' Alternatively, a
financial institution may provide a statement that the consumer has
several options to receive wages or salary, followed by a list of the
options available to the consumer, and directing the consumer to tell
the employer which option the consumer chooses using the following
clause or a substantially similar clause: ``You have several options to
receive your wages: [list of options available to the consumer]; or this
payroll card. Tell your
[[Page 191]]
employer which option you choose.'' This statement must be located above
the information required by paragraphs (b)(2)(i) through (iv).
(B) Statement regarding state-required information or other fee
discounts and waivers. For payroll card accounts, a financial
institution may, but is not required to, include a statement in one
additional line of text directing the consumer to a particular location
outside the short form disclosure for information on ways the consumer
may access payroll card account funds and balance information for free
or for a reduced fee. This statement must be located directly below any
statements disclosed pursuant to paragraphs (b)(3)(i) and (ii) of this
section, or, if no such statements are disclosed, above the statement
required by paragraph (b)(2)(x) of this section.
(3) Short form disclosure of variable fees and third-party fees and
prohibition on disclosure of finance charges--(i) General disclosure of
variable fees. If the amount of any fee that is required to be disclosed
in the short form disclosure pursuant to paragraphs (b)(2)(i) through
(vii) and (ix) of this section could vary, a financial institution shall
disclose the highest amount it may impose for that fee, followed by a
symbol, such as an asterisk, linked to a statement explaining that the
fee could be lower depending on how and where the prepaid account is
used, using the following clause or a substantially similar clause:
``This fee can be lower depending on how and where this card is used.''
Except as provided in paragraph (b)(3)(ii) of this section, a financial
institution must use the same symbol and statement for all fees that
could vary. The linked statement must be located above the statement
required by paragraph (b)(2)(x) of this section.
(ii) Disclosure of variable periodic fee. If the amount of the
periodic fee disclosed in the short form disclosure pursuant to
paragraph (b)(2)(i) of this section could vary, as an alternative to the
disclosure required by paragraph (b)(3)(i) of this section, the
financial institution may disclose the highest amount it may impose for
the periodic fee, followed by a symbol, such as a dagger, that is
different from the symbol the financial institution uses pursuant to
paragraph (b)(3)(i) of this section, to indicate that a waiver of the
fee or a lower fee might apply, linked to a statement in one additional
line of text disclosing the waiver or reduced fee amount and explaining
the circumstances under which the fee waiver or reduction may occur. The
linked statement must be located directly above or in place of the
linked statement required by paragraph (b)(3)(i) of this section, as
applicable.
(iii) Single disclosure for like fees. As an alternative to the two-
tier fee disclosure required by paragraphs (b)(2)(iii), (v), and (vi) of
this section and any two-tier fee required by paragraph (b)(2)(ix) of
this section, a financial institution may disclose a single fee amount
when the amount is the same for both fees.
(iv) Third-party fees in general. Except as provided in paragraph
(b)(3)(v) of this section, a financial institution may not include any
third-party fees in a disclosure made pursuant to paragraph (b)(2) of
this section.
(v) Third-party cash reload fees. Any third-party fee included in
the cash reload fee disclosed in the short form pursuant to paragraph
(b)(2)(iv) of this section must be the highest fee known by the
financial institution at the time it prints, or otherwise prepares, the
short form disclosure required by paragraph (b)(2) of this section. A
financial institution is not required to revise its short form
disclosure to reflect a cash reload fee change by a third party until
such time that the financial institution manufactures, prints, or
otherwise produces new prepaid account packaging materials or otherwise
updates the short form disclosure.
(vi) Prohibition on disclosure of finance charges. A financial
institution may not include in a disclosure made pursuant to paragraphs
(b)(2)(i) through (ix) of this section any finance charges as described
in Regulation Z, 12 CFR 1026.4(b)(11), imposed in connection with a
covered separate credit feature accessible by a hybrid prepaid-credit
card as defined in 12 CFR 1026.61.
(4) Long form disclosure content. In accordance with paragraph
(b)(1) of this section, a financial institution shall provide a
disclosure setting forth the following fees and information for a
prepaid account, as applicable:
(i) Title for long form disclosure. A heading stating the name of
the prepaid account program and that the long form disclosure contains a
list of all fees for that particular prepaid account program.
(ii) Fees. All fees that may be imposed in connection with a prepaid
account. For each fee, the financial institution must disclose the
amount of the fee and the conditions, if any, under which the fee may be
imposed, waived, or reduced. A financial institution may not use any
symbols, such as an asterisk, to explain conditions under which any fee
may be imposed. A financial institution may, but is not required to,
include in the long form disclosure any service or feature it provides
or offers at no charge to the consumer. The financial institution must
also disclose any third-party fee amounts known to the financial
institution that may apply. For any such third-party fee disclosed, the
financial institution may, but is not required to, include either or
both a statement that the fee is accurate as of or through a specific
date or that the third-party fee is subject to change. If a third-party
fee may apply but the amount of that fee is not known by the
[[Page 192]]
financial institution, it must include a statement indicating that the
third-party fee may apply without specifying the fee amount. A financial
institution is not required to revise the long form disclosure required
by paragraph (b)(4) of this section to reflect a fee change by a third
party until such time that the financial institution manufactures,
prints, or otherwise produces new prepaid account packaging materials or
otherwise updates the long form disclosure.
(iii) Statement regarding registration and FDIC or NCUA insurance.
The statement required by paragraph (b)(2)(xi) of this section, together
with an explanation of FDIC or NCUA insurance coverage and the benefit
of such coverage or the consequence of the lack of such coverage, as
applicable.
(iv) Statement regarding overdraft credit features. The statement
required by paragraph (b)(2)(x) of this section.
(v) Statement regarding financial institution contact information. A
statement directing the consumer to a telephone number, mailing address,
and Web site URL of the person or office that a consumer may contact to
learn about the terms and conditions of the prepaid account, to obtain
prepaid account balance information, to request a copy of transaction
history pursuant to paragraph (c)(1)(iii) of this section if the
financial institution does not provide periodic statements pursuant to
Sec. 1005.9(b), or to notify the financial institution when the consumer
believes that an unauthorized electronic fund transfer occurred as
required by Sec. 1005.7(b)(2) and paragraph (d)(1)(ii) of this section.
(vi) Statement regarding CFPB Web site and telephone number. A
statement directing the consumer to a Web site URL of the Consumer
Financial Protection Bureau (cfpb.gov/prepaid) for general information
about prepaid accounts, and a statement directing the consumer to a
Consumer Financial Protection Bureau telephone number (1-855-411-2372)
and Web site URL (cfpb.gov/complaint) to submit a complaint about a
prepaid account, using the following clause or a substantially similar
clause: ``For general information about prepaid accounts, visit
cfpb.gov/prepaid. If you have a complaint about a prepaid account, call
the Consumer Financial Protection Bureau at 1-855-411-2372 or visit
cfpb.gov/complaint.''
(vii) Regulation Z disclosures for overdraft credit features. The
disclosures described in Regulation Z, 12 CFR 1026.60(e)(1), in
accordance with the requirements for such disclosures in 12 CFR 1026.60,
if, at any point, a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in 12 CFR 1026.61, may be offered
in connection with the prepaid account. A financial institution may, but
is not required to, include above the Regulation Z disclosures required
by this paragraph a heading and other explanatory information
introducing the overdraft credit feature. A financial institution is not
required to revise the disclosure required by this paragraph to reflect
a change in the fees or other terms disclosed therein until such time as
the financial institution manufactures, prints, or otherwise produces
new prepaid account packaging materials or otherwise updates the long
form disclosure.
(5) Disclosure requirements outside the short form disclosure. At
the time a financial institution provides the short form disclosure, it
must also disclose the following information: the name of the financial
institution; the name of the prepaid account program; the purchase price
for the prepaid account, if any; and the fee for activating the prepaid
account, if any. In a setting other than in a retail location, this
information must be disclosed in close proximity to the short form. In a
retail location, this information, other than the purchase price, must
be disclosed on the exterior of the access device's packaging material.
In a retail location, the purchase price must be disclosed either on the
exterior of or in close proximity to the prepaid account access device's
packaging material.
(6) Form of pre-acquisition disclosures--(i) General--(A) Written
disclosures. Except as provided in paragraphs (b)(6)(i)(B) and (C) of
this section, disclosures required by paragraph (b) of this section must
be in writing.
(B) Electronic disclosures. The disclosures required by paragraph
(b) of this section must be provided in electronic form when a consumer
acquires a prepaid account through electronic means, including via a Web
site or mobile application, and must be viewable across all screen
sizes. The long form disclosure must be provided electronically through
a Web site when a financial institution is offering prepaid accounts at
a retail location pursuant to the retail location exception in paragraph
(b)(1)(ii) of this section. Electronic disclosures must be provided in a
manner which is reasonably expected to be accessible in light of how a
consumer is acquiring the prepaid account, in a responsive form, and
using machine-readable text that is accessible via Web browsers or
mobile applications, as applicable, and via screen readers. Electronic
disclosures provided pursuant to paragraph (b) of this section need not
meet 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.).
(C) Oral disclosures. Disclosures required by paragraphs (b)(2) and
(5) of this section must be provided orally when a consumer acquires a
prepaid account orally by telephone as described in paragraph
(b)(1)(iii) of this section. For prepaid accounts acquired in retail
locations or orally by telephone, disclosures required by paragraph
(b)(4) of this section provided by telephone pursuant to paragraph
[[Page 193]]
(b)(1)(ii)(B) or (b)(1)(iii)(B) of this section also must be made
orally.
(ii) Retainable form. Pursuant to Sec. 1005.4(a)(1), disclosures
required by paragraph (b) of this section must be made in a form that a
consumer may keep, except for disclosures provided orally pursuant to
paragraphs (b)(1)(ii) or (iii) of this section, long form disclosures
provided via SMS as permitted by paragraph (b)(2)(xiii) of this section
for a prepaid account sold at retail locations pursuant to the retail
location exception in paragraph (b)(1)(ii) of this section, and the
disclosure of a purchase price pursuant to paragraph (b)(5) of this
section that is not disclosed on the exterior of the packaging material
for a prepaid account sold at a retail location pursuant to the retail
location exception in paragraph (b)(1)(ii) of this section.
(iii) Tabular format--(A) General. When a short form disclosure is
provided in writing or electronically, the information required by
paragraphs (b)(2)(i) through (ix) of this section shall be provided in
the form of a table. Except as provided in paragraph (b)(6)(iii)(B) of
this section, the short form disclosures required by paragraph (b)(2) of
this section shall be provided in a form substantially similar to Model
Forms A-10(a) through (d) in appendix A of this part, as applicable.
When a long form disclosure is provided in writing or electronically,
the information required by paragraph (b)(4)(ii) of this section shall
be provided in the form of a table. Sample Form A-10(f) in appendix A of
this part provides an example of the long form disclosure required by
paragraph (b)(4) of this section when the financial institution does not
offer multiple service plans.
(B) Multiple service plans--(1) Short form disclosure for default
service plan. When a financial institution offers multiple service plans
within a particular prepaid account program and each plan has a
different fee schedule, the information required by paragraphs (b)(2)(i)
through (ix) of this section may be provided in the tabular format
described in paragraph (b)(6)(iii)(A) of this section for the service
plan in which a consumer is initially enrolled by default upon acquiring
the prepaid account.
(2) Short form disclosure for multiple service plans. As an
alternative to disclosing the default service plan pursuant to paragraph
(b)(6)(iii)(B)(1) of this section, when a financial institution offers
multiple service plans within a particular prepaid account program and
each plan has a different fee schedule, fee disclosures required by
paragraphs (b)(2)(i) through (vii) and (ix) of this section may be
provided in the form of a table with separate columns for each service
plan, in a form substantially similar to Model Form A-10(e) in appendix
A of this part. Column headings must describe each service plan included
in the table, using the terms ``Pay-as-you-go plan,'' ``Monthly plan,''
``Annual plan,'' or substantially similar terms; or, for multiple
service plans offering preferred rates or fees for the prepaid accounts
of consumers who also use another non-prepaid service, column headings
must describe each service plan included in the table for the preferred-
and non-preferred service plans, as applicable.
(3) Long form disclosure. The information in the long form
disclosure required by paragraph (b)(4)(ii) of this section must be
presented in the form of a table for all service plans.
(7) Specific formatting requirements for pre-acquisition
disclosures--(i) Grouping--(A) Short form disclosure. The information
required in the short form disclosure by paragraphs (b)(2)(i) through
(iv) of this section must be grouped together and provided in that
order. The information required by paragraphs (b)(2)(v) through (ix) of
this section must be generally grouped together and provided in that
order. The information required by paragraphs (b)(3)(i) and (ii) of this
section, as applicable, must be generally grouped together and in the
location described by paragraphs (b)(3)(i) and (ii) of this section. The
information required by paragraphs (b)(2)(x) through (xiii) of this
section must be generally grouped together and provided in that order.
The statement regarding wage or salary payment options for payroll card
accounts required by paragraph (b)(2)(xiv)(A) of this section must be
located above the information required by paragraphs (b)(2)(i) through
(iv) of this section, as described in paragraph (b)(2)(xiv)(A) of this
section. The statement regarding state-required information or other fee
discounts or waivers permitted by paragraph (b)(2)(xiv)(B) of this
section, when applicable, must appear in the location described by
paragraph (b)(2)(xiv)(B) of this section.
(B) Long form disclosure. The information required by paragraph
(b)(4)(i) of this section must be located in the first line of the long
form disclosure. The information required by paragraph (b)(4)(ii) of
this section must be generally grouped together and organized under
subheadings by the categories of function for which a financial
institution may impose the fee. Text describing the conditions under
which a fee may be imposed must appear in the table required by
paragraph (b)(6)(iii)(A) of this section in close proximity to the fee
amount. The information in the long form disclosure required by
paragraphs (b)(4)(iii) through (vi) of this section must be generally
grouped together, provided in that order, and appear below the
information required by paragraph (b)(4)(ii) of this section. If,
pursuant to Sec. 1005.18(b)(4)(vii), the financial institution includes
the disclosures described in Regulation Z, 12 CFR 1026.60(e)(1), such
disclosures
[[Page 194]]
must appear below the disclosures required by paragraph (b)(4)(vi) of
this section.
(C) Multiple service plan disclosure. When providing a short form
disclosure for multiple service plans pursuant to paragraph
(b)(6)(iii)(B)(2) of this section, in lieu of the requirements in
paragraph (b)(7)(i)(A) of this section for grouping of the disclosures
required by paragraphs (b)(2)(i) through (iv) and (v) through (ix) of
this section, the information required by paragraphs (b)(2)(i) through
(ix) of this section must be grouped together and provided in that
order.
(ii) Prominence and size--(A) General. All text used to disclose
information in the short form or in the long form disclosure pursuant to
paragraphs (b)(2), (b)(3)(i) and (ii), and (b)(4) of this section must
be in a single, easy-to-read type that is all black or one color and
printed on a background that provides a clear contrast.
(B) Short form disclosure--(1) Fees and other information. The
information required in the short form disclosure by paragraphs
(b)(2)(i) through (iv) of this section must appear as follows: Fee
amounts in bold-faced type; single fee amounts in a minimum type size of
15 points (or 21 pixels); two-tier fee amounts for ATM withdrawal in a
minimum type size of 11 points (or 16 pixels) and in no larger a type
size than what is used for the single fee amounts; and fee headings in a
minimum type size of eight points (or 11 pixels) and in no larger a type
size than what is used for the single fee amounts. The information
required by paragraphs (b)(2)(v) through (ix) of this section must
appear in a minimum type size of eight points (or 11 pixels) and appear
in the same or a smaller type size than what is used for the fee
headings required by paragraphs (b)(2)(i) through (iv) of this section.
The information required by paragraphs (b)(2)(x) through (xiii) of this
section must appear in a minimum type size of seven points (or nine
pixels) and appear in no larger a type size than what is used for the
information required to be disclosed by paragraphs (b)(2)(v) through
(ix) of this section. Additionally, the statements disclosed pursuant to
paragraphs (b)(2)(viii)(A) and (b)(2)(x) of this section and the
telephone number and URL disclosed pursuant to paragraph (b)(2)(xiii) of
this section, where applicable, must appear in bold-faced type. The
following information must appear in a minimum type size of six points
(or eight pixels) and appear in no larger a type size that what is used
for the information required by paragraphs (b)(2)(x) through (xiii) of
this section: text used to distinguish each of the two-tier fees
pursuant to paragraphs (b)(2)(iii), (v), (vi), and (ix) of this section;
text used to explain that the fee required by paragraph (b)(2)(vi) of
this section applies ``per call,'' where applicable; and text used to
explain the conditions that trigger an inactivity fee and that the fee
applies monthly or for the applicable time period, pursuant to paragraph
(b)(2)(vii) of this section.
(2) Variable fees. The symbols and corresponding statements
regarding variable fees disclosed in the short form pursuant to
paragraphs (b)(3)(i) and (ii) of this section, when applicable, must
appear in a minimum type size of seven points (or nine pixels) and
appear in no larger a type size than what is used for the information
required by paragraphs (b)(2)(x) through (xiii) of this section. A
symbol required next to the fee amount pursuant to paragraphs (b)(3)(i)
and (ii) of this section must appear in the same type size or pixel size
as what is used for the corresponding fee amount.
(3) Payroll card account additional content. The statement regarding
wage or salary payment options for payroll card accounts required by
paragraph (b)(2)(xiv)(A) of this section, when applicable, must appear
in a minimum type size of eight points (or 11 pixels) and appear in no
larger a type size than what is used for the fee headings required by
paragraphs (b)(2)(i) through (iv) of this section. The statement
regarding state-required information and other fee discounts or waivers
permitted by paragraph (b)(2)(xiv)(B) of this section must appear in the
same type size used to disclose variable fee information pursuant to
paragraph (b)(3)(i) and (ii) of this section, or, if none, the same type
size used for the information required by paragraphs (b)(2)(x) through
(xiii) of this section.
(C) Long form disclosure. Long form disclosures required by
paragraph (b)(4) of this section must appear in a minimum type size of
eight points (or 11 pixels).
(D) Multiple service plan short form disclosure. When providing a
short form disclosure for multiple service plans pursuant to paragraph
(b)(6)(iii)(B)(2) of this section, the fee headings required by
paragraphs (b)(2)(i) through (iv) of this section must appear in bold-
faced type. The information required by paragraphs (b)(2)(i) through
(xiii) of this section must appear in a minimum type size of seven
points (or nine pixels), except the following must appear in a minimum
type size of six points (or eight pixels) and appear in no larger a type
size than what is used for the information required by paragraphs
(b)(2)(i) through (xiii) of this section: Text used to distinguish each
of the two-tier fees required by paragraphs (b)(2)(iii) and (v) of this
section; text used to explain that the fee required by paragraph
(b)(2)(vi) of this section applies ``per call,'' where applicable; text
used to explain the conditions that trigger an inactivity fee pursuant
to paragraph (b)(2)(vii) of this section; and text used to distinguish
that fees required by paragraphs (b)(2)(i) and (vii) of this section
apply monthly or for the applicable time period.
(iii) Segregation. Short form and long form disclosures required by
paragraphs (b)(2) and (4) of this section must be segregated from
[[Page 195]]
other information and must contain only information that is required or
permitted for those disclosures by paragraph (b) of this section.
(8) Terminology of pre-acquisition disclosures. Fee names and other
terms must be used consistently within and across the disclosures
required by paragraph (b) of this section.
(9) Prepaid accounts acquired in foreign languages--(i) General. A
financial institution must provide the pre-acquisition disclosures
required by paragraph (b) of this section in a foreign language, if the
financial institution uses that same foreign language in connection with
the acquisition of a prepaid account in the following circumstances:
(A) The financial institution principally uses a foreign language on
the prepaid account packaging material;
(B) The financial institution principally uses a foreign language to
advertise, solicit, or market a prepaid account and provides a means in
the advertisement, solicitation, or marketing material that the consumer
uses to acquire the prepaid account by telephone or electronically; or
(C) The financial institution provides a means for the consumer to
acquire a prepaid account by telephone or electronically principally in
a foreign language.
(ii) Long form disclosures in English upon request. A financial
institution required to provide pre-acquisition disclosures in a foreign
language pursuant to paragraph (b)(9)(i) of this section must also
provide the information required to be disclosed in its pre-acquisition
long form disclosure pursuant to paragraph (b)(4) of this section in
English upon a consumer's request and on any part of the Web site where
it discloses this information in a foreign language.
(c) Access to prepaid account information--(1) Periodic statement
alternative. A financial institution need not furnish periodic
statements required by Sec. 1005.9(b) if the financial institution makes
available to the consumer:
(i) The consumer's account balance, through a readily available
telephone line;
(ii) An electronic history of the consumer's account transactions,
such as through a Web site, that covers at least 12 months preceding the
date the consumer electronically accesses the account; and
(iii) A written history of the consumer's account transactions that
is provided promptly in response to an oral or written request and that
covers at least 24 months preceding the date the financial institution
receives the consumer's request.
(2) Periodic statement alternative for unverified prepaid accounts.
For prepaid accounts that are not payroll card accounts or government
benefit accounts, a financial institution is not required to provide a
written history of the consumer's account transactions pursuant to
paragraph (c)(1)(iii) of this section for any prepaid account for which
the financial institution has not completed its consumer identification
and verification process as described in paragraph (e)(3)(i)(A) through
(C) of this section.
(3) Information included on electronic or written histories. The
history of account transactions provided under paragraphs (c)(1)(ii) and
(iii) of this section must include the information set forth in
Sec. 1005.9(b).
(4) Inclusion of all fees charged. A financial institution must
disclose the amount of any fees assessed against the account, whether
for electronic fund transfers or otherwise, on any periodic statement
provided pursuant to Sec. 1005.9(b) and on any history of account
transactions provided or made available by the financial institution.
(5) Summary totals of fees. A financial institution must display a
summary total of the amount of all fees assessed by the financial
institution against the consumer's prepaid account for the prior
calendar month and for the calendar year to date on any periodic
statement provided pursuant to Sec. 1005.9(b) and on any history of
account transactions provided or made available by the financial
institution.
(d) Modified disclosure requirements. A financial institution that
provides information under paragraph (c)(1) of this section shall comply
with the following:
(1) Initial disclosures. The financial institution shall modify the
disclosures under Sec. 1005.7(b) by disclosing:
(i) Access to account information. A telephone number that the
consumer may call to obtain the account balance, the means by which the
consumer can obtain an electronic account transaction history, such as
the address of a Web site, and a summary of the consumer's right to
receive a written account transaction history upon request (in place of
the summary of the right to receive a periodic statement required by
Sec. 1005.7(b)(6)), including a telephone number to call to request a
history. The disclosure required by this paragraph may be made by
providing a notice substantially similar to the notice contained in
paragraph (a) of appendix A-7 of this part.
(ii) Error resolution. A notice concerning error resolution that is
substantially similar to the notice contained in paragraph (b) of
appendix A-7 of this part, in place of the notice required by
Sec. 1005.7(b)(10).
(2) Annual error resolution notice. The financial institution shall
provide an annual notice concerning error resolution that is
substantially similar to the notice contained in paragraph (b) of
appendix A-7 of this part, in place of the notice required by
Sec. 1005.8(b). Alternatively, a financial institution may include on or
with each electronic and written account transaction history provided in
accordance with paragraph (c)(1) of this section, a notice substantially
similar to the
[[Page 196]]
abbreviated notice for periodic statements contained in paragraph (b) of
appendix A-3 of this part, modified as necessary to reflect the error
resolution provisions set forth in paragraph (e) of this section.
(e) Modified limitations on liability and error resolution
requirements--(1) Modified limitations on liability requirements. A
financial institution that provides information under paragraph (c)(1)
of this section shall comply with the following:
(i) For purposes of Sec. 1005.6(b)(3), the 60-day period for
reporting any unauthorized transfer shall begin on the earlier of:
(A) The date the consumer electronically accesses the consumer's
account under paragraph (c)(1)(ii) of this section, provided that the
electronic account transaction history made available to the consumer
reflects the unauthorized transfer; or
(B) The date the financial institution sends a written history of
the consumer's account transactions requested by the consumer under
paragraph (c)(1)(iii) of this section in which the unauthorized transfer
is first reflected.
(ii) A financial institution may comply with paragraph (e)(1)(i) of
this section by limiting the consumer's liability for an unauthorized
transfer as provided under Sec. 1005.6(b)(3) for any transfer reported
by the consumer within 120 days after the transfer was credited or
debited to the consumer's account.
(2) Modified error resolution requirements. A financial institution
that provides information under paragraph (c)(1) of this section shall
comply with the following:
(i) The financial institution shall comply with the requirements of
Sec. 1005.11 in response to an oral or written notice of an error from
the consumer that is received by the earlier of:
(A) Sixty days after the date the consumer electronically accesses
the consumer's account under paragraph (c)(1)(ii) of this section,
provided that the electronic account transaction history made available
to the consumer reflects the alleged error; or
(B) Sixty days after the date the financial institution sends a
written history of the consumer's account transactions requested by the
consumer under paragraph (c)(1)(iii) of this section in which the
alleged error is first reflected.
(ii) In lieu of following the procedures in paragraph (e)(2)(i) of
this section, a financial institution complies with the requirements for
resolving errors in Sec. 1005.11 if it investigates any oral or written
notice of an error from the consumer that is received by the institution
within 120 days after the transfer allegedly in error was credited or
debited to the consumer's account.
(3) Error resolution for unverified accounts--(i) Provisional credit
for errors on accounts that have not been verified. As set forth in
Sec. 1005.11(c)(2)(i)(C), for prepaid accounts that are not payroll card
accounts or government benefit accounts, a financial institution may
take up to the maximum length of time permitted under
Sec. 1005.11(c)(2)(i) or (c)(3)(ii), as applicable, to investigate and
determine whether an error occurred without provisionally crediting a
consumer's account if the financial institution has not completed its
consumer identification and verification process with respect to that
prepaid account.
(ii) For purposes of paragraph (e)(3)(i) of this section, a
financial institution has not completed its consumer identification and
verification process where:
(A) It has not concluded its consumer identification and
verification process, provided the financial institution has disclosed
to the consumer the risks of not registering the account using a notice
that is substantially similar to the model notice contained in paragraph
(c) of appendix A-7 of this part.
(B) It has concluded its consumer identification and verification
process, but could not verify the identity of the consumer, provided the
financial institution has disclosed to the consumer the risks of not
registering the account using a notice that is substantially similar to
the model notice contained in paragraph (c) of appendix A-7 of this
part; or
(C) It does not have a consumer identification and verification
process by which the consumer can register the prepaid account.
(iii) Resolution of pre-verification errors. If a consumer's account
has been verified, the financial institution must comply with the
provisions set forth in Sec. 1005.11(c) in full with respect to any
errors that satisfy the timing requirements of Sec. 1005.11, or the
modified timing requirements in this paragraph (e), as applicable,
including with respect to errors that occurred prior to verification.
(A) Notwithstanding paragraph (e)(3)(iii) of this section, if, at
the time the financial institution was required to provisionally credit
the account (pursuant to Sec. 1005.11(c)(2)(i) or (c)(3)(ii), as
applicable), the financial institution has not yet completed its
identification and verification process with respect to that account,
the financial institution may take up to the maximum length of time
permitted under Sec. 1005.11(c)(2)(i) or (c)(3)(ii), as applicable, to
investigate and determine whether an error occurred without
provisionally crediting the account.
(f) Disclosure of fees and other information--(1) Initial disclosure
of fees and other information. A financial institution must include, as
part of the initial disclosures given pursuant to Sec. 1005.7, all of
the information required to be disclosed in its pre-acquisition long
form disclosure pursuant to paragraph (b)(4) of this section.
(2) Change-in-terms notice. The change-in-terms notice provisions in
Sec. 1005.8(a) apply to
[[Page 197]]
any change in a term or condition that is required to be disclosed under
Sec. 1005.7 or paragraph (f)(1) of this section. If a financial
institution discloses the amount of a third-party fee in its pre-
acquisition long form disclosure pursuant to paragraph (b)(4)(ii) of
this section and initial disclosures pursuant to paragraph (f)(1) of
this section, the financial institution is not required to provide a
change-in-terms notice solely to reflect a change in that fee amount
imposed by the third party. If a financial institution provides pursuant
to paragraph (f)(1) of this section the Regulation Z disclosures
required by paragraph (b)(4)(vii) of this section for an overdraft
credit feature, the financial institution is not required to provide a
change-in-terms notice solely to reflect a change in the fees or other
terms disclosed therein.
(3) Disclosures on prepaid account access devices. The name of the
financial institution and the Web site URL and a telephone number a
consumer can use to contact the financial institution about the prepaid
account must be disclosed on the prepaid account access device. If a
financial institution does not provide a physical access device in
connection with a prepaid account, the disclosure must appear on the Web
site, mobile application, or other entry point a consumer must visit to
access the prepaid account electronically.
(g) Prepaid accounts accessible by hybrid prepaid-credit cards--(1)
In general. Except as provided in paragraph (g)(2) of this section, with
respect to a prepaid account program where consumers may be offered a
covered separate credit feature accessible by a hybrid prepaid-credit
card as defined by Regulation Z, 12 CFR 1026.61, a financial institution
must provide to any prepaid account without a covered separate credit
feature the same account terms, conditions, and features that it
provides on prepaid accounts in the same prepaid account program that
have such a credit feature.
(2) Exception for higher fees or charges. A financial institution is
not prohibited under paragraph (g)(1) of this section from imposing a
higher fee or charge on the asset feature of a prepaid account with a
covered separate credit feature accessible by a hybrid prepaid-credit
card than the amount of a comparable fee or charge that it imposes on
any prepaid account in the same prepaid account program that does not
have such a credit feature.
(h) Effective date and special transition rules for disclosure
provisions--(1) Effective date generally. Except as provided in
paragraphs (h)(2) and (3) of this section, the requirements of this
subpart, as modified by this section, apply to prepaid accounts as
defined in Sec. 1005.2(b)(3), including government benefit accounts
subject to Sec. 1005.15, beginning October 1, 2017.
(2) Early disclosures--(i) Exception for disclosures on existing
prepaid account access devices and prepaid account packaging materials.
The disclosure requirements of this subpart, as modified by this
section, shall not apply to any disclosures that are provided, or that
would otherwise be required to be provided, on prepaid account access
devices, or on, in, or with prepaid account packaging materials that
were manufactured, printed, or otherwise produced in the normal course
of business prior to October 1, 2017.
(ii) Disclosures for prepaid accounts acquired on or after October
1, 2017. This paragraph applies to prepaid accounts acquired by
consumers on or after October 1, 2017 via packaging materials that were
manufactured, printed, or otherwise produced prior to October 1, 2017.
(A) Notices of certain changes. If a financial institution has
changed a prepaid account's terms and conditions as a result of
paragraph (h)(1) of this section taking effect such that a change-in-
terms notice would have been required under Sec. 1005.8(a) or paragraph
(f)(2) of this section for existing customers, the financial institution
must provide to the consumer a notice of the change within 30 days of
obtaining the consumer's contact information.
(B) Initial disclosures. The financial institution must mail or
deliver to the consumer initial disclosures pursuant to Sec. 1005.7 and
paragraph (f)(1) of this section that have been updated as a result of
paragraph (h)(1) of this section taking effect, within 30 days of
obtaining the consumer's contact information.
(iii) Disclosures for prepaid accounts acquired before October 1,
2017. This paragraph applies to prepaid accounts acquired by consumers
before October 1, 2017. If a financial institution has changed a prepaid
account's terms and conditions as a result of paragraph (h)(1) of this
section taking effect such that a change-in-terms notice would have been
required under Sec. 1005.8(a) or paragraph (f)(2) of this section for
existing customers, the financial institution must provide to the
consumer a notice of the change at least 21 days in advance of the
change becoming effective, provided the financial institution has the
consumer's contact information. If the financial institution obtains the
consumer's contact information less than 30 days in advance of the
change becoming effective or after it has become effective, the
financial institution is permitted instead to notify the consumer of the
change in accordance with the timing requirements set forth in paragraph
(h)(2)(ii)(A) of this section.
(iv) Method of providing notice to consumers. With respect to
prepaid accounts governed by paragraph (h)(2)(ii) or (iii) of this
section, if a financial institution has not obtained a consumer's
consent to provide disclosures in electronic form pursuant to the
Electronic
[[Page 198]]
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C.
7001 et seq.), or is not otherwise already mailing or delivering to the
consumer written account-related communications within the respective
time periods specified in paragraphs (h)(2)(ii) or (iii) of this
section, the financial institution may provide to the consumer a notice
of a change in terms and conditions pursuant to paragraph (h)(2)(ii) or
(iii) of this section or required or voluntary updated initial
disclosures as a result of paragraph (h)(1) of this section taking
effect in electronic form without regard to the consumer notice and
consent requirements of section 101(c) of the E-Sign Act.
(3) Account information not available on October 1, 2017--(i)
Electronic and written account transaction history. If, on October 1,
2017, a financial institution does not have readily accessible the data
necessary to make available 12 months of electronic account transaction
history pursuant to paragraph (c)(1)(ii) of this section or to provide
24 months of written account transaction history upon request pursuant
to paragraph (c)(1)(iii) of this section, the financial institution may
make available or provide such histories using the data for the time
period it has until the financial institution has accumulated the data
necessary to comply in full with the requirements set forth in
paragraphs (c)(1)(ii) and (iii) of this section.
(ii) Summary totals of fees. If, on October 1, 2017, the financial
institution does not have readily accessible the data necessary to
calculate the summary totals of the amount of all fees assessed by the
financial institution on the consumer's prepaid account for the prior
calendar month and for the calendar year to date pursuant to paragraph
(c)(5) of this section, the financial institution may display the
summary totals using the data it has until the financial institution has
accumulated the data necessary to display the summary totals as required
by paragraph (c)(5) of this section.
Sec. 1005.19 Internet posting of prepaid account agreements.
(a) Definitions--(1) Agreement. For purposes of this section,
``agreement'' or ``prepaid account agreement'' means the written
document or documents evidencing the terms of the legal obligation, or
the prospective legal obligation, between a prepaid account issuer and a
consumer for a prepaid account. ``Agreement'' or ``prepaid account
agreement'' also includes fee information, as defined in paragraph
(a)(3) of this section.
(2) Amends. For purposes of this section, an issuer ``amends'' an
agreement if it makes a substantive change (an ``amendment'') to the
agreement. A change is substantive if it alters the rights or
obligations of the issuer or the consumer under the agreement. Any
change in the fee information, as defined in paragraph (a)(3) of this
section, is deemed to be substantive.
(3) Fee information. For purposes of this section, ``fee
information'' means the short form disclosure for the prepaid account
pursuant to Sec. 1005.18(b)(2) and the fee information and statements
required to be disclosed in the pre-acquisition long form disclosure for
the prepaid account pursuant to Sec. 1005.18(b)(4).
(4) Issuer. For purposes of this section, ``issuer'' or ``prepaid
account issuer'' means the entity to which a consumer is legally
obligated, or would be legally obligated, under the terms of a prepaid
account agreement.
(5) Offers. For purposes of this section, an issuer ``offers'' an
agreement if the issuer markets, solicits applications for, or otherwise
makes available a prepaid account that would be subject to that
agreement, regardless of whether the issuer offers the prepaid account
to the general public.
(6) Offers to the general public. For purposes of this section, an
issuer ``offers to the general public'' an agreement if the issuer
markets, solicits applications for, or otherwise makes available to the
general public a prepaid account that would be subject to that
agreement.
(7) Open account. For purposes of this section, a prepaid account is
an ``open account'' or ``open prepaid account'' if: There is an
outstanding balance in the account; the consumer can load funds to the
account even if the account does not currently hold a balance; or the
consumer can access credit from a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Regulation Z,
12 CFR 1026.61, in connection with the account. A prepaid account that
has been suspended temporarily (for example, due to a report by the
consumer of unauthorized use of the card) is considered an ``open
account'' or ``open prepaid account.''
(8) Prepaid account. For purposes of this section, ``prepaid
account'' means
[[Page 199]]
a prepaid account as defined in Sec. 1005.2(b)(3).
(b) Submission of agreements to the Bureau--(1) Submissions on a
rolling basis. An issuer must make submissions of prepaid account
agreements to the Bureau on a rolling basis, in the form and manner
specified by the Bureau. Rolling submissions must be sent to the Bureau
no later than 30 days after an issuer offers, amends, or ceases to offer
any prepaid account agreement as described in paragraphs (b)(1)(ii)
through (iv) of this section. Each submission must contain:
(i) Identifying information about the issuer and the agreements
submitted, including the issuer's name, address, and identifying number
(such as an RSSD ID number or tax identification number), the effective
date of the prepaid account agreement, the name of the program manager,
if any, and the names of other relevant parties, if applicable (such as
the employer for a payroll card program or the agency for a government
benefit program);
(ii) Any prepaid account agreement offered by the issuer that has
not been previously submitted to the Bureau;
(iii) Any prepaid account agreement previously submitted to the
Bureau that has been amended, as described in paragraph (b)(2) of this
section; and
(iv) Notification regarding any prepaid account agreement previously
submitted to the Bureau that the issuer is withdrawing, as described in
paragraphs (b)(3), (b)(4)(ii), and (b)(5)(ii) of this section.
(2) Amended agreements. If a prepaid account agreement previously
submitted to the Bureau is amended, the issuer must submit the entire
amended agreement to the Bureau, in the form and manner specified by the
Bureau, no later than 30 days after the change comes effective.
(3) Withdrawal of agreements no longer offered. If an issuer no
longer offers a prepaid account agreement that was previously submitted
to the Bureau, the issuer must notify the Bureau, in the form and manner
specified by the Bureau, no later than 30 days after the issuer ceases
to offer the agreement, that it is withdrawing the agreement.
(4) De minimis exception. (i) An issuer is not required to submit
any prepaid account agreements to the Bureau if the issuer has fewer
than 3,000 open prepaid accounts. If the issuer has 3,000 or more open
prepaid accounts as of the last day of the calendar quarter, the issuer
must submit to the Bureau its prepaid account agreements no later than
30 days after the last day of that calendar quarter.
(ii) If an issuer that did not previously qualify for the de minimis
exception newly qualifies for the de minimis exception, the issuer must
continue to make submissions to the Bureau on a rolling basis until the
issuer notifies the Bureau that the issuer is withdrawing all agreements
it previously submitted to the Bureau.
(5) Product testing exception. (i) An issuer is not required to
submit a prepaid account agreement to the Bureau if the agreement meets
the criteria set forth in paragraphs (b)(5)(i)(A) through (C) of this
section. If the agreement fails to meet the criteria set forth in
paragraphs (b)(5)(i)(A) through (C) of this section as of the last day
of the calendar quarter, the issuer must submit to the Bureau that
prepaid account agreement no later than 30 days after the last day of
that calendar quarter. An agreement qualifies for the product testing
exception if the agreement:
(A) Is offered as part of a product test offered to only a limited
group of consumers for a limited period of time;
(B) Is used for fewer than 3,000 open prepaid accounts; and
(C) Is not offered other than in connection with such a product
test.
(ii) If an agreement that did not previously qualify for the product
testing exception newly qualifies for the exception, the issuer must
continue to make submissions to the Bureau on a rolling basis with
respect to that agreement until the issuer notifies the Bureau that the
issuer is withdrawing the agreement.
(6) Form and content of agreements submitted to the Bureau--(i) Form
and content generally. (A) Each agreement must contain the provisions of
the agreement and the fee information currently in effect.
(B) Agreements must not include any personally identifiable
information relating to any consumer, such as name,
[[Page 200]]
address, telephone number, or account number.
(C) The following are not deemed to be part of the agreement for
purposes of this section, and therefore are not required to be included
in submissions to the Bureau:
(1) Ancillary disclosures required by state or Federal law, such as
affiliate marketing notices, privacy policies, or disclosures under the
E-Sign Act;
(2) Solicitation or marketing materials;
(3) Periodic statements; and
(4) Documents that may be sent to the consumer along with the
prepaid account or prepaid account agreement such as a cover letter, a
validation sticker on the card, or other information about card
security.
(D) Agreements must be presented in a clear and legible font.
(ii) Fee information. Fee information must be set forth either in
the prepaid account agreement or in a single addendum to that agreement.
The agreement or addendum thereto must contain all of the fee
information, as defined by paragraph (a)(3) of this section.
(iii) Integrated agreement. An issuer may not provide provisions of
the agreement or fee information to the Bureau in the form of change-in-
terms notices or riders (other than the optional fee information
addendum). Changes in provisions or fee information must be integrated
into the text of the agreement, or the optional fee information
addendum, as appropriate.
(c) Posting of agreements offered to the general public. (1) An
issuer must post and maintain on its publicly available Web site any
prepaid account agreements offered to the general public that the issuer
is required to submit to the Bureau under paragraph (b) of this section.
(2) Agreements posted pursuant to this paragraph (c) must conform to
the form and content requirements for agreements submitted to the Bureau
set forth in paragraph (b)(6) of this section.
(3) The issuer must post and update the agreements posted on its Web
site pursuant to this paragraph (c) as frequently as the issuer is
required to submit new or amended agreements to the Bureau pursuant to
paragraph (b)(2) of this section.
(4) Agreements posted pursuant to this paragraph (c) may be posted
in any electronic format that is readily usable by the general public.
Agreements must be placed in a location that is prominent and readily
accessible to the public and must be accessible without submission of
personally identifiable information.
(d) Agreements for all open accounts--(1) Availability of an
individual consumer's prepaid account agreement. With respect to any
open prepaid account, an issuer must either:
(i) Post and maintain the consumer's agreement on its Web site; or
(ii) Promptly provide a copy of the consumer's agreement to the
consumer upon the consumer's request. If the issuer makes an agreement
available upon request, the issuer must provide the consumer with the
ability to request a copy of the agreement by telephone. The issuer must
send to the consumer a copy of the consumer's prepaid account agreement
no later than five business days after the issuer receives the
consumer's request.
(2) Form and content of agreements. (i) Except as provided in this
paragraph (d), agreements posted on the issuer's Web site pursuant to
paragraph (d)(1)(i) of this section or sent to the consumer upon the
consumer's request pursuant to paragraph (d)(1)(ii) of this section must
conform to the form and content requirements for agreements submitted to
the Bureau as set forth in paragraph (b)(6) of this section.
(ii) If the issuer posts an agreement on its Web site under
paragraph (d)(1)(i) of this section, the agreement may be posted in any
electronic format that is readily usable by the general public and must
be placed in a location that is prominent and readily accessible to the
consumer.
(iii) Agreements posted or otherwise provided pursuant to this
paragraph (d) may contain personally identifiable information relating
to the consumer, such as name, address, telephone number, or account
number, provided that the issuer takes appropriate measures to make the
agreement accessible only to the consumer or other authorized persons.
[[Page 201]]
(iv) Agreements posted or otherwise provided pursuant to this
paragraph (d) must set forth the specific provisions and fee information
applicable to the particular consumer.
(v) Agreements posted pursuant to paragraph (d)(1)(i) of this
section must be updated as frequently as the issuer is required to
submit amended agreements to the Bureau pursuant to paragraph (b)(2) of
this section. Agreements provided upon consumer request pursuant to
paragraph (d)(1)(ii) of this section must be accurate as of the date the
agreement is sent to the consumer.
(vi) Agreements provided upon consumer request pursuant to paragraph
(d)(1)(ii) of this section must be provided by the issuer in paper form,
unless the consumer agrees to receive the agreement electronically.
(e) E-Sign Act requirements. Except as otherwise provided in this
section, issuers may provide prepaid account agreements in electronic
form under paragraphs (c) and (d) of this section 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.).
(f) Effective date--(1) Effective date generally. Except as provided
in paragraph (f)(2) of this section, the requirements of this section
apply to prepaid accounts beginning on October 1, 2017.
(2) Delayed effective date for the agreement submission requirement.
The requirement to submit prepaid account agreements to the Bureau on a
rolling basis pursuant to paragraph (b) of this section is delayed until
October 1, 2018. An issuer must submit to the Bureau no later than
October 31, 2018 all prepaid account agreements it offers as of October
1, 2018.
(3) Requirements to post and provide consumers agreements. Nothing
in paragraph (f)(2) of this section shall affect the requirements to
post prepaid account agreements on an issuer's Web site pursuant to
paragraphs (c) and (d) of this section or the requirement to provide a
copy of the consumer's agreement to the consumer upon request pursuant
to paragraph (d) of this section.
Effective Date Note: At 81 FR 84336, Nov. 22, 2016, Sec. 1005.19 was
added, effective Oct. 1, 2017, which the exception of paragraph (b)
which will not be effective until Oct. 1, 2018.
Sec. 1005.20 Requirements for gift cards and gift certificates.
(a) Definitions. For purposes of this section, except as excluded
under paragraph (b), the following definitions apply:
(1) ``Gift certificate'' means a card, code, or other device that
is:
(i) Issued on a prepaid basis primarily for personal, family, or
household purposes to a consumer in a specified amount that may not be
increased or reloaded in exchange for payment; and
(ii) Redeemable upon presentation at a single merchant or an
affiliated group of merchants for goods or services.
(2) ``Store gift card'' means a card, code, or other device that is:
(i) Issued on a prepaid basis primarily for personal, family, or
household purposes to a consumer in a specified amount, whether or not
that amount may be increased or reloaded, in exchange for payment; and
(ii) Redeemable upon presentation at a single merchant or an
affiliated group of merchants for goods or services.
(3) ``General-use prepaid card'' means a card, code, or other device
that is:
(i) Issued on a prepaid basis primarily for personal, family, or
household purposes to a consumer in a specified amount, whether or not
that amount may be increased or reloaded, in exchange for payment; and
(ii) Redeemable upon presentation at multiple, unaffiliated
merchants for goods or services, or usable at automated teller machines.
(4) ``Loyalty, award, or promotional gift card'' means a card, code,
or other device that:
(i) Is issued on a prepaid basis primarily for personal, family, or
household purposes to a consumer in connection with a loyalty, award, or
promotional program;
(ii) Is redeemable upon presentation at one or more merchants for
goods or services, or usable at automated teller machines; and
(iii) Sets forth the following disclosures, as applicable:
(A) A statement indicating that the card, code, or other device is
issued for
[[Page 202]]
loyalty, award, or promotional purposes, which must be included on the
front of the card, code, or other device;
(B) The expiration date for the underlying funds, which must be
included on the front of the card, code, or other device;
(C) The amount of any fees that may be imposed in connection with
the card, code, or other device, and the conditions under which they may
be imposed, which must be provided on or with the card, code, or other
device; and
(D) A toll-free telephone number and, if one is maintained, a Web
site, that a consumer may use to obtain fee information, which must be
included on the card, code, or other device.
(5) Dormancy or inactivity fee. The terms ``dormancy fee'' and
``inactivity fee'' mean a fee for non-use of or inactivity on a gift
certificate, store gift card, or general-use prepaid card.
(6) Service fee. The term ``service fee'' means a periodic fee for
holding or use of a gift certificate, store gift card, or general-use
prepaid card. A periodic fee includes any fee that may be imposed on a
gift certificate, store gift card, or general-use prepaid card from time
to time for holding or using the certificate or card.
(7) Activity. The term ``activity'' means any action that results in
an increase or decrease of the funds underlying a certificate or card,
other than the imposition of a fee, or an adjustment due to an error or
a reversal of a prior transaction.
(b) Exclusions. The terms ``gift certificate,'' ``store gift card,''
and ``general-use prepaid card'', as defined in paragraph (a) of this
section, do not include any card, code, or other device that is:
(1) Useable solely for telephone services;
(2) Reloadable and not marketed or labeled as a gift card or gift
certificate. For purposes of this paragraph (b)(2), the term
``reloadable'' includes a temporary non-reloadable card issued solely in
connection with a reloadable card, code, or other device;
(3) A loyalty, award, or promotional gift card;
(4) Not marketed to the general public;
(5) Issued in paper form only; or
(6) Redeemable solely for admission to events or venues at a
particular location or group of affiliated locations, or to obtain goods
or services in conjunction with admission to such events or venues,
either at the event or venue or at specific locations affiliated with
and in geographic proximity to the event or venue.
(c) Form of disclosures--(1) Clear and conspicuous. Disclosures made
under this section must be clear and conspicuous. The disclosures may
contain commonly accepted or readily understandable abbreviations or
symbols.
(2) Format. Disclosures made under this section generally must be
provided to the consumer in written or electronic form. Except for the
disclosures in paragraphs (c)(3) and (h)(2) of this section, written and
electronic disclosures made under this section must be in a retainable
form. Only disclosures provided under paragraphs (c)(3) and (h)(2) may
be given orally.
(3) Disclosures prior to purchase. Before a gift certificate, store
gift card, or general-use prepaid card is purchased, a person that
issues or sells such certificate or card must disclose to the consumer
the information required by paragraphs (d)(2), (e)(3), and (f)(1) of
this section. The fees and terms and conditions of expiration that are
required to be disclosed prior to purchase may not be changed after
purchase.
(4) Disclosures on the certificate or card. Disclosures required by
paragraphs (a)(4)(iii), (d)(2), (e)(3), and (f)(2) of this section must
be made on the certificate or card, or in the case of a loyalty, award,
or promotional gift card, on the card, code, or other device. A
disclosure made in an accompanying terms and conditions document, on
packaging surrounding a certificate or card, or on a sticker or other
label affixed to the certificate or card does not constitute a
disclosure on the certificate or card. For an electronic certificate or
card, disclosures must be provided electronically on the certificate or
card provided to the consumer. An issuer that provides a code or
confirmation to a consumer orally must provide to the consumer a written
or
[[Page 203]]
electronic copy of the code or confirmation promptly, and the applicable
disclosures must be provided on the written copy of the code or
confirmation.
(d) Prohibition on imposition of fees or charges. No person may
impose a dormancy, inactivity, or service fee with respect to a gift
certificate, store gift card, or general-use prepaid card, unless:
(1) There has been no activity with respect to the certificate or
card, in the one-year period ending on the date on which the fee is
imposed;
(2) The following are stated, as applicable, clearly and
conspicuously on the gift certificate, store gift card, or general-use
prepaid card:
(i) The amount of any dormancy, inactivity, or service fee that may
be charged;
(ii) How often such fee may be assessed; and
(iii) That such fee may be assessed for inactivity; and
(3) Not more than one dormancy, inactivity, or service fee is
imposed in any given calendar month.
(e) Prohibition on sale of gift certificates or cards with
expiration dates. No person may sell or issue a gift certificate, store
gift card, or general-use prepaid card with an expiration date, unless:
(1) The person has established policies and procedures to provide
consumers with a reasonable opportunity to purchase a certificate or
card with at least five years remaining until the certificate or card
expiration date;
(2) The expiration date for the underlying funds is at least the
later of:
(i) Five years after the date the gift certificate was initially
issued, or the date on which funds were last loaded to a store gift card
or general-use prepaid card; or
(ii) The certificate or card expiration date, if any;
(3) The following disclosures are provided on the certificate or
card, as applicable:
(i) The expiration date for the underlying funds or, if the
underlying funds do not expire, that fact;
(ii) A toll-free telephone number and, if one is maintained, a Web
site that a consumer may use to obtain a replacement certificate or card
after the certificate or card expires if the underlying funds may be
available; and
(iii) Except where a non-reloadable certificate or card bears an
expiration date that is at least seven years from the date of
manufacture, a statement, disclosed with equal prominence and in close
proximity to the certificate or card expiration date, that:
(A) The certificate or card expires, but the underlying funds either
do not expire or expire later than the certificate or card, and;
(B) The consumer may contact the issuer for a replacement card; and
(4) No fee or charge is imposed on the cardholder for replacing the
gift certificate, store gift card, or general-use prepaid card or for
providing the certificate or card holder with the remaining balance in
some other manner prior to the funds expiration date, unless such
certificate or card has been lost or stolen.
(f) Additional disclosure requirements for gift certificates or
cards. The following disclosures must be provided in connection with a
gift certificate, store gift card, or general-use prepaid card, as
applicable:
(1) Fee disclosures. For each type of fee that may be imposed in
connection with the certificate or card (other than a dormancy,
inactivity, or service fee subject to the disclosure requirements under
paragraph (d)(2) of this section), the following information must be
provided on or with the certificate or card:
(i) The type of fee;
(ii) The amount of the fee (or an explanation of how the fee will be
determined); and
(iii) The conditions under which the fee may be imposed.
(2) Telephone number for fee information. A toll-free telephone
number and, if one is maintained, a Web site, that a consumer may use to
obtain information about fees described in paragraphs (d)(2) and (f)(1)
of this section must be disclosed on the certificate or card.
(g) Compliance dates--(1) Effective date for gift certificates,
store gift cards, and general-use prepaid cards. Except as provided in
paragraph (h) of this section, the requirements of this section apply to
any gift certificate, store gift card, or general-use prepaid card sold
to a
[[Page 204]]
consumer on or after August 22, 2010, or provided to a consumer as a
replacement for such certificate or card.
(2) Effective date for loyalty, award, or promotional gift cards.
The requirements in paragraph (a)(4)(iii) of this section apply to any
card, code, or other device provided to a consumer in connection with a
loyalty, award, or promotional program if the period of eligibility for
such program began on or after August 22, 2010.
(h) Temporary exemption--(1) Delayed mandatory compliance date. For
any gift certificate, store gift card, or general-use prepaid card
produced prior to April 1, 2010, the mandatory compliance date of the
requirements of paragraphs (c)(3), (d)(2), (e)(1), (e)(3), and (f) of
this section is January 31, 2011, provided that an issuer of such
certificate or card:
(i) Complies with all other provisions of this section;
(ii) Does not impose an expiration date with respect to the funds
underlying such certificate or card;
(iii) At the consumer's request, replaces such certificate or card
if it has funds remaining at no cost to the consumer; and
(iv) Satisfies the requirements of paragraph (h)(2) of this section.
(2) Additional disclosures. Issuers relying on the delayed effective
date in Sec. 1005.20(h)(1) must disclose through in-store signage,
messages during customer service calls, Web sites, and general
advertising, that:
(i) The underlying funds of such certificate or card do not expire;
(ii) Consumers holding such certificate or card have a right to a
free replacement certificate or card, which must be accompanied by the
packaging and materials typically associated with such certificate or
card; and
(iii) Any dormancy, inactivity, or service fee for such certificate
or card that might otherwise be charged will not be charged if such fees
do not comply with section 916 of the Act.
(3) Expiration of additional disclosure requirements. The
disclosures in paragraph (h)(2) of this section:
(i) Are not required to be provided on or after January 31, 2011,
with respect to in-store signage and general advertising.
(ii) Are not required to be provided on or after January 31, 2013,
with respect to messages during customer service calls and Web sites.
Subpart B_Requirements for Remittance Transfers
Source: 77 FR 6285, Feb. 7, 2012, unless otherwise noted.
Sec. 1005.30 Remittance transfer definitions.
Except as otherwise provided, for purposes of this subpart, the
following definitions apply:
(a) ``Agent'' means an agent, authorized delegate, or person
affiliated with a remittance transfer provider, as defined under State
or other applicable law, when such agent, authorized delegate, or
affiliate acts for that remittance transfer provider.
(b) ``Business day'' means any day on which the offices of a
remittance transfer provider are open to the public for carrying on
substantially all business functions.
(c) ``Designated recipient'' means any person specified by the
sender as the authorized recipient of a remittance transfer to be
received at a location in a foreign country.
(d) ``Preauthorized remittance transfer'' means a remittance
transfer authorized in advance to recur at substantially regular
intervals.
(e) Remittance transfer--(1) General definition. A ``remittance
transfer'' means the electronic transfer of funds requested by a sender
to a designated recipient that is sent by a remittance transfer
provider. The term applies regardless of whether the sender holds an
account with the remittance transfer provider, and regardless of whether
the transaction is also an electronic fund transfer, as defined in
Sec. 1005.3(b).
(2) Exclusions from coverage. The term ``remittance transfer'' does
not include:
(i) Small value transactions. Transfer amounts, as described in
Sec. 1005.31(b)(1)(i), of $15 or less.
(ii) Securities and commodities transfers. Any transfer that is
excluded from the definition of electronic fund transfer under
Sec. 1005.3(c)(4).
[[Page 205]]
(f) Remittance transfer provider--(1) General definition.
``Remittance transfer provider'' or ``provider'' means any person that
provides remittance transfers for a consumer in the normal course of its
business, regardless of whether the consumer holds an account with such
person.
(2) Normal course of business--(i) Safe harbor. For purposes of
paragraph (f)(1) of this section, a person is deemed not to be providing
remittance transfers for a consumer in the normal course of its business
if the person:
(A) Provided 100 or fewer remittance transfers in the previous
calendar year; and
(B) Provides 100 or fewer remittance transfers in the current
calendar year.
(ii) Transition period. If a person that provided 100 or fewer
remittance transfers in the previous calendar year provides more than
100 remittance transfers in the current calendar year, and if that
person is then providing remittance transfers for a consumer in the
normal course of its business pursuant to paragraph (f)(1) of this
section, the person has a reasonable period of time, not to exceed six
months, to begin complying with this subpart. Compliance with this
subpart will not be required for any remittance transfers for which
payment is made during that reasonable period of time.
(g) ``Sender'' means a consumer in a State who primarily for
personal, family, or household purposes requests a remittance transfer
provider to send a remittance transfer to a designated recipient.
(h) Third-party fees. (1) ``Covered third-party fees.'' The term
``covered third-party fees'' means any fees imposed on the remittance
transfer by a person other than the remittance transfer provider except
for fees described in paragraph (h)(2) of this section.
(2) ``Non-covered third-party fees.'' The term ``non-covered third-
party fees'' means any fees imposed by the designated recipient's
institution for receiving a remittance transfer into an account except
if the institution acts as an agent of the remittance transfer provider.
[77 FR 6285, Feb. 7, 2012, as amended at 77 FR 50282, Aug. 20, 2012; 78
FR 30703, May 22, 2013]
Sec. 1005.31 Disclosures.
(a) General form of disclosures--(1) Clear and conspicuous.
Disclosures required by this subpart or permitted by paragraph
(b)(1)(viii) of this section or Sec. 1005.33(h)(3) must be clear and
conspicuous. Disclosures required by this subpart or permitted by
paragraph (b)(1)(viii) of this section or Sec. 1005.33(h)(3) may contain
commonly accepted or readily understandable abbreviations or symbols.
(2) Written and electronic disclosures. Disclosures required by this
subpart generally must be provided to the sender in writing. Disclosures
required by paragraph (b)(1) of this section may be provided
electronically, if the sender electronically requests the remittance
transfer provider to send the remittance transfer. Written and
electronic disclosures required by this subpart generally must be made
in a retainable form. Disclosures provided via mobile application or
text message, to the extent permitted by paragraph (a)(5) of this
section, need not be retainable.
(3) Disclosures for oral telephone transactions. The information
required by paragraph (b)(1) of this section may be disclosed orally if:
(i) The transaction is conducted orally and entirely by telephone;
(ii) The remittance transfer provider complies with the requirements
of paragraph (g)(2) of this section;
(iii) The provider discloses orally a statement about the rights of
the sender regarding cancellation required by paragraph (b)(2)(iv) of
this section pursuant to the timing requirements in paragraph (e)(1) of
this section; and
(iv) The provider discloses orally, as each is applicable, the
information required by paragraph (b)(2)(vii) of this section and the
information required by Sec. 1005.36(d)(1)(i)(A), with respect to
transfers subject to Sec. 1005.36(d)(2)(ii), pursuant to the timing
requirements in paragraph (e)(1) of this section.
(4) Oral disclosures for certain error resolution notices. The
information required by Sec. 1005.33(c)(1) may be disclosed orally if:
(i) The remittance transfer provider determines that an error
occurred as described by the sender; and
[[Page 206]]
(ii) The remittance transfer provider complies with the requirements
of paragraph (g)(2) of this section.
(5) Disclosures for mobile application or text message transactions.
The information required by paragraph (b)(1) of this section may be
disclosed orally or via mobile application or text message if:
(i) The transaction is conducted entirely by telephone via mobile
application or text message;
(ii) The remittance transfer provider complies with the requirements
of paragraph (g)(2) of this section;
(iii) The provider discloses orally or via mobile application or
text message a statement about the rights of the sender regarding
cancellation required by paragraph (b)(2)(iv) of this section pursuant
to the timing requirements in paragraph (e)(1) of this section; and
(iv) The provider discloses orally or via mobile application or text
message, as each is applicable, the information required by paragraph
(b)(2)(vii) of this section and the information required by
Sec. 1005.36(d)(1)(i)(A), with respect to transfers subject to
Sec. 1005.36(d)(2)(ii), pursuant to the timing requirements in paragraph
(e)(1) of this section.
(b) Disclosure requirements--(1) Pre-payment disclosure. A
remittance transfer provider must disclose to a sender, as applicable:
(i) The amount that will be transferred to the designated recipient,
in the currency in which the remittance transfer is funded, using the
term ``Transfer Amount'' or a substantially similar term;
(ii) Any fees imposed and any taxes collected on the remittance
transfer by the provider, in the currency in which the remittance
transfer is funded, using the terms ``Transfer Fees'' for fees and
``Transfer Taxes'' for taxes, or substantially similar terms;
(iii) The total amount of the transaction, which is the sum of
paragraphs (b)(1)(i) and (ii) of this section, in the currency in which
the remittance transfer is funded, using the term ``Total'' or a
substantially similar term;
(iv) The exchange rate used by the provider for the remittance
transfer, rounded consistently for each currency to no fewer than two
decimal places and no more than four decimal places, using the term
``Exchange Rate'' or a substantially similar term;
(v) The amount in paragraph (b)(1)(i) of this section, in the
currency in which the funds will be received by the designated
recipient, but only if covered third-party fees are imposed under
paragraph (b)(1)(vi) of this section, using the term ``Transfer Amount''
or a substantially similar term. The exchange rate used to calculate
this amount is the exchange rate in paragraph (b)(1)(iv) of this
section, including an estimated exchange rate to the extent permitted by
Sec. 1005.32, prior to any rounding of the exchange rate;
(vi) Any covered third-party fees, in the currency in which the
funds will be received by the designated recipient, using the term
``Other Fees,'' or a substantially similar term. The exchange rate used
to calculate any covered third-party fees is the exchange rate in
paragraph (b)(1)(iv) of this section, including an estimated exchange
rate to the extent permitted by Sec. 1005.32, prior to any rounding of
the exchange rate;
(vii) The amount that will be received by the designated recipient,
in the currency in which the funds will be received, using the term
``Total to Recipient'' or a substantially similar term except that this
amount shall not include non-covered third party fees or taxes collected
on the remittance transfer by a person other than the provider
regardless of whether such fees or taxes are disclosed pursuant to
paragraph (b)(1)(viii) of this section. The exchange rate used to
calculate this amount is the exchange rate in paragraph (b)(1)(iv) of
this section, including an estimated exchange rate to the extent
permitted by Sec. 1005.32, prior to any rounding of the exchange rate.
(viii) A statement indicating that non-covered third-party fees or
taxes collected on the remittance transfer by a person other than the
provider may apply to the remittance transfer and result in the
designated recipient receiving less than the amount disclosed pursuant
to paragraph (b)(1)(vii) of this section. A provider may only include
this statement to the extent that such fees or taxes do or may apply to
the transfer, using the language set forth in Model Forms A-30(a)
through (c) of appendix A to this part, as appropriate,
[[Page 207]]
or substantially similar language. In this statement, a provider also
may, but is not required, to disclose any applicable non-covered third-
party fees or taxes collected by a person other than the provider. Any
such figure must be disclosed in the currency in which the funds will be
received, using the language set forth in Model Forms A-30(b) through
(d) of appendix A to this part, as appropriate, or substantially similar
language. The exchange rate used to calculate any disclosed non-covered
third-party fees or taxes collected on the remittance transfer by a
person other than the provider is the exchange rate in paragraph
(b)(1)(iv) of this section, including an estimated exchange rate to the
extent permitted by Sec. 1005.32, prior to any rounding of the exchange
rate;
(2) Receipt. A remittance transfer provider must disclose to a
sender, as applicable:
(i) The disclosures described in paragraphs (b)(1)(i) through (viii)
of this section;
(ii) The date in the foreign country on which funds will be
available to the designated recipient, using the term ``Date Available''
or a substantially similar term. A provider may provide a statement that
funds may be available to the designated recipient earlier than the date
disclosed, using the term ``may be available sooner'' or a substantially
similar term;
(iii) The name and, if provided by the sender, the telephone number
and/or address of the designated recipient, using the term ``Recipient''
or a substantially similar term;
(iv) A statement about the rights of the sender regarding the
resolution of errors and cancellation, using language set forth in Model
Form A-37 of Appendix A to this part or substantially similar language.
For any remittance transfer scheduled by the sender at least three
business days before the date of the transfer, the statement about the
rights of the sender regarding cancellation must instead reflect the
requirements of Sec. 1005.36(c);
(v) The name, telephone number(s), and Web site of the remittance
transfer provider;
(vi) A statement that the sender can contact the State agency that
licenses or charters the remittance transfer provider with respect to
the remittance transfer and the Consumer Financial Protection Bureau for
questions or complaints about the remittance transfer provider, using
language set forth in Model Form A-37 of Appendix A to this part or
substantially similar language. The disclosure must provide the name,
telephone number(s), and Web site of the State agency that licenses or
charters the remittance transfer provider with respect to the remittance
transfer and the name, toll-free telephone number(s), and Web site of
the Consumer Financial Protection Bureau; and
(vii) For any remittance transfer scheduled by the sender at least
three business days before the date of the transfer, or the first
transfer in a series of preauthorized remittance transfers, the date the
remittance transfer provider will make or made the remittance transfer,
using the term ``Transfer Date,'' or a substantially similar term.
(3) Combined disclosure--(i) In general. As an alternative to
providing the disclosures described in paragraph (b)(1) and (2) of this
section, a remittance transfer provider may provide the disclosures
described in paragraph (b)(2) of this section, as applicable, in a
single disclosure pursuant to the timing requirements in paragraph
(e)(1) of this section. Except as provided in paragraph (b)(3)(ii) of
this section, if the remittance transfer provider provides the combined
disclosure and the sender completes the transfer, the remittance
transfer provider must provide the sender with proof of payment when
payment is made for the remittance transfer. The proof of payment must
be clear and conspicuous, provided in writing or electronically, and
provided in a retainable form.
(ii) Transfers scheduled before the date of transfer. If the
disclosure described in paragraph (b)(3)(i) of this section is provided
in accordance with Sec. 1005.36(a)(1)(i) and payment is not processed by
the remittance transfer provider at the time the remittance transfer is
scheduled, a remittance transfer provider may provide confirmation that
the transaction has been scheduled in lieu of the proof of
[[Page 208]]
payment otherwise required by paragraph (b)(3)(i) of this section. The
confirmation of scheduling must be clear and conspicuous, provided in
writing or electronically, and provided in a retainable form.
(4) Long form error resolution and cancellation notice. Upon the
sender's request, a remittance transfer provider must promptly provide
to the sender a notice describing the sender's error resolution and
cancellation rights, using language set forth in Model Form A-36 of
Appendix A to this part or substantially similar language. For any
remittance transfer scheduled by the sender at least three business days
before the date of the transfer, the description of the rights of the
sender regarding cancellation must instead reflect the requirements of
Sec. 1005.36(c).
(c) Specific format requirements--(1) Grouping. The information
required by paragraphs (b)(1)(i), (ii), and (iii) of this section
generally must be grouped together. The information required by
paragraphs (b)(1)(v), (vi), (vii), and (viii) of this section generally
must be grouped together. Disclosures provided via mobile application or
text message, to the extent permitted by paragraph (a)(5) of this
section, generally need not comply with the grouping requirements of
this paragraph, however information required or permitted by paragraph
(b)(1)(viii) of this section must be grouped with information required
by paragraph (b)(1)(vii) of this section.
(2) Proximity. The information required by paragraph (b)(1)(iv) of
this section generally must be disclosed in close proximity to the other
information required by paragraph (b)(1) of this section. The
information required by paragraph (b)(2)(iv) of this section generally
must be disclosed in close proximity to the other information required
by paragraph (b)(2) of this section. The information required or
permitted by paragraph (b)(1)(viii) must be in close proximity to the
information required by paragraph (b)(1)(vii) of this section.
Disclosures provided via mobile application or text message, to the
extent permitted by paragraph (a)(5) of this section, generally need not
comply with the proximity requirements of this paragraph, however
information required or permitted by paragraph (b)(1)(viii) of this
section must follow the information required by paragraph (b)(1)(vii) of
this section.
(3) Prominence and size. Written disclosures required by this
subpart or permitted by paragraph (b)(1)(viii) of this section must be
provided on the front of the page on which the disclosure is printed.
Disclosures required by this subpart or permitted by paragraph
(b)(1)(viii) of this section that are provided in writing or
electronically must be in a minimum eight-point font, except for
disclosures provided via mobile application or text message, to the
extent permitted by paragraph (a)(5) of this section. Disclosures
required by paragraph (b) of this section or permitted by paragraph
(b)(1)(viii) of this section that are provided in writing or
electronically must be in equal prominence to each other.
(4) Segregation. Except for disclosures provided via mobile
application or text message, to the extent permitted by paragraph (a)(5)
of this section, disclosures required by this subpart that are provided
in writing or electronically must be segregated from everything else and
must contain only information that is directly related to the
disclosures required under this subpart.
(d) Estimates. Estimated disclosures may be provided to the extent
permitted by Sec. 1005.32. Estimated disclosures must be described using
the term ``Estimated'' or a substantially similar term in close
proximity to the estimated term or terms.
(e) Timing. (1) Except as provided in Sec. 1005.36(a), a pre-payment
disclosure required by paragraph (b)(1) of this section or a combined
disclosure required by paragraph (b)(3) of this section must be provided
to the sender when the sender requests the remittance transfer, but
prior to payment for the transfer.
(2) Except as provided in Sec. 1005.36(a), a receipt required by
paragraph (b)(2) of this section generally must be provided to the
sender when payment is made for the remittance transfer. If a
transaction is conducted entirely by telephone, a receipt required by
paragraph (b)(2) of this section may be mailed or delivered to the
sender no later than one business day after the date on
[[Page 209]]
which payment is made for the remittance transfer. If a transaction is
conducted entirely by telephone and involves the transfer of funds from
the sender's account held by the provider, the receipt required by
paragraph (b)(2) of this section may be provided on or with the next
regularly scheduled periodic statement for that account or within 30
days after payment is made for the remittance transfer if a periodic
statement is not provided. The statement about the rights of the sender
regarding cancellation required by paragraph (b)(2)(iv) of this section
may, but need not, be disclosed pursuant to the timing requirements of
this paragraph if a provider discloses this information pursuant to
paragraphs (a)(3)(iii) or (a)(5)(iii) of this section.
(f) Accurate when payment is made. Except as provided in
Sec. 1005.36(b), disclosures required by this section or permitted by
paragraph (b)(1)(viii) of this section must be accurate when a sender
makes payment for the remittance transfer, except to the extent
estimates are permitted by Sec. 1005.32.
(g) Foreign language disclosures--(1) General. Except as provided in
paragraph (g)(2) of this section, disclosures required by this subpart
or permitted by paragraph (b)(1)(viii) of this section or
Sec. 1005.33(h)(3) must be made in English and, if applicable, either
in:
(i) Each of the foreign languages principally used by the remittance
transfer provider to advertise, solicit, or market remittance transfer
services, either orally, in writing, or electronically, at the office in
which a sender conducts a transaction or asserts an error; or
(ii) The foreign language primarily used by the sender with the
remittance transfer provider to conduct the transaction (or for written
or electronic disclosures made pursuant to Sec. 1005.33, in the foreign
language primarily used by the sender with the remittance transfer
provider to assert the error), provided that such foreign language is
principally used by the remittance transfer provider to advertise,
solicit, or market remittance transfer services, either orally, in
writing, or electronically, at the office in which a sender conducts a
transaction or asserts an error, respectively.
(2) Oral, mobile application, or text message disclosures.
Disclosures provided orally for transactions conducted orally and
entirely by telephone under paragraph (a)(3) of this section or orally
or via mobile application or text message for transactions conducted via
mobile application or text message under paragraph (a)(5) of this
section shall be made in the language primarily used by the sender with
the remittance transfer provider to conduct the transaction. Disclosures
provided orally under paragraph (a)(4) of this section for error
resolution purposes shall be made in the language primarily used by the
sender with the remittance transfer provider to assert the error.
[77 FR 6285, Feb. 7, 2012, as amended at 77 FR 50282, Aug. 20, 2012; 77
FR 30703, May 22, 2013]
Sec. 1005.32 Estimates.
(a) Temporary exception for insured institutions--(1) General. For
disclosures described in Secs. 1005.31(b)(1) through (3) and
1005.36(a)(1) and (2), estimates may be provided in accordance with
paragraph (c) of this section for the amounts required to be disclosed
under Sec. 1005.31(b)(1)(iv) through (vii), if:
(i) A remittance transfer provider cannot determine the exact
amounts for reasons beyond its control;
(ii) A remittance transfer provider is an insured institution; and
(iii) The remittance transfer is sent from the sender's account with
the institution.
(2) Sunset date. Paragraph (a)(1) of this section expires on July
21, 2020.
(3) Insured institution. For purposes of this section, the term
``insured institution'' means insured depository institutions (which
includes uninsured U.S. branches and agencies of foreign depository
institutions) as defined in section 3 of the Federal Deposit Insurance
Act (12 U.S.C. 1813), and insured credit unions as defined in section
101 of the Federal Credit Union Act (12 U.S.C. 1752).
(b) Permanent exceptions--(1) Permanent exception for transfers to
certain countries--(i) General. For disclosures described in
Secs. 1005.31(b)(1) through (b)(3) and 1005.36(a)(1) and (a)(2),
estimates may be provided for transfers to certain countries in
accordance with
[[Page 210]]
paragraph (c) of this section for the amounts required to be disclosed
under Sec. 1005.31(b)(1)(iv) through (b)(1)(vii), if a remittance
transfer provider cannot determine the exact amounts when the disclosure
is required because:
(A) The laws of the recipient country do not permit such a
determination, or
(B) The method by which transactions are made in the recipient
country does not permit such determination.
(ii) Safe harbor. A remittance transfer provider may rely on the
list of countries published by the Bureau to determine whether estimates
may be provided under paragraph (b)(1) of this section, unless the
provider has information that a country's laws or the method by which
transactions are conducted in that country permits a determination of
the exact disclosure amount.
(2) Permanent exception for transfers scheduled before the date of
transfer. (i) Except as provided in paragraph (b)(2)(ii) of this
section, for disclosures described in Secs. 1005.36(a)(1)(i) and
(a)(2)(i), estimates may be provided in accordance with paragraph (d) of
this section for the amounts to be disclosed under
Secs. 1005.31(b)(1)(iv) through (vii) if the remittance transfer is
scheduled by a sender five or more business days before the date of the
transfer. In addition, if, at the time the sender schedules such a
transfer, the provider agrees to a sender's request to fix the amount to
be transferred in the currency in which the remittance transfer will be
received and not the currency in which it is funded, estimates may also
be provided for the amounts to be disclosed under Secs. 1005.31(b)(1)(i)
through (iii), except as provided in paragraph (b)(2)(iii) of this
section.
(ii) Covered third-party fees described in Sec. 1005.31(b)(1)(vi)
may be estimated under paragraph (b)(2)(i) of this section only if the
exchange rate is also estimated under paragraph (b)(2)(i) of this
section and the estimated exchange rate affects the amount of such fees.
(iii) Fees and taxes described in Sec. 1005.31(b)(1)(ii) may be
estimated under paragraph (b)(2)(i) of this section only if the amount
that will be transferred in the currency in which it is funded is also
estimated under paragraph (b)(2)(i) of this section, and the estimated
amount affects the amount of such fees and taxes.
(3) Permanent exception for optional disclosure of non-covered
third-party fees and taxes collected by a person other than the
provider. For disclosures described in Secs. 1005.31(b)(1) through (3)
and 1005.36(a)(1) and (2), estimates may be provided for applicable non-
covered third-party fees and taxes collected on the remittance transfer
by a person other than the provider, which are permitted to be disclosed
under Sec. 1005.31(b)(1)(viii), provided such estimates are based on
reasonable sources of information.
(c) Bases for estimates generally. Estimates provided pursuant to
the exceptions in paragraph (a) or (b)(1) of this section must be based
on the below-listed approach or approaches, except as otherwise
permitted by this paragraph. If a remittance transfer provider bases an
estimate on an approach that is not listed in this paragraph, the
provider is deemed to be in compliance with this paragraph so long as
the designated recipient receives the same, or greater, amount of funds
than the remittance transfer provider disclosed under
Sec. 1005.31(b)(1)(vii).
(1) Exchange rate. In disclosing the exchange rate as required under
Sec. 1005.31(b)(1)(iv), an estimate must be based on one of the
following:
(i) For remittance transfers sent via international ACH that qualify
for the exception in paragraph (b)(1)(ii) of this section, the most
recent exchange rate set by the recipient country's central bank or
other governmental authority and reported by a Federal Reserve Bank;
(ii) The most recent publicly available wholesale exchange rate and,
if applicable, any spread that the remittance transfer provider or its
correspondent typically applies to such a wholesale rate for remittance
transfers for that currency; or
(iii) The most recent exchange rate offered or used by the person
making funds available directly to the designated recipient or by the
person setting the exchange rate.
(2) Transfer amount in the currency in which the funds will be
received by the designated recipient. In disclosing the
[[Page 211]]
transfer amount in the currency in which the funds will be received by
the designated recipient, as required under Sec. 1005.31(b)(1)(v), an
estimate must be based on the estimated exchange rate provided in
accordance with paragraph (c)(1) of this section, prior to any rounding
of the estimated exchange rate.
(3) Covered third-party fees--(i) Imposed as percentage of amount
transferred. In disclosing covered third-party fees, as described under
Sec. 1005.31(b)(1)(vi), that are a percentage of the amount transferred
to the designated recipient, an estimated exchange rate must be based on
the estimated exchange rate provided in accordance with paragraph (c)(1)
of this section, prior to any rounding of the estimated exchange rate.
(ii) Imposed by the intermediary or final institution. In disclosing
covered third-party fees pursuant to Sec. 1005.31(b)(1)(vi), an estimate
must be based on one of the following:
(A) The remittance transfer provider's most recent remittance
transfer to the designated recipient's institution, or
(B) A representative transmittal route identified by the remittance
transfer provider.
(4) Amount of currency that will be received by the designated
recipient. In disclosing the amount of currency that will be received by
the designated recipient as required under Sec. 1005.31(b)(1)(vii), an
estimate must be based on the information provided in accordance with
paragraphs (c)(1) through (3) of this section, as applicable.
(d) Bases for estimates for transfers scheduled before the date of
transfer. Estimates provided pursuant to paragraph (b)(2) of this
section must be based on the exchange rate or, where applicable, the
estimated exchange rate based on an estimation methodology permitted
under paragraph (c) of this section that the provider would have used or
did use that day in providing disclosures to a sender requesting such a
remittance transfer to be made on the same day. If, in accordance with
this paragraph, a remittance transfer provider uses a basis described in
paragraph (c) of this section but not listed in paragraph (c)(1) of this
section, the provider is deemed to be in compliance with this paragraph
regardless of the amount received by the designated recipient, so long
as the estimation methodology is the same that the provider would have
used or did use in providing disclosures to a sender requesting such a
remittance transfer to be made on the same day.
[77 FR 6285, Feb. 7, 2012, as amended at 77 FR 50283, Aug. 20, 2012; 78
FR 30704, May 22, 2013; 79 FR 55991, Sept. 18, 2014]
Effective Date Note: At 81 FR 84338, Nov. 22, 2016, Sec. 1005.32 was
amended by revising paragraph (a)(1)(iii), effective Oct. 1, 2017. For
the convenience of the user, the revised text is set forth as follows:
Sec. 1005.32 Estimates.
(a) * * *
(1) * * *
(iii) The remittance transfer is sent from the sender's account with
the institution; provided however, for the purposes of this paragraph, a
sender's account does not include a prepaid account, unless the prepaid
account is a payroll card account or a government benefit account.
* * * * *
Sec. 1005.33 Procedures for resolving errors.
(a) Definition of error--(1) Types of transfers or inquiries
covered. For purposes of this section, the term error means:
(i) An incorrect amount paid by a sender in connection with a
remittance transfer unless the disclosure stated an estimate of the
amount paid by a sender in accordance with Sec. 1005.32(b)(2) and the
difference results from application of the actual exchange rate, fees,
and taxes, rather than any estimated amount;
(ii) A computational or bookkeeping error made by the remittance
transfer provider relating to a remittance transfer;
(iii) The failure to make available to a designated recipient the
amount of currency disclosed pursuant to Sec. 1005.31(b)(1)(vii) and
stated in the disclosure provided to the sender under Sec. 1005.31(b)(2)
or (3) for the remittance transfer, unless:
[[Page 212]]
(A) The disclosure stated an estimate of the amount to be received
in accordance with Sec. 1005.32(a), (b)(1) or (b)(2) and the difference
results from application of the actual exchange rate, fees, and taxes,
rather than any estimated amounts; or
(B) The failure resulted from extraordinary circumstances outside
the remittance transfer provider's control that could not have been
reasonably anticipated; or
(C) The difference results from the application of non-covered
third-party fees or taxes collected on the remittance transfer by a
person other than the provider and the provider provided the disclosure
required by Sec. 1005.31(b)(1)(viii).
(iv) The failure to make funds available to a designated recipient
by the date of availability stated in the disclosure provided to the
sender under Sec. 1005.31(b)(2) or (3) for the remittance transfer,
unless the failure to make the funds available resulted from:
(A) Extraordinary circumstances outside the remittance transfer
provider's control that could not have been reasonably anticipated;
(B) Delays related to a necessary investigation or other special
action by the remittance transfer provider or a third party as required
by the provider's fraud screening procedures or in accordance with the
Bank Secrecy Act, 31 U.S.C. 5311 et seq., Office of Foreign Assets
Control requirements, or similar laws or requirements;
(C) The remittance transfer being made with fraudulent intent by the
sender or any person acting in concert with the sender; or
(D) The sender having provided the remittance transfer provider an
incorrect account number or recipient institution identifier for the
designated recipient's account or institution, provided that the
remittance transfer provider meets the conditions set forth in paragraph
(h) of this section;
(v) The sender's request for documentation required by Sec. 1005.31
or for additional information or clarification concerning a remittance
transfer, including a request a sender makes to determine whether an
error exists under paragraphs (a)(1)(i) through (iv) of this section.
(2) Types of transfers or inquiries not covered. The term error does
not include:
(i) An inquiry about the status of a remittance transfer, except
where the funds from the transfer were not made available to a
designated recipient by the disclosed date of availability as described
in paragraph (a)(1)(iv) of this section;
(ii) A request for information for tax or other recordkeeping
purposes;
(iii) A change requested by the designated recipient; or
(iv) A change in the amount or type of currency received by the
designated recipient from the amount or type of currency stated in the
disclosure provided to the sender under Sec. 1005.31(b)(2) or (3) if the
remittance transfer provider relied on information provided by the
sender as permitted under Sec. 1005.31 in making such disclosure.
(b) Notice of error from sender--(1) Timing; contents. A remittance
transfer provider shall comply with the requirements of this section
with respect to any oral or written notice of error from a sender that:
(i) Is received by the remittance transfer provider no later than
180 days after the disclosed date of availability of the remittance
transfer;
(ii) Enables the provider to identify:
(A) The sender's name and telephone number or address;
(B) The recipient's name, and if known, the telephone number or
address of the recipient; and
(C) The remittance transfer to which the notice of error applies;
and
(iii) Indicates why the sender believes an error exists and includes
to the extent possible the type, date, and amount of the error, except
for requests for documentation, additional information, or clarification
described in paragraph (a)(1)(v) of this section.
(2) Request for documentation or clarification. When a notice of
error is based on documentation, additional information, or
clarification that the sender previously requested under paragraph
(a)(1)(v) of this section, the sender's notice of error is timely if
received by the remittance transfer provider the later of 180 days after
the disclosed date of availability of the remittance transfer or 60 days
after the provider sent the
[[Page 213]]
documentation, information, or clarification that had been requested.
(c) Time limits and extent of investigation--(1) Time limits for
investigation and report to consumer of error. A remittance transfer
provider shall investigate promptly and determine whether an error
occurred within 90 days of receiving a notice of error. The remittance
transfer provider shall report the results to the sender, including
notice of any remedies available for correcting any error that the
provider determines has occurred, within three business days after
completing its investigation.
(2) Remedies. Except as provided in paragraph (c)(2)(iii) of this
section, if, following an assertion of an error by a sender, the
remittance transfer provider determines an error occurred, the provider
shall, within one business day of, or as soon as reasonably practicable
after, receiving the sender's instructions regarding the appropriate
remedy, correct the error as designated by the sender by:
(i) In the case of any error under paragraphs (a)(1)(i) through
(iii) of this section, as applicable, either:
(A) Refunding to the sender the amount of funds provided by the
sender in connection with a remittance transfer which was not properly
transmitted, or the amount appropriate to resolve the error; or
(B) Making available to the designated recipient, without additional
cost to the sender or to the designated recipient, the amount
appropriate to resolve the error;
(ii) Except as provided in paragraph (c)(2)(iii) of this section, in
the case of an error under paragraph (a)(1)(iv) of this section
(A) As applicable, either:
(1) Refunding to the sender the amount of funds provided by the
sender in connection with a remittance transfer which was not properly
transmitted, or the amount appropriate to resolve the error; or
(2) Making available to the designated recipient the amount
appropriate to resolve the error. Such amount must be made available to
the designated recipient without additional cost to the sender or to the
designated recipient; and
(B) Refunding to the sender any fees imposed and, to the extent not
prohibited by law, taxes collected on the remittance transfer;
(iii) In the case of an error under paragraph (a)(1)(iv) of this
section that occurred because the sender provided incorrect or
insufficient information in connection with the remittance transfer, the
remittance transfer provider shall provide the remedies required by
paragraphs (c)(2)(ii)(A)(1) and (c)(2)(ii)(B) of this section within
three business days of providing the report required by paragraph (c)(1)
or (d)(1) of this section except that the provider may agree to the
sender's request, upon receiving the results of the error investigation,
that the funds be applied towards a new remittance transfer, rather than
be refunded, if the provider has not yet processed a refund. The
provider may deduct from the amount refunded or applied towards a new
transfer any fees actually imposed on or, to the extent not prohibited
by law, taxes actually collected on the remittance transfer as part of
the first unsuccessful remittance transfer attempt except that the
provider shall not deduct its own fee.
(iv) In the case of a request under paragraph (a)(1)(v) of this
section, providing the requested documentation, information, or
clarification.
(d) Procedures if remittance transfer provider determines no error
or different error occurred. In addition to following the procedures
specified in paragraph (c) of this section, the remittance transfer
provider shall follow the procedures set forth in this paragraph (d) if
it determines that no error occurred or that an error occurred in a
manner or amount different from that described by the sender.
(1) Explanation of results of investigation. The remittance transfer
provider's report of the results of the investigation shall include a
written explanation of the provider's findings and shall note the
sender's right to request the documents on which the provider relied in
making its determination. The explanation shall also address the
specific complaint of the sender.
(2) Copies of documentation. Upon the sender's request, the
remittance transfer provider shall promptly provide
[[Page 214]]
copies of the documents on which the provider relied in making its error
determination.
(e) Reassertion of error. A remittance transfer provider that has
fully complied with the error resolution requirements of this section
has no further responsibilities under this section should the sender
later reassert the same error, except in the case of an error asserted
by the sender following receipt of information provided under paragraph
(a)(1)(v) of this section.
(f) Relation to other laws--(1) Relation to Regulation E
Sec. 1005.11 for incorrect EFTs from a sender's account. If an alleged
error involves an incorrect electronic fund transfer from a sender's
account in connection with a remittance transfer, and the sender
provides a notice of error to the account-holding institution, the
account-holding institution shall comply with the requirements of
Sec. 1005.11 governing error resolution rather than the requirements of
this section, provided that the account-holding institution is not also
the remittance transfer provider. If the remittance transfer provider is
also the financial institution that holds the consumer's account, then
the error-resolution provisions of this section apply when the sender
provides such notice of error.
(2) Relation to Truth in Lending Act and Regulation Z. If an alleged
error involves an incorrect extension of credit in connection with a
remittance transfer, an incorrect amount received by the designated
recipient under paragraph (a)(1)(iii) of this section that is an
extension of credit for property or services not delivered as agreed, or
the failure to make funds available by the disclosed date of
availability under paragraph (a)(1)(iv) of this section that is an
extension of credit for property or services not delivered as agreed,
and the sender provides a notice of error to the creditor extending the
credit, the provisions of Regulation Z, 12 CFR 1026.13, governing error
resolution apply to the creditor, rather than the requirements of this
section, even if the creditor is the remittance transfer provider.
However, if the creditor is the remittance transfer provider, paragraph
(b) of this section will apply instead of 12 CFR 1026.13(b). If the
sender instead provides a notice of error to the remittance transfer
provider that is not also the creditor, then the error-resolution
provisions of this section apply to the remittance transfer provider.
(3) Unauthorized remittance transfers. If an alleged error involves
an unauthorized electronic fund transfer for payment in connection with
a remittance transfer, Secs. 1005.6 and 1005.11 apply with respect to
the account-holding institution. If an alleged error involves an
unauthorized use of a credit account for payment in connection with a
remittance transfer, the provisions of Regulation Z, 12 CFR 1026.12(b),
if applicable, and Sec. 1026.13, apply with respect to the creditor.
(g) Error resolution standards and recordkeeping requirements--(1)
Compliance program. A remittance transfer provider shall develop and
maintain written policies and procedures that are designed to ensure
compliance with the error resolution requirements applicable to
remittance transfers under this section.
(2) Retention of error-related documentation. The remittance
transfer provider's policies and procedures required under paragraph
(g)(1) of this section shall include policies and procedures regarding
the retention of documentation related to error investigations. Such
policies and procedures must ensure, at a minimum, the retention of any
notices of error submitted by a sender, documentation provided by the
sender to the provider with respect to the alleged error, and the
findings of the remittance transfer provider regarding the investigation
of the alleged error. Remittance transfer providers are subject to the
record retention requirements under Sec. 1005.13.
(h) Incorrect account number or recipient institution identifier
provided by the sender. The exception in paragraph (a)(1)(iv)(D) of this
section applies if:
(1) The remittance transfer provider can demonstrate that the sender
provided an incorrect account number or recipient institution identifier
to the provider in connection with the remittance transfer;
(2) For any instance in which the sender provided the incorrect
recipient institution identifier, prior to or when
[[Page 215]]
sending the transfer, the provider used reasonably available means to
verify that the recipient institution identifier provided by the sender
corresponded to the recipient institution name provided by the sender;
(3) The provider provided notice to the sender before the sender
made payment for the remittance transfer that, in the event the sender
provided an incorrect account number or recipient institution
identifier, the sender could lose the transfer amount. For purposes of
providing this disclosure, Sec. 1005.31(a)(2) applies to this notice
unless the notice is given at the same time as other disclosures
required by this subpart for which information is permitted to be
disclosed orally or via mobile application or text message, in which
case this disclosure may be given in the same medium as those other
disclosures;
(4) The incorrect account number or recipient institution identifier
resulted in the deposit of the remittance transfer into a customer's
account that is not the designated recipient's account; and
(5) The provider promptly used reasonable efforts to recover the
amount that was to be received by the designated recipient.
[77 FR 6285, Feb. 7, 2012, as amended at 77 FR 50284, Aug. 20, 2012; 78
FR 30704, May 22, 2013; 78 FR 49366, Aug. 14, 2013; 79 FR 55991, Sept.
18, 2014]
Sec. 1005.34 Procedures for cancellation and refund of remittance transfers.
(a) Sender right of cancellation and refund. Except as provided in
Sec. 1005.36(c), a remittance transfer provider shall comply with the
requirements of this section with respect to any oral or written request
to cancel a remittance transfer from the sender that is received by the
provider no later than 30 minutes after the sender makes payment in
connection with the remittance transfer if:
(1) The request to cancel enables the provider to identify the
sender's name and address or telephone number and the particular
transfer to be cancelled; and
(2) The transferred funds have not been picked up by the designated
recipient or deposited into an account of the designated recipient.
(b) Time limits and refund requirements. A remittance transfer
provider shall refund, at no additional cost to the sender, the total
amount of funds provided by the sender in connection with a remittance
transfer, including any fees and, to the extent not prohibited by law,
taxes imposed in connection with the remittance transfer, within three
business days of receiving a sender's request to cancel the remittance
transfer.
Sec. 1005.35 Acts of agents.
A remittance transfer provider is liable for any violation of this
subpart by an agent when such agent acts for the provider.
Sec. 1005.36 Transfers scheduled before the date of transfer.
(a) Timing. (1) For a one-time transfer scheduled five or more
business days before the date of transfer or for the first in a series
of preauthorized remittance transfers, the remittance transfer provider
must:
(i) Provide either the pre-payment disclosure described in
Sec. 1005.31(b)(1) and the receipt described in Sec. 1005.31(b)(2) or
the combined disclosure described in Sec. 1005.31(b)(3), in accordance
with the timing requirements set forth in Sec. 1005.31(e); and
(ii) If any of the disclosures provided pursuant to paragraph
(a)(1)(i) of this section contain estimates as permitted by
Sec. 1005.32(b)(2), mail or deliver to the sender an additional receipt
meeting the requirements described in Sec. 1005.31(b)(2) no later than
one business day after the date of the transfer. If the transfer
involves the transfer of funds from the sender's account held by the
provider, the receipt required by this paragraph may be provided on or
with the next periodic statement for that account, or within 30 days
after the date of the transfer if a periodic statement is not provided.
(2) For each subsequent preauthorized remittance transfer:
(i) If any of the information on the most recent receipt provided
pursuant to paragraph (a)(1)(i) of this section, or by this paragraph
(a)(2)(i), other than the temporal disclosures required by
[[Page 216]]
Sec. 1005.31(b)(2)(ii) and (b)(2)(vii), is no longer accurate with
respect to a subsequent preauthorized remittance transfer for reasons
other than as permitted by Sec. 1005.32, then the remittance transfer
provider must provide an updated receipt meeting the requirements
described in Sec. 1005.31(b)(2) to the sender. The provider must mail or
deliver this receipt to the sender within a reasonable time prior to the
scheduled date of the next subsequent preauthorized remittance transfer.
Such receipt must clearly and conspicuously indicate that it contains
updated disclosures.
(ii) Unless a receipt was provided in accordance with paragraph
(a)(2)(i) of this section that contained no estimates pursuant to
Sec. 1005.32, the remittance transfer provider must mail or deliver to
the sender a receipt meeting the requirements described in
Sec. 1005.31(b)(2) no later than one business day after the date of the
transfer. If the remittance transfer involves the transfer of funds from
the sender's account held by the provider, the receipt required by this
paragraph may be provided on or with the next periodic statement for
that account, or within 30 days after the date of the transfer if a
periodic statement is not provided.
(iii) A remittance transfer provider must provide the disclosures
required by paragraph (d) of this section in accordance with the timing
requirements of that section.
(b) Accuracy. (1) For a one-time transfer scheduled five or more
business days in advance or for the first in a series of preauthorized
remittance transfers, disclosures provided pursuant to paragraph
(a)(1)(i) of this section must comply with Sec. 1005.31(f) by being
accurate when a sender makes payment except to the extent estimates are
permitted by Sec. 1005.32.
(2) For each subsequent preauthorized remittance transfer, the most
recent receipt provided pursuant to paragraph (a)(1)(i) or (a)(2)(i) of
this section must be accurate as of when such transfer is made, except:
(i) The temporal elements required by Sec. 1005.31(b)(2)(ii) and
(b)(2)(vii) must be accurate only if the transfer is the first transfer
to occur after the disclosure was provided; and
(ii) To the extent estimates are permitted by Sec. 1005.32.
(3) Disclosures provided pursuant to paragraph (a)(1)(ii) or
(a)(2)(ii) of this section must be accurate as of when the remittance
transfer to which it pertains is made, except to the extent estimates
are permitted by Sec. 1005.32(a) or (b)(1).
(c) Cancellation. For any remittance transfer scheduled by the
sender at least three business days before the date of the transfer, a
remittance transfer provider shall comply with any oral or written
request to cancel the remittance transfer from the sender if the request
to cancel:
(1) Enables the provider to identify the sender's name and address
or telephone number and the particular transfer to be cancelled; and
(2) Is received by the provider at least three business days before
the scheduled date of the remittance transfer.
(d) Additional requirements for subsequent preauthorized remittance
transfers--(1) Disclosure requirement. (i) For any subsequent transfer
in a series of preauthorized remittance transfers, the remittance
transfer provider must disclose to the sender:
(A) The date the provider will make the subsequent transfer, using
the term ``Future Transfer Date,'' or a substantially similar term;
(B) A statement about the rights of the sender regarding
cancellation as described in Sec. 1005.31(b)(2)(iv); and
(C) The name, telephone number(s), and Web site of the remittance
transfer provider.
(ii) If the future date or dates of transfer are described as
occurring in regular periodic intervals, e.g., the 15th of every month,
rather than as a specific calendar date or dates, the remittance
transfer provider must disclose any future date or dates of transfer
that do not conform to the described interval.
(2) Notice requirements. (i) Except as described in paragraph
(d)(2)(ii) of this section, the disclosures required by paragraph (d)(1)
of this section must be received by the sender no more than 12 months,
and no less than five business days prior to the date of any subsequent
transfer to which it pertains.
[[Page 217]]
The disclosures required by paragraph (d)(1) of this section may be
provided in a separate disclosure or may be provided on one or more
disclosures required by this subpart related to the same series of
preauthorized transfers, so long as the consumer receives the required
information for each subsequent preauthorized remittance transfer in
accordance with the timing requirements of this paragraph (d)(2)(i).
(ii) For any subsequent preauthorized remittance transfer for which
the date of transfer is four or fewer business days after the date
payment is made for that transfer, the information required by paragraph
(d)(1) of this section must be provided on or with the receipt described
in Sec. 1005.31(b)(2), or disclosed as permitted by Sec. 1005.31(a)(3)
or (a)(5), for the initial transfer in that series in accordance with
paragraph (a)(1)(i) of this section.
(3) Specific format requirement. The information required by
paragraph (d)(1)(i)(A) of this section generally must be disclosed in
close proximity to the other information required by paragraph
(d)(1)(i)(B) of this section.
(4) Accuracy. Any disclosure required by paragraph (d)(1) of this
section must be accurate as of the date the preauthorized remittance
transfer to which it pertains is made.
[76 FR 81023, Dec. 27, 2011, as amended at 77 FR 50284, Aug. 20, 2012]
Sec. Appendix A to Part 1005--Model Disclosure Clauses and Forms
A-1--Model Clauses for Unsolicited Issuance (Sec. 1005.5(b)(2))
A-2--Model Clauses for Initial Disclosures (Sec. 1005.7(b))
A-3--Model Forms for Error Resolution Notice (Secs. 1005.7(b)(10) and
1005.8(b))
A-4--Model Form for Service-Providing Institutions
(Sec. 1005.14(b)(1)(ii))
A-5--Model Forms for Government Agencies (Sec. 1005.15(d)(1) and (2))
A-6--Model Clauses for Authorizing One-Time Electronic Fund Transfers
Using Information From a Check (Sec. 1005.3(b)(2))
A-7--Model Clauses for Financial Institutions Offering Payroll Card
Accounts (Sec. 1005.18(c))
A-8--Model Clause for Electronic Collection of Returned Item Fees
(Sec. 1005.3(b)(3))
A-9--Model Consent Form for Overdraft Services (Sec. 1005.17)
A-10 through A-30 [Reserved]
A-30(a)--Model Form for Pre-Payment Disclosures for Remittance Transfers
Exchanged into Local Currency including a disclaimer where non-covered
third-party fees and foreign taxes may apply (Sec. 1005.31(b)(1))
A-30(b) --Model Form for Pre-Payment Disclosures for Remittance
Transfers Exchanged into Local Currency including a disclaimer with
estimate for non-covered third-party fees (Sec. 1005.31(b)(1) and
Sec. 1005.32(b)(3))
A-30(c)--Model Form for Pre-Payment Disclosures for Remittance Transfers
Exchanged into Local Currency including a disclaimer with estimate for
foreign taxes (Sec. 1005.31(b)(1) and Sec. 1005.32(b)(3))
A-30(d)--Model Form for Pre-Payment Disclosures for Remittance Transfers
Exchanged into Local Currency, including a disclaimer with estimates for
non-covered third-party fees and foreign taxes (Sec. 1005.31(b)(1) and
Sec. 1005.32(b)(3))
A-31--Model Form for Receipts for Remittance Transfers Exchanged into
Local Currency (Sec. 1005.31(b)(2))
A-32--Model Form for Combined Disclosures for Remittance Transfers
Exchanged into Local Currency (Sec. 1005.31(b)(3))
A-34--Model Form for Receipts for Dollar-to-Dollar Remittance Transfers
(Sec. 1005.31(b)(2))
A-35--Model Form for Combined Disclosures for Dollar-to-Dollar
Remittance Transfers (Sec. 1005.31(b)(3))
A-36--Model Form for Error Resolution and Cancellation Disclosures
(Long) (Sec. 1005.31(b)(4))
A-37--Model Form for Error Resolution and Cancellation Disclosures
(Short) (Sec. 1005.31(b)(2)(iv) and (b)(2)(vi))
A-39--Model Form for Receipts for Remittance Transfers Exchanged into
Local Currency--Spanish (Sec. 1005.31(b)(2))
A-40--Model Form for Combined Disclosures for Remittance Transfers
Exchanged into Local Currency--Spanish (Sec. 1005.31(b)(3))
A-41--Model Form for Error Resolution and Cancellation Disclosures
(Long)--Spanish (Sec. 1005.31(b)(4))
A-1--Model Clauses for Unsolicited Issuance (Sec. 1005.5(b)(2))
(a) Accounts using cards. You cannot use the enclosed card to
transfer money into or out of your account until we have validated it.
If you do not want to use the card, please (destroy it at once by
cutting it in half).
[Financial institution may add validation instructions here.]
(b) Accounts using codes. You cannot use the enclosed code to
transfer money into or out of your account until we have validated it.
If you do not want to use the code, please (destroy this notice at
once).
[Financial institution may add validation instructions here.]
[[Page 218]]
A-2--Model Clauses for Initial Disclosures (Sec. 1005.7(b))
(a) Consumer Liability (Sec. 1005.7(b)(1)).
(Tell us AT ONCE if you believe your [card] [code] has been lost or
stolen, or if you believe that an electronic fund transfer has been made
without your permission using information from your check. Telephoning
is the best way of keeping your possible losses down. You could lose all
the money in your account (plus your maximum overdraft line of credit).
If you tell us within 2 business days after you learn of the loss or
theft of your [card] [code], you can lose no more than $50 if someone
used your [card][code] without your permission.)
If you do NOT tell us within 2 business days after you learn of the
loss or theft of your [card] [code], and we can prove we could have
stopped someone from using your [card] [code] without your permission if
you had told us, you could lose as much as $500.
Also, if your statement shows transfers that you did not make,
including those made by card, code or other means, tell us at once. If
you do not tell us within 60 days after the statement was mailed to you,
you may not get back any money you lost after the 60 days if we can
prove that we could have stopped someone from taking the money if you
had told us in time. If a good reason (such as a long trip or a hospital
stay) kept you from telling us, we will extend the time periods.
(b) Contact in event of unauthorized transfer (Sec. 1005.7(b)(2)).
If you believe your [card] [code] has been lost or stolen, call:
[Telephone number] or write: [Name of person or office to be notified]
[Address].
You should also call the number or write to the address listed above
if you believe a transfer has been made using the information from your
check without your permission.
(c) Business days (Sec. 1005.7(b)(3)). For purposes of these
disclosures, our business days are (Monday through Friday) (Monday
through Saturday) (any day including Saturdays and Sundays). Holidays
are (not) included.
(d) Transfer types and limitations (Sec. 1005.7(b)(4)) (1) Account
access. You may use your [card][code] to:
(i) Withdraw cash from your [checking] [or] [savings] account.
(ii) Make deposits to your [checking] [or] [savings] account.
(iii) Transfer funds between your checking and savings accounts
whenever you request.
(iv) Pay for purchases at places that have agreed to accept the
[card] [code].
(v) Pay bills directly [by telephone] from your [checking] [or]
[savings] account in the amounts and on the days you request.
Some of these services may not be available at all terminals.
(2) Electronic check conversion. You may authorize a merchant or
other payee to make a one-time electronic payment from your checking
account using information from your check to:
(i) Pay for purchases.
(ii) Pay bills.
(3) Limitations on frequency of transfers. (i) You may make only
[insert number, e.g., 3] cash withdrawals from our terminals each
[insert time period, e.g., week].
(ii) You can use your telephone bill-payment service to pay [insert
number] bills each [insert time period] [telephone call].
(iii) You can use our point-of-sale transfer service for [insert
number] transactions each [insert time period].
(iv) For security reasons, there are limits on the number of
transfers you can make using our [terminals] [telephone bill-payment
service] [point-of-sale transfer service].
(4) Limitations on dollar amounts of transfers (i) You may withdraw
up to [insert dollar amount] from our terminals each [insert time
period] time you use the [card] [code].
(ii) You may buy up to [insert dollar amount] worth of goods or
services each [insert time period] time you use the [card] [code] in our
point-of-sale transfer service.
(e) Fees (Sec. 1005.7(b)(5)) (1) Per transfer charge. We will charge
you [insert dollar amount] for each transfer you make using our
[automated teller machines] [telephone bill-payment service] [point-of-
sale transfer service].
(2) Fixed charge. We will charge you [insert dollar amount] each
[insert time period] for our [automated teller machine service]
[telephone bill-payment service] [point-of-sale transfer service].
(3) Average or minimum balance charge. We will only charge you for
using our [automated teller machines] [telephone bill-payment service]
[point-of-sale transfer service] if the [average] [minimum] balance in
your [checking account] [savings account] [accounts] falls below [insert
dollar amount]. If it does, we will charge you [insert dollar amount]
each [transfer] [insert time period].
(f) Confidentiality (Sec. 1005.7(b)(9)). We will disclose
information to third parties about your account or the transfers you
make:
(i) Where it is necessary for completing transfers, or
(ii) In order to verify the existence and condition of your account
for a third party, such as a credit bureau or merchant, or
(iii) In order to comply with government agency or court orders, or
(iv) If you give us your written permission.
(g) Documentation (Sec. 1005.7(b)(6)) (1) Terminal transfers. You
can get a receipt at the time you make any transfer to or from your
account using one of our [automated teller machines] [or] [point-of-sale
terminals].
(2) Preauthorized credits. If you have arranged to have direct
deposits made to your account at least once every 60 days from the
[[Page 219]]
same person or company, (we will let you know if the deposit is [not]
made.) [the person or company making the deposit will tell you every
time they send us the money] [you can call us at (insert telephone
number) to find out whether or not the deposit has been made].
(3) Periodic statements. You will get a [monthly] [quarterly]
account statement (unless there are no transfers in a particular month.
In any case you will get the statement at least quarterly).
(4) Passbook account where the only possible electronic fund
transfers are preauthorized credits. If you bring your passbook to us,
we will record any electronic deposits that were made to your account
since the last time you brought in your passbook.
(h) Preauthorized payments (Sec. 1005.7(b) (6), (7) and (8);
Sec. 1005.10(d)) (1) Right to stop payment and procedure for doing so.
If you have told us in advance to make regular payments out of your
account, you can stop any of these payments. Here's how:
Call us at [insert telephone number], or write us at [insert
address], in time for us to receive your request 3 business days or more
before the payment is scheduled to be made. If you call, we may also
require you to put your request in writing and get it to us within 14
days after you call. (We will charge you [insert amount] for each stop-
payment order you give.)
(2) Notice of varying amounts. If these regular payments may vary in
amount, [we] [the person you are going to pay] will tell you, 10 days
before each payment, when it will be made and how much it will be. (You
may choose instead to get this notice only when the payment would differ
by more than a certain amount from the previous payment, or when the
amount would fall outside certain limits that you set.)
(3) Liability for failure to stop payment of preauthorized transfer.
If you order us to stop one of these payments 3 business days or more
before the transfer is scheduled, and we do not do so, we will be liable
for your losses or damages.
(i) Financial institution's liability (Sec. 1005.7(b)(8)). If we do
not complete a transfer to or from your account on time or in the
correct amount according to our agreement with you, we will be liable
for your losses or damages. However, there are some exceptions. We will
not be liable, for instance:
(1) If, through no fault of ours, you do not have enough money in
your account to make the transfer.
(2) If the transfer would go over the credit limit on your overdraft
line.
(3) If the automated teller machine where you are making the
transfer does not have enough cash.
(4) If the [terminal] [system] was not working properly and you knew
about the breakdown when you started the transfer.
(5) If circumstances beyond our control (such as fire or flood)
prevent the transfer, despite reasonable precautions that we have taken.
(6) There may be other exceptions stated in our agreement with you.
(j) ATM fees (Sec. 1005.7(b)(11)). When you use an ATM not owned by
us, you may be charged a fee by the ATM operator [or any network used]
(and you may be charged a fee for a balance inquiry even if you do not
complete a fund transfer).
A-3--Model Forms for Error Resolution Notice (Secs. 1005.7(b)(10) and
1005.8(b))
(a) Initial and annual error resolution notice (Secs. 1005.7(b)(10)
and 1005.8(b)).
In Case of Errors or Questions About Your Electronic Transfers
Telephone us at [insert telephone number] Write us at [insert address]
[or email us at [insert email address]] as soon as you can, if you think
your statement or receipt is wrong or if you need more information about
a transfer listed on the statement or receipt. We must hear from you no
later than 60 days after we sent the FIRST statement on which the
problem or error appeared.
(1) Tell us your name and account number (if any).
(2) Describe the error or the transfer you are unsure about, and
explain as clearly as you can why you believe it is an error or why you
need more information.
(3) Tell us the dollar amount of the suspected error.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business days
after we hear from you and will correct any error promptly. If we need
more time, however, we may take up to 45 days to investigate your
complaint or question. If we decide to do this, we will credit your
account within 10 business days for the amount you think is in error, so
that you will have the use of the money during the time it takes us to
complete our investigation. If we ask you to put your complaint or
question in writing and we do not receive it within 10 business days, we
may not credit your account.
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate your
complaint or question. For new accounts, we may take up to 20 business
days to credit your account for the amount you think is in error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error, we
will send you a written explanation. You may ask for copies of the
documents that we used in our investigation.
[[Page 220]]
(b) Error resolution notice on periodic statements (Sec. 1005.8(b)).
In Case of Errors or Questions About Your Electronic Transfers
Telephone us at [insert telephone number] or Write us at [insert
address] as soon as you can, if you think your statement or receipt is
wrong or if you need more information about a transfer on the statement
or receipt. We must hear from you no later than 60 days after we sent
you the FIRST statement on which the error or problem appeared.
(1) Tell us your name and account number (if any).
(2) Describe the error or the transfer you are unsure about, and
explain as clearly as you can why you believe it is an error or why you
need more information.
(3) Tell us the dollar amount of the suspected error.
We will investigate your complaint and will correct any error
promptly. If we take more than 10 business days to do this, we will
credit your account for the amount you think is in error, so that you
will have the use of the money during the time it takes us to complete
our investigation.
A-4--Model Form for Service-Providing Institutions
(Sec. 1005.14(b)(1)(ii))
ALL QUESTIONS ABOUT TRANSACTIONS MADE WITH YOUR (NAME OF CARD) CARD
MUST BE DIRECTED TO US (NAME OF SERVICE PROVIDER), AND NOT TO THE BANK
OR OTHER FINANCIAL INSTITUTION WHERE YOU HAVE YOUR ACCOUNT. We are
responsible for the [name of service] service and for resolving any
errors in transactions made with your [name of card] card.
We will not send you a periodic statement listing transactions that
you make using your [name of card] card. The transactions will appear
only on the statement issued by your bank or other financial
institution. SAVE THE RECEIPTS YOU ARE GIVEN WHEN YOU USE YOUR [NAME OF
CARD] CARD, AND CHECK THEM AGAINST THE ACCOUNT STATEMENT YOU RECEIVE
FROM YOUR BANK OR OTHER FINANCIAL INSTITUTION. If you have any questions
about one of these transactions, call or write us at [telephone number
and address] [the telephone number and address indicated below].
IF YOUR [NAME OF CARD] CARD IS LOST OR STOLEN, NOTIFY US AT ONCE by
calling or writing to us at [telephone number and address].
A-5--Model Forms for Government Agencies (Sec. 1005.15(d)(1) and (2))
(a) Disclosure by government agencies of information about obtaining
account balances and account histories (Sec. 1005.15(d)(1)(i) and (ii)).
You may obtain information about the amount of benefits you have
remaining by calling [telephone number]. That information is also
available [on the receipt you get when you make a transfer with your
card at (an ATM)(a POS terminal)][when you make a balance inquiry at an
ATM][when you make a balance inquiry at specified locations].
You also have the right to receive a written summary of transactions
for the 60 days preceding your request by calling [telephone number].
[Optional: Or you may request the summary by contacting your
caseworker.]
(b) Disclosure of error resolution procedures for government
agencies that do not provide periodic statements
(Sec. 1005.15(d)(1)(iii) and (d)(2)).
In Case of Errors or Questions About Your Electronic Transfers
Telephone us at [telephone number] Write us at [insert address] [or
email us at [insert email address]] as soon as you can, if you think an
error has occurred in your [EBT][agency's name for program] account. We
must hear from you no later than 60 days after you learn of the error.
You will need to tell us:
Your name and [case] [file] number.
Why you believe there is an error, and the dollar amount
involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business days
after we hear from you and will correct any error promptly. If we need
more time, however, we may take up to 45 days to investigate your
complaint or question. If we decide to do this, we will credit your
account within 10 business days for the amount you think is in error, so
that you will have the use of the money during the time it takes us to
complete our investigation. If we ask you to put your complaint or
question in writing and we do not receive it within 10 business days, we
may not credit your account.
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate your
complaint or question. For new accounts, we may take up to 20 business
days to credit your account for the amount you think is in error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error, we
will send you a written explanation. You may ask for copies of the
documents that we used in our investigation.
If you need more information about our error resolution procedures,
call us at [telephone number][the telephone number shown above].
[[Page 221]]
A-6--Model Clauses for Authorizing One-Time Electronic Fund Transfers
Using Information From a Check (Sec. 1005.3(b)(2))
(a) Notice About Electronic Check Conversion.
When you provide a check as payment, you authorize us either to use
information from your check to make a one-time electronic fund transfer
from your account or to process the payment as a check transaction.
(b) Alternative Notice About Electronic Check Conversion (Optional).
When you provide a check as payment, you authorize us to use
information from your check to make a one-time electronic fund transfer
from your account. In certain circumstances, such as for technical or
processing reasons, we may process your payment as a check transaction.
[Specify other circumstances (at payee's option).]
(c) Notice For Providing Additional Information About Electronic
Check Conversion.
When we use information from your check to make an electronic fund
transfer, funds may be withdrawn from your account as soon as the same
day [you make] [we receive] your payment[, and you will not receive your
check back from your financial institution].
A-7--Model Clauses for Financial Institutions Offering Payroll Card
Accounts (Sec. 1005.18(c))
(a) Disclosure by financial institutions of information about
obtaining account information for payroll card accounts.
Sec. 1005.18(c)(1).
You may obtain information about the amount of money you have
remaining in your payroll card account by calling [telephone number].
This information, along with a 60-day history of account transactions,
is also available online at [internet address].
You also have the right to obtain a 60-day written history of
account transactions by calling [telephone number], or by writing us at
[address].
(b) Disclosure of error-resolution procedures for financial
institutions that provide alternative means of obtaining payroll card
account information (Sec. 1005.18(c)(1)(ii) and (c)(2)).
In Case of Errors or Questions About Your Payroll Card Account
Telephone us at [telephone number] or Write us at [address] [or email us
at [email address]] as soon as you can, if you think an error has
occurred in your payroll card account. We must allow you to report an
error until 60 days after the earlier of the date you electronically
access your account, if the error could be viewed in your electronic
history, or the date we sent the FIRST written history on which the
error appeared. You may request a written history of your transactions
at any time by calling us at [telephone number] or writing us at
[address]. You will need to tell us:
Your name and [payroll card account] number.
Why you believe there is an error, and the dollar amount involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business days
after we hear from you and will correct any error promptly. If we need
more time, however, we may take up to 45 days to investigate your
complaint or question. If we decide to do this, we will credit your
account within 10 business days for the amount you think is in error, so
that you will have the money during the time it takes us to complete our
investigation. If we ask you to put your complaint or question in
writing and we do not receive it within 10 business days, we may not
credit your account.
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate your
complaint or question. For new accounts, we may take up to 20 business
days to credit your account for the amount you think is in error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error, we
will send you a written explanation.
You may ask for copies of the documents that we used in our
investigation.
If you need more information about our error-resolution procedures,
call us at [telephone number] [the telephone number shown above] [or
visit [internet address]].
A-8--Model Clause for Electronic Collection of Returned Item Fees
(Sec. 1005.3(b)(3))
If your payment is returned unpaid, you authorize [us/name of person
collecting the fee electronically] to make a one-time electronic fund
transfer from your account to collect a fee of [$____]. [If your payment
is returned unpaid, you authorize [us/name of person collecting the fee
electronically] to make a one-time electronic fund transfer from your
account to collect a fee. The fee will be determined [by]/[as follows]:
[[Page 222]]
[GRAPHIC] [TIFF OMITTED] TR27DE11.000
A-10 through A-29 [Reserved]
[[Page 223]]
A-30(a)--Model Form for Pre-Payment Disclosures for Remittance Transfers
Exchanged into Local Currency (Sec. 1005.31(b)(1))
[GRAPHIC] [TIFF OMITTED] TR22MY13.242
A-30(b)--Model Form for Pre-Payment Disclosures for Remittance Transfers
Exchanged into Local Currency (Sec. 1005.31(b)(1))
[GRAPHIC] [TIFF OMITTED] TR22MY13.243
[[Page 224]]
A-30(c)--Model Form for Pre-Payment Disclosures for Remittance Transfers
Exchanged into Local Currency (Sec. 1005.31(b)(1))
[GRAPHIC] [TIFF OMITTED] TR22MY13.244
A-30(d)--Model Form for Pre-Payment Disclosures for Remittance Transfers
Exchanged into Local Currency (Sec. 1005.31(b)(1))
[GRAPHIC] [TIFF OMITTED] TR22MY13.245
[[Page 225]]
A-31--Model Form for Receipts for Remittance Transfers Exchanged into
Local Currency (Sec. 1005.31(b)(2))
[GRAPHIC] [TIFF OMITTED] TR18SE14.015
[[Page 226]]
A-32--Model Form for Combined Disclosures for Remittance Transfers
Exchanged into Local Currency (Sec. 1005.31(b)(3))
[GRAPHIC] [TIFF OMITTED] TR22MY13.247
[[Page 227]]
[GRAPHIC] [TIFF OMITTED] TR22MY13.248
A-33--Model Form for Pre-Payment Disclosures for Dollar-to-Dollar
Remittance Transfers (Sec. 1005.31(b)(1))
[GRAPHIC] [TIFF OMITTED] TR22MY13.249
[[Page 228]]
A-34--Model Form for Receipts for Dollar-to-Dollar Remittance Transfers
(Sec. 1005.31(b)(2))
[GRAPHIC] [TIFF OMITTED] TR22MY13.250
[[Page 229]]
A-35--Model Form for Combined Disclosures for Dollar-to-Dollar
Remittance Transfers (Sec. 1005.31(b)(3))
[GRAPHIC] [TIFF OMITTED] TR22MY13.251
[[Page 230]]
A-36--Model Form for Error Resolution and Cancellation Disclosures
(Long) (Sec. 1005.31(b)(4))
[GRAPHIC] [TIFF OMITTED] TR22MY13.252
A-37--Model Form for Error Resolution and Cancellation Disclosures
(Short)
(Sec. 1005.31(b)(2)(iv) and (b)(2)(vi))
You have a right to dispute errors in your transaction. If you think
there is an error, contact us within 180 days at [insert telephone
number] or [insert website]. You can also contact us for a written
explanation of your rights.
You can cancel for a full refund within 30 minutes of payment,
unless the funds have been picked up or deposited.
For questions or complaints about [insert name of remittance
transfer provider], contact:
State Regulatory Agency, 800-111-2222, www.stateregulatory agency.gov
Consumer Financial Protection Bureau, 855-411-2372, 855-729-2372 (TTY/
TDD), www.consumerfinance.gov
[[Page 231]]
A-38--Model Form for Pre-Payment Disclosures for Remittance Transfers
Exchanged into Local Currency--Spanish (Sec. 1005.31(b)(1))
[GRAPHIC] [TIFF OMITTED] TR22MY13.254
[[Page 232]]
A-39--Model Form for Receipts for Remittance Transfers Exchanged into
Local Currency--Spanish (Sec. 1005.31(b)(2))
[GRAPHIC] [TIFF OMITTED] TR22MY13.255
[[Page 233]]
[GRAPHIC] [TIFF OMITTED] TR22MY13.256
[[Page 234]]
A-40--Model Form for Combined Disclosures for Remittance Transfers
Exchanged into Local Currency--Spanish (Sec. 1005.31(b)(3))
[GRAPHIC] [TIFF OMITTED] TR18SE14.016
[[Page 235]]
A-41--Model Form for Error Resolution and Cancellation Disclosures
(Long)--Spanish (Sec. 1005.31(b)(4))
[GRAPHIC] [TIFF OMITTED] TR22MY13.258
[76 FR 81023, Dec. 27, 2011, as amended at 77 FR 6290, Feb. 7, 2012; 77
FR 40459, July 10, 2012; 78 FR 30705, May 22, 2013; 79 FR 55991, Sept.
18, 2014; 81 FR 70320, Oct. 12, 2016]
Effective Date Note: At 81 FR 84338, Nov. 22, 2016, appendix A to
part 1005 was amended by:
a. In the table of contents:
i. The entries for A-5 and A-7 were revised.
ii. Entries for A-10(a) through A-10(f) were added.
iii. The entry for reserved A-10 through A-30 was revised to A-11
through A-29.
b. Model Clauses A-5 and A-7 were revised.
c. Model Forms A-10(a) through (f) were added.
d. Model Forms A-11 through A-29 were reserved, effective Oct. 1,
2017.
[[Page 236]]
For the convenience of the user, the added and revised text is set
forth as follows:
Sec. Appendix A to Part 1005--Model Disclosure Clauses and Forms
Table of Contents
* * * * *
A-5--Model Clauses for Government Agencies (Sec. 1005.15(e)(1) and (2))
* * * * *
A-7--Model Clauses for Financial Institutions Offering Prepaid Accounts
(Sec. 1005.18(d) and (e)(3))
* * * * *
A-10(a)--Model Form for Short Form Disclosures for Government Benefit
Accounts (Secs. 1005.15(c) and 1005.18(b)(2), (3), (6), and (7))
A-10(b)--Model Form for Short Form Disclosures for Payroll Card Accounts
(Sec. 1005.18(b)(2), (3), (6), and (7))
A-10(c)--Model Form for Short Form Disclosures for Prepaid Accounts,
Example 1 (Sec. 1005.18(b)(2), (3), (6), and (7))
A-10(d)--Model Form for Short Form Disclosures for Prepaid Accounts,
Example 2 (Sec. 1005.18(b)(2), (3), (6), and (7))
A-10(e)--Model Form for Short Form Disclosures for Prepaid Accounts with
Multiple Service Plans (Sec. 1005.18(b)(2), (3), (6), and (7))
A-10(f)--Sample Form for Long Form Disclosures for Prepaid Accounts
(Sec. 1005.18(b)(4), (6), and (7))
A-11 through A-29 [Reserved]
* * * * *
A-5--Model Clauses for Government Agencies (Sec. 1005.15(e)(1) and (2))
(a) Disclosure by government agencies of information about obtaining
account information for government benefit accounts
(Sec. 1005.15(e)(1)(i)).
You may obtain information about the amount of benefits you have
remaining by calling [telephone number]. That information is also
available [on the receipt you get when you make a transfer with your
card at (an ATM) (a POS terminal)] [when you make a balance inquiry at
an ATM] [when you make a balance inquiry at specified locations]. This
information, along with a 12-month history of account transactions, is
also available online at [Internet address].
You also have the right to obtain at least 24 months of written
history of account transactions by calling [telephone number], or by
writing to us at [address]. You will not be charged a fee for this
information unless you request it more than once per month. [Optional:
Or you may request a written history of account transactions by
contacting your caseworker.]
(b) Disclosure of error resolution procedures for government
agencies that do not provide periodic statements (Sec. 1005.15(e)(1)(ii)
and (e)(2)).
In Case of Errors or Questions About Your Electronic Transfers
Telephone us at [telephone number] Write us at [address] [or email us at
[email address]] as soon as you can, if you think an error has occurred
in your [agency's name for program] account. We must allow you to report
an error until 60 days after the earlier of the date you electronically
access your account, if the error could be viewed in your electronic
history, or the date we sent the FIRST written history on which the
error appeared. You may request a written history of your transactions
at any time by calling us at [telephone number] or writing us at
[address] [optional: or by contacting your caseworker]. You will need to
tell us:
Your name and [case] [file] number.
Why you believe there is an error, and the dollar amount
involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business days
after we hear from you and will correct any error promptly. If we need
more time, however, we may take up to 45 days to investigate your
complaint or question. If we decide to do this, we will credit your
account within 10 business days for the amount you think is in error, so
that you will have the use of the money during the time it takes us to
complete our investigation. If we ask you to put your complaint or
question in writing and we do not receive it within 10 business days, we
may not credit your account.
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate your
complaint or question. For new accounts, we may take up to 20 business
days to credit your account for the amount you think is in error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error, we
will send you a written explanation.
You may ask for copies of the documents that we used in our
investigation.
[[Page 237]]
If you need more information about our error resolution procedures,
call us at [telephone number][the telephone number shown above].
* * * * *
A-7--Model Clauses for Financial Institutions Offering Prepaid Accounts
(Sec. 1005.18(d) and (e)(3))
(a) Disclosure by financial institutions of information about
obtaining account information for prepaid accounts
(Sec. 1005.18(d)(1)(i)).
You may obtain information about the amount of money you have
remaining in your prepaid account by calling [telephone number]. This
information, along with a 12-month history of account transactions, is
also available online at [Internet address].
[For accounts that are or can be registered:] [If your account is
registered with us,] You also have the right to obtain at least 24
months of written history of account transactions by calling [telephone
number], or by writing us at [address]. You will not be charged a fee
for this information unless you request it more than once per month.
(b) Disclosure of error-resolution procedures for financial
institutions that do not provide periodic statements
(Sec. 1005.18(d)(1)(ii) and (d)(2)).
In Case of Errors or Questions About Your Prepaid Account Telephone
us at [telephone number] or Write us at [address] [or email us at [email
address]] as soon as you can, if you think an error has occurred in your
prepaid account. We must allow you to report an error until 60 days
after the earlier of the date you electronically access your account, if
the error could be viewed in your electronic history, or the date we
sent the FIRST written history on which the error appeared. You may
request a written history of your transactions at any time by calling us
at [telephone number] or writing us at [address]. You will need to tell
us:
Your name and [prepaid account] number.
Why you believe there is an error, and the dollar amount involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business days
after we hear from you and will correct any error promptly. If we need
more time, however, we may take up to 45 days to investigate your
complaint or question. If we decide to do this, [and your account is
registered with us,] we will credit your account within 10 business days
for the amount you think is in error, so that you will have the money
during the time it takes us to complete our investigation. If we ask you
to put your complaint or question in writing and we do not receive it
within 10 business days, we may not credit your account. [Keep reading
to learn more about how to register your card.]
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate your
complaint or question. For new accounts, we may take up to 20 business
days to credit your account for the amount you think is in error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error, we
will send you a written explanation.
You may ask for copies of the documents that we used in our
investigation.
If you need more information about our error-resolution procedures,
call us at [telephone number] [the telephone number shown above] [or
visit [Internet address]].
(c) Warning regarding unregistered prepaid accounts
(Sec. 1005.18(e)(3)).
It is important to register your prepaid account as soon as
possible. Unless you register your account, we may not credit your
account in the amount you think is in error until we complete our
investigation. To register your account, go to [Internet address] or
call us at [telephone number]. We will ask you for identifying
information about yourself (including your full name, address, date of
birth, and [Social Security Number] [government-issued identification
number]), so that we can verify your identity.
[[Page 238]]
[GRAPHIC] [TIFF OMITTED] TR22NO16.005
[[Page 239]]
[GRAPHIC] [TIFF OMITTED] TR22NO16.006
[[Page 240]]
[GRAPHIC] [TIFF OMITTED] TR22NO16.007
[GRAPHIC] [TIFF OMITTED] TR22NO16.008
[[Page 241]]
[GRAPHIC] [TIFF OMITTED] TR22NO16.009
[[Page 242]]
[GRAPHIC] [TIFF OMITTED] TR22NO16.010
[[Page 243]]
A-11 through A-29 [Reserved]
* * * * *
Sec. Appendix B to Part 1005 [Reserved]
Sec. Appendix C to Part 1005--Issuance of Official Interpretations
Official Interpretations
Pursuant to section 916(d) of the Act, the Bureau has designated the
Associate Director and other officials of the Division of Research,
Markets, and Regulations as officials ``duly authorized'' to issue, at
their discretion, official interpretations of this part. Except in
unusual circumstances, such interpretations will not be issued
separately but will be incorporated in an official commentary to this
part, which will be amended periodically.
Requests for Issuance of Official Interpretations
A request for an official interpretation shall be in writing and
addressed to the Bureau of Consumer Financial Protection, 1700 G Street
NW., Washington, DC 20006. The request shall contain a complete
statement of all relevant facts concerning the issue, including copies
of all pertinent documents.
Scope of Interpretations
No interpretations will be issued approving financial institutions'
forms or statements. This restriction does not apply to forms or
statements whose use is required or sanctioned by a government agency.
Sec. Supplement I to Part 1005--Official Interpretations
Section 1005.2 Definitions
2(a) Access Device
1. Examples. The term ``access device'' includes debit cards,
personal identification numbers (PINs), telephone transfer and telephone
bill payment codes, and other means that may be used by a consumer to
initiate an electronic fund transfer (EFT) to or from a consumer
account. The term does not include magnetic tape or other devices used
internally by a financial institution to initiate electronic transfers.
2. Checks used to capture information. The term ``access device''
does not include a check or draft used to capture the Magnetic Ink
Character Recognition (MICR) encoding to initiate a one-time automated
clearinghouse (ACH) debit. For example, if a consumer authorizes a one-
time ACH debit from the consumer's account using a blank, partially
completed, or fully completed and signed check for the merchant to
capture the routing, account, and serial numbers to initiate the debit,
the check is not an access device. (Although the check is not an access
device under Regulation E, the transaction is nonetheless covered by the
regulation. See comment 3(b)(1)-1.v.)
2(b) Account
1. Consumer asset account. The term ``consumer asset account''
includes:
i. Club accounts, such as vacation clubs. In many cases, however,
these accounts are exempt from the regulation under Sec. 1005.3(c)(5)
because all electronic transfers to or from the account have been
preauthorized by the consumer and involve another account of the
consumer at the same institution.
ii. A retail repurchase agreement (repo), which is a loan made to a
financial institution by a consumer that is collateralized by government
or government-insured securities.
2. Certain employment-related cards not covered. The term ``payroll
card account'' does not include a card used solely to disburse
incentive-based payments (other than commissions which can represent the
primary means through which a consumer is paid), such as bonuses, which
are unlikely to be a consumer's primary source of salary or other
compensation. The term also does not include a card used solely to make
disbursements unrelated to compensation, such as petty cash
reimbursements or travel per diem payments. Similarly, a payroll card
account does not include a card that is used in isolated instances to
which an employer typically does not make recurring payments, such as
when providing final payments or in emergency situations when other
payment methods are unavailable. However, all transactions involving the
transfer of funds to or from a payroll card account are covered by the
regulation, even if a particular transaction involves payment of a
bonus, other incentive-based payment, or reimbursement, or the
transaction does not represent a transfer of wages, salary, or other
employee compensation.
3. Examples of accounts not covered by Regulation E (12 CFR part
1005) include:
i. Profit-sharing and pension accounts established under a trust
agreement, which are exempt under Sec. 1005.2(b)(2).
ii. Escrow accounts, such as those established to ensure payment of
items such as real estate taxes, insurance premiums, or completion of
repairs or improvements.
iii. Accounts for accumulating funds to purchase U.S. savings bonds.
Paragraph 2(b)(2)
1. Bona fide trust agreements. The term ``bona fide trust
agreement'' is not defined by the Act or regulation; therefore,
financial
[[Page 244]]
institutions must look to state or other applicable law for
interpretation.
2. Custodial agreements. An account held under a custodial agreement
that qualifies as a trust under the Internal Revenue Code, such as an
individual retirement account, is considered to be held under a trust
agreement for purposes of Regulation E.
2(d) Business Day
1. Duration. A business day includes the entire 24-hour period
ending at midnight, and a notice required by the regulation is effective
even if given outside normal business hours. The regulation does not
require, however, that a financial institution make telephone lines
available on a 24-hour basis.
2. Substantially all business functions. Substantially all business
functions include both the public and the back-office operations of the
institution. For example, if the offices of an institution are open on
Saturdays for handling some consumer transactions (such as deposits,
withdrawals, and other teller transactions), but not for performing
internal functions (such as investigating account errors), then Saturday
is not a business day for that institution. In this case, Saturday does
not count toward the business-day standard set by the regulation for
reporting lost or stolen access devices, resolving errors, etc.
3. Short hours. A financial institution may determine, at its
election, whether an abbreviated day is a business day. For example, if
an institution engages in substantially all business functions until
noon on Saturdays instead of its usual 3 p.m. closing, it may consider
Saturday a business day.
4. Telephone line. If a financial institution makes a telephone line
available on Sundays for reporting the loss or theft of an access
device, but performs no other business functions, Sunday is not a
business day under the substantially all business functions standard.
2(h) Electronic Terminal
1. Point-of-sale (POS) payments initiated by telephone. Because the
term ``electronic terminal'' excludes a telephone operated by a
consumer, a financial institution need not provide a terminal receipt
when:
i. A consumer uses a debit card at a public telephone to pay for the
call.
ii. A consumer initiates a transfer by a means analogous in function
to a telephone, such as by home banking equipment or a facsimile
machine.
2. POS terminals. A POS terminal that captures data electronically,
for debiting or crediting to a consumer's asset account, is an
electronic terminal for purposes of Regulation E even if no access
device is used to initiate the transaction. See Sec. 1005.9 for receipt
requirements.
3. Teller-operated terminals. A terminal or other computer equipment
operated by an employee of a financial institution is not an electronic
terminal for purposes of the regulation. However, transfers initiated at
such terminals by means of a consumer's access device (using the
consumer's PIN, for example) are EFTs and are subject to other
requirements of the regulation. If an access device is used only for
identification purposes or for determining the account balance, the
transfers are not EFTs for purposes of the regulation.
2(k) Preauthorized Electronic Fund Transfer
1. Advance authorization. A preauthorized electronic fund transfer
under Regulation E is one authorized by the consumer in advance of a
transfer that will take place on a recurring basis, at substantially
regular intervals, and will require no further action by the consumer to
initiate the transfer. In a bill-payment system, for example, if the
consumer authorizes a financial institution to make monthly payments to
a payee by means of EFTs, and the payments take place without further
action by the consumer, the payments are preauthorized EFTs. In
contrast, if the consumer must take action each month to initiate a
payment (such as by entering instructions on a touch-tone telephone or
home computer), the payments are not preauthorized EFTs.
2(m) Unauthorized Electronic Fund Transfer
1. Transfer by institution's employee. A consumer has no liability
for erroneous or fraudulent transfers initiated by an employee of a
financial institution.
2. Authority. If a consumer furnishes an access device and grants
authority to make transfers to a person (such as a family member or co-
worker) who exceeds the authority given, the consumer is fully liable
for the transfers unless the consumer has notified the financial
institution that transfers by that person are no longer authorized.
3. Access device obtained through robbery or fraud. An unauthorized
EFT includes a transfer initiated by a person who obtained the access
device from the consumer through fraud or robbery.
4. Forced initiation. An EFT at an ATM is an unauthorized transfer
if the consumer has been induced by force to initiate the transfer.
5. Reversal of direct deposits. The reversal of a direct deposit
made in error is not an unauthorized EFT when it involves:
i. A credit made to the wrong consumer's account;
ii. A duplicate credit made to a consumer's account; or
[[Page 245]]
iii. A credit in the wrong amount (for example, when the amount
credited to the consumer's account differs from the amount in the
transmittal instructions).
Section 1005.3 Coverage
3(a) General
1. Accounts covered. The requirements of the regulation apply only
to an account for which an agreement for EFT services to or from the
account has been entered into between:
i. The consumer and the financial institution (including an account
for which an access device has been issued to the consumer, for
example);
ii. The consumer and a third party (for preauthorized debits or
credits, for example), when the account-holding institution has received
notice of the agreement and the fund transfers have begun.
2. Automated clearing house (ACH) membership. The fact that
membership in an ACH requires a financial institution to accept EFTs to
accounts at the institution does not make every account of that
institution subject to the regulation.
3. Foreign applicability. Regulation E applies to all persons
(including branches and other offices of foreign banks located in the
United States) that offer EFT services to residents of any state,
including resident aliens. It covers any account located in the United
States through which EFTs are offered to a resident of a state. This is
the case whether or not a particular transfer takes place in the United
States and whether or not the financial institution is chartered in the
United States or a foreign country. The regulation does not apply to a
foreign branch of a U.S. bank unless the EFT services are offered in
connection with an account in a state as defined in Sec. 1005.2(l).
3(b) Electronic Fund Transfer
3(b)(1) Definition
1. Fund transfers covered. The term ``electronic fund transfer''
includes:
i. A deposit made at an ATM or other electronic terminal (including
a deposit in cash or by check) provided a specific agreement exists
between the financial institution and the consumer for EFTs to or from
the account to which the deposit is made.
ii. A transfer sent via ACH. For example, social security benefits
under the U.S. Treasury's direct-deposit program are covered, even if
the listing of payees and payment amounts reaches the account-holding
institution by means of a computer printout from a correspondent bank.
iii. A preauthorized transfer credited or debited to an account in
accordance with instructions contained on magnetic tape, even if the
financial institution holding the account sends or receives a composite
check.
iv. A transfer from the consumer's account resulting from a debit-
card transaction at a merchant location, even if no electronic terminal
is involved at the time of the transaction, if the consumer's asset
account is subsequently debited for the amount of the transfer.
v. A transfer via ACH where a consumer has provided a check to
enable the merchant or other payee to capture the routing, account, and
serial numbers to initiate the transfer, whether the check is blank,
partially completed, or fully completed and signed; whether the check is
presented at POS or is mailed to a merchant or other payee or lockbox
and later converted to an EFT; or whether the check is retained by the
consumer, the merchant or other payee, or the payee's financial
institution.
vi. A payment made by a bill payer under a bill-payment service
available to a consumer via computer or other electronic means, unless
the terms of the bill-payment service explicitly state that all
payments, or all payments to a particular payee or payees, will be
solely by check, draft, or similar paper instrument drawn on the
consumer's account, and the payee or payees that will be paid in this
manner are identified to the consumer.
2. Fund transfers not covered. The term ``electronic fund transfer''
does not include:
i. A payment that does not debit or credit a consumer asset account,
such as a payroll allotment to a creditor to repay a credit extension
(which is deducted from salary).
ii. A payment made in currency by a consumer to another person at an
electronic terminal.
iii. A preauthorized check drawn by the financial institution on the
consumer's account (such as an interest or other recurring payment to
the consumer or another party), even if the check is computer-generated.
iv. Transactions arising from the electronic collection,
presentment, or return of checks through the check collection system,
such as through transmission of electronic check images.
3(b)(2) Electronic Fund Transfer Using Information From a Check
1. Notice at POS not furnished due to inadvertent error. If the copy
of the notice under section 1005.3(b)(2)(ii) for electronic check
conversion (ECK) transactions is not provided to the consumer at POS
because of a bona fide unintentional error, such as when a terminal
printing mechanism jams, no violation results if the payee maintains
procedures reasonably adapted to avoid such occurrences.
2. Authorization to process a transaction as an EFT or as a check.
In order to process a transaction as an EFT, or alternatively as a
[[Page 246]]
check, the payee must obtain the consumer's authorization to do so. A
payee may, at its option, specify the circumstances under which a check
may not be converted to an EFT. See model clauses in appendix A-6.
3. Notice for each transfer. Generally, a notice to authorize an
electronic check conversion transaction must be provided for each
transaction. For example, a consumer must receive a notice that the
transaction will be processed as an EFT for each transaction at POS or
each time a consumer mails a check in an accounts receivable (ARC)
transaction to pay a bill, such as a utility bill, if the payee intends
to convert a check received as payment. Similarly, the consumer must
receive notice if the payee intends to collect a service fee for
insufficient or uncollected funds via an EFT for each transaction
whether at POS or if the consumer mails a check to pay a bill. The
notice about when funds may be debited from a consumer's account and the
non-return of consumer checks by the consumer's financial institution
must also be provided for each transaction. However, if in an ARC
transaction, a payee provides a coupon book to a consumer, for example,
for mortgage loan payments, and the payment dates and amounts are set
out in the coupon book, the payee may provide a single notice on the
coupon book stating all of the required disclosures under paragraph
(b)(2) of this section in order to obtain authorization for each
conversion of a check and any debits via EFT to the consumer's account
to collect any service fees imposed by the payee for insufficient or
uncollected funds in the consumer's account. The notice must be placed
on a conspicuous location of the coupon book that a consumer can
retain--for example, on the first page, or inside the front cover.
4. Multiple payments/multiple consumers. If a merchant or other
payee will use information from a consumer's check to initiate an EFT
from the consumer's account, notice to a consumer listed on the billing
account that a check provided as payment during a single billing cycle
or after receiving an invoice or statement will be processed as a one-
time EFT or as a check transaction constitutes notice for all checks
provided in payment for the billing cycle or the invoice for which
notice has been provided, whether the check(s) is submitted by the
consumer or someone else. The notice applies to all checks provided in
payment for the billing cycle or invoice until the provision of notice
on or with the next invoice or statement. Thus, if a merchant or other
payee receives a check as payment for the consumer listed on the billing
account after providing notice that the check will be processed as a
one-time EFT, the authorization from that consumer constitutes
authorization to convert any other checks provided for that invoice or
statement. Other notices required under this paragraph (b)(2) (for
example, to collect a service fee for insufficient or uncollected funds
via an EFT) provided to the consumer listed on the billing account also
constitutes notice to any other consumer who may provide a check for the
billing cycle or invoice.
5. Additional disclosures about ECK transactions at POS. When a
payee initiates an EFT at POS using information from the consumer's
check, and returns the check to the consumer at POS, the payee need not
provide a notice to the consumer that the check will not be returned by
the consumer's financial institution.
3(b)(3) Collection of Returned Item Fees via Electronic Fund Transfer
1. Fees imposed by account-holding institution. The requirement to
obtain a consumer's authorization to collect a fee via EFT for the
return of an EFT or check unpaid applies only to the person that intends
to initiate an EFT to collect the returned item fee from the consumer's
account. The authorization requirement does not apply to any fees
assessed by the consumer's account-holding financial institution when it
returns the unpaid underlying EFT or check or pays the amount of an
overdraft.
2. Accounts receivable transactions. In an ARC transaction where a
consumer sends in a payment for amounts owed (or makes an in-person
payment at a biller's physical location, such as when a consumer makes a
loan payment at a bank branch or places a payment in a drop box), a
person seeking to electronically collect a fee for items returned unpaid
must obtain the consumer's authorization to collect the fee in this
manner. A consumer authorizes a person to electronically collect a
returned item fee when the consumer receives notice, typically on an
invoice or statement, that the person may collect the fee through an EFT
to the consumer's account, and the consumer goes forward with the
underlying transaction by providing payment. The notice must also state
the dollar amount of the fee. However, an explanation of how that fee
will be determined may be provided in place of the dollar amount of the
fee if the fee may vary due to the amount of the transaction or due to
other factors, such as the number of days the underlying transaction is
left outstanding. For example, if a state law permits a maximum fee of
$30 or 10% of the underlying transaction, whichever is greater, the
person collecting the fee may explain how the fee is determined, rather
than state a specific dollar amount for the fee.
3. Disclosure of dollar amount of fee for POS transactions. The
notice provided to the consumer in connection with a POS transaction
under Sec. 1005.3(b)(3)(ii) must state the amount of the fee for a
returned item if the dollar amount of the fee can be calculated at the
time the notice is provided or mailed. For
[[Page 247]]
example, if notice is provided to the consumer at the time of the
transaction, if the applicable state law sets a maximum fee that may be
collected for a returned item based on the amount of the underlying
transaction (such as where the amount of the fee is expressed as a
percentage of the underlying transaction), the person collecting the fee
must state the actual dollar amount of the fee on the notice provided to
the consumer. Alternatively, if the amount of the fee to be collected
cannot be calculated at the time of the transaction (for example, where
the amount of the fee will depend on the number of days a debt continues
to be owed), the person collecting the fee may provide a description of
how the fee will be determined on both the posted notice as well as on
the notice provided at the time of the transaction. However, if the
person collecting the fee elects to send the consumer notice after the
person has initiated an EFT to collect the fee, that notice must state
the amount of the fee to be collected.
4. Third party providing notice. The person initiating an EFT to a
consumer's account to electronically collect a fee for an item returned
unpaid may obtain the authorization and provide the notices required
under Sec. 1005.3(b)(3) through third parties, such as merchants.
3(c) Exclusions From Coverage
3(c)(1) Checks
1. Re-presented checks. The electronic re-presentment of a returned
check is not covered by Regulation E because the transaction originated
by check. Regulation E does apply, however, to any fee debited via an
EFT from a consumer's account by the payee because the check was
returned for insufficient or uncollected funds. The person debiting the
fee electronically must obtain the consumer's authorization.
2. Check used to capture information for a one-time EFT. See comment
3(b)(1)-1.v.
3(c)(2) Check Guarantee or Authorization
1. Memo posting. Under a check guarantee or check authorization
service, debiting of the consumer's account occurs when the check or
draft is presented for payment. These services are exempt from coverage,
even when a temporary hold on the account is memo-posted electronically
at the time of authorization.
3(c)(3) Wire or Other Similar Transfers
1. Fedwire and ACH. If a financial institution makes a fund transfer
to a consumer's account after receiving funds through Fedwire or a
similar network, the transfer by ACH is covered by the regulation even
though the Fedwire or network transfer is exempt.
2. Article 4A. Financial institutions that offer telephone-initiated
Fedwire payments are subject to the requirements of UCC section 4A-202,
which encourages verification of Fedwire payment orders pursuant to a
security procedure established by agreement between the consumer and the
receiving bank. These transfers are not subject to Regulation E and the
agreement is not considered a telephone plan if the service is offered
separately from a telephone bill-payment or other prearranged plan
subject to Regulation E. Regulation J of the Board of Governors of the
Federal Reserve System (12 CFR part 210) specifies the rules applicable
to funds handled by Federal Reserve Banks. To ensure that the rules for
all fund transfers through Fedwire are consistent, the Board of
Governors used its preemptive authority under UCC section 4A-107 to
determine that subpart B of the Board's Regulation J, including the
provisions of Article 4A, applies to all fund transfers through Fedwire,
even if a portion of the fund transfer is governed by the EFTA. The
portion of the fund transfer that is governed by the EFTA is not
governed by subpart B of the Board's Regulation J.
3. Similar fund transfer systems. Fund transfer systems that are
similar to Fedwire include the Clearing House Interbank Payments System
(CHIPS), Society for Worldwide Interbank Financial Telecommunication
(SWIFT), Telex, and transfers made on the books of correspondent banks.
3(c)(4) Securities and Commodities Transfers
1. Coverage. The securities exemption applies to securities and
commodities that may be sold by a registered broker-dealer or futures
commission merchant, even when the security or commodity itself is not
regulated by the Securities and Exchange Commission or the Commodity
Futures Trading Commission.
2. Example of exempt transfer. The exemption applies to a transfer
involving a transfer initiated by a telephone order to a stockbroker to
buy or sell securities or to exercise a margin call.
3. Examples of nonexempt transfers. The exemption does not apply to
a transfer involving:
i. A debit card or other access device that accesses a securities or
commodities account such as a money market mutual fund and that the
consumer uses for purchasing goods or services or for obtaining cash.
ii. A payment of interest or dividends into the consumer's account
(for example, from a brokerage firm or from a Federal Reserve Bank for
government securities).
[[Page 248]]
3(c)(5) Automatic Transfers by Account-Holding Institution
1. Automatic transfers exempted. The exemption applies to:
i. Electronic debits or credits to consumer accounts for check
charges, stop-payment charges, non-sufficient funds (NSF) charges,
overdraft charges, provisional credits, error adjustments, and similar
items that are initiated automatically on the occurrence of certain
events.
ii. Debits to consumer accounts for group insurance available only
through the financial institution and payable only by means of an
aggregate payment from the institution to the insurer.
iii. EFTs between a thrift institution and its paired commercial
bank in the state of Rhode Island, which are deemed under state law to
be intra-institutional.
iv. Automatic transfers between a consumer's accounts within the
same financial institution, even if the account holders on the two
accounts are not identical.
2. Automatic transfers not exempted. Transfers between accounts of
the consumer at affiliated institutions (such as between a bank and its
subsidiary or within a holding company) are not intra-institutional
transfers, and thus do not qualify for the exemption.
3(c)(6) Telephone-Initiated Transfers
1. Written plan or agreement. A transfer that the consumer initiates
by telephone is covered by Regulation E if the transfer is made under a
written plan or agreement between the consumer and the financial
institution making the transfer. A written statement available to the
public or to account holders that describes a service allowing a
consumer to initiate transfers by telephone constitutes a plan; for
example, a brochure, or material included with periodic statements. The
following, however, do not by themselves constitute a written plan or
agreement:
i. A hold-harmless agreement on a signature card that protects the
institution if the consumer requests a transfer.
ii. A legend on a signature card, periodic statement, or passbook
that limits the number of telephone-initiated transfers the consumer can
make from a savings account because of reserve requirements under
Regulation D of the Board of Governors of the Federal Reserve System (12
CFR part 204).
iii. An agreement permitting the consumer to approve by telephone
the rollover of funds at the maturity of an instrument.
2. Examples of covered transfers. When a written plan or agreement
has been entered into, a transfer initiated by a telephone call from a
consumer is covered even though:
i. An employee of the financial institution completes the transfer
manually (for example, by means of a debit memo or deposit slip).
ii. The consumer is required to make a separate request for each
transfer.
iii. The consumer uses the plan infrequently.
iv. The consumer initiates the transfer via a facsimile machine.
v. The consumer initiates the transfer using a financial
institution's audio-response or voice-response telephone system.
3(c)(7) Small Institutions
1. Coverage. This exemption is limited to preauthorized transfers;
institutions that offer other EFTs must comply with the applicable
sections of the regulation as to such services. The preauthorized
transfers remain subject to sections 913, 916, and 917 of the Act and
Sec. 1005.10(e), and are therefore exempt from UCC Article 4A.
Section 1005.4 General Disclosure Requirements; Jointly Offered
Services
4(a) Form of Disclosures
1. General. Although no particular rules govern type size, number of
pages, or the relative conspicuousness of various terms, the disclosures
must be in a clear and readily understandable written form that the
consumer may retain. Numbers or codes are considered readily
understandable if explained elsewhere on the disclosure form.
2. Foreign language disclosures. Disclosures may be made in
languages other than English, provided they are available in English
upon request.
Section 1005.5 Issuance of Access Devices
1. Coverage. The provisions of this section limit the circumstances
under which a financial institution may issue an access device to a
consumer. Making an additional account accessible through an existing
access device is equivalent to issuing an access device and is subject
to the limitations of this section.
5(a) Solicited Issuance
Paragraph 5(a)(1)
1. Joint account. For a joint account, a financial institution may
issue an access device to each account holder if the requesting holder
specifically authorizes the issuance.
2. Permissible forms of request. The request for an access device
may be written or oral (for example, in response to a telephone
solicitation by a card issuer).
Paragraph 5(a)(2)
1. One-for-one rule. In issuing a renewal or substitute access
device, only one renewal or substitute device may replace a previously
issued device. For example, only one new card and PIN may replace a card
and PIN previously issued. A financial institution may provide
additional devices at the time it
[[Page 249]]
issues the renewal or substitute access device, however, provided the
institution complies with Sec. 1005.5(b). See comment 5(b)-5. If the
replacement device or the additional device permits either fewer or
additional types of electronic fund transfer services, a change-in-terms
notice or new disclosures are required.
2. Renewal or substitution by a successor institution. A successor
institution is an entity that replaces the original financial
institution (for example, following a corporate merger or acquisition)
or that acquires accounts or assumes the operation of an EFT system.
5(b) Unsolicited Issuance
1. Compliance. A financial institution may issue an unsolicited
access device (such as the combination of a debit card and PIN) if the
institution's ATM system has been programmed not to accept the access
device until after the consumer requests and the institution validates
the device. Merely instructing a consumer not to use an unsolicited
debit card and PIN until after the institution verifies the consumer's
identity does not comply with the regulation.
2. PINs. A financial institution may impose no liability on a
consumer for unauthorized transfers involving an unsolicited access
device until the device becomes an ``accepted access device'' under the
regulation. A card and PIN combination may be treated as an accepted
access device once the consumer has used it to make a transfer.
3. Functions of PIN. If an institution issues a PIN at the
consumer's request, the issuance may constitute both a way of validating
the debit card and the means to identify the consumer (required as a
condition of imposing liability for unauthorized transfers).
4. Verification of identity. To verify the consumer's identity, a
financial institution may use any reasonable means, such as a
photograph, fingerprint, personal visit, signature comparison, or
personal information about the consumer. However, even if reasonable
means were used, if an institution fails to verify correctly the
consumer's identity and an imposter succeeds in having the device
validated, the consumer is not liable for any unauthorized transfers
from the account.
5. Additional access devices in a renewal or substitution. A
financial institution may issue more than one access device in
connection with the renewal or substitution of a previously issued
accepted access device, provided that any additional access device
(beyond the device replacing the accepted access device) is not
validated at the time it is issued, and the institution complies with
the other requirements of Sec. 1005.5(b). The institution may, if it
chooses, set up the validation procedure such that both the device
replacing the previously issued device and the additional device are not
validated at the time they are issued, and validation will apply to both
devices. If the institution sets up the validation procedure in this
way, the institution should provide a clear and readily understandable
disclosure to the consumer that both devices are unvalidated and that
validation will apply to both devices.
Section 1005.6 Liability of Consumer for Unauthorized Transfers
6(a) Conditions for Liability
1. Means of identification. A financial institution may use various
means for identifying the consumer to whom the access device is issued,
including but not limited to:
i. Electronic or mechanical confirmation (such as a PIN).
ii. Comparison of the consumer's signature, fingerprint, or
photograph.
2. Multiple users. When more than one access device is issued for an
account, the financial institution may, but need not, provide a separate
means to identify each user of the account.
6(b) Limitations on Amount of Liability
1. Application of liability provisions. There are three possible
tiers of consumer liability for unauthorized EFTs depending on the
situation. A consumer may be liable for: (1) up to $50; (2) up to $500;
or (3) an unlimited amount depending on when the unauthorized EFT
occurs. More than one tier may apply to a given situation because each
corresponds to a different (sometimes overlapping) time period or set of
conditions.
2. Consumer negligence. Negligence by the consumer cannot be used as
the basis for imposing greater liability than is permissible under
Regulation E. Thus, consumer behavior that may constitute negligence
under state law, such as writing the PIN on a debit card or on a piece
of paper kept with the card, does not affect the consumer's liability
for unauthorized transfers. (However, refer to comment 2(m)-2 regarding
termination of the authority of given by the consumer to another
person.)
3. Limits on liability. The extent of the consumer's liability is
determined solely by the consumer's promptness in reporting the loss or
theft of an access device. Similarly, no agreement between the consumer
and an institution may impose greater liability on the consumer for an
unauthorized transfer than the limits provided in Regulation E.
6(b)(1) Timely Notice Given
1. $50 limit applies. The basic liability limit is $50. For example,
the consumer's card is lost or stolen on Monday and the consumer learns
of the loss or theft on Wednesday. If the consumer notifies the
financial institution within two business days of learning of
[[Page 250]]
the loss or theft (by midnight Friday), the consumer's liability is
limited to $50 or the amount of the unauthorized transfers that occurred
before notification, whichever is less.
2. Knowledge of loss or theft of access device. The fact that a
consumer has received a periodic statement that reflects unauthorized
transfers may be a factor in determining whether the consumer had
knowledge of the loss or theft, but cannot be deemed to represent
conclusive evidence that the consumer had such knowledge.
3. Two business day rule. The two business day period does not
include the day the consumer learns of the loss or theft or any day that
is not a business day. The rule is calculated based on two 24-hour
periods, without regard to the financial institution's business hours or
the time of day that the consumer learns of the loss or theft. For
example, a consumer learns of the loss or theft at 6 p.m. on Friday.
Assuming that Saturday is a business day and Sunday is not, the two
business day period begins on Saturday and expires at 11:59 p.m. on
Monday, not at the end of the financial institution's business day on
Monday.
6(b)(2) Timely Notice Not Given
1. $500 limit applies. The second tier of liability is $500. For
example, the consumer's card is stolen on Monday and the consumer learns
of the theft that same day. The consumer reports the theft on Friday.
The $500 limit applies because the consumer failed to notify the
financial institution within two business days of learning of the theft
(which would have been by midnight Wednesday). How much the consumer is
actually liable for, however, depends on when the unauthorized transfers
take place. In this example, assume a $100 unauthorized transfer was
made on Tuesday and a $600 unauthorized transfer on Thursday. Because
the consumer is liable for the amount of the loss that occurs within the
first two business days (but no more than $50), plus the amount of the
unauthorized transfers that occurs after the first two business days and
before the consumer gives notice, the consumer's total liability is $500
($50 of the $100 transfer plus $450 of the $600 transfer, in this
example). But if $600 was taken on Tuesday and $100 on Thursday, the
consumer's maximum liability would be $150 ($50 of the $600 plus $100).
6(b)(3) Periodic Statement; Timely Notice Not Given
1. Unlimited liability applies. The standard of unlimited liability
applies if unauthorized transfers appear on a periodic statement, and
may apply in conjunction with the first two tiers of liability. If a
periodic statement shows an unauthorized transfer made with a lost or
stolen debit card, the consumer must notify the financial institution
within 60 calendar days after the periodic statement was sent;
otherwise, the consumer faces unlimited liability for all unauthorized
transfers made after the 60-day period. The consumer's liability for
unauthorized transfers before the statement is sent, and up to 60 days
following, is determined based on the first two tiers of liability: up
to $50 if the consumer notifies the financial institution within two
business days of learning of the loss or theft of the card and up to
$500 if the consumer notifies the institution after two business days of
learning of the loss or theft.
2. Transfers not involving access device. The first two tiers of
liability do not apply to unauthorized transfers from a consumer's
account made without an access device. If, however, the consumer fails
to report such unauthorized transfers within 60 calendar days of the
financial institution's transmittal of the periodic statement, the
consumer may be liable for any transfers occurring after the close of
the 60 days and before notice is given to the institution. For example,
a consumer's account is electronically debited for $200 without the
consumer's authorization and by means other than the consumer's access
device. If the consumer notifies the institution within 60 days of the
transmittal of the periodic statement that shows the unauthorized
transfer, the consumer has no liability. However, if in addition to the
$200, the consumer's account is debited for a $400 unauthorized transfer
on the 61st day and the consumer fails to notify the institution of the
first unauthorized transfer until the 62nd day, the consumer may be
liable for the full $400.
6(b)(4) Extension of Time Limits
1. Extenuating circumstances. Examples of circumstances that require
extension of the notification periods under this section include the
consumer's extended travel or hospitalization.
6(b)(5) Notice to Financial Institution
1. Receipt of notice. A financial institution is considered to have
received notice for purposes of limiting the consumer's liability if
notice is given in a reasonable manner, even if the consumer notifies
the institution but uses an address or telephone number other than the
one specified by the institution.
2. Notice by third party. Notice to a financial institution by a
person acting on the consumer's behalf is considered valid under this
section. For example, if a consumer is hospitalized and unable to report
the loss or theft of an access device, notice is considered given when
someone acting on the consumer's behalf notifies the bank of the loss or
theft. A financial institution may require appropriate documentation
from the person representing the consumer to establish that
[[Page 251]]
the person is acting on the consumer's behalf.
3. Content of notice. Notice to a financial institution is
considered given when a consumer takes reasonable steps to provide the
institution with the pertinent account information. Even when the
consumer is unable to provide the account number or the card number in
reporting a lost or stolen access device or an unauthorized transfer,
the notice effectively limits the consumer's liability if the consumer
otherwise identifies sufficiently the account in question. For example,
the consumer may identify the account by the name on the account and the
type of account in question.
Section 1005.7 Initial Disclosures
7(a) Timing of Disclosures
1. Early disclosures. Disclosures given by a financial institution
earlier than the regulation requires (for example, when the consumer
opens a checking account) need not be repeated when the consumer later
enters into an agreement with a third party to initiate preauthorized
transfers to or from the consumer's account, unless the terms and
conditions differ from those that the institution previously disclosed.
This interpretation also applies to any notice provided about one-time
EFTs from a consumer's account initiated using information from the
consumer's check. On the other hand, if an agreement for EFT services to
be provided by an account-holding institution is directly between the
consumer and the account-holding institution, disclosures must be given
in close proximity to the event requiring disclosure, for example, when
the consumer contracts for a new service.
2. Lack of advance notice of a transfer. Where a consumer authorizes
a third party to debit or credit the consumer's account, an account-
holding institution that has not received advance notice of the transfer
or transfers must provide the required disclosures as soon as reasonably
possible after the first debit or credit is made, unless the institution
has previously given the disclosures.
3. Addition of new accounts. If a consumer opens a new account
permitting EFTs at a financial institution, and the consumer already has
received Regulation E disclosures for another account at that
institution, the institution need only disclose terms and conditions
that differ from those previously given.
4. Addition of service in interchange systems. If a financial
institution joins an interchange or shared network system (which
provides access to terminals operated by other institutions),
disclosures are required for additional EFT services not previously
available to consumers if the terms and conditions differ from those
previously disclosed.
5. Disclosures covering all EFT services offered. An institution may
provide disclosures covering all EFT services that it offers, even if
some consumers have not arranged to use all services.
7(b) Content of Disclosures
7(b)(1) Liability of Consumer
1. No liability imposed by financial institution. If a financial
institution chooses to impose zero liability for unauthorized EFTs, it
need not provide the liability disclosures. If the institution later
decides to impose liability, however, it must first provide the
disclosures.
2. Preauthorized transfers. If the only EFTs from an account are
preauthorized transfers, liability could arise if the consumer fails to
report unauthorized transfers reflected on a periodic statement. To
impose such liability on the consumer, the institution must have
disclosed the potential liability and the telephone number and address
for reporting unauthorized transfers.
3. Additional information. At the institution's option, the summary
of the consumer's liability may include advice on promptly reporting
unauthorized transfers or the loss or theft of the access device.
7(b)(2) Telephone Number and Address
1. Disclosure of telephone numbers. An institution may use the same
or different telephone numbers in the disclosures for the purpose of:
i. Reporting the loss or theft of an access device or possible
unauthorized transfers;
ii. Inquiring about the receipt of a preauthorized credit;
iii. Stopping payment of a preauthorized debit;
iv. Giving notice of an error.
2. Location of telephone number. The telephone number need not be
incorporated into the text of the disclosure; for example, the
institution may instead insert a reference to a telephone number that is
readily available to the consumer, such as ``Call your branch office.
The number is shown on your periodic statement.'' However, an
institution must provide a specific telephone number and address, on or
with the disclosure statement, for reporting a lost or stolen access
device or a possible unauthorized transfer.
7(b)(4) Types of Transfers; Limitations
1. Security limitations. Information about limitations on the
frequency and dollar amount of transfers generally must be disclosed in
detail, even if related to security aspects of the system. If the
confidentiality of certain details is essential to the security of an
account or system, these details may be withheld (but the fact that
limitations exist must still be disclosed). For example,
[[Page 252]]
an institution limits cash ATM withdrawals to $100 per day. The
institution may disclose that daily withdrawal limitations apply and
need not disclose that the limitations may not always be in force (such
as during periods when its ATMs are off-line).
2. Restrictions on certain deposit accounts. A limitation on account
activity that restricts the consumer's ability to make EFTs must be
disclosed even if the restriction also applies to transfers made by non-
electronic means. For example, Regulation D of the Board of Governors of
the Federal Reserve System (12 CFR part 204) restricts the number of
payments to third parties that may be made from a money market deposit
account; an institution that does not execute fund transfers in excess
of those limits must disclose the restriction as a limitation on the
frequency of EFTs.
3. Preauthorized transfers. Financial institutions are not required
to list preauthorized transfers among the types of transfers that a
consumer can make.
4. One-time EFTs initiated using information from a check. Financial
institutions must disclose the fact that one-time EFTs initiated using
information from a consumer's check are among the types of transfers
that a consumer can make. See appendix A-2.
7(b)(5) Fees
1. Disclosure of EFT fees. An institution is required to disclose
all fees for EFTs or the right to make them. Others fees (for example,
minimum-balance fees, stop-payment fees, or account overdrafts) may, but
need not, be disclosed. But see Regulation DD, 12 CFR part 1030. An
institution is not required to disclose fees for inquiries made at an
ATM since no transfer of funds is involved.
2. Fees also applicable to non-EFT. A per-item fee for EFTs must be
disclosed even if the same fee is imposed on non-electronic transfers.
If a per-item fee is imposed only under certain conditions, such as when
the transactions in the cycle exceed a certain number, those conditions
must be disclosed. Itemization of the various fees may be provided on
the disclosure statement or on an accompanying document that is
referenced in the statement.
3. Interchange system fees. Fees paid by the account-holding
institution to the operator of a shared or interchange ATM system need
not be disclosed, unless they are imposed on the consumer by the
account-holding institution. Fees for use of an ATM that are debited
directly from the consumer's account by an institution other than the
account-holding institution (for example, fees included in the transfer
amount) need not be disclosed. See Sec. 1005.7(b)(11) for the general
notice requirement regarding fees that may be imposed by ATM operators
and by a network used to complete the transfer.
7(b)(9) Confidentiality
1. Information provided to third parties. An institution must
describe the circumstances under which any information relating to an
account to or from which EFTs are permitted will be made available to
third parties, not just information concerning those EFTs. The term
``third parties'' includes affiliates such as other subsidiaries of the
same holding company.
7(b)(10) Error Resolution
1. Substantially similar. The error resolution notice must be
substantially similar to the model form in appendix A of part 1005. An
institution may use different wording so long as the substance of the
notice remains the same, may delete inapplicable provisions (for
example, the requirement for written confirmation of an oral
notification), and may substitute substantive state law requirements
affording greater consumer protection than Regulation E.
2. Extended time-period for certain transactions. To take advantage
of the longer time periods for resolving errors under Sec. 1005.11(c)(3)
(for new accounts as defined in Regulation CC of the Board of Governors
of the Federal Reserve System (12 CFR part 229), transfers initiated
outside the United States, or transfers resulting from POS debit-card
transactions), a financial institution must have disclosed these longer
time periods. Similarly, an institution that relies on the exception
from provisional crediting in Sec. 1005.11(c)(2) for accounts subject to
Regulation T of the Board of Governors of the Federal Reserve System (12
CFR part 220) must have disclosed accordingly.
7(c) Addition of Electronic Fund Transfer Services
1. Addition of electronic check conversion services. One-time EFTs
initiated using information from a consumer's check are a new type of
transfer requiring new disclosures, as applicable. See appendix A-2.
Section 1005.8 Change-in-Terms Notice; Error Resolution Notice
8(a) Change-in-Terms Notice
1. Form of notice. No specific form or wording is required for a
change-in-terms notice. The notice may appear on a periodic statement,
or may be given by sending a copy of a revised disclosure statement,
provided attention is directed to the change (for example, in a cover
letter referencing the changed term).
2. Changes not requiring notice. The following changes do not
require disclosure:
i. Closing some of an institution's ATMs;
ii. Cancellation of an access device.
3. Limitations on transfers. When the initial disclosures omit
details about limitations
[[Page 253]]
because secrecy is essential to the security of the account or system, a
subsequent increase in those limitations need not be disclosed if
secrecy is still essential. If, however, an institution had no limits in
place when the initial disclosures were given and now wishes to impose
limits for the first time, it must disclose at least the fact that
limits have been adopted. See also Sec. 1005.7(b)(4) and the related
commentary.
4. Change in telephone number or address. When a financial
institution changes the telephone number or address used for reporting
possible unauthorized transfers, a change-in-terms notice is required
only if the institution will impose liability on the consumer for
unauthorized transfers under Sec. 1005.6. See also Sec. 1005.6(a) and
the related commentary.
8(b) Error Resolution Notice
1. Change between annual and periodic notice. If an institution
switches from an annual to a periodic notice, or vice versa, the first
notice under the new method must be sent no later than 12 months after
the last notice sent under the old method.
2. Exception for new accounts. For new accounts, disclosure of the
longer error resolution time periods under Sec. 1005.11(c)(3) is not
required in the annual error resolution notice or in the notice that may
be provided with each periodic statement as an alternative to the annual
notice.
Section 1005.9 Receipts at Electronic Terminals; Periodic Statements
9(a) Receipts at Electronic Terminals
1. Receipts furnished only on request. The regulation requires that
a receipt be ``made available.'' A financial institution may program its
electronic terminals to provide a receipt only to consumers who elect to
receive one.
2. Third party providing receipt. An account-holding institution may
make terminal receipts available through third parties such as merchants
or other financial institutions.
3. Inclusion of promotional material. A financial institution may
include promotional material on receipts if the required information is
set forth clearly (for example, by separating it from the promotional
material). In addition, a consumer may not be required to surrender the
receipt or that portion containing the required disclosures in order to
take advantage of a promotion.
4. Transfer not completed. The receipt requirement does not apply to
a transfer that is initiated but not completed (for example, if the ATM
is out of currency or the consumer decides not to complete the
transfer).
5. Receipts not furnished due to inadvertent error. If a receipt is
not provided to the consumer because of a bona fide unintentional error,
such as when a terminal runs out of paper or the mechanism jams, no
violation results if the financial institution maintains procedures
reasonably adapted to avoid such occurrences.
6. Multiple transfers. If the consumer makes multiple transfers at
the same time, the financial institution may document them on a single
or on separate receipts.
9(a)(1) Amount
1. Disclosure of transaction fee. The required display of a fee
amount on or at the terminal may be accomplished by displaying the fee
on a sign at the terminal or on the terminal screen for a reasonable
duration. Displaying the fee on a screen provides adequate notice, as
long as a consumer is given the option to cancel the transaction after
receiving notice of a fee. See Sec. 1005.16 for the notice requirements
applicable to ATM operators that impose a fee for providing EFT
services.
2. Relationship between Sec. 1005.9(a)(1) and Sec. 1005.16. The
requirements of Secs. 1005.9(a)(1) and 1005.16 are similar but not
identical.
i. Section 1005.9(a)(1) requires that if the amount of the transfer
as shown on the receipt will include the fee, then the fee must be
disclosed either on a sign on or at the terminal, or on the terminal
screen. Section 1005.16 requires disclosure both on a sign on or at the
terminal (in a prominent and conspicuous location) and on the terminal
screen. Section 1005.16 permits disclosure on a paper notice as an
alternative to the on-screen disclosure.
ii. The disclosure of the fee on the receipt under Sec. 1005.9(a)(1)
cannot be used to comply with the alternative paper disclosure procedure
under Sec. 1005.16, if the receipt is provided at the completion of the
transaction because, pursuant to the statute, the paper notice must be
provided before the consumer is committed to paying the fee.
iii. Section 1005.9(a)(1) applies to any type of electronic terminal
as defined in Regulation E (for example, to POS terminals as well as to
ATMs), while Sec. 1005.16 applies only to ATMs.
9(a)(2) Date
1. Calendar date. The receipt must disclose the calendar date on
which the consumer uses the electronic terminal. An accounting or
business date may be disclosed in addition if the dates are clearly
distinguished.
9(a)(3) Type
1. Identifying transfer and account. Examples identifying the type
of transfer and the type of the consumer's account include ``withdrawal
from checking,'' ``transfer from savings to checking,'' or ``payment
from savings.''
2. Exception. Identification of an account is not required when the
consumer can access only one asset account at a particular time
[[Page 254]]
or terminal, even if the access device can normally be used to access
more than one account. For example, the consumer may be able to access
only one particular account at terminals not operated by the account-
holding institution, or may be able to access only one particular
account when the terminal is off-line. The exception is available even
if, in addition to accessing one asset account, the consumer also can
access a credit line.
3. Access to multiple accounts. If the consumer can use an access
device to make transfers to or from different accounts of the same type,
the terminal receipt must specify which account was accessed, such as
``withdrawal from checking I'' or ``withdrawal from checking II.'' If
only one account besides the primary checking account can be debited,
the receipt can identify the account as ``withdrawal from other
account.''
4. Generic descriptions. Generic descriptions may be used for
accounts that are similar in function, such as share draft or NOW
accounts and checking accounts. In a shared system, for example, when a
credit union member initiates transfers to or from a share draft account
at a terminal owned or operated by a bank, the receipt may identify a
withdrawal from the account as a ``withdrawal from checking.''
5. Point-of-sale transactions. There is no prescribed terminology
for identifying a transfer at a merchant's POS terminal. A transfer may
be identified, for example, as a purchase, a sale of goods or services,
or a payment to a third party. When a consumer obtains cash from a POS
terminal in addition to purchasing goods, or obtains cash only, the
documentation need not differentiate the transaction from one involving
the purchase of goods.
9(a)(5) Terminal Location
1. Options for identifying terminal. The institution may provide
either:
i. The city, state or foreign country, and the information in
Sec. 1005.9(a)(5) (i), (ii), or (iii), or
ii. A number or a code identifying the terminal. If the institution
chooses the second option, the code or terminal number identifying the
terminal where the transfer is initiated may be given as part of a
transaction code.
2. Omission of city name. The city may be omitted if the generally
accepted name (such as a branch name) contains the city name.
3. Omission of a state. A state may be omitted from the location
information on the receipt if:
i. All the terminals owned or operated by the financial institution
providing the statement (or by the system in which it participates) are
located in that state, or
ii. All transfers occur at terminals located within 50 miles of the
financial institution's main office.
4. Omission of a city and state. A city and state may be omitted if
all the terminals owned or operated by the financial institution
providing the statement (or by the system in which it participates) are
located in the same city.
Paragraph 9(a)(5)(i)
1. Street address. The address should include number and street (or
intersection); the number (or intersecting street) may be omitted if the
street alone uniquely identifies the terminal location.
Paragraph 9(a)(5)(ii)
1. Generally accepted name. Examples of a generally accepted name
for a specific location include a branch of the financial institution, a
shopping center, or an airport.
Paragraph 9(a)(5)(iii)
1. Name of owner or operator of terminal. Examples of an owner or
operator of a terminal are a financial institution or a retail merchant.
9(a)(6) Third Party Transfer
1. Omission of third-party name. The receipt need not disclose the
third-party name if the name is provided by the consumer in a form that
is not machine readable (for example, if the consumer indicates the
payee by depositing a payment stub into the ATM). If, on the other hand,
the consumer keys in the identity of the payee, the receipt must
identify the payee by name or by using a code that is explained
elsewhere on the receipt.
2. Receipt as proof of payment. Documentation required under the
regulation constitutes prima facie proof of a payment to another person,
except in the case of a terminal receipt documenting a deposit.
9(b) Periodic Statements
1. Periodic cycles. Periodic statements may be sent on a cycle that
is shorter than monthly. The statements must correspond to periodic
cycles that are reasonably equal, that is, do not vary by more than four
days from the regular cycle. The requirement of reasonably equal cycles
does not apply when an institution changes cycles for operational or
other reasons, such as to establish a new statement day or date.
2. Interim statements. Generally, a financial institution must
provide periodic statements for each monthly cycle in which an EFT
occurs, and at least quarterly if a transfer has not occurred. Where
EFTs occur between regularly-scheduled cycles, interim statements must
be provided. For example, if an institution issues quarterly statements
at the end of March, June, September and December, and the consumer
initiates an EFT
[[Page 255]]
in February, an interim statement for February must be provided. If an
interim statement contains interest or rate information, the institution
must comply with Regulation DD, 12 CFR 1030.6.
3. Inactive accounts. A financial institution need not send
statements to consumers whose accounts are inactive as defined by the
institution.
4. Statement pickup. A financial institution may permit, but may not
require, consumers to pick up their periodic statements at the financial
institution.
5. Periodic statements limited to EFT activity. A financial
institution that uses a passbook as the primary means for displaying
account activity, but also allows the account to be debited
electronically, may provide a periodic statement requirement that
reflects only the EFTs and other required disclosures (such as charges,
account balances, and address and telephone number for inquiries). See
Sec. 1005.9(c)(1)(i) for the exception applicable to preauthorized
transfers for passbook accounts.
6. Codes and accompanying documents. To meet the documentation
requirements for periodic statements, a financial institution may:
i. Include copies of terminal receipts to reflect transfers
initiated by the consumer at electronic terminals;
ii. Enclose posting memos, deposit slips, and other documents that,
together with the statement, disclose all the required information;
iii. Use codes for names of third parties or terminal locations and
explain the information to which the codes relate on an accompanying
document.
9(b)(1) Transaction Information
1. Information obtained from others. While financial institutions
must maintain reasonable procedures to ensure the integrity of data
obtained from another institution, a merchant, or other third parties,
verification of each transfer that appears on the periodic statement is
not required.
Paragraph 9(b)(1)(i)
1. Incorrect deposit amount. If a financial institution determines
that the amount actually deposited at an ATM is different from the
amount entered by the consumer, the institution need not immediately
notify the consumer of the discrepancy. The periodic statement
reflecting the deposit may show either the correct amount of the deposit
or the amount entered by the consumer along with the institution's
adjustment.
Paragraph 9(b)(1)(iii)
1. Type of transfer. There is no prescribed terminology for
describing a type of transfer. Placement of the amount of the transfer
in the debit or the credit column is sufficient if other information on
the statement, such as a terminal location or third-party name, enables
the consumer to identify the type of transfer.
Paragraph 9(b)(1)(iv)
1. Nonproprietary terminal in network. An institution need not
reflect on the periodic statement the street addresses, identification
codes, or terminal numbers for transfers initiated in a shared or
interchange system at a terminal operated by an institution other than
the account-holding institution. The statement must, however, specify
the entity that owns or operates the terminal, plus the city and state.
Paragraph 9(b)(1)(v)
1. Recurring payments by government agency. The third-party name for
recurring payments from Federal, state, or local governments need not
list the particular agency. For example, ``U.S. gov't'' or ``N.Y. sal''
will suffice.
2. Consumer as third-party payee. If a consumer makes an electronic
fund transfer to another consumer, the financial institution must
identify the recipient by name (not just by an account number, for
example).
3. Terminal location/third party. A single entry may be used to
identify both the terminal location and the name of the third party to
or from whom funds are transferred. For example, if a consumer purchases
goods from a merchant, the name of the party to whom funds are
transferred (the merchant) and the location of the terminal where the
transfer is initiated will be satisfied by a disclosure such as ``XYZ
Store, Anytown, Ohio.''
4. Account-holding institution as third party. Transfers to the
account-holding institution (by ATM, for example) must show the
institution as the recipient, unless other information on the statement
(such as, ``loan payment from checking'') clearly indicates that the
payment was to the account-holding institution.
5. Consistency in third-party identity. The periodic statement must
disclose a third-party name as it appeared on the receipt, whether it
was, for example, the ``dba'' (doing business as) name of the third
party or the parent corporation's name.
6. Third-party identity on deposits at electronic terminal. A
financial institution need not identify third parties whose names appear
on checks, drafts, or similar paper instruments deposited to the
consumer's account at an electronic terminal.
9(b)(3) Fees
1. Disclosure of fees. The fees disclosed may include fees for EFTs
and for other non-electronic services, and both fixed fees and per-
[[Page 256]]
item fees; they may be given as a total or may be itemized in part or in
full.
2. Fees in interchange system. An account-holding institution must
disclose any fees it imposes on the consumer for EFTs, including fees
for ATM transactions in an interchange or shared ATM system. Fees for
use of an ATM imposed on the consumer by an institution other than the
account-holding institution and included in the amount of the transfer
by the terminal-operating institution need not be separately disclosed
on the periodic statement.
3. Finance charges. The requirement to disclose any fees assessed
against the account does not include a finance charge imposed on the
account during the statement period.
9(b)(4) Account Balances
1. Opening and closing balances. The opening and closing balances
must reflect both EFTs and other account activity.
9(b)(5) Address and Telephone Number for Inquiries
1. Telephone number. A single telephone number, preceded by the
``direct inquiries to'' language, will satisfy the requirements of
Secs. 1005.9(b)(5) and (6).
9(b)(6) Telephone Number for Preauthorized Transfers
1. Telephone number. See comment 9(b)(5)-1.
9(c) Exceptions to the Periodic Statement Requirements for Certain
Accounts
1. Transfers between accounts. The regulation provides an exception
from the periodic statement requirement for certain intra-institutional
transfers between a consumer's accounts. The financial institution must
still comply with the applicable periodic statement requirements for any
other EFTs to or from the account. For example, a Regulation E statement
must be provided quarterly for an account that also receives payroll
deposits electronically, or for any month in which an account is also
accessed by a withdrawal at an ATM.
9(c)(1) Preauthorized Transfers to Accounts
1. Accounts that may be accessed only by preauthorized transfers to
the account. The exception for ``accounts that may be accessed only by
preauthorized transfers to the account'' includes accounts that can be
accessed by means other than EFTs, such as checks. If, however, an
account may be accessed by any EFT other than preauthorized credits to
the account, such as preauthorized debits or ATM transactions, the
account does not qualify for the exception.
2. Reversal of direct deposits. For direct-deposit-only accounts, a
financial institution must send a periodic statement at least quarterly.
A reversal of a direct deposit to correct an error does not trigger the
monthly statement requirement when the error represented a credit to the
wrong consumer's account, a duplicate credit, or a credit in the wrong
amount. See also comment 2(m)-5.
9(d) Documentation for Foreign-Initiated Transfers
1. Foreign-initiated transfers. An institution must make a good
faith effort to provide all required information for foreign-initiated
transfers. For example, even if the institution is not able to provide a
specific terminal location, it should identify the country and city in
which the transfer was initiated.
Section 1005.10 Preauthorized Transfers
10(a) Preauthorized Transfers to Consumer's Account
10(a)(1) Notice by Financial Institution
1. Content. No specific language is required for notice regarding
receipt of a preauthorized transfer. Identifying the deposit is
sufficient; however, simply providing the current account balance is
not.
2. Notice of credit. A financial institution may use different
methods of notice for various types or series of preauthorized
transfers, and the institution need not offer consumers a choice of
notice methods.
3. Positive notice. A periodic statement sent within two business
days of the scheduled transfer, showing the transfer, can serve as
notice of receipt.
4. Negative notice. The absence of a deposit entry (on a periodic
statement sent within two business days of the scheduled transfer date)
will serve as negative notice.
5. Telephone notice. If a financial institution uses the telephone
notice option, the institution should be able in most instances to
verify during a consumer's initial call whether a transfer was received.
The institution must respond within two business days to any inquiry not
answered immediately.
6. Phone number for passbook accounts. The financial institution may
use any reasonable means necessary to provide the telephone number to
consumers with passbook accounts that can only be accessed by
preauthorized credits and that do not receive periodic statements. For
example, it may print the telephone number in the passbook, or include
the number with the annual error resolution notice.
7. Telephone line availability. To satisfy the readily-available
standard, the financial institution must provide enough telephone lines
so that consumers get a reasonably prompt response. The institution need
only provide telephone service during normal business hours. Within its
primary service area, an institution must provide a local or
[[Page 257]]
toll-free telephone number. It need not provide a toll-free number or
accept collect long-distance calls from outside the area where it
normally conducts business.
10(b) Written Authorization for Preauthorized Transfers From Consumer's
Account
1. Preexisting authorizations. The financial institution need not
require a new authorization before changing from paper-based to
electronic debiting when the existing authorization does not specify
that debiting is to occur electronically or specifies that the debiting
will occur by paper means. A new authorization also is not required when
a successor institution begins collecting payments.
2. Authorization obtained by third party. The account-holding
financial institution does not violate the regulation when a third-party
payee fails to obtain the authorization in writing or fails to give a
copy to the consumer; rather, it is the third-party payee that is in
violation of the regulation.
3. Written authorization for preauthorized transfers. The
requirement that preauthorized EFTs be authorized by the consumer ``only
by a writing'' cannot be met by a payee's signing a written
authorization on the consumer's behalf with only an oral authorization
from the consumer.
4. Use of a confirmation form. A financial institution or designated
payee may comply with the requirements of this section in various ways.
For example, a payee may provide the consumer with two copies of a
preauthorization form, and ask the consumer to sign and return one and
to retain the second copy.
5. Similarly authenticated. The similarly authenticated standard
permits signed, written authorizations to be provided electronically.
The writing and signature requirements of this section are satisfied by
complying with the Electronic Signatures in Global and National Commerce
Act, 15 U.S.C. 7001 et seq., which defines electronic records and
electronic signatures. Examples of electronic signatures include, but
are not limited to, digital signatures and security codes. A security
code need not originate with the account-holding institution. The
authorization process should evidence the consumer's identity and assent
to the authorization. The person that obtains the authorization must
provide a copy of the terms of the authorization to the consumer either
electronically or in paper form. Only the consumer may authorize the
transfer and not, for example, a third-party merchant on behalf of the
consumer.
6. Requirements of an authorization. An authorization is valid if it
is readily identifiable as such and the terms of the preauthorized
transfer are clear and readily understandable.
7. Bona fide error. Consumers sometimes authorize third-party
payees, by telephone or online, to submit recurring charges against a
credit card account. If the consumer indicates use of a credit card
account when in fact a debit card is being used, the payee does not
violate the requirement to obtain a written authorization if the failure
to obtain written authorization was not intentional and resulted from a
bona fide error, and if the payee maintains procedures reasonably
adapted to avoid any such error. Procedures reasonably adapted to avoid
error will depend upon the circumstances. Generally, requesting the
consumer to specify whether the card to be used for the authorization is
a debit (or check) card or a credit card is a reasonable procedure.
Where the consumer has indicated that the card is a credit card (or that
the card is not a debit or check card), the payee may rely on the
consumer's statement without seeking further information about the type
of card. If the payee believes, at the time of the authorization, that a
credit card is involved, and later finds that the card used is a debit
card (for example, because the consumer later brings the matter to the
payee's attention), the payee must obtain a written and signed or (where
appropriate) a similarly authenticated authorization as soon as
reasonably possible, or cease debiting the consumer's account.
10(c) Consumer's Right to Stop Payment
1. Stop-payment order. The financial institution must honor an oral
stop-payment order made at least three business days before a scheduled
debit. If the debit item is resubmitted, the institution must continue
to honor the stop-payment order (for example, by suspending all
subsequent payments to the payee-originator until the consumer notifies
the institution that payments should resume).
2. Revocation of authorization. Once a financial institution has
been notified that the consumer's authorization is no longer valid, it
must block all future payments for the particular debit transmitted by
the designated payee-originator. But see comment 10(c)-3. The
institution may not wait for the payee-originator to terminate the
automatic debits. The institution may confirm that the consumer has
informed the payee-originator of the revocation (for example, by
requiring a copy of the consumer's revocation as written confirmation to
be provided within 14 days of an oral notification). If the institution
does not receive the required written confirmation within the 14-day
period, it may honor subsequent debits to the account.
3. Alternative procedure for processing a stop-payment request. If
an institution does not have the capability to block a preauthorized
debit from being posted to the consumer's
[[Page 258]]
account--as in the case of a preauthorized debit made through a debit
card network or other system, for example--the institution may instead
comply with the stop-payment requirements by using a third party to
block the transfer(s), as long as the consumer's account is not debited
for the payment.
10(d) Notice of Transfers Varying in Amount
10(d)(1) Notice
1. Preexisting authorizations. A financial institution holding the
consumer's account does not violate the regulation if the designated
payee fails to provide notice of varying amounts.
10(d)(2) Range
1. Range. A financial institution or designated payee that elects to
offer the consumer a specified range of amounts for debiting (in lieu of
providing the notice of transfers varying in amount) must provide an
acceptable range that could be anticipated by the consumer. For example,
if the transfer is for payment of a gas bill, an appropriate range might
be based on the highest bill in winter and the lowest bill in summer.
2. Transfers to an account of the consumer held at another
institution. A financial institution need not provide a consumer the
option of receiving notice with each varying transfer, and may instead
provide notice only when a debit to an account of the consumer falls
outside a specified range or differs by more than a specified amount
from the most recent transfer, if the funds are transferred and credited
to an account of the consumer held at another financial institution. The
specified range or amount, however, must be one that reasonably could be
anticipated by the consumer, and the institution must notify the
consumer of the range or amount at the time the consumer provides
authorization for the preauthorized transfers. For example, if the
transfer is for payment of interest for a fixed-rate certificate of
deposit account, an appropriate range might be based on a month
containing 28 days and a month containing 31 days.
10(e) Compulsory Use
10(e)(1) Credit
1. Loan payments. Creditors may not require repayment of loans by
electronic means on a preauthorized, recurring basis. A creditor may
offer a program with a reduced annual percentage rate or other cost-
related incentive for an automatic repayment feature, provided the
program with the automatic payment feature is not the only loan program
offered by the creditor for the type of credit involved. Examples
include:
i. Mortgages with graduated payments in which a pledged savings
account is automatically debited during an initial period to supplement
the monthly payments made by the borrower.
ii. Mortgage plans calling for preauthorized biweekly payments that
are debited electronically to the consumer's account and produce a lower
total finance charge.
2. Overdraft. A financial institution may require the automatic
repayment of an overdraft credit plan even if the overdraft extension is
charged to an open-end account that may be accessed by the consumer in
ways other than by overdrafts.
10(e)(2) Employment or Government Benefit
1. Payroll. An employer (including a financial institution) may not
require its employees to receive their salary by direct deposit to any
particular institution. An employer may require direct deposit of salary
by electronic means if employees are allowed to choose the institution
that will receive the direct deposit. Alternatively, an employer may
give employees the choice of having their salary deposited at a
particular institution (designated by the employer) or receiving their
salary by another means, such as by check or cash.
Section 1005.11 Procedures for Resolving Errors
11(a) Definition of Error
1. Terminal location. With regard to deposits at an ATM, a
consumer's request for the terminal location or other information
triggers the error resolution procedures, but the financial institution
need only provide the ATM location if it has captured that information.
2. Verifying an account debit or credit. If the consumer contacts
the financial institution to ascertain whether a payment (for example,
in a home-banking or bill-payment program) or any other type of EFT was
debited to the account, or whether a deposit made via ATM, preauthorized
transfer, or any other type of EFT was credited to the account, without
asserting an error, the error resolution procedures do not apply.
3. Loss or theft of access device. A financial institution is
required to comply with the error resolution procedures when a consumer
reports the loss or theft of an access device if the consumer also
alleges possible unauthorized use as a consequence of the loss or theft.
4. Error asserted after account closed. The financial institution
must comply with the error resolution procedures when a consumer
properly asserts an error, even if the account has been closed.
5. Request for documentation or information. A request for
documentation or other information must be treated as an error unless it
is clear that the consumer is requesting a
[[Page 259]]
duplicate copy for tax or other record-keeping purposes.
6. Terminal receipts for transfers of $15 or less. The fact that an
institution does not make a terminal receipt available for a transfer of
$15 or less in accordance with Sec. 1005.9(e) is not an error for
purposes of Sec. 1005.11(a)(1)(vi) or (vii).
11(b) Notice of Error From Consumer
11(b)(1) Timing; Contents
1. Content of error notice. The notice of error is effective even if
it does not contain the consumer's account number, so long as the
financial institution is able to identify the account in question. For
example, the consumer could provide a Social Security number or other
unique means of identification.
2. Investigation pending receipt of information. While a financial
institution may request a written, signed statement from the consumer
relating to a notice of error, it may not delay initiating or completing
an investigation pending receipt of the statement.
3. Statement held for consumer. When a consumer has arranged for
periodic statements to be held until picked up, the statement for a
particular cycle is deemed to have been transmitted on the date the
financial institution first makes the statement available to the
consumer.
4. Failure to provide statement. When a financial institution fails
to provide the consumer with a periodic statement, a request for a copy
is governed by this section if the consumer gives notice within 60 days
from the date on which the statement should have been transmitted.
5. Discovery of error by institution. The error resolution
procedures of this section apply when a notice of error is received from
the consumer, and not when the financial institution itself discovers
and corrects an error.
6. Notice at particular phone number or address. A financial
institution may require the consumer to give notice only at the
telephone number or address disclosed by the institution, provided the
institution maintains reasonable procedures to refer the consumer to the
specified telephone number or address if the consumer attempts to give
notice to the institution in a different manner.
7. Effect of late notice. An institution is not required to comply
with the requirements of this section for any notice of error from the
consumer that is received by the institution later than 60 days from the
date on which the periodic statement first reflecting the error is sent.
Where the consumer's assertion of error involves an unauthorized EFT,
however, the institution must comply with Sec. 1005.6 before it may
impose any liability on the consumer.
11(b)(2) Written Confirmation
1. Written confirmation-of-error notice. If the consumer sends a
written confirmation of error to the wrong address, the financial
institution must process the confirmation through normal procedures. But
the institution need not provisionally credit the consumer's account if
the written confirmation is delayed beyond 10 business days in getting
to the right place because it was sent to the wrong address.
11(c) Time Limits and Extent of Investigation
1. Notice to consumer. Unless otherwise indicated in this section,
the financial institution may provide the required notices to the
consumer either orally or in writing.
2. Written confirmation of oral notice. A financial institution must
begin its investigation promptly upon receipt of an oral notice. It may
not delay until it has received a written confirmation.
3. Charges for error resolution. If a billing error occurred,
whether as alleged or in a different amount or manner, the financial
institution may not impose a charge related to any aspect of the error-
resolution process (including charges for documentation or
investigation). Since the Act grants the consumer error-resolution
rights, the institution should avoid any chilling effect on the good-
faith assertion of errors that might result if charges are assessed when
no billing error has occurred.
4. Correction without investigation. A financial institution may
make, without investigation, a final correction to a consumer's account
in the amount or manner alleged by the consumer to be in error, but must
comply with all other applicable requirements of Sec. 1005.11.
5. Correction notice. A financial institution may include the notice
of correction on a periodic statement that is mailed or delivered within
the 10-business-day or 45-calendar-day time limits and that clearly
identifies the correction to the consumer's account. The institution
must determine whether such a mailing will be prompt enough to satisfy
the requirements of this section, taking into account the specific facts
involved.
6. Correction of an error. If the financial institution determines
an error occurred, within either the 10-day or 45-day period, it must
correct the error (subject to the liability provisions of
Secs. 1005.6(a) and (b)) including, where applicable, the crediting of
interest and the refunding of any fees imposed by the institution. In a
combined credit/EFT transaction, for example, the institution must
refund any finance charges incurred as a result of the error. The
institution need not refund fees that would have been imposed whether or
not the error occurred.
[[Page 260]]
7. Extent of required investigation. A financial institution
complies with its duty to investigate, correct, and report its
determination regarding an error described in Sec. 1005.11(a)(1)(vii) by
transmitting the requested information, clarification, or documentation
within the time limits set forth in Sec. 1005.11(c). If the institution
has provisionally credited the consumer's account in accordance with
Sec. 1005.11(c)(2), it may debit the amount upon transmitting the
requested information, clarification, or documentation.
Paragraph 11(c)(2)(i)
1. Compliance with all requirements. Financial institutions exempted
from provisionally crediting a consumer's account under
Secs. 1005.11(c)(2)(i)(A) and (B) must still comply with all other
requirements of Sec. 1005.11.
11(c)(3) Extension of Time Periods
1. POS debit card transactions. The extended deadlines for
investigating errors resulting from POS debit card transactions apply to
all debit card transactions, including those for cash only, at
merchants' POS terminals, and also including mail and telephone orders.
The deadlines do not apply to transactions at an ATM, however, even
though the ATM may be in a merchant location.
11(c)(4) Investigation
1. Third parties. When information or documentation requested by the
consumer is in the possession of a third party with whom the financial
institution does not have an agreement, the institution satisfies the
error resolution requirement by so advising the consumer within the
specified time period.
2. Scope of investigation. When an alleged error involves a payment
to a third party under the financial institution's telephone bill-
payment plan, a review of the institution's own records is sufficient,
assuming no agreement exists between the institution and the third party
concerning the bill-payment service.
3. POS transfers. When a consumer alleges an error involving a
transfer to a merchant via a POS terminal, the institution must verify
the information previously transmitted when executing the transfer. For
example, the financial institution may request a copy of the sales
receipt to verify that the amount of the transfer correctly corresponds
to the amount of the consumer's purchase.
4. Agreement. An agreement that a third party will honor an access
device is an agreement for purposes of this paragraph. A financial
institution does not have an agreement for purposes of
Sec. 1005.11(c)(4)(ii) solely because it participates in transactions
that occur under the Federal recurring payments programs, or that are
cleared through an ACH or similar arrangement for the clearing and
settlement of fund transfers generally, or because the institution
agrees to be bound by the rules of such an arrangement.
5. No EFT agreement. When there is no agreement between the
institution and the third party for the type of EFT involved, the
financial institution must review any relevant information within the
institution's own records for the particular account to resolve the
consumer's claim. The extent of the investigation required may vary
depending on the facts and circumstances. However, a financial
institution may not limit its investigation solely to the payment
instructions where additional information within its own records
pertaining to the particular account in question could help to resolve a
consumer's claim. Information that may be reviewed as part of an
investigation might include:
i. The ACH transaction records for the transfer;
ii. The transaction history of the particular account for a
reasonable period of time immediately preceding the allegation of error;
iii. Whether the check number of the transaction in question is
notably out-of-sequence;
iv. The location of either the transaction or the payee in question
relative to the consumer's place of residence and habitual transaction
area;
v. Information relative to the account in question within the
control of the institution's third-party service providers if the
financial institution reasonably believes that it may have records or
other information that could be dispositive; or
vi. Any other information appropriate to resolve the claim.
11(d) Procedures if Financial Institution Determines No Error or
Different Error Occurred
1. Error different from that alleged. When a financial institution
determines that an error occurred in a manner or amount different from
that described by the consumer, it must comply with the requirements of
both Secs. 1005.11(c) and (d), as relevant. The institution may give the
notice of correction and the explanation separately or in a combined
form.
11(d)(1) Written Explanation
1. Request for documentation. When a consumer requests copies of
documents, the financial institution must provide the copies in an
understandable form. If an institution relied on magnetic tape, it must
convert the applicable data into readable form, for example, by printing
it and explaining any codes.
11(d)(2) Debiting Provisional Credit
1. Alternative procedure for debiting of credited funds. The
financial institution may comply with the requirements of this section
[[Page 261]]
by notifying the consumer that the consumer's account will be debited
five business days from the transmittal of the notification, specifying
the calendar date on which the debiting will occur.
2. Fees for overdrafts. The financial institution may not impose
fees for items it is required to honor under Sec. 1005.11. It may,
however, impose any normal transaction or item fee that is unrelated to
an overdraft resulting from the debiting. If the account is still
overdrawn after five business days, the institution may impose the fees
or finance charges to which it is entitled, if any, under an overdraft
credit plan.
11(e) Reassertion of Error
1. Withdrawal of error; right to reassert. The financial institution
has no further error resolution responsibilities if the consumer
voluntarily withdraws the notice alleging an error. A consumer who has
withdrawn an allegation of error has the right to reassert the
allegation unless the financial institution had already complied with
all of the error resolution requirements before the allegation was
withdrawn. The consumer must do so, however, within the original 60-day
period.
Section 1005.12 Relation to Other Laws
12(a) Relation to Truth in Lending
1. Determining applicable regulation. i. For transactions involving
access devices that also function as credit cards, whether Regulation E
or Regulation Z (12 CFR part 1026) applies depends on the nature of the
transaction. For example, if the transaction solely involves an
extension of credit, and does not include a debit to a checking account
(or other consumer asset account), the liability limitations and error
resolution requirements of Regulation Z apply. If the transaction debits
a checking account only (with no credit extended), the provisions of
Regulation E apply. If the transaction debits a checking account but
also draws on an overdraft line of credit attached to the account,
Regulation E's liability limitations apply, in addition to
Secs. 1026.13(d) and (g) of Regulation Z (which apply because of the
extension of credit associated with the overdraft feature on the
checking account). If a consumer's access device is also a credit card
and the device is used to make unauthorized withdrawals from a checking
account, but also is used to obtain unauthorized cash advances directly
from a line of credit that is separate from the checking account, both
Regulation E and Regulation Z apply.
ii. The following examples illustrate these principles:
A. A consumer has a card that can be used either as a credit card or
a debit card. When used as a debit card, the card draws on the
consumer's checking account. When used as a credit card, the card draws
only on a separate line of credit. If the card is stolen and used as a
credit card to make purchases or to get cash advances at an ATM from the
line of credit, the liability limits and error resolution provisions of
Regulation Z apply; Regulation E does not apply.
B. In the same situation, if the card is stolen and is used as a
debit card to make purchases or to get cash withdrawals at an ATM from
the checking account, the liability limits and error resolution
provisions of Regulation E apply; Regulation Z does not apply.
C. In the same situation, assume the card is stolen and used both as
a debit card and as a credit card; for example, the thief makes some
purchases using the card as a debit card, and other purchases using the
card as a credit card. Here, the liability limits and error resolution
provisions of Regulation E apply to the unauthorized transactions in
which the card was used as a debit card, and the corresponding
provisions of Regulation Z apply to the unauthorized transactions in
which the card was used as a credit card.
D. Assume a somewhat different type of card, one that draws on the
consumer's checking account and can also draw on an overdraft line of
credit attached to the checking account. There is no separate line of
credit, only the overdraft line, associated with the card. In this
situation, if the card is stolen and used, the liability limits and the
error resolution provisions of Regulation E apply. In addition, if the
use of the card has resulted in accessing the overdraft line of credit,
the error resolution provisions of Secs. 1026.13(d) and (g) of
Regulation Z also apply, but not the other error resolution provisions
of Regulation Z.
2. Issuance rules. For access devices that also constitute credit
cards, the issuance rules of Regulation E apply if the only credit
feature is a preexisting credit line attached to the asset account to
cover overdrafts (or to maintain a specified minimum balance) or an
overdraft service, as defined in Sec. 1005.17(a). Regulation Z (12 CFR
part 1026) rules apply if there is another type of credit feature; for
example, one permitting direct extensions of credit that do not involve
the asset account.
3. Overdraft service. The addition of an overdraft service, as that
term is defined in Sec. 1005.17(a), to an accepted access device does
not constitute the addition of a credit feature subject to Regulation Z.
Instead, the provisions of Regulation E apply, including the liability
limitations (Sec. 1005.6) and the requirement to obtain consumer consent
to the service before any fees or charges for paying an overdraft may be
assessed on the account (Sec. 1005.17).
12(b) Preemption of Inconsistent State Laws
1. Specific determinations. The regulation prescribes standards for
determining whether state laws that govern EFTs, and state
[[Page 262]]
laws regarding gift certificates, store gift cards, or general-use
prepaid cards that govern dormancy, inactivity, or service fees, or
expiration dates, are preempted by the Act and the regulation. A state
law that is inconsistent may be preempted even if the Bureau has not
issued a determination. However, nothing in Sec. 1005.12(b) provides a
financial institution with immunity for violations of state law if the
institution chooses not to make state disclosures and the Bureau later
determines that the state law is not preempted.
2. Preemption determination. The Bureau recognizes state law
preemption determinations made by the Board of Governors of the Federal
Reserve System prior to July 21, 2011, until and unless the Bureau makes
and publishes any contrary determination. The Board of Governors
determined that certain provisions in the state law of Michigan are
preempted by the Federal law, effective March 30, 1981:
i. Definition of unauthorized use. Section 5(4) is preempted to the
extent that it relates to the section of state law governing consumer
liability for unauthorized use of an access device.
ii. Consumer liability for unauthorized use of an account. Section
14 is inconsistent with Sec. 1005.6 and is less protective of the
consumer than the Federal law. The state law places liability on the
consumer for the unauthorized use of an account in cases involving the
consumer's negligence. Under the Federal law, a consumer's liability for
unauthorized use is not related to the consumer's negligence and depends
instead on the consumer's promptness in reporting the loss or theft of
the access device.
iii. Error resolution. Section 15 is preempted because it is
inconsistent with Sec. 1005.11 and is less protective of the consumer
than the Federal law. The state law allows financial institutions up to
70 days to resolve errors, whereas the Federal law generally requires
errors to be resolved within 45 days.
iv. Receipts and periodic statements. Sections 17 and 18 are
preempted because they are inconsistent with Sec. 1005.9. The state
provisions require a different disclosure of information than does the
Federal law. The receipt provision is also preempted because it allows
the consumer to be charged for receiving a receipt if a machine cannot
furnish one at the time of a transfer.
Section 1005.13 Administrative Enforcement; Record Retention
13(b) Record Retention
1. Requirements. A financial institution need not retain records
that it has given disclosures and documentation to each consumer; it
need only retain evidence demonstrating that its procedures reasonably
ensure the consumers' receipt of required disclosures and documentation.
Section 1005.14 Electronic Fund Transfer Service Provider Not Holding
Consumer's Account
14(a) Electronic Fund Transfer Service Providers Subject to Regulation
1. Applicability. This section applies only when a service provider
issues an access device to a consumer for initiating transfers to or
from the consumer's account at a financial institution and the two
entities have no agreement regarding this EFT service. If the service
provider does not issue an access device to the consumer for accessing
an account held by another institution, it does not qualify for the
treatment accorded by Sec. 1005.14. For example, this section does not
apply to an institution that initiates preauthorized payroll deposits to
consumer accounts on behalf of an employer. By contrast, Sec. 1005.14
can apply to an institution that issues a code for initiating telephone
transfers to be carried out through the ACH from a consumer's account at
another institution. This is the case even if the consumer has accounts
at both institutions.
2. ACH agreements. The ACH rules generally do not constitute an
agreement for purposes of this section. However, an ACH agreement under
which members specifically agree to honor each other's debit cards is an
``agreement,'' and thus this section does not apply.
14(b) Compliance by Electronic Fund Transfer Service Provider
1. Liability. The service provider is liable for unauthorized EFTs
that exceed limits on the consumer's liability under Sec. 1005.6.
14(b)(1) Disclosures and Documentation
1. Periodic statements from electronic fund transfer service
provider. A service provider that meets the conditions set forth in this
paragraph does not have to issue periodic statements. A service provider
that does not meet the conditions need only include on periodic
statements information about transfers initiated with the access device
it has issued.
14(b)(2) Error Resolution
1. Error resolution. When a consumer notifies the service provider
of an error, the EFT service provider must investigate and resolve the
error in compliance with Sec. 1005.11 as modified by Sec. 1005.14(b)(2).
If an error occurred, any fees or charges imposed as a result of the
error, either by the service provider or by the account-holding
institution (for example, overdraft or dishonor fees) must be reimbursed
to the consumer by the service provider.
[[Page 263]]
14(c) Compliance by Account-Holding Institution
14(c)(1) Documentation
1. Periodic statements from account-holding institution. The
periodic statement provided by the account-holding institution need only
contain the information required by Sec. 1005.9(b)(1).
Section 1005.17 Requirements for Overdraft Services
17(a) Definition
1. Exempt securities- and commodities-related lines of credit. The
definition of ``overdraft service'' does not include the payment of
transactions in a securities or commodities account pursuant to which
credit is extended by a broker-dealer registered with the Securities and
Exchange Commission or the Commodity Futures Trading Commission.
17(b) Opt-In Requirement
1. Scope. i. Account-holding institutions. Section 1005.17(b)
applies to ATM and one-time debit card transactions made with a debit
card issued by or on behalf of the account-holding institution. Section
1005.17(b) does not apply to ATM and one-time debit card transactions
made with a debit card issued by or through a third party unless the
debit card is issued on behalf of the account-holding institution.
ii. Coding of transactions. A financial institution complies with
the rule if it adapts its systems to identify debit card transactions as
either one-time or recurring. If it does so, the financial institution
may rely on the transaction's coding by merchants, other institutions,
and other third parties as a one-time or a preauthorized or recurring
debit card transaction.
iii. One-time debit card transactions. The opt-in applies to any
one-time debit card transaction, whether the card is used, for example,
at a point-of-sale, in an online transaction, or in a telephone
transaction.
iv. Application of fee prohibition. The prohibition on assessing
overdraft fees under Sec. 1005.17(b)(1) applies to all institutions. For
example, the prohibition applies to an institution that has a policy and
practice of declining to authorize and pay any ATM or one-time debit
card transactions when the institution has a reasonable belief at the
time of the authorization request that the consumer does not have
sufficient funds available to cover the transaction. However, the
institution is not required to comply with Secs. 1005.17(b)(1)(i)-(iv),
including the notice and opt-in requirements, if it does not assess
overdraft fees for paying ATM or one-time debit card transactions that
overdraw the consumer's account. Assume an institution does not provide
an opt-in notice, but authorizes an ATM or one-time debit card
transaction on the reasonable belief that the consumer has sufficient
funds in the account to cover the transaction. If, at settlement, the
consumer has insufficient funds in the account (for example, due to
intervening transactions that post to the consumer's account), the
institution is not permitted to assess an overdraft fee or charge for
paying that transaction.
2. No affirmative consent. A financial institution may pay
overdrafts for ATM and one-time debit card transactions even if a
consumer has not affirmatively consented or opted in to the
institution's overdraft service. If the institution pays such an
overdraft without the consumer's affirmative consent, however, it may
not impose a fee or charge for doing so. These provisions do not limit
the institution's ability to debit the consumer's account for the amount
overdrawn if the institution is permitted to do so under applicable law.
3. Overdraft transactions not required to be authorized or paid.
Section 1005.17 does not require a financial institution to authorize or
pay an overdraft on an ATM or one-time debit card transaction even if
the consumer has affirmatively consented to an institution's overdraft
service for such transactions.
4. Reasonable opportunity to provide affirmative consent. A
financial institution provides a consumer with a reasonable opportunity
to provide affirmative consent when, among other things, it provides
reasonable methods by which the consumer may affirmatively consent. A
financial institution provides such reasonable methods, if:
i. By mail. The institution provides a form for the consumer to fill
out and mail to affirmatively consent to the service.
ii. By telephone. The institution provides a readily-available
telephone line that consumers may call to provide affirmative consent.
iii. By electronic means. The institution provides an electronic
means for the consumer to affirmatively consent. For example, the
institution could provide a form that can be accessed and processed at
its Web site, where the consumer may click on a check box to provide
consent and confirm that choice by clicking on a button that affirms the
consumer's consent.
iv. In person. The institution provides a form for the consumer to
complete and present at a branch or office to affirmatively consent to
the service.
5. Implementing opt-in at account-opening. A financial institution
may provide notice regarding the institution's overdraft service prior
to or at account-opening. A financial institution may require a
consumer, as a necessary step to opening an account, to
[[Page 264]]
choose whether or not to opt into the payment of ATM or one-time debit
card transactions pursuant to the institution's overdraft service. For
example, the institution could require the consumer, at account opening,
to sign a signature line or check a box on a form (consistent with
comment 17(b)-6) indicating whether or not the consumer affirmatively
consents at account opening. If the consumer does not check any box or
provide a signature, the institution must assume that the consumer does
not opt in. Or, the institution could require the consumer to choose
between an account that does not permit the payment of ATM or one-time
debit card transactions pursuant to the institution's overdraft service
and an account that permits the payment of such overdrafts, provided
that the accounts comply with Sec. 1005.17(b)(2) and Sec. 1005.17(b)(3).
6. Affirmative consent required. A consumer's affirmative consent,
or opt-in, to a financial institution's overdraft service must be
obtained separately from other consents or acknowledgements obtained by
the institution, including a consent to receive disclosures
electronically. An institution may obtain a consumer's affirmative
consent by providing a blank signature line or check box that the
consumer could sign or select to affirmatively consent, provided that
the signature line or check box is used solely for purposes of
evidencing the consumer's choice whether or not to opt into the
overdraft service and not for other purposes. An institution does not
obtain a consumer's affirmative consent by including preprinted language
about the overdraft service in an account disclosure provided with a
signature card or contract that the consumer must sign to open the
account and that acknowledges the consumer's acceptance of the account
terms. Nor does an institution obtain a consumer's affirmative consent
by providing a signature card that contains a pre-selected check box
indicating that the consumer is requesting the service.
7. Confirmation. A financial institution may comply with the
requirement in Sec. 1005.17(b)(1)(iv) to provide confirmation of the
consumer's affirmative consent by mailing or delivering to the consumer
a copy of the consumer's completed opt-in notice, or by mailing or
delivering a letter or notice to the consumer acknowledging that the
consumer has elected to opt into the institution's service. The
confirmation, which must be provided in writing, or electronically if
the consumer agrees, must include a statement informing the consumer of
the right to revoke the opt-in at any time. See Sec. 1005.17(d)(6),
which permits institutions to include the revocation statement on the
initial opt-in notice. An institution complies with the confirmation
requirement if it has adopted reasonable procedures designed to ensure
that overdraft fees are assessed only in connection with transactions
paid after the confirmation has been mailed or delivered to the
consumer.
8. Outstanding Negative Balance. If a fee or charge is based on the
amount of the outstanding negative balance, an institution is prohibited
from assessing any such fee if the negative balance is solely
attributable to an ATM or one-time debit card transaction, unless the
consumer has opted into the institution's overdraft service for ATM or
one-time debit card transactions. However, the rule does not prohibit an
institution from assessing such a fee if the negative balance is
attributable in whole or in part to a check, ACH, or other type of
transaction not subject to the prohibition on assessing overdraft fees
in Sec. 1005.17(b)(1).
9. Daily or Sustained Overdraft, Negative Balance, or Similar Fee or
Charge i. Daily or sustained overdraft, negative balance, or similar
fees or charges. If a consumer has not opted into the institution's
overdraft service for ATM or one-time debit card transactions, the fee
prohibition in Sec. 1005.17(b)(1) applies to all overdraft fees or
charges for paying those transactions, including but not limited to
daily or sustained overdraft, negative balance, or similar fees or
charges. Thus, where a consumer's negative balance is solely
attributable to an ATM or one-time debit card transaction, the rule
prohibits the assessment of such fees unless the consumer has opted in.
However, the rule does not prohibit an institution from assessing daily
or sustained overdraft, negative balance, or similar fees or charges if
a negative balance is attributable in whole or in part to a check, ACH,
or other type of transaction not subject to the fee prohibition. When
the negative balance is attributable in part to an ATM or one-time debit
card transaction, and in part to a check, ACH, or other type of
transaction not subject to the fee prohibition, the date on which such a
fee may be assessed is based on the date on which the check, ACH, or
other type of transaction is paid into overdraft.
ii. Examples. The following examples illustrate how an institution
complies with the fee prohibition. For each example, assume the
following: (a) The consumer has not opted into the payment of ATM or
one-time debit card overdrafts; (b) these transactions are paid into
overdraft because the amount of the transaction at settlement exceeded
the amount authorized or the amount was not submitted for authorization;
(c) under the account agreement, the institution may charge a per-item
fee of $20 for each overdraft, and a one-time sustained overdraft fee of
$20 on the fifth consecutive day the consumer's account remains
overdrawn; (d) the institution posts ATM and debit card transactions
before other transactions; and (e) the institution allocates deposits to
account debits in the same order in which it posts debits.
[[Page 265]]
A. Assume that a consumer has a $50 account balance on March 1. That
day, the institution posts a one-time debit card transaction of $60 and
a check transaction of $40. The institution charges an overdraft fee of
$20 for the check overdraft but cannot assess an overdraft fee for the
debit card transaction. At the end of the day, the consumer has an
account balance of negative $70. The consumer does not make any deposits
to the account, and no other transactions occur between March 2 and
March 6. Because the consumer's negative balance is attributable in part
to the $40 check (and associated overdraft fee), the institution may
charge a sustained overdraft fee on March 6 in connection with the
check.
B. Same facts as in A., except that on March 3, the consumer
deposits $40 in the account. The institution allocates the $40 to the
debit card transaction first, consistent with its posting order policy.
At the end of the day on March 3, the consumer has an account balance of
negative $30, which is attributable to the check transaction (and
associated overdraft fee). The consumer does not make any further
deposits to the account, and no other transactions occur between March 4
and March 6. Because the remaining negative balance is attributable to
the March 1 check transaction, the institution may charge a sustained
overdraft fee on March 6 in connection with the check.
C. Assume that a consumer has a $50 account balance on March 1. That
day, the institution posts a one-time debit card transaction of $60. At
the end of that day, the consumer has an account balance of negative
$10. The institution may not assess an overdraft fee for the debit card
transaction. On March 3, the institution pays a check transaction of
$100 and charges an overdraft fee of $20. At the end of that day, the
consumer has an account balance of negative $130. The consumer does not
make any deposits to the account, and no other transactions occur
between March 4 and March 8. Because the consumer's negative balance is
attributable in part to the check, the institution may assess a $20
sustained overdraft fee. However, because the check was paid on March 3,
the institution must use March 3 as the start date for determining the
date on which the sustained overdraft fee may be assessed. Thus, the
institution may charge a $20 sustained overdraft fee on March 8.
iii. Alternative approach. For a consumer who does not opt into the
institution's overdraft service for ATM and one-time debit card
transactions, an institution may also comply with the fee prohibition in
Sec. 1005.17(b)(1) by not assessing daily or sustained overdraft,
negative balance, or similar fees or charges unless a consumer's
negative balance is attributable solely to check, ACH or other types of
transactions not subject to the fee prohibition while that negative
balance remains outstanding. In such case, the institution would not
have to determine how to allocate subsequent deposits that reduce but do
not eliminate the negative balance. For example, if a consumer has a
negative balance of $30, of which $10 is attributable to a one-time
debit card transaction, an institution complies with the fee prohibition
if it does not assess a sustained overdraft fee while that negative
balance remains outstanding.
17(b)(2) Conditioning Payment of Other Overdrafts on Consumer's
Affirmative Consent
1. Application of the same criteria. The prohibitions on
conditioning in Sec. 1005.17(b)(2) generally require an institution to
apply the same criteria for deciding when to pay overdrafts for checks,
ACH transactions, and other types of transactions, whether or not the
consumer has affirmatively consented to the institution's overdraft
service with respect to ATM and one-time debit card overdrafts. For
example, if an institution's internal criteria would lead the
institution to pay a check overdraft if the consumer had affirmatively
consented to the institution's overdraft service for ATM and one-time
debit card transactions, it must also apply the same criteria in a
consistent manner in determining whether to pay the check overdraft if
the consumer has not opted in.
2. No requirement to pay overdrafts on checks, ACH transactions, or
other types of transactions. The prohibition on conditioning in
Sec. 1005.17(b)(2) does not require an institution to pay overdrafts on
checks, ACH transactions, or other types of transactions in all
circumstances. Rather, the rule simply prohibits institutions from
considering the consumer's decision not to opt in when deciding whether
to pay overdrafts for checks, ACH transactions, or other types of
transactions.2>17(b)(3) Same Account Terms, Conditions, and Features
1. Variations in terms, conditions, or features. A financial
institution may not vary the terms, conditions, or features of an
account provided to a consumer who does not affirmatively consent to the
payment of ATM or one-time debit card transactions pursuant to the
institution's overdraft service. This includes, but is not limited to:
i. Interest rates paid and fees assessed;
ii. The type of ATM or debit card provided to the consumer. For
instance, an institution may not provide consumers who do not opt in a
PIN-only card while providing a debit card with both PIN and signature-
debit functionality to consumers who opt in;
iii. Minimum balance requirements; or
iv. Account features such as online bill payment services.
2. Limited-feature bank accounts. Section 1005.17(b)(3) does not
prohibit institutions from offering deposit account products with
limited features, provided that a consumer is
[[Page 266]]
not required to open such an account because the consumer did not opt
in. For example, Sec. 1005.17(b)(3) does not prohibit an institution
from offering a checking account designed to comply with state basic
banking laws, or designed for consumers who are not eligible for a
checking account because of their credit or checking account history,
which may include features limiting the payment of overdrafts. However,
a consumer who applies, and is otherwise eligible, for a full-service or
other particular deposit account product may not be provided instead
with the account with more limited features because the consumer has
declined to opt in.
17(c) Timing
1. Permitted fees or charges. Fees or charges for ATM and one-time
debit card overdrafts may be assessed only for overdrafts paid on or
after the date the financial institution receives the consumer's
affirmative consent to the institution's overdraft service. See also
comment 17(b)-7.
17(d) Content and Format
1. Overdraft service. The description of the institution's overdraft
service should indicate that the consumer has the right to affirmatively
consent, or opt into payment of overdrafts for ATM and one-time debit
card transactions. The description should also disclose the
institution's policies regarding the payment of overdrafts for other
transactions, including checks, ACH transactions, and automatic bill
payments, provided that this content is not more prominent than the
description of the consumer's right to opt into payment of overdrafts
for ATM and one-time debit card transactions. As applicable, the
institution also should indicate that it pays overdrafts at its
discretion, and should briefly explain that if the institution does not
authorize and pay an overdraft, it may decline the transaction.
2. Maximum fee. If the amount of a fee may vary from transaction to
transaction, the financial institution may indicate that the consumer
may be assessed a fee ``up to'' the maximum fee. The financial
institution must disclose all applicable overdraft fees, including but
not limited to:
i. Per item or per transaction fees;
ii. Daily overdraft fees;
iii. Sustained overdraft fees, where fees are assessed when the
consumer has not repaid the amount of the overdraft after some period of
time (for example, if an account remains overdrawn for five or more
business days); or
iv. Negative balance fees.
3. Opt-in methods. The opt-in notice must include the methods by
which the consumer may consent to the overdraft service for ATM and one-
time debit card transactions. Institutions may tailor Model Form A-9 to
the methods offered to consumers for affirmatively consenting to the
service. For example, an institution need not provide the tear-off
portion of Model Form A-9 if it is only permitting consumers to opt-in
telephonically or electronically. Institutions may, but are not
required, to provide a signature line or check box where the consumer
can indicate that he or she declines to opt in.
4. Identification of consumer's account. An institution may use any
reasonable method to identify the account for which the consumer submits
the opt-in notice. For example, the institution may include a line for a
printed name and an account number, as shown in Model Form A-9. Or, the
institution may print a bar code or use other tracking information. See
also comment 17(b)-6, which describes how an institution obtains a
consumer's affirmative consent.
5. Alternative plans for covering overdrafts. If the institution
offers both a line of credit subject to Regulation Z (12 CFR part 1026)
and a service that transfers funds from another account of the consumer
held at the institution to cover overdrafts, the institution must state
in its opt-in notice that both alternative plans are offered. For
example, the notice might state ``We also offer overdraft protection
plans, such as a link to a savings account or to an overdraft line of
credit, which may be less expensive than our standard overdraft
practices.'' If the institution offers one, but not the other, it must
state in its opt-in notice the alternative plan that it offers. If the
institution does not offer either plan, it should omit the reference to
the alternative plans.
17(f) Continuing Right To Opt-In or To Revoke the Opt-In
1. Fees or charges for overdrafts incurred prior to revocation.
Section 1005.17(f)(1) provides that a consumer may revoke his or her
prior consent at any time. If a consumer does so, this provision does
not require the financial institution to waive or reverse any overdraft
fees assessed on the consumer's account prior to the institution's
implementation of the consumer's revocation request.
17(g) Duration of Opt-In
1. Termination of overdraft service. A financial institution may,
for example, terminate the overdraft service when the consumer makes
excessive use of the service.
Section 1005.18 Requirements for Financial Institutions Offering
Payroll Card Accounts
18(a) Coverage
1. Issuance of access device. Consistent with Sec. 1005.5(a), a
financial institution may issue an access device only in response to an
oral
[[Page 267]]
or written request for the device, or as a renewal or substitute for an
accepted access device. A consumer is deemed to request an access device
for a payroll card account when the consumer chooses to receive salary
or other compensation through a payroll card account.
2. Application to employers and service providers. Typically,
employers and third-party service providers do not meet the definition
of a ``financial institution'' subject to the regulation because they
neither hold payroll card accounts nor issue payroll cards and agree
with consumers to provide EFT services in connection with payroll card
accounts. However, to the extent an employer or a service provider
undertakes either of these functions, it would be deemed a financial
institution under the regulation.
18(b) Alternative to Periodic Statements
1. Posted transactions. A history of transactions provided under
Secs. 1005.18(b)(1)(ii) and (iii) shall reflect transfers once they have
been posted to the account. Thus, an institution does not need to
include transactions that have been authorized, but that have not yet
posted to the account.
2. Electronic history. The electronic history required under
Sec. 1005.18(b)(1)(ii) must be provided in a form that the consumer may
keep, as required under Sec. 1005.4(a)(1). Financial institutions may
satisfy this requirement if they make the electronic history available
in a format that is capable of being retained. For example, an
institution satisfies the requirement if it provides a history at a Web
site in a format that is capable of being printed or stored
electronically using a web browser.
18(c) Modified Requirements
1. Error resolution safe harbor provision. Institutions that choose
to investigate notices of error provided up to 120 days from the date a
transaction has posted to a consumer's account may still disclose the
error resolution time period required by the regulation (as set forth in
the Model Form in appendix A-7). Specifically, an institution may
disclose to payroll card account holders that the institution will
investigate any notice of error provided within 60 days of the consumer
electronically accessing an account or receiving a written history upon
request that reflects the error, even if, for some or all transactions,
the institution investigates any notice of error provided up to 120 days
from the date that the transaction alleged to be in error has posted to
the consumer's account. Similarly, an institution's summary of the
consumer's liability (as required under Sec. 1005.7(b)(1)) may disclose
that liability is based on the consumer providing notice of error within
60 days of the consumer electronically accessing an account or receiving
a written history reflecting the error, even if, for some or all
transactions, the institution allows a consumer to assert a notice of
error up to 120 days from the date of posting of the alleged error.
2. Electronic access. A consumer is deemed to have accessed a
payroll card account electronically when the consumer enters a user
identification code or password or otherwise complies with a security
procedure used by an institution to verify the consumer's identity. An
institution is not required to determine whether a consumer has in fact
accessed information about specific transactions to trigger the
beginning of the 60-day periods for liability limits and error
resolution under Secs. 1005.6 and 1005.11.
3. Untimely notice of error. An institution that provides a
transaction history under Sec. 1005.18(b)(1) is not required to comply
with the requirements of Sec. 1005.11 for any notice of error from the
consumer pertaining to a transfer that occurred more than 60 days prior
to the earlier of the date the consumer electronically accesses the
account or the date the financial institution sends a written history
upon the consumer's request. (Alternatively, as provided in
Sec. 1005.18(c)(4)(ii), an institution need not comply with the
requirements of Sec. 1005.11 with respect to any notice of error
received from the consumer more than 120 days after the date of posting
of the transfer allegedly in error.) Where the consumer's assertion of
error involves an unauthorized EFT, however, the institution must comply
with Sec. 1005.6 before it may impose any liability on the consumer.
Section 1005.20 Requirements for Gift Cards and Gift Certificates
20(a) Definitions
1. Form of card, code, or device. Section 1005.20 applies to any
card, code, or other device that meets one of the definitions in
Secs. 1005.20(a)(1) through (a)(3) (and is not otherwise excluded by
Sec. 1005.20(b)), even if it is not issued in card form. Section 1005.20
applies, for example, to an account number or bar code that can be used
to access underlying funds. Similarly, Sec. 1005.20 applies to a device
with a chip or other embedded mechanism that links the device to stored
funds, such as a mobile phone or sticker containing a contactless chip
that enables the consumer to access the stored funds. A card, code, or
other device that meets the definition in Secs. 1005.20(a)(1) through
(a)(3) includes an electronic promise (see comment 20(a)-2) as well as a
promise that is not electronic. See, however, Sec. 1005.20(b)(5). In
addition, Sec. 1005.20 applies if a merchant issues a code that entitles
a consumer to redeem the code for goods or services, regardless of the
medium in which the code is issued (see, however, Sec. 1005.20(b)(5)),
and whether or not it may be redeemed electronically or in the
merchant's
[[Page 268]]
store. Thus, for example, if a merchant emails a code that a consumer
may redeem in a specified amount either online or in the merchant's
store, that code is covered under Sec. 1005.20, unless one of the
exclusions in Sec. 1005.20(b) apply.
2. Electronic promise. The term ``electronic promise'' as used in
EFTA sections 915(a)(2)(B), (a)(2)(C), and (a)(2)(D) means a person's
commitment or obligation communicated or stored in electronic form made
to a consumer to provide payment for goods or services for transactions
initiated by the consumer. The electronic promise is itself represented
by a card, code or other device that is issued or honored by the person,
reflecting the person's commitment or obligation to pay. For example, if
a merchant issues a code that can be given as a gift and that entitles
the recipient to redeem the code in an online transaction for goods or
services, that code represents an electronic promise by the merchant and
is a card, code, or other device covered by Sec. 1005.20.
3. Cards, codes, or other devices redeemable for specific goods or
services. Certain cards, codes, or other devices may be redeemable upon
presentation for a specific good or service, or ``experience,'' such as
a spa treatment, hotel stay, or airline flight. In other cases, a card,
code, or other device may entitle the consumer to a certain percentage
off the purchase of a good or service, such as 20% off of any purchase
in a store. Such cards, codes, or other devices generally are not
subject to the requirements of this section because they are not issued
to a consumer ``in a specified amount'' as required under the
definitions of ``gift certificate,'' ``store gift card,'' or ``general-
use prepaid card.'' However, if the card, code, or other device is
issued in a specified or denominated amount that can be applied toward
the purchase of a specific good or service, such as a certificate or
card redeemable for a spa treatment up to $50, the card, code, or other
device is subject to this section, unless one of the exceptions in
Sec. 1005.20(b) apply. See, e.g., Sec. 1005.20(b)(3). Similarly, if the
card, code, or other device states a specific monetary value, such as
``a $50 value,'' the card, code, or other device is subject to this
section, unless an exclusion in Sec. 1005.20(b) applies.
4. Issued primarily for personal, family, or household purposes.
Section 1005.20 only applies to cards, codes, or other devices that are
sold or issued to a consumer primarily for personal, family, or
household purposes. A card, code, or other device initially purchased by
a business is subject to this section if the card, code, or other device
is purchased for redistribution or resale to consumers primarily for
personal, family, or household purposes. Moreover, the fact that a card,
code, or other device may be primarily funded by a business, for
example, in the case of certain rewards or incentive cards, does not
mean the card, code, or other device is outside the scope of
Sec. 1005.20, if the card, code, or other device will be provided to a
consumer primarily for personal, family, or household purposes. But see
Sec. 1005.20(b)(3). Whether a card, code, or other device is issued to a
consumer primarily for personal, family, or household purposes will
depend on the facts and circumstances. For example, if a program manager
purchases store gift cards directly from an issuing merchant and sells
those cards through the program manager's retail outlets, such gift
cards are subject to the requirements of Sec. 1005.20 because the store
gift cards are sold to consumers primarily for personal, family, or
household purposes. In contrast, a card, code, or other device generally
would not be issued to consumers primarily for personal, family, or
household purposes, and therefore would fall outside the scope of
Sec. 1005.20, if the purchaser of the card, code, or device is
contractually prohibited from reselling or redistributing the card,
code, or device to consumers primarily for personal, family, or
household purposes, and reasonable policies and procedures are
maintained to avoid such sale or distribution for such purposes.
However, if an entity that has purchased cards, codes, or other devices
for business purposes sells or distributes such cards, codes, or other
devices to consumers primarily for personal, family, or household
purposes, that entity does not comply with Sec. 1005.20 if it has not
otherwise met the substantive and disclosure requirements of the rule or
unless an exclusion in Sec. 1005.20(b) applies.
5. Examples of cards, codes, or other devices issued for business
purposes. Examples of cards, codes, or other devices that are issued and
used for business purposes and therefore excluded from the definitions
of ``gift certificate,'' ``store gift card,'' or ``general-use prepaid
card'' include:
i. Cards, codes, or other devices to reimburse employees for travel
or moving expenses.
ii. Cards, codes, or other devices for employees to use to purchase
office supplies and other business-related items.
20(a)(2) Store Gift Card
1. Relationship between ``gift certificate'' and ``store gift
card.'' The term ``store gift card'' in Sec. 1005.20(a)(2) includes
``gift certificate'' as defined in Sec. 1005.20(a)(1). For example, a
numeric or alphanumeric code representing a specified dollar amount or
value that is electronically sent to a consumer as a gift which can be
redeemed or exchanged by the recipient to obtain goods or services may
be both a ``gift certificate'' and a ``store gift card'' if the
specified amount or value cannot be increased.
2. Affiliated group of merchants. The term ``affiliated group of
merchants'' means two
[[Page 269]]
or more affiliated merchants or other persons that are related by common
ownership or common corporate control (see, e.g., 12 CFR 227.3(b) and 12
CFR 223.2) and that share the same name, mark, or logo. For example, the
term includes franchisees that are subject to a common set of corporate
policies or practices under the terms of their franchise licenses. The
term also applies to two or more merchants or other persons that agree
among themselves, by contract or otherwise, to redeem cards, codes, or
other devices bearing the same name, mark, or logo (other than the mark,
logo, or brand of a payment network), for the purchase of goods or
services solely at such merchants or persons. For example, assume a
movie theatre chain and a restaurant chain jointly agree to issue cards
that share the same ``Flix and Food'' logo that can be redeemed solely
towards the purchase of movie tickets or concessions at any of the
participating movie theatres, or towards the purchase of food or
beverages at any of the participating restaurants. For purposes of
Sec. 1005.20, the movie theatre chain and the restaurant chain would be
considered to be an affiliated group of merchants, and the cards are
considered to be ``store gift cards.'' However, merchants or other
persons are not considered to be affiliated merely because they agree to
accept a card that bears the mark, logo, or brand of a payment network.
3. Mall gift cards. See comment 20(a)(3)-2.
20(a)(3) General-Use Prepaid Card
1. Redeemable upon presentation at multiple, unaffiliated merchants.
A card, code, or other device is redeemable upon presentation at
multiple, unaffiliated merchants if, for example, such merchants agree
to honor the card, code, or device if it bears the mark, logo, or brand
of a payment network, pursuant to the rules of the payment network.
2. Mall gift cards. Mall gift cards that are intended to be used or
redeemed for goods or services at participating retailers within a
shopping mall may be considered store gift cards or general-use prepaid
cards depending on the merchants with which the cards may be redeemed.
For example, if a mall card may only be redeemed at merchants within the
mall itself, the card is more likely to be redeemable at an affiliated
group of merchants and considered a store gift card. However, certain
mall cards also carry the brand of a payment network and can be used at
any retailer that accepts that card brand, including retailers located
outside of the mall. Such cards are considered general-use prepaid
cards.
20(a)(4) Loyalty, Award, or Promotional Gift Card
1. Examples of loyalty, award, or promotional programs. Examples of
loyalty, award, or promotional programs under Sec. 1005.20(a)(4)
include, but are not limited to:
i. Consumer retention programs operated or administered by a
merchant or other person that provide to consumers cards or coupons
redeemable for or towards goods or services or other monetary value as a
reward for purchases made or for visits to the participating merchant.
ii. Sales promotions operated or administered by a merchant or
product manufacturer that provide coupons or discounts redeemable for or
towards goods or services or other monetary value.
iii. Rebate programs operated or administered by a merchant or
product manufacturer that provide cards redeemable for or towards goods
or services or other monetary value to consumers in connection with the
consumer's purchase of a product or service and the consumer's
completion of the rebate submission process.
iv. Sweepstakes or contests that distribute cards redeemable for or
towards goods or services or other monetary value to consumers as an
invitation to enter into the promotion for a chance to win a prize.
v. Referral programs that provide cards redeemable for or towards
goods or services or other monetary value to consumers in exchange for
referring other potential consumers to a merchant.
vi. Incentive programs through which an employer provides cards
redeemable for or towards goods or services or other monetary value to
employees, for example, to recognize job performance, such as increased
sales, or to encourage employee wellness and safety.
vii. Charitable or community relations programs through which a
company provides cards redeemable for or towards goods or services or
other monetary value to a charity or community group for their
fundraising purposes, for example, as a reward for a donation or as a
prize in a charitable event.
2. Issued for loyalty, award, or promotional purposes. To indicate
that a card, code, or other device is issued for loyalty, award, or
promotional purposes as required by Sec. 1005.20(a)(4)(iii), it is
sufficient for the card, code, or other device to state on the front,
for example, ``Reward'' or ``Promotional.''
3. Reference to toll-free number and Web site. If a card, code, or
other device issued in connection with a loyalty, award, or promotional
program does not have any fees, the disclosure under
Sec. 1005.20(a)(4)(iii)(D) is not required on the card, code, or other
device.
20(a)(6) Service Fee
1. Service fees. Under Sec. 1005.20(a)(6), a service fee includes a
periodic fee for holding or use of a gift certificate, store gift card,
or general-use prepaid card. A periodic fee includes
[[Page 270]]
any fee that may be imposed on a gift certificate, store gift card, or
general-use prepaid card from time to time for holding or using the
certificate or card, such as a monthly maintenance fee, a transaction
fee, an ATM fee, a reload fee, a foreign currency transaction fee, or a
balance inquiry fee, whether or not the fee is waived for a certain
period of time or is only imposed after a certain period of time. A
service fee does not include a one-time fee or a fee that is unlikely to
be imposed more than once while the underlying funds are still valid,
such as an initial issuance fee, a cash-out fee, a supplemental card
fee, or a lost or stolen certificate or card replacement fee.
20(a)(7) Activity
1. Activity. Under Sec. 1005.20(a)(7), any action that results in an
increase or decrease of the funds underlying a gift certificate, store
gift card, or general-use prepaid card, other than the imposition of a
fee, or an adjustment due to an error or a reversal of a prior
transaction, constitutes activity for purposes of Sec. 1005.20. For
example, the purchase and activation of a certificate or card, the use
of the certificate or card to purchase a good or service, or the
reloading of funds onto a store gift card or general-use prepaid card
constitutes activity. However, the imposition of a fee, the replacement
of an expired, lost, or stolen certificate or card, and a balance
inquiry do not constitute activity. In addition, if a consumer attempts
to engage in a transaction with a gift certificate, store gift card, or
general-use prepaid card, but the transaction cannot be completed due to
technical or other reasons, such attempt does not constitute activity.
Furthermore, if the funds underlying a gift certificate, store gift
card, or general-use prepaid card are adjusted because there was an
error or the consumer has returned a previously purchased good, the
adjustment also does not constitute activity with respect to the
certificate or card.
20(b) Exclusions
1. Application of exclusion. A card, code, or other device is
excluded from the definition of ``gift certificate,'' ``store gift
card,'' or ``general-use prepaid card'' if it meets any of the
exclusions in Sec. 1005.20(b). An excluded card, code, or other device
generally is not subject to any of the requirements of this section.
See, however, Sec. 1005.20(a)(4)(iii), requiring certain disclosures for
loyalty, award, or promotional gift cards.
2. Eligibility for multiple exclusions. A card, code, or other
device may qualify for one or more exclusions. For example, a
corporation may give its employees a gift card that is marketed solely
to businesses for incentive-related purposes, such as to reward job
performance or promote employee safety. In this case, the card may
qualify for the exclusion for loyalty, award, or promotional gift cards
under Sec. 1005.20(b)(3), or for the exclusion for cards, codes, or
other devices not marketed to the general public under
Sec. 1005.20(b)(4). In addition, as long as any one of the exclusions
applies, a card, code, or other device is not covered by Sec. 1005.20,
even if other exclusions do not apply. In the above example, the
corporation may give its employees a type of gift card that can also be
purchased by a consumer directly from a merchant. Under these
circumstances, while the card does not qualify for the exclusion for
cards, codes, or other devices not marketed to the general public under
Sec. 1005.20(b)(4) because the card can also be obtained through retail
channels, it is nevertheless exempt from the substantive requirements of
Sec. 1005.20 because it is a loyalty, award, or promotional gift card.
See, however, Sec. 1005.20(a)(4)(iii), requiring certain disclosures for
loyalty, award, or promotional gift cards. Similarly, a person may
market a reloadable card to teenagers for occasional expenses that
enables parents to monitor spending. Although the card does not qualify
for the exclusion for cards, codes, or other devices not marketed to the
general public under Sec. 1005.20(b)(4), it may nevertheless be exempt
from the requirements of Sec. 1005.20 under Sec. 1005.20(b)(2) if it is
reloadable and not marketed or labeled as a gift card or gift
certificate.
Paragraph 20(b)(1)
1. Examples of excluded products. The exclusion for products usable
solely for telephone services applies to prepaid cards for long-distance
telephone service, prepaid cards for wireless telephone service and
prepaid cards for other services that function similar to telephone
services, such as prepaid cards for voice over Internet protocol (VoIP)
access time.
Paragraph 20(b)(2)
1. Reloadable. A card, code, or other device is ``reloadable'' if
the terms and conditions of the agreement permit funds to be added to
the card, code, or other device after the initial purchase or issuance.
A card, code, or other device is not ``reloadable'' merely because the
issuer or processor is technically able to add functionality that would
otherwise enable the card, code, or other device to be reloaded.
2. Marketed or labeled as a gift card or gift certificate. The term
``marketed or labeled as a gift card or gift certificate'' means
directly or indirectly offering, advertising, or otherwise suggesting
the potential use of a card, code or other device, as a gift for another
person. Whether the exclusion applies generally does not depend on the
type of entity that makes the promotional message. For
[[Page 271]]
example, a card may be marketed or labeled as a gift card or gift
certificate if anyone (other than the purchaser of the card), including
the issuer, the retailer, the program manager that may distribute the
card, or the payment network on which a card is used, promotes the use
of the card as a gift card or gift certificate. A card, code, or other
device, including a general-purpose reloadable card, is marketed or
labeled as a gift card or gift certificate even if it is only
occasionally marketed as a gift card or gift certificate. For example, a
network-branded general purpose reloadable card would be marketed or
labeled as a gift card or gift certificate if the issuer principally
advertises the card as a less costly alternative to a bank account but
promotes the card in a television, radio, newspaper, or Internet
advertisement, or on signage as ``the perfect gift'' during the holiday
season. However, the mere mention of the availability of gift cards or
gift certificates in an advertisement or on a sign that also indicates
the availability of other excluded prepaid cards does not by itself
cause the excluded prepaid cards to be marketed as a gift card or a gift
certificate. For example, the posting of a sign in a store that refers
to the availability of gift cards does not by itself constitute the
marketing of otherwise excluded prepaid cards that may also be sold in
the store as gift cards or gift certificates, provided that a consumer
acting reasonably under the circumstances would not be led to believe
that the sign applies to all prepaid cards sold in the store. See,
however, comment 20(b)(2)-4.ii.
3. Examples of marketed or labeled as a gift card or gift
certificate. i. Examples of marketed or labeled as a gift card or gift
certificate include:
A. Using the word ``gift'' or ``present'' on a card, certificate, or
accompanying material, including documentation, packaging and
promotional displays.
B. Representing or suggesting that a certificate or card can be
given to another person, for example, as a ``token of appreciation'' or
a ``stocking stuffer,'' or displaying a congratulatory message on the
card, certificate or accompanying material.
C. Incorporating gift-giving or celebratory imagery or motifs, such
as a bow, ribbon, wrapped present, candle, or congratulatory message, on
a card, certificate, accompanying documentation, or promotional
material.
ii. The term does not include:
A. Representing that a card or certificate can be used as a
substitute for a checking, savings, or deposit account.
B. Representing that a card or certificate can be used to pay for a
consumer's health-related expenses--for example, a card tied to a health
savings account.
C. Representing that a card or certificate can be used as a
substitute for traveler's checks or cash.
D. Representing that a card or certificate can be used as a
budgetary tool, for example, by teenagers, or to cover emergency
expenses.
4. Reasonable policies and procedures to avoid marketing as a gift
card. The exclusion for a card, code, or other device that is reloadable
and not marketed or labeled as a gift card or gift certificate in
Sec. 1005.20(b)(2) applies if a reloadable card, code, or other device
is not marketed or labeled as a gift card or gift certificate and if
persons subject to the rule, including issuers, program managers, and
retailers, maintain policies and procedures reasonably designed to avoid
such marketing. Such policies and procedures may include contractual
provisions prohibiting a reloadable card, code, or other device from
being marketed or labeled as a gift card or gift certificate,
merchandising guidelines or plans regarding how the product must be
displayed in a retail outlet, and controls to regularly monitor or
otherwise verify that the card, code or other device is not being
marketed as a gift card. Whether a reloadable card, code, or other
device has been marketed as a gift card or gift certificate will depend
on the facts and circumstances, including whether a reasonable consumer
would be led to believe that the card, code, or other device is a gift
card or gift certificate. The following examples illustrate the
application of Sec. 1005.20(b)(2):
i. An issuer or program manager of prepaid cards agrees to sell
general-purpose reloadable cards through a retailer. The contract
between the issuer or program manager and the retailer establishes the
terms and conditions under which the cards may be sold and marketed at
the retailer. The terms and conditions prohibit the general-purpose
reloadable cards from being marketed as a gift card or gift certificate,
and require policies and procedures to regularly monitor or otherwise
verify that the cards are not being marketed as such. The issuer or
program manager sets up one promotional display at the retailer for gift
cards and another physically separated display for excluded products
under Sec. 1005.20(b), including general-purpose reloadable cards and
wireless telephone cards, such that a reasonable consumer would not
believe that the excluded cards are gift cards. The exclusion in
Sec. 1005.20(b)(2) applies because policies and procedures reasonably
designed to avoid the marketing of the general-purpose reloadable cards
as gift cards or gift certificates are maintained, even if a retail
clerk inadvertently stocks or a consumer inadvertently places a general-
purpose reloadable card on the gift card display.
ii. Same facts as in i., except that the issuer or program manager
sets up a single
[[Page 272]]
promotional display at the retailer on which a variety of prepaid cards
are sold, including store gift cards and general-purpose reloadable
cards. A sign stating ``Gift Cards'' appears prominently at the top of
the display. The exclusion in Sec. 1005.20(b)(2) does not apply with
respect to the general-purpose reloadable cards because policies and
procedures reasonably designed to avoid the marketing of excluded cards
as gift cards or gift certificates are not maintained.
iii. Same facts as in i., except that the issuer or program manager
sets up a single promotional multi-sided display at the retailer on
which a variety of prepaid card products, including store gift cards and
general-purpose reloadable cards are sold. Gift cards are segregated
from excluded cards, with gift cards on one side of the display and
excluded cards on a different side of a display. Signs of equal
prominence at the top of each side of the display clearly differentiate
between gift cards and the other types of prepaid cards that are
available for sale. The retailer does not use any more conspicuous
signage suggesting the general availability of gift cards, such as a
large sign stating ``Gift Cards'' at the top of the display or located
near the display. The exclusion in Sec. 1005.20(b)(2) applies because
policies and procedures reasonably designed to avoid the marketing of
the general-purpose reloadable cards as gift cards or gift certificates
are maintained, even if a retail clerk inadvertently stocks or a
consumer inadvertently places a general-purpose reloadable card on the
gift card display.
iv. Same facts as in i., except that the retailer sells a variety of
prepaid card products, including store gift cards and general-purpose
reloadable cards, arranged side-by-side in the same checkout lane. The
retailer does not affirmatively indicate or represent that gift cards
are available, such as by displaying any signage or other indicia at the
checkout lane suggesting the general availability of gift cards. The
exclusion in Sec. 1005.20(b)(2) applies because policies and procedures
reasonably designed to avoid marketing the general-purpose reloadable
cards as gift cards or gift certificates are maintained.
5. Online sales of prepaid cards. Some Web sites may prominently
advertise or promote the availability of gift cards or gift certificates
in a manner that suggests to a consumer that the Web site exclusively
sells gift cards or gift certificates. For example, a Web site may
display a banner advertisement or a graphic on the home page that
prominently states ``Gift Cards,'' ``Gift Giving,'' or similar language
without mention of other available products, or use a web address that
includes only a reference to gift cards or gift certificates in the
address. In such a case, a consumer acting reasonably under the
circumstances could be led to believe that all prepaid products sold on
the Web site are gift cards or gift certificates. Under these facts, the
Web site has marketed all such products, including general-purpose
reloadable cards, as gift cards or gift certificates, and the exclusion
in Sec. 1005.20(b)(2) does not apply.
6. Temporary non-reloadable cards issued in connection with a
general-purpose reloadable card. Certain general-purpose reloadable
cards that are typically marketed as an account substitute initially may
be sold or issued in the form of a temporary non-reloadable card. After
the card is purchased, the cardholder is typically required to call the
issuer to register the card and to provide identifying information in
order to obtain a reloadable replacement card. In most cases, the
temporary non-reloadable card can be used for purchases until the
replacement reloadable card arrives and is activated by the cardholder.
Because the temporary non-reloadable card may only be obtained in
connection with the general-purpose reloadable card, the exclusion in
Sec. 1005.20(b)(2) applies so long as the card is not marketed as a gift
card or gift certificate.
Paragraph 20(b)(4)
1. Marketed to the general public. A card, code, or other device is
marketed to the general public if the potential use of the card, code,
or other device is directly or indirectly offered, advertised, or
otherwise promoted to the general public. A card, code, or other device
may be marketed to the general public through any advertising medium,
including television, radio, newspaper, the Internet, or signage.
However, the posting of a company policy that funds may be disbursed by
prepaid card (such as a sign posted at a cash register or customer
service center stating that store credit will be issued by prepaid card)
does not constitute the marketing of a card, code, or other device to
the general public. In addition, the method of distribution by itself is
not dispositive in determining whether a card, code, or other device is
marketed to the general public. Factors that may be considered in
determining whether the exclusion applies to a particular card, code, or
other device include the means or channel through which the card, code,
or device may be obtained by a consumer, the subset of consumers that
are eligible to obtain the card, code, or device, and whether the
availability of the card, code, or device is advertised or otherwise
promoted in the marketplace.
2. Examples. The following examples illustrate the application of
the exclusion in Sec. 1005.20(b)(4):
i. A merchant sells its gift cards at a discount to a business which
may give them to employees or loyal consumers as incentives or rewards.
In determining whether the gift card falls within the exclusion in
Sec. 1005.20(b)(4), the merchant must consider
[[Page 273]]
whether the card is of a type that is advertised or made available to
consumers generally or can be obtained elsewhere. If the card can also
be purchased through retail channels, the exclusion in
Sec. 1005.20(b)(4) does not apply, even if the consumer obtained the
card from the business as an incentive or reward. See, however,
Sec. 1005.20(b)(3).
ii. A national retail chain decides to market its gift cards only to
members of its frequent buyer program. Similarly, a bank may decide to
sell gift cards only to its customers. If a member of the general public
may become a member of the program or a customer of the bank, the card
does not fall within the exclusion in Sec. 1005.20(b)(4) because the
general public has the ability to obtain the cards. See, however,
Sec. 1005.20(b)(3).
iii. A card issuer advertises a reloadable card to teenagers and
their parents promoting the card for use by teenagers for occasional
expenses, schoolbooks and emergencies and by parents to monitor
spending. Because the card is marketed to and may be sold to any member
of the general public, the exclusion in Sec. 1005.20(b)(4) does not
apply. See, however, Sec. 1005.20(b)(2).
iv. An insurance company settles a policyholder's claim and
distributes the insurance proceeds to the consumer by means of a prepaid
card. Because the prepaid card is simply the means for providing the
insurance proceeds to the consumer and the availability of the card is
not advertised to the general public, the exclusion in
Sec. 1005.20(b)(4) applies.
v. A merchant provides store credit to a consumer following a
merchandise return by issuing a prepaid card that clearly indicates that
the card contains funds for store credit. Because the prepaid card is
issued for the stated purpose of providing store credit to the consumer
and the ability to receive refunds by a prepaid card is not advertised
to the general public, the exclusion in Sec. 1005.20(b)(4) applies.
vi. A tax preparation company elects to distribute tax refunds to
its clients by issuing prepaid cards, but does not advertise or
otherwise promote the ability to receive proceeds in this manner.
Because the prepaid card is simply the mechanism for providing the tax
refund to the consumer, and the tax preparer does not advertise the
ability to obtain tax refunds by a prepaid card, the exclusion in
Sec. 1005.20(b)(4) applies. However, if the tax preparer promotes the
ability to receive tax refund proceeds through a prepaid card as a way
to obtain ``faster'' access to the proceeds, the exclusion in
Sec. 1005.20(b)(4) does not apply.
Paragraph 20(b)(5)
1. Exclusion explained. To qualify for the exclusion in
Sec. 1005.20(b)(5), the sole means of issuing the card, code, or other
device must be in a paper form. Thus, the exclusion generally applies to
certificates issued in paper form where solely the paper itself may be
used to purchase goods or services. A card, code or other device is not
issued solely in paper form simply because it may be reproduced or
printed on paper. For example, a bar code, card or certificate number,
or certificate or coupon electronically provided to a consumer and
redeemable for goods and services is not issued in paper form, even if
it may be reproduced or otherwise printed on paper by the consumer. In
this circumstance, although the consumer might hold a paper facsimile of
the card, code, or other device, the exclusion does not apply because
the information necessary to redeem the value was initially issued in
electronic form. A paper certificate is within the exclusion regardless
of whether it may be redeemed electronically. For example, a paper
certificate or receipt that bears a bar code, code, or account number
falls within the exclusion in Sec. 1005.20(b)(5) if the bar code, code,
or account number is not issued in any form other than on the paper. In
addition, the exclusion in Sec. 1005.20(b)(5) continues to apply in
circumstances where an issuer replaces a gift certificate that was
initially issued in paper form with a card or electronic code (for
example, to replace a lost paper certificate).
2. Examples. The following examples illustrate the application of
the exclusion in Sec. 1005.20(b)(5):
i. A merchant issues a paper gift certificate that entitles the
bearer to a specified dollar amount that can be applied towards a future
meal. The merchant fills in the certificate with the name of the
certificate holder and the amount of the certificate. The certificate
falls within the exclusion in Sec. 1005.20(b)(5) because it is issued in
paper form only.
ii. A merchant allows a consumer to prepay for a good or service,
such as a car wash or time at a parking meter, and issues a paper
receipt bearing a numerical or bar code that the consumer may redeem to
obtain the good or service. The exclusion in Sec. 1005.20(b)(5) applies
because the code is issued in paper form only.
iii. A merchant issues a paper certificate or receipt bearing a bar
code or certificate number that can later be scanned or entered into the
merchant's system and redeemed by the certificate or receipt holder
towards the purchase of goods or services. The bar code or certificate
number is not issued by the merchant in any form other than paper. The
exclusion in Sec. 1005.20(b)(5) applies because the bar code or
certificate number is issued in paper form only.
iv. An online merchant electronically provides a bar code, card or
certificate number, or certificate or coupon to a consumer that the
consumer may print on a home printer and later redeem towards the
purchase of goods or services. The exclusion in Sec. 1005.20(b)(5) does
not apply because the bar
[[Page 274]]
code or card or certificate number was issued to the consumer in
electronic form, even though it can be reproduced or otherwise printed
on paper by the consumer.
Paragraph 20(b)(6)
1. Exclusion explained. The exclusion for cards, codes, or other
devices that are redeemable solely for admission to events or venues at
a particular location or group of affiliated locations generally applies
to cards, codes, or other devices that are not redeemed for a specified
monetary value, but rather solely for admission or entry to an event or
venue. The exclusion also covers a card, code, or other device that is
usable to purchase goods or services in addition to entry into the event
or the venue, either at the event or venue or at an affiliated location
or location in geographic proximity to the event or venue.
2. Examples. The following examples illustrate the application of
the exclusion in Sec. 1005.20(b)(6):
i. A consumer purchases a prepaid card that entitles the holder to a
ticket for entry to an amusement park. The prepaid card may only be used
for entry to the park. The card qualifies for the exclusion in
Sec. 1005.20(b)(6) because it is redeemable for admission or entry and
for goods or services in conjunction with that admission. In addition,
if the prepaid card does not have a monetary value, and therefore is not
``issued in a specified amount,'' the card does not meet the definitions
of ``gift certificate,'' ``store gift card,'' or ``general-use prepaid
card'' in Sec. 1005.20(a). See comment 20(a)-3.
ii. Same facts as in i., except that the gift card also entitles the
holder of the gift card to a dollar amount that can be applied towards
the purchase of food and beverages or goods or services at the park or
at nearby affiliated locations. The card qualifies for the exclusion in
Sec. 1005.20(b)(6) because it is redeemable for admission or entry and
for goods or services in conjunction with that admission.
iii. A consumer purchases a $25 gift card that the holder of the
gift card can use to make purchases at a merchant, or, alternatively,
can apply towards the cost of admission to the merchant's affiliated
amusement park. The card is not eligible for the exclusion in
Sec. 1005.20(b)(6) because it is not redeemable solely for the admission
or ticket itself (or for goods and services purchased in conjunction
with such admission). The card meets the definition of ``store gift
card'' and is therefore subject to Sec. 1005.20, unless a different
exclusion applies.
20(c) Form of Disclosures
20(c)(1) Clear and Conspicuous
1. Clear and conspicuous standard. All disclosures required by this
section must be clear and conspicuous. Disclosures are clear and
conspicuous for purposes of this section if they are readily
understandable and, in the case of written and electronic disclosures,
the location and type size are readily noticeable to consumers.
Disclosures need not be located on the front of the certificate or card,
except where otherwise required, to be considered clear and conspicuous.
Disclosures are clear and conspicuous for the purposes of this section
if they are in a print that contrasts with and is otherwise not
obstructed by the background on which they are printed. For example,
disclosures on a card or computer screen are not likely to be
conspicuous if obscured by a logo printed in the background. Similarly,
disclosures on the back of a card that are printed on top of
indentations from embossed type on the front of the card are not likely
to be conspicuous if the indentations obstruct the readability of the
disclosures. To the extent permitted, oral disclosures meet the standard
when they are given at a volume and speed sufficient for a consumer to
hear and comprehend them.
2. Abbreviations and symbols. Disclosures may contain commonly
accepted or readily understandable abbreviations or symbols, such as
``mo.'' for month or a ``/'' to indicate ``per.'' Under the clear and
conspicuous standard, it is sufficient to state, for example, that a
particular fee is charged ``$2.50/mo. after 12 mos.''
20(c)(2) Format
1. Electronic disclosures. Disclosures provided electronically
pursuant to this section are not 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.).
Electronic disclosures must be in a retainable form. For example, a
person may satisfy the requirement if it provides an online disclosure
in a format that is capable of being printed. Electronic disclosures may
not be provided through a hyperlink or in another manner by which the
purchaser can bypass the disclosure. A person is not required to confirm
that the consumer has read the electronic disclosures.
20(c)(3) Disclosure Prior to Purchase
1. Method of purchase. The disclosures required by this paragraph
must be provided before a certificate or card is purchased regardless of
whether the certificate or card is purchased in person, online, by
telephone, or by other means.
2. Electronic disclosures. Section 1005.20(c)(3) provides that the
disclosures required by this section must be provided to the consumer
prior to purchase. For certificates or cards purchased electronically,
disclosures made
[[Page 275]]
to the consumer after a consumer has initiated an online purchase of a
certificate or card, but prior to completing the purchase of the
certificate or card, would satisfy the prior-to-purchase requirement.
However, electronic disclosures made available on a person's Web site
that may or may not be accessed by the consumer are not provided to the
consumer and therefore would not satisfy the prior-to-purchase
requirement.
3. Non-physical certificates and cards. If no physical certificate
or card is issued, the disclosures must be provided to the consumer
before the certificate or card is purchased. For example, where a gift
certificate or card is a code that is provided by telephone, the
required disclosures may be provided orally prior to purchase. See also
Sec. 1005.20(c)(2).
20(c)(4) Disclosures on the Certificate or Card
1. Non-physical certificates and cards. If no physical certificate
or card is issued, the disclosures required by this paragraph must be
disclosed on the code, confirmation, or other written or electronic
document provided to the consumer. For example, where a gift certificate
or card is a code or confirmation that is provided to a consumer online
or sent to a consumer's email address, the required disclosures may be
provided electronically on the same document as the code or
confirmation.2. No disclosures on a certificate or card. Disclosures
required by Sec. 1005.20(c)(4) need not be made on a certificate or card
if it is accompanied by a certificate or card that complies with this
section. For example, a person may issue or sell a supplemental gift
card that is smaller than a standard size and that does not bear the
applicable disclosures if it is accompanied by a fully compliant
certificate or card. See also comment 20(c)(2)-2.
20(d) Prohibition on Imposition of Fees or Charges
1. One-year period. Section 1005.20(d) provides that a person may
impose a dormancy, inactivity, or service fee only if there has been no
activity with respect to a certificate or card for one year. The
following examples illustrate this rule:
i. A certificate or card is purchased on January 15 of year one. If
there has been no activity on the certificate or card since the
certificate or card was purchased, a dormancy, inactivity, or service
fee may be imposed on the certificate or card on January 15 of year two.
ii. Same facts as i., and a fee was imposed on January 15 of year
two. Because no more than one dormancy, inactivity, or service fee may
be imposed in any given calendar month, the earliest date that another
dormancy, inactivity, or service fee may be imposed, assuming there
continues to be no activity on the certificate or card, is February 1 of
year two. A dormancy, inactivity, or service fee is permitted to be
imposed on February 1 of year two because there has been no activity on
the certificate or card for the preceding year (February 1 of year one
through January 31 of year two), and February is a new calendar month.
The imposition of a fee on January 15 of year two is not activity for
purposes of Sec. 1005.20(d). See comment 20(a)(7)-1.
iii. Same facts as i., and a fee was imposed on January 15 of year
two. On January 31 of year two, the consumer uses the card to make a
purchase. Another dormancy, inactivity, or service fee could not be
imposed until January 31 of year three, assuming there has been no
activity on the certificate or card since January 31 of year two.
2. Relationship between Secs. 1005.20(d)(2) and (c)(3). Sections
1005.20(d)(2) and (c)(3) contain similar, but not identical, disclosure
requirements. Section 1005.20(d)(2) requires the disclosure of dormancy,
inactivity, and service fees on a certificate or card. Section
1005.20(c)(3) requires that vendor person that issues or sells such
certificate or card disclose to a consumer any dormancy, inactivity, and
service fees associated with the certificate or card before such
certificate or card may be purchased. Depending on the context, a single
disclosure that meets the clear and conspicuous requirements of both
Secs. 1005.20(d)(2) and (c)(3) may be used to disclose a dormancy,
inactivity, or service fee. For example, if the disclosures on a
certificate or card, required by Sec. 1005.20(d)(2), are visible to the
consumer without having to remove packaging or other materials sold with
the certificate or card, for a purchase made in person, the disclosures
also meet the requirements of Sec. 1005.20(c)(3). Otherwise, a dormancy,
inactivity, or service fee may need to be disclosed multiple times to
satisfy the requirements of Secs. 1005.20(d)(2) and (c)(3). For example,
if the disclosures on a certificate or card, required by
Sec. 1005.20(d)(2), are obstructed by packaging sold with the
certificate or card, for a purchase made in person, they also must be
disclosed on the packaging sold with the certificate or card to meet the
requirements of Sec. 1005.20(c)(3).
3. Relationship between Secs. 1005.20(d)(2), (e)(3), and (f)(2). In
addition to any disclosures required under Sec. 1005.20(d)(2), any
applicable disclosures under Secs. 1005.20(e)(3) and (f)(2) of this
section must also be provided on the certificate or card.
4. One fee per month. Under Sec. 1005.20(d)(3), no more than one
dormancy, inactivity, or service fee may be imposed in any given
calendar month. For example, if a dormancy fee is imposed on January 1,
following a year of inactivity, and a consumer makes a balance inquiry
on January 15, a balance inquiry fee may not be imposed at that time
because a dormancy fee was already imposed earlier that month and a
balance inquiry fee is a
[[Page 276]]
type of service fee. If, however, the dormancy fee could be imposed on
January 1, following a year of inactivity, and the consumer makes a
balance inquiry on the same date, the person assessing the fees may
choose whether to impose the dormancy fee or the balance inquiry fee on
January 1. The restriction in Sec. 1005.20(d)(3) does not apply to any
fee that is not a dormancy, inactivity, or service fee. For example,
assume a service fee is imposed on a general-use prepaid card on January
1, following a year of inactivity. If a consumer cashes out the
remaining funds by check on January 15, a cash-out fee, to the extent
such cash-out fee is permitted under Sec. 1005.20(e)(4), may be imposed
at that time because a cash-out fee is not a dormancy, inactivity, or
service fee.
5. Accumulation of fees. Section 1005.20(d) prohibits the
accumulation of dormancy, inactivity, or service fees for previous
periods into a single fee because such a practice would circumvent the
limitation in Sec. 1005.20(d)(3) that only one fee may be charged per
month. For example, if a consumer purchases and activates a store gift
card on January 1 but never uses the card, a monthly maintenance fee of
$2.00 a month may not be accumulated such that a fee of $24 is imposed
on January 1 the following year.
20(e) Prohibition on Sale of Gift Certificates or Cards With Expiration
Dates
1. Reasonable opportunity. Under Sec. 1005.20(e)(1), no person may
sell or issue a gift certificate, store gift card, or general-use
prepaid card with an expiration date, unless there are policies and
procedures in place to provide consumers with a reasonable opportunity
to purchase a certificate or card with at least five years remaining
until the certificate or card expiration date. Consumers are deemed to
have a reasonable opportunity to purchase a certificate or card with at
least five years remaining until the certificate or card expiration date
if:
i. There are policies and procedures established to prevent the sale
of a certificate or card unless the certificate or card expiration date
is at least five years after the date the certificate or card was sold
or initially issued to a consumer; or
ii. A certificate or card is available to consumers to purchase five
years and six months before the certificate or card expiration date.
2. Applicability to replacement certificates or cards. Section
1005.20(e)(1) applies solely to the purchase of a certificate or card.
Therefore, Sec. 1005.20(e)(1) does not apply to the replacement of such
certificates or cards. Certificates or cards issued as a replacement may
bear a certificate or card expiration date of less than five years from
the date of issuance of the replacement certificate or card. If the
certificate or card expiration date for a replacement certificate or
card is later than the date set forth in Sec. 1005.20(e)(2)(i), then
pursuant to Sec. 1005.20(e)(2), the expiration date for the underlying
funds at the time the replacement certificate or card is issued must be
no earlier than the expiration date for the replacement certificate or
card. For purposes of Sec. 1005.20(e)(2), funds are not considered to be
loaded to a store gift card or general-use prepaid card solely because a
replacement card has been issued or activated for use.
3. Disclosure of funds expiration--date not required. Section
1005.20(e)(3)(i) does not require disclosure of the precise date the
funds will expire. It is sufficient to disclose, for example, ``Funds
expire 5 years from the date funds last loaded to the card.''; ``Funds
can be used 5 years from the date money was last added to the card.'';
or ``Funds do not expire.''
4. Disclosure not required if no expiration date. If the certificate
or card and underlying funds do not expire, the disclosure required by
Sec. 1005.20(e)(3)(i) need not be stated on the certificate or card. If
the certificate or card and underlying funds expire at the same time,
only one expiration date need be disclosed on the certificate or card.
5. Reference to toll-free telephone number and Web site. If a
certificate or card does not expire, or if the underlying funds are not
available after the certificate or card expires, the disclosure required
by Sec. 1005.20(e)(3)(ii) need not be stated on the certificate or card.
See, however, Sec. 1005.20(f)(2).
6. Relationship to Sec. 226.20(f)(2). The same toll-free telephone
number and Web site may be used to comply with Secs. 226.20(e)(3)(ii)
and (f)(2). Neither a toll-free number nor a Web site must be maintained
or disclosed if no fees are imposed in connection with a certificate or
card, and the certificate or card and the underlying funds do not
expire.
7. Distinguishing between certificate or card expiration and funds
expiration. If applicable, a disclosure must be made on the certificate
or card that notifies a consumer that the certificate or card expires,
but the funds either do not expire or expire later than the certificate
or card, and that the consumer may contact the issuer for a replacement
card. The disclosure must be made with equal prominence and in close
proximity to the certificate or card expiration date. The close
proximity requirement does not apply to oral disclosures. In the case of
a certificate or card, close proximity means that the disclosure must be
on the same side as the certificate or card expiration date. For
example, if the disclosure is the same type size and is located
immediately next to or directly above or below the certificate or card
expiration date, without any intervening text or graphical displays, the
disclosures would be deemed to be equally prominent and in close
proximity. The disclosure need
[[Page 277]]
not be embossed on the certificate or card to be deemed equally
prominent, even if the expiration date is embossed on the certificate or
card. The disclosure may state on the front of the card, for example,
``Funds expire after card. Call for replacement card.'' or ``Funds do
not expire. Call for new card after 09/2016.'' Disclosures made pursuant
to Sec. 1005.20(e)(3)(iii)(A) may also fulfill the requirements of
Sec. 1005.20(e)(3)(i). For example, making a disclosure that ``Funds do
not expire'' to comply with Sec. 1005.20(e)(3)(iii)(A) also fulfills the
requirements of Sec. 1005.20(e)(3)(i).
8. Expiration date safe harbor. A non-reloadable certificate or card
that bears an expiration date that is at least seven years from the date
of manufacture need not state the disclosure required by
Sec. 1005.20(e)(3)(iii). However, Sec. 1005.20(e)(1) still prohibits the
sale or issuance of such certificate or card unless there are policies
and procedures in place to provide a consumer with a reasonable
opportunity to purchase the certificate or card with at least five years
remaining until the certificate or card expiration date. In addition,
under Sec. 1005.20(e)(2), the funds may not expire before the
certificate or card expiration date, even if the expiration date of the
certificate or card bears an expiration date that is more than five
years from the date of purchase. For purposes of this safe harbor, the
date of manufacture is the date on which the certificate or card
expiration date is printed on the certificate or card.
9. Relationship between Secs. 1005.20(d)(2), (e)(3), and (f)(2). In
addition to any disclosures required to be made under
Sec. 1005.20(e)(3), any applicable disclosures under Secs. 1005.20(d)(2)
and (f)(2) must also be provided on the certificate or card.
10. Replacement or remaining balance of an expired certificate or
card. When a certificate or card expires, but the underlying funds have
not expired, an issuer, at its option in accordance with applicable
state law, may provide either a replacement certificate or card or
otherwise provide the certificate or card holder, for example, by check,
with the remaining balance on the certificate or card. In either case,
the issuer may not charge a fee for the service.
11. Replacement of a lost or stolen certificate or card not
required. Section 1005.20(e)(4) does not require the replacement of a
certificate or card that has been lost or stolen.
12. Date of issuance or loading. For purposes of
Sec. 1005.20(e)(2)(i), a certificate or card is not issued or loaded
with funds until the certificate or card is activated for use.
13. Application of expiration date provisions after redemption of
certificate or card. The requirement that funds underlying a certificate
or card must not expire for at least five years from the date of
issuance or date of last load ceases to apply once the certificate or
card has been fully redeemed, even if the underlying funds are not used
to contemporaneously purchase a specific good or service. For example,
some certificates or cards can be used to purchase music, media, or
virtual goods. Once redeemed by a consumer, the entire balance on the
certificate or card is debited from the certificate or card and credited
or transferred to another ``account'' established by the merchant of
such goods or services. The consumer can then make purchases of songs,
media, or virtual goods from the merchant using that ``account'' either
at the time the value is transferred from the certificate or card or at
a later time. Under these circumstances, once the card has been fully
redeemed and the ``account'' credited with the amount of the underlying
funds, the five-year minimum expiration term no longer applies to the
underlying funds. However, if the consumer only partially redeems the
value of the certificate or card, the five-year minimum expiration term
requirement continues to apply to the funds remaining on the certificate
or card.
20(f) Additional Disclosure Requirements for Gift Certificates or Cards
1. Reference to toll-free telephone number and Web site. If a
certificate or card does not have any fees, the disclosure under
Sec. 1005.20(f)(2) is not required on the certificate or card. See,
however, Sec. 1005.20(e)(3)(ii).
2. Relationship to Sec. 226.20(e)(3)(ii). The same toll-free
telephone number and Web site may be used to comply with
Secs. 226.20(e)(3)(ii) and (f)(2). Neither a toll-free number nor a Web
site must be maintained or disclosed if no fees are imposed in
connection with a certificate or card, and both the certificate or card
and underlying funds do not expire.
3. Relationship between Secs. 1005.20(d)(2), (e)(3), and (f)(2). In
addition to any disclosures required pursuant to Sec. 1005.20(f)(2), any
applicable disclosures under Secs. 1005.20(d)(2) and (e)(3) must also be
provided on the certificate or card.
20(g) Compliance Dates
1. Period of eligibility for loyalty, award, or promotional
programs. For purposes of Sec. 1005.20(g)(2), the period of eligibility
is the time period during which a consumer must engage in a certain
action or actions to meet the terms of eligibility for a loyalty, award,
or promotional program and obtain the card, code, or other device. Under
Sec. 1005.20(g)(2), a gift card issued pursuant to a loyalty, award, or
promotional program that began prior to August 22, 2010 need not state
the disclosures in Sec. 1005.20(a)(4)(iii) regardless of whether the
consumer became eligible to receive the gift card prior to August 22,
2010, or after that date. For example, a product manufacturer may
provide a $20 rebate card to a consumer
[[Page 278]]
if the consumer purchases a particular product and submits a fully
completed entry between January 1, 2010 and December 31, 2010.
Similarly, a merchant may provide a $20 gift card to a consumer if the
consumer makes $200 worth of qualifying purchases between June 1, 2010
and October 30, 2010. Under both examples, gift cards provided pursuant
to these loyalty, award, or promotional programs need not state the
disclosures in Sec. 1005.20(a)(4)(iii) to qualify for the exclusion in
Sec. 1005.20(b)(3) for loyalty, award, or promotional gift cards because
the period of eligibility for each program began prior to August 22,
2010.
20(h) Temporary Exemption
20(h)(1) Delayed Effective Date
1. Application to certificates or cards produced prior to April 1,
2010. Certificates or cards produced prior to April 1, 2010 may be sold
to a consumer on or after August 22, 2010 without satisfying the
requirements of Secs. 1005.20(c)(3), (d)(2), (e)(1), (e)(3), and (f)
through January 30, 2011, provided that issuers of such certificates or
cards comply with the additional substantive and disclosure requirements
of Secs. 1005.20(h)(1)(i) through (iv). Issuers of certificates or cards
produced prior to April 1, 2010 need not satisfy these additional
requirements if the certificates or cards fully comply with the rule
(Secs. 1005.20(a) through (f)). For example, the in-store signage and
other disclosures required by Sec. 1005.20(h)(2) do not apply to gift
cards produced prior to April 1, 2010 that do not have fees and do not
expire, and which otherwise comply with the rule.
2. Expiration of temporary exemption. Certificates or cards produced
prior to April 1, 2010 that do not fully comply with Secs. 1005.20(a)
through (f) may not be issued or sold to consumers on or after January
31, 2011.
20(h)(2) Additional Disclosures
1. Disclosures through third parties. Issuers may make the
disclosures required by Sec. 1005.20(h)(2) through a third party, such
as a retailer or merchant. For example, an issuer may have a merchant
install in-store signage with the disclosures required by
Sec. 1005.20(h)(2) on the issuer's behalf.
2. General advertising disclosures. Section 1005.20(h)(2) does not
impose an obligation on the issuer to advertise gift certificates, store
gift cards, or general-use prepaid cards.
Section 1005.30--Remittance Transfer Definitions
1. Applicability of definitions in subpart A. Except as modified or
limited by subpart B (which modifications or limitations apply only to
subpart B), the definitions in Sec. 1005.2 apply to all of Regulation E,
including subpart B.
30(b) Business Day
1. General. A business day, as defined in Sec. 1005.30(b), includes
the entire 24-hour period ending at midnight, and a notice given
pursuant to any section of subpart B is effective even if given outside
of normal business hours. A remittance transfer provider is not required
under subpart B to make telephone lines available on a 24-hour basis.
2. Substantially all business functions. ``Substantially all
business functions'' include both the public and the back-office
operations of the provider. For example, if the offices of a provider
are open on Saturdays for customers to request remittance transfers, but
not for performing internal functions (such as investigating errors),
then Saturday is not a business day for that provider. In this case,
Saturday does not count toward the business-day standard set by subpart
B for resolving errors, processing refunds, etc.
3. Short hours. A provider may determine, at its election, whether
an abbreviated day is a business day. For example, if a provider engages
in substantially all business functions until noon on Saturdays instead
of its usual 3 p.m. closing, it may consider Saturday a business day.
4. Telephone line. If a provider makes a telephone line available on
Sundays for cancelling the transfer, but performs no other business
functions, Sunday is not a business day under the ``substantially all
business functions'' standard.
30(c) Designated Recipient
1. Person. A designated recipient can be either a natural person or
an organization, such as a corporation. See Sec. 1005.2(j) (definition
of person). The designated recipient is identified by the name of the
person provided by the sender to the remittance transfer provider and
disclosed by the provider to the sender pursuant to
Sec. 1005.31(b)(1)(iii).
2. Location in a foreign country. i. A remittance transfer is
received at a location in a foreign country if funds are to be received
at a location physically outside of any State, as defined in
Sec. 1005.2(l). A specific pick-up location need not be designated for
funds to be received at a location in a foreign country. If it is
specified that the funds will be transferred to a foreign country to be
picked up by the designated recipient, the transfer will be received at
a location in a foreign country, even though a specific pick-up location
within that country has not been designated. If it is specified that the
funds will be received at a location on a U.S. military installation
that is physically located in a foreign country, the transfer will be
received in a State.
ii. For transfers to a designated recipient's account, whether funds
are to be received at a location physically outside of any State depends
on where the recipient's account is
[[Page 279]]
located. If the account is located in a State, the funds will not be
received at a location in a foreign country. Accounts that are located
on a U.S. military installation that is physically located in a foreign
country are located in a State.
iii. Where the sender does not specify information about a
designated recipient's account, but instead provides information about
the recipient, a remittance transfer provider may make the determination
of whether the funds will be received at a location in a foreign country
on information that is provided by the sender, and other information the
provider may have, at the time the transfer is requested. For example,
if a consumer in a State gives a provider the recipient's email address,
and the provider has no other information about whether the funds will
be received by the recipient at a location in a foreign country, then
the provider may determine that funds are not to be received at a
location in a foreign country. However, if the provider at the time the
transfer is requested has additional information indicating that funds
are to be received in a foreign country, such as if the recipient's
email address is already registered with the provider and associated
with a foreign account, then the provider has sufficient information to
conclude that the remittance transfer will be received at a location in
a foreign country. Similarly, if a consumer in a State purchases a
prepaid card, and the provider mails or delivers the card directly to
the consumer, the provider may conclude that funds are not to be
received in a foreign country, because the provider does not know
whether the consumer will subsequently send the prepaid card to a
recipient in a foreign country. In contrast, the provider has sufficient
information to conclude that the funds are to be received in a foreign
country if the remittance transfer provider sends a prepaid card to a
specified recipient in a foreign country, even if a person located in a
State, including the sender, retains the ability to access funds on the
prepaid card.
3. Sender as designated recipient. A ``sender,'' as defined in
Sec. 1005.30(g), may also be a designated recipient if the sender meets
the definition of ``designated recipient'' in Sec. 1005.30(c). For
example, a sender may request that a provider send an electronic
transfer of funds from the sender's checking account in a State to the
sender's checking account located in a foreign country. In this case,
the sender would also be a designated recipient.
30(d) Preauthorized Remittance Transfer
1. Advance authorization. A preauthorized remittance transfer is a
remittance transfer authorized in advance of a transfer that will take
place on a recurring basis, at substantially regular intervals, and will
require no further action by the consumer to initiate the transfer. In a
bill-payment system, for example, if the consumer authorizes a
remittance transfer provider to make monthly payments to a payee by
means of a remittance transfer, and the payments take place without
further action by the consumer, the payments are preauthorized
remittance transfers. In contrast, if the consumer must take action each
month to initiate a transfer (such as by entering instructions on a
telephone or home computer), the payments are not preauthorized
remittance transfers.
30(e) Remittance Transfer
1. Electronic transfer of funds. The definition of ``remittance
transfer'' requires an electronic transfer of funds. The term electronic
has the meaning given in section 106(2) of the Electronic Signatures in
Global and National Commerce Act. There may be an electronic transfer of
funds if a provider makes an electronic book entry between different
settlement accounts to effectuate the transfer. However, where a sender
mails funds directly to a recipient, or provides funds to a courier for
delivery to a foreign country, there is not an electronic transfer of
funds. Similarly, generally, where a provider issues a check, draft, or
other paper instrument to be mailed to a person abroad, there is not an
electronic transfer of funds. Nonetheless, an electronic transfer of
funds occurs for a payment made by a provider under a bill-payment
service available to a consumer via computer or other electronic means,
unless the terms of the bill-payment service explicitly state that all
payments, or all payments to a particular payee or payees, will be
solely by check, draft, or similar paper instrument drawn on the
consumer's account to be mailed abroad, and the payee or payees that
will be paid in this manner are identified to the consumer. With respect
to such a bill-payment service, if a provider provides a check, draft or
similar paper instrument drawn on a consumer's account to be mailed
abroad for a payee that is not identified to the consumer as described
above, this payment by check, draft or similar payment instrument will
be an electronic transfer of funds.
2. Sent by a remittance transfer provider. i. The definition of
``remittance transfer'' requires that a transfer be ``sent by a
remittance transfer provider.'' This means that there must be an
intermediary that is directly engaged with the sender to send an
electronic transfer of funds on behalf of the sender to a designated
recipient.
ii. A payment card network or other third party payment service that
is functionally similar to a payment card network does not send a
remittance transfer when a consumer provides a debit, credit or prepaid
card directly to a foreign merchant as payment for
[[Page 280]]
goods or services. In such a case, the payment card network or third
party payment service is not directly engaged with the sender to send a
transfer of funds to a person in a foreign country; rather, the network
or third party payment service is merely providing contemporaneous
third-party payment processing and settlement services on behalf of the
merchant or the card issuer, rather than on behalf of the sender. In
such a case, the card issuer also is not directly engaged with the
sender to send an electronic transfer of funds to the foreign merchant
when the card issuer provides payment to the merchant. Similarly, where
a consumer provides a checking or other account number, or a debit,
credit or prepaid card, directly to a foreign merchant as payment for
goods or services, the merchant is not acting as an intermediary that
sends a transfer of funds on behalf of the sender when it submits the
payment information for processing.
iii. However, a card issuer or a payment network may offer a service
to a sender where the card issuer or a payment network is an
intermediary that is directly engaged with the sender to obtain funds
using the sender's debit, prepaid or credit card and to send those funds
to a recipient's checking account located in a foreign country. In this
case, the card issuer or the payment network is an intermediary that is
directly engaged with the sender to send an electronic transfer of funds
on behalf of the sender, and this transfer of funds is a remittance
transfer because it is made to a designated recipient. See comment
30(c)-2.ii.
3. Examples of remittance transfers.
i. Examples of remittance transfers include:
A. Transfers where the sender provides cash or another method of
payment to a money transmitter or financial institution and requests
that funds be sent to a specified location or account in a foreign
country.
B. Consumer wire transfers, where a financial institution executes a
payment order upon a sender's request to wire money from the sender's
account to a designated recipient.
C. An addition of funds to a prepaid card by a participant in a
prepaid card program, such as a prepaid card issuer or its agent, that
is directly engaged with the sender to add these funds, where the
prepaid card is sent or was previously sent by a participant in the
prepaid card program to a person in a foreign country, even if a person
located in a State (including a sender) retains the ability to withdraw
such funds.
D. International ACH transactions sent by the sender's financial
institution at the sender's request.
E. Online bill payments and other electronic transfers that a sender
schedules in advance, including preauthorized remittance transfers, made
by the sender's financial institution at the sender's request to a
designated recipient.
ii. The term remittance transfer does not include, for example:
A. A consumer's provision of a debit, credit or prepaid card,
directly to a foreign merchant as payment for goods or services because
the issuer is not directly engaged with the sender to send an electronic
transfer of funds to the foreign merchant when the issuer provides
payment to the merchant. See comment 30(e)-2.
B. A consumer's deposit of funds to a checking or savings account
located in a State, because there has not been a transfer of funds to a
designated recipient. See comment 30(c)-2.ii.
C. Online bill payments and other electronic transfers that senders
can schedule in advance, including preauthorized transfers, made through
the Web site of a merchant located in a foreign country and via direct
provision of a checking account, credit card, debit card or prepaid card
number to the merchant, because the financial institution is not
directly engaged with the sender to send an electronic transfer of funds
to the foreign merchant when the institution provides payment to the
merchant. See comment 30(e)-2.
30(f) Remittance Transfer Provider
1. Agents. A person is not deemed to be acting as a remittance
transfer provider when it performs activities as an agent on behalf of a
remittance transfer provider.
2. Normal course of business. i. General. Whether a person provides
remittance transfers in the normal course of business depends on the
facts and circumstances, including the total number and frequency of
remittance transfers sent by the provider. For example, if a financial
institution generally does not make remittance transfers available to
customers, but sends a couple of such transfers in a given year as an
accommodation for a customer, the institution does not provide
remittance transfers in the normal course of business. In contrast, if a
financial institution makes remittance transfers generally available to
customers (whether described in the institution's deposit account
agreement, or in practice) and makes transfers many times per month, the
institution provides remittance transfers in the normal course of
business.
ii. Safe harbor. Under Sec. 1005.30(f)(2)(i), a person that provided
100 or fewer remittance transfers in the previous calendar year and
provides 100 or fewer remittance transfers in the current calendar year
is deemed not to be providing remittance transfers in the normal course
of its business. Accordingly, a person that qualifies for the safe
harbor in Sec. 1005.30(f)(2)(i) is not a ``remittance transfer
[[Page 281]]
provider'' and is not subject to the requirements of subpart B. For
purposes of determining whether a person qualifies for the safe harbor
under Sec. 1005.30(f)(2)(i), the number of remittance transfers provided
includes any transfers excluded from the definition of ``remittance
transfer'' due simply to the safe harbor. In contrast, the number of
remittance transfers provided does not include any transfers that are
excluded from the definition of ``remittance transfer'' for reasons
other than the safe harbor, such as small value transactions or
securities and commodities transfers that are excluded from the
definition of ``remittance transfer'' by Sec. 1005.30(e)(2).
iii. Transition period. A person may cease to satisfy the
requirements of the safe harbor described in Sec. 1005.30(f)(2)(i) if
the person provides in excess of 100 remittance transfers in a calendar
year. For example, if a person that provided 100 or fewer remittance
transfers in the previous calendar year provides more than 100
remittance transfers in the current calendar year, the safe harbor
applies to the first 100 remittance transfers that the person provides
in the current calendar year. For any additional remittance transfers
provided in the current calendar year and for any remittance transfers
provided in the subsequent calendar year, whether the person provides
remittance transfers for a consumer in the normal course of its
business, as defined in Sec. 1005.30(f)(1), and is thus a remittance
transfer provider for those additional transfers, depends on the facts
and circumstances. Section 1005.30(f)(2)(ii) provides a reasonable
period of time, not to exceed six months, for such a person to begin
complying with subpart B, if that person is then providing remittance
transfers in the normal course of its business. At the end of that
reasonable period of time, such person would be required to comply with
subpart B unless, based on the facts and circumstances, the person is
not a remittance transfer provider.
iv. Example of safe harbor and transition period. Assume that a
person provided 90 remittance transfers in 2012 and 90 such transfers in
2013. The safe harbor will apply to the person's transfers in 2013, as
well as the person's first 100 remittance transfers in 2014. However, if
the person provides a 101st transfer on September 5, the facts and
circumstances determine whether the person provides remittance transfers
in the normal course of business and is thus a remittance transfer
provider for the 101st and any subsequent remittance transfers that it
provides in 2014. Furthermore, the person would not qualify for the safe
harbor described in Sec. 1005.30(f)(2)(i) in 2015 because the person did
not provide 100 or fewer remittance transfers in 2014. However, for the
101st remittance transfer provided in 2014, as well as additional
remittance transfers provided thereafter in 2014 and 2015, if that
person is then providing remittance transfers for a consumer in the
normal course of business, the person will have a reasonable period of
time, not to exceed six months, to come into compliance with subpart B.
Assume that in this case, a reasonable period of time is six months.
Thus, compliance with subpart B is not required for remittance transfers
made on or before March 5, 2015 (i.e., six months after September 5,
2014). After March 5, 2015, the person is required to comply with
subpart B if, based on the facts and circumstances, the person provides
remittance transfers in the normal course of business and is thus a
remittance transfer provider.
3. Multiple remittance transfer providers. If the remittance
transfer involves more than one remittance transfer provider, only one
set of disclosures must be given, and the remittance transfer providers
must agree among themselves which provider must take the actions
necessary to comply with the requirements that subpart B imposes on any
or all of them. Even though the providers must designate one provider to
take the actions necessary to comply with the requirements that subpart
B imposes on any or all of them, all remittance transfer providers
involved in the remittance transfer remain responsible for compliance
with the applicable provisions of the EFTA and Regulation E.
30(g) Sender
1. Determining whether a consumer is located in a State. Under
Sec. 1005.30(g), the definition of ``sender'' means a consumer in a
State who, primarily for personal, family, or household purposes,
requests a remittance transfer provider to send a remittance transfer to
a designated recipient. A sender located on a U.S. military installation
that is physically located in a foreign country is located in a State.
For transfers from a consumer's account, whether a consumer is located
in a State depends on where the consumer's account is located. If the
account is located in a State, the consumer will be located in a State
for purposes of the definition of ``sender'' in Sec. 1005.30(g),
notwithstanding comment 3(a)-3. Accounts that are located on a U.S.
military installation that is physically located in a foreign country
are located in a State. Where a transfer is requested electronically or
by telephone and the transfer is not from an account, the provider may
make the determination of whether a consumer is located in a State based
on information that is provided by the consumer and on any records
associated with the consumer that the provider may have, such as an
address provided by the consumer.
2. Personal, family, or household purposes. Under Sec. 1005.30(g), a
consumer is a ``sender'' only where he or she requests a transfer
primarily for personal, family, or household
[[Page 282]]
purposes. A consumer who requests a transfer primarily for other
purposes, such as business or commercial purposes, is not a sender under
Sec. 1005.30(g). For transfers from an account that was established
primarily for personal, family, or household purposes, a remittance
transfer provider may generally deem that the transfer is requested
primarily for personal, family, or household purposes and the consumer
is therefore a ``sender'' under Sec. 1005.30(g). But if the consumer
indicates that he or she is requesting the transfer primarily for other
purposes, such as business or commercial purposes, then the consumer is
not a sender under Sec. 1005.30(g), even if the consumer is requesting
the transfer from an account that is used primarily for personal,
family, or household purposes.
3. Non-consumer accounts. A provider may deem that a transfer that
is requested to be sent from an account that was not established
primarily for personal, family, or household purposes, such as an
account that was established as a business or commercial account or an
account held by a business entity such as a corporation, not-for-profit
corporation, professional corporation, limited liability company,
partnership, or sole proprietorship, as not being requested primarily
for personal, family, or household purposes. A consumer requesting a
transfer from such an account therefore is not a sender under
Sec. 1005.30(g). Additionally, a transfer that is requested to be sent
from an account held by a financial institution under a bona fide trust
agreement pursuant to Sec. 1005.2(b)(3) is not requested primarily for
personal, family, or household purposes, and a consumer requesting a
transfer from such an account is therefore not a sender under
Sec. 1005.30(g).
30(h) Third-Party Fees
1. Fees imposed on the remittance transfer. Fees imposed on the
remittance transfer by a person other than the remittance transfer
provider include only those fees that are charged to the designated
recipient and are specifically related to the remittance transfer. For
example, overdraft fees that are imposed by a recipient's bank or funds
that are garnished from the proceeds of a remittance transfer to satisfy
an unrelated debt are not fees imposed on the remittance transfer
because these charges are not specifically related to the remittance
transfer. Account fees are also not specifically related to a remittance
transfer if such fees are merely assessed based on general account
activity and not for receiving transfers. Where an incoming remittance
transfer results in a balance increase that triggers a monthly
maintenance fee, that fee is not specifically related to a remittance
transfer. Similarly, fees that banks charge one another for handling a
remittance transfer or other fees that do not affect the total amount of
the transaction or the amount that will be received by the designated
recipient are not fees imposed on the remittance transfer. For example,
an interchange fee that is charged to a provider when a sender uses a
credit or debit card to pay for a remittance transfer is not a fee
imposed upon the remittance transfer. Fees that specifically relate to a
remittance transfer may be structured on a flat per-transaction basis,
or may be conditioned on other factors (such as account status or the
quantity of remittance transfers received) in addition to the remittance
transfer itself. For example, where an institution charges an incoming
transfer fee on most customers' accounts, but not on preferred accounts,
such a fee is nonetheless specifically related to a remittance transfer.
Similarly, if the institution assesses a fee for every transfer beyond
the fifth received each month, such a fee would be specifically related
to the remittance transfer regardless of how many remittance transfers
preceded it that month.
2. Covered third-party fees. i. Under Sec. 1005.30(h)(1), a covered
third-party fee means any fee that is imposed on the remittance transfer
by a person other than the remittance transfer provider that is not a
non-covered third-party fee.
ii. Examples of covered third-party fees include:
A. Fees imposed on a remittance transfer by intermediary
institutions in connection with a wire transfer (sometimes referred to
as ``lifting fees'').
B. Fees imposed on a remittance transfer by an agent of the provider
at pick-up for receiving the transfer.
3. Non-covered third-party fees. Under Sec. 1005.30(h)(2), a non-
covered third-party fee means any fee imposed by the designated
recipient's institution for receiving a remittance transfer into an
account except if such institution acts as the agent of the remittance
transfer provider. For example, a fee imposed by the designated
recipient's institution for receiving an incoming transfer into an
account is a non-covered third-party fee, provided such institution is
not acting as the agent of the remittance transfer provider. See also
comment 31(b)(1)(viii)-1. Furthermore, designated recipient's account in
Sec. 1005.30(h)(2) refers to an asset account, regardless of whether it
is a consumer asset account, established for any purpose and held by a
bank, savings association, credit union, or equivalent institution. A
designated recipient's account does not, however, include a credit card,
prepaid card, or a virtual account held by an Internet-based or mobile
telephone company that is not a bank, savings association, credit union
or equivalent institution.
[[Page 283]]
Section 1005.31--Disclosures
31(a) General Form of Disclosures
31(a)(1) Clear and Conspicuous
1. Clear and conspicuous standard. Disclosures are clear and
conspicuous for purposes of subpart B if they are readily understandable
and, in the case of written and electronic disclosures, the location and
type size are readily noticeable to senders. Oral disclosures as
permitted by Sec. 1005.31(a)(3), (4), and (5) are clear and conspicuous
when they are given at a volume and speed sufficient for a sender to
hear and comprehend them.
2. Abbreviations and symbols. Disclosures may contain commonly
accepted or readily understandable abbreviations or symbols, such as
``USD'' to indicate currency in U.S. dollars or ``MXN'' to indicate
currency in Mexican pesos.
31(a)(2) Written and Electronic Disclosures
1. E-Sign Act requirements. If a sender electronically requests the
remittance transfer provider to send a remittance transfer, the
disclosures required by Sec. 1005.31(b)(1) may be provided to the sender
in electronic form without regard to 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.). If a sender
electronically requests the provider to send a remittance transfer, the
disclosures required by Sec. 1005.31(b)(2) may be provided to the sender
in electronic form, subject to compliance with the consumer consent and
other applicable provisions of the E-Sign Act. See Sec. 1005.4(a)(1).
2. Paper size. Written disclosures may be provided on any size
paper, as long as the disclosures are clear and conspicuous. For
example, disclosures may be provided on a register receipt or on an 8.5
inch by 11 inch sheet of paper.
3. Retainable electronic disclosures. A remittance transfer provider
may satisfy the requirement to provide electronic disclosures in a
retainable form if it provides an online disclosure in a format that is
capable of being printed. Electronic disclosures may not be provided
through a hyperlink or in another manner by which the sender can bypass
the disclosure. A provider is not required to confirm that the sender
has read the electronic disclosures.
4. Pre-payment disclosures to a mobile telephone. Disclosures
provided via mobile application or text message, to the extent permitted
by Sec. 1005.31(a)(5), need not be retainable. However, disclosures
provided electronically to a mobile telephone that are not provided via
mobile application or text message must be retainable. For example,
disclosures provided via email must be retainable, even if a sender
accesses them by mobile telephone.
5. Disclosures provided by fax. For purposes of disclosures required
to be provided pursuant to Sec. 1005.31 or Sec. 1005.36, disclosures
provided by facsimile transmission (i.e., fax) are considered to be
provided in writing for purposes of providing disclosures in writing
pursuant to subpart B and are not subject to the requirements for
electronic disclosures set forth in Sec. 1005.31(a)(2).
31(a)(3) Disclosures for Oral Telephone Transactions
1. Transactions conducted partially by telephone. Except as provided
in comment 31(a)(3)-2, for transactions conducted partially by
telephone, providing the information required by Sec. 1005.31(b)(1) to a
sender orally does not fulfill the requirement to provide the
disclosures required by Sec. 1005.31(b)(1). For example, a sender may
begin a remittance transfer at a remittance transfer provider's
dedicated telephone in a retail store, and then provide payment in
person to a store clerk to complete the transaction. In such cases, all
disclosures must be provided in writing. A provider complies with this
requirement, for example, by providing the written pre-payment
disclosure in person prior to the sender's payment for the transaction,
and the written receipt when the sender pays for the transaction.
2. Oral telephone transactions. Section 1005.31(a)(3) applies to
transactions conducted orally and entirely by telephone, such as
transactions conducted orally on a landline or mobile telephone. A
remittance transfer provider may treat a written or electronic
communication as an inquiry when it believes that treating the
communication as a request would be impractical. For example, if a
sender physically located abroad contacts a U.S. branch of the sender's
financial institution and attempts to initiate a remittance transfer by
first sending a mailed letter, further communication with the sender by
letter may be impractical due to the physical distance and likely mail
delays. In such circumstances, a provider may conduct the transaction
orally and entirely by telephone pursuant to Sec. 1005.31(a)(3) when the
provider treats that initial communication as an inquiry and
subsequently responds to the consumer's inquiry by calling the consumer
on a telephone and orally gathering or confirming the information needed
to identify and understand a request for a remittance transfer and
otherwise conducts the transaction orally and entirely by telephone.
31(a)(5) Disclosures for Mobile Application or Text Message Transactions
1. Mobile application and text message transactions. A remittance
transfer provider may provide the required pre-payment disclosures
[[Page 284]]
orally or via mobile application or text message if the transaction is
conducted entirely by telephone via mobile application or text message,
the remittance transfer provider complies with the requirements of
Sec. 1005.31(g)(2), and the provider discloses orally or via mobile
application or text message a statement about the rights of the sender
regarding cancellation required by Sec. 1005.31(b)(2)(iv) pursuant to
the timing requirements in Sec. 1005.31(e)(1). For example, if a sender
conducts a transaction via text message on a mobile telephone, the
remittance transfer provider may call the sender and orally provide the
required pre-payment disclosures. Alternatively, the provider may
provide the required pre-payment disclosures via text message. Section
1005.31(a)(5) applies only to transactions conducted entirely by mobile
telephone via mobile application or text message.
31(b) Disclosure Requirements
1. Disclosures provided as applicable. Disclosures required by
Sec. 1005.31(b) need only be provided to the extent applicable. A
remittance transfer provider may choose to omit an item of information
required by Sec. 1005.31(b) if it is inapplicable to a particular
transaction. Alternatively, for disclosures required by
Sec. 1005.31(b)(1)(i) through (vii), a provider may disclose a term and
state that an amount or item is ``not applicable,'' ``N/A,'' or
``None.'' For example, if fees or taxes are not imposed in connection
with a particular transaction, the provider need not provide the
disclosures about fees and taxes generally required by
Sec. 1005.31(b)(1)(ii), the disclosures about covered third-party fees
generally required by Sec. 1005.31(b)(1)(vi), or the disclaimers about
non-covered third-party fees and taxes collected by a person other than
the provider generally required by Sec. 1005.31(b)(1)(viii). Similarly,
a Web site need not be disclosed if the provider does not maintain a Web
site. A provider need not provide the exchange rate disclosure required
by Sec. 1005.31(b)(1)(iv) if a recipient receives funds in the currency
in which the remittance transfer is funded, or if funds are delivered
into an account denominated in the currency in which the remittance
transfer is funded. For example, if a sender in the United States sends
funds from an account denominated in Euros to an account in France
denominated in Euros, no exchange rate would need to be provided.
Similarly, if a sender funds a remittance transfer in U.S. dollars and
requests that a remittance transfer be delivered to the recipient in
U.S. dollars, a provider need not disclose an exchange rate.
2. Substantially similar terms, language, and notices. Certain
disclosures required by Sec. 1005.31(b) must be described using the
terms set forth in Sec. 1005.31(b) or substantially similar terms. Terms
may be more specific than those provided. For example, a remittance
transfer provider sending funds may describe fees imposed by an agent at
pick-up as ``Pick-up Fees'' in lieu of describing them as ``Other
Fees.'' Foreign language disclosures required under Sec. 1005.31(g) must
contain accurate translations of the terms, language, and notices
required by Sec. 1005.31(b) or permitted by Sec. 1005.31(b)(1)(viii) and
Sec. 1005.33(h)(3).
31(b)(1) Pre-Payment Disclosures
1. Fees and taxes. i. Taxes collected on the remittance transfer by
the remittance transfer provider include taxes collected on the
remittance transfer by a State or other governmental body. A provider
need only disclose fees imposed or taxes collected on the remittance
transfer by the provider in Sec. 1005.31(b)(1)(ii), as applicable. For
example, if no transfer taxes are imposed on a remittance transfer, a
provider would only disclose applicable transfer fees. See comment
31(b)-1. If both fees and taxes are imposed, the fees and taxes must be
disclosed as separate, itemized disclosures. For example, a provider
would disclose all transfer fees using the term ``Transfer Fees'' or a
substantially similar term and would separately disclose all transfer
taxes using the term ``Transfer Taxes'' or a substantially similar term.
ii. The fees and taxes required to be disclosed by
Sec. 1005.31(b)(1)(ii) include all fees imposed and all taxes collected
on the remittance transfer by the provider. For example, a provider must
disclose any service fee, any fees imposed by an agent of the provider
at the time of the transfer, and any State taxes collected on the
remittance transfer at the time of the transfer. Fees imposed on the
remittance transfer by the provider required to be disclosed under
Sec. 1005.31(b)(1)(ii) include only those fees that are charged to the
sender and are specifically related to the remittance transfer. See also
comment 30(h)-1. In contrast, the fees required to be disclosed by
Sec. 1005.31(b)(1)(vi) are any covered third-party fees as defined in
Sec. 1005.30(h)(1).
iii. The term used to describe the fees imposed on the remittance
transfer by the provider in Sec. 1005.31(b)(1)(ii) and the term used to
describe covered third-party fees under Sec. 1005.31(b)(1)(vi) must
differentiate between such fees. For example the terms used to describe
fees disclosed under Sec. 1005.31(b)(1)(ii) and (vi) may not both be
described solely as ``Fees.''
2. Transfer amount. Sections 1005.31(b)(1)(i) and (v) require two
transfer amount disclosures. First, under Sec. 1005.31(b)(1)(i), a
provider must disclose the transfer amount in the currency in which the
remittance transfer is funded to show the calculation of the total
amount of the transaction. Typically, the remittance transfer is funded
in U.S. dollars, so the transfer amount would be expressed in
[[Page 285]]
U.S. dollars. However, if the remittance transfer is funded, for
example, from a Euro-denominated account, the transfer amount would be
expressed in Euros. Second, under Sec. 1005.31(b)(1)(v), a provider must
disclose the transfer amount in the currency in which the funds will be
made available to the designated recipient. For example, if the funds
will be picked up by the designated recipient in Japanese yen, the
transfer amount would be expressed in Japanese yen. However, this second
transfer amount need not be disclosed if covered third-party fees as
described under Sec. 1005.31(b)(1)(vi) are not imposed on the remittance
transfer. The terms used to describe each transfer amount should be the
same.
3. Exchange rate for calculation. The exchange rate used to
calculate the transfer amount in Sec. 1005.31(b)(1)(v), the covered
third-party fees in Sec. 1005.31(b)(1)(vi), the amount received in
Sec. 1005.31(b)(1)(vii), and the optional disclosures of non-covered
third-party fees and other taxes permitted by Sec. 1005.31(b)(1)(viii)
is the exchange rate in Sec. 1005.31(b)(1)(iv), including an estimated
exchange rate to the extent permitted by Sec. 1005.32, prior to any
rounding of the exchange rate. For example, if one U.S. dollar exchanges
for 11.9483779 Mexican pesos, a provider must calculate these
disclosures using this rate, even though the provider may disclose
pursuant to Sec. 1005.31(b)(1)(iv) that the U.S. dollar exchanges for
11.9484 Mexican pesos. Similarly, if a provider estimates pursuant to
Sec. 1005.32 that one U.S. dollar exchanges for 11.9483 Mexican pesos, a
provider must calculate these disclosures using this rate, even though
the provider may disclose pursuant to Sec. 1005.31(b)(1)(iv) that the
U.S. dollar exchanges for 11.95 Mexican pesos (Estimated). If an
exchange rate need not be rounded, a provider must use that exchange
rate to calculate these disclosures. For example, if one U.S. dollar
exchanges for exactly 11.9 Mexican pesos, a provider must calculate
these disclosures using this exchange rate.
31(b)(1)(iv) Exchange Rate
1. Applicable exchange rate. If the designated recipient will
receive funds in a currency other than the currency in which the
remittance transfer is funded, a remittance transfer provider must
disclose the exchange rate to be used by the provider for the remittance
transfer. An exchange rate that is estimated must be disclosed pursuant
to the requirements of Sec. 1005.32. A remittance transfer provider may
not disclose, for example, that an exchange rate is ``unknown,''
``floating,'' or ``to be determined.'' If a provider does not have
specific knowledge regarding the currency in which the funds will be
received, the provider may rely on a sender's representation as to the
currency in which funds will be received for purposes of determining
whether an exchange rate is applied to the transfer. For example, if a
sender requests that a remittance transfer be deposited into an account
in U.S. dollars, the provider need not disclose an exchange rate, even
if the account is actually denominated in Mexican pesos and the funds
are converted prior to deposit into the account. If a sender does not
know the currency in which funds will be received, the provider may
assume that the currency in which funds will be received is the currency
in which the remittance transfer is funded.
2. Rounding. The exchange rate disclosed by the provider for the
remittance transfer is required to be rounded. The provider may round to
two, three, or four decimal places, at its option. For example, if one
U.S. dollar exchanges for 11.9483779 Mexican pesos, a provider may
disclose that the U.S. dollar exchanges for 11.9484 Mexican pesos. The
provider may alternatively disclose, for example, that the U.S. dollar
exchanges for 11.948 pesos or 11.95 pesos. On the other hand, if one
U.S. dollar exchanges for exactly 11.9 Mexican pesos, the provider may
disclose that ``US$1 = 11.9 MXN'' in lieu of, for example, ``US$1 =
11.90 MXN.'' The exchange rate disclosed for the remittance transfer
must be rounded consistently for each currency. For example, a provider
may not round to two decimal places for some transactions exchanged into
Euros and round to four decimal places for other transactions exchanged
into Euros.
3. Exchange rate used. The exchange rate used by the provider for
the remittance transfer need not be set by that provider. For example,
an exchange rate set by an intermediary institution and applied to the
remittance transfer would be the exchange rate used for the remittance
transfer and must be disclosed by the provider.
31(b)(1)(vi) Disclosure of Covered Third-Party Fees
1. Fees disclosed in the currency in which the funds will be
received. Section 1005.31(b)(1)(vi) requires the disclosure of covered
third-party fees in the currency in which the funds will be received by
the designated recipient. A covered third-party fee described in
Sec. 1005.31(b)(1)(vi) may be imposed in one currency, but the funds may
be received by the designated recipient in another currency. In such
cases, the remittance transfer provider must calculate the fee to be
disclosed under Sec. 1005.31(b)(1)(vi) in the currency of receipt using
the exchange rate in Sec. 1005.31(b)(1)(iv), including an estimated
exchange rate to the extent permitted by Sec. 1005.32, prior to any
rounding of the exchange rate. For example, an intermediary institution
involved in sending an international wire transfer funded in U.S.
dollars may impose a fee in U.S. dollars,
[[Page 286]]
but funds are ultimately deposited in the recipient's account in Euros.
In this case, the provider would disclose the covered third-party fee to
the sender expressed in Euros, calculated using the exchange rate
disclosed under Sec. 1005.31(b)(1)(iv), prior to any rounding of the
exchange rate. For purposes of Sec. 1005.31(b)(1)(v), (vi), and (vii),
if a provider does not have specific knowledge regarding the currency in
which the funds will be received, the provider may rely on a sender's
representation as to the currency in which funds will be received. For
example, if a sender requests that a remittance transfer be deposited
into an account in U.S. dollars, the provider may provide the
disclosures required in Sec. 1005.31(b)(1)(v), (vi), and (vii) in U.S.
dollars, even if the account is actually denominated in Mexican pesos
and the funds are subsequently converted prior to deposit into the
account. If a sender does not know the currency in which funds will be
received, the provider may assume that the currency in which funds will
be received is the currency in which the remittance transfer is funded.
31(b)(1)(vii) Amount Received
1. Amount received. The remittance transfer provider is required to
disclose the amount that will be received by the designated recipient in
the currency in which the funds will be received. The amount received
must reflect the exchange rate, all fees imposed and all taxes collected
on the remittance transfer by the remittance transfer provider, as well
as any covered third-party fees required to be disclosed by
Sec. 1005.31(b)(1)(vi). The disclosed amount received must be reduced by
the amount of any fee or tax--except for a non-covered third-party fee
or tax collected on the remittance transfer by a person other than the
provider--that is imposed on the remittance transfer that affects the
amount received even if that amount is imposed or itemized separately
from the transaction amount.
31(b)(1)(viii) Statement When Additional Fees and Taxes May Apply
1. Required disclaimer when non-covered third-party fees and taxes
collected by a person other than the provider may apply. If non-covered
third-party fees or taxes collected by a person other than the provider
apply to a particular remittance transfer or if a provider does not know
if such fees or taxes may apply to a particular remittance transfer,
Sec. 1005.31(b)(1)(viii) requires the provider to include the disclaimer
with respect to such fees and taxes. Required disclosures under
Sec. 1005.31(b)(1)(viii) may only be provided to the extent applicable.
For example, if the designated recipient's institution is an agent of
the provider and thus, non-covered third-party fees cannot apply to the
transfer, the provider must disclose all fees imposed on the remittance
transfer and may not provide the disclaimer regarding non-covered third-
party fees. In this scenario, the provider may only provide the
disclaimer regarding taxes collected on the remittance transfer by a
person other than the provider, as applicable. See Model Form A-30(c).
2. Optional disclosure of non-covered third-party fees and taxes
collected by a person other than the provider. When a remittance
transfer provider knows the non-covered third-party fees or taxes
collected on the remittance transfer by a person other than the provider
that will apply to a particular transaction, Sec. 1005.31(b)(1)(viii)
permits the provider to disclose the amount of such fees and taxes.
Section 1005.32(b)(3)-1 additionally permits a provider to disclose an
estimate of such fees and taxes, provided any estimates are based on
reasonable source of information. See comment 32(b)(3). For example, a
provider may know that the designated recipient's institution imposes an
incoming wire fee for receiving a transfer. Alternatively, a provider
may know that foreign taxes will be collected on the remittance transfer
by a person other than the remittance transfer provider. In these
examples, the provider may choose, at its option, to disclose the
amounts of the relevant recipient institution fee and tax as part of the
information disclosed pursuant to Sec. 1005.31(b)(1)(viii). The provider
must not include that fee or tax in the amount disclosed pursuant to
Sec. 1005.31(b)(1)(vi) or (b)(1)(vii). Fees and taxes disclosed under
Sec. 1005.31(b)(1)(viii) must be disclosed in the currency in which the
funds will be received. See comment 31(b)(1)(vi)-1. Estimates of any
non-covered third-party fees and any taxes collected on the remittance
transfer by a person other than the provider must be disclosed in
accordance with Sec. 1005.32(b)(3).
31(b)(2) Receipt
1. Date funds will be available. A remittance transfer provider does
not comply with the requirements of Sec. 1005.31(b)(2)(ii) if it
provides a range of dates that the remittance transfer may be available
or an estimate of the date on which funds will be available. If a
provider does not know the exact date on which funds will be available,
the provider may disclose the latest date on which the funds will be
available. For example, if funds may be available on January 3, but are
not certain to be available until January 10, then a provider complies
with Sec. 1005.31(b)(2)(ii) if it discloses January 10 as the date funds
will be available. However, a remittance transfer provider may also
disclose that funds ``may be available sooner'' or use a substantially
similar term to inform senders that funds may be available to the
designated recipient on a date earlier than the date disclosed. For
[[Page 287]]
example, a provider may disclose ``January 10 (may be available
sooner).''
2. Agencies required to be disclosed. A remittance transfer provider
must only disclose information about a State agency that licenses or
charters the remittance transfer provider with respect to the remittance
transfer as applicable. For example, if a financial institution is
solely regulated by a Federal agency, and not licensed or chartered by a
State agency, then the institution need not disclose information about a
State agency. A remittance transfer provider must disclose information
about the Consumer Financial Protection Bureau, whether or not the
Consumer Financial Protection Bureau is the provider's primary Federal
regulator.
3. State agency that licenses or charters a provider. A remittance
transfer provider must only disclose information about one State agency
that licenses or charters the remittance transfer provider with respect
to the remittance transfer, even if other State agencies also regulate
the remittance transfer provider. For example, a provider may disclose
information about the State agency which granted its license. If a
provider is licensed in multiple States, and the State agency that
licenses the provider with respect to the remittance transfer is
determined by a sender's location, a provider may make the determination
as to the State in which the sender is located based on information that
is provided by the sender and on any records associated with the sender.
For example, if the State agency that licenses the provider with respect
to an online remittance transfer is determined by a sender's location, a
provider could rely on the sender's statement regarding the State in
which the sender is located and disclose the State agency that licenses
the provider in that State. A State-chartered bank must disclose
information about the State agency that granted its charter, regardless
of the location of the sender.
4. Web site of the Consumer Financial Protection Bureau. Section
1005.31(b)(2)(vi) requires a remittance transfer provider to disclose
the name, toll-free telephone number(s), and Web site of the Consumer
Financial Protection Bureau. Providers may satisfy this requirement by
disclosing the Web site of the Consumer Financial Protection Bureau's
homepage, www.consumerfinance.gov, as shown on Model Forms A-32, A-34,
A-35, and A-39. Alternatively, providers may, but are not required to,
disclose the Bureau's Web site as the address of a page on the Bureau's
Web site that provides information for consumers about remittance
transfers, currently, consumerfinance.gov/sending-money, as shown on
Model Form A-31. In addition, providers making disclosures in a language
other than English pursuant to Sec. 1005.31(g) may, but are not required
to, disclose the Bureau's Web site as a page on the Bureau's Web site
that provides information for consumers about remittance transfers in
the relevant language, if such Web site exists. For example, a provider
that is making disclosures in Spanish under Sec. 1005.31(g) may, but is
not required to, disclose the Bureau's Web site on Spanish-language
disclosures as the page on the Bureau's Web site that provides
information regarding remittance transfers in Spanish, currently
consumerfinance.gov/envios. This optional disclosure is shown on Model
A-40. The Bureau will publish a list of any other foreign language Web
sites that provide information regarding remittance transfers.
5. Date of transfer on receipt. Where applicable,
Sec. 1005.31(b)(2)(vii) requires disclosure of the date of transfer for
the remittance transfer that is the subject of a receipt required by
Sec. 1005.31(b)(2), including a receipt that is provided in accordance
with the timing requirements in Sec. 1005.36(a). For any subsequent
preauthorized remittance transfer subject to Sec. 1005.36(d)(2)(ii), the
future date of transfer must be provided on any receipt provided for the
initial transfer in that series of preauthorized remittance transfers,
or where permitted, or disclosed as permitted by Sec. 1005.31(a)(3) and
(a)(5), in accordance with Sec. 1005.36(a)(1)(i).
6. Transfer date disclosures. The following example demonstrates how
the information required by Sec. 1005.31(b)(2)(vii) and
Sec. 1005.36(d)(1) should be disclosed on receipts: On July 1, a sender
instructs the provider to send a preauthorized remittance transfer of
US$100 each week to a designated recipient. The sender requests that
first transfer in the series be sent on July 15. On the receipt, the
remittance transfer provider discloses an estimated exchange rate to the
sender pursuant to Sec. 1005.32(b)(2). In accordance with
Sec. 1005.31(b)(2)(vii), the provider should disclose the date of
transfer for that particular transaction (i.e., July 15) on the receipt
provided when payment is made for the transfer pursuant to the timing
requirements in Sec. 1005.36(a)(1)(i). The second receipt, which
Sec. 1005.36(a)(1)(ii) requires to be provided within one business day
after the date of the transfer or, for transfers from the sender's
account held by the provider, on the next regularly scheduled periodic
statement or within 30 days after payment is made if a periodic
statement is not provided, is also required to include the date of
transfer. If the provider discloses on either receipt the cancellation
period applicable to and dates of subsequent preauthorized remittance
transfers in accordance with Sec. 1005.36(d)(2), the disclosure must be
phrased and formatted in such a way that it is clear to the sender which
cancellation period is applicable to any date of transfer on the
receipt.
7. Cancellation disclosure. Remittance transfer providers that offer
remittance transfers scheduled three or more business days before
[[Page 288]]
the date of the transfer, as well as remittance transfers scheduled
fewer than three business days before the date of the transfer, may meet
the cancellation disclosure requirements in Sec. 1005.31(b)(2)(iv) by
describing the three-business-day and 30-minute cancellation periods on
the same disclosure and using a checkbox or other method to clearly
designate the applicable cancellation period. The provider may use a
number of methods to indicate which cancellation period applies to the
transaction including, but not limited to, a statement to that effect,
use of a checkbox, highlighting, circling, and the like. For transfers
scheduled three business days before the date of the transfer, the
cancellation disclosures provided pursuant to Sec. 1005.31(b)(2)(iv)
should be phrased and formatted in such a way that it is clear to the
sender which cancellation period is applicable to the date of transfer
disclosed on the receipt.
31(b)(3) Combined Disclosure
1. Proof of payment. If a sender initiating a remittance transfer
receives a combined disclosure provided under Sec. 1005.31(b)(3) and
then completes the transaction, the remittance transfer provider must
provide the sender with proof of payment. The proof of payment must be
clear and conspicuous, provided in writing or electronically, and
provided in a retainable form. The combined disclosure must be provided
to the sender when the sender requests the remittance transfer, but
prior to payment for the transfer, pursuant to Sec. 1005.31(e)(1), and
the proof of payment must be provided when payment is made for the
remittance transfer. The proof of payment for the transaction may be
provided on the same piece of paper as the combined disclosure or on a
separate piece of paper. For example, a provider may feed a combined
disclosure through a computer printer when payment is made to add the
date and time of the transaction, a confirmation code, and an indication
that the transfer was paid in full. A provider may also provide this
additional information to a sender on a separate piece of paper when
payment is made. A remittance transfer provider does not comply with the
requirements of Sec. 1005.31(b)(3) by providing a combined disclosure
with no further indication that payment has been received.
2. Confirmation of scheduling. As discussed in comment 31(e)-2,
payment is considered to be made when payment is authorized for purposes
of various timing requirements in subpart B, including with regard to
the timing requirement for provision of the proof of payment described
in Sec. 1005.31(b)(3)(i). However, where a transfer (whether a one-time
remittance transfer or the first in a series of preauthorized remittance
transfers) is scheduled before the date of transfer and the provider
does not intend to process payment until at or near the date of
transfer, the provider may provide a confirmation of scheduling in lieu
of the proof of payment required by Sec. 1005.31(b)(3)(i). No further
proof of payment is required when payment is later processed.
31(c) Specific Format Requirements
31(c)(1) Grouping
1. Grouping. Information is grouped together for purposes of subpart
B if multiple disclosures are in close proximity to one another and a
sender can reasonably calculate the total amount of the transaction and
the amount that will be received by the designated recipient. Model
Forms A-30(a)-(d) through A-35 in Appendix A illustrate how information
may be grouped to comply with the rule, but a remittance transfer
provider may group the information in another manner. For example, a
provider could provide the grouped information as a horizontal, rather
than a vertical, calculation. A provider could also send multiple text
messages sequentially to provide the full disclosure.
31(c)(4) Segregation
1. Segregation. Disclosures may be segregated from other information
in a variety of ways. For example, the disclosures may appear on a
separate sheet of paper or may appear on the front of a page where other
information appears on the back of that page. The disclosures may be set
off from other information on a notice by outlining them in a box or
series of boxes, with bold print dividing lines or a different color
background, or by using other means.
2. Directly related. For purposes of Sec. 1005.31(c)(4), the
following is directly related information:
i. The date and time of the transaction;
ii. The sender's name and contact information;
iii. The location at which the designated recipient may pick up the
funds;
iv. The confirmation or other identification code;
v. A company name and logo;
vi. An indication that a disclosure is or is not a receipt or other
indicia of proof of payment;
vii. A designated area for signatures or initials;
viii. A statement that funds may be available sooner, as permitted
by Sec. 1005.31(b)(2)(ii);
ix. Instructions regarding the retrieval of funds, such as the
number of days the funds will be available to the recipient before they
are returned to the sender; and
x. A statement that the provider makes money from foreign currency
exchange.
xi. Disclosure of any non-covered third-party fees and any taxes
collected by a person other than the provider pursuant to
Sec. 1005.31(b)(1)(viii).
[[Page 289]]
31(d) Estimates
1. Terms. A remittance transfer provider may provide estimates of
the amounts required by Sec. 1005.31(b), to the extent permitted by
Sec. 1005.32. An estimate must be described using the term ``Estimated''
or a substantially similar term in close proximity to the term or terms
described. For example, a remittance transfer provider could describe an
estimated disclosure as ``Estimated Transfer Amount,'' ``Other Estimated
Fees and Taxes,'' or ``Total to Recipient (Est.).''
31(e) Timing
1. Request to send a remittance transfer. Except as provided in
Sec. 1005.36(a), pre-payment and combined disclosures are required to be
provided to the sender when the sender requests the remittance transfer,
but prior to payment for the transfer. Whether a consumer has requested
a remittance transfer depends on the facts and circumstances. A sender
that asks a provider to send a remittance transfer, and provides
transaction-specific information to the provider in order to send funds
to a designated recipient, has requested a remittance transfer. A sender
that has sent an email, fax, mailed letter, or similar written or
electronic communication has not requested a remittance transfer if the
provider believes that it is impractical for the provider to treat that
communication as a request and if the provider treats the communication
as an inquiry and subsequently responds to that inquiry by calling the
consumer on a telephone and orally gathering or confirming the
information needed to process a request for a remittance transfer. See
comment 31(a)(3)-2. Likewise, a consumer who solely inquires about that
day's rates and fees to send to Mexico has not requested the provider to
send a remittance transfer. Conversely, a sender who asks the provider
at an agent location to send money to a recipient in Mexico and provides
the sender and recipient information to the provider has requested a
remittance transfer.
2. When payment is made. Except as provided in Sec. 1005.36(a), a
receipt required by Sec. 1005.31(b)(2) must be provided to the sender
when payment is made for the remittance transfer. For example, a
remittance transfer provider could give the sender the disclosures after
the sender pays for the remittance transfer, but before the sender
leaves the counter. A provider could also give the sender the
disclosures immediately before the sender pays for the transaction. For
purposes of subpart B, payment is made, for example, when a sender
provides cash to the remittance transfer provider or when payment is
authorized.
3. Telephone transfer from an account. A sender may transfer funds
from his or her account, as defined by Sec. 1005.2(b), that is held by
the remittance transfer provider. For example, a financial institution
may send an international wire transfer for a sender using funds from
the sender's account with the institution. Except as provided in
Sec. 1005.36(a), if the sender conducts such a transfer entirely by
telephone, the institution may provide a receipt required by
Sec. 1005.31(b)(2) on or with the sender's next regularly scheduled
periodic statement for that account or within 30 days after payment is
made for the remittance transfer if a periodic statement is not
provided.
4. Mobile application and text message transactions. If a
transaction is conducted entirely by telephone via mobile application or
text message, a receipt required by Sec. 1005.31(b)(2) may be mailed or
delivered to the sender pursuant to the timing requirements in
Sec. 1005.31(e)(2). For example, if a sender conducts a transfer
entirely by telephone via mobile application, a remittance transfer
provider may mail or deliver the disclosures to a sender pursuant to the
timing requirements in Sec. 1005.31(e)(2).
5. Statement about cancellation rights. The statement about the
rights of the sender regarding cancellation required by
Sec. 1005.31(b)(2)(iv) may, but need not, be disclosed pursuant to the
timing requirements of Sec. 1005.31(e)(2) if a provider discloses this
information pursuant to Sec. 1005.31(a)(3)(iii) or (a)(5)(iii). The
statement about the rights of the sender regarding error resolution
required by Sec. 1005.31(b)(2)(iv), however, must be disclosed pursuant
to the timing requirements of Sec. 1005.31(e)(2).
31(f) Accurate When Payment Is Made
1. No guarantee of disclosures provided before payment. Except as
provided in Sec. 1005.36(b), disclosures required by Sec. 1005.31(b) or
permitted by Sec. 1005.31(b)(1)(viii) must be accurate when a sender
makes payment for the remittance transfer. A remittance transfer
provider is not required to guarantee the terms of the remittance
transfer in the disclosures required or permitted by Sec. 1005.31(b) for
any specific period of time. However, if any of the disclosures required
by Sec. 1005.31(b) or permitted by Sec. 1005.31(b)(1)(viii) are not
accurate when a sender makes payment for the remittance transfer, a
provider must give new disclosures before accepting payment.
31(g) Foreign Language Disclosures
1. Number of foreign languages used in written disclosure. Section
1005.31(g)(1) does not limit the number of languages that may be used on
a single document, but such disclosures must be clear and conspicuous
pursuant to Sec. 1005.31(a)(1). Under Sec. 1005.31(g)(1), a remittance
transfer provider may, but need not, provide the sender with a written
or electronic disclosure that is in English and, if applicable, in each
foreign language that the remittance transfer provider principally
[[Page 290]]
uses to advertise, solicit, or market either orally, in writing, or
electronically, at the office in which a sender conducts a transaction
or asserts an error, respectively. Alternatively, the remittance
transfer provider may provide the disclosure solely in English and, if
applicable, the foreign language primarily used by the sender with the
remittance transfer provider to conduct the transaction or assert an
error, provided such language is principally used by the remittance
transfer provider to advertise, solicit, or market either orally, in
writing, or electronically, at the office in which the sender conducts
the transaction or asserts the error, respectively. If the remittance
transfer provider chooses the alternative method, it may provide
disclosures in a single document with both languages or in two separate
documents with one document in English and the other document in the
applicable foreign language. The following examples illustrate this
concept.
i. A remittance transfer provider principally uses only Spanish and
Vietnamese to advertise, solicit, or market remittance transfer services
at a particular office. The remittance transfer provider may provide all
senders with disclosures in English, Spanish, and Vietnamese, regardless
of the language the sender uses with the remittance transfer provider to
conduct the transaction or assert an error.
ii. Same facts as i. If a sender primarily uses Spanish with the
remittance transfer provider to conduct a transaction or assert an
error, the remittance transfer provider may provide a written or
electronic disclosure in English and Spanish, whether in a single
document or two separate documents. If the sender primarily uses English
with the remittance transfer provider to conduct the transaction or
assert an error, the remittance transfer provider may provide a written
or electronic disclosure solely in English. If the sender primarily uses
a foreign language with the remittance transfer provider to conduct the
transaction or assert an error that the remittance transfer provider
does not use to advertise, solicit, or market either orally, in writing,
or electronically, at the office in which the sender conducts the
transaction or asserts the error, respectively, the remittance transfer
provider may provide a written or electronic disclosure solely in
English.
2. Primarily used. The language primarily used by the sender with
the remittance transfer provider to conduct the transaction is the
primary language used by the sender with the remittance transfer
provider to convey the information necessary to complete the
transaction. Similarly, the language primarily used by the sender with
the remittance transfer provider to assert the error is the primary
language used by the sender with the remittance transfer provider to
provide the information required by Sec. 1005.33(b) to assert an error.
For example:
i. A sender initiates a conversation with a remittance transfer
provider with a greeting in English and expresses interest in sending a
remittance transfer to Mexico in English. If the remittance transfer
provider thereafter communicates with the sender in Spanish and the
sender conveys the other information needed to complete the transaction,
including the designated recipient's information and the amount and
funding source of the transfer, in Spanish, then Spanish is the language
primarily used by the sender with the remittance transfer provider to
conduct the transaction.
ii. A sender initiates a conversation with the remittance transfer
provider with a greeting in English and states in English that there was
a problem with a prior remittance transfer to Vietnam. If the remittance
transfer provider thereafter communicates with the sender in Vietnamese
and the sender uses Vietnamese to convey the information required by
Sec. 1005.33(b) to assert an error, then Vietnamese is the language
primarily used by the sender with the remittance transfer provider to
assert the error.
iii. A sender accesses the Web site of a remittance transfer
provider that may be used by senders to conduct remittance transfers or
assert errors. The Web site is offered in English and French. If the
sender uses the French version of the Web site to conduct the remittance
transfer, then French is the language primarily used by the sender with
the remittance transfer provider to conduct the transaction.
31(g)(1) General
1. Principally used. i. All relevant facts and circumstances
determine whether a foreign language is principally used by the
remittance transfer provider to advertise, solicit, or market under
Sec. 1005.31(g)(1). Generally, whether a foreign language is considered
to be principally used by the remittance transfer provider to advertise,
solicit, or market is based on:
A. The frequency with which the foreign language is used in
advertising, soliciting, or marketing of remittance transfer services at
that office;
B. The prominence of the advertising, soliciting, or marketing of
remittance transfer services in that foreign language at that office;
and
C. The specific foreign language terms used in the advertising
soliciting, or marketing of remittance transfer service at that office.
ii. For example, if a remittance transfer provider posts several
prominent advertisements in a foreign language for remittance transfer
services, including rate and fee information, on a consistent basis in
an office, the provider is creating an expectation that
[[Page 291]]
a consumer could receive information on remittance transfer services in
the foreign language used in the advertisements. The foreign language
used in such advertisements would be considered to be principally used
at that office based on the frequency and prominence of the advertising.
In contrast, an advertisement for remittance transfer services,
including rate and fee information, that is featured prominently at an
office and is entirely in English, except for a greeting in a foreign
language, does not create an expectation that a consumer could receive
information on remittance transfer services in the foreign language used
for such greeting. The foreign language used in such an advertisement is
not considered to be principally used at that office based on the
incidental specific foreign language term used.
2. Advertise, solicit, or market. i. Any commercial message in a
foreign language, appearing in any medium, that promotes directly or
indirectly the availability of remittance transfer services constitutes
advertising, soliciting, or marketing in such foreign language for
purposes of Sec. 1005.31(g)(1). Examples illustrating when a foreign
language is used to advertise, solicit, or market include:
A. Messages in a foreign language in a leaflet or promotional flyer
at an office.
B. Announcements in a foreign language on a public address system at
an office.
C. On-line messages in a foreign language, such as on the internet.
D. Printed material in a foreign language on any exterior or
interior sign at an office.
E. Point-of-sale displays in a foreign language at an office.
F. Telephone solicitations in a foreign language.
ii. Examples illustrating use of a foreign language for purposes
other than to advertise, solicit, or market include:
A. Communicating in a foreign language (whether by telephone,
electronically, or otherwise) about remittance transfer services in
response to a consumer-initiated inquiry.
B. Making disclosures in a foreign language that are required by
Federal or other applicable law.
3. Office. An office includes any physical location, telephone
number, or Web site of a remittance transfer provider where a sender may
conduct a remittance transfer or assert an error for a remittance
transfer. The location need not exclusively offer remittance transfer
services. For example, if an agent of a remittance transfer provider is
located in a grocery store, the grocery store is considered an office
for purposes of Sec. 1005.31(g)(1). Because a consumer must be located
in a State in order to be considered a ``sender'' under Sec. 1005.30(g),
a Web site is not an office for purposes of Sec. 1005.31(g)(1), even if
the Web site can be accessed by consumers that are located in the United
States, unless a sender may conduct a remittance transfer on the Web
site or may assert an error for a remittance transfer on the Web site.
4. At the office. Any advertisement, solicitation, or marketing is
considered to be made at the office in which a sender conducts a
transaction or asserts an error if such advertisement, solicitation, or
marketing is posted, provided, or made: at a physical office of a
remittance transfer provider; on a Web site of a remittance transfer
provider that may be used by senders to conduct remittance transfers or
assert errors; during a telephone call with a remittance transfer
provider that may be used by senders to conduct remittance transfers or
assert errors; or via mobile application or text message by a remittance
transfer provider if the mobile application or text message may be used
by senders to conduct remittance transfers or assert errors. An
advertisement, solicitation, or marketing that is considered to be made
at an office does not include general advertisements, solicitations, or
marketing that are not intended to be made at a particular office. For
example, if an advertisement for remittance transfers in Chinese appears
in a Chinese newspaper that is being distributed at a grocery store in
which the agent of a remittance transfer provider is located, such
advertisement would not be considered to be made at that office. For
disclosures provided pursuant to Sec. 1005.31, the relevant office is
the office in which the sender conducts the transaction. For disclosures
provided pursuant to Sec. 1005.33 for error resolution purposes, the
relevant office is the office in which the sender first asserts the
error, not the office where the transaction was conducted.
Section 1005.32--Estimates
1. Disclosures where estimates can be used. Sections 1005.32(a) and
(b)(1) permit estimates to be used in certain circumstances for
disclosures described in Secs. 1005.31(b)(1) through (3) and
1005.36(a)(1) and(2). To the extent permitted in Sec. 1005.32(a) and
(b)(1), estimates may be used in the pre-payment disclosure described in
Sec. 1005.31(b)(1), the receipt disclosure described in
Sec. 1005.31(b)(2), the combined disclosure described in
Sec. 1005.31(b)(3), and the pre-payment disclosures and receipt
disclosures for both first and subsequent preauthorized remittance
transfers described in Sec. 1005.36(a)(1) and (a)(2). Section
1005.32(b)(2) permits estimates to be used for certain information if
the remittance transfer is scheduled by a sender five or more business
days before the date of the transfer, for disclosures described in
Sec. 1005.36(a)(1)(i) and (a)(2)(i).
[[Page 292]]
32(a) Temporary Exception for Insured Institutions
32(a)(1) General
1. Control. For purposes of this section, an insured institution
cannot determine exact amounts ``for reasons beyond its control'' when a
person other than the insured institution or with which the insured
institution has no correspondent relationship sets the exchange rate
required to be disclosed under Sec. 1005.31(b)(1)(iv) or imposes a
covered third-party fee required to be disclosed under
Sec. 1005.31(b)(1)(vi). For example, if an insured institution has a
correspondent relationship with an intermediary financial institution in
another country and that intermediary institution sets the exchange rate
or imposes a fee for remittance transfers sent from the insured
institution to the intermediary institution, then the insured
institution must determine exact amounts for the disclosures required
under Sec. 1005.31(b)(1)(iv) or (vi), because the determination of those
amounts are not beyond the insured institution's control.
2. Examples of scenarios that qualify for the temporary exception.
The following examples illustrate when an insured institution cannot
determine an exact amount ``for reasons beyond its control'' and thus
would qualify for the temporary exception.
i. Exchange rate. An insured institution cannot determine the exact
exchange rate to disclose under Sec. 1005.31(b)(1)(iv) for an
international wire transfer if the insured institution does not set the
exchange rate, and the rate is set when the funds are deposited into the
recipient's account by the designated recipient's institution with which
the insured institution does not have a correspondent relationship. The
insured institution will not know the exchange rate that the recipient
institution will apply when the funds are deposited into the recipient's
account.
ii. Covered third-party fees. An insured institution cannot
determine the exact covered third-party fees to disclose under
Sec. 1005.31(b)(1)(vi) if an intermediary institution with which the
insured institution does not have a correspondent relationship, imposes
a transfer or conversion fee.
3. Examples of scenarios that do not qualify for the temporary
exception. The following examples illustrate when an insured institution
can determine exact amounts and thus would not qualify for the temporary
exception.
i. Exchange rate. An insured institution can determine the exact
exchange rate required to be disclosed under Sec. 1005.31(b)(1)(iv) if
it converts the funds into the local currency to be received by the
designated recipient using an exchange rate that it sets. The
determination of the exchange rate is in the insured institution's
control even if there is no correspondent relationship with an
intermediary institution in the transmittal route or the designated
recipient's institution.
ii. Covered third-party fees. An insured institution can determine
the exact covered third-party fees required to be disclosed under
Sec. 1005.31(b)(1)(vi) if it has agreed upon the specific fees with an
intermediary correspondent institution, and this correspondent
institution is the only institution in the transmittal route to the
designated recipient's institution.
32(b) Permanent Exceptions
32(b)(1) Permanent Exceptions for Transfers to Certain Countries
1. Laws of the recipient country. The laws of the recipient country
do not permit a remittance transfer provider to determine exact amounts
required to be disclosed when a law or regulation of the recipient
country requires the person making funds directly available to the
designated recipient to apply an exchange rate that is:
i. Set by the government of the recipient country after the
remittance transfer provider sends the remittance transfer or
ii. Set when the designated recipient receives the funds.
2. Example illustrating when exact amounts can and cannot be
determined because of the laws of the recipient country.
i. The laws of the recipient country do not permit a remittance
transfer provider to determine the exact exchange rate required to be
disclosed under Sec. 1005.31(b)(1)(iv) when, for example, the government
of the recipient country, on a daily basis, sets the exchange rate that
must, by law, apply to funds received and the funds are made available
to the designated recipient in the local currency the day after the
remittance transfer provider sends the remittance transfer.
ii. In contrast, the laws of the recipient country permit a
remittance transfer provider to determine the exact exchange rate
required to be disclosed under Sec. 1005.31(b)(1)(iv) when, for example,
the government of the recipient country ties the value of its currency
to the U.S. dollar.
3. Method by which transactions are made in the recipient country.
The method by which transactions are made in the recipient country does
not permit a remittance transfer provider to determine exact amounts
required to be disclosed when transactions are sent via international
ACH on terms negotiated between the United States government and the
recipient country's government, under which the exchange rate is a rate
set by the recipient country's central bank or other governmental
authority after the provider sends the remittance transfer.
4. Example illustrating when exact amounts can and cannot be
determined because of the method by which transactions are made in the
recipient country.
[[Page 293]]
i. The method by which transactions are made in the recipient
country does not permit a remittance transfer provider to determine the
exact exchange rate required to be disclosed under
Sec. 1005.31(b)(1)(iv) when the provider sends a remittance transfer via
international ACH on terms negotiated between the United States
government and the recipient country's government, under which the
exchange rate is a rate set by the recipient country's central bank on
the business day after the provider has sent the remittance transfer.
ii. In contrast, a remittance transfer provider would not qualify
for the Sec. 1005.32(b)(1)(i)(B) methods exception if it sends a
remittance transfer via international ACH on terms negotiated between
the United States government and a private-sector entity or entities in
the recipient country, under which the exchange rate is set by the
institution acting as the entry point to the recipient country's
payments system on the next business day. However, a remittance transfer
provider sending a remittance transfer using such a method may qualify
for the Sec. 1005.32(a) temporary exception.
iii. A remittance transfer provider would not qualify for the
Sec. 1005.32(b)(1)(i)(B) methods exception if, for example, it sends a
remittance transfer via international ACH on terms negotiated between
the United States government and the recipient country's government,
under which the exchange rate is set by the recipient country's central
bank or other governmental authority before the sender requests a
transfer.
5. Safe harbor list. If a country is included on a safe harbor list
published by the Bureau under Sec. 1005.32(b)(1)(ii), a remittance
transfer provider may provide estimates of the amounts to be disclosed
under Sec. 1005.31(b)(1)(iv) through (b)(1)(vii). If a country does not
appear on the Bureau's list, a remittance transfer provider may provide
estimates under Sec. 1005.32(b)(1)(i) if the provider determines that
the recipient country does not legally permit or method by which
transactions are conducted in that country does not permit the provider
to determine exact disclosure amounts.
6. Reliance on Bureau list of countries. A remittance transfer
provider may rely on the list of countries published by the Bureau to
determine whether the laws of a recipient country do not permit the
remittance transfer provider to determine exact amounts required to be
disclosed under Sec. 1005.31(b)(1)(iv) through (vii). Thus, if a country
is on the Bureau's list, the provider may give estimates under this
section, unless a remittance transfer provider has information that a
country on the Bureau's list legally permits the provider to determine
exact disclosure amounts.
7. Change in laws of recipient country. i. If the laws of a
recipient country change such that a remittance transfer provider can
determine exact amounts, the remittance transfer provider must begin
providing exact amounts for the required disclosures as soon as
reasonably practicable if the provider has information that the country
legally permits the provider to determine exact disclosure amounts.
ii. If the laws of a recipient country change such that a remittance
transfer provider cannot determine exact disclosure amounts, the
remittance transfer provider may provide estimates under
Sec. 1005.32(b)(1)(i), even if that country does not appear on the list
published by the Bureau.
32(b)(2) Permanent Exceptions for Transfers Scheduled Before the Date of
Transfer
1. Fixed amount of foreign currency. The following is an example of
when and how a remittance transfer provider may disclose estimates for
remittance transfers scheduled five or more business days before the
date of transfer where the provider agrees to the sender's request to
fix the amount to be transferred in a currency in which the transfer
will be received and not the currency in which it was funded. If on
February 1, a sender schedules a 1000 Euro wire transfer to be sent from
the sender's bank account denominated in U.S. dollars to a designated
recipient on February 15, Sec. 1005.32(b)(2) allows the provider to
estimate the amount that will be transferred to the designated recipient
(i.e., the amount described in Sec. 1005.31(b)(1)(i)), any fees imposed
or taxes collected on the remittance transfer by the provider (if based
on the amount transferred) (i.e., the amount described in
Sec. 1005.31(b)(1)(ii)), and the total amount of the transaction (i.e.,
the amount described in Sec. 1005.31(b)(1)(iii)). The provider may also
estimate any covered third-party fees if the exchange rate is also
estimated and the estimated exchange rate affects the amount of fees (as
allowed by Sec. 1005.32(b)(2)(ii)).
2. Relationship to Sec. 1005.10(d). To the extent Sec. 1005.10(d)
requires, for an electronic fund transfer that is also a remittance
transfer, notice when a preauthorized electronic fund transfer from the
consumer's account will vary in amount from the previous transfer under
the same authorization or from the preauthorized amount, that provision
applies even if subpart B would not otherwise require notice before the
date of transfer. However, insofar as Sec. 1005.10(d) does not specify
the form of such notice, a notice sent pursuant to Sec. 1005.36(a)(2)(i)
will satisfy Sec. 1005.10(d) as long as the timing requirements of
Sec. 1005.10(d) are satisfied.
[[Page 294]]
32(b)(3) Permanent Exception for Optional Disclosure of Non-Covered
Third-Party Fees and Taxes Collected on the Remittance Transfer by a
Person Other Than the Provider
1. Reasonable sources of information. Pursuant to Sec. 1005.32(b)(3)
a remittance transfer provider may estimate applicable non-covered
third-party fees and taxes collected on the remittance transfer by a
person other than the provider using reasonable sources of information.
Reasonable sources of information may include, for example: information
obtained from recent transfers to the same institution or the same
country or region; fee schedules from the recipient institution; fee
schedules from the recipient institution's competitors; surveys of
recipient institution fees in the same country or region as the
recipient institution; information provided or surveys of recipient
institutions' regulators or taxing authorities; commercially or publicly
available databases, services or sources; and information or resources
developed by international nongovernmental organizations or
intergovernmental organizations.
32(c) Bases for Estimates
32(c)(1) Exchange Rate
1. Most recent exchange rate for qualifying international ACH
transfers. If the exchange rate for a remittance transfer sent via
international ACH that qualifies for the Sec. 1005.32(b)(1)(i)(B)
exception is set the following business day, the most recent exchange
rate available for a transfer is the exchange rate set for the day that
the disclosure is provided, i.e., the current business day's exchange
rate.
2. Publicly available. Examples of publicly available sources of
information containing the most recent wholesale exchange rate for a
currency include U.S. news services, such as Bloomberg, the Wall Street
Journal, and the New York Times; a recipient country's national news
services, and a recipient country's central bank or other government
agency.
3. Spread. An estimate for disclosing the exchange rate based on the
most recent publicly available wholesale exchange rate must also reflect
any spread the remittance transfer provider typically applies to the
wholesale exchange rate for remittance transfers for a particular
currency.
4. Most recent. For the purposes of Sec. 1005.32(c)(1)(ii) and
(iii), if the exchange rate with respect to a particular currency is
published or provided multiple times throughout the day because the
exchange rate fluctuates throughout the day, a remittance transfer
provider may use any exchange rate available on that day to determine
the most recent exchange rate.
32(c)(3) Covered Third-Party Fees
1. Potential transmittal routes. A remittance transfer from the
sender's account at an insured institution to the designated recipient's
institution may take several routes, depending on the correspondent
relationships each institution in the transmittal route has with other
institutions. In providing an estimate of the fees required to be
disclosed under Sec. 1005.31(b)(1)(vi) pursuant to the Sec. 1005.32(a)
temporary exception, an insured institution may rely upon the
representations of the designated recipient's institution and the
institutions that act as intermediaries in any one of the potential
transmittal routes that it reasonably believes a requested remittance
transfer may travel.
32(d) Bases for Estimates for Transfers Scheduled Before the Date of
Transfer
1. In general. When providing an estimate pursuant to
Sec. 1005.32(b)(2), Sec. 1005.32(d) requires that a remittance transfer
provider's estimated exchange rate must be the exchange rate (or
estimated exchange rate) that the remittance transfer provider would
have used or did use that day in providing disclosures to a sender
requesting such a remittance transfer to be made on the same day. If,
for the same-day remittance transfer, the provider could utilize either
of the other two exceptions permitting the provision of estimates in
Sec. 1005.32(a) or (b)(1), the provider may provide estimates based on a
methodology permitted under Sec. 1005.32(c). For example, if, on
February 1, the sender schedules a remittance transfer to occur on
February 10, the provider should disclose the exchange rate as if the
sender was requesting the transfer be sent on February 1. However, if at
the time payment is made for the requested transfer, the remittance
transfer provider could not send any remittance transfer until the next
day (for reasons such as the provider's deadline for the batching of
transfers), the remittance transfer provider can use the rate (or
estimated exchange rate) that the remittance transfer provider would
have used or did use in providing disclosures that day with respect to a
remittance transfer requested that day that could not be sent until the
following day.
Section 1005.33--Procedures for Resolving Errors
33(a) Definition of Error
1. Incorrect amount of currency paid by sender. Section
1005.33(a)(1)(i) covers circumstances in which a sender pays an amount
that differs from the total amount of the transaction, including fees
imposed in connection with the transfer, stated in the receipt or
combined disclosure provided under Sec. 1005.31(b)(2) or (3). Such error
may be
[[Page 295]]
asserted by a sender regardless of the form or method of payment
provided, including when a debit, credit, or prepaid card is used to
fund the transfer and an excess amount is paid. For example, if a
remittance transfer provider incorrectly charged a sender's credit card
account for US$150, and US$120 was sent, plus a transfer fee of US$10,
the sender could assert an error with the remittance transfer provider
for the incorrect charge under Sec. 1005.33(a)(1)(i).
2. Incorrect amount of currency received--coverage. Section
1005.33(a)(1)(iii) covers circumstances in which the designated
recipient receives an amount of currency that differs from the amount of
currency identified on the disclosures provided to the sender, except
where the disclosure stated an estimate of the amount of currency to be
received in accordance with Sec. 1005.32 and the difference results from
application of the actual exchange rate, fees, and taxes, rather than
any estimated amounts, or the failure was caused by circumstances
outside the remittance transfer provider's control. A designated
recipient may receive an amount of currency that differs from the amount
of currency disclosed, for example, if an exchange rate other than the
disclosed rate is applied to the remittance transfer, or if the provider
fails to account for fees or taxes that may be imposed by the provider
or a third party before the transfer is picked up by the designated
recipient or deposited into the recipient's account in the foreign
country. However, if the provider rounds the exchange rate used to
calculate the amount received consistent with Sec. 1005.31(b)(1)(iv) and
comment 31(b)(1)(iv)-2 for the disclosed rate, there is no error if the
designated recipient receives an amount of currency that results from
applying the exchange rate used, prior to any rounding of the exchange
rate, to calculate fees, taxes, or the amount received rather than the
disclosed rate. Section 1005.33(a)(1)(iii) also covers circumstances in
which the remittance transfer provider transmits an amount that differs
from the amount requested by the sender.
3. Incorrect amount of currency received--examples. For purposes of
the following examples illustrating the error for an incorrect amount of
currency received under Sec. 1005.33(a)(1)(iii), assume that none of the
circumstances permitting an estimate under Sec. 1005.32 apply (unless
otherwise stated).
i. A consumer requests to send funds to a relative in Mexico to be
received in local currency. Upon receiving the sender's payment, the
remittance transfer provider provides a receipt indicating that the
amount of currency that will be received by the designated recipient
will be 1180 Mexican pesos, after fees and taxes are applied. However,
when the relative picks up the transfer in Mexico a day later, he only
receives 1150 Mexican pesos because the exchange rate applied by the
recipient agent in Mexico was lower than the exchange rate used by the
provider, prior to any rounding of the exchange rate, to disclose the
amount of currency to be received by the designated recipient on the
receipt. Because the designated recipient has received less than the
amount of currency disclosed on the receipt, an error has occurred.
ii. A consumer requests to send funds to a relative in Colombia to
be received in local currency. The remittance transfer provider provides
the sender a receipt stating an amount of currency that will be received
by the designated recipient, which does not reflect the additional
foreign taxes that will be collected in Colombia on the transfer but
does include the statement required by Sec. 1005.31(b)(1)(viii). If the
designated recipient will receive less than the amount of currency
disclosed on the receipt due solely to the additional foreign taxes that
the provider was not required to disclose, no error has occurred.
iii. Same facts as in ii., except that the receipt provided by the
remittance transfer provider does not reflect additional fees that are
imposed by the receiving agent in Colombia on the transfer. Because the
designated recipient will receive less than the amount of currency
disclosed in the receipt due to the additional covered third-party fees,
an error has occurred.
iv. A consumer requests to send US$250 to a relative in India to a
U.S. dollar-denominated account held by the relative at an Indian bank.
Instead of the US$250 disclosed on the receipt as the amount to be sent,
the remittance transfer provider sends US$200, resulting in a smaller
deposit to the designated recipient's account than was disclosed as the
amount to be received after fees and taxes. Because the designated
recipient received less than the amount of currency that was disclosed,
an error has occurred.
v. A consumer requests to send US$100 to a relative in a foreign
country to be received in local currency. The remittance transfer
provider provides the sender a receipt that discloses an estimated
exchange rate, other taxes, and amount of currency that will be received
due to the law in the foreign country requiring that the exchange rate
be set by the foreign country's central bank. When the relative picks up
the remittance transfer, the relative receives less currency than the
estimated amount disclosed to the sender on the receipt due to
application of the actual exchange rate, fees, and taxes, rather than
any estimated amounts. Because Sec. 1005.32(b) permits the remittance
transfer provider to disclose an estimate of the amount of currency to
be received, no error has occurred unless the estimate was not based on
an approach set forth under Sec. 1005.32(c).
[[Page 296]]
vi. A sender requests that his bank send US$120 to a designated
recipient's account at an institution in a foreign country. The foreign
institution is not an agent of the provider. Only US$100 is deposited
into the designated recipient's account because the recipient
institution imposed a US$20 incoming wire fee and deducted the fee from
the amount transferred. Because this fee is a non-covered third-party
fee that the provider is not required to disclose under
Sec. 1005.31(b)(1)(vi), no error has occurred if the provider provided
the disclosure required by Sec. 1005.31(b)(1)(viii).
4. Incorrect amount of currency received--extraordinary
circumstances. Under Sec. 1005.33(a)(1)(iii)(B), a remittance transfer
provider's failure to make available to a designated recipient the
amount of currency disclosed pursuant to Sec. 1005.31(b)(1)(vii) and
stated in the disclosure provided pursuant to Sec. 1005.31(b)(2) or (3)
for the remittance transfer is not an error if such failure was caused
by extraordinary circumstances outside the remittance transfer
provider's control that could not have been reasonably anticipated.
Examples of extraordinary circumstances outside the remittance transfer
provider's control that could not have been reasonably anticipated under
Sec. 1005.33(a)(1)(iii)(B) include circumstances such as war or civil
unrest, natural disaster, garnishment or attachment of some of the funds
after the transfer is sent, and government actions or restrictions that
could not have been reasonably anticipated by the remittance transfer
provider, such as the imposition of foreign currency controls or foreign
taxes unknown at the time the receipt or combined disclosure is provided
under Sec. 1005.31(b)(2) or (3).
5. Failure to make funds available by disclosed date of
availability--coverage. Section 1005.33(a)(1)(iv) generally covers
disputes about the failure to make funds available in connection with a
remittance transfer to a designated recipient by the disclosed date of
availability. If only a portion of the funds were made available by the
disclosed date of availability, then Sec. 1005.33(a)(1)(iv) does not
apply, but Sec. 1005.33(a)(1)(iii) may apply instead. The following are
examples of errors for failure to make funds available by the disclosed
date of availability (assuming that none of the exceptions in
Sec. 1005.33(a)(1)(iv)(A), (B), or (C) apply).
i. Late or non-delivery of a remittance transfer;
ii. Delivery of funds to the wrong account;
iii. The fraudulent pick-up of a remittance transfer in a foreign
country by a person other than the designated recipient;
iv. The recipient agent or institution's retention of the remittance
transfer, instead of making the funds available to the designated
recipient.
6. Failure to make funds available by disclosed date of
availability--extraordinary circumstances. Under
Sec. 1005.33(a)(1)(iv)(A), a remittance transfer provider's failure to
deliver or transmit a remittance transfer by the disclosed date of
availability is not an error if such failure was caused by extraordinary
circumstances outside the remittance transfer provider's control that
could not have been reasonably anticipated. Examples of extraordinary
circumstances outside the remittance transfer provider's control that
could not have been reasonably anticipated under
Sec. 1005.33(a)(1)(iv)(A) include circumstances such as war or civil
unrest, natural disaster, garnishment or attachment of funds after the
transfer is sent, and government actions or restrictions that could not
have been reasonably anticipated by the remittance transfer provider,
such as the imposition of foreign currency controls.
7. Failure to make funds available by disclosed date of
availability--fraud and other screening procedures. Under
Sec. 1005.33(a)(1)(iv)(B), a remittance transfer provider's failure to
deliver funds by the disclosed date of availability is not an error if
such delay is related to the provider's or any third party's
investigation necessary to address potentially suspicious, blocked or
prohibited activity, and the provider did not and could not have
reasonably foreseen the delay so as to enable it to timely disclose an
accurate date of availability when providing the sender with a receipt
or combined disclosure. For example, no error occurs if delivery of
funds is delayed because, after the receipt is provided, the provider's
fraud screening system flags a remittance transfer because the
designated recipient has a name similar to the name of a blocked person
under a sanctions program and further investigation is needed to
determine that the designated recipient is not actually a blocked
person. Similarly, no error occurs where, after disclosing a date of
availability to the sender, a remittance transfer provider receives
specific law enforcement information indicating that the characteristics
of a remittance transfer match a pattern of fraudulent activity, and as
a result, the provider deems it necessary to delay delivery of the funds
to allow for further investigation. However, if a delay could have been
reasonably foreseen, the exception in Sec. 1005.33(a)(1)(iv)(B) would
not apply. For example, if a provider knows in time to make a disclosure
that all remittance transfers to a certain geographic area must undergo
screening procedures that routinely delay such transfers by two days,
the provider's failure to include the additional two days in its
disclosure of the date of availability constitutes an error if delivery
of the funds is indeed delayed beyond the disclosed date of
availability.
8. Sender account number or recipient institution identifier error.
The exception in Sec. 1005.33(a)(1)(iv)(D) applies where a sender
[[Page 297]]
gives the remittance transfer provider an incorrect account number or
recipient institution identifier and all five conditions in
Sec. 1005.33(h) are satisfied. The exception does not apply, however,
where the failure to make funds available is the result of a mistake by
a provider or a third party or due to incorrect or insufficient
information provided by the sender other than an incorrect account
number or recipient institution identifier, such as an incorrect name of
the recipient institution.
9. Account number or recipient institution identifier. For purposes
of the exception in Sec. 1005.33(a)(1)(iv)(D), the terms account number
and recipient institution identifier refer to alphanumerical account or
institution identifiers other than names or addresses, such as account
numbers, routing numbers, Canadian transit numbers, International Bank
Account Numbers (IBANs), Business Identifier Codes (BICs) and other
similar account or institution identifiers used to route a transaction.
In addition and for purposes of this exception, the term designated
recipient's account in Sec. 1005.33(a)(1)(iv)(D) refers to an asset
account, regardless of whether it is a consumer asset account,
established for any purpose and held by a bank, savings association,
credit union, or equivalent institution. A designated recipient's
account does not, however, include a credit card, prepaid card, or a
virtual account held by an Internet-based or mobile telephone company
that is not a bank, savings association, credit union or equivalent
institution.
10. Recipient-requested changes. Under Sec. 1005.33(a)(2)(iii), a
change requested by the designated recipient that the remittance
transfer provider or others involved in the remittance transfer decide
to accommodate is not considered an error. The exception under
Sec. 1005.33(a)(2)(iii) is available only if the change is made solely
because the designated recipient requested the change. For example, if a
sender requests to send US$100 to a designated recipient at a designated
location, but the designated recipient requests the amount in a
different currency (either at the sender-designated location or another
location requested by the recipient) and the remittance transfer
provider accommodates the recipient's request, the change does not
constitute an error.
11. Change from disclosure made in reliance on sender information.
Under the commentary accompanying Sec. 1005.31, the remittance transfer
provider may rely on the sender's representations in making certain
disclosures. See, e.g., comments 31(b)(1)(iv)-1 and 31(b)(1)(vi)-1. For
example, suppose a sender requests U.S. dollars to be deposited into an
account of the designated recipient and represents that the account is
U.S. dollar-denominated. If the designated recipient's account is
actually denominated in local currency and the recipient account-holding
institution must convert the remittance transfer into local currency in
order to deposit the funds and complete the transfer, the change in
currency does not constitute an error pursuant to
Sec. 1005.33(a)(2)(iv).
33(b) Notice of Error From Sender
1. Person asserting or discovering error. The error resolution
procedures of this section apply only when a notice of error is received
from the sender, and not when a notice of error is received from the
designated recipient or when the remittance transfer provider itself
discovers and corrects an error.
2. Content of error notice. The notice of error is effective so long
as the remittance transfer provider is able to identify the elements in
Sec. 1005.33(b)(1)(ii). For example, the sender could provide the
confirmation number or code that would be used by the designated
recipient to pick up the transfer, or other identification number or
code supplied by the remittance transfer provider in connection with the
transfer, if such number or code is sufficient for the remittance
transfer provider to identify the sender (and contact information),
designated recipient, and the transfer in question. For an account-based
remittance transfer, the notice of error is effective even if it does
not contain the sender's account number, so long as the remittance
transfer provider is able to identify the account and the transfer in
question.
3. Address on notice of error. A remittance transfer provider may
request, or a sender may provide, the sender's or designated recipient's
email address, as applicable, instead of a physical address, on a notice
of error.
4. Effect of late notice. A remittance transfer provider is not
required to comply with the requirements of this section for any notice
of error from a sender that is received by the provider more than 180
days from the disclosed date of availability of the remittance transfer
to which the notice of error applies or, if applicable, more than 60
days after a provider sent documentation, additional information, or
clarification requested by the sender, provided such date is later than
180 days after the disclosed date of availability.
5. Notice of error provided to agent. A notice of error provided by
a sender to an agent of the remittance transfer provider is deemed to be
received by the provider under Sec. 1005.33(b)(1)(i) when received by
the agent.
6. Consumer notice of error resolution rights. Section 1005.31
requires a remittance transfer provider to include an abbreviated notice
of the consumer's error resolution rights on the receipt or combined
notice provided under Sec. 1005.31(b)(2) or (3). In addition, the
remittance transfer provider must make available to a sender upon
request, a notice providing a full description of the sender's error
resolution rights, using language set forth in
[[Page 298]]
Appendix A of this part (Model Form A-36) or substantially similar
language.
33(c) Time Limits and Extent of Investigation
1. Notice to sender of finding of error. If the remittance transfer
provider determines during its investigation that an error occurred as
described by the sender, the remittance provider may inform the sender
of its findings either orally or in writing. However, if the provider
determines that no error or a different error occurred, the provider
must provide a written explanation of its findings under
Sec. 1005.33(d)(1).
2. Incorrect or insufficient information provided for transfer. The
remedy in Sec. 1005.33(c)(2)(iii) applies if a remittance transfer
provider's failure to make funds in connection with a remittance
transfer available to a designated recipient by the disclosed date of
availability occurred because the sender provided incorrect or
insufficient information in connection with the transfer, such as by
erroneously identifying the designated recipient's address or by
providing insufficient information such that the entity distributing the
funds cannot identify the correct designated recipient. A sender is not
considered to have provided incorrect or insufficient information for
purposes of Sec. 1005.33(c)(2)(iii) if the provider discloses the
incorrect location where the transfer may be picked up, gives the wrong
confirmation number/code for the transfer, or otherwise miscommunicates
information necessary for the designated recipient to pick-up the
transfer. The remedies in Sec. 1005.33(c)(2)(iii) do not apply if the
sender provided an incorrect account number or recipient institution
identifier and the provider has met the requirements of Sec. 1005.33(h)
because under Sec. 1005.33(a)(1)(iv)(D) no error would have occurred.
See Sec. 1005.33(a)(1)(iv)(D) and comment 33(a)-7.
3. Designation of requested remedy. Under Sec. 1005.33(c)(2)(ii),
the sender may generally choose to obtain a refund of funds that were
not properly transmitted or delivered to the designated recipient or,
request redelivery of the amount appropriate to correct the error at no
additional cost unless the error is determined to have occurred because
the sender provided incorrect or insufficient information. Upon
receiving the sender's request, the remittance transfer provider shall
correct the error within one business day, or as soon as reasonably
practicable, applying the same exchange rate, fees, and taxes stated in
the disclosure provided under Sec. 1005.31(b)(2) or (3), if the sender
requests delivery of the amount appropriate to correct the error and the
error did not occur because the sender provided incorrect or
insufficient information. The provider may also request that the sender
indicate the preferred remedy at the time the sender provides notice of
the error although if provider does so, it should indicate that the if
the sender chooses a resend at the time, the remedy may be unavailable
if the error occurred because the sender provided incorrect or
insufficient information. However, if the sender does not indicate the
desired remedy at the time of providing notice of error, the remittance
transfer provider must notify the sender of any available remedies in
the report provided under Sec. 1005.33(c)(1) or (d)(1) if the provider
determines an error occurred.
4. Default remedy. Unless the sender provided incorrect or
insufficient information and Sec. 1005.33(c)(2)(iii) applies, the
remittance transfer provider may set a default remedy that the provider
will provide if the sender does not designate a remedy within a
reasonable time after the sender receives the report provided under
Sec. 1005.33(c)(1). A provider that permits a sender to designate a
remedy within 10 days after the provider has sent the report provided
under Sec. 1005.33(c)(1) or (d)(1) before imposing the default remedy is
deemed to have provided the sender with a reasonable time to designate a
remedy. In the case a default remedy is provided, the provider must
correct the error within one business day, or as soon as reasonably
practicable, after the reasonable time for the sender to designate the
remedy has passed, consistent with Sec. 1005.33(c)(2).
5. Amount appropriate to resolve the error. For purposes of the
remedies set forth in Sec. 1005.33(c)(2)(i)(A), (c)(2)(i)(B),
(c)(2)(ii)(A)(1), and (c)(2)(i)(A)(2) the amount appropriate to resolve
the error is the specific amount of transferred funds that should have
been received if the remittance transfer had been effected without
error. The amount appropriate to resolve the error does not include
consequential damages. For example, when the amount that was disclosed
pursuant to Sec. 1005.31(b)(1)(vii) was received by the designated
recipient before the provider must determine the appropriate remedy for
an error under Sec. 1005.33(a)(1)(iv), no additional amounts are
required to resolve the error after the remittance transfer provider
refunds the appropriate fees and taxes paid by the sender pursuant to
Sec. 1005.33(c)(2)(ii)(B) or (c)(2)(iii), as applicable.
6. Form of refund. For a refund provided under
Sec. 1005.33(c)(2)(i)(A), (c)(2)(ii)(A)(1), (c)(2)(ii)(B), or
(c)(2)(iii), a remittance transfer provider may generally, at its
discretion, issue a refund either in cash or in the same form of payment
that was initially provided by the sender for the remittance transfer.
For example, if the sender originally provided a credit card as payment
for the transfer, the remittance transfer provider may issue a credit to
the sender's credit card account in the appropriate amount. However, if
a sender initially provided cash for the remittance transfer, a provider
may issue a refund by check. For example, if the sender
[[Page 299]]
originally provided cash as payment for the transfer, the provider may
mail a check to the sender in the amount of the payment.
7. Remedies for incorrect amount paid. If an error under
Sec. 1005.33(a)(1)(i) occurred, the sender may request the remittance
transfer provider refund the amount necessary to resolve the error under
Sec. 1005.33(c)(2)(i)(A) or that the remittance transfer provider make
the amount necessary to resolve the error available to the designated
recipient at no additional cost under Sec. 1005.33(c)(2)(i)(B).
8. Correction of an error if funds not available by disclosed date.
If the remittance transfer provider determines an error of failure to
make funds available by the disclosed date occurred under
Sec. 1005.33(a)(1)(iv), it must correct the error in accordance with
Sec. 1005.33(c)(2)(ii)(A), as applicable, and refund any fees imposed
for the transfer (unless the sender provided incorrect or insufficient
information to the remittance transfer provider in connection with the
remittance transfer), whether the fee was imposed by the provider or a
third party involved in sending the transfer, such as an intermediary
bank involved in sending a wire transfer or the institution from which
the funds are picked up in accordance with Sec. 1005.33(c)(2)(ii)(B).
9. Charges for error resolution. If an error occurred, whether as
alleged or in a different amount or manner, the remittance transfer
provider may not impose a charge related to any aspect of the error
resolution process (including charges for documentation or
investigation).
10. Correction without investigation. A remittance transfer provider
may correct an error, without investigation, in the amount or manner
alleged by the sender, or otherwise determined, to be in error, but must
comply with all other applicable requirements of Sec. 1005.33.
11. Procedure for sending a new remittance transfer after a sender
provides incorrect or insufficient information. Section
1005.33(c)(2)(iii) generally requires a remittance transfer provider to
refund the transfer amount to the sender even if the sender's previously
designated remedy was a resend or if the provider's default remedy in
other circumstances is a resend. However, if before the refund is
processed, the sender receives notice pursuant to Sec. 1005.33(c)(1) or
(d)(1) that an error occurred because the sender provided incorrect or
insufficient information and then requests that the provider send the
remittance transfer again, and the provider agrees to that request,
Sec. 1005.33(c)(2)(iii) requires that the request be treated as a new
remittance transfer and the provider must provide new disclosures in
accordance with Sec. 1005.31 and all other applicable provisions of
subpart B. However, Sec. 1005.33(c)(2)(iii) does not obligate the
provider to agree to a sender's request to send a new remittance
transfer.
12. Determining amount of refund. Section 1005.33(c)(2)(iii) permits
the provider to deduct from the amount refunded, or applied towards a
new transfer, any fees or taxes actually deducted from the transfer
amount by a person other than the provider as part of the first
unsuccessful remittance transfer attempt or that were deducted in the
course of returning the transfer amount to the provider following a
failed delivery. However, a provider may not deduct those fees and taxes
that will ultimately be refunded to the provider. When the provider
deducts fees or taxes from the amount refunded pursuant to
Sec. 1005.33(c)(2)(iii), the provider must inform the sender of the
deduction as part of the notice required by either Sec. 1005.33(c)(1) or
(d)(1) and the reason for the deduction. The following examples
illustrate these concepts.
i. A sender instructs a remittance transfer provider to send US$100
to a designated recipient in local currency, for which the provider
charges a transfer fee of US$10 (and thus the sender pays the provider
$110). The provider's correspondent imposes a fee of US$15 that it
deducts from the amount of the transfer. The sender provides incorrect
or insufficient information that results in non-delivery of the
remittance transfer as requested. Once the provider determines that an
error occurred because the sender provided incorrect or insufficient
information, the provider must provide the report required by
Sec. 1005.33(c)(1) or (d)(1) and inform the sender, pursuant to
Sec. 1005.33(c)(1) or (d)(1), that it will refund US$95 to the sender
within three business days, unless the sender chooses to apply the US$95
towards a new remittance transfer and the provider agrees. Of the $95
that is refunded to the sender, $10 reflects the refund of the
provider's transfer fee, and $85 reflects the refund of the amount of
funds provided by the sender in connection with the transfer which was
not properly transmitted. The provider is not required to refund the
US$15 fee imposed by the correspondent (unless the $15 will be refunded
to the provider by the correspondent).
ii. A sender instructs a remittance transfer provider to send US$100
to a designated recipient in a foreign country, for which the provider
charges a transfer fee of US$10 (and thus the sender pays the provider
US$110) and an intermediary institution charges a lifting fee of US$5,
such that the designated recipient is expected to receive only US$95, as
indicated in the receipt. If an error occurs because the sender provides
incorrect or insufficient information that results in non-delivery of
the remittance transfer by the date of availability stated in the
disclosure provided to the sender for the remittance transfer under
Sec. 1005.31(b)(2) or (3), the provider is required to refund, or
reapply if requested and the provider agrees, $105 unless the
[[Page 300]]
intermediary institution refunds to the provider the US$5 fee. If the
sender requests to have the transfer amount applied to a new remittance
transfer pursuant to Sec. 1005.33(c)(2)(iii) and provides the corrected
or additional information, and the remittance transfer provider agrees
to a resend remedy, the remittance transfer provider may charge the
sender another transfer fee of US$10 to send the remittance transfer
again with the corrected or additional information necessary to complete
the transfer. Insofar as the resend is an entirely new remittance
transfer, the provider must provide a prepayment disclosure and receipt
or combined disclosure in accordance with, among other provisions, the
timing requirements of Sec. 1005.31(f) and the cancellation provision of
Sec. 1005.34(a).
iii. In connection with a remittance transfer, a provider imposes a
$15 tax that it then remits to a State taxing authority. An error occurs
because the sender provided incorrect or insufficient information that
resulted in non-delivery of the transfer to the designated recipient.
The provider may deduct $15 from the amount it refunds to the sender
pursuant to Sec. 1005.33(c)(2)(iii) unless the relevant tax law will
result in the $15 tax being refunded to the provider by the State taxing
authority because the transfer was not completed.
33(d) Procedures if Remittance Transfer Provider Determines No Error or
Different Error Occurred
1. Error different from that alleged. When a remittance transfer
provider determines that an error occurred in a manner or amount
different from that described by the sender, it must comply with the
requirements of both Sec. 1005.33(c) and (d), as applicable. The
provider may give the notice of correction and the explanation
separately or in a combined form.
33(e) Reassertion of Error
1. Withdrawal of error; right to reassert. The remittance transfer
provider has no further error resolution responsibilities if the sender
voluntarily withdraws the notice alleging an error. A sender who has
withdrawn an allegation of error has the right to reassert the
allegation unless the remittance transfer provider had already complied
with all of the error resolution requirements before the allegation was
withdrawn. The sender must do so, however, within the original 180-day
period from the disclosed date of availability or, if applicable, the
60-day period for a notice of error asserted pursuant to
Sec. 1005.33(b)(2).
33(f) Relation to Other Laws
1. Concurrent error obligations. A financial institution that is
also the remittance transfer provider may have error obligations under
both Secs. 1005.11 and 1005.33. For example, if a sender asserts an
error under Sec. 1005.11 with a remittance transfer provider that holds
the sender's account, and the error is not also an error under
Sec. 1005.33 (such as the omission of an EFT on a periodic statement),
then the error-resolution provisions of Sec. 1005.11 exclusively apply
to the error. However, if a sender asserts an error under Sec. 1005.33
with a remittance transfer provider that holds the sender's account, and
the error is also an error under Sec. 1005.11 (such as when the amount
the sender requested to be deducted from the sender's account and sent
for the remittance transfer differs from the amount that was actually
deducted from the account and sent), then the error-resolution
provisions of Sec. 1005.33 exclusively apply to the error.
2. Holder in due course. Nothing in this section limits a sender's
rights to assert claims and defenses against a card issuer concerning
property or services purchased with a credit card under Regulation Z, 12
CFR 1026.12(c)(1), as applicable.
3. Assertion of same error with multiple parties. If a sender
receives credit to correct an error of an incorrect amount paid in
connection with a remittance transfer from either the remittance
transfer provider or account-holding institution (or creditor), and
subsequently asserts the same error with another party, that party has
no further responsibilities to investigate the error if the error has
been corrected. For example, assume that a sender initially asserts an
error with a remittance transfer provider with respect to a remittance
transfer alleging that US$130 was debited from his checking account, but
the sender only requested a remittance transfer for US$100, plus a US$10
transfer fee. If the remittance transfer provider refunds US$20 to the
sender to correct the error, and the sender subsequently asserts the
same error with his account-holding institution, the account-holding
institution has no error resolution responsibilities under Regulation E
because the error has been fully corrected. In addition, nothing in this
section prevents an account-holding institution or creditor from
reversing amounts it has previously credited to correct an error if a
sender receives more than one credit to correct the same error. For
example, assume that a sender concurrently asserts an error with his or
her account-holding institution and remittance transfer provider for the
same error, and the sender receives credit from the account-holding
institution for the error within 45 days of the notice of error. If the
remittance transfer provider subsequently provides a credit of the same
amount to the sender for the same error, the account-holding institution
may reverse the amounts it had previously credited to the consumer's
account, even after
[[Page 301]]
the 45-day error resolution period under Sec. 1005.11.
33(g) Error Resolution Standards and Recordkeeping Requirements
1. Record retention requirements. As noted in Sec. 1005.33(g)(2),
remittance transfer providers are subject to the record retention
requirements under Sec. 1005.13. Therefore, remittance transfer
providers must retain documentation, including documentation related to
error investigations, for a period of not less than two years from the
date a notice of error was submitted to the provider or action was
required to be taken by the provider. A remittance transfer provider
need not maintain records of individual disclosures that it has provided
to each sender; it need only retain evidence demonstrating that its
procedures reasonably ensure the sender's receipt of required
disclosures and documentation.
33(h) Incorrect Account Number Supplied
1. Reasonable methods of verification. When a sender provides an
incorrect recipient institution identifier, Sec. 1005.33(h)(2) limits
the exception in Sec. 1005.33(a)(1)(iv)(D) to situations where the
provider used reasonably available means to verify that the recipient
institution identifier provided by the sender did correspond to the
recipient institution name provided by the sender. Reasonably available
means may include accessing a directory of Business Identifier Codes and
verifying that the code provided by the sender matches the provided
institution name, and, if possible, the specific branch or location
provided by the sender. Providers may also rely on other commercially
available databases or directories to check other recipient institution
identifiers. If reasonable verification means fail to identify that the
recipient institution identifier is incorrect, the exception in
Sec. 1005.33(a)(1)(iv)(D) will apply, assuming that the provider can
satisfy the other conditions in Sec. 1005.33(h). Similarly, if no
reasonably available means exist to verify the accuracy of the recipient
institution identifier, Sec. 1005.33(h)(2) would be satisfied and thus
the exception in Sec. 1005.33(a)(1)(iv)(D) also will apply, again
assuming the provider can satisfy the other conditions in
Sec. 1005.33(h). However, where a provider does not employ reasonably
available means to verify a recipient institution identifier,
Sec. 1005.33(h)(2) is not satisfied and the exception in
Sec. 1005.33(a)(1)(iv)(D) will not apply.
2. Reasonable efforts. Section 1005.33(h)(5) requires a remittance
transfer provider to use reasonable efforts to recover the amount that
was to be received by the designated recipient. Whether a provider has
used reasonable efforts does not depend on whether the provider is
ultimately successful in recovering the amount that was to be received
by the designated recipient. Under Sec. 1005.33(h)(5), if the remittance
transfer provider is requested to provide documentation or other
supporting information in order for the pertinent institution or
authority to obtain the proper authorization for the return of the
incorrectly credited amount, reasonable efforts to recover the amount
include timely providing any such documentation to the extent that it is
available and permissible under law. The following are examples of
reasonable efforts:
i. The remittance transfer provider promptly calls or otherwise
contacts the institution that received the transfer, either directly or
indirectly through any correspondent(s) or other intermediaries or
service providers used for the particular transfer, to request that the
amount that was to be received by the designated recipient be returned,
and if required by law or contract, by requesting that the recipient
institution obtain a debit authorization from the holder of the
incorrectly credited account.
ii. The remittance transfer provider promptly uses a messaging
service through a funds transfer system to contact institution that
received the transfer, either directly or indirectly through any
correspondent(s) or other intermediaries or service providers used for
the particular transfer, to request that the amount that was to be
received by the designated recipient be returned, in accordance with the
messaging service's rules and protocol, and if required by law or
contract, by requesting that the recipient institution obtain a debit
authorization from the holder of the incorrectly credited account.
3. Promptness of Reasonable Efforts. Section 1005.33(h)(5) requires
that a remittance transfer provider act promptly in using reasonable
efforts to recover the amount that was to be received by the designated
recipient. Whether a provider acts promptly to use reasonable efforts
depends on the facts and circumstances. For example, if, before the date
of availability disclosed pursuant to Sec. 1005.31(b)(2)(ii), the sender
informs the provider that the sender provided a mistaken account number,
the provider will have acted promptly if it attempts to contact the
recipient's institution before the date of availability.
Section 1005.34--Procedures for Cancellation and Refund of Remittance
Transfers
34(a) Sender Right of Cancellation and Refund
1. Content of cancellation request. A request to cancel a remittance
transfer is valid so long as the remittance transfer provider is able to
identify the remittance transfer in question. For example, the sender
could provide the confirmation number or code that would be used by the
designated recipient to
[[Page 302]]
pick up the transfer or other identification number or code supplied by
the remittance transfer provider in connection with the transfer, if
such number or code is sufficient for the remittance transfer provider
to identify the transfer. A remittance transfer provider may also
request, or the sender may provide, the sender's email address instead
of a physical address, so long as the remittance transfer provider is
able to identify the transfer to which the request to cancel applies.
2. Notice of cancellation right. Section 1005.31 requires a
remittance transfer provider to include an abbreviated notice of the
sender's right to cancel a remittance transfer on the receipt or
combined disclosure given under Sec. 1005.31(b)(2) or (3). In addition,
the remittance transfer provider must make available to a sender upon
request, a notice providing a full description of the right to cancel a
remittance transfer using language that is set forth in Model Form A-36
of Appendix A to this part or substantially similar language.
3. Thirty-minute cancellation right. A remittance transfer provider
must comply with the cancellation and refund requirements of
Sec. 1005.34 if the cancellation request is received by the provider no
later than 30 minutes after the sender makes payment. The provider may,
at its option, provide a longer time period for cancellation. A provider
must provide the 30-minute cancellation right regardless of the
provider's normal business hours. For example, if an agent closes less
than 30 minutes after the sender makes payment, the provider could opt
to take cancellation requests through the telephone number disclosed on
the receipt. The provider could also set a cutoff time after which the
provider will not accept requests to send a remittance transfer. For
example, a financial institution that closes at 5:00 p.m. could stop
accepting payment for remittance transfers after 4:30 p.m.
4. Cancellation request provided to agent. A cancellation request
provided by a sender to an agent of the remittance transfer provider is
deemed to be received by the provider under Sec. 1005.34(a) when
received by the agent.
5. Payment made. For purposes of subpart B, payment is made, for
example, when a sender provides cash to the remittance transfer provider
or when payment is authorized.
34(b) Time Limits and Refund Requirements
1. Form of refund. At its discretion, a remittance transfer provider
generally may issue a refund either in cash or in the same form of
payment that was initially provided by the sender for the remittance
transfer. For example, if the sender originally provided a credit card
as payment for the transfer, the remittance transfer provider may issue
a credit to the sender's credit card account in the amount of the
payment. However, if a sender initially provided cash for the remittance
transfer, a provider may issue a refund by check. For example, if the
sender originally provided cash as payment for the transfer, the
provider may mail a check to the sender in the amount of the payment.
2. Fees and taxes refunded. If a sender provides a timely request to
cancel a remittance transfer, a remittance transfer provider must refund
all funds provided by the sender in connection with the remittance
transfer, including any fees and, to the extent not prohibited by law,
taxes that have been imposed for the transfer, whether the fee or tax
was assessed by the provider or a third party, such as an intermediary
institution, the agent or bank in the recipient country, or a State or
other governmental body.
Section 1005.35--Acts of Agents
1. General. Remittance transfer providers must comply with the
requirements of subpart B, including, but not limited to, providing the
disclosures set forth in Sec. 1005.31 and providing any remedies as set
forth in Sec. 1005.33, even if an agent or other person performs
functions for the remittance transfer provider, and regardless of
whether the provider has an agreement with a third party that transfers
or otherwise makes funds available to a designated recipient.
Section 1005.36--Transfers Scheduled Before the Date of Transfer
1. Applicability of subpart B. The requirements set forth in subpart
B apply to remittance transfers subject to Sec. 1005.36, to the extent
that Sec. 1005.36 does not modify those requirements. For example, the
foreign language disclosure requirements in Sec. 1005.31(g) and related
commentary continue to apply to disclosures provided in accordance with
Sec. 1005.36(a)(2).
36(a) Timing
36(a)(2) Subsequent Preauthorized Remittance Transfers
1. Changes in Disclosures. When a sender schedules a series of
preauthorized remittance transfers, the provider is generally not
required to provide a pre-payment disclosure prior to the date of each
subsequent transfer. However, Sec. 1005.36(a)(1)(i) requires the
provider to provide a pre-payment disclosure and receipt for the first
in the series of preauthorized remittance transfers in accordance with
the timing requirements set forth in Sec. 1005.31(e). While certain
information in those disclosures is expressly permitted to be estimated
(see Sec. 1005.32(b)(2)), other information is not permitted to be
estimated, or is limited in how it may be estimated. When any of the
information on the most recent receipt provided pursuant to
Sec. 1005.36(a)(1)(i) or (a)(2)(i), other than the
[[Page 303]]
temporal disclosures required by Sec. 1005.31(b)(2)(ii) and (b)(2)(vii),
is no longer accurate with respect to a subsequent preauthorized
remittance transfer for reasons other than as permitted by Sec. 1005.32,
the provider must provide, within a reasonable time prior to the
scheduled date of the next preauthorized remittance transfer, a receipt
that complies with Sec. 1005.31(b)(2) and which discloses, among the
other disclosures required by Sec. 1005.31(b)(2), the changed terms. For
example, if the provider discloses in the pre-payment disclosure for the
first in the series of preauthorized remittance transfers that its fee
for each remittance transfer is $20 and, after six preauthorized
remittance transfers, the provider increases its fee to $30 (to the
extent permitted by contract law), the provider must provide the sender
a receipt that complies with Secs. 1005.31(b)(2) and 1005.36(b)(2)
within a reasonable time prior to the seventh transfer. Barring a
further change, this receipt will apply to transfers after the seventh
transfer. Or, if, after the sixth transfer, a tax collected by the
provider increases from 1.5% of the amount that will be transferred to
the designated recipient to 2.0% of the amount that will be transferred
to the designated recipient, the provider must provide the sender a
receipt that complies with Secs. 1005.31(b)(2) and 1005.36(b)(2) within
a reasonable time prior to the seventh transfer. In contrast,
Sec. 1005.36(a)(2)(i) does not require an updated receipt where an
exchange rate, estimated as permitted by Sec. 1005.32(b)(2), changes.
2. Clearly and conspicuously. In order to indicate clearly and
conspicuously that the provider's fee has changed as required by
Sec. 1005.36(a)(2)(i), the provider could, for example, state on the
receipt: ``Transfer Fees (UPDATED) * * * $30.'' To the extent that other
figures on the receipt must be revised because of the new fee, the
receipt should also indicate that those figures are updated.
3. Reasonable time. If a disclosure required by
Sec. 1005.36(a)(2)(i) or (d)(1) is mailed, the disclosure would be
considered to be received by the sender five business days after it is
posted in the mail. If hand delivered or provided electronically, the
receipt would be considered to be received by the sender at the time of
delivery. Thus, if the provider mails a disclosure required by
Sec. 1005.36(a)(2)(i) or (d)(1) not later than ten business days before
the scheduled date of the transfer, or hand or electronically delivers a
disclosure not later than five business days before the scheduled date
of the transfer, the provider would be deemed to have provided the
disclosure within a reasonable time prior to the scheduled date of the
subsequent preauthorized remittance transfer.
36(b) Accuracy
1. Use of estimates. In providing the disclosures described in
Sec. 1005.36(a)(1)(i) or (a)(2)(i), remittance transfer providers may
use estimates to the extent permitted by any of the exceptions in
Sec. 1005.32. When estimates are permitted, however, they must be
disclosed in accordance with Sec. 1005.31(d).
2. Subsequent preauthorized remittance transfers. For a subsequent
transfer in a series of preauthorized remittance transfers, the receipt
provided pursuant to Sec. 1005.36(a)(1)(i), except for the temporal
disclosures in that receipt required by Sec. 1005.31(b)(2)(ii) (Date
Available) and (b)(2)(vii) (Transfer Date), applies to each subsequent
preauthorized remittance transfer unless and until it is superseded by a
receipt provided pursuant to Sec. 1005.36(a)(2)(i). For each subsequent
preauthorized remittance transfer, only the most recent receipt provided
pursuant to Sec. 1005.36(a)(1)(i) or (a)(2)(i) must be accurate as of
the date each subsequent transfer is made.
3. Receipts. A receipt required by Sec. 1005.36(a)(1)(ii) or
(a)(2)(ii) must accurately reflect the details of the transfer to which
it pertains and may not contain estimates pursuant to
Sec. 1005.32(b)(2). However, the remittance transfer provider may
continue to disclose estimates to the extent permitted by
Sec. 1005.32(a) or (b)(1). In providing receipts pursuant to
Sec. 1005.36(a)(1)(ii) or (a)(2)(ii), Sec. 1005.36(b)(2) and (3) do not
allow a remittance transfer provider to change figures previously
disclosed on a receipt provided pursuant to Sec. 1005.36(a)(1)(i) or
(a)(2)(i), unless a figure was an estimate or based on an estimate
disclosed pursuant to Sec. 1005.32. Thus, for example, if a provider
disclosed its fee as $10 in a receipt provided pursuant to
Sec. 1005.36(a)(1)(i) and that receipt contained an estimate of the
exchange rate pursuant to Sec. 1005.32(b)(2), the second receipt
provided pursuant to Sec. 1005.36(a)(1)(ii) must also disclose the fee
as $10.
36(c) Cancellation
1. Scheduled remittance transfer. Section 1005.36(c) applies when a
remittance transfer is scheduled by the sender at least three business
days before the date of the transfer, whether the sender schedules a
preauthorized remittance transfer or a one-time transfer. A remittance
transfer is scheduled if it will require no further action by the sender
to send the transfer after the sender requests the transfer. For
example, a remittance transfer is scheduled at least three business days
before the date of the transfer, and Sec. 1005.36(c) applies, where a
sender on March 1 requests a remittance transfer provider to send a wire
transfer to pay a bill in a foreign country on March 15, if it will
require no further action by the sender to send the transfer after the
sender
[[Page 304]]
requests the transfer. A remittance transfer is not scheduled, and
Sec. 1005.36(c) does not apply, where a transfer occurs more than three
days after the date the sender requests the transfer solely due to the
provider's processing time. The following are examples of when a sender
has not scheduled a remittance transfer at least three business days
before the date of the remittance transfer, such that the cancellation
rule in Sec. 1005.34 applies.
i. A sender on March 1 requests a remittance transfer provider to
send a wire transfer to pay a bill in a foreign country on March 3.
ii. A sender on March 1 requests that a remittance transfer provider
send a remittance transfer on March 15, but the provider requires the
sender to confirm the request on March 14 in order to send the transfer.
iii. A sender on March 1 requests that a remittance transfer
provider send an ACH transfer, and that transfer is sent on March 2, but
due to the time required for processing, funds will not be deducted from
the sender's account until March 5.
2. Cancelled preauthorized remittance transfers. For preauthorized
remittance transfers, the provider must assume the request to cancel
applies to all future preauthorized remittance transfers, unless the
sender specifically indicates that it should apply only to the next
scheduled remittance transfer.
3. Concurrent cancellation obligations. A financial institution that
is also a remittance transfer provider may have both stop payment
obligations under Sec. 1005.10 and cancellation obligations under
Sec. 1005.36. If a sender cancels a remittance transfer under
Sec. 1005.36 with a remittance transfer provider that holds the sender's
account, and the transfer is a preauthorized transfer under
Sec. 1005.10, then the cancellation provisions of Sec. 1005.36
exclusively apply.
36(d) Date of Transfer for Subsequent Preauthorized Remittance Transfers
1. General. Section 1005.36(d)(2)(i) permits remittance transfer
providers some flexibility in determining how and when the disclosures
required by Sec. 1005.36(d)(1) may be provided to senders. The
disclosure described in Sec. 1005.36(d)(1) may be provided as a separate
disclosure, or on or with any other disclosure required by this subpart
B related to the same series of preauthorized remittance transfers,
provided that the disclosure and timing requirements in
Sec. 1005.36(d)(2) and other applicable provisions in subpart B are
satisfied. For example, the required disclosures may be made on or with
a receipt provided pursuant to Sec. 1005.36(a)(1)(i); a receipt provided
pursuant to Sec. 1005.36(a)(2); or in a separate disclosure created by
the provider. Thus, for example, a remittance transfer provider complies
with Sec. 1005.36(d)(1) for a period of one year if it provides in the
receipt provided to the sender when payment is made for the initial
preauthorized remittance transfer, a schedule or summary of the dates of
transfer of all the subsequent preauthorized remittance transfers in the
series scheduled to occur over the next 12 months (and the applicable
cancellation requirements and contact information).
2. Delivery of disclosure. Section 1005.36(d)(2)(i) requires that
the sender receive disclosure of the date of transfer, applicable
cancellation requirements, and the provider's contact information no
more than 12 months, and no less than 5 business days prior to the date
of transfer of the subsequent preauthorized remittance transfer. For
purposes of determining when a disclosure required by Sec. 1005.36(d)(1)
is received by the sender, refer to comment 36(a)(2)-3.
3. Disclosure of the date of transfer. The date of transfer of a
subsequent preauthorized remittance transfer may be disclosed as a
specific date (e.g., July 19, 2013) or by using a method that clearly
permits identification of the date of the transfer, such as periodic
intervals (e.g., the third Monday of every month, or the 15th of every
month). If the future dates of transfer are disclosed as occurring
periodically and there is a break in the sequence, or the date of
transfer does not otherwise conform to the described period, e.g., if a
holiday or weekend causes the provider to deviate from the normal
schedule, the remittance transfer provider should disclose the specific
date of transfer for the affected transfer.
4. Accuracy requirements. Section 1005.36(d)(4) sets forth accuracy
requirements for disclosures required for subsequent preauthorized
remittance transfers under Sec. 1005.36(d)(1). If any of the information
provided in these disclosures change, the provider must provide an
updated disclosure with the revised information that is accurate as of
when the transfer is made, pursuant to Sec. 1005.36(d)(2).
Appendix A--Model Disclosure Clauses and Forms
1. Review of forms. The Bureau will not review or approve disclosure
forms or statements for financial institutions. However, the Bureau has
issued model clauses for institutions to use in designing their
disclosures. If an institution uses these clauses accurately to reflect
its service, the institution is protected from liability for failure to
make disclosures in proper form.
2. Use of forms. The appendix contains model disclosure clauses for
optional use by financial institutions and remittance transfer providers
to facilitate compliance with the disclosure requirements of
Secs. 1005.5(b)(2) and (3), 1005.6(a), 1005.7, 1005.8(b),
1005.14(b)(1)(ii), 1005.15(d)(1) and (2), 1005.18(c)(1) and (2),
1005.31, 1005.32 and 1005.36. The use of appropriate clauses in
[[Page 305]]
making disclosures will protect a financial institution and a remittance
transfer provider from liability under sections 916 and 917 of the act
provided the clauses accurately reflect the institution's EFT services
and the provider's remittance transfer services, respectively.
3. Altering the clauses. Financial institutions may use clauses of
their own design in conjunction with the Bureau's model clauses. The
inapplicable words or portions of phrases in parentheses should be
deleted. The catchlines are not part of the clauses and need not be
used. Financial institutions may make alterations, substitutions, or
additions in the clauses to reflect the services offered, such as
technical changes (including the substitution of a trade name for the
word ``card,'' deletion of inapplicable services, or substitution of
lesser liability limits). Several of the model clauses include
references to a telephone number and address. Where two or more of these
clauses are used in a disclosure, the telephone number and address may
be referenced and need not be repeated.
4. Model forms for remittance transfers. The Bureau will not review
or approve disclosure forms for remittance transfer providers. However,
this appendix contains 15 model forms for use in connection with
remittance transfers. These model forms are intended to demonstrate
several formats a remittance transfer provider may use to comply with
the requirements of Sec. 1005.31(b). Model Forms A-30 through A-32
demonstrate how a provider could provide the required disclosures for a
remittance transfer exchanged into local currency. Model Forms A-30(a),
(b), (c), and (d) demonstrate four options regarding model language
related to the required disclaimer, where applicable, of non-covered
third-party fees and taxes on the remittance transfer collected by a
person other than the provider under Sec. 1005.31(b)(1)(viii). Model
forms 30(b) through (d) also include language that may be used if a
provider elects to estimate either these non-covered third-party fees or
taxes collected by a person other than the provider as part of the
disclaimer. Model Forms A-33 through A-35 demonstrate how a provider
could provide the required disclosures for dollar-to-dollar remittance
transfers. These forms also demonstrate disclosure of the required
content, in accordance with the grouping and proximity requirements of
Sec. 1005.31(c)(1) and (2), in both a register receipt format and an 8.5
inch by 11 inch format. Model Form A-36 provides long form model error
resolution and cancellation disclosures required by Sec. 1005.31(b)(4),
and Model Form A-37 provides short form model error resolution and
cancellation disclosures required by Sec. 1005.31(b)(2)(iv) and (vi).
Model Forms A-38 through A-41 provide language for Spanish language
disclosures.
i. The model forms contain information that is not required by
subpart B, including a confirmation code, the sender's name and contact
information, and the optional disclosure of the estimated amount of
these non-covered third-party fees and taxes collected by a person other
than the provider as part of the disclaimer. Additional information not
required by subpart B may be presented on the model forms as permitted
by Sec. 1005.31(b)(1)(viii) and (c)(4). Any additional information must
be presented consistent with a remittance transfer provider's obligation
to provide required disclosures in a clear and conspicuous manner.
ii. Use of the model forms is optional. A remittance transfer
provider may change the forms by rearranging the format or by making
modifications to the language of the forms, in each case without
modifying the substance of the disclosures. Any rearrangement or
modification of the format of the model forms must be consistent with
the form, grouping, proximity, and other requirements of Sec. 1005.31(a)
and (c). Providers making revisions that do not comply with this section
will lose the benefit of the safe harbor for appropriate use of Model
Forms A-30 to A-41.
iii. Permissible changes to the language and format of the model
forms include, for example:
A. Substituting the information contained in the model forms that is
intended to demonstrate how to complete the information in the model
forms--such as names, addresses, and Web sites; dates; numbers; and
State-specific contact information--with information applicable to the
remittance transfer. In addition, if the applicable non-covered third-
party fees are imposed by an institution other than a bank, a provider
could modify the disclaimer accordingly.
B. Eliminating disclosures that are not applicable to the transfer,
as described under Sec. 1005.31(b). For example, if only covered third-
party fees are imposed, a provider would not use a disclaimer related to
additional fees that may apply because all applicable fees are covered
and included in the disclosure as required under Sec. 1005.31(b)(1)(vi).
C. Correcting or updating telephone numbers, mailing addresses, or
Web site addresses that may change over time.
D. Providing the disclosures on a paper size that is different from
a register receipt and 8.5 inch by 11 inch formats.
E. Adding a term substantially similar to ``estimated'' in close
proximity to the specified terms in Sec. 1005.31(b)(1) and (2), as
required under Sec. 1005.31(d).
F. Providing the disclosures in a foreign language, or multiple
foreign languages, subject to the requirements of Sec. 1005.31(g).
G. Substituting cancellation language to reflect the right to a
cancellation made pursuant to the requirements of Sec. 1005.36(c).
iv. Changes to the model forms that are not permissible include, for
example, adding
[[Page 306]]
information that is not segregated from the required disclosures, other
than as permitted by Sec. 1005.31(c)(4).
[76 FR 81023, Dec. 27, 2011, as amended at 78 FR 18224, Mar. 26, 2013;
77 FR 6297, Feb. 7, 2012; 77 FR 50285; 77 FR 50285, Aug. 20, 2012; 78 FR
30714, May 22, 2013; 78 FR 49366, Aug. 14, 2013; 79 FR 55993, Sept. 18,
2014; 81 FR 70320, Oct. 12, 2016]
Effective Date Note: At 81 FR 84345, Nov. 22, 2016, effective Oct.
1, 2017, supplement I to part 1005 was amended as follows:
a. Under Section 1005.2--Definitions:
i. In subsection 2(b) Account, paragraph 2 was removed and paragraph
3 was redesignated as paragraph 2.
ii. Subsection Paragraph 2(b)(3) was added.
b. Under Section 1005.4--General Disclosure Requirements; Jointly
Offered Services:
i. In subsection 4(a) Form of Disclosures, paragraph 1 was revised.
c. Under Section 1005.10--Preauthorized Transfers:
i. Subsection 10(e)(1) Credit was revised.
ii. In subsection 10(e)(2) Employment or Government Benefit,
paragraph 2 was added.
d. Under Section 1005.12--Relation to Other Laws:
i. Subsection 12(a) Relation to Truth in Lending was revised.
ii. In subsection 12(b) Preemption of Inconsistent State Laws,
paragraph 2 was revised and paragraphs 3 and 4 were added.
e. Section 1005.15--Electronic Fund Transfer of Government Benefits
was added.
f. Section 1005.18--Requirements for Financial Institutions Offering
Payroll Card Accounts was removed.
g. Section 1005.18--Requirements for Financial Institutions Offering
Prepaid Accounts was added.
h. Section 1005.19--Internet Posting of Prepaid Account Agreements
was added.
i. Under Section 1005.30--Remittance Transfer Definitions:
i. In subsection 30(c) Designated Recipient, paragraph 2.ii was
revised.
ii. In subsection 30(g) Sender, paragraphs 1 and 3 were revised.
j. Under Appendix A--Model Disclosure Clauses and Forms:
i. Paragraphs 2 and 3 were revised.
For the convenience of the user, the added and revised text is set
forth as follows:
Sec. Supplement I to Part 1005--Official Interpretations
Section 1005.2--Definitions
* * * * *
2(b) Account
* * * * *
Paragraph 2(b)(3)
Paragraph 2(b)(3)(i)
1. Debit card includes prepaid card. For purposes of subpart A of
Regulation E, unless otherwise specified, the term debit card also
includes a prepaid card.
2. Certain employment-related cards not covered as payroll card
accounts. The term ``payroll card account'' does not include an account
used solely to disburse incentive-based payments (other than commissions
which can represent the primary means through which a consumer is paid),
such as bonuses, which are unlikely to be a consumer's primary source of
salary or other compensation. The term also does not include an account
used solely to make disbursements unrelated to compensation, such as
petty cash reimbursements or travel per diem payments. Similarly, a
payroll card account does not include an account that is used in
isolated instances to which an employer typically does not make
recurring payments, such as when providing final payments or in
emergency situations when other payment methods are unavailable. While
such accounts would not be payroll card accounts, such accounts could
constitute prepaid accounts generally, provided the other conditions of
the definition of that term in Sec. 1005.2(b)(3) are satisfied. In
addition, all transactions involving the transfer of funds to or from a
payroll card account or prepaid account are covered by the regulation,
even if a particular transaction involves payment of a bonus, other
incentive-based payment, or reimbursement, or the transaction does not
represent a transfer of wages, salary, or other employee compensation.
3. Marketed or labeled as ``prepaid.'' The term ``marketed or
labeled as `prepaid' '' means promoting or advertising an account using
the term ``prepaid.'' For example, an account is marketed or labeled as
prepaid if the term ``prepaid'' appears on the access device associated
with the account or the access device's packaging materials, or on a
display, advertisement, or other publication to promote purchase or use
of the account. An account may be marketed or labeled as prepaid if the
financial institution, its service provider, including a program
manager, or the payment network on which an access device for the
account is used, promotes or advertises, or contracts with another party
to promote or advertise, the account using the label ``prepaid.'' A
product or service that is marketed or labeled as prepaid is not a
``prepaid account'' pursuant to Sec. 1005.2(b)(3)(i)(C) if it does not
otherwise meet the definition of account under Sec. 1005.2(b)(1).
4. Issued on a prepaid basis. To be issued on a prepaid basis, a
prepaid account must be loaded with funds when it is first provided to
[[Page 307]]
the consumer for use. For example, if a consumer purchases a prepaid
account and provides funds that are loaded onto a card at the time of
purchase, the prepaid account is issued on a prepaid basis.
5. Capable of being loaded with funds. A prepaid account that is not
issued on a prepaid basis but is capable of being loaded with funds
thereafter includes a prepaid card issued to a consumer with a zero
balance to which funds may be loaded by the consumer or a third party
subsequent to issuance.
6. Prepaid account acting as a pass-through vehicle for funds. To
satisfy Sec. 1005.2(b)(3)(i)(D), a prepaid account must be issued on a
prepaid basis or be capable of being loaded with funds. This means that
the prepaid account must be capable of holding funds, rather than merely
acting as a pass-through vehicle. For example, if a product, such as a
digital wallet, is only capable of storing a consumer's payment
credentials for other accounts but is incapable of having funds stored
on it, such a product is not a prepaid account. However, if a product
allows a consumer to transfer funds, which can be stored before the
consumer designates a destination for the funds, the product satisfies
Sec. 1005.2(b)(3)(i)(D).
7. Not required to be reloadable. Prepaid accounts need not be
reloadable by the consumer or a third party.
8. Primary function. To satisfy Sec. 1005.2(b)(3)(i)(D), an
account's primary function must be to provide consumers with general
transaction capability, which includes the general ability to use loaded
funds to conduct transactions with multiple, unaffiliated merchants for
goods or services, or at automated teller machines, or to conduct
person-to-person transfers. This definition excludes accounts that
provide such capability only incidentally. For example, the primary
function of a brokerage account is to hold funds so that the consumer
can conduct transactions through a licensed broker or firm, not to
conduct transactions with multiple, unaffiliated merchants for good or
services, or at automated teller machines, or to conduct person-to-
person transfers. Similarly, the primary function of a savings account
is to accrue interest on funds held in the account; such accounts
restrict the extent to which the consumer can conduct general
transactions and withdrawals. Accordingly, brokerage accounts and
savings accounts do not satisfy Sec. 1005.2(b)(3)(i)(D), and thus are
not prepaid accounts as defined by Sec. 1005.2(b)(3). The following
examples provide additional guidance:
i. An account's primary function is to enable a consumer to conduct
transactions with multiple, unaffiliated merchants for goods or
services, at automated teller machines, or to conduct person-to-person
transfers, even if the account also enables a third party to disburse
funds to a consumer. For example, a prepaid account that conveys tax
refunds or insurance proceeds to a consumer meets the primary function
test if the account can be used, e.g., to purchase goods or services at
multiple, unaffiliated merchants.
ii. Whether an account satisfies Sec. 1005.2(b)(3)(i)(D) is
determined by reference to the account, not the access device associated
with the account. An account satisfies Sec. 1005.2(b)(3)(i)(D) even if
the account's access device can be used for other purposes, for example,
as a form of identification. Such accounts may include, for example, a
prepaid account used to disburse student loan proceeds via a card device
that can be used at unaffiliated merchants or to withdraw cash from an
automated teller machine, even if that access device also acts as a
student identification card.
iii. Where multiple accounts are associated with the same access
device, the primary function of each account is determined separately.
One or more accounts can satisfy Sec. 1005.2(b)(3)(i)(D) even if other
accounts associated with the same access device do not. For example, a
student identification card may act as an access device associated with
two separate accounts: An account used to conduct transactions with
multiple, unaffiliated merchants for goods or services, and an account
used to conduct closed-loop transactions on campus. The account used to
conduct transactions with multiple, unaffiliated merchants for goods or
services satisfies Sec. 1005.2(b)(3)(i)(D), even though the account used
to conduct closed-loop transactions does not (and as such the latter is
not a prepaid account as defined by Sec. 1005.2(b)(3)).
iv. An account satisfies Sec. 1005.2(b)(3)(i)(D) if its primary
function is to provide general transaction capability, even if an
individual consumer does not in fact use it to conduct multiple
transactions. For example, the fact that a consumer may choose to
withdraw the entire account balance at an automated teller machine or
transfer it to another account held by the consumer does not change the
fact that the account's primary function is to provide general
transaction capability.
v. An account whose primary function is other than to conduct
transactions with multiple, unaffiliated merchants for goods or
services, or at automated teller machines, or to conduct person-to-
person transfers, does not satisfy Sec. 1005.2(b)(3)(i)(D). Such
accounts may include, for example, a product whose only function is to
make a one-time transfer of funds into a separate prepaid account.
9. Redeemable upon presentation at multiple, unaffiliated merchants.
For guidance, see comments 20(a)(3)-1 and -2.
10. Person-to-person transfers. A prepaid account whose primary
function is to conduct person-to-person transfers is an account that
allows a consumer to send funds by electronic fund transfer to another
consumer or
[[Page 308]]
business. An account may qualify as a prepaid account if its primary
function is person-to-person transfers even if it is neither redeemable
upon presentation at multiple, unaffiliated merchants for goods or
services, nor usable at automated teller machines. A transaction
involving a store gift card would not be a person-to-person transfer if
it could only be used to make payments to the merchant or affiliated
group of merchants on whose behalf the card was issued.
Paragraph 2(b)(3)(ii)
1. Excluded health care and employee benefit related prepaid
products. For purposes of Sec. 1005.2(b)(3)(ii)(A), ``health savings
account'' means a health savings account as defined in 26 U.S.C. 223(d);
``flexible spending arrangement'' means a health benefits or a health
flexible spending arrangement pursuant to 26 U.S.C. 125; ``medical
savings account'' means an Archer MSA as defined in 26 U.S.C. 220(d);
``health reimbursement arrangement'' means a health reimbursement
arrangement which is treated as employer-provided coverage under an
accident or health plan for purposes of 26 U.S.C. 106; ``dependent care
assistance program'' means a dependent care assistance program pursuant
to 26 U.S.C. 129; and ``transit or parking reimbursement arrangement''
means a qualified transportation fringe benefit provided by an employer
pursuant to 26 U.S.C. 132.
2. Excluded disaster relief funds. For purposes of
Sec. 1005.2(b)(3)(ii)(B), ``qualified disaster relief funds'' means
funds made available through a qualified disaster relief program as
defined in 26 U.S.C. 139(b).
3. Marketed and labeled as a gift card or gift certificate. Section
1005.2(b)(3)(ii)(D) excludes, among other things, reloadable general-use
prepaid cards that are both marketed and labeled as gift cards or gift
certificates, whereas Sec. 1005.20(b)(2) excludes such products that are
marketed or labeled as gift cards or gift certificates. Comment
20(b)(2)-2 describes, in part, a network-branded GPR card that is
principally advertised as a less-costly alternative to a bank account
but is promoted in a television, radio, newspaper, or Internet
advertisement, or on signage as ``the perfect gift'' during the holiday
season. For purposes of Sec. 1005.20, such a product would be considered
marketed as a gift card or gift certificate because of this occasional
holiday marketing activity. For purposes of Sec. 1005.2(b)(3)(ii)(D),
however, such a product would not be considered to be both marketed and
labeled as a gift card or gift certificate and thus would be covered by
the definition of prepaid account.
* * * * *
Section 1005.4--General Disclosure Requirements; Jointly Offered
Services
4(a) Form of Disclosures
1. General. The disclosures required by this part must be in a clear
and readily understandable written form that the consumer may retain.
Additionally, except as otherwise set forth in Secs. 1005.18(b)(7) and
1005.31(c), no particular rules govern type size, number of pages, or
the relative conspicuousness of various terms. Numbers or codes are
considered readily understandable if explained elsewhere on the
disclosure form.
* * * * *
Section 1005.10--Preauthorized Transfers
* * * * *
10(e) Compulsory Use
10(e)(1) Credit
1. General rule for loan payments. Creditors may not require
repayment of loans by electronic means on a preauthorized, recurring
basis.
2. Overdraft credit plans not accessible by hybrid prepaid-credit
cards. i. Section 1005.10(e)(1) provides an exception from the general
rule for an overdraft credit plan other than for a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined in
Regulation Z, 12 CFR 1026.61. A financial institution may therefore
require the automatic repayment of an overdraft credit plan, other than
a covered separate credit feature accessible by a hybrid prepaid-credit
card, even if the overdraft extension is charged to an open-end account
that may be accessed by the consumer in ways other than by overdrafts.
ii. Credit extended through a negative balance on the asset feature
of a prepaid account that meets the conditions of Regulation Z, 12 CFR
1026.61(a)(4), is considered credit extended pursuant to an overdraft
credit plan for purposes of Sec. 1005.10(e)(1). Thus, the exception for
overdraft credit plans in Sec. 1005.10(e)(1) applies to this credit.
3. Applicability to covered separate credit features accessible by
hybrid prepaid-credit cards. i. Under Sec. 1005.10(e)(1), creditors may
not require by electronic means on a preauthorized, recurring basis
repayment of credit extended under a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Regulation Z,
12 CFR 1026.61. The prohibition in Sec. 1005.10(e)(1) applies to any
credit extended under such a credit feature, including preauthorized
checks. See Regulation Z, 12 CFR 1026.61, and comment 61(a)(1)-3.
ii. Under Regulation Z, 12 CFR 1026.12(d)(1), a card issuer may not
take any action, either
[[Page 309]]
before or after termination of credit card privileges, to offset a
cardholder's indebtedness arising from a consumer credit transaction
under the relevant credit card plan against funds of the cardholder held
on deposit with the card issuer. Under Regulation Z, 12 CFR
1026.12(d)(3), with respect to covered separate credit features
accessible by hybrid prepaid-credit cards as defined in 12 CFR 1026.61,
a card issuer generally is not prohibited from periodically deducting
all or part of the cardholder's credit card debt from a deposit account
(such as a prepaid account) held with the card issuer under a plan that
is authorized in writing by the cardholder, so long as the card issuer
does not make such deductions to the plan more frequently than once per
calendar month. A card issuer is prohibited under Regulation Z, 12 CFR
1026.12(d), from automatically deducting all or part of the cardholder's
credit card debt under a covered separate credit feature from a deposit
account (such as a prepaid account) held with the card issuer on a daily
or weekly basis, or whenever deposits are made to the deposit account.
Section 1005.10(e)(1) further restricts the card issuer from requiring
payment from a deposit account (such as a prepaid account) of credit
card balances of a covered separate credit feature accessible by a
hybrid prepaid-credit card by electronic means on a preauthorized,
recurring basis.
4. Incentives. A creditor may offer a program with a reduced annual
percentage rate or other cost-related incentive for an automatic
repayment feature, provided the program with the automatic payment
feature is not the only loan program offered by the creditor for the
type of credit involved. Examples include:
i. Mortgages with graduated payments in which a pledged savings
account is automatically debited during an initial period to supplement
the monthly payments made by the borrower.
ii. Mortgage plans calling for preauthorized biweekly payments that
are debited electronically to the consumer's account and produce a lower
total finance charge.
10(e)(2) Employment or Government Benefit
* * * * *
2. Government benefit. A government agency may not require consumers
to receive government benefits by direct deposit to any particular
institution. A government agency may require direct deposit of benefits
by electronic means if recipients are allowed to choose the institution
that will receive the direct deposit. Alternatively, a government agency
may give recipients the choice of having their benefits deposited at a
particular institution (designated by the government agency) or
receiving their benefits by another means.
* * * * *
Section 1005.12--Relation to Other Laws
12(a) Relation to Truth in Lending
1. Issuance rules for access devices other than access devices for
prepaid accounts. For access devices that also constitute credit cards
(other than access devices for prepaid accounts), the issuance rules of
Regulation E apply if the only credit feature is a preexisting credit
line attached to the asset account to cover overdrafts (or to maintain a
specified minimum balance) or an overdraft service, as defined in
Sec. 1005.17(a). Regulation Z (12 CFR part 1026) rules apply if there is
another type of credit feature; for example, one permitting direct
extensions of credit that do not involve the asset account.
2. Overdraft services. The addition of an overdraft service, as that
term is defined in Sec. 1005.17(a), to an accepted access device does
not constitute the addition of a credit feature subject to Regulation Z.
Instead, the provisions of Regulation E apply, including the liability
limitations (Sec. 1005.6) and the requirement to obtain consumer consent
to the service before any fees or charges for paying an overdraft may be
assessed on the account (Sec. 1005.17).
3. Issuance of prepaid access devices that can access a covered
separate credit feature subject to Regulation Z. An access device for a
prepaid account cannot access a covered separate credit feature as
defined in Regulation Z, 12 CFR 1026.61, when the access device is
issued if the access device is issued prior to the expiration of the 30-
day period set forth in 12 CFR 1026.61(c). Regulation Z, 12 CFR
1026.61(c), provides that with respect to a covered separate credit
feature that could be accessible by a hybrid prepaid-credit card at any
point, a card issuer must not do any of the following until 30 days
after the prepaid account has been registered: (1) Open a covered
separate credit feature accessible by the hybrid prepaid-credit card;
(2) make a solicitation or provide an application to open a covered
separate credit feature accessible by the hybrid prepaid-credit card; or
(3) allow an existing credit feature that was opened prior to the
consumer to become a covered separate credit feature accessible by the
hybrid prepaid-credit card. An access device for a prepaid account that
is not a hybrid prepaid-credit card as that term is defined in
Regulation Z, 12 CFR 1026.61, is subject to the issuance rules in
Regulation E.
4. Addition of a covered separate credit feature to an existing
access device for a prepaid account. Regulation Z governs the addition
of a covered separate credit feature as that term is defined in
Regulation Z, 12 CFR
[[Page 310]]
1026.61, to an existing access device for a prepaid account. In this
case, the access device would become a hybrid prepaid-credit card under
Regulation Z (12 CFR part 1026). A covered separate credit feature may
be added to a previously issued access device for a prepaid account only
upon the consumer's application or specific request as described in
Regulation Z, 12 CFR 1026.12(a)(1), and only in compliance with 12 CFR
1026.61(c).
5. Determining applicable regulation related to liability and error
resolution. i. Under Sec. 1005.12(a)(1)(iv)(B), with respect to a
transaction that involves a covered separate credit feature and an asset
feature on a prepaid account that are both accessible by a hybrid
prepaid-credit card as those terms are defined in Regulation Z, 12 CFR
1026.61, where credit is extended under a covered separate credit
feature accessible by a hybrid prepaid-credit card that is incident to
an electronic fund transfer when the hybrid prepaid-credit card accesses
both funds in the asset feature of a prepaid account and credit
extensions from the credit feature with respect to a particular
transaction, Regulation E's liability limitations and error resolution
provisions apply to the transaction, in addition to Regulation Z, 12 CFR
1026.13(d) and (g) (which apply because of the extension of credit
associated with the covered separate credit feature). Section
1005.12(a)(1)(iv)(C) provides that with respect to transactions that
involves credit extended through a negative balance to the asset feature
of a prepaid account that meets the conditions set forth in Regulation
Z, 12 CFR 1026.61(a)(4), these transactions are governed solely by the
liability limitations and error resolution procedures in Regulation E,
and Regulation Z does not apply. Section 1005.12(a)(1)(iv)(D) and
(a)(2)(iii), taken together, provide that with respect to transactions
involving a prepaid account and a non-covered separate credit feature as
defined in Regulation Z, 12 CFR 1026.61, a financial institution must
comply with Regulation E's liability limitations and error resolution
procedures with respect to transactions that access the prepaid account
as applicable, and the creditor must comply with Regulation Z's
liability limitations and error resolution procedures with respect to
transactions that access the non-covered separate credit feature, as
applicable.
ii. Under Sec. 1005.12(a)(1)(iv)(A), with respect to an account
(other than a prepaid account) where credit is extended incident to an
electronic fund transfer under an agreement to extend overdraft credit
between the consumer and the financial institution, Regulation E's
liability limitations and error resolution provisions apply to the
transaction, in addition to Regulation Z, 12 CFR 1026.13(d) and (g)
(which apply because of the extension of credit associated with the
overdraft feature on the asset account).
iii. For transactions involving access devices that also function as
credit cards under Regulation Z (12 CFR part 1026), whether Regulation E
or Regulation Z applies depends on the nature of the transaction. For
example, if the transaction solely involves an extension of credit, and
does not access funds in a consumer asset account, such as a checking
account or prepaid account, the liability limitations and error
resolution requirements of Regulation Z apply. If the transaction
accesses funds in an asset account only (with no credit extended), the
provisions of Regulation E apply. If the transaction access funds in an
asset account but also involves an extension of credit under the
overdraft credit feature subject to Regulation Z attached to the
account, Regulation E's liability limitations and error resolution
provisions apply, in addition to Regulation Z, 12 CFR 1026.13(d) and (g)
(which apply because of the extension of credit associated with the
overdraft feature on the asset account). If a consumer's access device
is also a credit card and the device is used to make unauthorized
withdrawals from an asset account, but also is used to obtain
unauthorized cash advances directly from a credit feature that is
subject to Regulation Z that is separate from the asset account, both
Regulation E and Regulation Z apply.
iv. The following examples illustrate these principles:
A. A consumer has a card that can be used either as a credit card or
an access device that draws on the consumer's checking account. When
used as a credit card, the card does not first access any funds in the
checking account but draws only on a separate credit feature subject to
Regulation Z. If the card is stolen and used as a credit card to make
purchases or to get cash advances at an ATM from the line of credit, the
liability limits and error resolution provisions of Regulation Z apply;
Regulation E does not apply.
B. In the same situation, if the card is stolen and is used as an
access device to make purchases or to get cash withdrawals at an ATM
from the checking account, the liability limits and error resolution
provisions of Regulation E apply; Regulation Z does not apply.
C. In the same situation, assume the card is stolen and used both as
an access device for the checking account and as a credit card; for
example, the thief makes some purchases using the card to access funds
in the checking account and other purchases using the card as a credit
card. Here, the liability limits and error resolution provisions of
Regulation E apply to the unauthorized transactions in which the card
was used as an access device for the checking account, and the
corresponding provisions of Regulation Z apply to the unauthorized
transactions in which the card was used as a credit card.
[[Page 311]]
D. Assume a somewhat different type of card, one that draws on the
consumer's checking account and can also draw on an overdraft credit
feature subject to Regulation Z attached to the checking account. The
overdraft credit feature associated with the card is accessed only when
the consumer uses the card to make a purchase (or other transaction) for
which there are insufficient or unavailable funds in the checking
account. In this situation, if the card is stolen and used to make
purchases funded entirely by available funds in the checking account,
the liability limits and the error resolution provisions of Regulation E
apply. If the use of the card results in an extension of credit that is
incident to an electronic fund transfer where the transaction is funded
partially by funds in the consumer's asset account and partially by
credit extended under the overdraft credit feature, the error resolution
provisions of Regulation Z, 12 CFR 1026.13(d) and (g), apply in addition
to the Regulation E provisions, but the other liability limit and error
resolution provisions of Regulation Z do not. Relatedly, if the use of
the card is funded entirely by credit extended under the overdraft
credit feature, the transaction is governed solely by the liability
limitations and error resolution requirements of Regulation Z. See
Regulation Z, 12 CFR 1026.13(i).
E. The same principles in comment 12(a)-5.iv.A, B, C, and D apply to
an access device for a prepaid account that also is a hybrid prepaid-
credit card with respect to a covered separate credit feature under
Regulation Z, 12 CFR 1026.61. See also Regulation Z, 12 CFR
1026.13(i)(2) and comment 13(i)-4.
12(b) Preemption of Inconsistent State Laws
* * * * *
2. Preemption determinations generally. The Bureau recognizes state
law preemption determinations made by the Board of Governors of the
Federal Reserve System prior to July 21, 2011, until and unless the
Bureau makes and publishes any contrary determination.
3. Preemption determination--Michigan. The Board of Governors of the
Federal Reserve System determined that certain provisions in the state
law of Michigan are preempted by the Federal law, effective March 30,
1981:
i. Definition of unauthorized use. Section 488.5(4) of the state law
of Michigan, governing electronic fund transfers, is preempted to the
extent that it relates to the section of state law governing consumer
liability for unauthorized use of an access device.
ii. Consumer liability for unauthorized use of an account. Section
488.14 of the state law of Michigan, governing electronic fund
transfers, is preempted because it is inconsistent with Sec. 1005.6 and
is less protective of the consumer than the Federal law. The state law
places liability on the consumer for the unauthorized use of an account
in cases involving the consumer's negligence. Under the Federal law, a
consumer's liability for unauthorized use is not related to the
consumer's negligence and depends instead on the consumer's promptness
in reporting the loss or theft of the access device.
iii. Error resolution. Section 488.15 of the state law of Michigan,
governing electronic fund transfers, is preempted because it is
inconsistent with Sec. 1005.11 and is less protective of the consumer
than the Federal law. The state law allows financial institutions up to
70 days to resolve errors, whereas the Federal law generally requires
errors to be resolved within 45 days.
iv. Receipts and periodic statements. Sections 488.17 and 488.18 of
the state law of Michigan, governing electronic fund transfers, are
preempted because they are inconsistent with Sec. 1005.9, other than for
transfers of $15 or less pursuant to Sec. 1005.9(e). The state
provisions require a different disclosure of information than does the
Federal law. The receipt provision is also preempted because it allows
the consumer to be charged for receiving a receipt if a machine cannot
furnish one at the time of a transfer.
4. Preemption determination--Tennessee. The Bureau determined that
the following provision in the state law of Tennessee is preempted by
the Federal law, effective April 25, 2013:
i. Gift certificates, store gift cards, and general-use prepaid
cards. Section 66-29-116 of Tennessee's Uniform Disposition of Unclaimed
(Personal) Property Act is preempted to the extent that it permits gift
certificates, store gift cards, and general-use prepaid cards, as
defined in Sec. 1005.20(a), to be declined at the point-of-sale sooner
than the gift certificates, store gift cards, or general-use prepaid
cards and their underlying funds are permitted to expire under
Sec. 1005.20(e).
* * * * *
Section 1005.15--Electronic Fund Transfer of Government Benefits
15(c) Pre-Acquisition Disclosure Requirements
1. Disclosing the short and long form before acquisition. Section
1005.15(c)(1) requires that, before a consumer acquires an account
governed by Sec. 1005.15, a government agency must comply with the pre-
acquisition disclosure requirements applicable to prepaid accounts as
set forth in Sec. 1005.18(b). Section 1005.18(b)(1)(i) generally
requires delivery of both the short form disclosure required by
[[Page 312]]
Sec. 1005.18(b)(2), accompanied by the information in
Sec. 1005.18(b)(5), and the long form disclosure required by
Sec. 1005.18(b)(4) before a consumer acquires a prepaid account. For
purposes of Sec. 1005.15(c), a consumer is deemed to have received the
disclosures required by Sec. 1005.18(b) prior to acquisition when the
consumer receives the disclosures before choosing to receive benefits
via the government benefit account. The following example illustrates
when a consumer receives disclosures before acquisition of an account
for purposes of Sec. 1005.15(c):
i. A government agency informs a consumer that she can receive
distribution of benefits via a government benefit account in the form of
a prepaid card. The consumer receives the prepaid card and the
disclosures required by Sec. 1005.18(b) to review at the time the
consumer receives benefits eligibility information from the agency.
After receiving the disclosures, the consumer chooses to receive
benefits via the government benefit account. These disclosures were
provided to the consumer pre-acquisition, and the agency has complied
with Sec. 1005.15(c). By contrast, if the consumer does not receive the
disclosures required by Sec. 1005.18(b) to review until the time at
which the consumer received the first benefit payment deposited into the
government benefit account, these disclosures were provided to the
consumer post-acquisition, and were not provided in compliance with
Sec. 1005.15(c).
2. Acquisition and disclosures given during the same appointment.
The disclosures and notice required by Sec. 1005.15(c) may be given in
the same process or appointment during which the consumer receives a
government benefit card. When a consumer receives benefits eligibility
information and enrolls to receive benefits during the same process or
appointment, a government agency that gives the disclosures and notice
required by Sec. 1005.15(c) before the consumer chooses to receive the
first benefit payment on the card complies with the timing requirements
of Sec. 1005.15(c).
3. Form and formatting requirements for government benefit account
disclosures. The form and formatting requirements for government benefit
accounts in Sec. 1005.15(c) correspond to those for payroll card
accounts set forth in Sec. 1005.18(b). See comments 18(b)(2)(xiv)(A)-1
and 18(b)(2)(xiv)(B)-1 for additional guidance regarding the
requirements set forth in Sec. 1005.15(c)(2)(i) and (ii), respectively.
4. Disclosure requirements outside the short form disclosure.
Section 1005.18(b)(5) requires that the name of the financial
institution be disclosed outside the short form disclosure. For
government benefit accounts, the financial institution that must be
disclosed pursuant to Sec. 1005.18(b)(5) is the financial institution
that directly holds the account or issues the account's access device.
The disclosure provided outside the short form disclosure may, but is
not required to, also include the name of the government agency that
established the government benefit account.
15(d) Access to Account Information
1. Access to account information. For guidance, see comments 18(c)-1
through -3 and 18(c)-5 through -9.
15(e) Modified Disclosure, Limitations on Liability, and Error
Resolution Requirements
1. Modified limitations on liability and error resolution
requirements. For guidance, see comments 18(e)-1 through -3.
15(f) Disclosure of Fees and Other Information
1. Disclosures on prepaid account access devices. Pursuant to
Sec. 1005.18(f)(3), the name of the financial institution and the Web
site URL and a telephone number a consumer can use to contact the
financial institution about the prepaid account must be disclosed on the
prepaid account access device. For government benefit accounts, the
financial institution whose name and contact information must be
disclosed pursuant to Sec. 1005.18(f)(3) is the financial institution
that directly holds the account or issues the account's access device.
* * * * *
Section 1005.18--Requirements for Financial Institutions Offering
Prepaid Accounts
18(a) Coverage
1. Issuance of access device. Consistent with Sec. 1005.5(a) and
except as provided, as applicable, in Sec. 1005.5(b), a financial
institution may issue an access device only in response to an oral or
written request for the device, or as a renewal or substitute for an
accepted access device. A consumer is deemed to request an access device
for a payroll card account when the consumer chooses to receive salary
or other compensation through a payroll card account. A consumer is
deemed to request an access device for a prepaid account when, for
example, the consumer acquires a prepaid account offered for sale at a
retail location or applies for a prepaid account by telephone or online.
2. Application to employers and service providers. Typically,
employers and third-party service providers do not meet the definition
of a ``financial institution'' subject to the regulation because they
neither hold prepaid accounts (including payroll card accounts) nor
issue prepaid cards and agree with consumers to provide EFT services in
connection with prepaid accounts. However, to the extent an employer or
a service provider undertakes either of these functions, it would
[[Page 313]]
be deemed a financial institution under the regulation.
18(b) Pre-Acquisition Disclosure Requirements
1. Written and electronic pre-acquisition disclosures. Section
1005.4(a)(1) generally requires that disclosures be made in writing;
written disclosures may be provided in electronic form in accordance
with the Electronic Signatures in Global and National Commerce Act (E-
Sign Act) (15 U.S.C. 7001 et seq.). Because Sec. 1005.18(b)(6)(i)(B)
provides that electronic disclosures required by Sec. 1005.18(b) need
not meet the consumer consent or other applicable provisions of the E-
Sign Act, Sec. 1005.18(b) addresses certain requirements for written and
electronic pre-acquisition disclosures separately. Section 1005.18(b)
also addresses specific requirements for pre-acquisition disclosures
provided orally.
2. Currency. Fee amounts required to be disclosed by Sec. 1005.18(b)
may be disclosed in a foreign currency for a prepaid account denominated
in that foreign currency, other than the fee for the purchase price
required by Sec. 1005.18(b)(5). For example, a prepaid account sold in a
U.S. airport intended for use in England may disclose in pound sterling
([pound]) the fees required to be disclosed in the short form and long
form disclosures and outside the short form disclosure, except for the
purchase price.
18(b)(1) Timing of Disclosures
18(b)(1)(i) General
1. Disclosing the short form and long form before acquisition.
Section 1005.18(b)(1)(i) generally requires delivery of a short form
disclosure as described in Sec. 1005.18(b)(2), accompanied by the
information required to be disclosed by Sec. 1005.18(b)(5), and a long
form disclosure as described in Sec. 1005.18(b)(4) before a consumer
acquires a prepaid account. For purposes of Sec. 1005.18(b)(1)(i), a
consumer acquires a prepaid account by purchasing, opening or choosing
to be paid via a prepaid account, as illustrated by the following
examples:
i. A consumer inquires about obtaining a prepaid account at a branch
location of a bank. A consumer then receives the disclosures required by
Sec. 1005.18(b). After receiving the disclosures, a consumer then opens
a prepaid account with the bank. This consumer received the short form
and long form pre-acquisition in accordance with Sec. 1005.18(b)(1)(i).
ii. A consumer learns that he or she can receive wages via a payroll
card account, at which time the consumer is provided with a payroll card
and the disclosures required by Sec. 1005.18(b) to review. The consumer
then chooses to receive wages via a payroll card account. These
disclosures were provided pre-acquisition in compliance with
Sec. 1005.18(b)(1)(i). By contrast, if a consumer receives the
disclosures required by Sec. 1005.18(b) to review at the end of the
first pay period, after the consumer received the first payroll payment
on the payroll card, these disclosures were provided to a consumer post-
acquisition, and thus not provided in compliance with
Sec. 1005.18(b)(1)(i).
2. Disclosures provided electronically. Disclosures required by
Sec. 1005.18(b) may be provided before or after a consumer has initiated
the process of acquiring a prepaid account electronically. When the
disclosures required by Sec. 1005.18(b) are presented after a consumer
has initiated the process for acquiring a prepaid account online or via
a mobile device, but before a consumer chooses to accept the prepaid
account, such disclosures are also made pre-acquisition in accordance
with Sec. 1005.18(b)(1)(i). The disclosures required by Sec. 1005.18(b)
that are provided electronically when a consumer acquires a prepaid
account electronically are not considered to be given pre-acquisition
unless a consumer must view the Web page containing the disclosures
before choosing to accept the prepaid account. The following examples
illustrate several methods by which a financial institution may present
Sec. 1005.18(b) disclosures before a consumer acquires a prepaid account
electronically in compliance with Sec. 1005.18(b)(1)(i):
i. A financial institution presents the short form disclosure
required by Sec. 1005.18(b)(2), together with the information required
by Sec. 1005.18(b)(5), and the long form disclosure required by
Sec. 1005.18(b)(4) on the same Web page. A consumer must view the Web
page before choosing to accept the prepaid account.
ii. A financial institution presents the short form disclosure
required by Sec. 1005.18(b)(2), together with the information required
by Sec. 1005.18(b)(5), on a Web page. The financial institution
includes, after the short form disclosure or as part of the statement
required by Sec. 1005.18(b)(2)(xiii), a link that directs the consumer
to a separate Web page containing the long form disclosure required by
Sec. 1005.18(b)(4). The consumer must view the Web page containing the
long form disclosure before choosing to accept the prepaid account.
iii. A financial institution presents on a Web page the short form
disclosure required by Sec. 1005.18(b)(2), together with the information
required by Sec. 1005.18(b)(5), followed by the initial disclosures
required by Sec. 1005.7(b), which contains the long form disclosure
required by Sec. 1005.18(b)(4), in accordance with Sec. 1005.18(f)(1).
The financial institution includes, after the short form disclosure or
as part of the statement required by Sec. 1005.18(b)(2)(xiii), a link
that directs the consumer to the section of the initial disclosures
containing the long form disclosure
[[Page 314]]
pursuant to Sec. 1005.18(b)(4). A consumer must view this Web page
before choosing to accept the prepaid account.
18(b)(1)(ii) Disclosures for Prepaid Accounts Acquired in Retail
Locations
1. Retail locations. Section 1005.18(b)(1)(ii) sets forth an
alternative timing regime for pre-acquisition disclosures for prepaid
accounts acquired in person at retail locations. For purposes of
Sec. 1005.18(b)(1)(ii), a retail location is a store or other physical
site where a consumer can purchase a prepaid account in person and that
is operated by an entity other than the financial institution that
issues the prepaid account. A branch of a financial institution that
offers its own prepaid accounts is not a retail location with respect to
those accounts and, thus, both the short form and the long form
disclosure must be provided pre-acquisition pursuant to the timing
requirement set forth in Sec. 1005.18(b)(1)(i).
2. Disclosures provided inside prepaid account access device
packaging material. Except when providing the long form disclosure post-
acquisition in accordance with the retail location exception set forth
in Sec. 1005.18(b)(1)(ii), the disclosures required by
Sec. 1005.18(b)(2), (4), and (5) must be provided to a consumer pre-
acquisition in compliance with Sec. 1005.18(b)(1)(i). A short form
disclosures is not considered to have been provided pre-acquisition if,
for example, it is inside the packaging material accompanying a prepaid
account access device such that the consumer cannot see or access the
disclosures before acquiring the prepaid account.
3. Consumers working in retail locations. A payroll card account
offered to consumers working in retail locations is not eligible for the
retail location exception in Sec. 1005.18(b)(1)(ii); thus, a consumer
employee must receive both the short form and long form disclosures for
the payroll card account pre-acquisition pursuant to the timing
requirement set forth in Sec. 1005.18(b)(1)(i).
4. Providing the long form disclosure by telephone and Web site
pursuant to the retail location exception. Pursuant to
Sec. 1005.18(b)(1)(ii), a financial institution may provide the long
form disclosure described in Sec. 1005.18(b)(4) after a consumer
acquires a prepaid account in a retail location, if the conditions set
forth in Sec. 1005.18(b)(1)(ii)(A) through (D) are met. Pursuant to
Sec. 1005.18(b)(1)(ii)(C), a financial institution must make the long
form disclosure accessible to consumers by telephone and via a Web site
when not providing a written version of the long form disclosure pre-
acquisition. A financial institution may, for example, provide the long
form disclosure by telephone using an interactive voice response or
similar system or by using a customer service agent.
18(b)(1)(iii) Disclosures for Prepaid Accounts Acquired Orally by
Telephone
1. Prepaid accounts acquired by telephone. Section
1005.18(b)(1)(iii) sets forth requirements for prepaid accounts acquired
orally by telephone. For purposes of Sec. 1005.18(b)(1)(iii), a prepaid
account is considered to have been acquired orally by telephone when a
consumer speaks to a customer service agent or communicates with an
automated system, such as an interactive voice response system, to
provide personally identifiable information to acquire a prepaid
account. Prepaid accounts acquired using a mobile device without
speaking to a customer service agent or communicating with an automated
system are not considered to have been acquired orally by telephone.
2. Disclosures for prepaid accounts acquired by telephone. Pursuant
to Sec. 1005.18(b)(1)(iii), a financial institution must disclose the
information required by Sec. 1005.18(b)(2) and (5) orally before a
consumer acquires a prepaid account orally by telephone. A financial
institution may, for example, provide these disclosures by using an
interactive voice response or similar system or by using a customer
service agent, after the consumer has initiated the purchase of a
prepaid account by telephone, but before the consumer acquires the
prepaid account. In addition, a financial institution must provide the
initial disclosures required by Sec. 1005.7, as modified by
Sec. 1005.18(f)(1), before the first electronic fund transfer is made
involving the prepaid account.
18(b)(2) Short Form Disclosure Content
1. Disclosures that are not applicable or are free. The short form
disclosures required by Sec. 1005.18(b)(2) must always be provided prior
to prepaid account acquisition, even when a particular feature is free
or is not applicable to a specific prepaid account product. For example,
if a financial institution does not charge a fee to a consumer for
withdrawing money at an automated teller machine in the financial
institution's network or an affiliated network, which is required to be
disclosed pursuant to Sec. 1005.18(b)(2)(iii), the financial institution
would list ``ATM withdrawal in-network'' on the short form disclosure
and list ``$0'' as the fee. If, however, the financial institution does
not have its own network or an affiliated network from which a consumer
can withdraw money via automated teller machine, the financial
institution would list ``ATM withdrawal in-network'' on the short form
disclosure but instead of disclosing a fee amount, state ``N/A.'' (The
financial institution must still disclose any fee it charges for out-of-
network ATM withdrawals.)
2. Prohibition on disclosure of finance charges. Pursuant to
Sec. 1005.18(b)(3)(vi), a financial institution may not include in the
[[Page 315]]
short form disclosure finance charges as described in Regulation Z, 12
CFR 1026.4(b)(11), imposed in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in
Sec. 1026.61. See also comment 18(b)(3)(vi)-1.
18(b)(2)(i) Periodic Fee
1. Periodic fee variation. If the amount of a fee disclosed on the
short form could vary, the financial institution must disclose in the
short form the information required by Sec. 1005.18(b)(3)(i). If the
amount of the periodic fee could vary, the financial institution may opt
instead to use an alternative disclosure pursuant to
Sec. 1005.18(b)(3)(ii). See comments 18(b)(3)(i)-1 and 18(b)(3)(ii)-1.
18(b)(2)(iii) ATM Withdrawal Fees
1. International ATM withdrawal fees. Pursuant to
Sec. 1005.18(b)(2)(iii), a financial institution must disclose the fees
imposed when a consumer uses an automated teller machine to initiate a
withdrawal of cash in the United States from the prepaid account, both
within and outside of the financial institution's network or a network
affiliated with the financial institution. A financial institution may
not disclose its fee (if any) for using an automated teller machine to
initiate a withdrawal of cash in a foreign country in the disclosure
required by Sec. 1005.18(b)(2)(iii), although it may be required to
disclose that fee as an additional fee type pursuant to
Sec. 1005.18(b)(2)(ix).
18(b)(2)(iv) Cash Reload Fee
1. Total of all charges. Pursuant to Sec. 1005.18(b)(2)(iv), a
financial institution must disclose the total of all charges imposed
when a consumer reloads cash into a prepaid account, including charges
imposed by the financial institution as well as any charges that may be
imposed by third parties for the cash reload. The cash reload fee
includes the cost of adding cash to the prepaid account at a point-of-
sale terminal, the cost of purchasing an additional card or other device
on which cash is loaded and then transferred into the prepaid account,
or any other method a consumer may use to reload cash into the prepaid
account. For example, a financial institution does not have its own
proprietary cash reload network and instead contracts with a third-party
reload network for this service. The financial institution itself does
not charge any fee related to cash reloads but the third-party reload
network charges a fee of $3.95 per cash reload. The financial
institution must disclose the cash reload fee as $3.95. If the financial
institution offers more than one method to reload cash into the prepaid
account, Sec. 1005.18(b)(3)(i) requires disclosure of the highest cash
reload fee. For example, a financial institution contracts with two
third-party cash reload networks; one third party charges $3.95 for a
point-of-sale reload and the other third party charges $2.95 for
purchase of a reload pack. In addition to the third-party cash reload
charge, the financial institution charges a $1 fee for every cash
reload. The financial institution must disclose the cash reload fee on
the short form as $4.95, that is, the highest third-party fee plus the
financial institution's $1 fee. See comments 18(b)(3)(v)-1 for
additional guidance regarding third-party fees for cash reloads.
2. Cash deposit fee. If a financial institution does not permit cash
reloads via a third-party reload network but instead permits cash
deposits, for example, in a bank branch, the term ``cash deposit'' may
be substituted for ``cash reload.''
18(b)(2)(v) ATM Balance Inquiry Fees
1. International ATM balance inquiry fees. Pursuant to
Sec. 1005.18(b)(2)(v), a financial institution must disclose the fees
imposed when a consumer uses an automated teller machine to check the
balance of the prepaid account in the United States, both within and
outside of the financial institution's network or a network affiliated
with the financial institution. A financial institution may not disclose
its fee (if any) for using an automated teller machine to check the
balance of the prepaid account in a foreign country in the disclosure
required by Sec. 1005.18(b)(2)(v), although it may be required to
disclose that fee as an additional fee type pursuant to
Sec. 1005.18(b)(2)(ix).
18(b)(2)(vii) Inactivity Fee
1. Inactivity fee conditions. Section 1005.18(b)(2)(vii) requires
disclosure of any fee for non-use, dormancy, or inactivity of the
prepaid account as well as the conditions that trigger the financial
institution to impose that fee. For example, a financial institution
that imposes an inactivity fee of $1 per month after 12 months without
any transactions on the prepaid account would disclose on the short form
``Inactivity (after 12 months with no transactions)'' and ``$1.00 per
month.''
18(b)(2)(viii) Statements Regarding Additional Fee Types
18(b)(2)(viii)(A) Statement Regarding Number of Additional Fee Types
Charged
1. Fee types counted in total number of additional fee types.
Section 1005.18(b)(2)(viii)(A) requires a statement disclosing the
number of additional fee types the financial institution may charge
consumers with respect to the prepaid account, using the following
clause or a substantially similar clause: ``We charge [x] other types of
fees.'' The number of additional fee types disclosed must reflect the
total number of fee types under which
[[Page 316]]
the financial institution may charge fees, excluding fees required to be
disclosed pursuant to Sec. 1005.18(b)(2)(i) through (vii) and (b)(5) and
any finance charges as described in Regulation Z, 12 CFR 1026.4(b)(11),
imposed in connection with a covered separate credit feature accessible
by a hybrid prepaid-credit card as defined in 12 CFR 1026.61. The
following clarify which fee types to include in the total number of
additional fee types:
i. Fee types excluded from the number of additional fee types. The
number of additional fee types required to be disclosed pursuant to
Sec. 1005.18(b)(2)(viii)(A) does not include the fees otherwise required
to be disclosed in the short form pursuant to Sec. 1005.18(b)(2)(i)
through (vii), nor any purchase fee or activation fee required to be
disclosed outside the short form pursuant to Sec. 1005.18(b)(5). It also
does not include any finance charges as described in Regulation Z, 12
CFR 1026.4(b)(11), imposed in connection with a credit feature defined
in 12 CFR 1026.61. The number of additional fee types includes only fee
types under which the financial institution may charge fees;
accordingly, third-party fees are not included unless they are imposed
for services performed on behalf of the financial institution. In
addition, the number of additional fee types includes only fee types the
financial institution may charge consumers with respect to the prepaid
account; accordingly, additional fee types does not include other
revenue sources such as interchange fees or fees paid by employers for
payroll card programs, government agencies for government benefit
programs, or other entities sponsoring prepaid account programs for
financial disbursements.
ii. Fee types counted in the number of additional fee types. Fee
types that bear a relationship to, but are separate from, the static fee
types disclosed in the short form must be counted as additional fees for
purposes of Sec. 1005.18(b)(2)(viii). For example, the ATM withdrawal
and ATM balance inquiry fee types required to be disclosed respectively
by Sec. 1005.18(b)(2)(iii) and (v) that are excluded from the number of
additional fee types pursuant to Sec. 1005.18(b)(2)(viii) do not include
such services outside of the United States. Thus, any international ATM
fees charged by the financial institution for ATM withdrawal or balance
inquiries must each be counted in the total number of additional fee
types. Similarly, any fees for reloading funds into a prepaid account in
a form other than cash (such as electronic reload and check reload, as
described in comment 18(b)(2)(viii)(A)-2) must be counted in the total
number of additional fee types because Sec. 1005.18(b)(2)(iv) is limited
to cash reloads. Also, additional fee types disclosed in the short form
pursuant to Sec. 1005.18(b)(2)(ix) must be counted in the total number
of additional fee types.
2. Examples of fee types and fee variations. The term fee type, as
used in Sec. 1005.18(b)(2)(viii) and (ix), is a general category under
which a financial institution charges fees to consumers. A financial
institution may charge only one fee within a particular fee type, or may
charge two or more variations of fees within the same fee type. The
following is a list of examples of fee types a financial institution may
use when determining both the number of additional fee types charged
pursuant to Sec. 1005.18(b)(2)(viii)(A) and any additional fee types to
disclose pursuant to Sec. 1005.18(b)(2)(ix). A financial institution may
create an appropriate name for other additional fee types.
i. Fee types related to reloads of funds. Fees for reloading funds
into a prepaid account. Fees for cash reloads are required to be
disclosed in the short form pursuant to Sec. 1005.18(b)(2)(iv) and that
such fees are not counted in the total number of additional fee types or
disclosed as an additional fee type pursuant to Sec. 1005.18(b)(2)(ix).
Fee types for other methods to reload funds, such as Electronic reload
or Check reload, would be counted in the total number of additional fee
types and may be required to be disclosed as additional fee types
pursuant to Sec. 1005.18(b)(2)(ix).
A. Electronic reload. Fees for reloading a prepaid account through
electronic methods. Fee variations within this fee type may include fees
for transferring funds from a consumer's bank account via ACH, reloads
conducted using a debit card or credit card, and for incoming wire
transfers.
B. Check reload. Fees for reloading a prepaid account using checks.
Fee variations within this fee type may include fees for depositing
checks at an ATM, depositing checks with a teller at the financial
institution's branch location, mailing checks to the financial
institution for deposit, and depositing checks using remote deposit
capture.
ii. Fee types related to withdrawals of funds. Fees for withdrawing
funds from a prepaid account. Per purchase fees and ATM withdrawal fees
within the United States are fee types required to be disclosed in the
short form respectively pursuant to Sec. 1005.18(b)(2)(ii) and (iii) and
thus such fees are not counted in the total number of additional fee
types or disclosed as an additional fee type pursuant to
Sec. 1005.18(b)(2)(ix). Fee types for other methods to withdraw funds,
such as Electronic withdrawal, Teller withdrawal, Cash back at point of
sale (POS), and Account closure would be counted in the total of
additional fee types and may be required to be disclosed as additional
fee types pursuant to Sec. 1005.18(b)(2)(ix).
A. Electronic withdrawal. Fees for withdrawing funds from a prepaid
account through electronic methods other than an ATM. Fee variations
within this fee type
[[Page 317]]
may include fees for transferring funds from the prepaid account to a
consumer's bank account or other destination.
B. Teller withdrawal. Fees for withdrawing funds from a prepaid
account in person with a teller at a bank or credit union. Fee
variations within this fee type may include fees for withdrawing funds,
whether at the financial institution's own branch locations or at
another bank or credit union.
C. Cash back at POS. Fees for withdrawing cash from a prepaid
account via cash back at a merchant's point-of-sale terminal.
D. Account closure. Fees for closing out a prepaid account, such as
for a check refund. Fee variations within this fee type may include fees
for regular and expedited delivery of close-out funds.
iii. Fee types related to international transactions. Fee types for
international transactions and ATM activity.
A. International ATM withdrawal. Fees for withdrawing funds at an
ATM outside the United States. This fee type does not include fees for
ATM withdrawals in the United States, as such fees are required to be
disclosed in the short form pursuant to Sec. 1005.18(b)(2)(iii).
B. International ATM balance inquiry. Fees for balance inquiries at
an ATM outside the United States. This fee type does not include fees
for ATM balance inquiries in the United States, as such fees are
required to be disclosed in the short form pursuant to
Sec. 1005.18(b)(2)(v).
C. International transaction (excluding ATM withdrawal and balance
inquiry). Fees for transactions outside the United States. Fee
variations within this fee type may include fees for currency
conversion, foreign exchange processing, and other charges for
transactions outside of the United States.
iv. Bill payment. Fees for bill payment services. Fee variations
within this fee type may include fees for ACH bill payment, paper check
bill payment, check cancellation, and expedited delivery of paper check.
v. Person-to-person or card-to-card transfer of funds. Fees for
transferring funds from one prepaid account to another prepaid account.
Fee variations within this fee type may include fees for transferring
funds to another prepaid account within or outside of a specified
prepaid account program, transferring funds to another cardholder within
United States or outside the United States, and expedited transfer of
funds.
vi. Paper checks. Fees for providing paper checks that draw on the
prepaid account. Fee variations within this fee type may include fees
for providing checks and associated shipping costs. This does not
include checks issued as part of a bill pay service, which are addressed
in comment 18(b)(2)(viii)(A)-2.iv above.
vii. Stop payment. Fees for stopping payment of a preauthorized
transfer of funds.
viii. Fee types related to card services. Fee types for card
services.
A. Card replacement. Fees for replacing or reissuing a prepaid card
that has been lost, stolen, damaged, or that has expired. Fee variations
within this fee types may include fees for replacing the card, regular
or expedited delivery of the replacement card, and international card
replacement.
B. Secondary card. Fees for issuing an additional access device
assigned to a particular prepaid account.
C. Personalized card. Fees for customizing or personalizing a
prepaid card.
ix. Legal. Fees for legal process. Fee variations within this fee
type may include fees for garnishments, attachments, levies, and other
court or administrative orders against a prepaid account.
3. Multiple service plans. Pursuant to Sec. 1005.18(b)(2)(vi), a
financial institution using the multiple service plan short form
disclosure pursuant to Sec. 1005.18(b)(6)(iii)(B)(2) must disclose only
the fee for calling customer service via a live agent. Thus, pursuant to
Sec. 1005.18(b)(2)(viii), any charge for calling customer service via an
interactive voice response system must be counted in the total number of
additional fee types.
4. Consistency in additional fee type categorization. A financial
institution must use the same categorization of fee types in the number
of additional fee types disclosed pursuant to Sec. 1005.18(b)(2)(viii)
and in its determination of which additional fee types to disclose
pursuant to Sec. 1005.18(b)(2)(ix).
18(b)(2)(viii)(B) Statement Directing Consumers to Disclosure of
Additional Fee Types
1. Statement clauses. Section 1005.18(b)(2)(viii)(B) requires, if a
financial institution makes a disclosure of additional fee types
pursuant to Sec. 1005.18(b)(2)(ix), it must include in the short form a
statement directing consumers to that disclosure, located after but on
the same line of text as the statement regarding the number of
additional fee types required by Sec. 1005.18(b)(2)(viii)(A), using the
following clause or a substantially similar clause: ``Here are some of
them:''. A financial institution that makes no disclosure pursuant to
Sec. 1005.18(b)(2)(ix) may not include a disclosure pursuant to
Sec. 1005.18(b)(2)(viii)(B). The following examples provide guidance
regarding substantially similar clauses a financial institution may use
in certain circumstances to make its disclosures under
Sec. 1005.18(b)(2)(viii)(A) and (B):
i. A financial institution that has one additional fee type and
discloses that additional fee type pursuant to Sec. 1005.18(b)(2)(ix)
might provide the statements required by Sec. 1005.18(b)(2)(viii)(A) and
(B) together as: ``We charge 1 other type of fee. It is:''.
[[Page 318]]
ii. A financial institution that has five additional fee types and
discloses one of those additional fee types pursuant to
Sec. 1005.18(b)(2)(ix) might provide the statements required by
Sec. 1005.18(b)(2)(viii)(A) and (B) together as: ``We charge 5 other
types of fees. Here is 1 of them:''.
iii. A financial institution that has two additional fee types and
discloses both of those fee types pursuant to Sec. 1005.18(b)(2)(ix)
might provide the statement required by Sec. 1005.18(b)(2)(viii)(A) and
(B) together as: ``We charge 2 other types of fees. They are:''.
18(b)(2)(ix) Disclosure of Additional Fee Types
18(b)(2)(ix)(A) Determination of Which Additional Fee Types To Disclose
1. Number of fee types to disclose. Section 1005.18(b)(2)(ix)(A)
requires disclosure of the two fee types that generate the highest
revenue from consumers for the prepaid account program or across prepaid
account programs that share the same fee schedule during the time period
provided in Sec. 1005.18(b)(2)(ix)(D) and (E), excluding the categories
set forth in Sec. 1005.18(b)(2)(ix)(A)(1) through (3). See comment
18(b)(2)(viii)(A)-2 for guidance on and examples of fee types. If a
prepaid account program has two fee types that satisfy the criteria in
Sec. 1005.18(b)(2)(ix)(A), it must disclose both fees. If a prepaid
account program has three or more fee types that potentially satisfy the
criteria in Sec. 1005.18(b)(2)(ix)(A), the financial institution must
disclose only the two fee types that generate the highest revenue from
consumers. See comment 18(b)(2)(ix)(B)-1 for guidance regarding the
disclosure of additional fee types for a prepaid account with fewer than
two fee types that satisfy the criteria in Sec. 1005.18(b)(2)(ix)(A).
2. Abbreviations. Commonly accepted or readily understandable
abbreviations may be used as needed for additional fee types and fee
variations disclosed pursuant to Sec. 1005.18(b)(2)(ix). For example, to
accommodate on one line in the short form disclosure the additional fee
types ``international ATM balance inquiry'' or ``person-to-person
transfer of funds,'' with or without fee variations, a financial
institution may choose to abbreviate the fee type name as ``Int'l ATM
inquiry'' or ``P2P transfer.''
3. Revenue from consumers. The revenue calculation for the
disclosure of additional fee types pursuant to Sec. 1005.18(b)(2)(ix)(A)
is based on fee types that the financial institution may charge
consumers with respect to the prepaid account. The calculation excludes
other revenue sources such as revenue generated from interchange fees
and fees paid by employers for payroll card programs, government
agencies for government benefit programs, and other entities sponsoring
prepaid account programs for financial disbursements. It also excludes
third-party fees, unless they are imposed for services performed on
behalf of the financial institution.
4. Assessing revenue within and across prepaid account programs to
determine disclosure of additional fee types. Pursuant to
Sec. 1005.18(b)(2)(ix)(A), the disclosure of the two fee types that
generate the highest revenue from consumers must be determined for each
prepaid account program or across prepaid account programs that share
the same fee schedule. Thus, if a financial institution offers more than
one prepaid account program, unless the programs share the same fee
schedule, the financial institution must consider the fee revenue data
separately for each prepaid account program and not consolidate the fee
revenue data across prepaid account programs. Prepaid account programs
are deemed to have the same fee schedules if they charge the same fee
amounts, including offering the same fee waivers and fee reductions for
the same features. The following examples illustrate how to assess
revenue within and across prepaid account programs to determine the
disclosure of additional fee types:
i. Prepaid account programs with different fee schedules. A
financial institution offers multiple prepaid account programs and each
program has a different fee schedule. The financial institution must
consider the revenue from consumers for each program separately; it may
not consider the revenue from all of its prepaid account programs
together in determining the disclosure of additional fee types for its
programs.
ii. Prepaid account programs with identical fee schedules. A
financial institution offers multiple prepaid account programs and they
all share the same fee schedule. The financial institution may consider
the revenue across all of its prepaid account programs together in
determining the disclosure of additional fee types for its programs.
iii. Prepaid account programs with both different fee schedules and
identical fee schedules. A financial institution offers multiple prepaid
account programs, some of which share the same fee schedule. The
financial institution may consider the revenue across all prepaid
account programs with identical fee schedules in determining the
disclosure of additional fee types for those programs. The financial
institution must separately consider the revenue from each of the
prepaid account programs with unique fee schedules.
iv. Multiple service plan prepaid account programs. A financial
institution that discloses multiple service plans on a short form
disclosure as permitted by Sec. 1005.18(b)(6)(iii)(B)(2) must consider
revenue across all of those plans in determining the disclosure of
additional fee types for that program. If, however, the financial
institution instead is disclosing the default service plan pursuant to
Sec. 1005.18(b)(6)(iii)(B)(1), the
[[Page 319]]
financial institution must consider the revenue generated from consumers
for the default service plan only. See Sec. 1005.18(b)(6)(iii)(B)(2) and
comment 18(b)(6)(iii)(B)(2)-1 for guidance on what constitutes multiple
service plans.
5. Exclusions. Once the financial institution has calculated the fee
revenue data for the prepaid account program or across prepaid account
programs that share the same fee schedule during the appropriate time
period, it must remove from consideration the categories excluded
pursuant to Sec. 1005.18(b)(2)(ix)(A)(1) through (3) before determining
the fee types, if any, that generated the highest revenue.
i. Exclusion for fee types required to be disclosed elsewhere. Fee
types otherwise required to be disclosed in or outside the short form
are excluded from the additional fee types required to be disclose
pursuant to Sec. 1005.18(b)(2)(ix)(A)(1). Thus, the following fee types
are excluded: Periodic fee, per purchase fee, ATM withdrawal fees (for
ATM withdrawals in the United States), cash reload fee, ATM balance
inquiry fees (for ATM balance inquiries in the United States), customer
service fees, and inactivity fee. However, while the cash reload fee
type is excluded, other reload fee types, such as electronic reload and
check reload, are not excluded under Sec. 1005.18(b)(2)(ix)(A)(1) and
thus may be disclosed as additional fee types pursuant to
Sec. 1005.18(b)(2)(ix). Similarly, while the fee types ATM withdrawal
and ATM balance inquiry in the United States are excluded, international
ATM withdrawal and international ATM balance inquiry fees are not
excluded under Sec. 1005.18(b)(2)(ix)(A)(1) and thus may be disclosed as
additional fee types pursuant to Sec. 1005.18(b)(2)(ix). Also pursuant
to Sec. 1005.18(b)(2)(ix)(A)(1), the purchase price and activation fee,
if any, required to be disclosed outside the short form disclosure
pursuant to Sec. 1005.18(b)(5), are excluded from the additional fee
types required to be disclosed pursuant to Sec. 1005.18(b)(2)(ix).
ii. De minimis exclusion. Any fee types that generated less than 5
percent of the total revenue from consumers for the prepaid account
program or across prepaid account programs that share the same fee
schedule during the time period provided in Sec. 1005.18(b)(2)(ix)(D)
and (E) are excluded from the additional fee types required to be
disclosed pursuant to Sec. 1005.18(b)(2)(ix)(A)(2). For example, for a
particular prepaid account program over the appropriate time period,
bill payment, check reload, and card replacement are the only fee types
that generated 5 percent or more of the total revenue from consumers at,
respectively, 15 percent, 10 percent, and 7 percent. Two other fee
types, legal fee and personalized card, generated revenue below 1
percent of the total revenue from consumers. The financial institution
must disclose bill payment and check reload as the additional fee types
for that particular prepaid account program because those two fee types
generated the highest revenue from consumers from among the categories
not excluded from disclosure as additional fee types. For a different
prepaid account program over the appropriate time period, bill payment
is the only fee type that generated 5 percent or more of the total
revenue from consumers. Two other fee types, check reload and card
replacement, each generated revenue below 5 percent of the total revenue
from consumers. The financial institution must disclose bill payment as
an additional fee type for that particular prepaid account program
because it is the only fee type that satisfies the criteria of
Sec. 1005.18(b)(2)(ix)(A). The financial institution may, but is not
required to, disclose either check reload or card replacement on the
short form as well, pursuant to Sec. 1005.18(b)(2)(ix)(B). See comment
18(b)(2)(ix)(B)-1.
iii. Exclusion for credit-related fees. Any finance charges as
described in Regulation Z, 12 CFR 1026.4(b)(11), imposed in connection
with a covered separate credit feature accessible by a hybrid prepaid-
credit card as defined in 12 CFR 1026.61, are excluded from the
additional fee types required to be disclosed pursuant to
Sec. 1005.18(b)(2)(ix)(A)(3). Pursuant to
Sec. 1005.18(b)(2)(viii)(A)(2), such finance charges are also excluded
from the number of additional fee types disclosed.
18(b)(2)(ix)(B) Disclosure of Fewer Than Two Additional Fee Types
1. Disclosure of one or no additional fee types. The following
examples provide guidance on the additional fee types disclosure
pursuant to Sec. 1005.18(b)(2)(ix)(B) for a prepaid account with fewer
than two fee types that satisfy the criteria in
Sec. 1005.18(b)(2)(ix)(A):
i. A financial institution has a prepaid account program with only
one fee type that satisfies the criteria in Sec. 1005.18(b)(2)(ix)(A)
and thus, pursuant to Sec. 1005.18(b)(2)(ix)(A), the financial
institution must disclose that one fee type. The prepaid account program
has three other fee types that generate revenue from consumers, but they
do not exceed the de minimis threshold or otherwise satisfy the criteria
in Sec. 1005.18(b)(2)(ix)(B). Pursuant to Sec. 1005.18(b)(2)(ix)(B), the
financial institution is not required to make any additional disclosure,
but it may choose to disclose one of the three fee types that do not
meet the criteria in Sec. 1005.18(b)(2)(ix)(A).
ii. A financial institution has a prepaid account program with four
fee types that generate revenue from consumers, but none exceeds the de
minimis threshold or otherwise satisfy the criteria in
Sec. 1005.18(b)(2)(ix)(A). Pursuant to Sec. 1005.18(b)(2)(ix)(B), the
financial institution is not required to make any disclosure, but it may
choose to disclose one
[[Page 320]]
or two of the fee types that do not meet the criteria in
Sec. 1005.18(b)(2)(ix)(A).
2. No disclosure of finance charges as an additional fee type.
Pursuant to Sec. 1005.18(b)(3)(vi), a financial institution may not
disclose any finance charges as a voluntary additional fee disclosure
under Sec. 1005.18(b)(2)(ix)(B).
18(b)(2)(ix)(C) Fee Variations in Additional Fee Types
1. Two or more fee variations. Section 1005.18(b)(2)(ix)(C)
specifies how to disclose additional fee types with two fee variations,
more than two fee variations, and for multiple service plans pursuant to
Sec. 1005.18(b)(6)(iii)(B)(2). See comment 18(b)(2)(viii)(A)-2 for
guidance on and examples of fee types and fee variations within those
fee types. The following examples illustrate how to disclose two-tier
fees and other fee variations in additional fee types:
i. Two fee variations with different fee amounts. A financial
institution charges a fee of $1 for providing a card replacement using
standard mail service and charges a fee of $5 for providing a card
replacement using expedited delivery. The financial institution must
calculate the total revenue generated from consumers for all card
replacements, both via standard mail service and expedited delivery,
during the required time period to determine whether it is required to
disclose card replacement as an additional fee type pursuant to
Sec. 1005.18(b)(2)(ix). Because there are only two fee variations for
the fee type ``card replacement,'' if card replacement is required to be
disclosed as an additional fee type pursuant to
Sec. 1005.18(b)(2)(ix)(A), the financial institution must disclose both
fee variations pursuant to Sec. 1005.18(b)(2)(ix)(C). Thus, the
financial institution would disclose on the short form the fee type and
two variations as ``Card replacement (regular or expedited delivery)''
and the fee amount as ``$1.00 or $5.00''.
ii. More than two fee variations. A financial institution offers two
methods of bill payment--via ACH and paper check--and offers two modes
of delivery for bill payments made by paper check--regular standard mail
service and expedited delivery. The financial institution charges $0.25
for bill pay via ACH, $0.50 for bill pay via paper check sent by regular
standard mail service, and $3 for bill pay via paper check sent via
expedited delivery. The financial institution must calculate the total
revenue generated from consumers for all methods of bill pay and all
modes of delivery during the required time period to determine whether
it must disclose bill payment as an additional fee type pursuant to
Sec. 1005.18(b)(2)(ix). Because there are more than two fee variations
for the fee type ``bill payment,'' if bill payment is required to be
disclosed as an additional fee type pursuant to
Sec. 1005.18(b)(2)(ix)(A), the financial institution must disclose the
highest fee, $3, followed by a symbol, such as an asterisk, linked to a
statement explaining that the fee could be lower depending on how and
where the prepaid account is used, pursuant to Sec. 1005.18(b)(3)(i).
Thus, the financial institution would disclose on the short form the fee
type as ``Bill payment'' and the fee amount as ``$3.00*''.
iii. Two fee variations with like fee amounts. A financial
institution offers two methods of check reload for which it charges a
fee--depositing checks at an ATM and depositing checks with a teller at
the financial institution's branch locations. There is a fee of $0.50
for both methods of check deposit. The financial institution must
calculate the total revenue generated from both of these check reload
methods during the required time period to determine whether it must
disclose this fee type as an additional fee type pursuant to
Sec. 1005.18(b)(2)(ix). Because the fee amounts are the same for the two
methods of check deposit, if the fee type is required to be disclosed as
an additional fee type, the financial institution's options for
disclosing this fee type in accordance with Sec. 1005.18(b)(2)(ix)(C)
and (b)(3)(iii) include: ``Check reload (ATM or teller check dep)'' and
the fee amount as ``$0.50'' or ``Check reload'' and the fee amount as
``$0.50''.
iv. Multiple service plans. A financial institution provides a short
form disclosure for multiple service plans pursuant to
Sec. 1005.18(b)(6)(iii)(B)(2). Notwithstanding that an additional fee
type has only two fee variations, a financial institution must disclose
the highest fee in accordance with Sec. 1005.18(b)(3)(i).
2. One fee variation under a particular fee type. Section
1005.18(b)(2)(ix)(C) provides in part that, if a financial institution
only charges one fee under a particular fee type, the financial
institution must disclose the name of the additional fee type and the
fee amount; it may, but is not required to, disclose also the name of
the one fee variation, if any, for which the fee amount is charged, in a
format substantially similar to that used to disclose the two-tier fees
required by Sec. 1005.18(b)(2)(v) and (vi), except that the financial
institution must disclose only the one fee variation name and fee amount
instead of two. For example, a financial institution offers one method
of electronic reload for which it charges a fee--electronic reload
conducted using a debit card. The financial institution must calculate
the total revenue generated from consumers for the fee type electronic
reload (i.e., in this case, electronic reloads conducted using a debit
card) during the required time period to determine whether it must
disclose electronic reload as an additional fee type pursuant to
Sec. 1005.18(b)(2)(ix). Because the financial institution only charges
one fee variation under the fee type electronic reload, if this fee type
is required to be disclosed as an additional
[[Page 321]]
fee type, the financial institution has two options for disclosing this
fee type in accordance with Sec. 1005.18(b)(2)(ix)(C): ``Electronic
reload (debit card)'' and the fee amount as ``$1.00'' or ``Electronic
reload'' and the fee amount as ``$1.00''.
18(b)(2)(ix)(D) Timing of Initial Assessment of Additional Fee Types
Disclosure
18(b)(2)(ix)(D)(1) Existing Prepaid Account Programs as of October 1,
2017
1. 24 month period with available data. Section
1005.18(b)(2)(ix)(D)(1) requires for a prepaid account program in effect
as of October 1, 2017 the financial institution must disclose additional
fee types based on revenue for a 24-month period that begins no earlier
than October 1, 2014. Thus, a prepaid account program that was in
existence as of October 1, 2017 must assess its additional fee types
disclosure from data collected during a consecutive 24-month period that
took place between October 1, 2014 and October 1, 2017. For example, an
existing prepaid account program was first offered to consumers on
January 1, 2012 and provides its first short form disclosure on October
1, 2017. The earliest 24-month period from which that financial
institution could calculate its first additional fee types disclosure
would be from October 1, 2014 to September 30, 2016.
18(b)(2)(ix)(D)(2) Existing Prepaid Account Programs as of October 1,
2017 With Unavailable Data
1. 24 month period without available data. Section
1005.18(b)(2)(ix)(D)(2) requires that if a financial institution does
not have 24 months of fee revenue data for a particular prepaid account
program from which to calculate the additional fee types disclosure in
advance of October 1, 2017, the financial institution must disclose the
additional fee types based on revenue it reasonably anticipates the
prepaid account program will generate over the 24-month period that
begins on October 1, 2017. For example, a financial institution begins
offering to consumers a prepaid account program six months before
October 1, 2017. Because the prepaid account program will not have 24
months of fee revenue data prior to October 1, 2017, pursuant to
Sec. 1005.18(b)(2)(ix)(D)(2) the financial institution must disclose the
additional fee types it reasonably anticipates the prepaid account
program will generate over the 24-month period that begins on October 1,
2017. The financial institution would take into account the data it had
accumulated at the time of its calculation to arrive at the reasonably
anticipated additional fee types for the prepaid account program.
18(b)(2)(ix)(E) Timing of Periodic Reassessment and Update of
Additional Fee Types Disclosure
18(b)(2)(ix)(E)(2) Periodic Reassessment
1. Periodic reassessment and, if applicable, update of additional
fee types disclosure. Pursuant to Sec. 1005.18(b)(2)(ix)(E)(2), a
financial institution must reassess whether its previously disclosed
additional fee types continue to comply with the requirements of
Sec. 1005.18(b)(2)(ix) every 24 months based on revenue for the previous
24-month period. The financial institution must complete this
reassessment and update its disclosures, if applicable, within three
months of the end of the 24-month period, except as provided in the
update printing exception in Sec. 1005.18(b)(2)(ix)(E)(4). The following
examples provide guidance on the periodic assessment and, if applicable,
update of the disclosure of additional fee types pursuant to
Sec. 1005.18(b)(2)(ix)(E)(2):
i. Reassessment with no change in the additional fee types
disclosed. A financial institution disclosed two additional fee types
(bill payment and card replacement) for a particular prepaid account
program on October 1, 2017. Starting on October 1, 2019, the financial
institution assessed the fee revenue data it collected over the previous
24 months, and the two additional fee types previously disclosed
continue to qualify as additional fee types pursuant to
Sec. 1005.18(b)(2)(ix). The financial institution is not required to
take any action with regard to the disclosure of additional fee types
for that prepaid account program.
ii. Reassessment with a change in the additional fee types
disclosed. A financial institution disclosed two additional fee types
(bill payment and card replacement) for a particular prepaid account
program on October 1, 2017. Starting on October 1, 2019, the financial
institution assessed the fee revenue data it collected over the previous
24 months, and bill payment continued to qualify as an additional fee
type pursuant to Sec. 1005.18(b)(2)(ix) but check reload qualified as
the second additional fee type instead of card replacement. The
financial institution must update the additional fee types disclosure in
its short form disclosures provided electronically, orally, and in
writing (other than for printed materials that qualify for the update
printing exception in Sec. 1005.18(b)(2)(ix)(E)(4)) no later than
January 1, 2020, which is three months after the end of the 24-month
period.
iii. Reassessment with the addition of an additional fee type
already voluntarily disclosed. A financial institution disclosed one
additional fee type (bill payment) and voluntarily disclosed one other
additional fee type (card replacement, both for regular and expedited
delivery) for a particular prepaid account program on October 1, 2017.
Starting on October 1, 2019, the financial institution
[[Page 322]]
assessed the fee revenue data it collected over the previous 24 months,
and bill payment continued to qualify as an additional fee type pursuant
to Sec. 1005.18(b)(2)(ix) and card replacement now qualified as the
second additional fee type. Because the financial institution already
had disclosed its card replacement fees in the format required for an
additional fee type disclosure, the financial institution is not
required to take any action with regard to the additional fee types
disclosure in the short form for that prepaid account program.
2. Reassessment more frequently than every 24 months. Pursuant to
Sec. 1005.18(b)(2)(ix)(E)(2), a financial institution may, but is not
required to, carry out the reassessment and update, if applicable, more
frequently than every 24 months, at which time a new 24-month period
commences. A financial institution may choose to do this, for example,
to sync its reassessment process for additional fee types with its
financial reporting schedule or other financial analysis it performs
regarding the particular prepaid account program. If a financial
institution chooses to reassess its additional fee types disclosure more
frequently than every 24 months, it is still required to use 24 months
of fee revenue data to conduct the reassessment. For example, a
financial institution first offered a particular prepaid account program
on October 1, 2016 and thus was required to estimate its initial
additional fee types disclosure pursuant to
Sec. 1005.18(b)(2)(ix)(D)(2). If the financial institution chooses to
begin its reassessment of its fee revenue data on October 1, 2018, it
would use the data it collected over the previous 24 months (October 1,
2016 to September 30, 2018) and complete its reassessment and its
update, if applicable, by January 1, 2019.
18(b)(2)(ix)(E)(3) Fee Schedule Change
1. Revised prepaid account programs. Section 1005.18(b)(2)(ix)(E)(3)
requires that if a financial institution revises the fee schedule for a
prepaid account program, it must determine whether it reasonably
anticipates that the previously disclosed additional fee types will
continue to comply with the requirements of Sec. 1005.18(b)(2)(ix) for
the 24 months following implementation of the fee schedule change. A fee
schedule change resets the 24-month period for assessment; a financial
institution must comply with the requirements of
Sec. 1005.18(b)(2)(ix)(E)(2) at the end of the 24-month period following
implementation of the fee schedule change. If the financial institution
reasonably anticipates that the previously disclosed additional fee
types will not comply with the requirements of Sec. 1005.18(b)(2)(ix),
it must update the disclosure based on its reasonable anticipation of
what those additional fee types will be at the time the fee schedule
change goes into effect, except as provided in the update printing
exception in Sec. 1005.18(b)(2)(ix)(E)(4). For example, if a financial
institution lowers its card replacement fee from $4 to $3 on December 1,
2018 after having first assessed its additional fee types disclosure as
of October 1, 2017, the financial institution would assess whether it
reasonably anticipates that the existing additional fee types disclosure
will continue to reflect the additional fee types that generate the
highest revenue from consumers for that prepaid account program for the
next 24 months (until December 1, 2020). If the financial institution
reasonably anticipates that its additional fee types will remain
unchanged over the next 24 months, the financial institution is not
required to take any action with regard to the additional fee types
disclosure for that prepaid account program. In the same example, if the
financial institution reasonably anticipates that the previously
disclosed additional fee types will not comply with the requirements of
Sec. 1005.18(b)(2)(ix) for the 24 months following implementation of the
fee schedule change, the financial institution must update the listing
of additional fee types at the time the fee schedule change goes into
effect, except as provided in the update printing exception pursuant to
Sec. 1005.18(b)(2)(ix)(E)(4).
18(b)(2)(ix)(E)(4) Update Printing Exception
1. Application of the update printing exception to prepaid accounts
sold in retail locations. Pursuant to Sec. 1005.18(b)(2)(ix)(E)(4),
notwithstanding the requirements to update additional fee types
disclosures in Sec. 1005.18(b)(2)(ix)(E), a financial institution is not
required to update the listing of additional fee types that are provided
on, in, or with prepaid account packaging materials that were
manufactured, printed, or otherwise produced prior to a periodic
reassessment and update pursuant to Sec. 1005.18(b)(2)(ix)(E)(2) or
prior to a fee schedule change pursuant to Sec. 1005.18(b)(2)(ix)(E)(3).
For prepaid accounts sold in retail locations, for example,
Sec. 1005.18(b)(2)(ix)(E)(4) permits a financial institution to
implement any necessary updates to the listing of the additional fee
types disclosures on the short form disclosure that appear on its
physical prepaid account packaging materials at the time the financial
institution prints new materials. Section 1005.18(b)(2)(ix)(E)(4) does
not require financial institutions to destroy existing inventory in
retail locations or elsewhere in the distribution channel, to the extent
the disclosures on such packaging materials are otherwise accurate, to
comply with this requirement. For example, a financial institution
determines that an additional fee type listed on a short form disclosure
in a retail location no longer qualifies as an additional
[[Page 323]]
fee type pursuant to Sec. 1005.18(b)(2)(ix). The financial institution
must update any electronic and oral short form disclosures pursuant to
the timing requirements set forth in Sec. 1005.18(b)(2)(ix)(E). Pursuant
to Sec. 1005.18(b)(2)(ix)(E)(4), the financial institution may continue
selling any previously printed prepaid account packages that contain the
prior listing of additional fee types; prepaid account packages printed
after that time must contain the updated listing of additional fee
types.
18(b)(2)(x) Statement Regarding Overdraft Credit Features
1. Short form disclosure when overdraft credit feature may be
offered. Section 1005.18(b)(2)(x) requires disclosure of a statement if
a covered separate credit feature accessible by a hybrid prepaid-credit
card as defined in Regulation Z, 12 CFR 1026.61, may be offered at any
point to a consumer in connection with the prepaid account. This
statement must be provided on the short form disclosures for all prepaid
accounts that may offer such a feature, regardless of whether some
consumers may never be solicited or qualify to enroll in such a feature.
18(b)(2)(xi) Statement Regarding Registration and FDIC or NCUA
Insurance
1. Disclosure of FDIC or NCUA insurance. Section 1005.18(b)(2)(xi)
requires a statement regarding the prepaid account program's eligibility
for FDIC deposit insurance or NCUA share insurance, as appropriate, and
directing the consumer to register the prepaid account for insurance and
other account protections, where applicable. If the consumer's prepaid
account funds are held at a credit union, the disclosure must indicate
NCUA insurance eligibility. If the consumer's prepaid account funds are
held at a financial institution other than a credit union, the
disclosure must indicate FDIC insurance eligibility.
2. Customer identification and verification processes. For
additional guidance on the timing of customer identification and
verification processes, and on prepaid account programs for which there
is no customer identification and verification process for any prepaid
accounts within the prepaid account program, see Sec. 1005.18(e)(3) and
comments 18(e)-4 and -5.
18(b)(2)(xiii) Statement Regarding Information on All Fees and Services
1. Financial institution's telephone number. For a financial
institution offering prepaid accounts at a retail location pursuant to
the retail location exception in Sec. 1005.18(b)(1)(ii), the statement
required by Sec. 1005.18(b)(2)(xiii) must also include a telephone
number (and the Web site URL) that a consumer may use to directly access
an oral version of the long form disclosure. To provide the long form
disclosure by telephone, a financial institution could use a live
customer service agent or an interactive voice response system. The
financial institution could use a telephone number specifically
dedicated to providing the long form disclosure or a more general
customer service telephone number for the prepaid account program. For
example, a financial institution would be deemed to provide direct
access pursuant to Sec. 1005.18(b)(2)(xiii) if a consumer navigates one
or two prompts to reach the oral long form disclosure via a live
customer service agent or an interactive voice response system using
either a specifically dedicated telephone number of a more general
customer service telephone number.
2. Financial institution's Web site. For a financial institution
offering prepaid accounts at a retail location pursuant to the retail
location exception in Sec. 1005.18(b)(1)(ii), the statement required by
Sec. 1005.18(b)(2)(xiii) must also include a Web site URL (and a
telephone number) that a consumer may use to directly access an
electronic version of the long form disclosure. For example, a financial
institution that requires a consumer to navigate various other Web pages
before viewing the long form disclosure would not be deemed to provide
direct access pursuant to Sec. 1005.18(b)(2)(xiii). Trademark and
product names and their commonly accepted or readily understandable
abbreviations comply with the requirement in Sec. 1005.18(b)(2)(xiii)
that the URL be meaningfully named. For example, ABC or ABCard would be
readily understandable abbreviations for a prepaid account program named
the Alpha Beta Card.
18(b)(2)(xiv) Additional Content for Payroll Card Accounts
18(b)(2)(xiv)(A) Statement Regarding Wage or Salary Payment Options
1. Statement options for payroll card accounts. Section
1005.18(b)(2)(xiv)(A) requires a financial institution to include at the
top of the short form disclosure for payroll card accounts, above the
information required by Sec. 1005.18(b)(2)(i) through (iv), one of two
statements regarding wage payment options. Financial institutions
offering payroll card accounts may choose which of the two statements
required by Sec. 1005.18(b)(2)(xiv)(A) to use in the short form
disclosure. The list of other options required in the second statement
might include the following, as applicable: Direct deposit to the
consumer's bank account, direct deposit to the consumer's own prepaid
account, paper check, or cash. A financial institution may, but is not
required to, provide more specificity as to whom consumers must ask or
inform of their choice of wage payment method, such as specifying
[[Page 324]]
the employer's Human Resources Department.
2. Statement options for government benefit accounts. See
Sec. 1005.15(c)(2)(i) for statement options for government benefit
accounts.
3. Statement permitted for other prepaid accounts. A financial
institution offering a prepaid account other than a payroll card account
or government benefit account may, but is not required to, include a
statement in the short form disclosure regarding payment options that is
similar to either of the statements required for payroll card accounts
pursuant to Sec. 1005.18(b)(2)(xiv)(A) or government benefit accounts
pursuant to Sec. 1005.15(c)(2)(i). For example, a financial institution
issuing a prepaid account to disburse student financial aid proceeds may
disclose a statement such as the following: ``You have several options
to receive your financial aid payments: Direct deposit to your bank
account, direct deposit to your own prepaid card, paper check, or this
prepaid card. Tell your school which option you choose.''
18(b)(2)(xiv)(B) Statement Regarding State-Required Information or
Other Fee Discounts and Waivers
1. Statement options for state-required information or other fee
discounts or waivers. Section 1005.18(b)(2)(xiv)(B) permits, but does
not require, a financial institution to include in the short form
disclosure for payroll card accounts one additional line of text
directing the consumer to a particular location outside the short form
disclosure for information on ways the consumer may access payroll card
account funds and balance information for free or for a reduced fee. For
example, a financial institution might include the following line of
text in the short form disclosure: ``See below for free ways to access
your funds and balance information'' and then list below, but on the
same page as, the short form disclosure several ways consumers can
access their prepaid account funds and balance information for free.
Alternatively, the financial institution might direct the consumer to
another location for that information, such as by stating ``See the
cardholder agreement for free ways to access your funds and balance
information.'' A similar statement is permitted for government benefit
accounts pursuant to Sec. 1005.15(c)(2)(ii).
18(b)(3) Short Form Disclosure of Variable Fees and Third-Party Fees
and Prohibition on Disclosure of Finance Charges
18(b)(3)(i) General Disclosure of Variable Fees
1. Short form disclosure of variable fees. Section 1005.18(b)(3)(i)
requires disclosure in the short form of the highest fee when a fee can
vary, followed by a symbol, such as an asterisk, linked to a statement
explaining that the fee could be lower depending on how and where the
prepaid account is used. For example, a financial institution provides
interactive voice response (IVR) customer service for free and provides
the first three live agent customer service calls per month for free,
after which it charges $0.50 for each additional live agent customer
service call during that month. Pursuant to Sec. 1005.18(b)(2)(vi), the
financial institution must disclose both its IVR and live agent customer
service fees on the short form disclosure. The financial institution
would disclose the IVR fee as $0 and the live agent customer service fee
as $0.50, followed by an asterisk (or other symbol) linked to a
statement explaining that the fee can be lower depending on how and
where the prepaid account is used. Except as described in
Sec. 1005.18(b)(3)(ii), Sec. 1005.18(b)(3)(i) does not permit a
financial institution to describe in the short form disclosure the
specific conditions under which a fee may be reduced or waived, but the
financial institution could use, for example, any other part of the
prepaid account's packaging or other printed materials to disclose that
information. The conditions under which a fee may be lower are required
to be disclosed in the long form disclosure pursuant to
Sec. 1005.18(b)(4)(ii).
18(b)(3)(ii) Disclosure of Variable Periodic Fee
1. Periodic fee variation alternative. If the amount of the periodic
fee disclosed in the short form pursuant to Sec. 1005.18(b)(2)(i) could
vary, a financial institution has two alternatives for disclosing the
variation, as set forth in Sec. 1005.18(b)(3)(i) and (ii). For example,
a financial institution charges a monthly fee of $4.95, but waives this
fee if a consumer receives direct deposit into the prepaid account or
conducts 30 or more transactions during that month. Pursuant to
Sec. 1005.18(b)(3)(ii), the financial institution could list its monthly
fee of $4.95 on the short form disclosure followed by a dagger symbol
that links to a statement that states, for example, ``No monthly fee
with direct deposit or 30 transactions per month.'' This statement may
take up no more than one line of text in the short form disclosure and
must be located directly above or in place of the linked statement
required by Sec. 1005.18(b)(3)(i). Alternatively, pursuant to
Sec. 1005.18(b)(3)(i), the financial institution could list its monthly
fee of $4.95 on the short form disclosure followed by an asterisk that
links to a statement that states, ``This fee can be lower depending on
how and where this card is used.''
18(b)(3)(iii) Single Disclosure for Like Fees
1. Alternative for two-tier fees in the short form disclosure.
Pursuant to Sec. 1005.18(b)(3)(iii),
[[Page 325]]
a financial institution may opt to disclose one fee instead of the two
fees required by Sec. 1005.18(b)(2)(iii), (v), and (vi) and any two-tier
fee required by Sec. 1005.18(b)(2)(ix), when the amount is the same for
both fees. The following examples illustrate how to provide a single
disclosure for like fees on both the short form disclosure and the
multiple service plan short form disclosure:
i. A financial institution charges $1 for both in-network and out-
of-network automated teller machine withdrawals in the United States.
The financial institution may list the $1 fee once under the general
heading ``ATM withdrawal'' required by Sec. 1005.18(b)(2)(iii); in that
case, it need not disclose the terms ``in-network'' or ``out-of-
network.''
ii. A financial institution using the multiple service plan short
form disclosure pursuant to Sec. 1005.18(b)(6)(iii)(B)(2) charges $1
under each of its service plans for both in-network and out-of-network
automated teller machine withdrawals in the United States. The financial
institution may disclose the ATM withdrawal fee on one line, instead of
two, using the general heading ``ATM withdrawal'' required by
Sec. 1005.18(b)(2)(iii); in that case, it need not disclose the terms
``in-network'' or ``out-of-network.''
18(b)(3)(iv) Third-Party Fees in General
1. General prohibition on disclosure of third-party fees in the
short form. Section 1005.18(b)(3)(iv) states that a financial
institution may not include any third-party fees in a disclosure made
pursuant to Sec. 1005.18(b)(2), except for, as provided by
Sec. 1005.18(b)(3)(v), the cash reload fee required to be disclosed by
Sec. 1005.18(b)(2)(iv). Fees imposed by another party, such as a program
manager, for services performed on behalf of the financial institution
are not third-party fees and therefore must be disclosed pursuant to
Sec. 1005.18(b)(3)(iv). For example, if a program manager performs
customer service functions for a financial institution's prepaid account
program, and charges a fee for live agent customer service, that fee
must be disclosed pursuant to Sec. 1005.18(b)(2)(iv).
18(b)(3)(v) Third-Party Cash Reload Fees
1. Updating third-party fees. Section 1005.18(b)(3)(v) provides that
a financial institution is not required to revise its short form
disclosure to reflect a cash reload fee change by a third party until
such time that the financial institution manufactures, prints, or
otherwise produces new prepaid account packaging materials or otherwise
updates the short form disclosure. For example, at the time a financial
institution first prints packaging material for its prepaid account
program, it discloses on the short form the $3.99 fee charged by the
third-party reload network with which it contracts to provide cash
reloads. Ten months later, the third-party reload network raises its
cash reload fee to $4.25. The financial institution is not required to
update its on-package disclosures to reflect the change in the cash
reload fee until the financial institution next prints packaging
materials for that prepaid account program. With respect to that
financial institution's electronic and oral disclosures for that prepaid
account program, the financial institution may, but is not required to,
update its short form disclosure immediately upon learning of the third-
party reload network's change to its cash reload fee. Alternatively, the
financial institution may wait to update its electronic and oral short
form disclosures to reflect the change in the cash reload fee until it
otherwise updates those disclosures.
18(b)(3)(vi) Prohibition on Disclosure of Finance Charges
1. No disclosure of finance charges in the short form. Section
1005.18(b)(3)(vi) provides that a financial institution may not include
in a disclosure made pursuant to Sec. 1005.18(b)(2)(i) through (ix) any
finance charges as described in Regulation Z, 12 CFR 1026.4(b)(11),
imposed in connection with a covered separate credit feature accessible
by a hybrid prepaid-credit card as defined in 12 CFR 1026.61. If a
financial institution imposes a higher fee or charge on the asset
feature of a prepaid account with a covered separate credit feature
accessible by a hybrid prepaid-credit card than the amount of a
comparable fee or charge it imposes on any prepaid account in the same
prepaid account program that does not have such a credit feature, it
must disclose on the short form for purposes of Sec. 1005.18(b)(2)(i)
through (vii) and (ix) the amount of the comparable fee rather than the
higher fee. See, e.g., Sec. 1005.18(g)(2) and related commentary.
18(b)(4) Long Form Disclosure Content
18(b)(4)(ii) Fees
1. Disclosure of all fees. Section 1005.18(b)(4)(ii) requires a
financial institution to disclose in the long form all fees that may be
imposed in connection with a prepaid account, not just fees for
electronic fund transfers or the right to make transfers. The
requirement to disclose all fees in the long form includes any finance
charges imposed on the prepaid account as described in Regulation Z, 12
CFR 1026.4(b)(11)(ii), in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in 12 CFR
1026.61 but does not include finance charges imposed on the covered
separate credit feature as described in 12 CFR 1026.4(b)(11)(i). See
comment 18(b)(7)(i)(B)-2 for guidance on disclosure of finance charges
[[Page 326]]
as part of the Sec. 1005.18(b)(4)(ii) fee disclosure in the long form. A
financial institution may also be required to include finance charges in
the Regulation Z disclosures required pursuant to
Sec. 1005.18(b)(4)(vii).
2. Disclosure of conditions. Section 1005.18(b)(4)(ii) requires a
financial institution to disclose the amount of each fee and the
conditions, if any, under which the fee may be imposed, waived, or
reduced. For example, if a financial institution charges a cash reload
fee, the financial institution must list the amount of the cash reload
fee and also specify any circumstances under which a consumer can
qualify for a lower fee. Similarly, if a financial institution discloses
both a periodic fee and an inactivity fee, it must indicate whether the
inactivity fee will be charged in addition to, or instead of, the
periodic fee. A financial institution may, but is not required to, also
include on the long form disclosure additional information or
limitations related to the service or feature for which a fee is
charged, such as, for cash reloads, any limit on the amount of cash a
consumer may load into the prepaid account in a single transaction or
during a particular time period. The general requirement in
Sec. 1005.18(b)(4)(ii) does not apply to individual fee waivers or
reductions granted to a particular consumer or group of consumers on a
discretionary or case-by-case basis.
3. Disclosure of a service or feature without a charge. Pursuant to
Sec. 1005.18(b)(4)(ii), a financial institution may, but is not required
to, list in the long form disclosure any service or feature it provides
or offers at no charge to the consumer. For example, a financial
institution may list ``online bill pay'' in its long form disclosure and
indicate a fee amount of ``$0'' when the financial institution does not
charge consumers a fee for that feature. By contrast, where a fee is
waived or reduced under certain circumstances or where a service or
feature is available for an introductory period without a fee, the
financial institution may not list the fee amount as ``$0''. Rather, the
financial institution must list the highest fee, accompanied by an
explanation of the waived or reduced fee amount and any conditions for
the waiver or discount. For example, if a financial institution waives
its monthly fee for any consumer who receives direct deposit payments
into the prepaid account or conducts 30 or more transactions in a given
month, the long form disclosure must list the regular monthly fee amount
along with an explanation that the monthly fee is waived if the consumer
receives direct deposit or conducts 30 or more transactions each month.
Similarly, for an introductory fee, the financial institution would list
the highest fee, and explain the introductory fee amount, the duration
of the introductory period, and any conditions that apply during the
introductory period.
4. Third-party fees. Section 1005.18(b)(4)(ii) requires disclosure
in the long form of any third-party fee amounts known to the financial
institution that may apply. Fees imposed by another party, such as a
program manager, for services performed on behalf of the financial
institution are not third-party fees and therefore must be disclosed on
the long form pursuant to Sec. 1005.18(b)(4)(ii). Also pursuant to
Sec. 1005.18(b)(4)(ii), for any third-party fee disclosed, a financial
institution may, but is not required to, include either or both a
statement that the fee is accurate as of or through a specific date or
that the third-party fee is subject to change. For example, a financial
institution that contracts with a third-party remote deposit capture
service must include in the long form disclosure the amount of the fee
known to the financial institution that is charged by the third party
for remote deposit capture services. The financial institution may, but
is not required to, also state that the third-party remote deposit
capture fee is accurate as of or through a specific date, such as the
date the financial institution prints the long form disclosure. The
financial institution may also state that the fee is subject to change.
Section 1005.18(b)(4)(ii) also provides that, if a third-party fee may
apply but the amount of the fee is not known by the financial
institution, it must include a statement indicating that a third-party
fee may apply without specifying the fee amount. For example, a
financial institution that permits out-of-network ATM withdrawals would
disclose that, for ATM withdrawals that occur outside the financial
institution's network, the ATM operator may charge the consumer a fee
for the withdrawal, but the financial institution is not required to
disclose the out-of-network ATM operator's fee amount if it does not
know the amount of the fee.
18(b)(4)(iii) Statement Regarding Registration and FDIC or NCUA
Insurance
1. Statement regarding registration and FDIC or NCUA insurance,
including implications thereof. Section 1005.18(b)(4)(iii) requires that
the long form disclosure include the same statement regarding prepaid
account registration and FDIC or NCUA insurance eligibility required by
Sec. 1005.18(b)(2)(xi) in the short form disclosure, together with an
explanation of FDIC or NCUA insurance coverage and the benefit of such
coverage or the consequence of the lack of such coverage, as applicable.
i. Bank disclosure of FDIC insurance. For example, XYZ Bank offers a
prepaid account program for sale at retail locations that is set up to
be eligible for FDIC deposit insurance, but does not conduct customer
identification and verification before consumers purchase the prepaid
account. XYZ Bank may disclose the required statements as
[[Page 327]]
``Register your card for FDIC insurance eligibility and other
protections. Your funds will be held at or transferred to XYZ Bank, an
FDIC-insured institution. Once there, your funds are insured up to
$250,000 by the FDIC in the event XYZ Bank fails, if specific deposit
insurance requirements are met and your card is registered. See
fdic.gov/deposit/deposits/prepaid.html for details.'' Conversely, if XYZ
Bank offers another prepaid account program for sale at retail locations
for which it conducts customer identification and verification after
purchase of the prepaid account, but the program is not set up to be
eligible for FDIC insurance, XYZ Bank may disclose the required
statements as ``Not FDIC insured. Your funds will be held at or
transferred to XYZ Bank. If XYZ Bank fails, you are not protected by
FDIC deposit insurance and could lose some or all of your money.
Register your card for other protections.''
ii. Credit union disclosure of NCUA insurance. For example, ABC
Credit Union offers a prepaid account program for sale at its own
branches that is set up to be eligible for NCUA share insurance, but
does not conduct customer identification and verification before
consumers purchase the prepaid account. ABC Credit Union may disclose
the requirement statements as ``Register your card for NCUA insurance,
if eligible, and other protections. Your funds will be held at or
transferred to ABC Credit Union, an NCUA-insured institution. Once
there, if specific share insurance requirements are met and your card is
registered, your funds are insured up to $250,000 by the NCUA in the
event ABC Credit Union fails.'' See comment 18(b)(2)(xi)-1 for guidance
as to when NCUA insurance coverage should be disclosed instead of FDIC
insurance coverage.
18(b)(4)(vii) Regulation Z Disclosures for Overdraft Credit Features
1. Long form Regulation Z disclosure of overdraft credit features.
Section 1005.18(b)(4)(vii) requires that the long form include the
disclosures described in Regulation Z, 12 CFR 1026.60(e)(1), in
accordance with the requirements for such disclosures in 12 CFR 1026.60,
if, at any point, a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61,
may be offered to a consumer in connection with the prepaid account. If
the financial institution includes the disclosures described in
Regulation Z, 12 CFR 1026.60(e)(1), pursuant to
Sec. 1005.18(b)(7)(i)(B), such disclosures must appear below the
disclosures required by Sec. 1005.18(b)(4)(vi). If the disclosures
provided pursuant to Regulation Z, 12 CFR 1026.60(e)(1), are provided in
writing, these disclosures must be provided in the form required by 12
CFR 1026.60(a)(2), and to the extent possible, on the same page as the
other disclosures required by Sec. 1005.18(b)(4).
2. Updates to the long form for changes to the Regulation Z
disclosures. Pursuant to Sec. 1005.18(b)(4)(vii), a financial
institution is not required to revise the disclosure required by that
paragraph to reflect a change in the fees or other terms disclosed
therein until such time as the financial institution manufactures,
prints, or otherwise produces new prepaid account packaging materials or
otherwise updates the long form disclosure. This exception does not
extend to any finance charges imposed on the prepaid account as
described in Regulation Z, 12 CFR 1026.4(b)(11)(ii), in connection with
a covered separate credit feature accessible by a hybrid prepaid-credit
card as defined in 12 CFR 1026.61 that are required to be disclosed on
the long form pursuant to Sec. 1005.18(b)(4)(ii). See comment
18(b)(4)(ii)-1.
18(b)(5) Disclosure Requirements Outside the Short Form Disclosure
1. Content of disclosure. Section 1005.18(b)(5) requires that the
name of the financial institution, the name of the prepaid account
program, and any purchase price or activation fee for the prepaid
account be disclosed outside the short form disclosure. A financial
institution may, but is not required to, also disclose the name of the
program manager or other service provider involved in the prepaid
account program.
2. Location of disclosure. In addition to setting forth the required
content for disclosures outside the short form disclosure,
Sec. 1005.18(b)(5) requires that, in a setting other than a retail
location, the information required by Sec. 1005.18(b)(5) must be
disclosed in close proximity to the short form. For example, if the
financial institution provides the short form disclosure online, the
information required by Sec. 1005.18(b)(5) is deemed disclosed in close
proximity to the short form if it appears on the same Web page as the
short form disclosure. If the financial institution offers the prepaid
account in its own branch locations and provides the short form
disclosure on the exterior of its preprinted packaging materials, the
information required by Sec. 1005.18(b)(5) is deemed disclosed in close
proximity to the short form disclosure if it appears on the exterior of
the packaging. If the financial institution provides written short form
disclosures in a manner other than on preprinted packaging materials,
such as on paper, the information required by Sec. 1005.18(b)(5) is
deemed disclosed in close proximity if it appears on the same piece of
paper as the short form disclosure. If the financial institution
provides the short form disclosure orally, the information required by
Sec. 1005.18(b)(5) is deemed disclosed in close proximity to the short
form disclosure if it is
[[Page 328]]
provided immediately before or after disclosing the fees and information
required pursuant to Sec. 1005.18(b)(2). For prepaid accounts sold in a
retail location pursuant to the retail location exception in
Sec. 1005.18(b)(1)(ii), Sec. 1005.18(b)(5) requires the information
other than purchase price be disclosed on the exterior of the access
device's packaging material. If the purchase price, if any, is not also
disclosed on the exterior of the packaging, disclosure of the purchase
price on or near the sales rack or display for the packaging material is
deemed in close proximity to the short form disclosure.
18(b)(6) Form of Pre-Acquisition Disclosures
18(b)(6)(i) General
18(b)(6)(i)(B) Electronic Disclosures
1. Providing pre-acquisition disclosures electronically. Section
1005.18(b)(6)(i)(B) requires electronic delivery of the disclosures
required by Sec. 1005.18(b) when a consumer acquires a prepaid account
through electronic means, including via a Web site or mobile
application, and, among other things, in a manner which is reasonably
expected to be accessible in light of how a consumer is acquiring the
prepaid account. For example, if a consumer is acquiring a prepaid
account via a Web site or mobile application, it would be reasonable to
expect that a consumer would be able to access the disclosures required
by Sec. 1005.18(b) on the first page or via a direct link from the first
page of the Web site or mobile application or on the first page that
discloses the details about the specific prepaid account program. See
comment 18(b)(1)(i)-2 for additional guidance on placement of the short
form and long form disclosures on a Web page.
2. Disclosures responsive to smaller screens. In accordance with the
requirement in Sec. 1005.18(b)(6)(i)(B) that electronic disclosures be
provided in a responsive form, electronic disclosures provided pursuant
to Sec. 1005.18(b) must be provided in a way that responds to different
screen sizes, for example, by stacking elements of the disclosures in a
manner that accommodates consumer viewing on smaller screens, while
still meeting the other formatting requirements set forth in
Sec. 1005.18(b)(7). For example, the disclosures permitted by
Sec. 1005.18(b)(2)(xiv)(B) or (b)(3)(ii) must take up no more than one
additional line of text in the short form disclosure. If a consumer is
acquiring a prepaid account using a mobile device with a screen too
small to accommodate these disclosures on one line of text in accordance
with the size requirements set forth in Sec. 1005.18(b)(7)(ii)(B), a
financial institution is permitted to display the disclosures permitted
by Sec. 1005.18(b)(2)(xiv)(B) and (b)(3)(ii), for example, by stacking
those disclosures in a way that responds to smaller screen sizes, while
still meeting the other formatting requirements in Sec. 1005.18(b)(7).
3. Machine-readable text. Section 1005.18(b)(6)(i)(B) requires that
electronic disclosures must be provided using machine-readable text that
is accessible via both Web browsers (or mobile applications, as
applicable) and screen readers. A disclosure would not be deemed to
comply with this requirement if it was not provided in a form that can
be read automatically by Internet search engines or other computer
systems.
18(b)(6)(ii) Retainable Form
1. Retainable disclosures. Section 1005.18(b)(6)(ii) requires that,
except for disclosures provided orally pursuant to
Sec. 1005.18(b)(1)(ii) or (iii), long form disclosures provided via SMS
as permitted by Sec. 1005.18(b)(2)(xiii) for a prepaid account sold at
retail locations pursuant to the retail location exception in
Sec. 1005.18(b)(1)(ii), and the disclosure of a purchase price pursuant
to Sec. 1005.18(b)(5) that is not disclosed on the exterior of the
packaging material for a prepaid account sold at a retail location
pursuant to the retail location exception in Sec. 1005.18(b)(1)(ii),
disclosures provided pursuant to Sec. 1005.18(b) must be made in a form
that a consumer may keep. For example, a short form disclosure with a
tear strip running though it would not be deemed retainable because use
of the tear strip to gain access to the prepaid account access device
inside the packaging would destroy part of the short form disclosure.
Electronic disclosures are deemed retainable if the consumer is able to
print, save, and email the disclosures from the Web site or mobile
application on which they are displayed.
18(b)(6)(iii) Tabular Format
18(b)(6)(iii)(B) Multiple Service Plans
18(b)(6)(iii)(B)(1) Short Form Disclosure for Default Service Plan
1. Disclosure of default service plan excludes short-term or
promotional service plans. Section 1005.18(b)(6)(iii)(B)(1) provides
that when a financial institution offers multiple service plans within a
particular prepaid account program and each plan has a different fee
schedule, the information required by final Sec. 1005.18(b)(2)(i)
through (ix) may be provided in the tabular format described in final
Sec. 1005.18(b)(6)(iii)(A) for the service plan in which a consumer is
initially enrolled by default upon acquiring a prepaid account. Pursuant
to the requirement in Sec. 1005.18(b)(3)(i) to disclose the highest
amount a financial institution may impose for a fee disclosed pursuant
to Sec. 1005.18(b)(2)(i) through (vii) and
[[Page 329]]
(ix), a financial institution would not be permitted to disclose any
short-term or promotional service plans as a default service plan.
18(b)(6)(iii)(B)(2) Short Form Disclosure for Multiple Service Plans
1. Disclosure of multiple service plans. The multiple service plan
disclosure requirements in Sec. 1005.18(b)(6)(iii)(B)(2) apply when a
financial institution offers more than one service plan within a
particular prepaid account program, each plan has a different fee
schedule, and the financial institution opts not to disclose the default
service plan pursuant to Sec. 1005.18(b)(6)(iii)(B)(1). See Model Form
A-10(e). For example, a financial institution that offers a prepaid
account program with one service plan for which a consumer pays no
periodic fee but instead pays a fee for each transaction, and another
plan that includes a monthly fee but no per transaction fee may use the
short form disclosure for multiple service plans pursuant to
Sec. 1005.18(b)(6)(iii)(B)(2). Similarly, a financial institution that
offers a prepaid account program with preferred rates or fees for the
prepaid accounts of consumers who also use another non-prepaid service
(e.g., a mobile phone service), often referred to as ``loyalty plans,''
may also use the short form disclosure for multiple service plans
pursuant to Sec. 1005.18(b)(6)(iii)(B)(2). Pricing variations based on
whether a consumer elects to use a specific feature of a prepaid
account, such as waiver of the monthly fee for consumers electing to
receive direct deposit, does not constitute multiple service plans or a
loyalty plan. See comment 18(b)(3)(iii)-1.ii for guidance on providing a
single disclosure for like fees for multiple service plan short form
disclosures.
18(b)(7) Specific Formatting Requirements for Pre-Acquisition
Disclosures
18(b)(7)(i) Grouping
18(b)(7)(i)(B) Long Form Disclosure
1. Conditions must be in close proximity to fee amount. Pursuant to
Sec. 1005.18(b)(4)(ii), the long form disclosure generally must disclose
all fees that may be imposed in connection with a prepaid account,
including the amount of the fee and any conditions under which the fee
may be imposed, waived, or reduced. Pursuant to
Sec. 1005.18(b)(7)(i)(B), text describing the conditions under which a
fee may be imposed must appear in the table in the long form disclosure
in close proximity to the fee amount disclosed pursuant to
Sec. 1005.18(b)(4)(ii). For example, a financial institution is deemed
to comply with this requirement if the text describing the conditions is
located directly to the right of the fee amount in the long form
disclosure, as illustrated in Sample Form A-10(f). See comment
18(b)(6)(i)(B)-2 regarding stacking of electronic disclosures for
display on smaller screen sizes.
2. Category of function for finance charges. Section
1005.18(b)(7)(i)(B) requires that the information required by
Sec. 1005.18(b)(4)(ii) must be generally grouped together and organized
under subheadings by the categories of function for which a financial
institution may impose the fee. If any finance charges may be imposed on
the prepaid account as described in Regulation Z, 12 CFR
1026.4(b)(11)(ii), in connection with a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in 12 CFR 1026.61,
the financial institution may, but is not required to, group all finance
charges together under a single subheading. This includes situations
where the financial institution imposes a higher fee or charge on the
asset feature of a prepaid account with a covered separate credit
feature accessible by a hybrid prepaid-credit card than the amount of a
comparable fee or charge it imposes on any prepaid account in the same
prepaid account program that does not have such a credit feature. For
example, if a financial institution charges on the prepaid account a
$0.50 per transaction fee for each transaction that accesses funds in
the asset feature of a prepaid account and a $1.25 per transaction fee
for each transaction where the hybrid prepaid-credit card accesses
credit from the covered separate credit feature in the course of the
transaction, the financial institution is permitted to disclose the
$0.50 per transaction fee under a general transactional subheading and
disclose the additional $0.75 per transaction fee under a separate
subheading together with any other finance charges that may be imposed
on the prepaid account.
18(b)(7)(ii) Prominence and Size
1. Minimum type size. Section 1005.18(b)(7)(ii) sets forth minimum
type/pixel size requirements for each element of the disclosures
required by Sec. 1005.18(b)(2), (b)(3)(i) and (ii), and (b)(4). A
financial institution may provide disclosures in a type size larger than
the required minimum to enhance consumer comprehension in any
acquisition scenario, as long as the financial institution complies with
the type/pixel size hierarchy set forth in Sec. 1005.18(b)(7)(ii).
2. ``Point'' refers to printed disclosures and ``pixel'' refers to
electronic disclosures. References in Sec. 1005.18(b)(7)(ii) to
``point'' size correspond to printed disclosures and references to
``pixel'' size correspond to disclosures provided via electronic means.
18(b)(7)(ii)(A) General
1. Contrast required between type color and background of
disclosures. Section Sec. 1005.18(b)(7)(ii)(A) requires that all text
[[Page 330]]
used to disclose information in the short form or in the long form
disclosure pursuant to Sec. 1005.18(b)(2), (b)(3)(i) and (ii), and
(b)(4) must be in a single, easy-to-read type that is all black or one
color and printed on a background that provides a clear contrast. A
financial institution complies with the color requirements if, for
example, it provides the disclosures required by Sec. 1005.18(b)(2),
(b)(3)(i) and (ii), and (b)(4) printed in black type on a white
background or white type on a black background. Also, pursuant to
Sec. 1005.18(b)(7)(ii)(A), the type and color may differ between the
short form disclosure and the long form disclosure provided for a
particular prepaid account program. For example, a financial institution
may use one font/type style for the short form disclosure for a
particular prepaid account program and use a different font/type style
for the long form disclosure for that same prepaid account program.
Similarly, a financial institution may use black type for the short form
disclosure for a particular prepaid account program and use blue type
for the long form disclosure for that same prepaid account program.
18(b)(7)(iii) Segregation
1. Permitted information outside the short form and long form
disclosures. Section 1005.18(b)(7)(iii) requires that the short form and
long form disclosures required by Sec. 1005.18(b)(2) and (4) be
segregated from other information and contain only information that is
required or permitted for those disclosures by Sec. 1005.18(b). This
segregation requirement does not prohibit the financial institution from
providing information elsewhere on the same page as the short form
disclosure, such as the information required by Sec. 1005.18(b)(5),
additional disclosures required by state law for payroll card accounts,
or any other information the financial institution wishes to provide
about the prepaid account. Similarly, the segregation requirement does
not prohibit a financial institution from providing the long form
disclosure on the same page as other disclosures or information, or as
part of a larger document, such as the prepaid account agreement. See
also Sec. 1005.18(b)(1) and (f)(1).
18(b)(8) Terminology of Pre-Acquisition Disclosures
1. Consistent terminology. Section 1005.18(b)(8) requires that fee
names and other terms be used consistently within and across the
disclosures required by Sec. 1005.18(b). For example, a financial
institution may not name the fee required to be disclosed by
Sec. 1005.18(b)(2)(vii) an ``inactivity fee'' in the short form
disclosure and a ``dormancy fee'' in the long form disclosure. However,
a financial institution may substitute the term prepaid ``account'' for
the term prepaid ``card,'' as appropriate, wherever it is used in
Sec. 1005.18(b).
18(b)(9) Prepaid Accounts Acquired in Foreign Languages
1. Prepaid accounts acquired in foreign languages. Section
1005.18(b)(9)(i) requires a financial institution to provide the pre-
acquisition disclosures required by Sec. 1005.18(b)(2) of this section
in a foreign language in certain circumstances.
i. Examples of situations in which foreign language disclosures are
required. The following examples illustrate situations in which a
financial institution must provide the pre-acquisition disclosures in a
foreign language in connection with the acquisition of that prepaid
account:
A. The financial institution principally uses a foreign language on
the packaging material of a prepaid account sold in a retail location or
distributed at a bank or credit union branch, even though a few words
appear in English on the packaging.
B. The financial institution principally uses a foreign language in
a television advertisement for a prepaid account. That advertisement
includes a telephone number a consumer can call to acquire the prepaid
account, whether by speaking to a customer service representative or
interacting with an interactive voice response (IVR) system.
C. The financial institution principally uses a foreign language in
an online advertisement for a prepaid account. That advertisement
includes a Web site URL through which a consumer can acquire the prepaid
account.
D. The financial institution principally uses a foreign language on
a printed advertisement for a prepaid account. That advertisement
includes a telephone number or a Web site URL a consumer can call or
visit to acquire the prepaid account. The pre-acquisition disclosures
must be provided to the consumer in that same foreign language prior to
the consumer acquiring the prepaid account.
E. The financial institution does not principally use a foreign
language on prepaid account packaging material nor does it principally
use a foreign language to advertise, solicit, or market a prepaid
account. A consumer calls the financial institution and has the option
to proceed with the prepaid account acquisition process in a foreign
language, whether by speaking to a customer service representative or
interacting with an IVR system.
F. The financial institution does not principally use a foreign
language on prepaid account packaging material nor does it principally
use a foreign language to advertise, solicit, or market a prepaid
account. A consumer visits the financial institution's Web site. On that
Web site, the consumer has the option to proceed with the prepaid
account acquisition process in a foreign language.
[[Page 331]]
ii. Examples of situations in which foreign language disclosures are
not required. The following examples illustrate situations in which a
financial institution is not required to provide the pre-acquisition
disclosures in a foreign language:
A. A consumer visits the financial institution's branch location in
person and speaks to an employee in a foreign language about acquiring a
prepaid account. The consumer proceeds with the acquisition process in
that foreign language.
B. The financial institution does not principally use a foreign
language on prepaid account packaging material nor does it principally
use a foreign language to advertise, solicit, or market a prepaid
account. A consumer calls the financial institution's customer service
line and speaks to a customer service representative in a foreign
language. However, if the customer service representative proceeds with
the prepaid account acquisition process over the telephone, the
financial institution would be required to provide the pre-acquisition
disclosures in that foreign language.
C. The financial institution principally uses a foreign language in
an advertisement for a prepaid account. That advertisement includes a
telephone number a consumer can call to acquire the prepaid account. The
consumer calls the telephone number provided on the advertisement and
has the option to proceed with the prepaid account acquisition process
in English or in a foreign language. The consumer chooses to proceed
with the acquisition process in English.
2. Principally used. All relevant facts and circumstances determine
whether a foreign language is principally used by the financial
institution to advertise, solicit, or market under Sec. 1005.18(b)(9).
Whether a foreign language is principally used is determined at the
packaging material, advertisement, solicitation, or marketing
communication level, not at the prepaid account program level or across
the financial institution's activities as a whole. A financial
institution that advertises a prepaid account program in multiple
languages would evaluate its use of foreign language in each
advertisement to determine whether it has principally used a foreign
language therein.
3. Advertise, solicit, or market a prepaid account. Any commercial
message, appearing in any medium, that promotes directly or indirectly
the availability of prepaid accounts constitutes advertising,
soliciting, or marketing for purposes of Sec. 1005.18(b)(9). Examples
illustrating advertising, soliciting, or marketing include, but are not
limited to:
i. Messages in a leaflet, promotional flyer, newspaper, or magazine.
ii. Electronic messages, such as on a Web site or mobile
application.
iii. Telephone solicitations.
iv. Solicitations sent to the consumer by mail or email.
v. Television or radio commercials.
4. Information in the long form disclosure in English. Section
1005.18(b)(9)(ii) states that a financial institution required to
provide pre-acquisition disclosures in a foreign language pursuant to
Sec. 1005.18(b)(9)(i) must also provide the information required to be
disclosed in its pre-acquisition long form disclosure pursuant to
Sec. 1005.18(b)(4) in English upon a consumer's request and on any part
of the Web site where it discloses this information in a foreign
language. A financial institution may, but is not required to, provide
the English version of the information required by Sec. 1005.18(b)(4) in
accordance with the formatting, grouping, size and other requirements
set forth in Sec. 1005.18(b) for the long form disclosure.
18(c) Access to Prepaid Account Information
1. Posted transactions. The electronic and written history of the
consumer's account transactions provided under Sec. 1005.18(c)(1)(ii)
and (iii), respectively, shall reflect transfers once they have been
posted to the account. Thus, a financial institution does not need to
include transactions that have been authorized but that have not yet
posted to the account.
2. Electronic history. The electronic history required under
Sec. 1005.18(c)(1)(ii) must be made available in a form that the
consumer may keep, as required under Sec. 1005.4(a)(1). Financial
institutions may satisfy this requirement if they make the electronic
history available in a format that is capable of being retained. For
example, a financial institution satisfies the requirement if it
provides electronic history on a Web site in a format that is capable of
being printed or stored electronically using a web browser.
3. Written history. Requests that exceed the requirements of
Sec. 1005.18(c)(1)(iii) for providing written account transaction
history, and which therefore a financial institution may charge a fee,
include the following:
i. A financial institution may assess a fee or charge to a consumer
for responding to subsequent requests for written account transaction
history made in a single calendar month. For example, if a consumer
requests written account transaction history on June 1 and makes another
request on August 5, the financial institution may not assess a fee or
charge to the consumer for responding to either request. However, if the
consumer requests written account transaction history on June 1 and then
makes another request on June 15, the financial institution may assess a
fee or charge to the consumer for responding to the request made on June
15, as this is the second response in the same month.
[[Page 332]]
ii. If a financial institution maintains more than 24 months of
written account transaction history, it may assess a fee or charge to
the consumer for providing a written history for transactions occurring
more than 24 months preceding the date the financial institution
receives the consumer's request, provided the consumer specifically
requests the written account transaction history for that time period.
iii. If a financial institution offers a consumer the ability to
request automatic mailings of written account transaction history on a
monthly or other periodic basis, it may assess a fee or charge for such
automatic mailings but not for the written account transaction history
requested pursuant to Sec. 1005.18(c)(1)(iii). See comment 18(c)-6.
4. 12 months of electronic account transaction history. Section
1005.18(c)(1)(ii) requires a financial institution to make available at
least 12 months of account transaction history electronically. If a
prepaid account has been opened for fewer than 12 months, the financial
institution need only provide electronic account transaction history
pursuant to Sec. 1005.18(c)(1)(ii) since the time of account opening. If
a prepaid account is closed or becomes inactive, as defined by the
financial institution, the financial institution need not make available
electronic account transaction history. See comment 9(b)-3. If an
inactive account becomes active, the financial institution must again
make available 12 months of electronic account transaction history.
5. 24 months of written account transaction history. Section
1005.18(c)(1)(iii) requires a financial institution to provide at least
24 months of account transaction history in writing upon the consumer's
request. A financial institution may provide fewer than 24 months of
written account transaction history if the consumer requests a shorter
period of time. If a prepaid account has been opened for fewer than 24
months, the financial institution need only provide written account
transaction history pursuant to Sec. 1005.18(c)(1)(iii) since the time
of account opening. Even if a prepaid account is closed or becomes
inactive, the financial institution must continue to provide upon
request at least 24 months of written account transaction history
preceding the date the request is received. When a prepaid account has
been closed or inactive for 24 months or longer, the financial
institution is no longer required to make available any written account
transaction history pursuant to Sec. 1005.18(c)(1)(iii).
6. Periodic statement alternative for unverified prepaid accounts.
For prepaid accounts that are not payroll card accounts or government
benefit accounts, a financial institution is not required to provide a
written history of the consumer's account transactions for any prepaid
account for which the financial institution has not completed its
consumer identification and verification process as described in
Sec. 1005.18(e)(3)(i)(A) through (C). If a prepaid account is verified,
a financial institution must provide written account transaction history
upon the consumer's request that includes the period during which the
account was not verified, provided that the period is within the 24-
month time frame specified in Sec. 1005.18(c)(1)(iii).
7. Inclusion of all fees charged. A financial institution that
furnishes a periodic statement pursuant to Sec. 1005.9(b) for a prepaid
account must disclose the amount of any fees assessed against the
account, whether for electronic fund transfers or otherwise, on the
periodic statement as well as on any electronic or written account
transaction history the financial institution makes available or
provides to the consumer. For example, if a financial institution sends
periodic statements and also makes available the consumer's electronic
account transaction history on its Web site, the financial institution
must disclose the amount of any fees assessed against the account,
whether for electronic fund transfers or otherwise, on the periodic
statement and on the consumer's electronic account transaction history
made available on its Web site. Likewise, a financial institution that
follows the periodic statement alternative in Sec. 1005.18(c)(1) must
disclose the amount of any fees assessed against the account, whether
for electronic fund transfers or otherwise, on the electronic history of
the consumer's account transactions made available pursuant to
Sec. 1005.18(c)(1)(ii) and any written history of the consumer's account
transactions provided pursuant to Sec. 1005.18(c)(1)(iii).
8. Summary totals of fees. Section 1005.18(c)(5) requires a
financial institution to disclose a summary total of the amount of all
fees assessed by the financial institution against a prepaid account for
the prior calendar month and for the calendar year to date.
i. Generally. A financial institution that furnishes a periodic
statement pursuant to Sec. 1005.9(b) for a prepaid account must display
the monthly and annual fee totals on the periodic statement as well as
on any electronic or written account transaction history the financial
institution makes available or provides to the consumer. For example, if
a financial institution sends periodic statements and also makes
available the consumer's electronic account transaction history on its
Web site, the financial institution must display the monthly and annual
fee totals on the periodic statement and on the consumer's electronic
account transaction history made available on its Web site. Likewise, a
financial institution that follows the periodic statement alternative in
Sec. 1005.18(c)(1) must display the monthly and annual fee totals on the
electronic history of
[[Page 333]]
the consumer's account transactions made available pursuant to
Sec. 1005.18(c)(1)(ii) and any written history of the consumer's account
transactions provided pursuant to Sec. 1005.18(c)(1)(iii). If a
financial institution provides periodic statements pursuant to
Sec. 1005.9(b), fee totals may be disclosed for each statement period
rather than each calendar month, if different. The summary totals of
fees should be net of any fee reversals.
ii. Third-party fees. A financial institution may, but is not
required to, include third-party fees in its summary totals of fees
provided pursuant to Sec. 1005.18(c)(5). For example, a financial
institution must include in the summary totals of fees the fee it
charges a consumer for using an out-of-network ATM, but it need not
include any fee charged by an ATM operator, with whom the financial
institution has no relationship, for the consumer's use of that
operator's ATM. Similarly, a financial institution need not include in
the summary totals of fees the fee charged by a third-party reload
network for the service of adding cash to a prepaid account at a point-
of-sale terminal. A financial institution may, but is not required to,
inform consumers of third-party fees such as by providing a disclaimer
to indicate that the summary totals do not include certain third-party
fees or to explain when third-party fees may occur or through some other
method.
9. Display of summary totals of fees. A financial institution may,
but is not required to, also include sub-totals of the types of fees
that make up the summary totals of fees as required by
Sec. 1005.18(c)(5). For example, if a financial institution
distinguishes optional fees (e.g., custom card design fees) from fees to
use the account, in displaying the summary totals of fees, the financial
institution may include sub-totals of those fees, provided the financial
institution also presents the combined totals of all fees.
18(e) Modified Limitations on Liability and Error Resolution
Requirements
1. Error resolution safe harbor provision. Institutions that choose
to investigate notices of error provided up to 120 days from the date a
transaction has posted to a consumer's account may still disclose the
error resolution time period required by the regulation (as set forth in
the model clause in paragraph (b) of appendix A-7 of this part).
Specifically, an institution may disclose to prepaid account holders
that the institution will investigate any notice of error provided
within 60 days of the consumer electronically accessing an account or
receiving a written history upon request that reflects the error, even
if, for some or all transactions, the institution investigates any
notice of error provided up to 120 days from the date that the
transaction alleged to be in error has posted to the consumer's account.
Similarly, an institution's summary of the consumer's liability (as
required under Sec. 1005.7(b)(1)) may disclose that liability is based
on the consumer providing notice of error within 60 days of the consumer
electronically accessing an account or receiving a written history
reflecting the error, even if, for some or all transactions, the
institution allows a consumer to assert a notice of error up to 120 days
from the date of posting of the alleged error.
2. Electronic access. A consumer is deemed to have accessed a
prepaid account electronically when the consumer enters a user
identification code or password or otherwise complies with a security
procedure used by an institution to verify the consumer's identity and
to provide access to a Web site or mobile application through which
account information can be viewed. An institution is not required to
determine whether a consumer has in fact accessed information about
specific transactions to trigger the beginning of the 60-day periods for
liability limits and error resolution under Secs. 1005.6 and 1005.11. A
consumer is not deemed to have accessed a prepaid account electronically
when the consumer receives an automated text message or other automated
account alert, or checks the account balance by telephone.
3. Untimely notice of error. An institution that provides a
transaction history under Sec. 1005.18(c)(1) is not required to comply
with the requirements of Sec. 1005.11 for any notice of error from the
consumer received more than 60 days after the earlier of the date the
consumer electronically accesses the account transaction history or the
date the financial institution sends a written account transaction
history upon the consumer's request. (Alternatively, as provided in
Sec. 1005.18(e)(2)(ii), an institution need not comply with the
requirements of Sec. 1005.11 with respect to any notice of error
received from the consumer more than 120 days after the date of posting
of the transfer allegedly in error.) Where the consumer's assertion of
error involves an unauthorized EFT, however, the institution must comply
with Sec. 1005.6 (including the extension of time limits in
Sec. 1005.6(b)(4)) before it may impose any liability on the consumer.
4. Verification of accounts. Section 1005.18(e)(3) provides that for
prepaid accounts that are not payroll card accounts or government
benefit accounts, a financial institution need not extend provisional
credit for any prepaid account for which it has not completed its
collection of consumer identification and verification process. Consumer
identifying information may include the consumer's full name, address,
date of birth, and Social Security number or other government-issued
identification number.
[[Page 334]]
5. Financial institution has not completed verification. Section
1005.18(e)(3)(ii)(A) states that, provided it discloses to the consumer
the risks of not registering a prepaid account, a financial institution
has not completed its consumer identification and verification process
where it has not concluded the process with respect to a particular
consumer. For example, a financial institution initiates the
identification and verification process by collecting identifying
information about a consumer and informing the consumer of the nature of
the outstanding information, but despite efforts to obtain additional
information from the consumer, the financial institution is unable to
conclude the process because of conflicting information about the
consumer's current address. As long as the information needed to
complete the verification process remains outstanding, the financial
institution has not concluded its consumer identification and
verification process with respect to that consumer. A financial
institution may not delay completing its customer identification and
verification process or refuse to verify a consumer's identity based on
the consumer's assertion of an error.
6. Account verification prior to acquisition. A financial
institution that collects and verifies consumer identifying information,
or that obtains such information after it has been collected and
verified by a third party, prior to or as part of the account
acquisition process, is deemed to have completed its consumer
identification and verification process with respect to that account.
For example, a university contracts with a financial institution to
disburse financial aid to students via the financial institution's
prepaid accounts. To facilitate the accurate disbursal of aid awards,
the university provides the financial institution with identifying
information about the university's students, whose identities the
university had previously verified. The financial institution is deemed
to have completed its consumer identification and verification process
with respect to those accounts.
18(f) Disclosure of Fees and Other Information
1. Initial disclosure of fees and other information. Section
1005.18(f)(1) requires a financial institution to include, as part of
the initial disclosures given pursuant to Sec. 1005.7, all of the
information required to be disclosed in its pre-acquisition long form
disclosure pursuant to Sec. 1005.18(b)(4). Section 1005.18(b)(4)(ii)
requires a financial institution to disclose in its pre-acquisition long
form disclosure all fees imposed in connection with a prepaid account.
Section 1005.18(b)(4) also contains several specific statements that
must be provided as part of the long form disclosure. A financial
institution may, but is not required to, disclose the information
required by Sec. 1005.18(b)(4) in accordance with the formatting,
grouping, size and other requirements set forth in Sec. 1005.18(b) for
the long form disclosure as part of its initial disclosures provided
pursuant to Sec. 1005.7; a financial institution may choose to do so,
however, in order to satisfy other requirements in Sec. 1005.18. See,
e.g., Sec. 1005.18(b)(1)(ii) regarding the retail location exception.
2. Changes to the Regulation Z disclosures for overdraft credit
features. Pursuant to Sec. 1005.18(f)(2), if a financial institution
provides pursuant Sec. 1005.18(f)(1) the Regulation Z disclosures
required by Sec. 1005.18(b)(4)(vii) for an overdraft credit feature, the
financial institution is not required to provide a change-in-terms
notice solely to reflect a change in the fees or other terms disclosed
therein. This exception does not extend to any finance charges imposed
on the prepaid account as described in Regulation Z, 12 CFR
1026.4(b)(11)(ii), in connection with a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in 12 CFR 1026.61
that are required to be disclosed pursuant to Sec. 1005.18(b)(4)(ii).
See comment 18(b)(4)(ii)-1.
3. Web site and telephone number on a prepaid account access device.
Section 1005.18(f)(3) requires that the name of a financial institution
and the Web site URL and a telephone number that a consumer can use to
contact the financial institution about the prepaid account must be
disclosed on the prepaid account access device. A disclosure made on an
accompanying document, such as a terms and conditions document, on
packaging material surrounding an access device, or on a sticker or
other label affixed to an access device does not constitute a disclosure
on the access device. The financial institution must provide this
information to allow consumers to, for example, contact the financial
institution to learn about the terms and conditions of the prepaid
account, obtain prepaid account balance information, request a copy of
transaction history pursuant to Sec. 1005.18(c)(1)(iii) if the financial
institution does not provide periodic statements pursuant to
Sec. 1005.9(b), or to notify the financial institution when the consumer
believes that an unauthorized electronic fund transfer has occurred as
required by Secs. 1005.7(b)(2) and 1005.18(d)(1)(ii).
18(g) Prepaid Accounts Accessible by Hybrid Prepaid-Credit Cards
1. Covered separate credit feature accessible by a hybrid prepaid-
credit card. Regulation Z, 12 CFR 1026.61, defines the term covered
separate credit feature accessible by a hybrid prepaid-credit card.
2. Asset feature. i. Regulation Z, 12 CFR 1026.61(a)(5)(ii), defines
the term asset feature.
[[Page 335]]
ii. Section 1005.18(g) applies to account terms, conditions, and
features that apply to the asset feature of the prepaid account. Section
1005.18(g) does not apply to the account terms, conditions, or features
that apply to the covered separate credit feature, regardless of whether
it is structured as a separate credit account or as a credit subaccount
of the prepaid account that is separate from the asset feature of the
prepaid account.
3. Scope of Sec. 1005.18(g). Under Sec. 1005.18(g), a financial
institution may offer different terms on different prepaid account
programs. For example, the terms may differ between a prepaid account
program where a covered separate credit feature accessible by a hybrid
prepaid-credit card is not offered in connection with any prepaid
accounts within the prepaid account program, and a prepaid account
program where a covered separate credit feature accessible by a hybrid
prepaid-credit card may be offered to some consumers in connection with
their prepaid accounts.
4. Variation in account terms, conditions, or features. i. Account
terms, conditions, and features subject to Sec. 1005.18(g) include, but
are not limited to:
A. Interest paid on funds deposited into the asset feature of the
prepaid account, if any;
B. Fees or charges imposed on the asset feature of the prepaid
account. See comment 18(g)-5 for additional guidance on how
Sec. 1005.18(g) applies to fees or charges imposed on the asset feature
of the prepaid account.
C. The type of access device provided to the consumer. For instance,
an institution may not provide a PIN-only card on prepaid accounts
without a covered separate credit feature that is accessible by a hybrid
prepaid-credit card, while providing a prepaid card with both PIN and
signature-debit functionality for prepaid accounts in the same prepaid
account program with such a credit feature;
D. Minimum balance requirements on the asset feature of the prepaid
account; or
E. Account features offered in connection with the asset feature of
the prepaid account, such as online bill payment services.
5. Fees. i. With respect to a prepaid account program where
consumers may be offered a covered separate credit feature accessible by
a hybrid prepaid-credit card as defined by Regulation Z, 12 CFR 1026.61,
Sec. 1005.18(g) only permits a financial institution to charge the same
or higher fees on the asset feature of a prepaid account with a covered
separate credit feature than the amount of a comparable fee it charges
on prepaid accounts in the same prepaid account program that do not have
a such a credit feature. Section 1005.18(g) prohibits a financial
institution from imposing a lower fee or charge on prepaid accounts with
a covered separate credit feature than the amount of a comparable fee or
charge it charges on prepaid accounts in the same prepaid account
program without such a credit feature. With regard to a covered separate
credit feature and an asset feature of a prepaid account that are both
accessible by a hybrid prepaid-credit card as defined in Regulation Z,
12 CFR 1026.61, a fee or charge imposed on the asset feature of the
prepaid account generally is a finance charge under Regulation Z (12 CFR
part 1026) to the extent that the amount of the fee or charge exceeds
the amount of a comparable fee or charge imposed on prepaid accounts in
the same prepaid account program that do not have such a credit feature.
See Regulation Z, 12 CFR 1026.4(b)(11)(ii). With regard to a covered
separate credit feature and an asset feature of a prepaid account that
are both accessible by a hybrid prepaid-credit card as defined in
Regulation Z, 12 CFR 1026.61, this comment below provides illustrations
of how Sec. 1005.18(g) applies to fees or charges imposed on the asset
feature of a prepaid account. The term ``non-covered separate credit
feature'' refers to a separate credit feature that is not accessible by
a hybrid prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61.
ii. The following examples illustrate how Sec. 1005.18(g) applies to
per transaction fees for each transaction to access funds available in
the asset feature of the prepaid account.
A. Assume that a consumer has selected a prepaid account program
where a covered separate credit feature accessible by a hybrid prepaid-
credit card may be offered. For prepaid accounts without such a credit
feature, the financial institution charges $0.50 for each transaction
conducted that accesses funds available in the prepaid account. For
prepaid accounts with a credit feature, the financial institution also
charges $0.50 on the asset feature for each transaction conducted that
accesses funds available in the asset feature of the prepaid account. In
this case, for purposes of Sec. 1005.18(g), the financial institution is
imposing the same fee for each transaction that accesses funds in the
asset feature of the prepaid account, regardless of whether the prepaid
account has a covered separate credit feature accessible by a hybrid
prepaid-credit card. Also, with regard to a covered separate credit
feature and an asset feature of a prepaid account that are both
accessible by a hybrid prepaid-credit card as those terms are defined in
Regulation Z, 12 CFR 1026.61, the $0.50 per transaction fee imposed on
the asset feature for each transaction that accesses funds available in
the asset feature of the prepaid account is not a finance charge under
12 CFR 1026.4(b)(11)(ii). See Regulation Z, 12 CFR 1026.4(b)(11)(ii) and
comment 4(b)(11)(ii)-1, for a discussion of the definition of finance
charge with respect to fees or charges imposed on the asset feature of a
prepaid account with regard to a covered separate credit feature and an
asset feature of a prepaid
[[Page 336]]
account that are both accessible by a hybrid prepaid-credit card as
defined in 12 CFR 1026.61.
B. Same facts as in paragraph A, except that for prepaid accounts
with a covered separate credit feature, the financial institution
imposes a $1.25 fee for each transaction conducted that accesses funds
available in the asset feature of the prepaid account. In this case, the
financial institution is permitted to charge a higher fee under
Sec. 1005.18(g)(2) on prepaid accounts with a covered separate credit
feature than it charges on prepaid accounts without such a credit
feature. The $0.75 excess is a finance charge under Regulation Z, 12 CFR
1026.4(b)(11)(ii).
C. Same facts as in paragraph A, except that for prepaid accounts
with a covered separate credit feature, the financial institution
imposes a $0.25 fee for each transaction conducted that accesses funds
available in the asset feature of the prepaid account. In this case, the
financial institution is in violation of Sec. 1005.18(g) because it is
imposing a lower fee on the asset feature of a prepaid account with a
covered separate credit feature than it imposes on prepaid accounts in
the same program without such a credit feature.
iii. Where the hybrid prepaid-credit card accesses credit from a
covered separate credit feature in the course of authorizing, settling,
or otherwise completing a transaction conducted with the card to obtain
goods or services, obtain cash, or conduct person-to-person transfers,
any per transaction fees imposed on the asset feature of prepaid
accounts, including load and transfer fees, with such a credit feature
are comparable only to per transaction fees for each transaction to
access funds in the asset feature of a prepaid account that are imposed
on prepaid accounts in the same prepaid account program that does not
have such a credit feature. Per transaction fees for a transaction that
is conducted to load or draw funds into a prepaid account from a source
other than the funds in the asset feature are not comparable for
purposes of Sec. 1005.18(g). To illustrate:
A. Assume a financial institution charges $0.50 on prepaid accounts
for each transaction that accesses funds in the asset feature of the
prepaid accounts without a covered separate credit feature. Also, assume
that the financial institution charges $0.50 per transaction on the
asset feature of prepaid accounts in the same prepaid program where the
hybrid prepaid-credit card accesses credit from a covered separate
credit feature in the course of a transaction. In this case, for
purposes of Sec. 1005.18(g), the financial institution is imposing the
same fee for each transaction it pays, regardless of whether the
transaction accesses funds available in the asset feature of the prepaid
accounts without a covered separate credit feature, or is paid from
credit from a covered separate credit feature in the course of
authorizing, settling, or otherwise completing a transaction conducted
with the card to obtain goods or services, obtain cash, or conduct
person-to-person transfers. Also, for purposes of Regulation Z, 12 CFR
1026.4(b)(11)(ii), the $0.50 per transaction fee imposed on the asset
feature of the prepaid account with a covered separate credit feature is
not a finance charge.
B. Assume same facts as in paragraph A above, except that assume the
financial institution charges $1.25 on the asset feature of a prepaid
account for each transaction where the hybrid prepaid-credit card
accesses credit from the covered separate credit feature in the course
of the transaction. The financial institution is permitted to charge the
higher fee under Sec. 1005.18(g) for transactions that access the
covered separate credit feature in the course of the transaction than
the amount of the comparable fee it charges for each transaction that
accesses funds available in the asset feature of the prepaid accounts
without such a credit feature. The $0.75 excess is a finance charge
under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
C. Same facts as in paragraph A, except that the financial
institution imposes $0.25 on the asset feature of the prepaid account
for each transaction conducted where the hybrid prepaid-credit card
accesses credit from the covered separate credit feature in the course
of the transaction. In this case, the financial institution is in
violation of Sec. 1005.18(g) because it is imposing a lower fee on the
asset feature of a prepaid account with a covered separate credit
feature than the amount of the comparable fee it imposes on prepaid
accounts in the same program without such a credit feature.
D. Assume a financial institution charges $0.50 on prepaid accounts
for each transaction that accesses funds in the asset feature of the
prepaid accounts without a covered separate credit feature. Assume also
that the financial institution charges both a $0.50 per transaction fee
and a $1.25 transfer fee on the asset feature of prepaid accounts in the
same prepaid program where the hybrid prepaid-credit card accesses
credit from a covered separate credit feature in the course of a
transaction. In this case, both fees charged on a per-transaction basis
for the credit transaction (i.e., a combined fee of $1.75 per
transaction) must be compared to the $0.50 per transaction fee to access
funds in the asset feature of the prepaid account without a covered
separate credit feature. The financial institution is permitted to
charge a higher fee under Sec. 1005.18(g) for transactions that access
the covered separate credit feature in the course of the transaction
than the amount of the comparable fee it charges for each transaction
that accesses funds available in the asset feature of the prepaid
accounts without such a credit
[[Page 337]]
feature. The $1.25 excess is a finance charge under Regulation Z, 12 CFR
1026.4(b)(11)(ii).
E. Assume same facts as in paragraph D above, except that assume the
financial institution also charges a load fee of $1.25 whenever funds
are transferred or loaded from a separate asset account, such as from a
deposit account via a debit card, in the course of a transaction on
prepaid accounts without a covered separate credit feature, in addition
to charging a $0.50 per transaction fee. In this case, both fees charged
on a per-transaction basis for the credit transaction (i.e., a combined
fee of $1.75 per transaction) must be compared to the per transaction
fee (i.e., the fee of $0.50) to access funds available in the asset
feature of the prepaid accounts on a prepaid account without a covered
separate credit feature. Per transaction fees for a transaction that is
conducted by drawing funds into a prepaid account from some other source
(i.e., the fee of $1.25) are not comparable for purposes of
Sec. 1005.18(g). The financial institution is permitted to charge a
higher fee under Sec. 1005.18(g) for transactions that access the
covered separate credit feature in the course of the transaction than
the amount of the comparable fee it charges for each transaction to
access funds available in the asset feature of the prepaid accounts
without such a credit feature. The $1.25 excess is a finance charge
under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
iv. A consumer may choose in a particular circumstance to draw or
transfer credit from the covered separate credit feature outside the
course of a transaction conducted with the card to obtain goods or
service, obtain cash, or conduct person-to-person transfers. For
example, a consumer may use the prepaid card at the financial
institution's Web site to load funds from the covered separate credit
feature outside the course of a transaction conducted with the card to
obtain goods or services, obtain cash, or conduct person-to-person
transfers. See Regulation Z, 12 CFR 1026.61(a)(2)(i)(B) and comment
61(a)(2)-4.ii. In these situations, load or transfer fees imposed for
draws or transfers of credit from the covered separate credit feature
outside the course of a transaction are compared only with fees, if any,
to load funds as a direct deposit of salary from an employer or a direct
deposit of government benefits that are charged on prepaid accounts
without a covered separate credit feature. Fees imposed on prepaid
accounts without a covered separate credit feature for a one-time load
or transfer of funds from a separate asset account or from a non-covered
separate credit feature are not comparable for purposes of
Sec. 1005.18(g). To illustrate:
A. Assume a financial institution charges a $1.25 load fee to
transfer funds from a non-covered separate credit feature, such as a
non-covered separate credit card account, into prepaid accounts that do
not have a covered separate credit feature and does not charge a fee for
a direct deposit of salary from an employer or a direct deposit of
government benefits on those prepaid accounts. Assume the financial
institution charges $1.25 on the asset feature of a prepaid account with
a covered separate credit feature to load funds from the covered
separate credit feature outside the course of a transaction. In this
case, the load or transfer fees imposed for draws or transfers of credit
from the covered separate credit feature outside the course of a
transaction (i.e., the fee of $1.25) is compared with the fees to load
funds as a direct deposit of salary from an employer or a direct deposit
of government benefits that are charged on prepaid accounts without a
covered separate credit feature (i.e., the fee of $0). Fees imposed on
prepaid accounts without a covered separate credit feature for a one-
time load or transfer of funds from a separate asset account (i.e., the
fee of $1.25) is not comparable for purposes of Sec. 1005.18(g). In this
case, the financial institution is permitted to charge a higher fee
under Sec. 1005.18(g) for transactions that access the covered separate
credit feature on prepaid accounts with a credit feature than the amount
of the comparable fee it charges on prepaid accounts in the same program
without such a credit feature. The $1.25 fee imposed on the asset
feature of the prepaid account with a separate credit feature is a
finance charge under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
B. Assume that a financial institution charges a $1.25 load fee for
a one-time transfer of funds from a separate asset account, such as from
a deposit account via a debit card, to a prepaid account without a
covered separate credit feature and does not charge a fee for a direct
deposit of salary from an employer or a direct deposit of government
benefits on those prepaid accounts. Assume the financial institution
charges $1.25 on the asset feature of a prepaid account with a covered
separate credit feature to load funds from the covered separate credit
feature outside the course of a transaction. In this case, the load or
transfer fees imposed for draws or transfers of credit from the covered
separate credit feature outside the course of a transaction (i.e., the
fee of $1.25) is compared with the fees to load funds as a direct
deposit of salary from an employer or a direct deposit of government
benefits that are charged on prepaid accounts without a covered separate
credit feature (i.e., the fee of $0). Fees imposed on prepaid accounts
without a covered separate credit feature for a one-time load or
transfer of funds from a separate asset account (i.e., the fee of $1.25)
is not comparable for purposes of Sec. 1005.18(g). In this case, the
financial institution is permitted to charge a higher fee under
Sec. 1005.18(g) for transactions
[[Page 338]]
that access the covered separate credit feature on prepaid accounts with
a credit feature than the amount of the comparable fee it charges on
prepaid accounts in the same program without such a credit feature. The
$1.25 fee imposed on the asset feature of the prepaid account with a
covered separate credit feature is a finance charge under Regulation Z,
12 CFR 1026.4(b)(11)(ii).
18(h) Effective Date and Special Transition Rules for Disclosure
Provisions
1. Disclosures not on prepaid account access devices and prepaid
account packaging materials. Section 1005.18(h)(1) provides that, except
as provided in Sec. 1005.18(h)(2) and (3), the disclosure requirements
of subpart A, as modified by Sec. 1005.18, apply to prepaid accounts as
defined in Sec. 1005.2(b)(3), including government benefit accounts
subject to Sec. 1005.15, beginning October 1, 2017. This effective date
applies to disclosures made available or provided to consumers
electronically, orally by telephone, or in a form other than on pre-
printed materials, such as disclosures printed on paper by a financial
institution upon a consumer's request.
2. Disclosures on prepaid account access devices and prepaid account
packaging materials. Section 1005.18(h)(2)(i) provides that the
disclosure requirements of subpart A, as modified by Sec. 1005.18, do
not apply to any disclosures that are provided, or that would otherwise
be required to be provided, on prepaid account access devices, or on,
in, or with prepaid account packaging materials that were manufactured,
printed, or otherwise produced in the normal course of business prior to
October 1, 2017. This includes, for example, disclosures contained on or
in packages for prepaid accounts sold at retail, or disclosures for
payroll card accounts or government benefit accounts that are
distributed to employees or benefits recipients in packages or
envelopes. Disclosures and access devices that are manufactured,
printed, or otherwise produced on or after October 1, 2017 must comply
with all the requirements of subpart A.
3. Form of notice to consumers. A financial institution that is
required to notify consumers of a change in terms and conditions
pursuant to Sec. 1005.18(h)(2)(ii) or (iii), or that otherwise provides
updated initial disclosures as a result of Sec. 1005.18(h)(1) taking
effect, may provide the notice or disclosures either as a separate
document or included in another notice or mailing that the consumer
receives regarding the prepaid account to the extent permitted by other
laws and regulations.
4. Ability to contact the consumer. A financial institution that has
not obtained the consumer's contact information is not required to
comply with the requirements set forth in Sec. 1005.18(h)(2)(ii) or
(iii). A financial institution is able to contact the consumer when, for
example, it has the consumer's mailing address or email address.
5. Closed and inactive prepaid accounts. The requirements of
Sec. 1005.18(h)(2)(iii) do not apply to prepaid accounts that are closed
or inactive, as defined by the financial institution. However, if an
inactive account becomes active, the financial institution must comply
with the applicable portions of those provisions within 30 days of the
account becoming active again in order to avail itself of the timing
requirements and accommodations set forth inSec. 1005.18(h)(2)(iii) and
(iv).
6. Account information not available on October 1, 2017. i.
Electronic and written account transaction history. A financial
institution following the periodic statement alternative in
Sec. 1005.18(c) must make available 12 months of electronic account
transaction history pursuant to Sec. 1005.18(c)(1)(ii) and must provide
24 months of written account transaction history upon request pursuant
to Sec. 1005.18(c)(1)(iii) beginning October 1, 2017. If, on October 1,
2017, the financial institution does not have readily accessible the
data necessary to make available or provide the account histories for
the required time periods, the financial institution may make available
or provide such histories using the data for the time period it has
until the financial institution has accumulated the data necessary to
comply in full with the requirements set forth in Sec. 1005.18(c)(1)(ii)
and (iii). For example, a financial institution that had been retaining
only 60 days of account history before October 1, 2017 would provide 60
days of written account transaction history upon a consumer's request on
October 1, 2017. If, on November 1, 2017, the consumer made another
request for written account transaction history, the financial
institution would be required to provide three months of account
history. The financial institution must continue to provide as much
account history as it has accumulated at the time of a consumer's
request until it has accumulated 24 months of account history. Thus, all
financial institutions must fully comply with the electronic account
transaction history requirement set forth in Sec. 1005.18(c)(1)(ii) no
later than October 1, 2018 and must fully comply with the written
account transaction history requirement set forth in
Sec. 1005.18(c)(1)(iii) no later than October 1, 2019.
ii. Summary totals of fees. A financial institution must display a
summary total of the amount of all fees assessed by the financial
institution on the consumer's prepaid account for the prior calendar
month and for the calendar year to date pursuant to Sec. 1005.18(c)(5)
beginning October 1, 2017. If, on October 1, 2017, the financial
institution does not have readily accessible the data necessary to
calculate the summary totals of fees for the prior calendar month or the
calendar year to date, the financial institution
[[Page 339]]
may provide the summary totals using the data it has until the financial
institution has accumulated the data necessary to display the summary
totals as required by Sec. 1005.18(c)(5). That is, the financial
institution would first display the monthly fee total beginning on
November 1, 2017 for the month of October, and the year-to-date fee
total beginning on October 1, 2017, provided the financial institution
discloses that it is displaying the year-to-date total beginning on
October 1, 2017 rather than for the entire calendar year 2017. On
January 1, 2018, financial institutions must begin displaying year-to-
date fee totals for calendar year 2018.
Section 1005.19 Internet Posting of Prepaid Account Agreements
19(a) Definitions
19(a)(1) Agreement
1. Provisions contained in separate documents included. Section
1005.19(a)(1) defines a prepaid account agreement, for purposes of
Sec. 1005.19, as the written document or documents evidencing the terms
of the legal obligation, or the prospective legal obligation, between a
prepaid account issuer and a consumer for a prepaid account. An
agreement may consist of several documents that, taken together, define
the legal obligation between the issuer and consumer.
19(a)(2) Amends
1. Substantive changes. A change to an agreement is substantive, and
therefore is deemed an amendment of the agreement, if it alters the
rights or obligations of the parties. Section 1005.19(a)(2) provides
that any change in the fee information, as defined in
Sec. 1005.19(a)(3), is deemed to be substantive. Examples of other
changes that generally would be considered substantive include:
i. Addition or deletion of a provision giving the issuer or consumer
a right under the agreement, such as a clause that allows an issuer to
unilaterally change the terms of an agreement.
ii. Addition or deletion of a provision giving the issuer or
consumer an obligation under the agreement, such as a clause requiring
the consumer to pay an additional fee.
iii. Changes that may affect the cost of the prepaid account to the
consumer, such as changes in a provision describing how the prepaid
account's monthly fee will be calculated.
iv. Changes that may affect how the terms of the agreement are
construed or applied, such as changes to a choice of law provision.
v. Changes that may affect the parties to whom the agreement may
apply, such as changes to provisions regarding authorized users or
assignment of the agreement.
vi. Changes to the corporate name of the issuer or program manager,
or to the issuer's address or identifying number, such as its RSSD ID
number or tax identification number.
vii. Changes to the names of other relevant parties, such as the
employer for a payroll card program or the agency for a government
benefit program.
viii. Changes to the name of the prepaid account program to which
the agreement applies.
2. Non-substantive changes. Changes that generally would not be
considered substantive include, for example:
i. Correction of typographical errors that do not affect the meaning
of any terms of the agreement.
ii. Changes to the issuer's corporate logo or tagline.
iii. Changes to the format of the agreement, such as conversion to a
booklet from a full-sheet format, changes in font, or changes in
margins.
iv. Reordering sections of the agreement without affecting the
meaning of any terms of the agreement.
v. Adding, removing, or modifying a table of contents or index.
vi. Changes to titles, headings, section numbers, or captions.
19(a)(4) Issuer
1. Issuer. Section 1005.19(a)(4) provides that, for purposes of
Sec. 1005.19, issuer or prepaid account issuer means the entity to which
a consumer is legally obligated, or would be legally obligated, under
the terms of a prepaid account agreement. For example, Bank X and Bank Y
work together to issue prepaid accounts. A consumer that obtains a
prepaid account issued pursuant to this arrangement between Bank X and
Bank Y is subject to an agreement that states ``This is an agreement
between you, the consumer, and Bank X that governs the terms of your
Bank Y Prepaid Account.'' The prepaid account issuer in this example is
Bank X, because the agreement creates a legally enforceable obligation
between the consumer and Bank X. Bank X is the issuer even if the
consumer applied for the prepaid account through a link on Bank Y's Web
site and the cards prominently feature the Bank Y logo on the front of
the card.
2. Use of third-party service providers. An issuer has a legal
obligation to comply with the requirements of Sec. 1005.19. However, an
issuer generally may use a third-party service provider to satisfy its
obligations under Sec. 1005.19, provided that the issuer acts in
accordance with regulatory guidance regarding use of third-party service
providers and other applicable regulatory guidance. In some cases, an
issuer may wish to arrange for the entity with which it partners to
issue prepaid accounts to fulfill the requirements
[[Page 340]]
of Sec. 1005.19 on the issuer's behalf. For example, Program Manager and
Bank work together to issue prepaid accounts. Under the
Sec. 1005.19(a)(4) definition of issuer, Bank is the issuer of these
prepaid accounts for purposes of Sec. 1005.19. However, Program Manager
services the prepaid accounts, including mailing to consumers account
opening materials and making available to consumers their electronic
account transaction history, pursuant to Sec. 1005.18(c)(1)(ii). While
Bank is responsible for ensuring compliance with Sec. 1005.19, Bank may
arrange for Program Manager (or another appropriate third-party service
provider) to submit prepaid account agreements to the Bureau under
Sec. 1005.19 on Bank's behalf. Bank must comply with regulatory guidance
regarding use of third-party service providers and other applicable
regulatory guidance.
3. Third-party Web sites. As explained in comment 19(c)-2, if an
issuer provides consumers with access to specific information about
their individual accounts, such as making available to consumers their
electronic account transaction history, pursuant to
Sec. 1005.18(c)(1)(ii), through a third-party Web site, the issuer is
deemed to maintain that Web site for purposes of Sec. 1005.19. Such a
Web site is deemed to be maintained by the issuer for purposes of
Sec. 1005.19 even where, for example, an unaffiliated entity designs the
Web site and owns and maintains the information technology
infrastructure that supports the Web site, consumers with prepaid
accounts from multiple issuers can access individual account information
through the same Web site, and the Web site is not labeled, branded, or
otherwise held out to the public as belonging to the issuer. A partner
institution's Web site is an example of a third-party Web site that may
be deemed to be maintained by the issuer for purposes of Sec. 1005.19.
For example, Program Manager and Bank work together to issue prepaid
accounts. Under the Sec. 1005.19(a)(4) definition of issuer, Bank is the
issuer of these prepaid accounts for purposes of Sec. 1005.19. Bank does
not maintain a Web site specifically related to prepaid accounts.
However, consumers can access information about their individual
accounts, such as an electronic account transaction history, through a
Web site maintained by Program Manager. Program Manager designs the Web
site and owns and maintains the information technology infrastructure
that supports the Web site. The Web site is branded and held out to the
public as belonging to Program Manager. Because consumers can access
information about their individual accounts through this Web site, the
Web site is deemed to be maintained by Bank for purposes of
Sec. 1005.19. Bank therefore may comply with Sec. 1005.19(c) or (d)(1)
by ensuring that agreements offered by Bank are posted on Program
Manager's Web site in accordance with Sec. 1005.19(c) or (d)(1),
respectively. Bank need not create and maintain a Web site branded and
held out to the public as belonging to Bank in order to comply with
Sec. 1005.19(c) and (d) as long as Bank ensures that Program Manager's
Web site complies with these sections.
19(a)(6) Offers to the General Public
1. Prepaid accounts offered to limited groups. An issuer is deemed
to offer a prepaid account agreement to the general public even if the
issuer markets, solicits applications for, or otherwise makes available
prepaid accounts only to a limited group of persons. For example, an
issuer may solicit only residents of a specific geographic location for
a particular prepaid account; in this case, the agreement would be
considered to be offered to the general public. Similarly, agreements
for prepaid accounts issued by a credit union are considered to be
offered to the general public even though such prepaid accounts are
available only to credit union members.
2. Prepaid account agreements not offered to the general public. A
prepaid account agreement is not offered to the general public when a
consumer is offered the agreement only by virtue of the consumer's
relationship with a third party. Examples of agreements not offered to
the general public include agreements for payroll card accounts,
government benefit accounts, or for prepaid accounts used to distribute
student financial aid disbursements, or property and casualty insurance
payouts, and other similar programs.
19(a)(7) Open Account
1. Open account. A prepaid account is an open account if (i) there
is an outstanding balance in the account; (ii) the consumer can load
more funds to the account even if the account does not currently hold a
balance; or (iii) the consumer can access credit from a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined in
Regulation Z, 12 CFR 1026.61, in connection with a prepaid account.
Under this definition, an account that meets any of these criteria is
considered to be open even if the account is deemed inactive by the
issuer.
19(a)(8) Prepaid Account
1. Prepaid account. Section 1005.19(a)(7) provides that, for
purposes of Sec. 1005.19, the term prepaid account means a prepaid
account as defined in Sec. 1005.2(b)(3). Therefore, for purposes of
Sec. 1005.19, a prepaid account includes, among other things, a payroll
card account as defined in Sec. 1005.2(b)(3)(iii) and a government
benefit account as defined in Secs. 1005.2(b)(3)(iii) and 1005.15(a)(2).
[[Page 341]]
19(b) Submission of Agreements to the Bureau
19(b)(1) Submissions on a Rolling Basis
1. Rolling submission requirement. Section 1005.19(b)(1) requires
issuers to send submissions to the Bureau no later than 30 days after
offering, amending, or ceasing to offer any prepaid account agreement,
as described in Sec. 1005.19(b)(1)(ii) through (iv). For example, if on
July 1 an issuer offers a prepaid account agreement that has not been
previously submitted to the Bureau, it must submit that agreement to the
Bureau by July 31 of the same year. Similarly, if on August 1 an issuer
amends a prepaid account agreement previously submitted to the Bureau,
and the change becomes effective on September 15, the issuer must submit
the entire amended agreement as required by Sec. 1005.19(b)(2) by
October 15 of the same year. Furthermore, if on December 31 an issuer
ceases to offer a prepaid account agreement that was previously
submitted to the Bureau, it must submit notification to the Bureau that
it is withdrawing that agreement as required by Sec. 1005.19(b)(3) by
January 30 of the following year.
2. Prepaid accounts offered in conjunction with multiple issuers. If
a program manager offers prepaid account agreements in conjunction with
multiple issuers, each issuer must submit its own agreement to the
Bureau. Alternatively, each issuer may use the program manager to submit
the agreement on its behalf, in accordance with comment 19(a)(4)-2.
19(b)(2) Amended Agreements
1. Change-in-terms notices not permissible. Section 1005.19(b)(2)
requires that if an agreement previously submitted to the Bureau is
amended, the issuer must submit the entire revised agreement to the
Bureau. An issuer may not fulfill this requirement by submitting a
change-in-terms or similar notice covering only the terms that have
changed. Amendments must be integrated into the text of the agreement
(or the optional addendum described in Sec. 1005.19(b)(6)), not provided
as separate riders.
19(b)(3) Withdrawal of Agreements No Longer Offered
1. No longer offers agreement. Section 1005.19(b)(3) provides that,
if an issuer no longer offers an agreement that was previously submitted
to the Bureau, the issuer must notify the Bureau no later than 30 days
after the issuer ceases to offer the agreement that it is withdrawing
the agreement. An issuer no longer offers an agreement when it no longer
allows a consumer to activate or register a new account in connection
with that agreement.
19(b)(4) De Minimis Exception
1. Relationship to other exceptions. The de minimis exception in
Sec. 1005.19(b)(4) is distinct from the product testing exception under
Sec. 1005.19(b)(5). The de minimis exception provides that an issuer
with fewer than 3,000 open prepaid accounts is not required to submit
any agreements to the Bureau, regardless of whether those agreements
qualify for the product testing exception. In contrast, the product
testing exception provides that an issuer is not required to submit to
the Bureau agreements offered solely in connection with certain types of
prepaid account programs with fewer than 3,000 open accounts, regardless
of the issuer's total number of open accounts.
2. De minimis exception. Under Sec. 1005.19(b)(4), an issuer is not
required to submit any prepaid account agreements to the Bureau under
Sec. 1005.19(b)(1) if the issuer has fewer than 3,000 open prepaid
accounts. For example, an issuer has 2,000 open prepaid accounts. The
issuer is not required to submit any agreements to the Bureau because
the issuer qualifies for the de minimis exception.
3. Date for determining whether issuer qualifies. Whether an issuer
qualifies for the de minimis exception is determined as of the last day
of each calendar quarter. For example, an issuer has 2,500 open prepaid
accounts as of December 31, the last day of the calendar quarter. As of
January 30, the issuer has 3,100 open prepaid accounts. As of March 31,
the last day of the following calendar quarter, the issuer has 2,700
open prepaid accounts. Even though the issuer had 3,100 open prepaid
accounts at one time during the calendar quarter, the issuer qualifies
for the de minimis exception because the number of open prepaid accounts
was less than 3,000 as of March 31. The issuer therefore is not required
to submit any agreements to the Bureau under Sec. 1005.19(b)(1).
4. Date for determining whether issuer ceases to qualify. Whether an
issuer ceases to qualify for the de minimis exception under
Sec. 1005.19(b)(4) is determined as of the last day of the calendar
quarter. For example, an issuer has 2,500 open prepaid accounts as of
June 30, the last day of the calendar quarter. The issuer is not
required to submit any agreements to the Bureau under Sec. 1005.19(b) by
July 30 (the 30th day after June 30) because the issuer qualifies for
the de minimis exception. As of July 15, the issuer has 3,100 open
prepaid accounts. The issuer is not required to take any action at this
time, because whether an issuer qualifies for the de minimis exception
under Sec. 1005.19(b)(4) is determined as of the last day of the
calendar quarter. The issuer still has 3,100 open prepaid accounts as of
September 30. Because the issuer had 3,100 open prepaid accounts as of
September 30, the issuer ceases to qualify
[[Page 342]]
for the de minimis exception and must submit its agreements to the
Bureau by October 30, the 30th day after the last day of the calendar
quarter.
5. Option to withdraw agreements. Section 1005.19(b)(4) provides
that if an issuer that did not previously qualify for the de minimis
exception newly qualifies for the de minimis exception, the issuer must
continue to make rolling submissions to the Bureau as required by
Sec. 1005.19(b)(1) until the issuer notifies the Bureau that the issuer
is withdrawing all agreements it previously submitted to the Bureau. For
example, an issuer offers three agreements and has 3,001 open accounts
as of December 31. The issuer submitted each of the three agreements to
the Bureau by January 30 as required under Sec. 1005.19(b). As of March
31, the issuer has only 2,999 open accounts. The issuer has two options.
First, the issuer may notify the Bureau that the issuer is withdrawing
each of the three agreements it previously submitted. Once the issuer
has notified the Bureau, the issuer is no longer required to make
rolling submissions to the Bureau under Sec. 1005.19(b) unless it later
ceases to qualify for the de minimis exception. Alternatively, the
issuer may choose not to notify the Bureau that it is withdrawing its
agreements. In this case, the issuer must continue making rolling
submissions to the Bureau as required by Sec. 1005.19(b). The issuer
might choose not to withdraw its agreements if, for example, the issuer
believes it will likely cease to qualify for the de minimis exception
again in the near future.
19(b)(6) Form and Content of Agreements Submitted to the Bureau
1. Agreements currently in effect. Agreements submitted to the
Bureau must contain the provisions of the agreement and fee information
currently in effect. For example, on June 1, an issuer decides to
decrease the out-of-network ATM withdrawal fee associated with one of
the agreements it offers. The change in that fee will become effective
on August 1. The issuer must submit and post the amended agreement with
the decreased out-of-network ATM withdrawal fee to the Bureau by August
31 as required by Sec. 1005.19(b)(2) and (c).
2. Fee information variations do not constitute separate agreements.
Fee information that may vary from one consumer to another depending on
the consumer's state of residence or other factors must be disclosed by
setting forth all the possible variations. For example, an issuer offers
a prepaid account with a monthly fee of $4.95 or $0 if the consumer
regularly receives direct deposit to the prepaid account. The issuer
must submit to the Bureau one agreement with fee information listing the
possible monthly fees of $4.95 or $0 and including the explanation that
the latter fee is dependent upon the consumer regularly receiving direct
deposit.
3. Integrated agreement requirement. Issuers may not submit
provisions of the agreement or fee information in the form of change-in-
terms notices or riders. The only addendum that may be submitted as part
of an agreement is the optional fee information addendum described in
Sec. 1005.19(b)(6)(ii). Changes in provisions or fee information must be
integrated into the body of the agreement or the optional fee
information addendum described in Sec. 1005.19(b)(6)(ii). For example,
it would be impermissible for an issuer to submit to the Bureau an
agreement in the form of a terms and conditions document on January 1
and subsequently submit a change-in-terms notice or an addendum to
indicate amendments to the previously submitted agreement. Instead, the
issuer must submit a document that integrates the changes made by each
of the change-in-terms notices into the body of the original terms and
conditions document and a single optional addendum displaying variations
in fee information.
19(c) Posting of Agreements Offered to the General Public
1. Requirement applies only to agreements offered to the general
public. An issuer is only required to post and maintain on its publicly
available Web site the prepaid account agreements that the issuer offers
to the general public as defined by Sec. 1005.19(a)(6) and must submit
to the Bureau under Sec. 1005.19(b). For agreements not offered to the
general public, the issuer is not required to post and maintain the
agreements on its publicly available Web site, but is still required to
provide each individual consumer with access to his or her specific
prepaid account agreement under Sec. 1005.19(d). This posting
requirement is distinct from that of Sec. 1005.7, as modified by
Sec. 1005.18(f)(1), which requires an issuer to provide certain
disclosures at the time a consumer contracts for an electronic fund
transfer service or before the first electronic fund transfer is made
involving the consumer's account, and the change-in-terms notice
required under Sec. 1005.8(a), as modified by Sec. 1005.18(f)(2). This
requirement is also distinct from that of Sec. 1005.18(b)(4), which
requires issuers to make the long form disclosure available to consumers
prior to prepaid account acquisition and which, depending on the methods
an issuer offers prepaid accounts to consumers, may require posting of
the long form disclosure on the issuer's Web site. Additionally, if an
issuer is not required to submit any agreements to the Bureau because
the issuer qualifies for the de minimis exception under
Sec. 1005.19(b)(4) or the agreement qualifies for the product testing
exception under Sec. 1005.19(b)(5), the issuer is not required to post
and maintain any agreements on its Web site under Sec. 1005.19(c). The
issuer
[[Page 343]]
is still required to provide each individual consumer with access to his
or her specific prepaid account agreement under Sec. 1005.19(d) by
posting and maintaining the agreement on the issuer's Web site or by
providing a copy of the agreement upon the consumer's request.
2. Issuers that do not otherwise maintain Web sites. If an issuer
offers an agreement to the general public as defined by
Sec. 1005.19(a)(6), that issuer must post that agreement on a publicly
available Web site it maintains. If an issuer provides consumers with
access to specific information about their individual accounts, such as
balance information or copies of statements, through a third-party Web
site, the issuer is considered to maintain that Web site for purposes of
Sec. 1005.19. Such a third-party Web site is deemed to be maintained by
the issuer for purposes of Sec. 1005.19(c) even where, for example, an
unaffiliated entity designs the Web site and owns and maintains the
information technology infrastructure that supports the Web site,
consumers with prepaid accounts from multiple issuers can access
individual account information through the same Web site, and the Web
site is not labeled, branded, or otherwise held out to the public as
belonging to the issuer. Therefore, issuers that provide consumers with
access to account-specific information through a third-party Web site
can comply with Sec. 1005.19(c) by ensuring that the agreements the
issuer submits to the Bureau are posted on the third-party Web site in
accordance with Sec. 1005.19(c).
19(d) Agreements for All Open Accounts
1. Requirement applies to all open accounts. The requirement to
provide access to prepaid account agreements under Sec. 1005.19(d)
applies to all open prepaid accounts. For example, an issuer that is not
required to post agreements on its Web site because it qualifies for the
de minimis exception under Sec. 1005.19(b)(4) would still be required to
provide consumers with access to their specific agreements under
Sec. 1005.19(d). Similarly, an agreement that is no longer offered would
not be required to be posted on the issuer's Web site, but would still
need to be provided to the consumer to whom it applies under
Sec. 1005.19(d). Additionally, an issuer is not required to post on its
Web site agreements not offered to the general public, such as
agreements for payroll card accounts and government benefit accounts, as
explained in comment 19(c)-1, but the issuer must still provide
consumers with access to their specific agreements under
Sec. 1005.19(d).
2. Agreements sent to consumers. Section 1005.19(d)(1)(ii) provides,
in part, that if an issuer makes an agreement available upon request,
the issuer must send the consumer a copy of the consumer's prepaid
account agreement no later than five business days after the issuer
receives the consumer's request. If the issuer mails the agreement, the
agreement must be posted in the mail five business days after the issuer
receives the consumer's request. If the issuer hand delivers or provides
the agreement electronically, the agreement must be hand delivered or
provided electronically five business days after the issuer receives the
consumer's request. For example, if the issuer emails the agreement, the
email with the attached agreement must be sent no later than five
business days after the issuer receives the consumer's request.
19(f) Effective Date
1. Delayed effective date for the agreement submission requirement.
Section 1005.19(f)(2) provides that the requirement to submit prepaid
account agreements to the Bureau on a rolling basis pursuant to
Sec. 1005.19(b) is delayed until October 1, 2018. An issuer must submit
to the Bureau no later than October 31, 2018 all prepaid account
agreements it offers as of October 1, 2018. After October 1, 2018,
issuers must submit on a rolling basis prepaid account agreements or
notifications of withdrawn agreements to the Bureau within 30 days after
offering, amending, or ceasing to offer the agreements.
2. Continuing obligation to post and provide consumer agreements.
Pursuant to Sec. 1005.19(f)(3), during the delayed agreement submission
period set forth in Sec. 1005.19(f)(2), an issuer must post agreements
on its Web site as required by Sec. 1005.19(c) and (d)(1)(i) using the
agreements it would have otherwise submitted to the Bureau under
Sec. 1005.19(b) and must provide a copy of the consumer's agreement to
the consumer upon request pursuant to Sec. 1005.19(d)(1)(ii). For
purposes of Sec. 1005.19(c)(2) and (d)(2), agreements posted by an
issuer on its Web site must conform to the form and content requirements
set forth in Sec. 1005.19(b)(6). For purposes of Sec. 1005.19(c)(3) and
(d)(2)(v), amended agreements must be posted to the issuer's Web site no
later than 30 days after the change becomes effective as required by
Sec. 1005.19(b)(2).
* * * * *
Section 1005.30 Remittance Transfer Definitions
* * * * *
30(c) Designated Recipient
* * * * *
2. * * *
[[Page 344]]
ii. For transfers to a prepaid account (other than a prepaid account
that is a payroll card account or a government benefit account), where
the funds are to be received in a location physically outside of any
State depends on whether the provider at the time the transfer is
requested has information indicating that funds are to be received in a
foreign country. See comments 30(c)-2.iii and 30(e)-3.i.C for
illustrations of when a remittance transfer provider would have such
information and when the provider would not. For transfers to all other
accounts, whether funds are to be received at a location physically
outside of any State depends on where the account is located. If the
account is located in a State, the funds will not be received at a
location in a foreign country. Further, for these accounts, if they are
located on a U.S. military installation that is physically located in a
foreign country, then these accounts are located in a State.
* * * * *
30(g) Sender
1. Determining whether a consumer is located in a State. Under
Sec. 1005.30(g), the definition of ``sender'' means a consumer in a
State who, primarily for personal, family, or household purposes,
requests a remittance transfer provider to send a remittance transfer to
a designated recipient. A sender located on a U.S. military installation
that is physically located in a foreign country is located in a State.
For transfers sent from a prepaid account (other than a prepaid account
that is a payroll card account or a government benefit account), whether
the consumer is located in a State depends on the location of the
consumer. If the provider does not know where the consumer is at the
time the consumer requests the transfer from the consumer's prepaid
account (other than a prepaid account that is a payroll card account or
a government benefit account) the provider may make the determination of
whether a consumer is located in a State based on information that is
provided by the consumer and on any records associated with the consumer
that the provider may have, such as an address provided by the consumer.
For transfers from all other accounts belonging to a consumer, whether a
consumer is located in a State depends on where the consumer's account
is located. If the account is located in a State, the consumer will be
located in a State for purposes of the definition of ``sender'' in
Sec. 1005.30(g), notwithstanding comment 3(a)-3. For these accounts, if
they are located on a U.S. military installation that is physically
located in a foreign country, then these accounts are located in a
State. Where a transfer is requested electronically or by telephone and
the transfer is not from an account, the provider may make the
determination of whether a consumer is located in a State based on
information that is provided by the consumer and on any records
associated with the consumer that the provider may have, such as an
address provided by the consumer.
* * * * *
3. Non-consumer accounts. A transfer that is requested to be sent
from an account that was not established primarily for personal, family,
or household purposes, such as an account that was established as a
business or commercial account or an account held by a business entity
such as a corporation, not-for-profit corporation, professional
corporation, limited liability company, partnership, or sole
proprietorship, is not requested primarily for personal, family, or
household purposes. A consumer requesting a transfer from such an
account therefore is not a sender under Sec. 1005.30(g). Additionally, a
transfer that is requested to be sent from an account held by a
financial institution under a bona fide trust agreement pursuant to
Sec. 1005.2(b)(2) is not requested primarily for personal, family, or
household purposes, and a consumer requesting a transfer from such an
account is therefore not a sender under Sec. 1005.30(g).
* * * * *
Appendix A--Model Disclosure Clauses and Forms
* * * * *
2. Use of forms. The appendix contains model disclosure clauses for
optional use by financial institutions and remittance transfer providers
to facilitate compliance with the disclosure requirements of
Secs. 1005.5(b)(2) and (3), 1005.6(a), 1005.7, 1005.8(b),
1005.14(b)(1)(ii), 1005.15(c), 1005.15(e)(1) and (2), 1005.18(b)(2),
(3), (6) and (7), 1005.18(d)(1) and (2), 1005.31, 1005.32 and 1005.36.
The use of appropriate clauses in making disclosures will protect a
financial institution and a remittance transfer provider from liability
under sections 916 and 917 of the act provided the clauses accurately
reflect the institution's EFT services and the provider's remittance
transfer services, respectively.
3. Altering the clauses. Unless otherwise expressly addressed in the
rule, the following applies. Financial institutions may use clauses of
their own design in conjunction with the Bureau's model clauses. The
inapplicable words or portions of phrases in parentheses should be
deleted. The catchlines are not part of the clauses and need not be
used. Financial institutions may make alterations, substitutions, or
additions in the clauses to reflect the services offered, such
[[Page 345]]
as technical changes (including the substitution of a trade name for the
word ``card,'' deletion of inapplicable services, or substitution of
lesser liability limits). Several of the model clauses include
references to a telephone number and address. Where two or more of these
clauses are used in a disclosure, the telephone number and address may
be referenced and need not be repeated.
* * * * *
PART 1006_FAIR DEBT COLLECTION PRACTICES ACT (REGULATION F)--Table of Contents
Subpart A_Procedures for State Application for Exemption From the
Provisions of the Act
Sec.
1006.1 Purpose and definitions.
1006.2 Application.
1006.3 Supporting documents.
1006.4 Criteria for determination.
1006.5 Public notice of filing.
1006.6 Exemption from requirements.
1006.7 Adverse determination.
1006.8 Revocation of exemption.
Subpart B [Reserved]
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1692o.
Source: 76 FR 78124, Dec. 16, 2011, unless otherwise noted.
Subpart A_Procedures for State Application for Exemption From the
Provisions of the Act
Sec. 1006.1 Purpose and definitions.
(a) Purpose. This part, known as Regulation F, is issued by the
Bureau of Consumer Financial Protection (Bureau). This subpart
establishes procedures and criteria whereby states may apply to the
Bureau for exemption of a class of debt collection practices within the
applying state from the provisions of the Fair Debt Collection Practices
Act (the Act) as provided in section 817 of the Act, 15 U.S.C. 1692o.
(b) Definitions. For purposes of this subpart:
Class of debt collection practices includes one or more such classes
of debt collection practices.
State law includes any regulations that implement state law and
formal interpretations thereof by a court of competent jurisdiction or
duly authorized agency of that state.
Sec. 1006.2 Application.
Any state may apply to the Bureau pursuant to the terms of this part
for a determination that, under the laws of that state, any class of
debt collection practices within that state is subject to requirements
that are substantially similar to, or provide greater protection for
consumers than, those imposed under sections 803 through 812 of the Act,
and that there is adequate provision for state enforcement of such
requirements. The application shall be in writing, addressed to the
Bureau, signed by the Governor, Attorney General or state official
having primary enforcement or responsibility under the state law which
is applicable to the class of debt collection practices, and shall be
supported by the documents specified in this subpart.
Sec. 1006.3 Supporting documents.
The application shall be accompanied by the following, which may be
submitted in paper or electronic form:
(a) A copy of the full text of the state law that is claimed to
contain requirements substantially similar to those imposed under
sections 803 through 812 of the Act, or to provide greater protection to
consumers than sections 803 through 812 of the Act, regarding the class
of debt collection practices within that state.
(b) A comparison of each provision of sections 803 through 812 of
the Act with the corresponding provision of the state law, together with
reasons supporting the claim that the corresponding provisions of the
state law are substantially similar to or provide greater protection to
consumers than provisions of sections 803 through 812 of the Act and an
explanation as to why any differences between the state and Federal law
are not inconsistent with the provisions of sections 803 through 812 of
the Act and do not result in a diminution in the protection otherwise
afforded consumers; and a statement
[[Page 346]]
that no other state laws (including administrative or judicial
interpretations) are related to, or would have an effect upon, the state
law that is being considered by the Bureau in making its determination.
(c) A copy of the full text of the state law that provides for
enforcement of the state law referred to in paragraph (a) of this
section.
(d) A comparison of the provisions of the state law that provides
for enforcement with the provisions of section 814 of the Act, together
with reasons supporting the claim that such state law provides for
administrative enforcement of the state law referred to in paragraph (a)
of this section that is substantially similar to, or more extensive
than, the enforcement provided under section 814 of the Act.
(e) A statement identifying the office designated or to be
designated to administer the state law referred to in paragraph (a) of
this section, together with complete information regarding the fiscal
arrangements for administrative enforcement (including the amount of
funds available or to be provided), the number and qualifications of
personnel engaged or to be engaged in enforcement, and a description of
the procedures under which such state law is to be administratively
enforced. The statement should also include reasons to support the claim
that there is adequate provision for enforcement of such state law.
Sec. 1006.4 Criteria for determination.
The Bureau will consider the criteria set forth below, and any other
relevant information, in determining whether the law of a state is
substantially similar to, or provides greater protection to consumers
than, the provisions of sections 803 through 812 of the Act regarding
the class of debt collection practices within that state, and whether
there is adequate provision for state enforcement of such law. In making
that determination, the Bureau primarily will consider each provision of
the state law in comparison with each corresponding provision in
sections 803 through 812 of the Act, and not the state law as a whole in
comparison with the Act as a whole.
(a)(1) In order for provisions of state law to be substantially
similar to, or provide greater protection to consumers than the
provisions of sections 803 through 812 of the Act, the provisions of
state law at least shall provide that:
(i) Definitions and rules of construction, as applicable, import the
same meaning and have the same application as those prescribed by
sections 803 through 812 of the Act.
(ii) Debt collectors provide all of the applicable notifications
required by the provisions of sections 803 through 812 of the Act, with
the content and in the terminology, form, and time periods prescribed by
this part pursuant to sections 803 through 812; however, required
references to state law may be substituted for the references to Federal
law required in this part. Notification requirements under state law in
additional circumstances or with additional detail that do not frustrate
any of the purposes of the Act may be determined by the Bureau to be
consistent with sections 803 through 812 of the Act;
(iii) Debt collectors take all affirmative actions and abide by
obligations substantially similar to, or more extensive than, those
prescribed by sections 803 through 812 of the Act under substantially
similar or more stringent conditions and within the same or more
stringent time periods as are prescribed in sections 803 through 812 of
the Act;
(iv) Debt collectors abide by the same or more stringent
prohibitions as are prescribed by sections 803 through 812 of the Act;
(v) Obligations or responsibilities imposed on consumers are no more
costly, lengthy, or burdensome relative to consumers exercising any of
the rights or gaining the benefits of the protections provided in the
state law than corresponding obligations or responsibilities imposed on
consumers in sections 803 through 812 of the Act.
(vi) Consumers' rights and protections are substantially similar to,
or more favorable than, those provided by sections 803 through 812 of
the Act under conditions or within time periods that are substantially
similar to, or more favorable to consumers than,
[[Page 347]]
those prescribed by sections 803 through 812 of the Act.
(2) Paragraph (a)(1) of this section is not to be construed as
indicating that the Bureau would consider adversely any additional
requirements of state law that are not inconsistent with the purpose of
the Act or the requirements imposed under sections 803 through 812 of
the Act.
(b) In determining whether provisions for enforcement of the state
law referred to in Sec. 1006.3(a) of this part are adequate,
consideration will be given to the extent to which, under state law,
provision is made for administrative enforcement, including necessary
facilities, personnel, and funding.
Sec. 1006.5 Public notice of filing.
In connection with any application that has been filed in accordance
with the requirements of Secs. 1006.2 and 1006.3 of this part and
following initial review of the application, a notice of such filing
shall be published by the Bureau in the Federal Register, and a copy of
such application shall be made available for examination by interested
persons during business hours at the Bureau of Consumer Financial
Protection, 1700 G Street NW., Washington, DC 20006. A period of time
shall be allowed from the date of such publication for interested
parties to submit written comments to the Bureau regarding that
application.
Sec. 1006.6 Exemption from requirements.
If the Bureau determines on the basis of the information before it
that, under the law of a state, a class of debt collection practices is
subject to requirements substantially similar to, or that provide
greater protection to consumers than, those imposed under sections 803
through 812 and section 814 of the Act, and that there is adequate
provision for state enforcement, the Bureau will exempt the class of
debt collection practices in that state from the requirements of
sections 803 through 812 and section 814 of the Act in the following
manner and subject to the following conditions:
(a) Notice of the exemption shall be published in the Federal
Register, and the Bureau shall furnish a copy of such notice to the
state official who made application for such exemption, to each Federal
authority responsible for administrative enforcement of the requirements
of sections 803 through 812 of the Act, and to the Attorney General of
the United States. Any exemption granted shall be effective 90 days
after the date of publication of such notice in the Federal Register.
(b) The appropriate official of any state that receives an exemption
shall inform the Bureau in writing within 30 days of any change in the
state laws referred to in Sec. 1006.3(a) and (c) of this part. The
report of any such change shall contain copies of the full text of that
change, together with statements setting forth the information and
opinions regarding that change that are specified in Sec. 1006.3(b) and
(d). The appropriate official of any state that has received such an
exemption also shall file with the Bureau from time to time such reports
as the Bureau may require.
(c) The Bureau shall inform the appropriate official of any state
that receives such an exemption of any subsequent amendments of the Act
or this part that might necessitate the amendment of state law for the
exemption to continue.
(d) No exemption shall extend to the civil liability provisions of
section 813 of the Act. After an exemption is granted, the requirements
of the applicable state law shall constitute the requirements of
sections 803 through 812 of the Act, except to the extent such state law
imposes requirements not imposed by the Act or this part.
Sec. 1006.7 Adverse determination.
(a) If, after publication of a notice in the Federal Register as
provided under Sec. 1006.5 of this part, the Bureau finds on the basis
of the information before it that it cannot make a favorable
determination in connection with the application, the Bureau shall
notify the appropriate state official of the facts upon which such
findings are based and shall afford that state authority a reasonable
opportunity to demonstrate or achieve compliance.
(b) If, after having afforded the state authority such opportunity
to demonstrate or achieve compliance, the
[[Page 348]]
Bureau finds on the basis of the information before it that it still
cannot make a favorable determination in connection with the
application, the Bureau shall publish in the Federal Register a notice
of its determination regarding the application and shall furnish a copy
of such notice to the state official who made application for such
exemption.
Sec. 1006.8 Revocation of exemption.
(a) The Bureau reserves the right to revoke any exemption granted
under the provisions of this part, if at any time it determines that the
state law does not, in fact, impose requirements that are substantially
similar to, or that provide greater protection to applicants than, those
imposed under sections 803 through 812 of the Act or that there is not,
in fact, adequate provision for state enforcement.
(b) Before revoking any such exemption, the Bureau shall notify the
appropriate state official of the facts or conduct that, in the Bureau's
opinion, warrant such revocation, and shall afford that state such
opportunity as the Bureau deems appropriate in the circumstances to
demonstrate or achieve compliance.
(c) If, after having been afforded the opportunity to demonstrate or
achieve compliance, the Bureau determines that the state has not done
so, notice of the Bureau's intention to revoke such exemption shall be
published in the Federal Register. A period of time shall be allowed
from the date of such publication for interested persons to submit
written comments to the Bureau regarding the intention to revoke.
(d) If such exemption is revoked, notice of such revocation shall be
published by the Bureau in the Federal Register, and a copy of such
notice shall be furnished to the appropriate state official, to the
Federal authorities responsible for enforcement of the requirements of
the Act, and to the Attorney General of the United States. The
revocation shall become effective, and the class of debt collection
practices affected within that state shall become subject to the
requirements of sections 803 through 812 of the Act, 90 days after the
date of publication of the notice in the Federal Register.
Subpart B [Reserved]
PART 1007_S.A.F.E. MORTGAGE LICENSING ACT_FEDERAL REGISTRATION OF
RESIDENTIAL MORTGAGE LOAN ORIGINATORS (REGULATION G)--Table of Contents
Sec.
1007.101 Authority, purpose, and scope of this part.
1007.102 Definitions applicable to this part.
1007.103 Registration of mortgage loan originators.
1007.104 Policies and procedures.
1007.105 Use of Unique Identifier.
Appendix A to Part 1007--Examples of Mortgage Loan Originator Activities
Authority: 12 U.S.C. 5101-5116; 15 U.S.C. 1604(a), 1639b; Pub. L.
111-203, 124 Stat. 1376.
Source: 76 FR 78487, Dec. 19, 2011, unless otherwise noted.
Sec. 1007.101 Authority, purpose, and scope.
(a) Authority. This part, known as Regulation G, is issued by the
Bureau of Consumer Financial Protection pursuant to the Secure and Fair
Enforcement for Mortgage Licensing Act of 2008, title V of the Housing
and Economic Recovery Act of 2008 (S.A.F.E. Act) (Pub. L. 110-289, 122
Stat. 2654, 12 U.S.C. 5101 et seq.,) 12 U.S.C. 5512, 5581, 15 U.S.C.
1604(a), 1639b.
(b) Purpose. This part implements the S.A.F.E. Act's Federal
registration requirement for mortgage loan originators. The S.A.F.E. Act
provides that the objectives of this registration include aggregating
and improving the flow of information to and between regulators;
providing increased accountability and tracking of mortgage loan
originators; enhancing consumer protections; supporting anti-fraud
measures; and providing consumers with easily accessible information at
no charge regarding the employment history of, and publicly adjudicated
disciplinary and enforcement actions against, mortgage loan originators.
(c) Scope--(1) In general. This part applies to:
(i) National banks, Federal branches and agencies of foreign banks,
their operating subsidiaries (collectively referred to in this part as
national
[[Page 349]]
banks), and their employees who act as mortgage loan originators;
(ii) Member banks of the Federal Reserve System; their respective
subsidiaries that are not functionally regulated within the meaning of
section 5(c)(5) of the Bank Holding Company Act, as amended (12 U.S.C.
1844(c)(5)); branches and agencies of foreign banks; commercial lending
companies owned or controlled by foreign banks (collectively referred to
in this part as member banks); and their employees who act as mortgage
loan originators;
(iii) Insured state nonmember banks (including state-licensed
insured branches of foreign banks), their subsidiaries (except brokers,
dealers, persons providing insurance, investment companies, and
investment advisers) (collectively referred to in this part as insured
state nonmember banks), and employees of such banks or subsidiaries who
act as mortgage loan originators;
(iv) Savings associations, their operating subsidiaries
(collectively referred to in this part as savings associations), and
their employees who act as mortgage loan originators;
(v) Farm Credit System lending institutions that actually originate
residential mortgage loans pursuant to sections 1.9(3), 1.11 or 2.4(a)
and (b) of the Farm Credit Act of 1971 (collectively referred to in this
part as Farm Credit System institutions), and their employees who act as
mortgage loan originators; and
(vi) Any federally insured credit union and its employees, including
volunteers, who act as mortgage loan originators. This part also applies
to non-federally insured credit unions and their employees, including
volunteers, who act as mortgage loan originators, subject to the
conditions in paragraph (c)(3) of this section.
(2) De minimis exception. (i) This part and the requirements of 12
U.S.C. 5103(a)(1)(A) and (2) of the S.A.F.E. Act do not apply to any
employee of a national bank, member bank, insured state nonmember bank,
savings association, Farm Credit System institution, or credit union who
has never been registered or licensed through the Registry as a mortgage
loan originator if during the past 12 months the employee acted as a
mortgage loan originator for 5 or fewer residential mortgage loans.
(ii) Prior to engaging in mortgage loan origination activity that
exceeds the exception limit in paragraph (c)(2)(i) of this section, an
employee must register with the Registry pursuant to this part.
(iii) Evasion. National banks, member banks, insured state nonmember
banks, savings associations, Farm Credit System institutions, and credit
unions are prohibited from engaging in any act or practice to evade the
limits of the de minimis exception set forth in paragraph (c)(2)(i) of
this section.
(3) For non-federally insured credit unions. A non-federally insured
credit union in a state identified on the National Credit Union
Administration's Web site (NCUA.gov) as one where the appropriate state
supervisory authority has executed a Memorandum of Understanding (MOU)
with the National Credit Union Administration may register under this
rule provided that any Nationwide Mortgage Licensing System and Registry
listing of the non-federally insured credit union and its employees
contains a clear and conspicuous statement that the non-federally
insured credit union is not insured by the National Credit Union Share
Insurance Fund, and the state supervisory authority where the non-
federally insured credit union is located maintains an agreement with
the National Credit Union Administration for this registration process
and oversight. If the state supervisory authority where the non-
federally insured credit union is located fails to maintain such an
agreement, the non-federally insured credit union and its employees in
that state may not register or maintain registration under the Federal
system. They instead must use the appropriate state licensing and
registration system, or if the state does not have such a system, the
licensing and registration system established by the Bureau for mortgage
loan originators and their employees.
Sec. 1007.102 Definitions.
For purposes of this part, the following definitions apply:
[[Page 350]]
Administrative or clerical tasks means the receipt, collection, and
distribution of information common for the processing or underwriting of
a loan in the residential mortgage industry and communication with a
consumer to obtain information necessary for the processing or
underwriting of a residential mortgage loan.
Annual renewal period means November 1 through December 31 of each
year.
Bureau means the Bureau of Consumer Financial Protection.
Covered financial institution means any national bank, member bank,
insured state nonmember bank, savings association, Farm Credit System
institution, or federally insured credit union as any such term is
defined in Sec. 1007.101(c)(1). Covered financial institution also
includes a non-federally insured credit union that registers subject to
the conditions of Sec. 1007.101(c)(3).
Mortgage loan originator means
(1) An individual who:
(i) Takes a residential mortgage loan application; and
(ii) Offers or negotiates terms of a residential mortgage loan for
compensation or gain.
(2)(i) The term mortgage loan originator does not include:
(A) An individual who performs purely administrative or clerical
tasks on behalf of an individual who is described as a mortgage loan
originator in this section;
(B) An individual who only performs real estate brokerage activities
(as defined in 12 U.S.C. 5102(4)(D)) and is licensed or registered as a
real estate broker in accordance with applicable state law, unless the
individual is compensated by a lender, a mortgage broker, or other
mortgage loan originator or by any agent of such lender, mortgage
broker, or other mortgage loan originator, and meets the definition of
mortgage loan originator in this section; or
(C) An individual or entity solely involved in extensions of credit
related to timeshare plans, as that term is defined in 11 U.S.C.
101(53D).
(ii) Examples of activities that would, and would not, result in an
employee meeting the definition of mortgage loan originator are provided
in appendix A to this part.
Nationwide Mortgage Licensing System and Registry or Registry means
the system developed and maintained by the Conference of State Bank
Supervisors and the American Association of Residential Mortgage
Regulators for the state licensing and registration of state-licensed
mortgage loan originators and the registration of mortgage loan
originators pursuant to 12 U.S.C. 5107.
Registered mortgage loan originator or registrant means any
individual who:
(1) Meets the definition of mortgage loan originator and is an
employee of a covered financial institution; and
(2) Is registered pursuant to this part with, and maintains a unique
identifier through, the Registry.
Residential mortgage loan means any loan primarily for personal,
family, or household use that is secured by a mortgage, deed of trust,
or other equivalent consensual security interest on a dwelling (as
defined in section 103(v) of the Truth in Lending Act, 15 U.S.C.
1602(v)) or residential real estate upon which is constructed or
intended to be constructed a dwelling, and includes refinancings,
reverse mortgages, home equity lines of credit and other first and
additional lien loans that meet the qualifications listed in this
definition. This definition does not amend or supersede 12 CFR
613.3030(c) with respect to Farm Credit System institutions.
Unique identifier means a number or other identifier that:
(1) Permanently identifies a registered mortgage loan originator;
(2) Is assigned by protocols established by the Nationwide Mortgage
Licensing System and Registry and the Bureau to facilitate:
(i) Electronic tracking of mortgage loan originators; and
(ii) Uniform identification of, and public access to, the employment
history of and the publicly adjudicated disciplinary and enforcement
actions against mortgage loan originators; and
(3) Must not be used for purposes other than those set forth under
the S.A.F.E. Act.
[[Page 351]]
Sec. 1007.103 Registration of mortgage loan originators.
(a) Registration requirement--(1) Employee registration. Each
employee of a covered financial institution who acts as a mortgage loan
originator must register with the Registry, obtain a unique identifier,
and maintain this registration in accordance with the requirements of
this part. Any such employee who is not in compliance with the
registration and unique identifier requirements set forth in this part
is in violation of the S.A.F.E. Act and this part.
(2) Covered financial institution requirement--(i) In general. A
covered financial institution that employs one or more individuals who
act as a residential mortgage loan originator must require each such
employee to register with the Registry, maintain this registration, and
obtain a unique identifier in accordance with the requirements of this
part.
(ii) Prohibition. A covered financial institution must not permit an
employee who is subject to the registration requirements of this part to
act as a mortgage loan originator for the covered financial institution
unless such employee is registered with the Registry pursuant to this
part.
(3) [Reserved]
(4) Employees previously registered or licensed through the
Registry--(i) In general. If an employee of a covered financial
institution was registered or licensed through, and obtained a unique
identifier from, the Registry and has maintained this registration or
license before the employee becomes subject to this part at the current
covered financial institution, then the registration requirements of the
S.A.F.E. Act and this part are deemed to be met, provided that:
(A) The employment information in paragraphs (d)(1)(i)(C) and
(d)(1)(ii) of this section is updated and the requirements of paragraph
(d)(2) of this section are met;
(B) New fingerprints of the employee are submitted to the Registry
for a background check, as required by paragraph (d)(1)(ix) of this
section, unless the employee has fingerprints on file with the Registry
that are less than 3 years old;
(C) The covered financial institution information required in
paragraphs (e)(1)(i) (to the extent the covered financial institution
has not previously met these requirements) and (e)(2)(i) of this section
is submitted to the Registry; and
(D) The registration is maintained pursuant to paragraphs (b) and
(e)(1)(ii) of this section, as of the date that the employee becomes
subject to this part.
(ii) Rule for certain acquisitions, mergers, or reorganizations.
When registered or licensed mortgage loan originators become covered
financial institution employees as a result of an acquisition,
consolidation, merger, or reorganization, only the requirements of
paragraphs (a)(4)(i)(A), (C), and (D) of this section must be met, and
these requirements must be met within 60 days from the effective date of
the acquisition, merger, or reorganization.
(b) Maintaining registration. (1) A mortgage loan originator who is
registered with the Registry pursuant to paragraph (a) of this section
must:
(i) Except as provided in paragraph (b)(3) of this section, renew
the registration during the annual renewal period, confirming the
responses set forth in paragraphs (d)(1)(i) through (viii) of this
section remain accurate and complete, and updating this information, as
appropriate; and
(ii) Update the registration within 30 days of any of the following
events:
(A) A change in the name of the registrant;
(B) The registrant ceases to be an employee of the covered financial
institution; or
(C) The information required under paragraphs (d)(1)(iii) through
(viii) of this section becomes inaccurate, incomplete, or out-of-date.
(2) A registered mortgage loan originator must maintain his or her
registration, unless the individual is no longer engaged in the activity
of a mortgage loan originator.
(3) The annual registration renewal requirement set forth in
paragraph (b)(1) of this section does not apply to a registered mortgage
loan originator who has completed his or her registration with the
Registry pursuant to paragraph (a)(1) of this section less
[[Page 352]]
than 6 months prior to the end of the annual renewal period.
(c) Effective dates--(1) Registration. A registration pursuant to
paragraph (a)(1) of this section is effective on the date the Registry
transmits notification to the registrant that the registrant is
registered.
(2) Renewals or updates. A renewal or update pursuant to paragraph
(b) of this section is effective on the date the Registry transmits
notification to the registrant that the registration has been renewed or
updated.
(d) Required employee information--(1) In general. For purposes of
the registration required by this section, a covered financial
institution must require each employee who is a mortgage loan originator
to submit to the Registry, or must submit on behalf of the employee, the
following categories of information, to the extent this information is
collected by the Registry:
(i) Identifying information, including the employee's:
(A) Name and any other names used;
(B) Home address and contact information;
(C) Principal business location address and business contact
information;
(D) Social security number;
(E) Gender; and
(F) Date and place of birth;
(ii) Financial services-related employment history for the 10 years
prior to the date of registration or renewal, including the date the
employee became an employee of the covered financial institution;
(iii) Convictions of any criminal offense involving dishonesty,
breach of trust, or money laundering against the employee or
organizations controlled by the employee, or agreements to enter into a
pretrial diversion or similar program in connection with the prosecution
for such offense(s);
(iv) Civil judicial actions against the employee in connection with
financial services-related activities, dismissals with settlements, or
judicial findings that the employee violated financial services-related
statutes or regulations, except for actions dismissed without a
settlement agreement;
(v) Actions or orders by a state or Federal regulatory agency or
foreign financial regulatory authority that:
(A) Found the employee to have made a false statement or omission or
been dishonest, unfair or unethical; to have been involved in a
violation of a financial services-related regulation or statute; or to
have been a cause of a financial services-related business having its
authorization to do business denied, suspended, revoked, or restricted;
(B) Are entered against the employee in connection with a financial
services-related activity;
(C) Denied, suspended, or revoked the employee's registration or
license to engage in a financial services-related activity; disciplined
the employee or otherwise by order prevented the employee from
associating with a financial services-related business or restricted the
employee's activities; or
(D) Barred the employee from association with an entity or its
officers regulated by the agency or authority or from engaging in a
financial services-related business;
(vi) Final orders issued by a state or Federal regulatory agency or
foreign financial regulatory authority based on violations of any law or
regulation that prohibits fraudulent, manipulative, or deceptive
conduct;
(vii) Revocation or suspension of the employee's authorization to
act as an attorney, accountant, or state or Federal contractor;
(viii) Customer-initiated financial services-related arbitration or
civil action against the employee that required action, including
settlements, or which resulted in a judgment; and
(ix) Fingerprints of the employee, in digital form if practicable,
and any appropriate identifying information for submission to the
Federal Bureau of Investigation and any governmental agency or entity
authorized to receive such information in connection with a state and
national criminal history background check; however, fingerprints
provided to the Registry that are less than 3 years old may be used to
satisfy this requirement.
(2) Employee authorizations and attestation. An employee registering
as a mortgage loan originator or renewing or updating his or her
registration
[[Page 353]]
under this part, and not the employing covered financial institution or
other employees of the covered financial institution, must:
(i) Authorize the Registry and the employing institution to obtain
information related to sanctions or findings in any administrative,
civil, or criminal action, to which the employee is a party, made by any
governmental jurisdiction;
(ii) Attest to the correctness of all information required by
paragraph (d) of this section, whether submitted by the employee or on
behalf of the employee by the employing covered financial institution;
and
(iii) Authorize the Registry to make available to the public
information required by paragraphs (d)(1)(i)(A) and (C), and (d)(1)(ii)
through (viii) of this section.
(3) Submission of information. A covered financial institution may
identify one or more employees of the covered financial institution who
may submit the information required by paragraph (d)(1) of this section
to the Registry on behalf of the covered financial institution's
employees provided that this individual, and any employee delegated such
authority, does not act as a mortgage loan originator, consistent with
paragraph (e)(1)(i)(F) of this section. In addition, a covered financial
institution may submit to the Registry some or all of the information
required by paragraphs (d)(1) and (e)(2) of this section for multiple
employees in bulk through batch processing in a format to be specified
by the Registry, to the extent such batch processing is made available
by the Registry.
(e) Required covered financial institution information. A covered
financial institution must submit the following categories of
information to the Registry:
(1) Covered financial institution record. (i) In connection with the
registration of one or more mortgage loan originators:
(A) Name, main office address, and business contact information;
(B) Internal Revenue Service Employer Tax Identification Number
(EIN);
(C) Research Statistics Supervision and Discount (RSSD) number, as
issued by the Board of Governors of the Federal Reserve System;
(D) Identification of its primary Federal regulator;
(E) Name(s) and contact information of the individual(s) with
authority to act as the covered financial institution's primary point of
contact for the Registry;
(F) Name(s) and contact information of the individual(s) with
authority to enter the information required by paragraphs (d)(1) and (e)
of this section to the Registry and who may delegate this authority to
other individuals. For the purpose of providing information required by
paragraph (e) of this section, this individual and their delegates must
not act as mortgage loan originators unless the covered financial
institution has 10 or fewer full time or equivalent employees and is not
a subsidiary; and
(G) If a subsidiary of a national bank, member bank, savings
association, or insured state nonmember bank, indication that it is a
subsidiary and the RSSD number of the parent institution; if an
operating subsidiary of an agricultural credit association, indication
that it is a subsidiary, and the RSSD number of the parent agricultural
credit association.
(ii) Attestation. The individual(s) identified in paragraphs
(e)(1)(i)(E) and (F) of this section must comply with Registry protocols
to verify their identity and must attest that they have the authority to
enter data on behalf of the covered financial institution, that the
information provided to the Registry pursuant to this paragraph (e) is
correct, and that the covered financial institution will keep the
information required by this paragraph (e) current and will file
accurate supplementary information on a timely basis.
(iii) A covered financial institution must update the information
required by this paragraph (e) of this section within 30 days of the
date that this information becomes inaccurate.
(iv) A covered financial institution must renew the information
required by paragraph (e) of this section on an annual basis.
[[Page 354]]
(2) Employee information. In connection with the registration of
each employee who acts as a mortgage loan originator:
(i) After the information required by paragraph (d) of this section
has been submitted to the Registry, confirmation that it employs the
registrant; and
(ii) Within 30 days of the date the registrant ceases to be an
employee of the covered financial institution, notification that it no
longer employs the registrant and the date the registrant ceased being
an employee.
Sec. 1007.104 Policies and procedures.
A covered financial institution that employs one or more mortgage
loan originators must adopt and follow written policies and procedures
designed to assure compliance with this part. These policies and
procedures must be appropriate to the nature, size, complexity, and
scope of the mortgage lending activities of the covered financial
institution, and apply only to those employees acting within the scope
of their employment at the covered financial institution. At a minimum,
these policies and procedures must:
(a) Establish a process for identifying which employees of the
covered financial institution are required to be registered mortgage
loan originators;
(b) Require that all employees of the covered financial institution
who are mortgage loan originators be informed of the registration
requirements of the S.A.F.E. Act and this part and be instructed on how
to comply with such requirements and procedures;
(c) Establish procedures to comply with the unique identifier
requirements in Sec. 1007.105;
(d) Establish reasonable procedures for confirming the adequacy and
accuracy of employee registrations, including updates and renewals, by
comparisons with its own records;
(e) Establish reasonable procedures and tracking systems for
monitoring compliance with registration and renewal requirements and
procedures;
(f) Provide for independent testing for compliance with this part to
be conducted at least annually by covered financial institution
personnel or by an outside party;
(g) Provide for appropriate action in the case of any employee who
fails to comply with the registration requirements of the S.A.F.E. Act,
this part, or the covered financial institution's related policies and
procedures, including prohibiting such employees from acting as mortgage
loan originators or other appropriate disciplinary actions;
(h) Establish a process for reviewing employee criminal history
background reports received pursuant to this part, taking appropriate
action consistent with applicable Federal law, including section 19 of
the Federal Deposit Insurance Act (12 U.S.C. 1829), section 206 of the
Federal Credit Union Act (12 U.S.C. 1786(i)), and section 5.65(d) of the
Farm Credit Act of 1971, as amended (12 U.S.C. 2277a-14(d)), and
implementing regulations with respect to these reports, and maintaining
records of these reports and actions taken with respect to applicable
employees; and
(i) Establish procedures designed to ensure that any third party
with which the covered financial institution has arrangements related to
mortgage loan origination has policies and procedures to comply with the
S.A.F.E. Act, including appropriate licensing and/or registration of
individuals acting as mortgage loan originators.
Sec. 1007.105 Use of unique identifier.
(a) The covered financial institution shall make the unique
identifier(s) of its registered mortgage loan originator(s) available to
consumers in a manner and method practicable to the institution.
(b) A registered mortgage loan originator shall provide his or her
unique identifier to a consumer:
(1) Upon request;
(2) Before acting as a mortgage loan originator; and
(3) Through the originator's initial written communication with a
consumer, if any, whether on paper or electronically.
Sec. Appendix A to Part 1007--Examples of Mortgage Loan Originator
Activities
This appendix provides examples to aid in the understanding of
activities that would
[[Page 355]]
cause an employee of a covered financial institution to fall within or
outside the definition of mortgage loan originator. The examples in this
appendix are not all-inclusive. They illustrate only the issue described
and do not illustrate any other issues that may arise under this part.
For purposes of the examples below, the term ``loan'' refers to a
residential mortgage loan.
(a) Taking a loan application. The following examples illustrate
when an employee takes, or does not take, a loan application.
(1) Taking an application includes: receiving information provided
in connection with a request for a loan to be used to determine whether
the consumer qualifies for a loan, even if the employee:
(i) Has received the consumer's information indirectly in order to
make an offer or negotiate a loan;
(ii) Is not responsible for verifying information;
(iii) Is inputting information into an online application or other
automated system on behalf of the consumer; or
(iv) Is not engaged in approval of the loan, including determining
whether the consumer qualifies for the loan.
(2) Taking an application does not include any of the following
activities performed solely or in combination:
(i) Contacting a consumer to verify the information in the loan
application by obtaining documentation, such as tax returns or payroll
receipts;
(ii) Receiving a loan application through the mail and forwarding
it, without review, to loan approval personnel;
(iii) Assisting a consumer who is filling out an application by
clarifying what type of information is necessary for the application or
otherwise explaining the qualifications or criteria necessary to obtain
a loan product;
(iv) Describing the steps that a consumer would need to take to
provide information to be used to determine whether the consumer
qualifies for a loan or otherwise explaining the loan application
process;
(v) In response to an inquiry regarding a prequalified offer that a
consumer has received from a covered financial institution, collecting
only basic identifying information about the consumer and forwarding the
consumer to a mortgage loan originator; or
(vi) Receiving information in connection with a modification to the
terms of an existing loan to a borrower as part of the covered financial
institution's loss mitigation efforts when the borrower is reasonably
likely to default.
(b) Offering or negotiating terms of a loan. The following examples
are designed to illustrate when an employee offers or negotiates terms
of a loan, and conversely, what does not constitute offering or
negotiating terms of a loan.
(1) Offering or negotiating the terms of a loan includes:
(i) Presenting a loan offer to a consumer for acceptance, either
verbally or in writing, including, but not limited to, providing a
disclosure of the loan terms after application under the Truth in
Lending Act, even if:
(A) Further verification of information is necessary;
(B) The offer is conditional;
(C) Other individuals must complete the loan process; or
(D) Only the rate approved by the covered financial institution's
loan approval mechanism function for a specific loan product is
communicated without authority to negotiate the rate.
(ii) Responding to a consumer's request for a lower rate or lower
points on a pending loan application by presenting to the consumer a
revised loan offer, either verbally or in writing, that includes a lower
interest rate or lower points than the original offer.
(2) Offering or negotiating terms of a loan does not include solely
or in combination:
(i) Providing general explanations or descriptions in response to
consumer queries regarding qualification for a specific loan product,
such as explaining loan terminology (e.g., debt-to-income ratio);
lending policies (e.g., the loan-to-value ratio policy of the covered
financial institution); or product-related services;
(ii) In response to a consumer's request, informing a consumer of
the loan rates that are publicly available, such as on the covered
financial institution's Web site, for specific types of loan products
without communicating to the consumer whether qualifications are met for
that loan product;
(iii) Collecting information about a consumer in order to provide
the consumer with information on loan products for which the consumer
generally may qualify, without presenting a specific loan offer to the
consumer for acceptance, either verbally or in writing;
(iv) Arranging the loan closing or other aspects of the loan
process, including communicating with a consumer about those
arrangements, provided that communication with the consumer only
verifies loan terms already offered or negotiated;
(v) Providing a consumer with information unrelated to loan terms,
such as the best days of the month for scheduling loan closings at the
covered financial institution;
(vi) Making an underwriting decision about whether the consumer
qualifies for a loan;
(vii) Explaining or describing the steps or process that a consumer
would need to take in order to obtain a loan offer, including
qualifications or criteria that would need to be met without providing
guidance specific to that consumer's circumstances; or
[[Page 356]]
(viii) Communicating on behalf of a mortgage loan originator that a
written offer, including disclosures provided pursuant to the Truth in
Lending Act, has been sent to a consumer without providing any details
of that offer.
(c) Offering or negotiating a loan for compensation or gain. The
following examples illustrate when an employee does or does not offer or
negotiate terms of a loan ``for compensation or gain.''
(1) Offering or negotiating terms of a loan for compensation or gain
includes engaging in any of the activities in paragraph (b)(1) of this
appendix in the course of carrying out employment duties, even if the
employee does not receive a referral fee or commission or other special
compensation for the loan.
(2) Offering or negotiating terms of a loan for compensation or gain
does not include engaging in a seller-financed transaction for the
employee's personal property that does not involve the covered financial
institution.
PART 1008_S.A.F.E. MORTGAGE LICENSING ACT_STATE COMPLIANCE AND BUREAU
REGISTRATION SYSTEM (REGULATION H)--Table of Contents
Sec.
1008.1 Purpose.
1008.3 Confidentiality of information.
Subpart A_General
1008.20 Scope of this subpart.
1008.23 Definitions.
Subpart B_Determination of State Compliance With the S.A.F.E. Act
1008.101 Scope of this subpart.
1008.103 Individuals required to be licensed by states.
1008.105 Minimum loan originator license requirements.
1008.107 Minimum annual license renewal requirements.
1008.109 Effective date of state requirements imposed on individuals.
1008.111 Other minimum requirements for state licensing systems.
1008.113 Performance standards.
1008.115 Determination of noncompliance.
Subpart C_Bureau's Loan Originator Licensing System and Bureau's
Nationwide Mortgage Licensing and Registry System
1008.201 Scope of this subpart.
1008.203 Bureau's establishment of loan originator licensing system.
1008.205 Bureau's establishment of nationwide mortgage licensing system
and registry.
Subpart D_Minimum Requirements for Administration of the NMLSR
1008.301 Scope of this subpart.
1008.303 Financial reporting.
1008.305 Data security.
1008.307 Fees.
1008.309 Absence of liability for good-faith administration.
Subpart E_Enforcement of Bureau Licensing System
1008.401 Bureau's authority to examine loan originator records.
1008.403--1008.405 [Reserved]
Appendix A to Part 1008--Examples of Mortgage Loan Originator Activities
Appendix B to Part 1008--Engaging in the Business of a Loan Originator:
Commercial Context and Habitualness
Appendix C to Part 1008--Independent Contractors and Loan Processor and
Underwriter Activities That Require a State Mortgage Loan
Originator License
Appendix D to Part 1008--Attorneys: Circumstances that Require a State
Mortgage Loan Originator License
Authority: 12 U.S.C. 5101-5116; Pub. L. 111-203, 124 Stat. 1376.
Source: 76 FR 78487, Dec. 19, 2011, unless otherwise noted.
Sec. 1008.1 Purpose.
(a) Authority. This part, known as Regulation H, is issued by the
Bureau of Consumer Financial Protection to implement the Secure and Fair
Enforcement for Mortgage Licensing Act of 2008, title V of the Housing
and Economic Recovery Act of 2008 (S.A.F.E. Act) (Pub. L. 110-289, 122
Stat. 2654, 12 U.S.C. 5101 et seq.).
(b) Purpose. The purpose of this part is to enhance consumer
protection and reduce fraud by directing states to adopt minimum uniform
standards for the licensing and registration of residential mortgage
loan originators and to participate in a nationwide mortgage licensing
system and registry database of residential mortgage loan originators.
Under the S.A.F.E. Act, if the Bureau determines that a state's loan
origination licensing system does not meet the minimum requirements of
the S.A.F.E. Act, the Bureau is charged with establishing and
implementing a system for all loan originators in that state.
Additionally, if at any time the Bureau determines that
[[Page 357]]
the nationwide mortgage licensing system and registry is failing to meet
the S.A.F.E. Act's requirements, the Bureau is charged with establishing
and maintaining a licensing and registry database for loan originators.
(c) Organization. The regulation is divided into subparts and
appendices as follows:
(1) Subpart A establishes the definitions applicable to this part.
(2) Subpart B provides the minimum standards that a state must meet
in licensing loan originators, including standards for whom a state must
require to be licensed, and sets forth the Bureau's procedure for
determining a state's compliance with the minimum standards.
(3) Subpart C provides the requirements that the Bureau will apply
in any state that the Bureau determines has not established a licensing
and registration system in compliance with the minimum standards of the
S.A.F.E. Act.
(4) Subpart D provides minimum requirements for the administration
of the Nationwide Mortgage Licensing System and Registry.
(5) Subpart E clarifies the Bureau's enforcement authority in states
in which it operates a state licensing system.
(6) Appendices A through D set forth examples to aid in the
understanding and application of the regulations.
Sec. 1008.3 Confidentiality of information.
(a) Except as otherwise provided in this part, any requirement under
Federal or state law regarding the privacy or confidentiality of any
information or material provided to the Nationwide Mortgage Licensing
System and Registry or a system established by the Director under this
part, and any privilege arising under Federal or state law (including
the rules of any Federal or state court) with respect to such
information or material, shall continue to apply to such information or
material after the information or material has been disclosed to the
system. Such information and material may be shared with all state and
Federal regulatory officials with mortgage industry oversight authority
without the loss of privilege or the loss of confidentiality protections
provided by Federal and state laws.
(b) Information or material that is subject to a privilege or
confidentiality under paragraph (a) of this section shall not be subject
to:
(1) Disclosure under any Federal or state law governing the
disclosure to the public of information held by an officer or an agency
of the Federal Government or the respective state; or
(2) Subpoena or discovery, or admission into evidence, in any
private civil action or administrative process, unless with respect to
any privilege held by the Nationwide Mortgage Licensing System and
Registry or by the Director with respect to such information or
material, the person to whom such information or material pertains,
waives, in whole or in part, in the discretion of such person, that
privilege.
(c) Any state law, including any state open record law, relating to
the disclosure of confidential supervisory information or any
information or material described in paragraph (a) of this section that
is inconsistent with paragraph (a), shall be superseded by the
requirements of such provision to the extent that state law provides
less confidentiality or a weaker privilege.
(d) This section shall not apply with respect to the information or
material relating to the employment history of, and any publicly
adjudicated disciplinary and enforcement action against, any loan
originator that is included in the Nationwide Mortgage Licensing System
and Registry for access by the public.
Subpart A_General
Sec. 1008.20 Scope of this subpart.
This subpart provides the definitions applicable to this part, and
other general requirements applicable to this part.
Sec. 1008.23 Definitions.
Terms that are defined in the S.A.F.E. Act and used in this part
have the same meaning as in the S.A.F.E. Act, unless otherwise provided
in this section.
Administrative or clerical tasks means the receipt, collection, and
distribution
[[Page 358]]
of information common for the processing or underwriting of a loan in
the mortgage industry and communication with a consumer to obtain
information necessary for the processing or underwriting of a
residential mortgage loan.
American Association of Residential Mortgage Regulators (AARMR) is
the national association of executives and employees of the various
states who are charged with the responsibility for administration and
regulation of residential mortgage lending, servicing, and brokering,
and dedicated to the goals described at www.aarmr.org.
Application means a request, in any form, for an offer (or a
response to a solicitation of an offer) of residential mortgage loan
terms, and the information about the borrower or prospective borrower
that is customary or necessary in a decision on whether to make such an
offer.
Bureau means the Bureau of Consumer Financial Protection.
Clerical or support duties:
(1) Include:
(i) The receipt, collection, distribution, and analysis of
information common for the processing or underwriting of a residential
mortgage loan; and
(ii) Communicating with a consumer to obtain the information
necessary for the processing or underwriting of a loan, to the extent
that such communication does not include offering or negotiating loan
rates or terms, or counseling consumers about residential mortgage loan
rates or terms; and
(2) Does not include:
(i) Taking a residential mortgage loan application; or
(ii) Offering or negotiating terms of a residential mortgage loan.
Conference of State Bank Supervisors (CSBS) is the national
organization composed of state bank supervisors dedicated to maintaining
the state banking system and state regulation of financial services in
accordance with the CSBS statement of principles described at
www.csbs.org.
Director means the Director of the Bureau of Consumer Financial
Protection.
Employee means an individual:
(1) Whose manner and means of performance of work are subject to the
right of control of, or are controlled by, a person, and
(2) Whose compensation for Federal income tax purposes is reported,
or required to be reported, on a W-2 form issued by the controlling
person.
Farm Credit Administration means the independent Federal agency,
authorized by the Farm Credit Act of 1971, that examines and regulates
the Farm Credit System.
For compensation or gain. See Sec. 1008.103(c)(2)(ii).
Independent contractor means an individual who performs his or her
duties other than at the direction of and subject to the supervision and
instruction of an individual who is licensed and registered in
accordance with Sec. 1008.103(a), or is not required to be licensed, in
accordance with Sec. 1008.103(e)(5), (6), or (7).
Loan originator. See Sec. 1008.103.
Loan processor or underwriter, for purposes of this part, means an
individual who, with respect to the origination of a residential
mortgage loan, performs clerical or support duties at the direction of
and subject to the supervision and instruction of:
(1) A state-licensed loan originator; or
(2) A registered loan originator.
Nationwide Mortgage Licensing System and Registry or NMLSR means the
mortgage licensing system developed and maintained by the Conference of
State Bank Supervisors and the American Association of Residential
Mortgage Regulators for the licensing and registration of loan
originators and the registration of registered loan originators or any
system established by the Director, as provided in subpart D of this
part.
Nontraditional mortgage product means any mortgage product other
than a 30-year fixed-rate mortgage.
Origination of a residential mortgage loan, for purposes of the
definition of loan processor or underwriter, means all residential
mortgage loan-related activities from the taking of a residential
mortgage loan application through the completion of all required loan
closing documents and funding of the residential mortgage loan.
Real estate brokerage activities mean any activity that involves
offering or
[[Page 359]]
providing real estate brokerage services to the public including--
(1) Acting as a real estate agent or real estate broker for a buyer,
seller, lessor, or lessee of real property;
(2) Bringing together parties interested in the sale, purchase,
lease, rental, or exchange of real property;
(3) Negotiating, on behalf of any party, any portion of a contract
relating to the sale, purchase, lease, rental, or exchange of real
property (other than in connection with providing financing with respect
to any such transaction);
(4) Engaging in any activity for which a person engaged in the
activity is required to be registered as a real estate agent or real
estate broker under any applicable law; and
(5) Offering to engage in any activity, or act in any capacity,
described in paragraphs (1), (2), (3), or (4) of this definition.
Residential mortgage loan means any loan primarily for personal,
family, or household use that is secured by a mortgage, deed of trust,
or other equivalent consensual security interest on a dwelling (as
defined in section 103(w) of the Truth in Lending Act) or residential
real estate upon which is constructed or intended to be constructed a
dwelling (as so defined).
State means any state of the United States, the District of
Columbia, any territory of the United States, Puerto Rico, Guam,
American Samoa, the Virgin Islands, and the Commonwealth of the Northern
Mariana Islands.
Unique identifier means a number or other identifier that:
(1) Permanently identifies a loan originator;
(2) Is assigned by protocols established by the Nationwide Mortgage
Licensing System and Registry and the Bureau to facilitate electronic
tracking of loan originators and uniform identification of, and public
access to, the employment history of and the publicly adjudicated
disciplinary and enforcement actions against loan originators; and
(3) Shall not be used for purposes other than those set forth under
the S.A.F.E. Act.
Subpart B_Determination of State Compliance With the S.A.F.E. Act
Sec. 1008.101 Scope of this subpart.
This subpart describes the minimum standards of the S.A.F.E. Act
that apply to a state's licensing and registering of loan originators.
This subpart also provides the procedures that the Bureau follows to
determine that a state does not have in place a system for licensing and
registering mortgage loan originators that complies with the minimum
standards. Upon making such a determination, the Bureau will impose the
requirements and exercise the enforcement authorities described in
subparts C and E of this part.
Sec. 1008.103 Individuals required to be licensed by states.
(a) Except as provided in paragraph (e) of this section, in order to
operate a S.A.F.E.-compliant program, a state must prohibit an
individual from engaging in the business of a loan originator with
respect to any dwelling or residential real estate in the state, unless
the individual first:
(1) Registers as a loan originator through and obtains a unique
identifier from the NMLSR, and
(2) Obtains and maintains a valid loan originator license from the
state.
(b) An individual engages in the business of a loan originator if
the individual, in a commercial context and habitually or repeatedly:
(1)(i) Takes a residential mortgage loan application; and
(ii) Offers or negotiates terms of a residential mortgage loan for
compensation or gain; or
(2) Represents to the public, through advertising or other means of
communicating or providing information (including the use of business
cards, stationery, brochures, signs, rate lists, or other promotional
items), that such individual can or will perform the activities
described in paragraph (b)(1) of this section.
(c)(1) An individual ``takes a residential mortgage loan
application'' if the individual receives a residential mortgage loan
application for the purpose of facilitating a decision whether to extend
an offer of residential mortgage loan terms to a borrower or prospective
[[Page 360]]
borrower (or to accept the terms offered by a borrower or prospective
borrower in response to a solicitation), whether the application is
received directly or indirectly from the borrower or prospective
borrower.
(2) An individual ``offers or negotiates terms of a residential
mortgage loan for compensation or gain'' if the individual:
(i)(A) Presents for consideration by a borrower or prospective
borrower particular residential mortgage loan terms;
(B) Communicates directly or indirectly with a borrower, or
prospective borrower for the purpose of reaching a mutual understanding
about prospective residential mortgage loan terms; or
(C) Recommends, refers, or steers a borrower or prospective borrower
to a particular lender or set of residential mortgage loan terms, in
accordance with a duty to or incentive from any person other than the
borrower or prospective borrower; and
(ii) Receives or expects to receive payment of money or anything of
value in connection with the activities described in paragraph (c)(2)(i)
of this section or as a result of any residential mortgage loan terms
entered into as a result of such activities.
(d)(1) Except as provided in paragraph (e) of this section, a state
must prohibit an individual who is an independent contractor from
engaging in residential mortgage loan origination activities as a loan
processor or underwriter with respect to any dwelling or residential
real estate in the state, unless the individual first:
(i) Registers as a loan originator through and obtains a unique
identifier from the NMLSR, and
(ii) Obtains and maintains a valid loan originator license from the
state.
(2) An individual ``engage[s] in residential mortgage loan
origination activities as a loan processor or underwriter'' if, with
respect to a residential mortgage loan application, the individual
performs clerical or support duties.
(e) A state is not required to impose the prohibitions required
under paragraphs (a) and (d) of this section on the following
individuals:
(1) An individual who performs only real estate brokerage activities
and is licensed or registered in accordance with applicable state law,
unless the individual is compensated directly or indirectly by a lender,
mortgage broker, or other loan originator or by an agent of such lender,
mortgage broker, or other loan originator;
(2) An individual who is involved only in extensions of credit
relating to timeshare plans, as that term is defined in 11 U.S.C.
101(53D);
(3) An individual who performs only clerical or support duties and:
(i) Who does so at the direction of and subject to the supervision
and instruction of an individual who:
(A) Is licensed and registered in accordance with paragraph (a) of
this section, or
(B) Is not required to be licensed in accordance with paragraph
(e)(5); or
(ii) Who performs such duties solely with respect to transactions
for which the individual who acts as a loan originator is not required
to be licensed, in accordance with paragraph (e)(2), (6), or (7) of this
section;
(4) An individual who performs only purely administrative or
clerical tasks on behalf of a loan originator;
(5) An individual who is lawfully registered with, and maintains a
unique identifier through, the Nationwide Mortgage Licensing System and
Registry, and who is an employee of a covered financial institution, as
that term is defined in 12 CFR part 1007.
(6)(i) An individual who is an employee of a Federal, state, or
local government agency or housing finance agency and who acts as a loan
originator only pursuant to his or her official duties as an employee of
the Federal, state, or local government agency or housing finance
agency.
(ii) For purposes of this paragraph (e)(6), the term employee has
the meaning provided in paragraph (1) of the definition of employee in
Sec. 1008.23 and excludes the meaning provided in paragraph (2) of the
definition.
(iii) For purposes of this paragraph (e)(6), the term housing
finance agency means any authority:
(A) That is chartered by a state to help meet the affordable housing
needs of the residents of the state;
[[Page 361]]
(B) That is supervised directly or indirectly by the state
government;
(C) That is subject to audit and review by the state in which it
operates; and
(D) Whose activities make it eligible to be a member of the National
Council of State Housing Agencies.
(7)(i) An employee of a bona fide nonprofit organization who acts as
a loan originator only with respect to his or her work duties to the
bona fide nonprofit organization, and who acts as a loan originator only
with respect to residential mortgage loans with terms that are favorable
to the borrower.
(ii) For an organization to be considered a bona fide nonprofit
organization under this paragraph, a state supervisory authority that
opts not to require licensing of the employee must determine, under
criteria and pursuant to processes established by the state, that the
organization:
(A) Has the status of a tax-exempt organization under section
501(c)(3) of the Internal Revenue Code of 1986;
(B) Promotes affordable housing or provides homeownership education,
or similar services;
(C) Conducts its activities in a manner that serves public or
charitable purposes, rather than commercial purposes;
(D) Receives funding and revenue and charges fees in a manner that
does not incentivize it or its employees to act other than in the best
interests of its clients;
(E) Compensates its employees in a manner that does not incentivize
employees to act other than in the best interests of its clients;
(F) Provides or identifies for the borrower residential mortgage
loans with terms favorable to the borrower and comparable to mortgage
loans and housing assistance provided under government housing
assistance programs; and
(G) Meets other standards that the state determines are appropriate.
(iii) A state must periodically examine the books and activities of
an organization it determines is a bona fide nonprofit organization and
revoke its status as a bona fide nonprofit organization if it does not
continue to meet the criteria under paragraph (e)(7)(ii) of this
section;
(iv) For residential mortgage loans to have terms that are favorable
to the borrower, a state must determine that the terms are consistent
with loan origination in a public or charitable context, rather than a
commercial context.
(f) A state must require an individual licensed in accordance with
paragraphs (a) or (d) of this section to renew the loan originator
license no less often than annually.
Sec. 1008.105 Minimum loan originator license requirements.
For an individual to be eligible for a loan originator license
required under Sec. 1008.103(a) and (d), a state must require and find,
at a minimum, that an individual:
(a) Has never had a loan originator license revoked in any
governmental jurisdiction, except that a formally vacated revocation
shall not be deemed a revocation;
(b)(1) Has never been convicted of, or pled guilty or nolo
contendere to, a felony in a domestic, foreign, or military court:
(i) During the 7-year period preceding the date of the application
for licensing; or
(ii) At any time preceding such date of application, if such felony
involved an act of fraud, dishonesty, a breach of trust, or money
laundering.
(2) For purposes of this paragraph (b):
(i) Expunged convictions and pardoned convictions do not, in
themselves, affect the eligibility of the individual; and
(ii) Whether a particular crime is classified as a felony is
determined by the law of the jurisdiction in which an individual is
convicted.
(c) Has demonstrated financial responsibility, character, and
general fitness, such as to command the confidence of the community and
to warrant a determination that the loan originator will operate
honestly, fairly, and efficiently, under reasonable standards
established by the individual state.
(d) Completed at least 20 hours of pre-licensing education that has
been
[[Page 362]]
reviewed and approved by the Nationwide Mortgage Licensing System and
Registry. The pre-licensing education completed by the individual must
include at least:
(1) 3 hours of Federal law and regulations;
(2) 3 hours of ethics, which must include instruction on fraud,
consumer protection, and fair lending issues; and
(3) 2 hours of training on lending standards for the nontraditional
mortgage product marketplace.
(e)(1) Achieved a test score of not less than 75 percent correct
answers on a written test developed by the NMLSR in accordance with 12
U.S.C. 5105(d).
(2) To satisfy the requirement under paragraph (e)(1) of this
section, an individual may take a test three consecutive times, with
each retest occurring at least 30 days after the preceding test. If an
individual fails three consecutive tests, the individual must wait at
least 6 months before taking the test again.
(3) If a formerly state-licensed loan originator fails to maintain a
valid license for 5 years or longer, not taking into account any time
during which such individual is a registered loan originator, the
individual must retake the test and achieve a test score of not less
than 75 percent correct answers.
(f) Be covered by either a net worth or surety bond requirement, or
pays into a state fund, as required by the state loan originator
supervisory authority.
(g) Has submitted to the NMLSR fingerprints for submission to the
Federal Bureau of Investigation and to any government agency for a state
and national criminal history background check; and
(h) Has submitted to the NMLSR personal history and experience,
which must include authorization for the NMLSR to obtain:
(1) Information related to any administrative, civil, or criminal
findings by any governmental jurisdiction; and
(2) An independent credit report.
Sec. 1008.107 Minimum annual license renewal requirements.
(a) For an individual to be eligible to renew a loan originator
license as required under Sec. 1008.103(f), a state must require the
individual:
(1) To continue to meet the minimum standards for license issuance
provided in Sec. 1008.105; and
(2) To satisfy annual continuing education requirements, which must
include at least 8 hours of education approved by the NMLSR. The 8 hours
of annual continuing education must include at least:
(i) 3 hours of Federal law and regulations;
(ii) 2 hours of ethics (including instruction on fraud, consumer
protection, and fair lending issues); and
(iii) 2 hours of training related to lending standards for the
nontraditional mortgage product marketplace.
(b) A state must provide that a state-licensed loan originator may
only receive credit for a continuing education course in the year in
which the course is taken, and that a state-licensed loan originator may
not apply credits for education courses taken in one year to meet the
continuing education requirements of subsequent years. A state must
provide that an individual may not meet the annual requirements for
continuing education by taking an approved course more than one time in
the same year or in successive years.
(c) An individual who is an instructor of an approved continuing
education course may receive credit for the individual's own annual
continuing education requirement at the rate of 2 hours credit for every
one hour taught.
Sec. 1008.109 Effective date of state requirements imposed on individuals.
(a) Except as provided in paragraphs (b) and (c) of this section, a
state must provide that the effective date for requirements it imposes
in accordance with Secs. 1008.103, 1008.105, and 1008.107 is no later
than August 29, 2011.
(b) For an individual who was permitted to perform residential
mortgage loan originations under state legislation or regulations
enacted or promulgated prior to the state's enactment or promulgation of
a licensing system that complies with this subpart, a state may delay
the effective date for requirements it imposes in accordance with
Secs. 1008.103, 1008.105, and 1008.107 to
[[Page 363]]
no later than August 29, 2011. For purposes of this paragraph (b), an
individual was permitted to perform residential mortgage loan
originations only if prior state law required the individual to be
licensed, authorized, registered, or otherwise granted a form of
affirmative and revocable government permission for individuals as a
condition of performing residential mortgage loan originations.
(c) The Bureau may approve a later effective date only upon a
state's demonstration that substantial numbers of loan originators (or
of a class of loan originators) who require a state license face unusual
hardship, through no fault of their own or of the state government, in
complying with the standards required by the S.A.F.E. Act and in
obtaining state licenses within one year.
Sec. 1008.111 Other minimum requirements for state licensing systems.
(a) General. A state must maintain a loan originator licensing,
supervisory, and oversight authority (supervisory authority) that
provides effective supervision and enforcement, in accordance with the
minimum standards provided in this section and in Sec. 1008.113.
(b) Authorities. A supervisory authority must have the legal
authority and mechanisms:
(1) To examine any books, papers, records, or other data of any loan
originator operating in the state;
(2) To summon any loan originator operating in the state, or any
person having possession, custody, or care of the reports and records
relating to such a loan originator, to appear before the supervisory
authority at a time and place named in the summons and to produce such
books, papers, records, or other data, and to give testimony, under
oath, as may be relevant or material to an investigation of such loan
originator for compliance with the requirements of the S.A.F.E. Act;
(3) To administer oaths and affirmations and examine and take and
preserve testimony under oath as to any matter in respect to the affairs
of any such loan originator;
(4) To enter an order requiring any individual or person that is,
was, or would be a cause of a violation of the S.A.F.E. Act as
implemented by the state, due to an act or omission the person knew or
should have known would contribute to such violation, to cease and
desist from committing or causing such violation and any future
violation of the same requirement;
(5) To suspend, terminate, and refuse renewal of a loan originator
license for violation of state or Federal law; and
(6) To impose civil money penalties for individuals acting as loan
originators, or representing themselves to the public as loan
originators, in the state without a valid license or registration.
(c) A supervisory authority must have established processes in place
to verify that individuals subject to the requirement described in
Sec. 1008.103(a)(1) and (d)(1) are registered with the NMLSR.
(d) The supervisory authority must be required under state law to
regularly report violations of such law, as well as enforcement actions
and other relevant information, to the NMLSR.
(e) The supervisory authority must have a process in place for
challenging information contained in the NMLSR.
(f) The supervisory authority must require a loan originator to
ensure that all residential mortgage loans that close as a result of the
loan originator engaging in activities described in Sec. 1008.103(b)(1)
are included in reports of condition submitted to the NMLSR. Such
reports of condition shall be in such form, shall contain such
information, and shall be submitted with such frequency and by such
dates as the NMLSR may reasonably require.
Sec. 1008.113 Performance standards.
(a) For the Bureau to determine that a state is providing effective
supervision and enforcement, a supervisory authority must meet the
following performance standards:
(1) The supervisory authority must participate in the NMLSR;
(2) The supervisory authority must approve or deny loan originator
license applications and must renew or refuse to renew existing loan
originator licenses for violations of state or Federal law;
(3) The supervisory authority must discipline loan originator
licensees with appropriate enforcement actions,
[[Page 364]]
such as license suspensions or revocations, cease-and-desist orders,
civil money penalties, and consumer refunds for violations of state or
Federal law;
(4) The supervisory authority must examine or investigate loan
originator licensees in a systematic manner based on identified risk
factors or on a periodic schedule.
(b) A supervisory authority that is accredited under the Conference
of State Bank Supervisors-American Association of Residential Mortgage
Regulators Mortgage Accreditation Program will be presumed by the Bureau
to be compliant with the requirements of this section.
Sec. 1008.115 Determination of noncompliance.
(a) Evidence of compliance. Any time a state enacts legislation that
affects its compliance with the S.A.F.E. Act, it must notify the Bureau.
Upon request from the Bureau, a state must provide evidence that it is
in compliance with the requirements of the S.A.F.E. Act and this part,
including citations to applicable state law and regulations;
descriptions of processes followed by the state's supervisory authority;
and data concerning examination, investigation, and enforcement actions.
(b) Initial determination of noncompliance. If the Bureau makes an
initial determination that a state is not in compliance with the
S.A.F.E. Act, the Bureau will notify the state and will publish, in the
Federal Register, a notice providing the Bureau's initial determination
and presenting the opportunity for public comment for a period of no
less than 30 days. This public comment period will allow the residents
of the state and other interested members of the public to comment on
the Bureau's initial determination.
(c) Final determination of noncompliance. In making a final
determination of noncompliance, the Bureau will review additional
information that may be offered by a state and the comments submitted
during the public comment period described in paragraph (b) of this
section. If the Bureau makes a final determination that a state does not
have in place by law or regulation a system that complies with the
minimum requirements of the S.A.F.E. Act, as described in this part, the
Bureau will publish that final determination in the Federal Register.
(d) Good-faith effort to comply. If the Bureau makes the final
determination described in paragraph (c) of this section, but the Bureau
finds that the state is making a good-faith effort to meet the
requirements of 12 U.S.C. 5104, 5105, 5107(d), and this subpart, the
Bureau may grant the state a period of not more than 24 months to comply
with these requirements. If an extension is granted to the state in
accordance with this paragraph (d), then the Bureau will provide an
additional initial and final determination process before it determines
that the state is not in compliance and is subject to subparts C and E
of this part.
(e) Effective date of subparts C and E. The provisions of subparts C
and E of this part will become effective with respect to a state for
which a final determination of noncompliance has been made upon:
(1) The effective date of the Bureau's final determination with
respect to the state, pursuant to paragraph (c) of this section, unless
an extension had been granted to the state in accordance with paragraph
(d) of this section; or
(2) If an extension had been granted to the state in accordance with
paragraph (d) of this section, the effective date of the Bureau's
subsequent final determination with respect to the state following the
expiration of the period of time granted pursuant to paragraph (d) of
this section.
Subpart C_The Bureau's Loan Originator Licensing System and Nationwide
Mortgage Licensing and Registry System
Sec. 1008.201 Scope of this subpart.
The S.A.F.E. Act provides the Bureau with ``backup authority'' to
establish a loan originator licensing system for any state that is
determined by the Bureau not to be in compliance with the minimum
standards of the S.A.F.E. Act. The provisions of this subpart become
applicable to individuals in a state as provided in Sec. 1008.115(e).
The S.A.F.E. Act also authorizes the Bureau to establish and maintain a
nationwide mortgage licensing system
[[Page 365]]
and registry if the Bureau determines that the NMLSR is failing to meet
the purposes and requirements of the S.A.F.E. Act for a comprehensive
licensing, supervisory, and tracking system for loan originators.
Sec. 1008.203 The Bureau's establishment of loan originator licensing system.
If the Bureau determines, in accordance with Sec. 1008.115(e), that
a state has not established a licensing and registration system in
compliance with the minimum standards of the S.A.F.E. Act, the Bureau
shall apply to individuals in that state the minimum standards of the
S.A.F.E. Act, as specified in subpart B, which provides the minimum
requirements that a state must meet to be in compliance with the
S.A.F.E. Act, and as may be further specified in this part.
Sec. 1008.205 The Bureau's establishment of nationwide mortgage
licensing system and registry.
If the Bureau determines that the NMLSR established by CSBS and
AARMR does not meet the minimum requirements of subpart D of this part,
the Bureau will establish and maintain a nationwide mortgage licensing
system and registry.
Subpart D_Minimum Requirements for Administration of the NMLSR
Sec. 1008.301 Scope of this subpart.
This subpart establishes minimum requirements that apply to
administration of the NMLSR by the Conference of State Bank Supervisors
or by the Bureau. The NMLSR must accomplish the following objectives:
(a) Provide uniform license applications and reporting requirements
for state-licensed loan originators.
(b) Provide a comprehensive licensing and supervisory database.
(c) Aggregate and improve the flow of information to and between
regulators.
(d) Provide increased accountability and tracking of loan
originators.
(e) Streamline the licensing process and reduce the regulatory
burden.
(f) Enhance consumer protections and support anti-fraud measures.
(g) Provide consumers with easily accessible information, offered at
no charge, utilizing electronic media, including the Internet, regarding
the employment history of, and publicly adjudicated disciplinary and
enforcement actions against, loan originators.
(h) Establish a means by which residential mortgage loan originators
would, to the greatest extent possible, be required to act in the best
interests of the consumer.
(i) Facilitate responsible behavior in the mortgage marketplace and
provide comprehensive training and examination requirements related to
mortgage lending.
(j) Facilitate the collection and disbursement of consumer
complaints on behalf of state and Federal mortgage regulators.
Sec. 1008.303 Financial reporting.
To the extent that CSBS maintains the NMLSR, CSBS must annually
provide to the Bureau, and the Bureau will annually collect and make
available to the public, NMLSR financial statements, audited in
accordance with Generally Accepted Accounting Principles (GAAP)
promulgated by the Federal Accounting Standards Advisory Board, and
other data. These financial statements and other data shall include, but
not be limited to, the level and categories of funds received in
relation to the NMLSR and how such funds are spent, including the
aggregate total of funds paid for system development and improvements,
the aggregate total of salaries and bonuses paid, the aggregate total of
other administrative costs, and detail on other money spent, including
money and interest paid to reimburse system investors or lenders, and a
report of each state's activity with respect to the NMLSR, including the
number of licensees, the state's financial commitment to the system, and
the fees collected by the state through the NMLSR.
Sec. 1008.305 Data security.
(a) To the extent that CSBS, AARMR, or their successors maintain the
NMLSR, CSBS, AARMR, and their successors, as applicable, must complete a
background check on their employees, contractors, or other persons
[[Page 366]]
who have access to loan originators' Social Security Numbers,
fingerprints, or any credit reports collected by the system.
(b) To the extent that CSBS, AARMR, or their successors maintain the
NMLSR, CSBS, AARMR, and their successors as applicable, must keep and
adhere to an appropriate information security and privacy policy. If the
NMLSR forms a reasonable belief that a security breach has occurred, it
shall notify affected parties, as soon as practicable, including the
Bureau, any loan originator or registrant whose data may have been
compromised, and the employer of the loan originator or registrant, if
such employer is also licensed through the system.
Sec. 1008.307 Fees.
CSBS, AARMR, or the Bureau, as applicable, may charge reasonable
fees to cover the costs of maintaining and providing access to
information from the Nationwide Mortgage Licensing System and Registry.
Fees shall not be charged to consumers for access to such system and
registry. If the Bureau determines to charge fees, the fees to be
charged shall be issued by notice with the opportunity for comment prior
to any fees being charged.
Sec. 1008.309 Absence of liability for good-faith administration.
The Bureau or any organization serving as the administrator of the
Nationwide Mortgage Licensing System and Registry or a system
established by the Bureau under 12 U.S.C. 5108 and in accordance with
subpart C, or any officer or employee of the Bureau or the Bureau's
designee, shall not be subject to any civil action or proceeding for
monetary damages by reason of the good-faith action or omission of any
officer or employee of any such entity, while acting within the scope of
office or employment, relating to the collection, furnishing, or
dissemination of information concerning persons who are loan originators
or are applying for licensing or registration as loan originators.
Subpart E_Enforcement of the Bureau's Licensing System
Sec. 1008.401 The Bureau's authority to examine loan originator records.
(a) Summons authority. The Bureau may:
(1) Examine any books, papers, records, or other data of any loan
originator operating in any state which is subject to a licensing system
established by the Bureau under subpart C of this part; and
(2) Summon any loan originator referred to in paragraph (a)(1) of
this section or any person having possession, custody, or care of the
reports and records relating to such loan originator, to appear before
the Bureau at a time and place named in the summons and to produce such
books, papers, records, or other data, and to give testimony, under
oath, as may be relevant or material to an investigation of such loan
originator for compliance with the requirements of the S.A.F.E. Act.
(b) Examination authority--(1) In general. If the Bureau establishes
a licensing system under 12 U.S.C. 5107 and in accordance with subpart C
of this part for any state, the Bureau shall appoint examiners for the
purposes of ensuring the appropriate administration of the Bureau's
licensing system.
(2) Power to examine. Any examiner appointed under paragraph (b)(1)
of this section shall have power, on behalf of the Bureau, to make any
examination of any loan originator operating in any state which is
subject to a licensing system established by the Bureau under 12 U.S.C.
5107 and in accordance with subpart C of this part, whenever the Bureau
determines that an examination of any loan originator is necessary to
determine the compliance by the originator with minimum requirements of
the S.A.F.E. Act.
(3) Report of examination. Each Bureau examiner appointed under
paragraph (b)(1) of this section shall make a full and detailed report
to the Bureau of examination of any loan originator examined under this
section.
(4) Administration of oaths and affirmations; evidence. In
connection with examinations of loan originators operating in any state
which is subject to a
[[Page 367]]
licensing system established by the Bureau under 12 U.S.C. 5107, and in
accordance with subpart C of this part, or with other types of
investigations to determine compliance with applicable law and
regulations, the Bureau and the examiners appointed by the Bureau may
administer oaths and affirmations and examine and take and preserve
testimony under oath as to any matter in respect to the affairs of any
such loan originator.
(5) Assessments. The cost of conducting any examination of any loan
originator operating in any state which is subject to a licensing system
established by the Bureau under 12 U.S.C 5107 and in accordance with
subpart C of this part shall be assessed by the Bureau against the loan
originator to meet the Director's expenses in carrying out such
examination.
Secs. 1008.403-1008.405 [Reserved]
Sec. Appendix A to Part 1008--Examples of Mortgage Loan Originator
Activities
This appendix provides examples to aid in the understanding of
activities that would cause an individual to fall within or outside the
definition of a mortgage loan originator under part 1008. The examples
in this appendix are not all-inclusive. They illustrate only the issue
described and do not illustrate any other issues that may arise. For
purposes of the examples below, the term ``loan'' refers to a
residential mortgage loan as defined in Sec. 1008.23 of this part.
(a) Taking a Loan Application. Taking a residential mortgage loan
application within the meaning of Sec. 1008.103(c)(1) means receipt by
an individual, for the purpose of facilitating a decision whether to
extend an offer of loan terms to a borrower or prospective borrower, of
an application as defined in Sec. 1008.23 (a request in any form for an
offer, or a response to a solicitation of an offer, of residential
mortgage loan terms, and the information about the borrower or
prospective borrower that is customary or necessary in a decision
whether to make such an offer).
(1) The following are examples to illustrate when an individual
takes, or does not take, a loan application:
(i) An individual ``takes a residential mortgage loan application''
even if the individual:
(A) Has received the borrower or prospective borrower's request or
information indirectly. Section 1008.103(c)(1) provides that an
individual takes an application, whether he or she receives it
``directly or indirectly'' from the borrower or prospective borrower.
This means that an individual who offers or negotiates residential
mortgage loan terms for compensation or gain cannot avoid licensing
requirements simply by having another person physically receive the
application from the prospective borrower and then pass the application
to the individual;
(B) Is not responsible for verifying information. The fact that an
individual who takes application information from a borrower or
prospective borrower is not responsible for verifying that information--
for example, the individual is a mortgage broker who collects and sends
that information to a lender--does not mean that the individual is not
taking an application;
(C) Only inputs the information into an online application or other
automated system; or
(D) Is not involved in approval of the loan, including determining
whether the consumer qualifies for the loan. Similar to an individual
who is not responsible for verification, an individual can still ``take
a residential mortgage loan application'' even if he or she is not
ultimately responsible for approving the loan. A mortgage broker, for
example, can take a residential mortgage loan application even though it
is passed on to a lender for a decision on whether the borrower
qualifies for the loan and for the ultimate loan approval.
(ii) An individual does not take a loan application merely because
the individual performs any of the following actions:
(A) Receives a loan application through the mail and forwards it,
without review, to loan approval personnel. The Bureau interprets the
term ``takes a residential mortgage loan application'' to exclude an
individual whose only role with respect to the application is physically
handling a completed application form or transmitting a completed form
to a lender on behalf of a borrower or prospective borrower. This
interpretation is consistent with the definition of ``loan originator''
in section 1503(3) of the S.A.F.E. Act.
(B) Assists a borrower or prospective borrower who is filling out an
application by explaining the contents of the application and where
particular borrower information is to be provided on the application;
(C) Generally describes for a borrower or prospective borrower the
loan application process without a discussion of particular loan
products; or
(D) In response to an inquiry regarding a prequalified offer that a
borrower or prospective borrower has received from a lender, collects
only basic identifying information about the borrower or prospective
borrower on behalf of that lender.
(b) Offering or Negotiating Terms of a Loan. The following examples
are designed to illustrate when an individual offers or negotiates terms
of a loan within the meaning of Sec. 1008.103(c)(2) and, conversely,
what does not
[[Page 368]]
constitute offering or negotiating terms of a loan:
(1) Offering or negotiating the terms of a loan includes:
(i) Presenting for consideration by a borrower or prospective
borrower particular loan terms, whether verbally, in writing, or
otherwise, even if:
(A) Further verification of information is necessary;
(B) The offer is conditional;
(C) Other individuals must complete the loan process;
(D) The individual lacks authority to negotiate the interest rate or
other loan terms; or
(E) The individual lacks authority to bind the person that is the
source of the prospective financing.
(ii) Communicating directly or indirectly with a borrower or
prospective borrower for the purpose of reaching a mutual understanding
about prospective residential mortgage loan terms, including responding
to a borrower or prospective borrower's request for a different rate or
different fees on a pending loan application by presenting to the
borrower or prospective borrower a revised loan offer, even if a mutual
understanding is not subsequently achieved.
(2) Offering or negotiating terms of a loan does not include any of
the following activities:
(i) Providing general explanations or descriptions in response to
consumer queries, such as explaining loan terminology (e.g., debt-to-
income ratio) or lending policies (e.g., the loan-to-value ratio policy
of the lender), or describing product-related services;
(ii) Arranging the loan closing or other aspects of the loan
process, including by communicating with a borrower or prospective
borrower about those arrangements, provided that any communication that
includes a discussion about loan terms only verifies terms already
agreed to by the borrower or prospective borrower;
(iii) Providing a borrower or prospective borrower with information
unrelated to loan terms, such as the best days of the month for
scheduling loan closings at the bank;
(iv) Making an underwriting decision about whether the borrower or
prospective borrower qualifies for a loan;
(v) Explaining or describing the steps that a borrower or
prospective borrower would need to take in order to obtain a loan offer,
including providing general guidance about qualifications or criteria
that would need to be met that is not specific to that borrower or
prospective borrower's circumstances;
(vi) Communicating on behalf of a mortgage loan originator that a
written offer has been sent to a borrower or prospective borrower
without providing any details of that offer; or
(vii) Offering or negotiating loan terms solely through a third-
party licensed loan originator, so long as the nonlicensed individual
does not represent to the public that he or she can or will perform
covered activities and does not communicate with the borrower or
potential borrower. For example:
(A) A seller who provides financing to a purchaser of a dwelling
owned by that seller in which the offer and negotiation of loan terms
with the borrower or prospective borrower is conducted exclusively by a
third-party licensed loan originator;
(B) An individual who works solely for a lender, when the individual
offers loan terms exclusively to third-party licensed loan originators
and not to borrowers or potential borrowers.
(c) For Compensation or Gain. (1) An individual acts ``for
compensation or gain'' within the meaning of Sec. 1008.103(c)(2)(ii) if
the individual receives or expects to receive in connection with the
individual's activities anything of value, including, but not limited
to, payment of a salary, bonus, or commission. The concept ``anything of
value'' is interpreted broadly and is not limited only to payments that
are contingent upon the closing of a loan.
(2) An individual does not act ``for compensation or gain'' if the
individual acts as a volunteer without receiving or expecting to receive
anything of value in connection with the individual's activities.
Sec. Appendix B to Part 1008--Engaging in the Business of a Loan
Originator: Commercial Context and Habitualness
An individual who acts (or holds himself or herself out as acting)
as a loan originator in a commercial context and with some degree of
habitualness or repetition is considered to be ``engage[d] in the
business of a loan originator[.]'' An individual who acts as a loan
originator does so in a commercial context if the individual acts for
the purpose of obtaining anything of value for himself or herself, or
for an entity or individual for which the individual acts, rather than
exclusively for public, charitable, or family purposes. The habitualness
or repetition of the origination activities that is needed to ``engage
in the business of a loan originator'' may be met either if the
individual who acts as a loan originator does so with a degree of
habitualness or repetition, or if the source of the prospective
financing provides mortgage financing or performs other origination
activities with a degree of habitualness or repetition. This appendix
provides examples to aid in the understanding of activities that would
not constitute engaging in the business of a loan originator, such that
an individual is not required to obtain and maintain a state mortgage
loan originator license. The
[[Page 369]]
examples in this appendix are not all-inclusive. They illustrate only
the issue described and do not illustrate any other issues that may
arise under part 1008. For purposes of the examples below, the term
``loan'' refers to a ``residential mortgage loan'' as defined in
Sec. 1008.23 of this part.
(a) Not Engaged in the Business of a Mortgage Loan Originator. The
following examples illustrate when an individual generally does not
``engage in the business of a loan originator'':
(1) An individual who acts as a loan originator in providing
financing for the sale of that individual's own residence, provided that
the individual does not act as a loan originator or provide financing
for such sales so frequently and under such circumstances that it
constitutes a habitual and commercial activity.
(2) An individual who acts as a loan originator in providing
financing for the sale of a property owned by that individual, provided
that such individual does not engage in such activity with habitualness.
(3) A parent who acts as a loan originator in providing loan
financing to his or her child.
(4) An employee of a government entity who acts as a loan originator
only pursuant to his or her official duties as an employee of that
government entity, if all applicable conditions in Sec. 1008.103(e)(6)
of this part are met.
(5) If all applicable conditions in Sec. 1008.103(e)(7) of this part
are met, an employee of a nonprofit organization that has been
determined to be a bona fide nonprofit organization by the state
supervisory authority, when the employee acts as a loan originator
pursuant to his or her duties as an employee of that organization.
(6) An individual who does not act as a loan originator habitually
or repeatedly, provided that the source of prospective financing does
not provide mortgage financing or perform other loan origination
activities habitually or repeatedly.
Sec. Appendix C to Part 1008--Independent Contractors and Loan Processor
and Underwriter Activities That Require a State Mortgage Loan Originator
License
The examples below are designed to aid in the understanding of loan
processing or underwriting activities for which an individual is
required to obtain a S.A.F.E. Act-compliant mortgage loan originator
license. The examples in this appendix are not all-inclusive. They
illustrate only the issue described and do not illustrate any other
issues that may arise under part 1008. For purposes of the examples
below, the term ``loan'' refers to a residential mortgage loan as
defined in Sec. 1008.23 of this part.
(a) An individual who is a loan processor or underwriter who must
obtain and maintain a state loan originator license includes:
(1) Any individual who engages in the business of a loan originator,
as defined in Sec. 1008.103 of this part;
(2) Any individual who performs clerical or support duties and who
is an independent contractor, as those terms are defined in
Sec. 1008.23;
(3) Any individual who collects, receives, distributes, or analyzes
information in connection with the making of a credit decision and who
is an independent contractor, as that term is defined in Sec. 1008.23;
and
(4) Any individual who communicates with a consumer to obtain
information necessary for making a credit decision and who is an
independent contractor, as that term is defined in Sec. 1008.23.
(b) A state is not required to impose S.A.F.E. Act licensing
requirements on any individual loan processor or underwriter who, for
example:
(1) Performs only clerical or support duties (i.e., the loan
processor's or underwriter's activities do not include, e.g., offering
or negotiating loan rates or terms, or counseling borrowers or
prospective borrowers about loan rates or terms), and who performs those
clerical or support duties at the direction of and subject to the
supervision and instruction of an individual who either: Is licensed and
registered in accordance with Sec. 1008.103(a) (state licensing of loan
originators); or is not required to be licensed because he or she is
excluded from the licensing requirement pursuant to Sec. 1008.103(e)(2)
(time-share exclusion), (e)(5)(federally registered loan originator),
(e)(6) (government employees exclusion), or (e)(7) (nonprofit
exclusion).
(2) Performs only clerical or support duties as an employee of a
mortgage lender or mortgage brokerage firm, and who performs those
duties at the direction of and subject to the supervision and
instruction of an individual who is employed by the same employer and
who is licensed in accordance with Sec. 1008.103(a) (state licensing of
loan originators).
(3) Is an employee of a loan processing or underwriting company that
provides loan processing or underwriting services to one or more
mortgage lenders or mortgage brokerage firms under a contract between
the loan processing or underwriting company and the mortgage lenders or
mortgage brokerage firms, provided the employee performs only clerical
or support duties and performs those duties only at the direction of and
subject to the supervision and instruction of a licensed loan originator
employee of the same loan processing and underwriting company.
(4) Is an individual who does not otherwise perform the activities
of a loan originator and is not involved in the receipt, collection,
[[Page 370]]
distribution, or analysis of information common for the processing or
underwriting of a residential mortgage loan, nor is in communication
with the consumer to obtain such information.
(c) In order to conclude that an individual who performs clerical or
support duties is doing so at the direction of and subject to the
supervision and instruction of a loan originator who is licensed or
registered in accordance with Sec. 1008.103 (or, as applicable, an
individual who is excluded from the licensing and registration
requirements under Sec. 1008.103(e)(2), (e)(6), or (e)(7)), there must
be an actual nexus between the licensed or registered loan originator's
(or excluded individual's) direction, supervision, and instruction and
the loan processor or underwriter's activities. This actual nexus must
be more than a nominal relationship on an organizational chart. For
example, there is an actual nexus when:
(1) The supervisory licensed or registered loan originator assigns,
authorizes, and monitors the loan processor or underwriter employee's
performance of clerical and support duties.
(2) The supervisory licensed or registered loan originator exercises
traditional supervisory responsibilities, including, but not limited to,
the training, mentoring, and evaluation of the loan processor or
underwriter employee.
Sec. Appendix D to Part 1008--Attorneys: Circumstances That Require a
State Mortgage Loan Originator License
This appendix D clarifies the circumstances in which the S.A.F.E.
Act requires a licensed attorney who engages in loan origination
activities to obtain a state loan originator license and registration.
This special category recognizes limited, heavily regulated activities
that meet strict criteria that are different from the criteria for
specific exemptions from the S.A.F.E. Act requirements and the
exclusions set forth in the regulations and illustrated in other
appendices of part 1008.
(a) S.A.F.E. Act-compliant licensing required. An individual who is
a licensed attorney is required to be licensed if the individual is
engaged in the business of a loan originator as defined in Sec. 1008.103
and such loan origination activities are not all of the following:
(1) Considered by the state's court of last resort (or other state
governing body responsible for regulating the practice of law) to be
part of the authorized practice of law within the state;
(2) Carried out within an attorney-client relationship; and
(3) Accomplished by the attorney in compliance with all applicable
laws, rules, ethics, and standards.
(b) S.A.F.E. Act-compliant licensing not required. A licensed
attorney performing activities that come within the definition of a loan
originator is not required to be licensed, provided that such activities
are:
(1) Considered by the state's court of last resort (or other state
governing body responsible for regulating the practice of law) to be
part of the authorized practice of law within the state;
(2) Carried out within an attorney-client relationship; and
(3) Accomplished by the attorney in compliance with all applicable
laws, rules, ethics, and standards.
PART 1009_DISCLOSURE REQUIREMENTS FOR DEPOSITORY INSTITUTIONS LACKING
FEDERAL DEPOSIT INSURANCE (REGULATION I)--Table of Contents
Sec.
1009.1 Scope.
1009.2 Definitions.
1009.3 Disclosures in periodic statements and account records.
1009.4 Disclosures in advertising and on the premises.
1009.5 Disclosure acknowledgment.
1009.6 Exception for certain depository institutions.
1009.7 Enforcement.
Authority: 12 U.S.C. 1831t, 5512, 5581.
Source: 76 FR 78129, Dec. 16, 2011, unless otherwise noted.
Sec. 1009.1 Scope.
This part, known as Regulation I, is issued by the Bureau of
Consumer Financial Protection. This part applies to all depository
institutions lacking Federal deposit insurance. It requires the
disclosure of certain insurance-related information in periodic
statements, account records, locations where deposits are normally
received, and advertising. This part also requires such depository
institutions to obtain a written acknowledgment from depositors
regarding the institution's lack of Federal deposit insurance.
Sec. 1009.2 Definitions.
For purposes of this part:
Depository institution means any bank or savings association as
defined under 12 U.S.C. 1813, or any credit union organized and operated
according to the
[[Page 371]]
laws of any state, the District of Columbia, the several territories and
possessions of the United States, the Panama Canal Zone, or the
Commonwealth of Puerto Rico, which laws provide for the organization of
credit unions similar in principle and objectives to Federal credit
unions.
Lacking Federal deposit insurance means the depository institution
is neither an insured depository institution as defined in 12 U.S.C.
1813(c)(2), nor an insured credit union as defined in section 101 of the
Federal Credit Union Act, 12 U.S.C. 1752.
Standard maximum deposit insurance amount means the maximum amount
of deposit insurance as determined under section 11(a)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1821(a)(1)).
Sec. 1009.3 Disclosures in periodic statements and account records.
Depository institutions lacking Federal deposit insurance must
include a notice disclosing clearly and conspicuously that the
institution is not federally insured, and that if the institution fails,
the Federal Government does not guarantee that depositors will get back
their money, in all periodic statements of account, on each signature
card, and on each passbook, certificate of deposit, or share
certificate. For example, a notice would comply with the requirement if
it conspicuously stated: ``[Institution's name] is not federally
insured. If it fails, the Federal Government does not guarantee that you
will get your money back.'' The disclosures required by this section
must be clear and conspicuous and presented in a simple and easy to
understand format, type size, and manner.
Sec. 1009.4 Disclosures in advertising and on the premises.
(a) Required disclosures. Each depository institution lacking
Federal deposit insurance must include a clear and conspicuous notice
disclosing that the institution is not federally insured:
(1) At each station or window where deposits are normally received,
its principal place of business and all its branches where it accepts
deposits or opens accounts (excluding automated teller machines or point
of sale terminals), and on its main internet page; and
(2) In all advertisements except as provided in paragraph (c) of
this section.
(b) Format and type size. The disclosures required by this section
must be clear and conspicuous and presented in a simple and easy to
understand format, type size, and manner.
(c) Exceptions. The following need not include a notice that the
institution is not federally insured:
(1) Any sign, document, or other item that contains the name of the
depository institution, its logo, or its contact information, but only
if the sign, document, or item does not include any information about
the institution's products or services or information otherwise
promoting the institution; and
(2) Small utilitarian items that do not mention deposit products or
insurance, if inclusion of the notice would be impractical.
Sec. 1009.5 Disclosure acknowledgment.
(a) New depositors obtained other than through a conversion or
merger. With respect to any depositor who was not a depositor at the
depository institution on or before October 13, 2006, and who is not a
depositor as described in paragraph (b) of this section, a depository
institution lacking Federal deposit insurance may receive a deposit for
the account of such depositor only if the institution has obtained the
depositor's signed written acknowledgement that:
(1) The institution is not federally insured; and
(2) If the institution fails, the Federal Government does not
guarantee that the depositor will get back the depositor's money.
(b) New depositors obtained through a conversion or merger. With
respect to a depositor at a federally insured depository institution
that converts to, or merges into, a depository institution lacking
Federal insurance after October 13, 2006, a depository institution
lacking Federal deposit insurance may receive a deposit for the account
of such depositor only if:
(1) The institution has obtained the depositor's signed written
acknowledgement described in paragraph (a) of this section; or
[[Page 372]]
(2) The institution makes an attempt, sent by mail no later than 45
days after the effective date of the conversion or merger, to obtain the
acknowledgment. In making such an attempt, the institution must transmit
to each depositor who has not signed and returned a written
acknowledgement described in paragraph (a) of this section:
(i) A conspicuous card containing the information described in
paragraphs (a)(1) and (2) of this section, and a line for the signature
of the depositor; and
(ii) Accompanying materials requesting the depositor to sign the
card, and return the signed card to the institution.
(c) Depositors obtained on or before October 13, 2006. (1) Any
depository institution lacking Federal deposit insurance may receive any
deposit after October 13, 2006, for the account of a depositor who was a
depositor on or before that date only if:
(i) The depositor has signed a written acknowledgement described in
paragraph (a) of this section; or
(ii) The institution has transmitted to the depositor:
(A) A conspicuous card containing the information described in
paragraphs (a)(1) and (2) of this section, and a line for the signature
of the depositor; and
(B) Accompanying materials requesting that the depositor sign the
card, and return the signed card to the institution.
(2) An institution described in paragraph (c)(1) of this section
must have made the transmission described in paragraph (c)(1)(ii) of
this section via mail not later than three months after October 13,
2006. The institution must have made a second identical transmission via
mail not less than 30 days, and not more than three months, after the
first transmission to the depositor in accordance with paragraph
(c)(1)(ii) of this section, if the institution has not, by the date of
such mailing, received from the depositor a card referred to in
paragraph (c)(1)(i) of this section which has been signed by the
depositor.
(d) Format and type size. The disclosures required by this section
must be clear and conspicuous and presented in a simple and easy to
understand format, type size, and manner.
Sec. 1009.6 Exception for certain depository institutions.
The requirements of this part do not apply to any depository
institution lacking Federal deposit insurance and located within the
United States that does not receive initial deposits of less than an
amount equal to the standard maximum deposit insurance amount from
individuals who are citizens or residents of the United States, other
than money received in connection with any draft or similar instrument
issued to transmit money.
Sec. 1009.7 Enforcement.
Compliance with the requirements of this part shall be enforced
under the Consumer Financial Protection Act of 2010, Public Law 111-203,
title X, 124 Stat. 1955, by the Bureau of Consumer Financial Protection,
subject to subtitle B of the Consumer Financial Protection Act of 2010,
and under the Federal Trade Commission Act, 15 U.S.C. 41 et seq, by the
Federal Trade Commission.
PART 1010_LAND REGISTRATION (REGULATION J)--Table of Contents
Subpart A_General Requirements
Sec.
1010.1 Definitions.
1010.2 [Reserved]
1010.3 General applicability.
1010.4 Exemptions--general.
1010.5 Statutory exemptions.
1010.6 One hundred lot exemption.
1010.7 Twelve lot exemption.
1010.8 Scattered site subdivisions.
1010.9 Twenty acre lots.
1010.10 Single-family residence exemption.
1010.11 Manufactured home exemption.
1010.12 Intrastate exemption.
1010.13 Metropolitan Statistical Area (MSA) exemption.
1010.14 Regulatory exemptions.
1010.15 Regulatory exemption--multiple site subdivision--determination
required.
1010.16 Regulatory exemption--determination required.
1010.17 Advisory opinion.
1010.18 No action letter.
1010.19 [Reserved]
1010.20 Requirements for registering a subdivision--Statement of
Record--filing and form.
[[Page 373]]
1010.21 Effective dates.
1010.22 Statement of record--initial or consolidated.
1010.23 Amendment--filing and form.
1010.24-1010.28 [Reserved]
1010.29 Use of property report--misstatements, omissions or
representation of Bureau approval prohibited.
1010.35 Payment of fees.
1010.45 Suspensions.
Subpart B_Reporting Requirements
1010.100 Statement of Record--format.
1010.101 [Reserved]
1010.102 General instructions for completing the Statement of Record.
1010.103 Developer obligated improvements.
1010.104 [Reserved]
1010.105 Cover page.
1010.106 Table of contents.
1010.107 Risks of buying land.
1010.108 General information.
1010.109 Title to the property and land use.
1010.110 Roads.
1010.111 Utilities.
1010.112 Financial information.
1010.113 Local services.
1010.114 Recreational facilities.
1010.115 Subdivision characteristics and climate.
1010.116 Additional information.
1010.117 Cost sheet, signature of Senior Executive Officer
1010.118 Receipt, agent certification and cancellation page.
1010.200 Instructions for Statement of Record, Additional Information
and Documentation.
1010.201-1010.207 [Reserved]
1010.208 General information.
1010.209 Title and land use.
1010.210 Roads.
1010.211 Utilities.
1010.212 Financial information.
1010.214 Recreational facilities.
1010.215 Subdivision characteristics and climate.
1010.216 Additional information.
1010.219 Affirmation.
1010.310 Annual report of activity.
Subpart C_Certification of Substantially Equivalent State Law
1010.500 General.
1010.503 Notice of certification.
1010.504 Cooperation among certified states and between certified
states and the Director.
1010.505 Withdrawal of state certification.
1010.506 State/Federal filing requirements.
1010.507 Effect of suspension or withdrawal of certification granted
under 15 U.S.C. 1708(a)(1): Full disclosure requirement.
1010.508 Effect of suspension of certification granted under 15 U.S.C.
1708(a)(2): Sufficient protection requirement.
1010.552 Previously accepted state filings.
1010.556 Previously accepted state filings--amendments and
consolidations.
1010.558 Previously accepted state filings--notice of revocation rights
on property report cover page.
1010.559 Previously accepted state filings--notice of revocation rights
in contracts and agreements.
Appendix A to Part 1010--Standard and Model Forms and Clauses
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1718.
Source: 76 FR 79489, Dec. 21, 2011, unless otherwise noted.
Subpart A_General Requirements
Sec. 1010.1 Definitions.
(a) Statutory terms. All terms are used in accordance with their
statutory meaning in 15 U.S.C. 1701, unless otherwise defined in
paragraph (b) of this section or elsewhere in this part.
(b) Other terms. As used in this part:
Act means the Interstate Land Sales Full Disclosure Act, 15 U.S.C.
1701.
Advisory opinion means the formal written opinion of the Director as
to jurisdiction in a particular case or the applicability of an
exemption under Secs. 1010.5 through 1010.15, based on facts submitted
to the Director.
Available for use means that in addition to being constructed, the
subject facility is fully operative and supplied with any materials and
staff necessary for its intended purpose.
Beneficial property restrictions means restrictions that are
enforceable by the lot owners and are designed to control the use of the
lot and to preserve or enhance the environment and the aesthetic and
economic value of the subdivision.
Date of filing means the date a Statement of Record, amendment, or
consolidation, accompanied by the applicable fee, is received by the
Director.
Good faith estimate means an estimate based on documentary evidence.
In the case of cost estimates, the documentation may be obtained from
the suppliers of the services. In the case of estimates of completion
dates, the documentation may be actual contracts let, engineering
schedules, or other evidence of commitments to complete the amenities.
[[Page 374]]
ILSRP means the Interstate Land Sales Registration Program.
Lot means any portion, piece, division, unit, or undivided interest
in land located in any state or foreign country, if the interest
includes the right to the exclusive use of a specific portion of the
land.
Owner means the person or entity who holds the fee title to the land
and has the power to convey that title to others.
Parent corporation means that entity which ultimately controls the
subsidiary, even though the control may arise through any series or
chain of other subsidiaries or entities.
Principal means any person or entity holding at least a 10 percent
financial or ownership interest in the developer or owner, directly or
through any series or chain of subsidiaries or other entities.
Rules means all rules adopted pursuant to the Act, including the
general requirements published in this part.
Sale means any obligation or arrangement for consideration to
purchase or lease a lot directly or indirectly. The terms ``sale'' or
``seller'' include in their meanings the terms ``lease'' and ``lessor''.
Senior Executive Officer means the individual of highest rank
responsible for the day-to-day operations of the developer and who has
the authority to bind or commit the developing entity to contractual
obligations.
Site means a group of contiguous lots, whether such lots are
actually divided or proposed to be divided. Lots are considered to be
contiguous even though contiguity may be interrupted by a road, park,
small body of water, recreational facility, or any similar object.
Start of construction means breaking ground for building a facility,
followed by diligent action to complete the facility.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29115, May 11, 2016]
Sec. 1010.2 [Reserved]
Sec. 1010.3 General applicability.
Except in the case of an exempt transaction, a developer may not
sell or lease lots in a subdivision, making use of any means or
instruments of transportation or communication in interstate commerce,
or of the mails, unless a Statement of Record is in effect in accordance
with the provisions of this part. In non-exempt transactions, the
developer must give each purchaser a printed Property Report, meeting
the requirements of this part, in advance of the purchaser's signing of
any contract or agreement for sale or lease. Information collection
requirements contained in this part have been approved by the Office of
Management and Budget under the provisions of 44 U.S.C. 3501 et seq. and
have been assigned OMB Control No. 3170-0012.
Sec. 1010.4 Exemptions--general.
(a) The exemptions available under Secs. 1010.5 through 1010.16 are
not applicable when the method of sale, lease or other disposition of
land or an interest in land is adopted for the purpose of evasion of the
Act.
(b) With the exception of the sales or leases which are exempt under
Sec. 1010.5, the anti-fraud provisions of the Act (15 U.S.C. 1703(a)(2))
apply to exempt transactions. The anti-fraud provisions make it unlawful
for a developer or agent to employ any device, scheme, or artifice to:
(1) Defraud;
(2) To obtain money or property by means of any untrue statement of
a material fact, or
(3) To omit to state a material fact necessary in order to make the
statements made not misleading, with respect to any information
pertinent to the lot or subdivision; or
(4) To engage in any transaction, practice, or course of business
which operates or would operate as a fraud or deceit upon a purchaser.
(c) The anti-fraud provisions of the Act require that certain
representations be included in the contract in transactions which are
not exempt under Sec. 1010.5. Specifically, the Act requires that if a
developer or agent represents that roads, sewers, water, gas or electric
service or recreational amenities will be provided or completed by the
developer, the contract must stipulate that the services or amenities
will be provided or completed.
[[Page 375]]
(d) Eligibility for exemptions available under Secs. 1010.5 through
1010.14 is self-determining. With the exception of the exemptions
available under Secs. 1010.15 and 1010.16, a developer is not required
to file notice with or obtain the approval of the Director in order to
take advantage of an exemption. If a developer elects to take advantage
of an exemption, the developer is responsible for maintaining records to
demonstrate that the requirements of the exemption have been met.
(e) A developer may present evidence, or otherwise discuss, in an
informal hearing before the Office of Supervision Examinations, the
Bureau's position on the jurisdiction or non-exempt status of a
particular subdivision.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29115, May 11, 2016]
Sec. 1010.5 Statutory exemptions.
A listing of the statutory exemptions is contained in 15 U.S.C.
1702. In accordance with 15 U.S.C. 1702(a)(2), if the sale involves a
condominium or multi-unit construction, a presale clause conditioning
the sale of a unit on a certain percentage of sales of other units is
permissible if it is legally binding on the parties and is for a period
not to exceed 180 days. However, the 180-day provision cannot extend the
2-year period for performance. The permissible 180 days is calculated
from the date the first purchaser signs a sales contract in the project
or, if a phased project, from the date the first purchaser signs the
first sales contract in each phase.
[81 FR 29116, May 11, 2016]
Sec. 1010.6 One hundred lot exemption.
The sale of lots in a subdivision is exempt from the registration
requirements of the Act if, since April 28, 1969, the subdivision has
contained fewer than 100 lots, exclusive of lots which are exempt from
jurisdiction under Sec. 1010.5. In the sale of lots in the subdivision
that are not exempt under Sec. 1010.5, the developer must comply with
the Act's anti-fraud provisions, set forth in Sec. 1010.4(b) and (c).
Sec. 1010.7 Twelve lot exemption.
(a) The sale of lots is exempt from the registration requirements of
the Act if, beginning with the first sale after June 20, 1980, no more
than twelve lots in the subdivision are sold in the subsequent twelve-
month period. Thereafter, the sale of the first twelve lots is exempt
from the registration requirements if no more than twelve lots were sold
in each previous twelve month period which began with the anniversary
date of the first sale after June 20, 1980.
(b) A developer may apply to the Director to establish a different
twelve month period for use in determining eligibility for the exemption
and the Director may allow the change if it is for good cause and
consistent with the purpose of this section.
(c) In determining eligibility for this exemption, all lots sold or
leased in the subdivision after June 20, 1980, are counted, whether or
not the transactions are otherwise exempt. Sales or leases made prior to
June 21, 1980, are not considered in determining eligibility for the
exemption.
(d) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.8 Scattered site subdivisions.
(a) The sale of lots in a subdivision consisting of noncontiguous
parts is exempt from the registration requirements of the Act if:
(1) Each noncontiguous part of the subdivision contains twenty or
fewer lots; and
(2) Each purchaser or purchaser's spouse makes a personal, on-the-
lot inspection of the lot purchased prior to signing a contract.
(b) For purposes of this exemption, interruptions such as roads,
parks, small bodies of water or recreational facilities do not serve to
break the contiguity of parts of a subdivision.
(c) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.9 Twenty acre lots.
(a) The sale of lots in a subdivision is exempt from the
registration requirements of the Act if, since April 28, 1969, each lot
in the subdivision has contained at least twenty acres. In determining
eligibility for the exemption, easements for ingress and egress or
[[Page 376]]
public utilities are considered part of the total acreage of the lot if
the purchaser retains ownership of the property affected by the
easement.
(b) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.10 Single-family residence exemption.
(a) General. The sale of a lot which meets the requirements
specified under paragraphs (b) and (c) of this section is exempt from
the registration requirements of the Act.
(b) Subdivision requirements. (1) The subdivision must meet all
local codes and standards.
(2) In the promotion of the subdivision there must be no offers, by
direct mail or telephone solicitation, of gifts, trips, dinners or use
of similar promotional techniques to induce prospective purchasers to
visit the subdivision or to purchase a lot.
(c) Lot requirements. (1) The lot must be located within a
municipality or county where a unit of local government or the state
specifies minimum standards in the following areas for the development
of subdivision lots taking place within its boundaries:
(i) Lot dimensions.
(ii) Plat approval and recordation.
(iii) Roads and access.
(iv) Drainage.
(v) Flooding.
(vi) Water supply.
(vii) Sewage disposal.
(2) Each lot sold under the exemption must be either zoned for
single-family residences or, in the absence of a zoning ordinance,
limited exclusively by enforceable covenants or restrictions to single-
family residences. Manufactured homes, townhouses, and residences for
one-to-four family use are considered single-family residences for
purposes of this exemption provision.
(3) The lot must be situated on a paved street or highway which has
been built to standards established by the state or the unit of local
government in which the subdivision is located. If the roads are to be
public roads they must be acceptable to the unit of local government
that will be responsible for maintenance. If the street or highway is
not complete, the developer must post a bond or other surety acceptable
to the municipality or county in the full amount of the cost of
completing the street or highway to assure completion to local
standards. For purposes of this exemption, paved means concrete or
pavement with a bituminous surface that is impervious to water, protects
the base and is durable under the traffic load and maintenance
contemplated.
(4) The unit of local government or a homeowners association must
have accepted or be obligated to accept the responsibility for
maintaining the street or highway upon which the lot is situated. In any
case in which a homeowners association has accepted or is obligated to
accept maintenance responsibility, the developer must, prior to signing
of a contract or agreement to purchase, provide the purchaser with a
good faith written estimate of the cost of carrying out the
responsibility over the first ten years of ownership.
(5) At the time of closing, potable water, sanitary sewage disposal,
and electricity must be extended to the lot or the unit of local
government must be obligated to install the facilities within 180 days
following closing. For subdivisions which will not have a central water
or sewage disposal system, there must be assurances that an adequate
potable water supply is available year-round and that the lot is
approved for the installation of a septic tank.
(6) The contract of sale must require delivery within 180 days after
the signing of the sales contract of a warranty deed, which at the time
of delivery is free from monetary liens and encumbrances. If a warranty
deed is not commonly used in the jurisdiction where the lot is located,
a deed or grant which warrants that the seller has not conveyed the lot
to another person may be delivered in lieu of a warranty deed. The deed
or grant used must warrant that the lot is free from encumbrances made
by the seller or any other person claiming by, through, or under the
seller.
(7) At the time of closing, a title insurance binder or title
opinion reflecting the condition of title must be in existence and
issued or presented to the purchaser showing that, subject only
[[Page 377]]
to exceptions which are approved in writing by the purchaser at the time
of closing, marketable title to the lot is vested in the seller.
(8) The purchaser or purchaser's spouse must make a personal, on-
the-lot inspection of the lot purchased prior to signing a contract or
agreement to purchase.
(d) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.11 Manufactured home exemption.
(a) The sale of a lot is exempt from the registration requirements
of the Act when the following eligibility requirements are met:
(1) The lot is sold as a homesite by one party and a manufactured
home is sold by another party and the contracts of sale:
(i) Obligate the sellers to perform, contingent upon the other
seller carrying out its obligations so that a completed manufactured
home will be erected on a completed homesite within two years after the
date the purchaser signed the contract to purchase the lot;
(ii) Provide that all funds received by the sellers are to be
deposited in escrow accounts independent of the sellers until the
transactions are completed;
(iii) Provide that funds received by the sellers will be released to
the buyer upon demand if the lot on which the manufactured home has been
erected is not conveyed within two years; and
(iv) Contain no provisions which restrict the purchaser's remedy of
bringing suit for specific performance.
(2) The homesite is developed in conformance with all local codes
and standards, if any, for manufactured home subdivisions.
(3) At the time of closing:
(i) Potable water and sanitary sewage disposal are available to the
homesite and electricity has been extended to the lot line;
(ii) The homesite is accessible by roads;
(iii) The purchaser receives marketable title to the lot; and
(iv) Other common facilities represented in any manner by the
developer or agent to be provided are completed or there are letters of
credit, cash escrows or surety bonds in the form acceptable to the local
government in an amount equal to 100 percent of the estimated cost of
completion. Corporate bonds are not acceptable for purposes of the
exemption.
(4) For purposes of this section, a manufactured home is a unit
receiving a label in conformance with U.S. Department of Housing and
Urban Development (HUD) regulations implementing the National
Manufactured Housing Construction and Safety Standards Act of 1974 (42
U.S.C. 5401).
(b) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.12 Intrastate exemption.
(a) Eligibility requirements. The sale of a lot is exempt from the
registration requirements of the Act if the following requirements are
met:
(1) The sale of lots in the subdivision after December 20, 1979, is
restricted solely to residents of the state in which the subdivision is
located unless the sale is exempt under Sec. 1010.5, Sec. 1010.11, or
Sec. 1010.13.
(2) The purchaser or purchaser's spouse makes a personal on-the-lot
inspection of the lot to be purchased before signing a contract.
(3) Each contract:
(i) Specifies the developer's and purchaser's responsibilities for
providing and maintaining roads, water and sewer facilities and any
existing or promised amenities;
(ii) Contains a good faith estimate of the year in which the roads,
water and sewer facilities and promised amenities will be completed; and
(iii) Contains a non-waivable provision giving the purchaser the
opportunity to revoke the contract until at least midnight of the
seventh calendar day following the date the purchaser signed the
contract. If the purchaser is entitled to a longer revocation period by
operation of state law, that period becomes the Federal revocation
period and the contract must reflect the requirements of the longer
period.
(4) The lot being sold is free and clear of all liens, encumbrances
and adverse claims except the following:
[[Page 378]]
(i) Mortgages or deeds of trust which contain release provisions for
the individual lot purchased if:
(A) The contract of sale obligates the developer to deliver, within
180 days, a warranty deed (or its equivalent under local law), which at
the time of delivery is free from any monetary liens or encumbrances;
and
(B) The purchaser's payments are deposited in an escrow account
independent of the developer until a deed is delivered.
(ii) Liens which are subordinate to the leasehold interest and do
not affect the lessee's right to use or enjoy the lot.
(iii) Property reservations which are for the purpose of bringing
public services to the land being developed, such as easements for water
and sewer lines.
(iv) Taxes or assessments which constitute liens before they are due
and payable if imposed by a state or other public body having authority
to assess and tax property or by a property owners' association.
(v) Beneficial property restrictions that are mutually enforceable
by the lot owners in the subdivision. Restrictions, whether separately
recorded or incorporated into individual deeds, must be applied
uniformly to every lot or group of lots. To be considered beneficial and
enforceable, any restriction or covenant that imposes an assessment on
lot owners must apply to the developer on the same basis as other lot
owners. Developers who maintain control of a subdivision through a
Property Owners' Association, Architectural Control Committee,
restrictive covenant or otherwise, shall transfer such control to the
lot owners no later than when the developer ceases to own a majority of
total lots in, or planned for, the subdivision. Relinquishment of
developer control shall require affirmative action, usually in the form
of an election based upon one vote per lot.
(vi) Reservations contained in United States land patents and
similar Federal grants or reservations.
(5) Prior to the sale the developer discloses in a written statement
to the purchaser all qualifying liens, reservations, taxes, assessments
and restrictions applicable to the lot purchased. The developer must
obtain a written receipt from the purchaser acknowledging that the
statement required by this subparagraph was delivered to the purchaser.
(6) Prior to the sale the developer provides in a written statement
good faith estimates of the cost to the purchaser of providing electric,
water, sewer, gas and telephone service to the lot. The estimates for
unsold lots must be updated every two years or more frequently if the
developer has reason to believe that significant cost increases have
occurred. The dates on which the estimates were made must be included in
the statement. The developer must obtain a written receipt from the
purchaser acknowledging that the statement required by this subparagraph
was delivered to the purchaser.
(b) Intrastate Exemption Statement. To satisfy the requirements of
paragraphs (a)(5) and (6) of this section, an Intrastate Exemption
Statement containing the information prescribed in each such paragraph
shall be given to each purchaser. A State-approved disclosure document
may be used to satisfy this requirement if all the information required
by paragraphs (a)(5) and (6) of this section is included in this
disclosure. In such a case, the developer must obtain a written receipt
from the purchaser and comply with all other requirements of the
exemption. To be acceptable for purposes of the exemption, the
statement(s) given to purchasers must contain neither advertising nor
promotion on behalf of the developer or subdivision nor references to
the Bureau of Consumer Financial Protection or the Consumer Financial
Protection Bureau. A sample Intrastate Exemption Statement is included
in the exemption guidelines.
(c) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.13 Metropolitan Statistical Area (MSA) exemption.
(a) Eligibility requirements. The sale of a lot which meets the
following requirements is exempt from registration requirements of the
Act:
(1) The lot is in a subdivision which contains fewer than 300 lots
and has
[[Page 379]]
contained fewer than 300 lots since April 28, 1969.
(2) The lot is located within a Metropolitan Statistical Area (MSA)
as defined by the Office of Management and Budget and characterized in
paragraph (b) of this section.
(3) The principal residence of the purchaser is within the same MSA
as the subdivision.
(4) The purchaser or purchaser's spouse makes a personal on-the-lot
inspection of the lot to be purchased prior to signing a contract or
agreement.
(5) Each contract:
(i) Specifies the developer's and purchaser's responsibilities for
providing and maintaining roads, water and sewer facilities and any
existing or promised amenities;
(ii) Contains a good faith estimate of the year in which the roads,
water and sewer facilities and promised amenities will be completed;
(iii) Contains a nonwaivable provision giving the purchaser the
opportunity to revoke the contract until at least midnight of the
seventh calendar day following the date the purchaser signed the
contract, or, if the purchaser is entitled to a longer revocation period
by operation of state law, that period becomes the Federal revocation
period and the contract must reflect the requirements of the longer
period.
(6) The lot being sold must be free and clear of liens such as
mortgages, deeds of trust, tax liens, mechanics' liens, or judgments.
For purposes of this exemption, the term liens does not include the
following:
(i) Mortgages or deeds of trust which contain release provisions for
the individual lot purchased if:
(A) The contract of sale obligates the developer to deliver, within
180 days, a warranty deed (or its equivalent under local law), which at
the time of delivery is free from any monetary liens or encumbrances;
and
(B) The purchaser's payments are deposited in an escrow account
independent of the developer until a deed is delivered.
(ii) Liens which are subordinate to the leasehold interest and do
not affect the lessee's right to use or enjoy the lot.
(iii) Property reservations which are for the purpose of bringing
public services to the land being developed, such as easements for water
and sewer lines.
(iv) Taxes or assessments which constitute liens before they are due
and payable if imposed by a state or other public body having authority
to assess and tax property or by a property owners' association.
(v) Beneficial property restrictions that are mutually enforceable
by the lot owners in the subdivision. Restrictions, whether separately
recorded or incorporated into individual deeds, must be applied
uniformly to every lot or group of lots. To be considered beneficial and
enforceable, any restriction or covenant that imposes an assessment on
lot owners must apply to the developer on the same basis as other lot
owners. Developers who maintain control of a subdivision through a
Property Owners' Association, Architectural Control Committee,
restrictive covenants, or otherwise, shall transfer such control to the
lot owners no later than when the developer ceases to own a majority of
total lots in, or planned for, the subdivision. Relinquishment of
developer control shall require affirmative action, usually in the form
of an election based upon one vote per lot.
(vi) Reservations contained in United States land patents and
similar Federal grants or reservations.
(7) Before the sale the developer gives a written MSA Exemption
Statement to the purchaser and obtains a written receipt acknowledging
that the statement was received. A sample MSA Exemption Statement is
included in the exemption guidelines. A State-approved disclosure
document may be used to satisfy this requirement if all of the
information required by this section is included. The statement(s) given
to purchasers must contain neither advertising nor promotion on behalf
of the developer or the subdivision nor references to the Bureau of
Consumer Financial Protection or the Consumer Financial Protection
Bureau. In descriptive and concise terms, the statement that the
developer must give
[[Page 380]]
the purchaser shall disclose the following:
(i) All liens, reservations, taxes, assessments, beneficial property
restrictions which are enforceable by other lot owners in the
subdivision, and adverse claims which are applicable to the lot to be
purchased.
(ii) Good faith estimates of the cost to the purchaser of providing
electric, water, sewer, gas and telephone service to the lot. The
estimates for unsold lots must be updated every two years, or more
frequently if the developer has reason to believe that significant cost
increases have occurred. The dates on which the estimates were made must
be included in the statement.
(8) The developer executes and gives to the purchaser a written
instrument designating a person within the state of residence of the
purchaser as the developer's agent for service of process. The developer
must also acknowledge in writing that it submits to the legal
jurisdiction of the state in which the purchaser or lessee resides.
(9) The developer executes a written affirmation for each sale made
under this exemption. By January 31 of each year, the developer submits
to the Director a copy of the executed affirmation for each sale made
during the preceding calendar year or a master affirmation in which are
listed all purchasers' names and addresses and the identity of the lots
purchased. Individual affirmations must be available for the Director's
review at all times during the year. The affirmation must be in the form
provided in section I of the appendix to this part: Form for Developer's
Affirmation for Land Sale.
(b) Metropolitan Statistical Area. Metropolitan Statistical Areas
are defined by the Office of Management and Budget generally on the
basis of population statistics reported in a census. To determine
whether a subdivision is located within an MSA and the boundaries of an
MSA, contact the Office of Information and Regulatory Affairs, Office of
Management and Budget, 726 Jackson Place NW., Washington, DC 20503.
(c) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c).
Sec. 1010.14 Regulatory exemptions.
(a) Eligibility requirements. The following transactions are exempt
from the registration requirements of the Act unless the Director has
terminated the exemption in accordance with paragraph (b) of this
section.
(1) The sale of lots, each of which will be sold for less than $100,
including closing costs, if the purchaser will not be required to
purchase more than one lot.
(2) The lease of lots for a term not to exceed five years if the
terms of the lease do not obligate the lessee to renew.
(3) The sale of lots to a person who is engaged in a bona fide land
sales business.
(4) The sale of a lot to a person who owns the contiguous lot which
has a residential, commercial or industrial building on it.
(5) The sale of real estate to a government or government agency.
(6) The sale of a lot to a person who has leased and resided
primarily on the lot for at least the year preceding the sale.
(b) Termination. If the Director has reasonable grounds to believe
that exemption from the registration requirements in a particular case
is not in the public interest, the Director may, after issuing a notice
and giving the respondent an opportunity to request a hearing within
fifteen days of receipt of the notice, terminate eligibility for
exemption. The basis for issuing a notice may be the conduct of the
developer or agent, such as unlawful conduct or insolvency, or adverse
information about the lots or real estate that should be disclosed to
the purchasers. Proceedings will be governed by Sec. 1012.238.
(c) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.15 Regulatory exemption--multiple site subdivision--
determination required.
(a) General. (1) The sale of lots contained in multiple sites of
fewer than 100 lots each, offered pursuant to a single common
promotional plan, is exempt from the registration requirements.
[[Page 381]]
(2) For purposes of this exemption, the sale of lots in an
individual site that exceeds 99 lots is not exempt from registration.
Likewise, the sale of lots in a site containing fewer than 100 lots,
where the developer either owns contiguous land or holds an option or
other evidence of intent to acquire contiguous land which, when taken
cumulatively, would or could result in one site of 100 or more lots, is
not exempt from registration. Furthermore, the sale of lots that are
within a subdivision established by a separate developer is not exempt
from registration by this provision.
(b) Eligibility requirements. The sale of each lot must meet the
following requirements to be eligible for this exemption.
(1) The lot is sold ``as is'' with all advertised improvements and
amenities completed and in the condition advertised.
(2) The lot is in conformance with all local codes and standards.
(3) The lot is accessible, both legally and physically. For lots
which are advertised or otherwise represented as ``residential,'' either
primary or secondary, with any inference that a permanent or temporary
dwelling unit of any description (excluding collapsible tents) can be
built or installed, physical access must be available by automobile,
pick-up truck or equivalent ``on-road'' vehicle.
(4) At the time of closing, a title insurance binder or title
opinion reflecting the condition of title must be issued to the
purchaser showing that, subject only to exceptions approved in writing
by the purchaser at the time of closing, marketable title is vested in
the seller.
(5) Each contract or agreement and any promissory notes:
(i) Contain the non-waivable provision found in section II of the
appendix to this part: Language Notifying Buyer of Option to Cancel
Contract in bold face type (which must be distinguished from the type
used for the rest of the document) on the face or signature page above
all signatures. If the purchaser is entitled to a longer revocation
period by operation of state or local law, that period becomes the
Federal revocation period and the contract must reflect the requirement
of the longer period rather than the seven days. The revocation
provisions may not be limited or qualified in the contract or other
document by requiring a specific type of notice or by requiring that
notice be given at a specified place.
(ii) Obligate the developer to deliver, within 180 days, a warranty
deed (or its equivalent under local law) for the lot which at the time
of delivery is free from any monetary liens or encumbrances.
(6) The purchaser or purchaser's spouse makes a personal on-the-lot
inspection of the lot to be purchased before signing a contract.
(7) The purchaser's payments are deposited in an escrow account
independent of the developer until a deed is delivered.
(8) Prior to the purchaser signing a contract or agreement of sale,
the developer discloses in a written Lot Information Statement all
liens, reservations, taxes, assessments, easements and restrictions
applicable to the lot purchased (see paragraph (b)(11) of this section).
(9) Prior to the purchaser signing a contract or agreement of sale,
the developer discloses in a written Lot Information Statement the name,
address and telephone number of the local governmental agency or
agencies from which information on permits or other requirements for
water, sewer and electrical installations can be obtained. This
Statement will also contain the name, address and telephone number of
the suppliers which would or could provide the foregoing services.
(10) The lot sale must comply with the anti-fraud provisions of 12
CFR 1010.4(b) and (c) and the sales practices and standards in
Secs. 1011.10 through 1011.28.
(11) A written Lot Information Statement must be delivered to, and
acknowledged by, each purchaser prior to his or her signing a contract
or agreement of sale, and must contain the information shown in the
format below. The Statement must be typed or printed in at least 10
point font. A copy of the acknowledgement will be maintained by the
developer for three years and will be made available to ILSRP
[[Page 382]]
upon request. If the Statement is not delivered as required, the
contract or agreement of sale may be revoked and a full refund paid, at
the option of the purchaser, within two years of the signing date and
the contract or agreement of sale will clearly provide this right. A
sample format for the Statement is provided in section III of the
appendix to this part: Sample Lot Information Statement and Sample
Receipt.
(c) Request for Multiple Site Subdivision Exemption. (1) The
developer must file a request for the Multiple Site Subdivision
Exemption. The request must be accompanied by a filing fee of $500
(prepared in accordance with Sec. 1010.35(a)) and a sample Lot
Information Statement, substantially in the form set forth in section IV
of the appendix to this part: Request for Multiple Site Subdivision
Exemption.
(2) This exemption will become effective upon issuance of an
Exemption Order by the Director.
(d) Annual Report. (1) By January 31 of each year the developer will
send a report to the Director listing each site and its location
available for a sale pursuant to the exemption during the preceding year
and indicate the number of lot sales made in each site. The report will
describe any changes in the information provided in the Request for the
Multiple Site Subdivision Exemption or contain a statement that there
are no changes.
(2) The Annual Report must be accompanied by a filing fee of $100.
(3) The Annual Report must be signed and dated by the developer,
attesting to its completeness and accuracy.
(4) Failure to submit the Annual Report within ten days after the
receipt of notice from the Director will automatically terminate
eligibility for the exemption as of the Report due date.
(e) Termination. If, subsequent to the issuance of an Exemption
Order, the Director has reasonable grounds to believe that exemption
from the registration requirements in the particular case is not in the
public interest, the Director may, after issuing a notice and giving the
respondent an opportunity to request a hearing within fifteen days of
receipt of the notice, terminate the exemption order. The basis for
issuing a notice may be apparent omissions or misrepresentations in the
documents submitted to the Director, the conduct of the developer or
agent, such as unlawful conduct or insolvency, or adverse information
about the real estate that should be disclosed to purchasers.
Proceedings will be governed by Sec. 1012.238.
Sec. 1010.16 Regulatory exemption--determination required.
(a) General. The Director may exempt from the registration
requirements of the Act any subdivision or lots in a subdivision by
issuing an order in writing if it is determined that registration is not
necessary in the public interest and for the protection of purchasers on
the basis of the small amount or limited character of the offering and
the requirements contained in paragraph (b) of this section.
(b) Eligibility requirements. An exemption order may be issued at
the discretion of the Director on the basis of the small amount or
limited character of the offering if the following requirements are met:
(1) The subdivision or sales substantially meet the requirements of
one of the exemptions available under this chapter.
(2) Each contract:
(i) Specifies the developer's and purchaser's responsibilities for
providing and maintaining roads, water and sewer facilities and any
existing or promised amenities;
(ii) Contains a good faith estimate of the year in which the roads,
water and sewer facilities and promised amenities will be completed;
(iii) Contains a non-waivable provision giving the purchaser the
opportunity to revoke the contract until at least midnight of the
seventh calendar day following the date the purchaser signed the
contract. If the purchaser is entitled to a longer revocation period by
operation of state law, that period becomes the Federal revocation
period and the contract must reflect the requirements of the longer
period.
(iv) Contains a provision that obligates the developer to deliver to
the purchaser within 180 days of the date
[[Page 383]]
the purchaser signed the sales contract, a warranty deed, or its
equivalent under local law, which at the time of delivery is free from
any monetary liens or encumbrances.
(3) The purchaser or purchaser's spouse makes a personal on-the-lot
inspection of the lot to be purchased before signing a contract.
(4) The developer files a request for an exemption order and
supporting documentation in accordance with paragraphs (c) and (d) of
this section and submits a filing fee of $500.00 in accordance with
Sec. 1010.35(a) of this part. This fee is not refundable.
(c) Request. The request for an Exemption Order must be
substantially in the format set forth in section V of the appendix to
this part: Request for Regulatory Exemption Order.
(d) Supporting documentation. A request for an exemption order must
be accompanied by the following documentation:
(1) A plat of the entire subdivision with the lots subject to the
exemption request delineated thereon.
(2) A copy of the contract to be used.
(3) A clear and specific statement detailing how the proposed sales
of lots subject to the exemption request substantially complies with one
of the available exemption provisions.
(4) A description of the method by which the lots have been and will
be promoted and to which population centers the promotion has been and
will be directed.
(e) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
(f) Termination. If, subsequent to the issuance of an exemption
order, the Director has reasonable grounds to believe that exemption
from the registration requirements in the particular case is not in the
public interest, the Director may, after issuing a notice and giving the
respondent an opportunity to request a hearing within fifteen days of
receipt of the notice, terminate the exemption order. The basis for
issuing a notice may be apparent omissions or misrepresentations in the
documents submitted to the Director, the conduct of the developer or
agent, such as unlawful conduct or insolvency, or adverse information
about the real estate that should be disclosed to purchasers.
Proceedings will be governed by Sec. 1012.238.
Sec. 1010.17 Advisory opinion.
(a) General. A developer may request an opinion from the Director as
to whether an offering qualifies for an exemption or is subject to the
jurisdiction of the Act.
(b) Requirements. All requests for Advisory Opinions must be
accompanied by the following:
(1) A $500.00 filing fee submitted in accordance with
Sec. 1010.35(a). This fee is not refundable.
(2) A comprehensive description of the conditions and operations of
the offering. There is no prescribed format for submitting this
information, but the developer should at least cite the applicable
statutory or regulatory basis for the exemption or lack of jurisdiction
and thoroughly explain how the offering either satisfies the
requirements for exemption or falls outside the purview of the Act.
(3) An affirmation as set forth in section VI of the appendix to
this part: Developer's Affirmation for Advisory Opinion.
Sec. 1010.18 No Action Letter.
(a) If the sale of lots is subject to the registration requirements
of the Act but the circumstances of the sale are such that no
affirmative action to enforce the registration requirements is needed to
protect the public interest or prospective purchasers, the Director may
issue a No Action Letter.
(b) To obtain a No Action Letter a developer must submit a request
which includes a thorough description of the proposed transaction, the
property involved, and the circumstances surrounding the sale.
(c) The issuance of a No Action Letter will not affect any right
which a purchaser has under the Act, and it will not limit future action
by the Director if there is evidence to show that affirmative action is
necessary to protect the public interest or prospective purchasers. In
no event will a No Action Letter be issued after the sale has occurred.
[[Page 384]]
Sec. 1010.19 [Reserved]
Sec. 1010.20 Requirements for registering a subdivision--Statement of
Record--filing and form.
(a) Filing. (1) In order to register a subdivision and receive an
effective date, the developer or owner of the subdivision must file a
Statement of Record with the Director by either:
(i) U.S. Mail, to the following official address: Consumer Financial
Protection Bureau, Interstate Land Sales Registration Program, 1700 G
Street NW., Washington, DC 20552; or
(ii) Electronic means designated on the ILSA program page on the
Bureau's Web site at www.consumerfinance.gov/.
(2) When the Statement of Record is filed, a fee in the amount set
out in Sec. 1010.35(b) must be paid in accordance with Sec. 1010.35(a).
(b) Form. (1) The Statement of Record shall be in the format
specified in Sec. 1010.100 and shall be completed in accordance with the
instructions in Secs. 1010.102, 1010.105 through 1010.118, 1010.200,
1010.208 through 1010.216, and 1010.219. It shall be supported by the
documents required by Secs. 1010.208 through 1010.216 and 1010.219. It
shall include any other information or documents which the Director may
require as being necessary or appropriate for the protection of
purchasers.
(2) The requirements relating to paper type, tabs, folding, and
ordering for filings with the Bureau in Sec. 1010.102(a), (g), and (h)
do not apply if a Statement of Record is filed with the Bureau via
electronic means designated on the Bureau's Web site pursuant to
Sec. 1010.20(a).
(c) State filings. A Statement of Record submitted under the
provisions of 12 CFR part 1010, subpart C--Certification of
Substantially Equivalent State Law, shall consist of the materials
designated by the Certification Agreement between the Director and the
certified state in which the subdivision is located.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29116, May 11, 2016]
Sec. 1010.21 Effective dates.
(a) General. The effective date of an initial, consolidated or
amended Statement of Record is the 30th day after the filing of the
latest amendatory material unless the Director notifies the developer in
writing prior to such 30th day that:
(1) The effective date has been suspended in accordance with
Sec. 1010.45(a), or
(2) An earlier effective date has been determined.
(b) Suspension of effective date by developer. (1) A developer, or
owner, may request that the effective date of its Statement of Record be
suspended, provided there are no administrative proceedings pending
against either of them at the time the request is submitted. The request
must include any consolidations or amendments which have been made to
the initial Statement of Record and may be submitted via the electronic
means of submission described in Sec. 1010.20(a). Forms for this purpose
will be furnished by the Director upon request.
(2) Upon acceptance by the Director, the effectiveness of the
Statement of Record shall be suspended as of the date the request was
executed by the developer or owner.
(3) The suspension shall continue until the developer, or owner,
submits all amendments necessary to bring the registration into full
compliance with the Regulations which are in effect on the date of the
amendments and the Director allows those amendments to become effective.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29116, May 11, 2016]
Sec. 1010.22 Statement of record--initial or consolidated.
(a) Initial Statement of Record. (1) Except in the case of exempt
transactions, an initial Statement of Record shall be filed, and an
effective date issued, prior to selling or leasing any lot in a
subdivision.
(2) If a developer buys from another developer 100 or more lots from
an existing registration, the new developer, or owner, may have to
submit a new initial Statement of Record and receive an effective date
covering the acquired lots prior to selling or leasing any of those
lots.
(3) Changes in principals due to a sale of stock in a corporation or
changes in
[[Page 385]]
partners or joint venturers which are accomplished in accordance with
the partnership or joint venture agreement but which do not cause a
change in the title to the land in the subdivision may be submitted as
an amendment.
(4) Any initial Statement of Record must be accompanied by a fee, as
specified in Sec. 1010.35(b), based upon the number of lots sought to be
registered.
(b) Consolidated Statement of Record. (1) If the developer intends
to sell or lease additional lots as part of the same common promotional
plan with lots already registered, a consolidated Statement of Record
may be submitted for the additional lots. A fee, as specified in
Sec. 1010.35(b) and based on the number of additional lots, must
accompany the submission. The additional lots may not be sold or leased
until a new effective date is issued.
(2) If the additional lots are simply the result of a replatting of
lots previously registered and enumerated in the Property Report and do
not include any additional land, the change may be made by an amendment.
However, the amendment must be accompanied by a fee, as specified in
Sec. 1010.35(b), based on the number of additional lots.
(c) Consolidated Statement of Record--Form. A consolidated Statement
of Record shall contain the elements listed in paragraphs (c)(1) through
(4) of this section. Pages having no changes and documents in previous
submissions which apply equally to the additional lots may be included
by reference. However, the developer may, at its option, submit the
entire format for an initial filing, including copies of previously
submitted documents, to expedite the examination process.
(1) Those pages of the Property Report portion and Additional
Information and Documentation portion which contain changes which have
occurred since the last effective submission, and
(2) A recapitulation or listing of each of the section headings, and
subheadings if necessary, of the Additional Information and
Documentation portion. Each item of the listing shall contain a
statement as to whether or not any change is made in the section;
whether any new or additional information is being submitted and, if
documentation is added by cross reference, the previous submission in
which that documentation may be found, and
(3) Documentation to support the additional lots (e.g., plat maps,
topographic maps and general plan to reflect new lots, title
information, permits for additional facilities, financial assurances of
completion of additional facilities, financial statements) or updated or
expanded documents in support of previous submissions, and
(4) The affirmation required by Sec. 1010.219.
(d) Consolidated Statement of Record amends prior Statement of
Record. A Consolidated Statement of Record shall contain all applicable
information for all registered lots in the subdivision except those
deleted pursuant to other provisions in these regulations. The resulting
Property Report shall be used for all sales in the subdivision, except
for those transactions which are exempt from the provisions of the Act
or which have been granted an exempt status by the Director, unless the
Director has specifically authorized the use of multiple Property
Reports.
(e) Initial Statement of Record--when prior approval to submit is
required. In those subdivisions where there is a disparity between the
lots already registered and those sought to be registered because of
location, terrain, proposed use of the lots or the amenities to be
furnished or available, the developer may present a resume of the
differences and request the Director's permission to file a separate
initial Statement of Record for the additional lots. Upon consideration
of the facts submitted, the Director may allow such a procedure.
(f) Lots which have been deleted from registration. Should the
developer, for any reason, delete by amendment any registered lots from
an effective Statement of Record, those lots must be reregistered by a
consolidation and a new effective date issued, before they can be sold
or leased. An appropriate fee must accompany the submission.
(g) Lots sold to individual purchasers. It is not necessary to
delete from the registration those lots which have been sold to
individual purchasers for their own use.
[[Page 386]]
Sec. 1010.23 Amendment--filing and form.
(a) Filing. If any change occurs in any representation of material
fact required to be stated in an effective Statement of Record, an
amendment shall be filed. The amendment shall be filed within 15 days of
the date on which the developer knows, or should have known, that there
has been a change in material fact. The amendment may be filed via the
electronic means of submission described in Sec. 1010.20(a).
(b) Form. An amendment shall include by reference the prior
Statement of Record except for any changes in material fact. A change in
material fact shall be specifically described and supported by the same
documentation which would be required for an initial submission. Any
amendment shall be accompanied by:
(1) A letter from the developer giving a clear and concise
description of the purpose and significance of the amendment and
referring to the section and page of the Statement of Record which is
being amended, and
(2) All pages of the Statement of Record, which have been amended,
retyped in the required format to reflect the changes. The ILSRP number
of the Statement of Record shall appear at the top of each page of the
material submitted.
(c) Amendments to suspended filings. Developers wishing to
reactivate a suspended filing shall file the following:
(1) Any amendments necessary to bring the filing into compliance,
submitted in accordance with paragraphs (a) and (b) of this section;
(2) An activity report in the form prescribed by Sec. 1010.310; and
(3) An amendment fee, if required under Sec. 1010.35(d)(2).
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29116, May 11, 2016]
Secs. 1010.24-1010.28 [Reserved]
Sec. 1010.29 Use of property report--misstatements, omissions, or
representation of Bureau approval prohibited.
Nothing in these regulations shall be construed to authorize or
approve the use of a property report containing any untrue statement of
a material fact or omitting to state a material fact required to be
stated therein. Nor shall anything in these regulations be construed to
authorize or permit any representation that the Property Report is
prepared or approved by the Director, ILSRP or the Bureau of Consumer
Financial Protection.
Sec. 1010.35 Payment of fees.
(a) Method of payment. (1) Each fee must be paid by:
(i) Certified check, cashier's check, or postal money order made
payable to the Treasurer of the United States, with the registration
number, when known, and the name, of the subdivision on the face of the
check, and mailed to an address specified by the Director; or
(ii) Electronic payment in a manner specified by the Director.
(2) Information regarding the current mailing address or electronic
payment procedures is available from: Consumer Financial Protection
Bureau, Interstate Land Sales Registration Program, 1700 G Street NW.,
Washington, DC 20552, or on the Bureau's Web site at
www.consumerfinance.gov.
(b) Fees for registration. The fee for each initial and consolidated
registration is set forth in section VII of the appendix to this part:
Initial and Consolidated Registration Fee Schedule.
(c) Fee for Exemption Order or Advisory Opinion. The filing fee for
an Exemption Order or an Advisory Opinion (Sec. 1010.16 or Sec. 1010.17)
is $500. This fee is not refundable.
(d) Amendment fee. (1) A fee of $800 is charged when an Annual
Activity Report reflects an annual ending inventory of 101 or more
unsold registered lots.
(2) A fee of $800 is charged for an amendment to reactivate a
Statement of Record subsequent to its suspension, unless the developer
has 100 or fewer unsold lots included in the Statement of Record.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29116, May 11, 2016]
Sec. 1010.45 Suspensions.
(a) Suspension notice--prior to effective date. (1) If it appears to
the Director that a Statement of Record or an amendment is on its face
incomplete or
[[Page 387]]
inaccurate in any material respect, the Director shall so advise the
developer, by issuing a suspension notice, within a reasonable time
after the filing of such materials but prior to the time the materials
would otherwise be effective.
(2) A suspension notice issued pursuant to this subsection shall
suspend the effective date of the Statement of Record or the amendment.
It shall continue in effect until 30 days, or such earlier date as the
Director may determine, after the necessary amendments are submitted
which correct all deficiencies cited in the notice.
(3) Upon receipt of a suspension notice, the developer has 15 days
in which to request a hearing. If a hearing is requested, it shall be
held within 20 days of the receipt of the request by the Director.
(b) Suspension orders--subsequent to effective date. (1) A notice of
proceedings to suspend an effective Statement of Record may be issued to
a developer if the Director has reasonable grounds to believe that an
effective Statement of Record includes an untrue statement of a material
fact, or omits a material fact required by the Act or rules and
regulations, or omits a material fact which is necessary to make the
statements therein not misleading. The Director may, after notice, and
after opportunity for a hearing requested pursuant to Sec. 1012.220
within 15 days of receipt of such notice, issue an order suspending the
Statement of Record. In the event that a suspension order is issued,
such order shall remain in effect until the developer has amended the
Statement of Record or otherwise complied with the requirements of the
order. When the developer has complied with the requirements of the
order, the Director shall so declare and thereupon the suspension order
shall cease to be effective.
(2) If the Director undertakes an examination of a developer or its
records to determine whether a suspension order should be issued, and
the developer fails to cooperate with the Director or obstructs, or
refuses to permit the Director to make such examination, the Director
may issue an order suspending the Statement of Record. Such order shall
remain in effect until the developer has complied with the requirements
of the order. When the developer has complied with the requirements of
the order, the Director shall so declare and thereupon the suspension
order shall cease to be effective. In accordance with the procedure
described in Sec. 1012.235, a hearing may be requested.
(3) Upon receipt of an amendment to an effective Statement of
Record, the Director may issue an order suspending the Statement of
Record until the amendment becomes effective if the Director has
reasonable grounds to believe that such action is necessary or
appropriate in the public interest or for the protection of purchasers.
In accordance with the procedure described in Sec. 1012.235, a hearing
may be requested.
(4) Suspension orders issued pursuant to this subsection shall
operate to suspend the Statement of Record as of the date the order is
either served on the developer or its registered agent or is delivered
by certified or registered mail to the address of the developer or its
authorized agent.
Subpart B_Reporting Requirements
Sec. 1010.100 Statement of Record--format.
(a) The Statement of Record consists of two portions; the Property
Report portion and the Additional Information and Documentation portion.
(b) General format. The Statement of Record shall be prepared in
accordance with the format set forth in section VIII of the appendix to
this part: Property Report:
Sec. 1010.101 [Reserved]
Sec. 1010.102 General instructions for completing the Statement of Record.
(a) Paper and type. The Statement of Record shall be on good
quality, unglazed white or pastel paper. Letter size paper,
approximately 8\1/2\ x 11 inches in size, will be used for the
Property Report portion, and either letter size paper, approximately
8\1/2\ x 11 inches in size, or legal size paper, approximately 8\1/2\
x 14 inches in size, will be used for the Additional Information
[[Page 388]]
and Documentation portion. Side margins shall be no less than 1 inch and
no greater than 1\1/2\ inches. Top and bottom margins shall be no less
than 1 inch. In the preparation of the charts to be included in the
Property Report, the developer may vary from the above margin
requirements or print the charts lengthwise on the required size paper
if such measures are necessary to make the charts readable. The
Statement of Record shall be prepared in an easily readable, uniform
font.
(b) Numbering and dating. Each page of the Statement of Record as
submitted to ILSRP shall be numbered and shall include the date of
typing or preparation in the lower right hand corner, except in the
final printed version of the Property Report portion.
(c) Signing. The Statement of Record shall be signed by the senior
executive officer of the developer or a designated agent.
(d) Printing. The Statement of Record and, insofar as practical, all
papers and documents filed as a part thereof, shall be printed,
lithographed, photocopied, typewritten or prepared by any similar
process which, in the opinion of the Director, produces copies suitable
for a permanent record. Irrespective of the process used, all copies of
any such materials shall be clear and easily readable.
(e) Headings, subheadings, captions, introductory paragraphs,
warnings. Property Report subject ``headings'' are those descriptive
introductory words which appear immediately after section numbers
1010.106 through 1010.116 (e.g. Sec. 1010.108 has ``General
Information'' and Sec. 1010.111 has ``Utilities''). Each such heading
shall be printed in the Property Report in underlined capital letters
and centered at the top of a new page. Section numbers shall not be
printed in the Property Report. Property Report subheadings are those
descriptive introductory words which appear in italics in the
regulations at the beginning of paragraphs designated by paragraph
letters (a), (b), (c) etc. An example of a subheading is ``water'' found
immediately after the paragraph letter (a) in Sec. 1010.111. These
subheadings will be printed in the Property Report only if they are
relevant to the subject subdivision. If printed these subheadings shall
be capitalized and shall begin at the left hand margin of the page.
Property Report ``captions'' are those descriptive introductory words
which appear in italics in the Regulations at the beginning of
paragraphs designated by numbers (1), (2), (3), etc. An example of such
captions is ``Sales Contract and Delivery of Deed'' found immediately
after the paragraph number ``(1)'' in Sec. 1010.109(b). These captions
are to be printed in the Property Report only if they are applicable to
the subject subdivision. If printed, these captions shall be centered on
the page from the side margins, and shall have only the first letter of
each word capitalized. Headings and subheadings will be used in the
Property Report in accordance with the sample page appearing in section
IX of the appendix to this part. Introductory paragraphs will follow
headings if they are applicable and necessary for a readable entry into
the subject matters, but note, the introductory paragraphs for ``Title
to the Property and Land Use'' are to be used in every case as provided
in Sec. 1010.109(a)(1). Subheadings and captions which do not apply to
the subdivision should be omitted from the Property Report portion and
answered ``not applicable'' in the Additional Information and
Documentation portion, unless specifically required to be included
elsewhere in these instructions. Warnings shall be printed substantially
as they appear in the instructions in Secs. 1010.105 through 1010.118.
They shall be printed in capital letters and may be enclosed in a box.
The paragraphs in the Property Report portion need not be numbered. A
sample page is set forth in section IX of the appendix to this part:
Sample Page for Statement of Record.
(f) Language style. All information given in the Property Report
portion shall be stated in narrative form using plain, concise, everyday
language which can be readily understood by purchasers who are
unfamiliar with real estate transactions. Excessively long paragraphs
should be avoided. Keep them as brief as possible. Use separate
paragraphs for different points discussed. Disclose all pertinent facts.
Potential consequences to a purchaser must be made clear even though not
[[Page 389]]
specifically asked for in the format and the instructions. In the
Property Report the pronouns ``you'' and ``your'' shall generally be
used in referring to the prospective purchaser and the pronouns ``we,''
``us,'' and ``our'' shall generally be used in referring to the
developer. The Director specifically reserves the right to require
modification of the text when the narrative does not meet the standards
of this section.
(g) Format of the Additional Information and Documentation portion
of the Statement of Record. The supporting information and documentation
required by these regulations shall be identified by affixing a tab on
the right side of the cover sheet of the required information or
documentation and by identifying on the tab the section number of the
Statement of Record instructions to which the information or
documentation corresponds. This information or documentation shall then
be placed immediately after the page(s) on which the section number and
answers for that section appear. If the data in a document is applicable
to more than one section of instructions, the developer may substitute
as a document in the second case a statement incorporating the earlier
document. Deeds, title policies, subdivision plats or maps and other
documentary information required to be contained in the Additional
Information and Documentation portion of the Statement of Record need
not be on the same size paper as the Statement of Record but, if larger,
shall be folded to a size no larger than 8\1/2\ x 14 inches.
Supporting documents shall be inserted into the binding in such a manner
as to permit them to be examined without the necessity of removing them
from the binding. This may be accomplished by proper folding or through
the use of envelopes.
(h) Ordering. The Statement of Record shall be filed with the
Property Report portion on top, including any documents which may be
required to be attached when delivered to the purchaser, followed by the
Additional Information and Documentation portion.
(i) Advertising and promotional material. No advertising, or
promotional material or statements which are self-serving on behalf of
the developer or owner may be included in the Statement of Record or
resulting Property Report.
(j) Additional information. (1) In addition to the information
expressly required to be stated in the Statement of Record, there shall
be added, and the Director may require, such further material
information, documentation and certification as may be necessary in the
public interest and for the protection of purchasers or necessary in
order to make the statements not misleading in the light of
circumstances under which they are made.
(2) The instructions are not all inclusive. The developer shall
include any other facts which would have a bearing upon the use by the
purchaser of any of the facilities, services or amenities; which would
cause or result in additional expenses to the purchaser; which would
have an effect upon the use and enjoyment of the lot by the purchaser
for the purpose for which it is sold or which would adversely affect the
value of the lot.
(k) Modification of format or content. The Director may require or
permit modification to the content and format of the Property Report to
include additional information, to modify or omit required information,
or to change the sequence or position of information when such changes
are deemed to be in the public interest or for the protection of
purchasers.
(l) Required documentation. Where the documentation required by the
Statement of Record cannot be obtained, the Director may permit the best
available alternative documentation to be substituted.
(m) Final version of Property Report. On the date that a Statement
of Record becomes effective, the Property Report portion shall become
the Property Report for the subject subdivision. The version of the
Property Report delivered to prospective lot purchasers shall be
verbatim to that found effective by the Director and shall have no
covers, pictures, emblems, logograms or identifying insignia other than
as required by these regulations. It shall meet the same standards as to
grade of paper, type size, margins, style and color of print as those
set herein for the Statement of Record, except where
[[Page 390]]
required otherwise by these regulations. However, the date of typing or
preparation of the pages and the ILSRP number shall not appear in the
final version. If the final version of the Property Report is
commercially printed, or photocopied by a process which results in a
commercial printing quality, and is bound on the left side, both sides
of the pages may be used for printed material. If it is typed or
photocopied by a process which does not result in a clear and legible
product on both sides of the page or is bound at the top, printing shall
be done on only one side of the page. If a Statement of Record is filed
with the Bureau via electronic means pursuant to Sec. 1010.20(a), the
version of the Property Report delivered to prospective lot purchasers
shall meet the same standards that apply under these regulations to a
Statement of Record not filed with the Bureau via electronic means. One
copy of the final version of the Property Report, in the exact form in
which it is delivered to prospective lot purchasers, shall be sent to
ILSRP Office within 20 days of the date on which the Statement of
Record, amendment, or consolidation is allowed to become effective by
the Director. If a Property Report in a foreign language is used as
required by Sec. 1011.25(g), a copy of that Property Report together
with a copy of the translated documents shall be furnished the Director
within 20 days of the date on which the advertising is first used. A
Property Report prepared pursuant to these regulations shall not be
distributed to potential lot purchasers until after the Statement of
Record of which it is a part or any amendment to that Statement of
Record has been made effective by the Director.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29116, May 11, 2016]
Sec. 1010.103 Developer obligated improvements.
(a) If the developer represents either orally or in writing that it
will provide or complete roads or facilities for water, sewer, gas,
electricity or recreational amenities, it must be contractually
obligated to do so, and the obligation shall be clearly stated in the
Property Report. While the developer may disclose relevant facts about
completion, the obligation to complete cannot be conditioned, other than
as permitted by 15 U.S.C. 1703(a)(2), and an estimated completion date
(month and year) must be stated in the Property Report. However, a
developer that has only tentative plans to complete may so state in the
Property Report, provided that the statement clearly identifies
conditions to which the completion of the facilities are subject and
states that there are no guarantees the facilities will be completed.
(b) If a party other than the developer is responsible for providing
or completing roads or facilities for water, sewer, gas, electricity or
recreational amenities, that entity shall be clearly identified in the
Property Report under the categories described in Sec. 1010.110,
Sec. 1010.111 or Sec. 1010.114, as applicable. A statement shall be
included in the proper section of the Property Report that the developer
is not responsible for providing or completing the facility or amenity
and can give no assurance that it will be completed or available for
use.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29117, May 11, 2016]
Sec. 1010.104 [Reserved]