[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2014 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 12
Banks and Banking
________________________
Parts 900 to 1025
Revised as of January 1, 2014
Containing a codification of documents of general
applicability and future effect
As of January 1, 2014
Published by the Office of the Federal Register
National Archives and Records Administration as a
Special Edition of the Federal Register
[[Page ii]]
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[[Page iii]]
As of January 1, 2014
Title 12, Part 900 to End
Revised as of January 1, 2013
Is Replaced by
Title 12, Parts 900 to 1025
and
Title 12, Part 1026 to End
[[Page v]]
Table of Contents
Page
Explanation................................................. vii
Title 12:
Chapter IX--Federal Housing Finance Board 3
Chapter X--Bureau of Consumer Financial Protection 53
Finding Aids:
Table of CFR Titles and Chapters........................ 619
Alphabetical List of Agencies Appearing in the CFR...... 639
List of CFR Sections Affected........................... 649
[[Page vi]]
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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.
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[[Page vii]]
EXPLANATION
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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
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[[Page viii]]
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[[Page ix]]
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Charles A. Barth,
Director,
Office of the Federal Register.
January 1, 2014.
[[Page xi]]
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, 2014.
For this volume, Jonn V. Lilyea was Chief Editor. The Code of
Federal Regulations publication program is under the direction of the
Managing Editor, assisted by Ann Worley.
[[Page 1]]
TITLE 12--BANKS AND BANKING
(This book contains parts 900 to 1025)
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Part
chapter ix--Federal Housing Finance Board................... 900
chapter x-- Bureau of Consumer Financial Protection......... 1002
[[Page 3]]
CHAPTER IX--FEDERAL HOUSING FINANCE BOARD
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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
907 Procedures.................................. 8
SUBCHAPTER C--GOVERNANCE AND MANAGEMENT OF THE FEDERAL HOME LOAN BANKS
914 Data availability and reporting............. 18
917 Powers and responsibilities of Bank boards
of directors and senior management...... 18
SUBCHAPTER D [RESERVED]
SUBCHAPTER E--FEDERAL HOME LOAN BANK RISK MANAGEMENT AND CAPITAL
STANDARDS
930 Definitions applying to risk management and
capital regulations..................... 26
931 Federal Home Loan Bank capital stock........ 27
932 Federal Home Loan Bank capital requirements. 31
933 Bank capital structure plans................ 43
SUBCHAPTER F [RESERVED]
SUBCHAPTER G--FEDERAL HOME LOAN BANK ASSETS AND OFF-BALANCE SHEET ITEMS
955 Acquired member assets...................... 49
SUBCHAPTERS H-M [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
Sec.Sec. 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 inSec. 925.1 of this chapter), purchasing or
funding small business loans, small farm loans or small agri-business
loans (as defined inSec. 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]
PART 907_PROCEDURES--Table of Contents
Subpart A_Definitions
Sec.
907.1 Definitions.
Subpart B_Waivers, Approvals, No-Action Letters, and Regulatory
Interpretations
907.2 Waivers.
907.3 Approvals.
907.4 No-Action Letters.
907.5 Regulatory Interpretations.
907.6 Submission requirements.
907.7 Issuance of Waivers, Approvals, No-Action Letters, and Regulatory
Interpretations.
Subpart C_Case-by-Case Determinations; Review of Disputed Supervisory
Determinations
907.8 Case-by-Case Determinations.
907.9 [Reserved]
907.10 Petitions.
907.11 Requests to Intervene.
907.12 Finance Board procedures.
907.13 Consideration and Final Decisions.
907.14 Meetings of the Board of Directors to consider Petitions.
907.15 General provisions.
907.16 Rules of practice.
Authority: 12 U.S.C. 1422b(a)(1).
Source: 64 FR 30883, June 9, 1999, unless otherwise noted.
Redesignated at 65 FR 8256, Feb. 18, 2000.
Editorial Note: Nomenclature changes to part 907 appear at 67 FR
12844, Mar. 20, 2002.
Subpart A_Definitions
Sec. 907.1 Definitions.
As used in this part:
[[Page 9]]
Approval means a written statement issued to a Bank or the Office of
Finance approving a transaction, activity, or item that requires Finance
Board approval under the Act or a Finance Board rule, regulation,
policy, or order.
Case-by-Case Determination means a Final Decision concerning any
matter that requires a determination, finding, or approval by the Board
of Directors under the Act or Finance Board regulations, for which no
controlling statutory, regulatory, or other Finance Board standard
previously has been established, and that, in the judgment of the Board
of Directors, is best resolved on a case-by-case basis by a ruling
applicable only to the Petitioner and any Intervenor, and not by
adoption of a rule of general applicability.
Final Decision means a decision rendered by the Board of Directors
on issues raised in a Petition or Request to Intervene that have been
accepted for consideration.
Intervenor means a Bank, Member, or other entity that has been
granted leave to intervene in the consideration of a Petition by the
Board of Directors.
Managing Director means the Managing Director of the Finance Board.
No-Action Letter means a written statement issued to a Bank or the
Office of Finance providing that Finance Board staff will not recommend
supervisory or other action to the Board of Directors for failure to
comply with a specific provision of the Act or a Finance Board rule,
regulation, policy, or order, if a requester undertakes a proposed
transaction or activity.
Party means a Petitioner, an Intervenor, or the Finance Board.
Petition means a Petition for Case-by-Case Determination or a
Petition for Review of a Disputed Supervisory Determination.
Petitioner means the Office of Finance or a Bank that has filed a
Petition.
Regulatory Interpretation means written guidance issued by Finance
Board staff with respect to application of the Act or a Finance Board
rule, regulation, policy, or order to a proposed transaction or
activity.
Requester means an entity or person that has submitted an
application for a Waiver or Approval or a request for a No-Action Letter
or Regulatory Interpretation.
Supervisory determination means a Finance Board finding in a report
of examination, order, or directive, or a Finance Board order or
directive concerning safety and soundness or compliance matters that
requires mandatory action by a Bank or the Office of Finance.
Waiver means a written statement issued to a Bank, a Member, or the
Office of Finance that waives a provision, restriction, or requirement
of a Finance Board rule, regulation, policy, or order, or a required
submission of information, not otherwise required by law, in connection
with a particular transaction or activity.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000; 67
FR 12844, Mar. 20, 2002]
Subpart B_Waivers, Approvals, No-Action Letters, and Regulatory
Interpretations
Sec. 907.2 Waivers.
(a) Authority. The Board of Directors reserves the right, in its
discretion and in connection with a particular transaction or activity,
to waive any provision, restriction, or requirement of this chapter, or
any required submission of information, not otherwise required by law,
if such waiver is not inconsistent with the law and does not adversely
affect any substantial existing rights, upon a determination that
application of the provision, restriction, or requirement would
adversely affect achievement of the purposes of the Act, or upon a
showing of good cause.
(b) Application. A Bank, a Member, or the Office of Finance may
apply for a Waiver in accordance withSec. 907.6.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]
Sec. 907.3 Approvals.
(a) Application. A Bank or the Office of Finance may apply for an
Approval of any transaction, activity, or item that requires Finance
Board approval under the Act or a Finance Board rule, regulation,
policy, or order in accordance withSec. 907.6, unless alternative
application procedures are prescribed by
[[Page 10]]
the Act or a Finance Board rule, regulation, policy, or order for the
transaction, activity, or item at issue.
(b) Reservation. The Finance Board reserves the right, in its
discretion, to prescribe additional or alternative procedures for any
application for Approval of a transaction, activity, or item.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]
Sec. 907.4 No-Action Letters.
(a) Authority. Finance Board staff, in its discretion, may issue a
No-Action Letter to a Bank or the Office of Finance stating that staff
will not recommend supervisory or other action to the Board of Directors
for failure to comply with a specific provision of the Act or a Finance
Board rule, regulation, policy, or order, if a requester undertakes a
proposed transaction or activity. The Board of Directors may modify or
supersede a No-Action Letter.
(b) Requests. A Bank or the Office of Finance may request a No-
Action Letter in accordance withSec. 907.6.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]
Sec. 907.5 Regulatory Interpretations.
(a) Authority. Finance Board staff, in its discretion, may issue a
Regulatory Interpretation to a Bank, a Member, an official of a Bank or
Member, the Office of Finance, or any other entity or person, providing
guidance with respect to application of the Act or a Finance Board rule,
regulation, policy, or order to a proposed transaction or activity. The
Board of Directors may modify or supersede a Regulatory Interpretation.
(b) Requests. A Bank, a Member, an official of a Bank or Member, the
Office of Finance, or any other entity or person may request a
Regulatory Interpretation in accordance withSec. 907.6.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]
Sec. 907.6 Submission requirements.
Applications for a Waiver or Approval and requests for a No-Action
Letter or Regulatory Interpretation shall comply with the following
requirements:
(a) Filing. Each application or request shall be in writing. The
original and three copies shall be filed with the Secretary to the
Board, Federal Housing Finance Board, 1777 F Street NW., Washington, DC
20006.
(b) Authorization--(1) Waivers and Approvals. Applications for
Waivers and Approvals shall be signed by an official with authority to
sign such applications on behalf of the requester. Applications for
Waivers and Approvals from a Bank or the Office of Finance shall be
accompanied by a resolution of the board of directors of the Bank or the
Office of Finance concurring in the substance and authorizing the filing
of the application.
(2) Requests for No-Action Letters. The president of the Bank making
a Request for a No-Action Letter shall sign the Request. Requests for a
No-Action Letter from the Office of Finance shall be signed by the
chairperson of the board of directors of the Office of Finance.
(3) Requests for Regulatory Interpretations. The requester or an
authorized representative of the requester shall sign a request for a
Regulatory Interpretation.
(c) Information requirements. Each application or request shall
contain:
(1) The name of the requester, and the name, title, address,
telephone number, and electronic mail address, if any, of the official
filing the application or request on its behalf;
(2) The name, address, telephone number, and electronic mail
address, if any, of a contact person from whom Finance Board staff may
seek additional information if necessary;
(3) The section numbers of the particular provisions of the Act or
Finance Board rules, regulations, policies, or orders to which the
application or request relates;
(4) Identification of the determination or relief requested,
including any alternative relief requested if the primary relief is
denied, and a clear statement of why such relief is needed;
(5) A statement of the particular facts and circumstances giving
rise to
[[Page 11]]
the application or request and identifying all relevant legal and
factual issues;
(6) References to all relevant authorities, including the Act,
Finance Board rules, regulations, policies, and orders, judicial
decisions, administrative decisions, relevant statutory interpretations,
and policy statements;
(7) References to any Waivers, No-Action Letters, Approvals, or
Regulatory Interpretations issued to the requester in the past in
response to circumstances similar to those surrounding the request or
application;
(8) For any application or request involving interpretation of the
Act or Finance Board regulations, a reasoned opinion of counsel
supporting the relief or interpretation sought and distinguishing any
adverse authority;
(9) Any non-duplicative, relevant supporting documentation; and
(10) A certification by a person with knowledge of the facts that
the representations made in the application or request are accurate and
complete. The following form of certification is sufficient for this
purpose: ``I hereby certify that the statements contained in the
submission are true and complete to the best of my knowledge. [Name and
Title].''
(d) Waiver of requirements. The Managing Director may waive any
requirement of this section for good cause. The Managing Director shall
provide prompt notice of any such waiver to the Board of Directors. The
Board of Directors may overrule any waiver granted by the Managing
Director under this paragraph.
(e) Withdrawal. Once filed, an application or request may be
withdrawn only upon written request. The Finance Board will not consider
a request for withdrawal after transmission by the Secretary to the
Board to the requester of a response in final form.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000; 67
FR 12844, Mar. 20, 2002]
Sec. 907.7 Issuance of Waivers, Approvals, No-Action Letters,
and Regulatory Interpretations.
(a) Board of Directors review. At least three business days prior to
issuance to the requester, the Secretary to the Board shall transmit
each Approval, No-Action Letter, or Regulatory Interpretation issued by
the Chairperson or Finance Board staff to the Board of Directors for
review.
(b) Issuance and effectiveness. A Waiver, Approval, No-Action
Letter, or Regulatory Interpretation is not effective until the
Secretary to the Board has transmitted it in final form to the
requester.
(c) Abbreviated form. The Finance Board may respond to an
application or request in an abbreviated form, consisting of a concise
statement of the nature of the response, without restatement of the
underlying facts.
Subpart C_Case-by-Case Determinations; Review of Disputed Supervisory
Determinations
Sec. 907.8 Case-by-Case Determinations.
(a) Petition for Case-by-Case Determination. A Bank or the Office of
Finance may seek a Case-by-Case Determination concerning any matter that
may require a determination, finding or approval under the Act or
Finance Board regulations by the Board of Directors, and for which no
controlling statutory, regulatory or other Finance Board standard
previously has been established. The Office of Finance or a Bank seeking
a Case-by-Case Determination shall file a Petition for Case-by-Case
Determination in accordance withSec. 907.10.
(b) Intervention. A Member, a Bank, or the Office of Finance may
file a Request to Intervene in the consideration of the Petition in
accordance withSec. 907.11 if it believes its rights may be affected.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]
Sec. 907.9 [Reserved]
Sec. 907.10 Petitions.
Each Petition brought pursuant to this subpart shall comply with the
following requirements:
(a) Filing. The Petition shall be in writing. The original and three
copies shall be filed with the Secretary to the Board, Federal Housing
Finance Board,
[[Page 12]]
1777 F Street NW., Washington, DC 20006.
(b) Information requirements. Each Petition shall contain:
(1) The name of the Petitioner, and the name, title, address,
telephone number, and electronic mail address, if any, of the official
filing the Petition on its behalf;
(2) The name, address, telephone number, and electronic mail
address, if any, of a contact person from whom Finance Board staff may
seek additional information if necessary;
(3) The section numbers of the particular provisions of the Act or
Finance Board rules, regulations, policies, or orders to which the
Petition relates, and, if the Petition is for Review of a Disputed
Supervisory Determination, identification of the disputed Supervisory
Determination;
(4) Identification of the determination or relief requested,
including any alternative relief requested if the primary relief is
denied, and a clear statement of why such relief is needed;
(5) A statement of the particular facts and circumstances giving
rise to the Petition and identifying all relevant legal and factual
issues;
(6) A summary of any steps taken to date by the Petitioner to
address or resolve the dispute or issue; or, in cases involving safety
and soundness or compliance issues, a summary of any actions taken by
the Petitioner in the interim to implement corrective action;
(7) The Petitioner's argument in support of its position, including
citation to any supporting legal opinions, policy statements, or other
relevant precedent and supporting documentation, if any;
(8) References to all relevant authorities, including the Act,
Finance Board rules, regulations, policies, and orders, judicial
decisions, administrative decisions, relevant statutory interpretations,
and policy statements;
(9) A reasoned opinion of counsel supporting the relief or
interpretation sought and distinguishing any adverse authority;
(10) Any non-duplicative, relevant supporting documentation; and
(11) A certification by a person with knowledge of the facts that
the representations made in the Petition are accurate and complete. The
following form of certification is sufficient for this purpose: ``I
hereby certify that the statements contained in the Petition are true
and complete to the best of my knowledge. [Name and Title].''
(c) Authorization. Each Petition shall be accompanied by a
resolution of the Petitioner's board of directors concurring in the
substance and authorizing the filing of the Petition.
(d) Request to Appear. The Petition may contain a request that staff
or an agent of the Petitioner be permitted to make a personal appearance
before the Board of Directors at any meeting convened to consider the
Petition pursuant to these procedures. A statement of the reasons a
written presentation would not suffice shall accompany a Request to
Appear. The statement shall specifically:
(1) Identify any questions of fact that are in dispute;
(2) Summarize the evidence that would be presented at the meeting;
and
(3) Identify any proposed witnesses, and state the substance of
their anticipated testimony.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]
Sec. 907.11 Requests to Intervene.
(a) Filing--(1) Date. Any Request to Intervene in consideration of a
Petition under this subpart shall be in writing and shall be filed with
the Secretary to the Board within 45 days from the date the Petition is
filed.
(2) Information requirements. A Request to Intervene shall include
the information required bySec. 907.10(b), where applicable, and a
concise statement of the position and interest of the Intervenor and the
grounds for the proposed intervention.
(3) Authorization. If the entity requesting intervention is a Bank
or the Office of Finance, the Request to Intervene shall be accompanied
by a resolution of the Petitioner's board of directors concurring in the
substance and authorizing the filing of the Request. If the entity
requesting intervention is not a Bank or the Office of Finance, the
Request to Intervene shall be signed by an official of the entity with
authority to authorize the filing of the
[[Page 13]]
Request, and shall include a statement describing such authority.
(4) Request to Appear. A Request to Intervene may include a Request
to Appear before the Board of Directors in any meeting conducted under
these procedures to consider a Petition. A Request to Appear shall be
accompanied by a statement containing the information required bySec.
907.10(d), and, in addition, setting forth the likely impact that
intervention will have on the expeditious progress of the meeting. A
Request to Appear shall be filed with the Secretary to the Board either
with the Request to Intervene or at least 20 days prior to the meeting
scheduled to consider the Petition.
(5) Intervenor is bound. Any Request to Intervene shall include a
statement that, if such leave to intervene is granted, the Intervenor
shall be bound expressly by the Final Decision of the Board of
Directors, as described inSec. 907.13(b), subject only to judicial
review or as otherwise provided by law.
(b) Grounds for approval. The Managing Director may grant leave to
intervene if the entity requesting intervention has complied with
paragraph (a) of this section and, in the judgment of Managing Director:
(1) The presence of the entity requesting intervention would not
unduly prolong or otherwise prejudice the adjudication of the rights of
the original parties; and
(2) The entity requesting intervention may be adversely affected by
a Final Decision on the Petition.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]
Sec. 907.12 Finance Board procedures.
(a) Notice of Receipt of Petition or Request to Intervene. No later
than three business days following receipt of a Petition or Request to
Intervene, the Secretary to the Board shall transmit a written Notice of
Receipt to the Petitioner or Intervenor. In the case of a Petition for
Case-by-Case Determination, the Finance Board shall promptly publish a
notice of receipt of Petition, including a brief summary of the issue(s)
involved, in the Federal Register.
(b) Transmittal of filings. The Secretary to the Board shall
promptly transmit copies of any Petition, Request to Intervene, or other
filing under this subpart to the Board of Directors and all other
parties to the filing.
(c) Opportunity to cure defects. The Managing Director shall afford
the Petitioner or Intervenor a reasonable opportunity to cure any
failure to comply with the requirements ofSec. 907.10.
(d) Information request. The Managing Director may request
additional information from the Petitioner or Intervenor. No later than
20 calendar days after the date of a request under this paragraph, the
Petitioner shall provide to the Secretary to the Board all information
requested.
(e) Supplemental information. Upon good cause shown, the Managing
Director may grant permission to a Petitioner or Intervenor to submit
supplemental written information pertaining to the Petition or Request
to Intervene.
(f) Consolidation and severance--(1) Consolidation. The Managing
Director may consolidate any or all matters at issue in two or more
meetings on Petitions where:
(i) There exist common parties or common questions of fact or law;
(ii) Consolidation would expedite and simplify consideration of the
issues; and
(iii) Consolidation would not adversely affect the rights of parties
engaged in otherwise separate proceedings.
(2) Severance. The Managing Director may order any meetings and
issues severed with respect to any or all parties or issues.
(g) Notice of Board Consideration. Within 30 calendar days of
receipt of a Petition deemed by the Managing Director to be in
compliance with the requirements ofSec. 907.10, or, if the Petition
has been the subject of a request under paragraph (d) of this section,
within 30 calendar days of receipt of a response from the Petitioner
deemed by the Managing Director to complete the information necessary
for the Board of Directors to consider the Petition, the Managing
Director, after consultation with the Board of Directors, through the
Secretary to the Board, shall provide all parties with a Notice
[[Page 14]]
of Board Consideration containing the following information:
(1) Identification of the issues accepted for consideration;
(2) Any decision to consolidate or sever pursuant to paragraph (f)
of this section;
(3) Whether the Petition will be considered by the Board of
Directors on the written record pursuant toSec. 907.13(a)(1), or at a
meeting pursuant toSec. 907.13(a)(2); and
(4) If the Petition will be considered by the Board of Directors at
a meeting:
(i) The date, time and place of the meeting; and
(ii) A decision as to any Request to Appear filed pursuant to
Sec.Sec. 907.10(d) or 907.11(a)(4).
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]
Sec. 907.13 Consideration and Final Decisions.
(a) Consideration by Board of Directors. The Board of Directors may
consider a Petition and render a decision:
(1) Solely on the basis of the written record; or
(2) At a regularly scheduled meeting or a meeting convened
specifically for the purpose of considering the Petition. Consideration
of a Petition at a meeting shall be governed by the procedures described
inSec. 907.14.
(b) Final Decision. The Board of Directors shall render a Final
Decision on the issue(s) presented in a Petition or Request to Intervene
that has been accepted for consideration, based upon consideration of
the entire record of the proceeding. The terms and conditions of the
Final Decision shall bind the parties as to any issue(s) presented in
the Petition or Request to Intervene and decided by the Board of
Directors. The decision of the Board of Directors is a final decision
for purposes of obtaining judicial review or as otherwise provided by
law.
(c) Time periods. Subject to extension by such additional time as
may reasonably be required, the Board of Directors shall render a Final
Decision within 120 calendar days of the date the Petition is received
in a form deemed by the Managing Director to be in compliance with the
requirements ofSec. 907.10 or, if the Petition has been the subject of
a request underSec. 907.12(d), within 120 calendar days of receipt of
a response from the Petitioner deemed by the Managing Director to
complete the information necessary for the Board of Directors to
consider the Petition.
(d) Transmittal of Final Decision. The Secretary to the Board shall
transmit the Final Decision of the Board of Directors to all parties to
the submission.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]
Sec. 907.14 Meetings of the Board of Directors to consider Petitions.
(a) Full and fair opportunity to be heard. Any meeting of the Board
of Directors to consider a Petition shall be conducted in a manner that
provides the parties a full and fair opportunity to be heard on the
issues accepted for consideration. Any such meeting shall be conducted
so as to permit an expeditious presentation of such issues.
(b) Participation in meeting. (1) The presence of a quorum of the
Board if Directors is required to conduct a meeting under this section.
Members of the Board of Directors are deemed present if they appear in
person or by telephone.
(2) An act of the Board of Directors requires the vote of a majority
of the members of the Board of Directors voting at a meeting at which a
quorum of the Board of Directors is present.
(3) A Final Decision may be reached by a vote of the Board of
Directors after the meeting at which the Petition has been considered.
Only those members of the Board of Directors present at the meeting at
which the Petition was considered may vote on issues presented in the
Petition and accepted for consideration. A vote of the majority of the
members of the Board of Directors eligible to vote and voting shall be
an act of the Board of Directors.
(c) Chairperson--(1) Presiding officer. The Chairperson, or a member
of the Board of Directors designated by the Chairperson, shall preside
over a meeting of the Board of Directors convened under this section.
(2) Authority of the Chairperson. The Chairperson shall have all
powers and discretion necessary to conduct the
[[Page 15]]
meeting in a fair and impartial manner, to avoid unnecessary delay, to
regulate the course of the meeting and the conduct of the parties and
their counsel, and to discharge the duties of a presiding officer.
(3) Board of Directors may overrule the Chairperson. Any member of
the Board of Directors may, by motion, challenge any action, finding, or
determination made by the Chairperson in the course of the meeting, and
the Board of Directors, by majority vote, may overrule any action,
finding or determination of the Chairperson.
(d) Meeting may be closed. A party may request that the meeting, or
portion thereof, be closed to public observation. A request to close a
meeting shall be processed in accordance with the requirements of the
Government in the Sunshine Act (5 U.S.C. 552b) and the Finance Board's
implementing regulation (12 CFR part 912).
(e) Location of meeting. Unless otherwise specified, all meetings of
the Board of Directors will be held in the Board Room of the Finance
Board at 1777 F Street, NW., Washington, DC, at the time specified in
the notice of meeting issued pursuant to 12 CFR 912.6.
(f) Presentation of issues--(1) Stipulations. Subject to the
Chairperson's discretion, the parties may agree to stipulations of law
or fact, including stipulations as to the admissibility of exhibits, and
present such stipulations at the meeting. Stipulations shall be made a
part of the record of the proceeding.
(2) Order of presentation. The Chairperson shall determine the order
of presentation of the issues, testimony of any witnesses, presentation
of any other information or document, and all other procedural matters
at the meeting.
(g) Record. The meeting shall be recorded and transcribed.
Transcripts of the proceedings shall be governed by 12 CFR 912.5(c). The
Petition and all supporting documentation shall be made a part of the
record, unless otherwise determined by the Chairperson. The Chairperson
may order the record corrected, upon motion to correct, upon stipulation
of the parties, or at the Chairperson's discretion.
(h) Admissibility of documents and testimony. (1) The Chairperson
has discretion to admit and make a part of the record documents and
testimony that are relevant, material, and reliable, and may elect not
to admit documents and testimony that are privileged, unduly
repetitious, or of little probative value.
(2) The Board of Directors shall give such weight to documents and
testimony admitted and made part of the record as it may deem reasonable
and appropriate.
(3) The Chairperson may admit and make a part of the record, in lieu
of oral testimony, statements of fact or opinion prepared by a witness.
The admissibility of the information contained in the statement shall be
subject to the same rules as if the testimony were provided orally.
(i) Official notice. All matters officially noticed by the
Chairperson shall appear on the record.
(j) Exhibits and documents--(1) Copies. A legible duplicate copy of
a document shall be admissible to the same extent as the original.
(2) Exhibits. Witnesses may use existing or newly created charts,
exhibits, calendars, calculations, outlines, or other graphic materials
to summarize, illustrate, or simplify the presentation of testimony.
Subject to the Chairperson's discretion, such materials may be used with
or without being admitted into the record.
(3) Identification. All exhibits offered into the record shall be
numbered sequentially and marked with a designation identifying the
sponsor. The original of each exhibit offered into the record or marked
for identification shall be retained in the record of the meeting,
unless the Chairperson permits substitution of a copy for the original.
(4) Exchange of Exhibits. One copy of each exhibit offered into the
record shall be furnished to each of the parties and to each member of
the Board of Directors. If the Chairperson does not fix a time for the
exchange of exhibits, the parties shall exchange copies of proposed
exhibits at the earliest practicable time before the commencement
[[Page 16]]
of the meeting to consider the Petition. Parties are not required to
exchange exhibits submitted as rebuttal information before the meeting
commences if submission of the exhibits is not reasonably certain at
that time.
(5) Authenticity. The authenticity of all documents submitted or
exchanged as proposed exhibits prior to the meeting shall be admitted
unless written objection is filed before the commencement of the
meeting, or unless good cause is shown for failing to file such a
written objection.
(k) Sanction for obstruction of the proceedings. The Board of
Directors may impose sanctions it deems appropriate for violation of any
applicable provision of this subpart or any applicable law, rule,
regulation, or order, or any dilatory, frivolous, or obstructionist
conduct by any witness or counsel during the course of a meeting.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]
Sec. 907.15 General provisions.
(a) Waiver of requirements. The Managing Director may waive any
filing requirement or deadline in this subpart for good cause shown. The
Managing Director shall provide prompt notice of any such waiver to the
Board of Directors.
(b) Actions of the Managing Director subject to the authority of the
Board of Directors. The Board of Directors may overrule any action by
the Managing Director under this subpart.
(c) Withdrawal. At any time prior to the issuance by the Managing
Director of a Notice of Board Consideration pursuant toSec. 907.12(g),
an authorized representative of a Petitioner may withdraw the Petition,
or an authorized representative of an Intervenor may withdraw the
Request to Intervene, by filing a written request to withdraw with the
Secretary to the Board. Only the Board of Directors may grant a request
to withdraw after issuance by the Managing Director of a Notice of Board
Consideration pursuant toSec. 907.12(g). Unless otherwise agreed,
withdrawal of a Petition or Request to Intervene shall not foreclose a
Petitioner from resubmitting a Petition, or an Intervenor from
submitting a Request to Intervene, on the same or similar issues.
(d) Settlement agreement. (1) At any time during the course of
proceedings pursuant to this subpart, the Finance Board shall give
Petitioners and Intervenors the opportunity to submit offers of
settlement when the nature of the proceedings and the public interest
permit. With the approval of the Managing Director, an authorized
representative of a Petitioner or Intervenor may enter into a proposed
settlement agreement with the Finance Board disposing of some or all of
the issues presented in a Petition or Request to Intervene.
(2) No proposed settlement agreement shall be final until approved
by the Board of Directors. The Board of Directors shall consider any
proposed settlement agreement within 30 calendar days of receiving a
notice of the proposed settlement agreement. If the Board of Directors
disapproves or fails to approve a proposed settlement agreement within
30 days, the proposed settlement agreement shall be null and void and
the previously filed Petition or Request to Intervene shall be
considered in accordance with this subpart.
(3) A settlement agreement approved by the Board of Directors shall
be deemed final and binding on all parties to the agreement. At the time
a proposed settlement agreement becomes final, a Petition or Request to
Intervene previously filed by a party to the agreement shall be deemed
withdrawn as to all issues resolved in the agreement, and the parties to
the agreement shall be estopped from raising objection to those issues
or to the terms of the settlement agreement.
(e) No rights created; Finance Board not prohibited. Nothing in this
subpart shall be deemed to create any substantive or discovery right in
any party. Nothing in this subpart shall limit in any manner the right
of the Finance Board to conduct any examination or inspection of any
Bank or the Office of Finance, or to take any action with respect to a
Bank or the Office of Finance, or its directors, officers, employees or
agents, otherwise authorized by law.
(f) Exhaustion requirement. When seeking a Case-by-Case
Determination of any matter or review by the Board of
[[Page 17]]
Directors of any Supervisory Determination, a Bank or the Office of
Finance shall follow the procedures in this subpart as a prerequisite to
seeking judicial review. Failure to do so shall be deemed to be a
failure to exhaust all available administrative remedies.
(g) Improper conduct prohibited. No party shall, by act or omission,
unduly burden or frustrate the efforts of the Board of Directors to
carry out its duties under the laws and regulations of the Finance
Board. A Petitioner or Intervenor shall confine its communications with
the Board of Directors, or any individual member thereof, concerning
issues raised in a pending Petition, to written communications for
inclusion in the record of the proceeding, filed with the Secretary to
the Board.
(h) Costs. Petitioners are encouraged to contain costs associated
with the preparation and filing of Petitions and related personal
appearances, if any, at any meeting held by the Board of Directors under
this subpart. The Petitioner shall be solely responsible for all costs
associated with any such Petitions and appearances.
(i) Procedures are exclusive. All Case-by-Case Determinations by the
Board of Directors and all Reviews of Disputed Supervisory
Determinations shall be considered exclusively pursuant to the
procedures described in this subpart.
[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]
Sec. 907.16 Rules of practice.
In connection with any matter initiated or pending pursuant to this
part, petitioners, requestors or intervenors, or their representatives,
shall be subject to the provisions of subpart F of 12 CFR part 908. No
other provision of part 908 shall apply under this part
[67 FR 9903, Mar. 5, 2002]
[[Page 18]]
SUBCHAPTER C_GOVERNANCE AND MANAGEMENT OF THE FEDERAL HOME LOAN BANKS
PART 914_DATA AVAILABILITY AND REPORTING--Table of Contents
Sec.
914.1 Regulatory Report defined.
914.2 Filing Regulatory Reports.
914.3 [Reserved]
Authority: 12 U.S.C. 1440 and 4526.
Source: 71 FR 35499, June 21, 2006, unless otherwise noted.
Sec. 914.1 Regulatory Report defined.
(a) Definition. Regulatory Report means any report of raw or summary
data needed to evaluate the safe and sound condition and operations of a
Bank or to determine compliance with any:
(1) Provision in the Act or other law, order, rule, or regulation;
(2) Condition imposed in writing by the Finance Board in connection
with the granting of any application or other request by a Bank; or
(3) Written agreement entered into between the Finance Board and a
Bank.
(b) Examples. Regulatory Report includes:
(1) Call reports and reports of instrument-level risk modeling data;
(2) Reports related to a Bank's housing mission achievement, such as
reports related to AMA, AHP, CIP, and other CICA programs; and
(3) Reports submitted in response to requests to one or more Banks
for information on a nonrecurring basis.
Sec. 914.2 Filing Regulatory Reports.
Each Bank shall file Regulatory Reports with the Finance Board in
accordance with the forms, instructions, and schedules issued by the
Finance Board from time to time. If no regularly scheduled reporting
dates are established, Regulatory Reports shall be filed as requested by
the Finance Board.
Sec. 914.3 [Reserved]
PART 917_POWERS AND RESPONSIBILITIES OF BANK BOARDS OF DIRECTORS
AND SENIOR MANAGEMENT--Table of Contents
Sec.
917.1 Definitions.
917.2 General authorities and duties of Bank boards of directors.
917.3 Risk management.
917.4 Bank Member Products Policy.
917.5 Strategic business plan.
917.6 Internal control system.
917.7 Audit committees.
917.8 Budget preparation.
917.9 Dividends.
917.10 Bank bylaws.
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1427, 1432(a),
1436(a), 1440.
Source: 65 FR 25274, May 1, 2000, unless otherwise noted.
Sec. 917.1 Definitions.
As used in this part:
Business risk means the risk of an adverse impact on a Bank's
profitability resulting from external factors as may occur in both the
short and long run.
Community financial institution has the meaning set forth inSec.
925.1 of this chapter.
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 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.
[[Page 19]]
Immediate family member means a parent, sibling, spouse, child,
dependent, or any relative sharing the same residence.
Internal auditor means the individual responsible for the internal
audit function at the Bank.
Liquidity risk means the risk that a Bank will be unable to meet its
obligations as they come due or meet the credit needs of its members and
associates in a timely and cost-efficient manner.
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.
Operational liquidity means sources of cash from both a Bank's
ongoing access to the capital markets and its holding of liquid assets
to meet operational requirements in a Bank's normal course of business.
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.
Reportable conditions means matters that represent significant
deficiencies in the design or operation of the internal control system
that could adversely affect a Bank's ability to record, process,
summarize and report financial data consistent with the assertions of
management.
[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]
Sec. 917.2 General authorities and duties of Bank boards of directors.
(a) Management of a Bank. The management of each Bank shall be
vested in its board of directors. While Bank boards of directors may
delegate the execution of operational functions to Bank personnel, the
ultimate responsibility of each Bank's board of directors for that
Bank's management is non-delegable.
(b) Duties of Bank directors. Each Bank director shall have the duty
to:
(1) Carry out his or her duties as director in good faith, in a
manner such director believes to be in the best interests of the Bank,
and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances;
(2) Administer the affairs of the Bank fairly and impartially and
without discrimination in favor of or against any member;
(3) At the time of appointment or election, or within a reasonable
time thereafter, have a working familiarity with basic finance and
accounting practices, including the ability to read and understand the
Bank's balance sheet and income statement and to ask substantive
questions of management and the internal and external auditors; and
(4) Direct the operations of the Bank in conformity with the
requirements set forth in the Act and this chapter.
(c) Authority regarding staff and outside consultants. (1) In
carrying out its duties and responsibilities under the Act and this
chapter, each Bank's board of directors and all committees thereof shall
have authority to retain staff and outside counsel, independent
accountants, or other outside consultants at the expense of the Bank.
(2) Bank staff providing services to the board of directors or any
committee of the board under paragraph (c)(1) of this section may be
required by the board of directors or such committee to report directly
to the board or such committee, as appropriate.
Sec. 917.3 Risk management.
(a) Risk management policy--(1) Adoption. Beginning August 29, 2000,
each Bank's board of directors shall have in effect at all times a risk
management policy that addresses the Bank's exposure to credit risk,
market risk, liquidity risk, business risk and operations risk and that
conforms to the requirements of paragraph (b) of this section and to all
applicable Finance Board regulations and policies.
(2) Review and compliance. Each Bank's board of directors shall:
(i) Review the Bank's risk management policy at least annually;
(ii) Amend the risk management policy as appropriate;
(iii) Re-adopt the Bank's risk management policy, including interim
[[Page 20]]
amendments, not less often than every three years; and
(iv) Ensure that policies and procedures are in place that are
reasonably designed to achieve continuing Bank compliance with the risk
management policy.
(b) Risk management policy requirements. In addition to meeting any
other requirements set forth in this chapter, each Bank's risk
management policy shall:
(1) After the Finance Board has approved a Bank's capital plan, but
before the plan takes effect, the Bank shall amend its risk management
policy to describe the specific steps the Bank will take to comply with
its capital plan and to include specific target ratios of total capital
and permanent capital to total assets at which the Bank intends to
operate. The target operating capital-to-assets ratios to be specified
in the risk management policy shall be in excess of the minimum leverage
and risk-based capital ratios and may be expressed as a range of ratios
or as a single ratio;
(2) Set forth the Bank's tolerance levels for the market and credit
risk components; and
(3) Set forth standards for the Bank's management of each risk
component, including but not limited to:
(i) Regarding credit risk arising from all secured and unsecured
transactions, standards and criteria for, and timing of, periodic
assessment of the creditworthiness of issuers, obligors, or other
counterparties including identifying the criteria for selecting dealers,
brokers and other securities firms with which the Bank may execute
transactions;
(ii) Regarding market risk, standards for the methods and models
used to measure and monitor such risk;
(iii) Regarding day-to-day operational liquidity needs and
contingency liquidity needs:
(A) An enumeration of specific types of investments to be held for
such liquidity purposes; and
(B) The methodology to be used for determining the Bank's
operational and contingency liquidity needs;
(iv) Regarding operations risk, standards for an effective internal
control system, including periodic testing and reporting; and
(v) Regarding business risk, strategies for mitigating such risk,
including contingency plans where appropriate.
(c) Risk assessment. The senior management of each Bank shall
perform, at least annually, a risk assessment that is reasonably
designed to identify and evaluate all material risks, including both
quantitative and qualitative aspects, that could adversely affect the
achievement of the Bank's performance objectives and compliance
requirements. The risk assessment shall be in written form and shall be
reviewed by the Bank's board of directors promptly upon its completion.
[65 FR 25274, May 1, 2000, as amended at 66 FR 8308, Jan. 30, 2001; 67
FR 12846, Mar. 20, 2002]
Sec. 917.4 Bank Member Products Policy.
(a) Adoption and review of member products policy--(1) Adoption.
Beginning November 15, 2000, each Bank's board of directors shall have
in effect at all times a policy that addresses the Bank's management of
products offered by the Bank to members and housing associates,
including but not limited to advances, standby letters of credit and
acquired member assets, consistent with the requirements of the Act,
paragraph (b) of this section, and all applicable Finance Board
regulations and policies.
(2) Review and compliance. Each Bank's board of directors shall:
(i) Review the Bank's member products policy annually;
(ii) Amend the member products policy as appropriate; and
(iii) Re-adopt the member products policy, including interim
amendments, not less often than every three years.
(b) Member products policy requirements. In addition to meeting any
other requirements set forth in this chapter, each Bank's member
products policy shall:
(1) Address credit underwriting criteria to be applied in evaluating
applications for advances, standby letters of credit, and renewals;
(2) Address appropriate levels of collateralization, valuation of
collateral and discounts applied to collateral
[[Page 21]]
values for advances and standby letters of credit;
(3) Address advances-related fees to be charged by each Bank,
including any schedules or formulas pertaining to such fees;
(4) Address standards and criteria for pricing member products,
including differential pricing of advances pursuant toSec. 950.5(b)(2)
of this chapter, and criteria regarding the pricing of standby letters
of credit, including any special pricing provisions for standby letters
of credit that facilitate the financing of projects that are eligible
for any of the Banks' CICA programs under part 952 of this chapter;
(5) Provide that, for any draw made by a beneficiary under a standby
letter of credit, the member will be charged a processing fee calculated
in accordance with the requirements ofSec. 975.6(b) of this chapter;
(6) Address the maintenance of appropriate systems, procedures and
internal controls; and
(7) Address the maintenance of appropriate operational and personnel
capacity.
[65 FR 44426, July 18, 2000, as amended at 67 FR 12846, Mar. 20, 2002]
Sec. 917.5 Strategic business plan.
(a) Adoption of strategic business plan. Beginning on July 30, 2000,
each Bank's board of directors shall have in effect at all times a
strategic business plan that describes how the business activities of
the Bank will achieve the mission of the Bank consistent with part 940
of this chapter. Specifically, each Bank's strategic business plan
shall:
(1) Enumerate operating goals and objectives for each major business
activity and for all new business activities, which must include plans
for maximizing activities that enhance the carrying out of the mission
of the Bank, consistent with part 940 of this chapter;
(2) Discuss how the Bank will:
(i) Address credit needs and market opportunities identified through
ongoing market research and consultations with members, associates and
public and private organizations; and
(ii) Notify members and associates of relevant programs and
initiatives;
(3) Establish quantitative performance goals for Bank products
related to multi-family housing, small business, small farm and small
agri-business lending;
(4) Describe any proposed new business activities or enhancements of
existing activities; and
(5) Be supported by appropriate and timely research and analysis of
relevant market developments and member and associate demand for Bank
products and services.
(b) Review and monitoring. Each Bank's board of directors shall:
(1) Review the Bank's strategic business plan at least annually;
(2) Amend the strategic business plan as appropriate;
(3) Re-adopt the Bank's strategic business plan, including interim
amendments, not less often than every three years; and
(4) Establish management reporting requirements and monitor
implementation of the strategic business plan and the operating goals
and objectives contained therein.
(c) Report to Finance Board. Each Bank shall submit to the Finance
Board annually a report analyzing and describing the Bank's performance
in achieving the goals described in paragraph (a)(3) of this section.
[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]
Sec. 917.6 Internal control system.
(a) Establishment and maintenance. (1) Each Bank shall establish and
maintain an effective internal control system that addresses:
(i) The efficiency and effectiveness of Bank activities;
(ii) The safeguarding of Bank assets;
(iii) The reliability, completeness and timely reporting of
financial and management information and transparency of such
information to the Bank's board of directors and to the Finance Board;
and
(iv) Compliance with applicable laws, regulations, policies,
supervisory determinations and directives of the Bank's board of
directors and senior management.
(2) Ongoing internal control activities necessary to maintain the
internal
[[Page 22]]
control system required under paragraph (a)(1) of this section shall
include, but are not limited to:
(i) Top level reviews by the Bank's board of directors and senior
management, including review of financial presentations and performance
reports;
(ii) Activity controls, including review of standard performance and
exception reports by department-level management on an appropriate
periodic basis;
(iii) Physical and procedural controls to safeguard, and prevent the
unauthorized use of, assets;
(iv) Monitoring for compliance with the risk tolerance limits set
forth in the Bank's risk management policy;
(v) Any required approvals and authorizations for specific
activities; and
(vi) Any required verifications and reconciliations for specific
activities.
(b) Internal control responsibilities of Banks' boards of directors.
Each Bank's board of directors shall ensure that the internal control
system required under paragraph (a)(1) of this section is established
and maintained, and shall oversee senior management's implementation of
such a system on an ongoing basis, by:
(1) Conducting periodic discussions with senior management regarding
the effectiveness of the internal control system;
(2) Ensuring that an internal audit of the internal control system
is performed annually and that such annual audit is reasonably designed
to be effective and comprehensive;
(3) Requiring that internal control deficiencies be reported to the
Bank's board of directors in a timely manner and that such deficiencies
are addressed promptly;
(4) Conducting a timely review of evaluations of the effectiveness
of the internal control system made by internal auditors, external
auditors and Finance Board examiners;
(5) Directing senior management to address promptly and effectively
recommendations and concerns expressed by internal auditors, external
auditors and Finance Board examiners regarding weaknesses in the
internal control system;
(6) Reporting any internal control deficiencies found, and the
corrective action taken, to the Finance Board in a timely manner;
(7) Establishing, documenting and communicating an organizational
structure that clearly shows lines of authority within the Bank,
provides for effective communication throughout the Bank, and ensures
that there are no gaps in the lines of authority;
(8) Reviewing all delegations of authority to specific personnel or
committees and requiring that such delegations state the extent of the
authority and responsibilities delegated; and
(9) Establishing reporting requirements, including specifying the
nature and frequency of reports it receives.
(c) Internal control responsibilities of Banks' senior management.
Each Bank's senior management shall be responsible for carrying out the
directives of the Bank's board of directors, including the
establishment, implementation and maintenance of the internal control
system required under paragraph (a)(1) of this section, by:
(1) Establishing, implementing and effectively communicating to Bank
personnel policies and procedures that are adequate to ensure that
internal control activities necessary to maintain an effective internal
control system, including the activities enumerated in paragraph (a)(2)
of this section, are an integral part of the daily functions of all Bank
personnel;
(2) Ensuring that all Bank personnel fully understand and comply
with all policies, procedures and legal requirements applicable to their
positions and responsibilities;
(3) Ensuring that there is appropriate segregation of duties among
Bank personnel and that personnel are not assigned conflicting
responsibilities;
(4) Establishing effective paths of communication upward, downward
and across the organization in order to ensure that Bank personnel
receive necessary and appropriate information, including:
(i) Information relating to the operational policies and procedures
of the Bank;
(ii) Information relating to the actual operational performance of
the Bank;
[[Page 23]]
(iii) Adequate and comprehensive internal financial, operational and
compliance data; and
(iv) External market information about events and conditions that
are relevant to decision making;
(5) Developing and implementing procedures that translate the major
business strategies and policies established by the Bank's board of
directors into operating standards;
(6) Ensuring adherence to the lines of authority and responsibility
established by the Bank's board of directors;
(7) Overseeing the implementation and maintenance of management
information and other systems;
(8) Establishing and implementing an effective system to track
internal control weaknesses and the actions taken to correct them; and
(9) Monitoring and reporting to the Bank's board of directors the
effectiveness of the internal control system on an ongoing basis.
[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]
Sec. 917.7 Audit committees.
(a) Establishment. The board of directors of each Bank shall
establish an audit committee, consistent with the requirements set forth
in this section.
(b) Composition. (1) The audit committee shall comprise five or more
persons drawn from the Bank's board of directors, each of whom shall
meet the criteria of independence set forth in paragraph (c) of this
section.
(2) The audit committee shall include a balance of representatives
of:
(i) Community financial institutions and other members; and
(ii) Appointive and elective directors of the Bank.
(3) The terms of audit committee members shall be appropriately
staggered so as to provide for continuity of service.
(4) At least one member of the audit committee shall have extensive
accounting or related financial management experience.
(c) Independence. Any member of the Bank's board of directors shall
be considered to be sufficiently independent to serve as a member of the
audit committee if that director does not have a disqualifying
relationship with the Bank or its management that would interfere with
the exercise of that director's independent judgment. Such disqualifying
relationships include, but are not limited to:
(1) Being employed by the Bank in the current year or any of the
past five years;
(2) Accepting any compensation from the Bank other than compensation
for service as a board director;
(3) Serving or having served in any of the past five years as a
consultant, advisor, promoter, underwriter, or legal counsel of or to
the Bank; or
(4) Being an immediate family member of an individual who is, or has
been in any of the past five years, employed by the Bank as an executive
officer.
(d) Charter. (1) The audit committee of each Bank shall adopt, and
the Bank's board of directors shall approve, a formal written charter
that specifies the scope of the audit committee's powers and
responsibilities, as well as the audit committee's structure, processes
and membership requirements.
(2) The audit committee and the board of directors of each Bank
shall:
(i) Review, assess the adequacy of and, where appropriate, amend the
Bank's audit committee charter on an annual basis;
(ii) Amend the audit committee charter as appropriate; and
(iii) Re-adopt and re-approve, respectively, the Bank's audit
committee charter not less often than every three years.
(3) Each Bank's audit committee charter shall:
(i) Provide that the audit committee has the responsibility to
select, evaluate and, where appropriate, replace the internal auditor
and that the internal auditor may be removed only with the approval of
the audit committee;
(ii) Provide that the internal auditor shall report directly to the
audit committee on substantive matters and that the internal auditor is
ultimately accountable to the audit committee and board of directors;
and
(iii) Provide that both the internal auditor and the external
auditor shall have unrestricted access to the audit committee without
the need for any
[[Page 24]]
prior management knowledge or approval.
(e) Duties. Each Bank's audit committee shall have the duty to:
(1) Direct senior management to maintain the reliability and
integrity of the accounting policies and financial reporting and
disclosure practices of the Bank;
(2) Review the basis for the Bank's financial statements and the
external auditor's opinion rendered with respect to such financial
statements (including the nature and extent of any significant changes
in accounting principles or the application therein) and ensure that
policies are in place that are reasonably designed to achieve disclosure
and transparency regarding the Bank's true financial performance and
governance practices;
(3) Oversee the internal audit function by:
(i) Reviewing the scope of audit services required, significant
accounting policies, significant risks and exposures, audit activities
and audit findings;
(ii) Assessing the performance and determining the compensation of
the internal auditor; and
(iii) Reviewing and approving the internal auditor's work plan;
(4) Oversee the external audit function by:
(i) Approving the external auditor's annual engagement letter;
(ii) Reviewing the performance of the external auditor; and
(iii) Making recommendations to the Bank's board of directors
regarding the appointment, renewal, or termination of the external
auditor;
(5) Provide an independent, direct channel of communication between
the Bank's board of directors and the internal and external auditors;
(6) Conduct or authorize investigations into any matters within the
audit committee's scope of responsibilities;
(7) Ensure that senior management has established and is maintaining
an adequate internal control system within the Bank by:
(i) Reviewing the Bank's internal control system and the resolution
of identified material weaknesses and reportable conditions in the
internal control system, including the prevention or detection of
management override or compromise of the internal control system; and
(ii) Reviewing the programs and policies of the Bank designed to
ensure compliance with applicable laws, regulations and policies and
monitoring the results of these compliance efforts;
(8) Review the policies and procedures established by senior
management to assess and monitor implementation of the Bank's strategic
business plan and the operating goals and objectives contained therein;
and
(9) Report periodically its findings to the Bank's board of
directors.
(f) Meetings. The audit committee shall prepare written minutes of
each audit committee meeting.
[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]
Sec. 917.8 Budget preparation.
(a) Adoption of budgets. Each Bank's board of directors shall be
responsible for the adoption of an annual operating expense budget and a
capital expenditures budget for the Bank, and any subsequent amendments
thereto, consistent with the requirements of the Act, this section,
other regulations and policies of the Finance Board, and with the Bank's
responsibility to protect both its members and the public interest by
keeping its costs to an efficient and effective minimum.
(b) No delegation of budget authority. A Bank's board of directors
may not delegate the authority to approve the Bank's annual budgets, or
any subsequent amendments thereto, to Bank officers or other Bank
employees.
(c) Interest rate scenario. A Bank's annual budgets shall be
prepared based upon an interest rate scenario as determined by the Bank.
(d) Board approval for deviations. A Bank may not exceed its total
annual operating expense budget or its total annual capital expenditures
budget without prior approval by the Bank's board of directors of an
amendment to such budget.
Sec. 917.9 Dividends.
(a) A Bank's board of directors may declare and pay a dividend only
from previously retained earnings or current net earnings and only in
accordance
[[Page 25]]
with any other applicable limitations on dividends set forth in the Act
or this chapter. Dividends on such capital stock shall be computed
without preference.
(b) A Bank's board of directors may not declare or pay a dividend
based on projected or anticipated earnings and may not declare or pay a
dividend if the par value of the Bank's stock is impaired or is
projected to become impaired after paying such dividend.
(c) The requirement in paragraph (a) of this section that dividends
be computed without preference shall cease to apply to any Bank that has
established any dividend preferences for 1 or more classes or subclasses
of its capital stock as part of its approved capital plan, as of the
date on which the capital plan takes effect.
[71 FR 78051, Dec. 28, 2006]
Sec. 917.10 Bank bylaws.
A Bank's board of directors shall have in effect at all times bylaws
governing the manner in which the Bank administers its affairs and such
bylaws shall be consistent with applicable laws and regulations as
administered by the Finance Board.
SUBCHAPTER D [RESERVED]
[[Page 26]]
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 bySec. 931.1(a) of
this subchapter.
Class B stock means capital stock issued by a Bank, including
subclasses, that has the characteristics specified bySec. 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 the fourth highest rating category
by any NRSRO; or
(2) If there is no credit quality rating by an NRSRO, a
determination by a
[[Page 27]]
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 withSec. 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 withSec. 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 withSec.
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 931_FEDERAL HOME LOAN BANK CAPITAL STOCK--Table of Contents
Sec.
931.1 Classes of capital stock.
931.2 Issuance of capital stock.
931.3 Minimum investment in capital stock.
931.4 Dividends.
931.5 Liquidation, merger, or consolidation.
931.6 Transfer of capital stock.
931.7 Redemption and repurchase of capital stock.
931.8 Other restrictions on the repurchase or redemption of Bank stock.
931.9 Transition provision.
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1440, 1443, 1446.
Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.
[[Page 28]]
Sec. 931.1 Classes of capital stock.
The authorized capital stock of a Bank shall consist of the
following instruments:
(a) Class A stock, which shall:
(1) Have a par value as determined by the board of directors of the
Bank and stated in the Bank's capital plan;
(2) Be issued, redeemed, and repurchased only at its stated par
value; and
(3) Be redeemable in cash only on six-months written notice to the
Bank.
(b) Class B stock, which shall:
(1) Have a par value as determined by the board of directors of the
Bank and stated in the Bank's capital plan;
(2) Be issued, redeemed, and repurchased only at its stated par
value;
(3) Be redeemable in cash only on five-years written notice to the
Bank; and
(4) Confer an ownership interest in the retained earnings, surplus,
undivided profits, and equity reserves of the Bank; and
(c) Any one or more subclasses of Class A or Class B stock, each of
which may have different rights, terms, conditions, or preferences as
may be authorized in the Bank's capital plan, provided, however, that
each subclass of stock shall have all of the characteristics of its
respective class, as specified in paragraph (a) or (b) of this section.
Sec. 931.2 Issuance of capital stock.
(a) In general. A Bank may issue either one or both classes of its
capital stock (including subclasses), as authorized bySec. 931.1, and
shall not issue any other class of capital stock. A Bank shall issue its
stock only to its members and only in book-entry form, and the Bank
shall act as its own transfer agent. All capital stock shall be issued
in accordance with the Bank's capital plan.
(b) Initial issuance. In connection with the initial issuance of its
Class A and/or Class B stock (or any subclass of either), a Bank may
issue such stock in exchange for its existing stock, through a
conversion of its existing stock, or through any other fair and
equitable transaction or method of distribution. As part of its initial
stock issuance transaction, a Bank may distribute any portion of its
then-existing unrestricted retained earnings as shares of Class B stock.
Sec. 931.3 Minimum investment in capital stock.
(a) A Bank shall require each member to maintain a minimum
investment in the capital stock of the Bank, both as a condition to
becoming and remaining a member of the Bank and as a condition to
transacting business with the Bank or obtaining advances and other
services from the Bank. The amount of the required minimum investment
shall be determined in accordance with the Bank's capital plan and shall
be sufficient to ensure that the Bank remains in compliance with its
minimum capital requirements. A Bank shall require each member to
maintain its minimum investment for as long as the institution remains a
member of the Bank and for as long as the member engages in any activity
with the Bank against which the Bank is required to maintain capital.
(b) A Bank may establish the minimum investment required of each
member as a percentage of the total assets of the member, as a
percentage of the advances outstanding to the member, as a percentage of
any other business activity conducted with the member, on any other
basis that is approved by the Finance Board, or any combination thereof.
(c) A Bank may require each member to satisfy the minimum investment
requirement through the purchase of either Class A or Class B stock, or
through the purchase of one or more combinations of Class A and Class B
stock that have been authorized by the board of directors of the Bank in
its capital plan. A Bank, in its discretion, may establish a lower
minimum investment for members that invest in Class B stock than is
required for members that invest in Class A stock, provided that such
reduced investment provides sufficient capital for the Bank to remain in
compliance with its minimum capital requirements.
(d) Each member of a Bank shall at all times maintain an investment
in the capital stock of the Bank in an amount that is sufficient to
satisfy the minimum investment required for that
[[Page 29]]
member in accordance with the Bank's capital plan.
[66 FR 8310, Jan. 30, 2001, as amended at 70 FR 9510, Feb. 28, 2005]
Sec. 931.4 Dividends.
(a) In general. A Bank may pay dividends on Class A or Class B
stock, including any subclasses of such stock, only out of previously
retained earnings or current net earnings, and shall declare and pay
dividends only as provided by its capital plan. The capital plan may
establish different dividend rates or preferences for each class or
subclass of stock, which may include a dividend that tracks the economic
performance of certain Bank assets, such as Acquired Member Assets. A
member, including a member that has provided the Bank with a notice of
intent to withdraw from membership or one whose membership is otherwise
terminated, shall be entitled to receive any dividends that a Bank
declares on its capital stock while the member owns the stock.
(b) Limitation on payment of dividends. In no event shall a Bank
declare or pay any dividend on its capital stock if after doing so the
Bank would fail to meet any of its minimum capital requirements, nor
shall a Bank that is not in compliance with any of its minimum capital
requirements declare or pay any dividend on its capital stock.
[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]
Sec. 931.5 Liquidation, merger, or consolidation.
The respective rights of the Class A and Class B stockholders, in
the event that the Bank is liquidated, or is merged or otherwise
consolidated with another Bank, shall be determined in accordance with
the capital plan of the Bank.
Sec. 931.6 Transfer of capital stock.
A Bank in its capital plan may allow a member to transfer any excess
capital stock of the Bank to another member of that Bank or to an
institution that has been approved for membership in that Bank and that
has satisfied all conditions for becoming a member, other than the
purchase of the minimum amount of Bank stock that it is required to hold
as a condition of membership. Any such stock transfers shall be at par
value and shall be effective upon being recorded on the appropriate
books and records of the Bank. The Bank may, in its capital plan,
require a member to receive the approval of the Bank before a transfer
of the Bank's stock, as allowed under this section, is completed.
[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]
Sec. 931.7 Redemption and repurchase of capital stock.
(a) Redemption. A member may have its capital stock in a Bank
redeemed by providing written notice to the Bank in accordance with this
section. For Class A stock, a member shall provide six-months written
notice, and for Class B stock a member shall provide five-years written
notice. The notice shall indicate the number of shares of Bank stock
that are to be redeemed, and a member shall not have more than one
notice of redemption outstanding at one time for the same shares of Bank
stock. A member may cancel a notice of redemption by so informing the
Bank in writing, and the Bank may impose a fee (to be specified in its
capital plan) on any member that cancels a pending notice of redemption.
At the expiration of the applicable notice period, the Bank shall pay
the stated par value of that stock to the member in cash. A request by a
member (whose membership has not been terminated) to redeem specific
shares of stock shall automatically be cancelled if the Bank is
prevented from redeeming the member's stock by paragraph (c) of this
section within five business days from the end of the expiration of the
applicable redemption notice period because the member would fail to
maintain its minimum investment in the stock of the Bank after such
redemption. The automatic cancellation of a member's redemption request
shall have the same effect as if the member had cancelled its notice to
redeem stock prior to the end of the redemption notice period, and a
Bank may impose a fee (to be specified in its capital plan) for
automatic cancellation of a redemption request. A Bank
[[Page 30]]
shall not be obligated to redeem its capital stock other than in
accordance with this paragraph.
(b) Repurchase. A Bank, in its discretion and without regard to the
applicable redemption periods, may repurchase from a member any
outstanding Class A or Class B capital stock that is in excess of the
amount of that class of Bank stock that the member is required to hold
as a minimum investment, in accordance with the capital plan of that
Bank. A Bank undertaking such a stock repurchase at its own initiative
shall provide the member with reasonable notice prior to repurchasing
any excess stock, with the period of such notice to be specified in the
Bank's capital plan, and shall pay the stated par value of that stock to
the member in cash. For purposes of this section, any Bank stock owned
by a member shall be considered to be excess stock if the member is not
required to hold such stock either as a condition of remaining a member
of the Bank or as a condition of obtaining advances or transacting other
business with the Bank. A member's submission of a notice of intent to
withdraw from membership, or its termination of membership in any other
manner, shall not, in and of itself, cause any Bank stock to be deemed
excess stock for purposes of this section.
(c) Limitation. In no event may a Bank redeem or repurchase any
stock if, following the redemption or repurchase, the Bank would fail to
meet any minimum capital requirement, or if the member would fail to
maintain its minimum investment in the stock of the Bank, as required by
Sec. 931.3.
[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001; 70
FR 9510, Feb. 28, 2005]
Sec. 931.8 Other restrictions on the repurchase or redemption
of Bank stock.
(a) Capital impairment. A Bank may not redeem or repurchase any
capital stock without the prior written approval of the Finance Board if
the Finance Board or the board of directors of the Bank has determined
that the Bank has incurred or is likely to incur losses that result in
or are likely to result in charges against the capital of the Bank. This
prohibition shall apply even if a Bank is in compliance with its minimum
capital requirements, and shall remain in effect for however long the
Bank continues to incur such charges or until the Finance Board
determines that such charges are not expected to continue.
(b) Bank discretion to suspend redemption. A Bank, upon the approval
of its board of directors, or of a subcommittee thereof, may suspend
redemption of stock if the Bank reasonably believes that continued
redemption of stock would cause the Bank to fail to meet its minimum
capital requirements as set forth in Sec.Sec. 932.2 or 932.3 of this
chapter, would prevent the Bank from maintaining adequate capital
against a potential risk that may not be adequately reflected in its
minimum capital requirements, or would otherwise prevent the Bank from
operating in a safe and sound manner. A Bank shall notify the Finance
Board in writing within two business days of the date of the decision to
suspend the redemption of stock, informing the Finance Board of the
reasons for the suspension and of the Bank's strategies and time frames
for addressing the conditions that led to the suspension. The Finance
Board may require the Bank to re-institute the redemption of member
stock. A Bank shall not repurchase any stock without the written
permission of the Finance Board during any period in which the Bank has
suspended redemption of stock under this paragraph.
[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]
Sec. 931.9 Transition provision.
(a) In general. Each Bank shall comply with the minimum leverage and
risk-based capital requirements specified inSec. 932.2 andSec. 932.3
of this chapter, respectively, and each member shall comply with the
minimum investment established in the capital plan, as of the effective
date of that Bank's capital plan. The effective date of a Bank's capital
plan shall be the date on which the Bank first issues any Class A or
Class B stock. Prior to the effective date, the issuance and retention
of Bank stock shall be as provided inSec. 925.20 andSec. 925.22 of
this chapter.
[[Page 31]]
(b) Transition period--(1) Bank transition. A Bank that will not be
in compliance with the minimum leverage and risk-based capital
requirements specified inSec. 932.2 andSec. 932.3 of this chapter as
of the effective date of its capital plan shall maintain compliance with
the leverage limit requirements inSec. 966.3(a) of this chapter and
shall include in its capital plan a description of the steps that the
Bank will take to achieve compliance with the minimum capital
requirements specified inSec. 932.2 andSec. 932.3 of this chapter.
The period of time for compliance with the minimum capital requirements
shall be stated in the plan and shall not exceed three years from the
effective date of the capital plan. When the Bank has achieved
compliance with the leverage requirement ofSec. 932.2 of this chapter,
the leverage limit requirements ofSec. 966.3(a) of this chapter shall
cease to apply to that Bank.
(2) Member transition. (i) Existing members. A Bank's capital plan
shall require any institution that was a member on November 12, 1999,
and whose investment in Bank stock as of the effective date of the
capital plan will be less than the minimum investment required by the
plan, to comply with the minimum investment by a date specified in the
Bank's capital plan. The length of the transition period shall be
specified in the capital plan and shall not exceed three years. The
capital plan shall describe the actions that the existing members are
required to take to achieve compliance with the minimum investment, and
may require such members to purchase additional Bank stock periodically
over the course of the transition period.
(ii) New members. A Bank's capital plan shall require any
institution that became a member after November 12, 1999, but prior to
the effective date of the capital plan, to comply with the minimum
investment specified in the Bank's capital plan as of the effective date
of the plan. A Bank's capital plan shall require any institution that
becomes a member after the effective date of the capital plan, to comply
with the minimum investment upon becoming a member.
(3) New business. A Bank's capital plan shall require any member
that obtains an advance or other services from the Bank, or that
initiates any other business activity with the Bank against which the
Bank is required to hold capital, after the effective date of the
capital plan to comply with the minimum investment specified in the
Bank's capital plan for such advance, services, or activity at the time
the transaction occurs.
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 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
[[Page 32]]
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 Sec.Sec. 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, 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
[[Page 33]]
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
---------------------------------------------------------------------
7
<=1 year 1 3 yrs to 10 10
yr to 3 yrs yrs to 7yrs yrs 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
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 UnderSec. 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
[[Page 34]]
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 inSec. 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 toSec. 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.
(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 inSec. 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
bySec. 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),
[[Page 35]]
(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 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
----------------------------------------------------------------------------------------------------------------
[[Page 36]]
(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:
(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;
[[Page 37]]
(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 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
[[Page 38]]
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
(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 underSec.
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
[[Page 39]]
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:
(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
[[Page 40]]
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
inSec. 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 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
[[Page 41]]
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 inSec. 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 bySec.
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
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
[[Page 42]]
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.
(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
[[Page 43]]
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 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
Sec.Sec. 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 ofSec. 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 Sec.Sec. 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 withSec. 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]
PART 933_BANK CAPITAL STRUCTURE PLANS--Table of Contents
Sec.
933.1 Submission of plan.
[[Page 44]]
933.2 Contents of plan.
933.3 Independent review of capital plan.
933.4 Transition provisions.
933.5 Disclosure to members concerning capital plan and capital stock
conversion.
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1440, 1443, 1446.
Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.
Sec. 933.1 Submission of plan.
(a) In general. By no later than October 29, 2001, the board of
directors of each Bank shall submit to the Finance Board a plan to
establish and implement a new capital structure for that Bank, which
plan shall comply with part 931 of this chapter and under which, when
implemented, the Bank shall have sufficient total and permanent capital
to comply with the regulatory capital requirements established by part
932 of this chapter. The Finance Board, upon a demonstration of good
cause submitted by the board of directors of a Bank, may approve a
reasonable extension of the 270-day period for submission of the capital
plan. A Bank shall not implement its capital plan, or any amendment to
the plan, without Finance Board approval.
(b) Failure to submit a capital plan. If a Bank fails to submit a
capital plan to the Finance Board by October 29, 2001, including any
approved extension, the Finance Board may establish a capital plan for
that Bank, take any enforcement action against the Bank, its directors,
or its executive officers authorized by section 2B(a) of the Act (12
U.S.C. 1422b(a)), or merge the Bank pursuant to section 26 of the Act
(12 U.S.C. 1446) into any other Bank that has submitted a capital plan.
(c) Consideration of the plan. After receipt of a Bank's capital
plan, the Finance Board may return the plan to the Bank if it does not
comply with section 6 of the Act (12 U.S.C. 1426) or any regulatory
requirement or is otherwise incomplete or materially deficient. If the
Finance Board accepts a capital plan for review, it may require the Bank
to submit additional information regarding its plan or to amend the
plan, prior to determining whether to approve the plan. The Finance
Board may approve a capital plan as submitted or as amended, or may
condition its approval on the Bank's compliance with certain stated
conditions, and may require that the capital plans of all Banks take
effect on the same date.
Sec. 933.2 Contents of plan.
The capital plan for each Bank shall include, at a minimum,
provisions addressing the following matters:
(a) Minimum investment. (1) The capital plan shall require each
member to purchase and maintain a minimum investment in the capital
stock of the Bank, in accordance withSec. 931.3, of this chapter and
shall prescribe the manner in which the minimum investment is to be
calculated. The plan shall require each member to maintain its minimum
investment in the Bank's stock for as long as it remains a member and,
with regard to Bank stock purchased to support an advance or other
business activity, for as long as the advance or business activity
remains outstanding.
(2) The capital plan shall specify the amount and class (or classes)
of Bank stock that an institution is required to own in order to become
and remain a member of the Bank, and shall specify the amount and class
(or classes) of Bank stock that a member is required to own in order to
obtain advances from, or to engage in other business transactions with,
the Bank. If a Bank requires its members to satisfy its minimum
investment through the purchase of one or more combinations of Class A
and Class B stock, the authorized combinations of stock shall be
specified in the capital plan, which shall afford the members the option
of satisfying the minimum investment through the purchase of any such
combination of stock.
(3) The capital plan may establish a minimum investment that is
calculated as a percentage of the total assets of the member, as a
percentage of the advances outstanding to the member, as a percentage of
the other business activities conducted with the member, on any other
basis approved by the Finance Board, or on any combination of the above.
(4) The minimum investment established by the capital plan shall be
set at a level that, when applied to all
[[Page 45]]
members, provides sufficient capital for the Bank to comply with its
minimum capital requirements, as specified in part 932 of this chapter.
The capital plan shall require the board of directors of the Bank to
monitor and, as necessary, to adjust, the minimum investment to ensure
that the stock required to be purchased and maintained by the members is
sufficient to allow the Bank to comply with its minimum capital
requirements. The plan shall require each member to comply promptly with
any adjusted minimum investment established by the board of directors of
the Bank, but may allow a member a reasonable time to do so and may
allow a member to reduce its outstanding business with the Bank as an
alternative to purchasing additional stock.
(b) Classes of capital stock. The capital plan shall specify the
class or classes of stock (including subclasses, if any) that the Bank
will issue, and shall establish the par value, rights, terms, and
preferences associated with each class (or subclass) of stock. A Bank
may establish preferences relating to, but not limited to, the dividend,
voting, or liquidation rights for each class or subclass of Bank stock.
Any voting preferences established by the Bank pursuant toSec. 915.5
of this chapter shall expressly state the voting rights of each class of
stock with regard to the election of Bank directors. The capital plan
shall provide that the owners of the Class B stock own the retained
earnings, surplus, undivided profits, and equity reserves of the Bank,
but shall have no right to receive any portion of those items, except
through declaration of a dividend or capital distribution approved by
the board of directors or through the liquidation of the Bank.
(c) Dividends. The capital plan shall establish the manner in which
the Bank will pay dividends, if any, on each class or subclass of stock,
and shall provide that the Bank may not declare or pay any dividends if
it is not in compliance with any capital requirement or if after paying
the dividend it would not be in compliance with any capital requirement.
(d) Initial issuance. The capital plan shall specify the date on
which the Bank will implement the new capital structure, and shall
establish the manner in which the Bank will issue Class A and/or Class B
stock to its existing members, as well as to eligible institutions that
subsequently become members. The capital plan shall address how the Bank
will retire the stock that is outstanding as of the effective date,
including stock held by a member that does not affirmatively elect to
convert or exchange its existing stock to either Class A or Class B
stock, or some combination thereof.
(e) Members wishing not to convert existing stock. The capital plan
shall establish an opt-out date on or before which a member that does
not wish to convert its existing stock into Class A and/or Class B stock
must file a written notice to withdraw from membership with the Finance
Board. This opt-out date shall not be more than six months before the
effective date of the capital plan. (For purposes of applying this
provision, the membership of an institution that files its notice to
withdraw with the Finance Board on or before the opt-out date
established in a capital plan shall terminate six months from the date
that the notice of withdrawal was filed with the Finance Board or on the
effective date of the Bank's capital plan, whichever date is earlier.)
The capital plan shall further provide that any member that is in the
process of withdrawing on the effective date of the capital plan but did
not file its written notice to withdraw from membership with the Finance
Board on or before this opt-out date, shall have its existing stock
converted into Class A and/or Class B stock as required by the capital
plan, and that the effective date of withdrawal for such member shall be
established in accordance with Sec.Sec. 925.26(b) and (c) of this
chapter, provided, however, that the applicable stock redemption periods
calculated underSec. 925.26(c) of this chapter shall commence on date
the member first submitted its written notice to withdraw to the Finance
Board.
(f) Stock transactions. The capital plan shall establish the
criteria for the issuance, redemption, repurchase, transfer, and
retirement of stock issued by the Bank. The capital plan also:
[[Page 46]]
(1) Shall provide that the Bank may not issue stock other than in
accordance withSec. 931.2 of this chapter;
(2) Shall provide that the stock of the Bank may be issued only to
and held only by the members of that Bank;
(3) Shall specify whether the stock of the Bank may be transferred
among members, and, if such transfer is allowed, shall specify the
procedures that a member should follow to effect such transfer, and that
the transfer shall be undertaken only in accordance withSec. 931.6 of
this chapter;
(4) Shall specify that the stock of the Bank may be traded only
between the Bank and its members;
(5) May provide for a minimum investment for members that purchase
Class B stock that is lower than the minimum investment for members that
purchase Class A stock, provided that the level of investment is
sufficient for the Bank to comply with its regulatory capital
requirements;
(6) Shall specify the fee, if any, to be imposed on a member that
cancels a request to redeem Bank stock; and
(7) Shall specify the period of notice that the Bank will provide to
a member before the Bank, on its own initiative, determines to
repurchase any excess Bank stock from a member.
(g) Termination of membership. The capital plan shall address the
manner in which the Bank will provide for the disposition of its capital
stock that is held by institutions that terminate their membership, and
the manner in which the Bank will liquidate claims against its members,
including claims resulting from prepayment of advances prior to their
stated maturity.
(h) Implementation. The capital plan shall demonstrate that the Bank
has made a good faith determination that the Bank will be able to
implement the plan as submitted and that the Bank will be in compliance
with its regulatory total capital requirement and its regulatory risk-
based capital requirement after the plan is implemented.
[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001; 70
FR 9510, Feb. 28, 2005]
Sec. 933.3 Independent review of capital plan.
Prior to submitting its capital plan, each Bank shall conduct a
review of the plan by an independent certified public accountant to
ensure, to the extent possible, that the implementation of the plan
would not result in any write-down of the redeemable stock owned by its
members, and shall conduct a separate review by at least one NRSRO to
determine, to the extent possible, whether the implementation of the
plan would have a material effect on the credit rating of the Bank. The
Bank shall submit a copy of each report to the Finance Board as part of
its proposed capital plan.
Sec. 933.4 Transition provisions.
(a) The capital plan of a Bank may include a transition provision
that would allow a period of time, not to exceed three years, during
which the Bank shall increase its total and permanent capital to levels
that are sufficient to comply with its minimum leverage capital
requirement and its minimum risk-based capital requirement. The capital
plan of a Bank may also include a transition provision that would allow
a period of time, not to exceed three years, during which institutions
that were members of the Bank on November 12, 1999, shall increase the
amount of Bank stock to a level that is sufficient to comply with the
minimum investment established by the capital plan. The length of the
transition periods need not be identical.
(b) Any transition provision shall comply with the requirements of
Sec. 931.9.
Sec. 933.5 Disclosure to members concerning capital plan and capital
stock conversion.
(a) No capital plan shall become effective until disclosure required
by paragraphs (b) and (c) of this section has been provided to members.
All disclosure required under this section shall be transmitted, sent or
given to members not less than 45 days and not more than 60 days prior
to the opt-out date established in the Bank's capital plan in accordance
withSec. 933.2(e).
(b) The following information shall be provided to members about the
Class A and/or Class B stock that a
[[Page 47]]
Bank intends to issue on the effective date of its capital plan:
(1) With regard to each class or subclass of authorized stock, a
description of:
(i) Dividend rights;
(ii) The terms of conversion;
(iii) Redemption and repurchase rights;
(iv) Voting rights and preferences,
(v) Liquidation rights; and
(vi) Any liability to further calls or to assessments by the Banks;
(2) A description of any material differences between the securities
to be converted into Class A and/or Class B stock and the Class A and/or
Class B stock with regard to the rights addressed in paragraph (b)(1) of
this section.
(3) A statement of the reasons for the conversion to Class A and/or
Class B stock and of the general effect thereof upon the rights of
existing members; and
(4) A description of any other material features concerning the
Bank's initial issuance of Class A and/or Class B stock.
(c) In addition to the disclosure about Class A and/or Class B
stock, the following information shall be provided to members:
(1) The Bank shall disclose financial information as follows:
(i) Audited balance sheets as of the end of the two most recent
fiscal years, audited statements of income and cash flows for each of
the three fiscal years preceding the date of the most recent audited
balance sheet being presented, and unaudited interim balance sheets and
statements of income and cash flows as of and for appropriate interim
dates that in form and content meet the requirements ofSec. 989.4 of
this chapter;
(ii) A pro forma capitalization table that reflects the Bank's
projected new capital structure relative to its actual capitalization as
of the date of the latest balance sheet required to be provided to
members by paragraph (c)(1)(i) of this section. The Bank shall also
provide a description of any material assumptions underlying the pro
forma capitalization table and the basis for these assumptions, and
shall provide estimates of its risk-based capital requirement,
calculated in accordance withSec. 932.3 of this chapter, and of its
total capital-to-asset ratio (both of which shall be based on the same
financial data used for the capitalization table), along with a
discussion of material assumptions underlying these estimates and the
basis for these assumptions; and
(iii) Any of the financial information required to be disclosed by
paragraph (c)(1) of this section may be incorporated by reference,
provided the information being incorporated is contained in an annual or
quarterly Bank report prepared in accordance withSec. 989.4 of this
chapter or an annual or quarterly Bank System report, and the disclosure
identifies the information being incorporated by reference;
(2) A narrative discussion of anticipated developments that could
materially affect the liquidity, capital, earnings or continuing
operations of the Bank, including those affecting dividends, product
volumes, investment volumes, new business lines and risk profile.
(3) A description of any amendments anticipated to be made to the
Bank's by-laws, policies or other governance documents as a result of
the implementation of the capital plan;
(4) To the extent that such information has not been provided under
paragraph (b) of this section, the Bank shall disclose information
related to the capital plan as follows:
(i) A description of the minimum stock investment requirements set
forth in the capital plan;
(ii) A statement outlining the requirements for amending the capital
plan;
(iii) A description of any restrictions or limitations under a
Bank's capital plan on a member's rights to buy, or redeem its class A
or class B stock, to have such stock repurchased, or otherwise to make
use of such stock to fulfill the member's minimum stock investment
requirement;
(iv) A statement setting forth the opt-out date, on or before which
a member's written notice to withdraw must be filed with the Finance
Board (as established in accordance withSec. 933.2(e) of this part)
for the member not to have its existing Bank stock
[[Page 48]]
converted to Class A or Class B stock on the effective date of the
Bank's capital plan and describing the effect on a member's effective
date of withdrawal of failing to file its notice to withdraw on or
before the opt-out date; and
(v) A description of a member's rights under the capital plan to
have its stock redeemed or repurchased upon voluntary or involuntary
termination of its membership;
(5) The Bank should state the name, address and telephone number
where members may direct written or oral requests for a copy of the
capital plan and any other instrument or document that defines the
rights of the member/stockholders. This information shall be provided to
the members without charge; and
(6) The Bank shall provide a statement as to the anticipated
accounting treatment for the transaction and the federal income tax
implications of the transaction that members should consider in
consultation with their own accounting and tax advisors.
(d) Nothing in this section shall create or be deemed to create any
rights in any third party.
[66 FR 54109, Oct. 26, 2001]
SUBCHAPTER F [RESERVED]
[[Page 49]]
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.
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 inSec. 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
Sec.Sec. 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
(c) Credit risk-sharing requirement. The transactions through which
the Bank acquires the assets either:
(1) Meet the credit risk-sharing requirements ofSec. 955.3 of this
part; or
[[Page 50]]
(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
(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
[[Page 51]]
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
------------------------------------------------------------------------
(b) Recalculation of credit enhancement. For risk-based capital
purposes, each Bank shall recalculate the estimated credit rating of a
pool of AMA if
[[Page 52]]
there is evidence that a decline in the credit quality of that pool may
have occurred.
SUBCHAPTERS H M [RESERVED]
[[Page 53]]
CHAPTER X--BUREAU OF CONSUMER FINANCIAL PROTECTION
--------------------------------------------------------------------
Part Page
1002 Equal Credit Opportunity Act (Regulation B). 55
1003 Home mortgage disclosure (Regulation C)..... 114
1004 Alternative mortgage transaction parity
(Regulation D).......................... 137
1005 Electronic fund transfers (Regulation E).... 141
1006 Fair Debt Collection Practices Act
(Regulation F).......................... 255
1007 S.A.F.E. Mortgage Licensing Act--Federal
registration of residential mortgage
loan originators (Regulation G)......... 259
1008 S.A.F.E. Mortgage Licensing Act--State
compliance and bureau registration
system (Regulation H)................... 266
1009 Disclosure requirements for depository
institutions lacking Federal deposit
insurance (Regulation I)................ 281
1010 Land registration (Regulation J)............ 283
1011 Purchasers' revocation rights, sales
practices and standards (Regulation K).. 340
1012 Special rules of practice (Regulation L).... 344
1013 Consumer leasing (Regulation M)............. 348
1014 Mortgage acts and practices--Advertising
(Regulation N).......................... 374
1015 Mortgage assistance relief services
(Regulation O).......................... 377
1016 Privacy of consumer financial information
(Regulation P).......................... 383
1022 Fair credit reporting (Regulation V)........ 417
1024 Real Estate Settlement Procedures Act
(Regulation X).......................... 509
1025 [Reserved]
[[Page 55]]
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 inSec. 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 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
[[Page 56]]
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 ofSec. 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.
(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 Sec.Sec. 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 Sec.Sec.
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.
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(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.
(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
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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;
(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
[[Page 59]]
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 forSec. 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 bySec. 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 Sec.Sec. 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 Sec.Sec. 1002.5(b)(1), 1002.5(b)(2),
1002.5(d)(1), 1002.5(d)(2), 1002.13, and 1002.14(a)(2)(i) 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 other than English, provided they are available in English
upon request.
Effective Date Note: At 78 FR 7248, Jan. 31, 2013,Sec. 1002.4 was
amended by revising paragraph (d)(2), effective Jan. 18, 2014. For the
convenience of the user, the revised text is set forth as follows:
Sec. 1002.4 General rules.
* * * * *
(d) * * *
(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 Sec.Sec. 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.
* * * * *
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 bySec. 1002.13 for credit secured
by the applicant's dwelling. In addition, a creditor may
[[Page 60]]
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 Sec.Sec. 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 ofSec. 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.
(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
[[Page 61]]
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 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;
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(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
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
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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 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
[[Page 64]]
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:
(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
[[Page 65]]
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.
(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
[[Page 66]]
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 bySec. 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 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
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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 ofSec.
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 andSec. 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.
[[Page 68]]
(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 inSec.
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.
(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.
[[Page 69]]
Sec. 1002.14 Rules on providing appraisal reports.
(a) Providing appraisals. A creditor shall provide a copy of an
appraisal report used in connection with an application for credit that
is to be secured by a lien on a dwelling. A creditor shall comply with
either paragraph (a)(1) or (a)(2) of this section.
(1) Routine delivery. A creditor may routinely provide a copy of an
appraisal report to an applicant (whether credit is granted or denied or
the application is withdrawn).
(2) Upon request. A creditor that does not routinely provide
appraisal reports shall provide a copy upon an applicant's written
request.
(i) Notice. A creditor that provides appraisal reports only upon
request shall notify an applicant in writing of the right to receive a
copy of an appraisal report. The notice may be given at any time during
the application process but no later than when the creditor provides
notice of action taken underSec. 1002.9 of this part. The notice shall
specify that the applicant's request must be in writing, give the
creditor's mailing address, and state the time for making the request as
provided in paragraph (a)(2)(ii) of this section.
(ii) Delivery. A creditor shall mail or deliver a copy of the
appraisal report promptly (generally within 30 days) after the creditor
receives an applicant's request, receives the report, or receives
reimbursement from the applicant for the report, whichever is last to
occur. A creditor need not provide a copy when the applicant's request
is received more than 90 days after the creditor has provided notice of
action taken on the application underSec. 1002.9 of this part or 90
days after the application is withdrawn.
(b) Credit unions. A creditor that is subject to the regulations of
the National Credit Union Administration on making copies of appraisal
reports available is not subject to this section.
(c) Definitions. For purposes of paragraph (a) of this section, the
term 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. The term
appraisal report means the document(s) relied upon by a creditor in
evaluating the value of the dwelling.
Effective Date Note: At 78 FR 7248, Jan. 31, 2013,Sec. 1002.14 was
revised, effective Jan. 18, 2014. For the convenience of the user, the
revised text is set forth as follows:
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
[[Page 70]]
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 bySec.
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 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.
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
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(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 ofSec. 1002.4(b)) in any proceeding
or civil 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 underSec.
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 ofSec. 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
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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 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.Sec. 1002.6(b)(6), 1002.9, 1002.10, 1002.12 or 1002.13 is not a
violation if it results from an inadvertent error. On discovering an
error under Sec.Sec. 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 bySec. 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 toSec.
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.
[[Page 73]]
d. Federal Credit Unions: National Credit Union Administration,
Office of Consumer Protection (OCP), Division of Consumer Compliance and
Outreach (DCCO), 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.
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.
Effective Date Note: At 78 FR 60437, Oct. 1, 2013, appendix A to
part 1002 was amended by revising paragraph 2.d, effective Jan. 18,
2014. For the convenience of the user, the revised text is set forth as
follows:
Sec. Appendix A to Part 1002--Federal Agencies To Be Listed in Adverse
Action Notices
* * * * *
2. * * *
d. Federal Credit Unions: National Credit Union Administration,
Office of Consumer Protection, 1775 Duke Street, Alexandria, VA 22314.
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 withSec. 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 bySec. 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) ofSec. 1002.5 of this part.
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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 Sec.Sec.
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
Sec.Sec. 1002.9(a)(1) and (2)(ii). Form C-6 is designed for use in
notifying an applicant, underSec. 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 underSec. 1002.9(a)(3). Form C-9 is
designed for use in notifying an applicant of the right to receive a
copy of an appraisal underSec. 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 ofSec. 1002.9(a)(2)(i).
Proper use of Forms C-5 and C-6 constitutes full compliance with
Sec.Sec. 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 Sec.Sec.
1002.9(a)(2)(i) and (ii), respectively, for applications for business
credit. Proper use of Form C-9 will satisfy the requirements ofSec.
1002.14 of this part. Proper use of Form C-10 will satisfy the
requirements ofSec. 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 87]]
----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 88]]
----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 89]]
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
[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 90]]
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 91]]
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 an Appraisal
You have the right to a copy of the appraisal report used in
connection with your application for credit. If you wish a copy, please
write to us at the mailing address we have provided. We must hear from
you no later than 90 days after we notify you about the action taken on
your credit application or you withdraw your application.
[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].
Effective Date Note: At 78 FR 7248, Jan. 31, 2013, appendix C to
part 1002 was amended by revising Paragraph 1 and Sample Form C-9,
effective Jan. 18, 2014. For the convenience of the user, the revised
text is set forth as follows:
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 Sec.Sec.
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
Sec.Sec. 1002.9(a)(1) and (2)(ii). Form C-6 is designed for use in
notifying an applicant, underSec. 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 underSec. 1002.9(a)(3). Form C-9 is
designed for use in notifying an applicant of the right to receive a
copy of appraisals underSec. 1002.14. Form C-10 is designed for use in
notifying an applicant for nonmortgage credit that the creditor is
requesting applicant characteristic information.
* * * * *
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.
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
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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 toSec. 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
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 underSec. 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 underSec. 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 withSec. 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.
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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 underSec. 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,
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
underSec. 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
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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 comply withSec. 1002.4(a),
the general rule prohibiting discrimination, and withSec. 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 Sec.Sec.
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. SeeSec. 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 inSec. 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
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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 toSec. 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, 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 inSec. 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 inSec.
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 inSec. 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
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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 bySec. 1002.13 can 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 toSec. 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 bySec. 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.
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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 any information obtained. However, a creditor may
not consider in its evaluation of creditworthiness any information that
it is barred bySec. 1002.5 from obtaining or from using for any
purpose other than to conduct a self-test underSec. 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.
(SeeSec. 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 ofSec. 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 inSec. 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
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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 inSec. 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 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 underSec. 1002.6(b)(2)(iv). In addition, underSec.
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
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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 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. (SeeSec. 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
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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 Sec.Sec.
1002.7(d)(5) and (6).)
Paragraph 7(d)(1).
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).
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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 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. (SeeSec. 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 inSec. 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 withSec. 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.
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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 underSec. 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
underSec. 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 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 bySec. 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 Sec.Sec. 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 Sec.Sec. 1002.5 and 1002.6, and to require
signatures that would otherwise be prohibited bySec. 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 Sec.Sec.
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 underSec. 1002.9. (The creditor
must comply, however, with the record retention requirements of the
regulation. SeeSec. 1002.12(b)(3).)
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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 underSec. 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 ofSec. 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).
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 underSec.
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 withSec. 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 inSec.
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 inSec. 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
inSec. 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 withSec. 1002.9(a)(3)(i).
5. Timing of notification. A creditor subject toSec.
1002.9(a)(3)(ii)(A) is required to notify a
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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
ofSec. 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 inSec. 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
Sec.Sec. 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 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
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delinquent credit obligations and the application is denied for that
reason, to satisfySec. 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 underSec. 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).
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 Sec.Sec. 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 withSec. 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 ofSec. 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 ofSec. 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 bySec. 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.
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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 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 inSec. 1002.12(a), the
creditor may use the information in evaluating credit applications only
if permitted to do so bySec. 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 withSec. 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 toSec. 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
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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 ofSec. 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.
3. Temporary financing. An application for temporary financing to
construct a dwelling is not subject toSec. 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 toSec. 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 ofSec. 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 inSec. 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 bySec. 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
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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 Appraisal Reports
14(a) Providing appraisals.
1. Coverage. This section covers applications for credit to be
secured by a lien on a dwelling, as that term is defined inSec.
1002.14(c), 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
finance a child's education).
2. Renewals. This section applies when an applicant requests the
renewal of an existing extension of credit and the creditor obtains a
new appraisal report. This section does not apply when a creditor uses
the appraisal report previously obtained to evaluate the renewal
request.
14(a)(2)(i) Notice.
1. Multiple applicants. When an application that is subject to this
section involves more than one applicant, the notice about the appraisal
report need only be given to one applicant, but it must be given to the
primary applicant where one is readily apparent.
14(a)(2)(ii) Delivery.
1. Reimbursement. Creditors may charge for photocopy and postage
costs incurred in providing a copy of the appraisal report, unless
prohibited by state or other law. If the consumer has already paid for
the report--for example, as part of an application fee--the creditor may
not require additional fees for the appraisal (other than photocopy and
postage costs).
14(c) Definitions.
1. Appraisal reports. Examples of appraisal reports are:
i. A report prepared by an appraiser (whether or not licensed or
certified), including written comments and other documents submitted to
the creditor in support of the appraiser's estimate or opinion of the
property's value.
ii. A document prepared by the creditor's staff that assigns value
to the property, if a third-party appraisal report has not been used.
iii. An internal review document reflecting that the creditor's
valuation is different from a valuation in a third party's appraisal
report (or different from valuations that are publicly available or
valuations such as manufacturers' invoices for mobile homes).
2. Other reports. The term ``appraisal report'' does not cover all
documents relating to the value of the applicant's property. Examples of
reports not covered are:
i. Internal documents, if a third-party appraisal report was used to
establish the value of the property.
ii. Governmental agency statements of appraised value.
iii. Valuations lists that are publicly available (such as published
sales prices or mortgage amounts, tax assessments, and retail price
ranges) and valuations such as manufacturers' invoices for mobile homes.
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
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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 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
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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 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
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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 judgment is not an inadvertent
error under the regulation.
2. Correction of error. For inadvertent errors that occur under
Sec.Sec. 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 bySec. 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 underSec. 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 bySec. 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 bySec. 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
underSec. 1002.13(d) may use the form as issued, in compliance with
that substitute program.
Appendix C--Sample Notification Forms
1. Form C-9. 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 an appraisal report should be sent.
ii. A notice of the cost the applicant will be required to pay the
creditor for the appraisal or a copy of the report.
Effective Date Notes: 1. At 78 FR 7248, Jan. 31, 2013, supplement I
to part 1002 was amended under Section 1002.14, the heading is revised;
newly designated Section 1002.14 is revised; under Appendix C--Sample
Notification Forms, paragraph 1 is revised, effective Jan. 18, 2014. For
the convenience of the user, the revised text is set forth as follows:
Sec. Supplement I To Part 1002--Official Interpretations
* * * * *
Section 1002.14--Rules on Providing Appraisals and Valuations
14(a) Providing appraisals and other valuations.
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 underSec. 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 inSec.
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 ofSec. 1002.14, an ``appraisal or other
written valuation'' includes,
[[Page 112]]
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. SeeSec.
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 inSec.
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 underSec. 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 underSec. 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 (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
[[Page 113]]
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 underSec. 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,
underSec. 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 withSec. 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 withSec. 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 bySec. 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 underSec. 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 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 ofSec. 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:
[[Page 114]]
i. A report prepared by an appraiser (whether or not licensed or
certified) including the appraiser's estimate or opinion of the
property's 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 ofSec. 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 or opinion of the value of the property and are not used to
develop an estimate or opinion of the value of the property.
* * * * *
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.
2. At 78 FR 60437, Oct. 1, 2013, supplement I to part 1002 was
amended by revising paragraphs 1.i and 3.v and adding paragraph 3.vi,
effective Jan. 18, 2014. For the convenience of the user, the added and
revised text is set forth as follows:
Sec. Supplement I to Part 1002--Official Interpretations
* * * * *
Section 1002.14--Rules on Providing Appraisals and Valuations
* * * * *
14(b)(3) Valuation.
1. * * *
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.
* * * * *
3. * * *
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.
* * * * *
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
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
[[Page 115]]
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:
(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 inSec. 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.
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 116]]
(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; and
(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
(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
(2) For reporting purposes, both the existing obligation and the new
obligation are secured by liens on dwellings.
[[Page 117]]
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.
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 inSec. 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).
[[Page 118]]
(14) The lien status of the loan or application (first lien,
subordinate lien, or not secured by a lien on a dwelling).
(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 inSec. 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.
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
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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 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.
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.
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.
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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.
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 inSec. 1003.2.
c. Enter Code 3 for applications or loans for home improvement or
refinancing, and for purchased loans.
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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. 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
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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
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
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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 of the date the interest rate was
set, and use the APR for the loan, as calculated and disclosed to the
consumer under Sec.Sec. 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.
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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.
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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.
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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
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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.
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.
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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 inSec.
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 2014, the asset-
size exemption threshold is $43 million. Banks, savings associations,
and credit unions with assets at or below $43 million as of December 31,
2013, are exempt from collecting data for 2014.
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 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
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the staff commentary, the discussion of the broker rule under Sec.Sec.
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 inSec. 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 inSec. 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 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 inSec. 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
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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).
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
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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 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
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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 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
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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 ofSec. 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
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
[[Page 137]]
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 ofSec. 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].''
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]
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.
[[Page 138]]
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:
(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 withSec. 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
[[Page 139]]
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 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 toSec. 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
[[Page 140]]
transaction that meets the definition inSec. 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 inSec.
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 ofSec.
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:
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 bySec. 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 bySec. 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 bySec. 1004.3 with respect to alternative
mortgage transactions that comply withSec. 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 inSec. 1004.2(a) on different
terms, that provision is preempted bySec. 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 bySec. 1004.3 to the extent that it restricts a
housing creditor's ability
[[Page 141]]
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 bySec.
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 bySec. 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.
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 inSec. 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 toSec. 1004.4(a)(2)(i) only if the
increase is based on an index that is beyond the creditor's control. For
purposes ofSec. 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 ofSec. 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, underSec.
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 underSec. 1004.3 and federal
housing creditors to make alternative mortgage transactions consistent
with applicable State or federal law other thanSec. 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 inSec. 1004.4 and are otherwise applicable to the
creditor. Specifically, nothing inSec. 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
Sec.
Subpart A_General
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.
[[Page 142]]
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.
1005.20 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.
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-
[[Page 143]]
party payroll processor, a depository institution or any other person.
For rules governing payroll card accounts, seeSec. 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 inSec. 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 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]
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 Sec.Sec. 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;
[[Page 144]]
(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 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
[[Page 145]]
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 toSec.
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 toSec. 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 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.
[[Page 146]]
(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
Sec.Sec. 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 bySec. 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
bySec. 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:
(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
[[Page 147]]
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,
underSec. 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 inSec. 1005.9 of this part, and
notices regarding preauthorized transfers as provided inSec.
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-payment order, as provided inSec. 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 inSec. 1005.16(a)(1), 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.
Sec. 1005.8 Change in terms notice; error resolution notice.
(a) Change in terms notice--(1) Prior notice required. A financial
institution
[[Page 148]]
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 underSec. 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 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
[[Page 149]]
(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 underSec.
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 underSec. 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 withSec. 1005.11.
(e) Exception for receipts in small-value transfers. A financial
institution is not 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
[[Page 150]]
(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.
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 orSec. 1005.10(a); or
(vii) The consumer's request for documentation required bySec.
1005.9 orSec. 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
[[Page 151]]
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 bySec. 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 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 ofSec. 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.
[[Page 152]]
(4) Investigation. With the exception of transfers covered bySec.
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 provided under paragraph (a)(1)(vii) of
this section.
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 inSec. 1005.17(a) of this part;
(iii) The addition of an overdraft service, as defined inSec.
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 inSec. 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:
[[Page 153]]
(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 withSec. 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:
(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.
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.
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 Sec.Sec. 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 bySec. 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
[[Page 154]]
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 inSec. 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 inSec. 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 Sec.Sec. 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 inSec. 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 withSec. 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 withSec.
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 withSec. 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 honor debits to the
account in accordance withSec. 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.
[[Page 155]]
(c) Alternative to periodic statement. A government agency need not
furnish the periodic statement required bySec. 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
underSec. 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 bySec. 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 bySec.
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 bySec. 1005.8(b).
(3) Limitations on liability. For purposes ofSec. 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
ofSec. 1005.11 of this part in response to an oral or written notice
of an error from the consumer that is received no later 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.
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.
(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
[[Page 156]]
(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 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 withSec. 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 withSec. 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
[[Page 157]]
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 bySec. 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 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.
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 bySec. 1005.9(b) if the
institution makes available to the consumer:
(i) The consumer's account balance, through a readily available
telephone line;
[[Page 158]]
(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 inSec. 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 underSec. 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 bySec. 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 bySec.
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 bySec.
1005.8(b). Alternatively, a financial institution may include on or with
each electronic and written history provided in accordance withSec.
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 ofSec.
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 (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 underSec. 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 ofSec. 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 inSec. 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
[[Page 159]]
transfer allegedly in error was credited or debited to the consumer's
account.
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 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;
[[Page 160]]
(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 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
[[Page 161]]
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 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 inSec. 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
[[Page 162]]
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 inSec.
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 underSec.
1005.3(c)(4).
(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
[[Page 163]]
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 orSec. 1005.33(h)(3) must be clear and
conspicuous. Disclosures required by this subpart or permitted by
paragraph (b)(1)(viii) of this section orSec. 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 bySec. 1005.36(d)(1)(i)(A), with respect to
transfers subject toSec. 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 bySec. 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
(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 bySec.
1005.36(d)(1)(i)(A), with respect to transfers subject toSec.
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,
[[Page 164]]
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 bySec. 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 bySec. 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, 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 bySec. 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 ofSec. 1005.36(c);
[[Page 165]]
(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 withSec. 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 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
[[Page 166]]
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 bySec. 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 inSec. 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 inSec. 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 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 inSec.
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 bySec. 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 orSec.
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 toSec. 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,
[[Page 167]]
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 Sec.Sec. 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
underSec. 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, 2015.
(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 Sec.Sec. 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 paragraph (c) of
this section for the amounts required to be disclosed underSec.
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 Sec.Sec. 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 Sec.Sec.
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 Sec.Sec.
1005.31(b)(1)(i) through (iii), except as provided in paragraph
(b)(2)(iii) of this section.
(ii) Covered third-party fees described inSec. 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.
[[Page 168]]
(iii) Fees and taxes described inSec. 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 Sec.Sec. 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 underSec. 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 underSec.
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 transfer amount
in the currency in which the funds will be received by the designated
recipient, as required underSec. 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 toSec. 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 underSec. 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
[[Page 169]]
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]
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 withSec. 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 toSec. 1005.31(b)(1)(vii) and
stated in the disclosure provided to the sender underSec.
1005.31(b)(2) or (3) for the remittance transfer, unless:
(A) The disclosure stated an estimate of the amount to be received
in accordance withSec. 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 bySec. 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 underSec. 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 the remittance transfer 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 bySec. 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
[[Page 170]]
(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 underSec. 1005.31(b)(2) or (3) if
the remittance transfer provider relied on information provided by the
sender as permitted underSec. 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 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 (B) within three business days of
providing the report required by paragraph (c)(1) or
[[Page 171]]
(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.
(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 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 ESec.
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 ofSec. 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, Sec.Sec. 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
[[Page 172]]
with a remittance transfer, the provisions of Regulation Z, 12 CFR
1026.12(b), if applicable, andSec. 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 underSec. 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 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]
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.
[[Page 173]]
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 inSec.
1005.31(b)(1) and the receipt described inSec. 1005.31(b)(2) or the
combined disclosure described inSec. 1005.31(b)(3), in accordance with
the timing requirements set forth inSec. 1005.31(e); and
(ii) If any of the disclosures provided pursuant to paragraph
(a)(1)(i) of this section contain estimates as permitted bySec.
1005.32(b)(2), mail or deliver to the sender an additional receipt
meeting the requirements described inSec. 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 bySec.
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 bySec. 1005.32, then the remittance transfer provider must
provide an updated receipt meeting the requirements described inSec.
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 toSec.
1005.32, the remittance transfer provider must mail or deliver to the
sender a receipt meeting the requirements described inSec.
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 withSec. 1005.31(f) by being
accurate when a sender makes payment except to the extent estimates are
permitted bySec. 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 bySec. 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 bySec. 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 bySec. 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
[[Page 174]]
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 inSec. 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. 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
inSec. 1005.31(b)(2), or disclosed as permitted bySec. 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 (Sec.Sec. 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-29 [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) andSec.
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) andSec. 1005.32(b)(3))
[[Page 175]]
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.]
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].
[[Page 176]]
(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 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).
[[Page 177]]
A-3--Model Forms for Error Resolution Notice (Sec.Sec. 1005.7(b)(10)
and 1005.8(b))
(a) Initial and annual error resolution notice (Sec.Sec.
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.
(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
[[Page 178]]
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].
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
[[Page 179]]
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]:
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[GRAPHIC] [TIFF OMITTED] TR27DE11.000
A-10 through A-29 [Reserved]
[[Page 181]]
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 182]]
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 183]]
A-31--Model Form for Receipts for Remittance Transfers Exchanged into
Local Currency (Sec. 1005.31(b)(2))
[GRAPHIC] [TIFF OMITTED] TR22MY13.246
[[Page 184]]
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 185]]
[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 186]]
A-34--Model Form for Receipts for Dollar-to-Dollar Remittance Transfers
(Sec. 1005.31(b)(2))
[GRAPHIC] [TIFF OMITTED] TR22MY13.250
[[Page 187]]
A-35--Model Form for Combined Disclosures for Dollar-to-Dollar
Remittance Transfers (Sec. 1005.31(b)(3))
[GRAPHIC] [TIFF OMITTED] TR22MY13.251
[[Page 188]]
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))
[GRAPHIC] [TIFF OMITTED] TR22MY13.253
[[Page 189]]
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 190]]
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 191]]
[GRAPHIC] [TIFF OMITTED] TR22MY13.256
[[Page 192]]
A-40--Model Form for Combined Disclosures for Remittance Transfers
Exchanged into Local Currency--Spanish (Sec. 1005.31(b)(3))
[GRAPHIC] [TIFF OMITTED] TR22MY13.257
[[Page 193]]
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]
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
[[Page 194]]
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 underSec. 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 underSec. 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 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
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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. SeeSec. 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
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
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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 inSec. 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
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
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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
underSec. 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 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
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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
underSec. 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).
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.
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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 issues the renewal or substitute
access device, however, provided the institution complies withSec.
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
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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 ofSec. 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 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
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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 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.
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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, 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;
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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. SeeSec. 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 underSec.
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 inSec. 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 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 alsoSec.
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
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consumer for unauthorized transfers underSec. 1005.6. See alsoSec.
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 underSec. 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. SeeSec. 1005.16 for the notice requirements
applicable to ATM operators that impose a fee for providing EFT
services.
2. Relationship betweenSec. 1005.9(a)(1) andSec. 1005.16. The
requirements of Sec.Sec. 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 underSec.
1005.9(a)(1) cannot be used to comply with the alternative paper
disclosure procedure underSec. 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), whileSec. 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 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
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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 inSec.
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 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
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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). SeeSec. 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-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
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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
Sec.Sec. 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 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
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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 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.
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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.210(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 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 withSec. 1005.9(e) is not an error for
purposes ofSec. 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
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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 withSec. 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 ofSec. 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 Sec.Sec.
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.
7. Extent of required investigation. A financial institution
complies with its duty to investigate, correct, and report its
determination regarding an error described inSec. 1005.11(a)(1)(vii)
by transmitting the requested information, clarification, or
documentation within the time limits set forth inSec. 1005.11(c). If
the institution has provisionally credited the consumer's account in
accordance withSec. 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 Sec.Sec.
1005.11(c)(2)(i)(A) and (B) must still comply with all other
requirements ofSec. 1005.11.
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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 ofSec.
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 Sec.Sec. 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
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 underSec. 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.
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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 Sec.Sec.
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 Sec.Sec. 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 inSec. 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 inSec. 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 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 inSec. 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.
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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 withSec. 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 withSec. 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 withSec. 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 bySec. 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 underSec. 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 withSec. 1005.11 as modified bySec.
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.
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 bySec. 1005.9(b)(1).
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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 underSec. 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 Sec.Sec. 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 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,
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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 withSec. 1005.17(b)(2) andSec. 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 inSec. 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. SeeSec. 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
inSec. 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 inSec. 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.
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
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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 inSec. 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 inSec.
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.217(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 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,
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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 withSec. 1005.5(a), 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.
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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
Sec.Sec. 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 underSec.
1005.18(b)(1)(ii) must be provided in a form that the consumer may keep,
as required underSec. 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 underSec. 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 Sec.Sec. 1005.6 and 1005.11.
3. Untimely notice of error. An institution that provides a
transaction history underSec. 1005.18(b)(1) is not required to comply
with the requirements ofSec. 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 inSec.
1005.18(c)(4)(ii), an institution need not comply with the requirements
ofSec. 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 withSec. 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
Sec.Sec. 1005.20(a)(1) through (a)(3) (and is not otherwise excluded
bySec. 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 Sec.Sec.
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 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 inSec. 1005.20(b) apply.
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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 bySec. 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 inSec.
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 inSec. 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 ofSec.
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 ofSec. 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 ofSec.
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
withSec. 1005.20 if it has not otherwise met the substantive and
disclosure requirements of the rule or unless an exclusion inSec.
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'' inSec. 1005.20(a)(2) includes
``gift certificate'' as defined inSec. 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 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,
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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
ofSec. 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 underSec. 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 bySec. 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 underSec.
1005.20(a)(4)(iii)(D) is not required on the card, code, or other
device.
20(a)(6) Service Fee
1. Service fees. UnderSec. 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 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
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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. UnderSec. 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 ofSec. 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 inSec. 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
underSec. 1005.20(b)(3), or for the exclusion for cards, codes, or
other devices not marketed to the general public underSec.
1005.20(b)(4). In addition, as long as any one of the exclusions
applies, a card, code, or other device is not covered bySec. 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 underSec. 1005.20(b)(4), it may nevertheless be exempt
from the requirements ofSec. 1005.20 underSec. 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 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
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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 inSec.
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 ofSec. 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
underSec. 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 inSec.
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 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 inSec.
1005.20(b)(2) does not apply with respect to the general-purpose
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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 inSec. 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 inSec. 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
inSec. 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 inSec. 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 inSec.
1005.20(b)(4), the merchant must consider 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 inSec. 1005.20(b)(4) does
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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 inSec. 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 inSec. 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 inSec.
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 inSec. 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 inSec.
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 inSec. 1005.20(b)(4)
does not apply.
Paragraph 20(b)(5)
1. Exclusion explained. To qualify for the exclusion inSec.
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 inSec. 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 inSec. 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 inSec. 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 inSec. 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 inSec. 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 inSec. 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 inSec. 1005.20(b)(5) does
not apply because the bar 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.
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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 inSec. 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 inSec.
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'' inSec. 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 inSec.
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 toSec. 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 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,
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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 bySec. 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 ofSec. 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 Sec.Sec. 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 Sec.Sec. 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 bySec. 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 ofSec.
1005.20(c)(3). Otherwise, a dormancy, inactivity, or service fee may
need to be disclosed multiple times to satisfy the requirements of
Sec.Sec. 1005.20(d)(2) and (c)(3). For example, if the disclosures on
a certificate or card, required bySec. 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 ofSec. 1005.20(c)(3).
3. Relationship between Sec.Sec. 1005.20(d)(2), (e)(3), and
(f)(2). In addition to any disclosures required underSec.
1005.20(d)(2), any applicable disclosures under Sec.Sec. 1005.20(e)(3)
and (f)(2) of this section must also be provided on the certificate or
card.
4. One fee per month. UnderSec. 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 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
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choose whether to impose the dormancy fee or the balance inquiry fee on
January 1. The restriction inSec. 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 underSec. 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 inSec. 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. UnderSec. 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 inSec. 1005.20(e)(2)(i), then
pursuant toSec. 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 ofSec. 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
bySec. 1005.20(e)(3)(ii) need not be stated on the certificate or
card. See, however,Sec. 1005.20(f)(2).
6. Relationship toSec. 226.20(f)(2). The same toll-free telephone
number and Web site may be used to comply with Sec.Sec.
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 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
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after card. Call for replacement card.'' or ``Funds do not expire. Call
for new card after 09/2016.'' Disclosures made pursuant toSec.
1005.20(e)(3)(iii)(A) may also fulfill the requirements ofSec.
1005.20(e)(3)(i). For example, making a disclosure that ``Funds do not
expire'' to comply withSec. 1005.20(e)(3)(iii)(A) also fulfills the
requirements ofSec. 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 bySec.
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,
underSec. 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 Sec.Sec. 1005.20(d)(2), (e)(3), and
(f)(2). In addition to any disclosures required to be made underSec.
1005.20(e)(3), any applicable disclosures under Sec.Sec. 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 ofSec.
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 underSec.
1005.20(f)(2) is not required on the certificate or card. See, however,
Sec. 1005.20(e)(3)(ii).
2. Relationship toSec. 226.20(e)(3)(ii). The same toll-free
telephone number and Web site may be used to comply with Sec.Sec.
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 Sec.Sec. 1005.20(d)(2), (e)(3), and
(f)(2). In addition to any disclosures required pursuant toSec.
1005.20(f)(2), any applicable disclosures under Sec.Sec. 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 ofSec. 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 inSec. 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 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
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examples, gift cards provided pursuant to these loyalty, award, or
promotional programs need not state the disclosures inSec.
1005.20(a)(4)(iii) to qualify for the exclusion inSec. 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 Sec.Sec. 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 Sec.Sec. 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 (Sec.Sec. 1005.20(a) through (f)). For example, the in-
store signage and other disclosures required bySec. 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 Sec.Sec.
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 bySec. 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 bySec.
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 inSec. 1005.2 apply to all of Regulation
E, including subpart B.
30(b) Business Day
1. General. A business day, as defined inSec. 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. SeeSec. 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 toSec.
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 inSec.
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.
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 located. If the account is located
in a State, the funds will not be received at a location in a foreign
country.
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
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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 inSec.
1005.30(g), may also be a designated recipient if the sender meets the
definition of ``designated recipient'' inSec. 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 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
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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. UnderSec. 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 inSec. 1005.30(f)(2)(i) is not a ``remittance transfer
provider'' and is not subject to the requirements of subpart B. For
purposes of determining whether a person qualifies for the safe harbor
underSec. 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'' bySec. 1005.30(e)(2).
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iii. Transition period. A person may cease to satisfy the
requirements of the safe harbor described inSec. 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 inSec. 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 inSec. 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. UnderSec.
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. 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'' inSec.
1005.30(g), notwithstanding comment 3(a)-3. 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.
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
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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. UnderSec. 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. UnderSec. 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.
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 bySec. 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 bySec. 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 bySec. 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. SeeSec.
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
bySec. 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.
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31(a)(3) Disclosures for Oral Telephone Transactions
1. Transactions conducted partially by telephone. 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 bySec. 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.
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
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 ofSec.
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 bySec. 1005.31(b)(2)(iv) pursuant to
the timing requirements inSec. 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 bySec.
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 bySec. 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 bySec. 1005.31(b)(1)(ii), the disclosures
about covered third-party fees generally required bySec.
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 bySec. 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 bySec.
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 bySec. 1005.31(b) must be described using the
terms set forth inSec. 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 underSec.
1005.31(g) must contain accurate translations of the terms, language,
and notices required bySec. 1005.31(b) or permitted bySec.
1005.31(b)(1)(viii) andSec. 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 inSec. 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.
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ii. The fees and taxes required to be disclosed bySec.
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 underSec.
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 bySec.
1005.31(b)(1)(vi) are any covered third-party fees as defined inSec.
1005.30(h)(1).
iii. The term used to describe the fees imposed on the remittance
transfer by the provider inSec. 1005.31(b)(1)(ii) and the term used to
describe covered third-party fees underSec. 1005.31(b)(1)(vi) must
differentiate between such fees. For example the terms used to describe
fees disclosed underSec. 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, underSec. 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 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, underSec. 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
underSec. 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 inSec. 1005.31(b)(1)(v), the covered
third-party fees inSec. 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 bySec. 1005.31(b)(1)(viii)
is the exchange rate inSec. 1005.31(b)(1)(iv), including an estimated
exchange rate to the extent permitted bySec. 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 toSec. 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 toSec. 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 ofSec. 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
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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 inSec.
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
underSec. 1005.31(b)(1)(vi) in the currency of receipt using the
exchange rate inSec. 1005.31(b)(1)(iv), including an estimated
exchange rate to the extent permitted bySec. 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, 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 ofSec. 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 bySec.
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
underSec. 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
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fee and tax as part of the information disclosed pursuant toSec.
1005.31(b)(1)(viii). The provider must not include that fee or tax in
the amount disclosed pursuant toSec. 1005.31(b)(1)(vi) or (b)(1)(vii).
Fees and taxes disclosed underSec. 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 withSec.
1005.32(b)(3).
31(b)(2) Receipt
1. Date funds will be available. A remittance transfer provider does
not comply with the requirements ofSec. 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
withSec. 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 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. 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 bySec.
1005.31(b)(2), including a receipt that is provided in accordance with
the timing requirements inSec. 1005.36(a). For any subsequent
preauthorized remittance transfer subject toSec. 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 bySec.
1005.31(a)(3) and (a)(5), in accordance withSec. 1005.36(a)(1)(i).
5. Transfer date disclosures. The following example demonstrates how
the information required bySec. 1005.31(b)(2)(vii) andSec.
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 toSec. 1005.32(b)(2). In accordance withSec.
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 inSec. 1005.36(a)(1)(i). The second receipt, whichSec.
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 withSec. 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.
6. Cancellation disclosure. Remittance transfer providers that offer
remittance transfers scheduled three or more business days before
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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 inSec. 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 toSec. 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 underSec. 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 toSec. 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 ofSec. 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
inSec. 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 bySec. 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 ofSec. 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
bySec. 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 toSec.
1005.31(b)(1)(viii).
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31(d) Estimates
1. Terms. A remittance transfer provider may provide estimates of
the amounts required bySec. 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. For example, a sender who asks the provider to send money to a
recipient in Mexico and provides the sender and recipient information to
the provider has requested a remittance transfer. A consumer who solely
inquires about that day's rates and fees to send to Mexico, however, has
not requested the provider to send a remittance transfer.
2. When payment is made. Except as provided inSec. 1005.36(a), a
receipt required bySec. 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 bySec. 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 inSec.
1005.36(a), if the sender conducts such a transfer entirely by
telephone, the institution may provide a receipt required bySec.
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 bySec. 1005.31(b)(2) may be mailed or
delivered to the sender pursuant to the timing requirements inSec.
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 inSec. 1005.31(e)(2).
5. Statement about cancellation rights. The statement about the
rights of the sender regarding cancellation required bySec.
1005.31(b)(2)(iv) may, but need not, be disclosed pursuant to the timing
requirements ofSec. 1005.31(e)(2) if a provider discloses this
information pursuant toSec. 1005.31(a)(3)(iii) or (a)(5)(iii). The
statement about the rights of the sender regarding error resolution
required bySec. 1005.31(b)(2)(iv), however, must be disclosed pursuant
to the timing requirements ofSec. 1005.31(e)(2).
31(f) Accurate When Payment Is Made
1. No guarantee of disclosures provided before payment. Except as
provided inSec. 1005.36(b), disclosures required bySec. 1005.31(b)
or permitted bySec. 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 bySec. 1005.31(b)
for any specific period of time. However, if any of the disclosures
required bySec. 1005.31(b) or permitted bySec. 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 toSec. 1005.31(a)(1). UnderSec. 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 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
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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 bySec. 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 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
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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 ofSec. 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 ofSec. 1005.31(g)(1). Because a consumer must be located
in a State in order to be considered a ``sender'' underSec.
1005.30(g), a Web site is not an office for purposes ofSec.
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 toSec. 1005.31, the relevant office is
the office in which the sender conducts the transaction. For disclosures
provided pursuant toSec. 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 Sec.Sec. 1005.31(b)(1) through (3) and
1005.36(a)(1) and(2). To the extent permitted inSec. 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 inSec.
1005.31(b)(2), the combined disclosure described inSec. 1005.31(b)(3),
and the pre-payment disclosures and receipt disclosures for both first
and subsequent preauthorized remittance transfers described inSec.
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 inSec. 1005.36(a)(1)(i) and (a)(2)(i).
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 underSec. 1005.31(b)(1)(iv) or imposes a
covered third-party fee required to be disclosed under
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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
underSec. 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 underSec. 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 underSec.
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 underSec. 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 underSec.
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 underSec. 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 underSec. 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.
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 underSec.
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
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day after the provider has sent the remittance transfer.
ii. In contrast, a remittance transfer provider would not qualify
for theSec. 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 theSec. 1005.32(a) temporary exception.
iii. A remittance transfer provider would not qualify for theSec.
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 underSec. 1005.32(b)(1)(ii), a remittance
transfer provider may provide estimates of the amounts to be disclosed
underSec. 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 underSec. 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 underSec. 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 underSec.
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 inSec. 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 inSec.
1005.31(b)(1)(ii)), and the total amount of the transaction (i.e., the
amount described inSec. 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 bySec. 1005.32(b)(2)(ii)).
2. Relationship toSec. 1005.10(d). To the extentSec. 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 asSec. 1005.10(d) does not specify
the form of such notice, a notice sent pursuant toSec.
1005.36(a)(2)(i) will satisfySec. 1005.10(d) as long as the timing
requirements ofSec. 1005.10(d) are satisfied.
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 toSec.
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;
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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 theSec. 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 ofSec. 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 underSec. 1005.31(b)(1)(vi) pursuant to theSec. 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 toSec.
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 underSec. 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 underSec. 1005.31(b)(2) or (3). Such
error may be 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 underSec. 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
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on the disclosures provided to the sender, except where the disclosure
stated an estimate of the amount of currency to be received in
accordance withSec. 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 withSec. 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 underSec. 1005.33(a)(1)(iii), assume that none of
the circumstances permitting an estimate underSec. 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 bySec. 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. BecauseSec. 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 underSec. 1005.32(c).
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 underSec.
1005.31(b)(1)(vi), no error has occurred if the provider provided the
disclosure required bySec. 1005.31(b)(1)(viii).
4. Incorrect amount of currency received--extraordinary
circumstances. UnderSec. 1005.33(a)(1)(iii)(B), a remittance transfer
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provider's failure to make available to a designated recipient the
amount of currency disclosed pursuant toSec. 1005.31(b)(1)(vii) and
stated in the disclosure provided pursuant toSec. 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
underSec. 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, thenSec. 1005.33(a)(1)(iv) does not
apply, butSec. 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 inSec.
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. UnderSec.
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 underSec.
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. Sender account number or recipient institution identifier error.
The exception inSec. 1005.33(a)(1)(iv)(D) applies where a sender gives
the remittance transfer provider an incorrect account number or
recipient institution identifier and all five conditions inSec.
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.
8. Account number or recipient institution identifier. For purposes
of the exception inSec. 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 inSec. 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.
9. Recipient-requested changes. UnderSec. 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 underSec.
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.
10. Change from disclosure made in reliance on sender information.
Under the commentary accompanyingSec. 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
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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 toSec.
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 underSec. 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 underSec. 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 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 underSec.
1005.33(d)(1).
2. Incorrect or insufficient information provided for transfer. The
remedy inSec. 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 ofSec. 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 inSec. 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 ofSec. 1005.33(h)
because underSec. 1005.33(a)(1)(iv)(D) no error would have occurred.
SeeSec. 1005.33(a)(1)(iv)(D) and comment 33(a)-7.
3. Designation of requested remedy. UnderSec. 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 underSec. 1005.31(b)(2) or (3), if the sender
requests delivery of the amount appropriate to correct the error and
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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 underSec. 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 andSec. 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
underSec. 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 withSec. 1005.33(c)(2).
5. Amount appropriate to resolve the error. For purposes of the
remedies set forth inSec. 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.
6. Form of refund. For a refund provided underSec.
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 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 underSec.
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 underSec. 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 underSec.
1005.33(a)(1)(iv), it must correct the error in accordance withSec.
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 withSec. 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 ofSec. 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 toSec. 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 withSec. 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
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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 toSec.
1005.33(c)(2)(iii), the provider must inform the sender of the deduction
as part of the notice required by eitherSec. 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 its correspondent imposes a fee of
US$15. 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 bySec. 1005.33(c)(1) or (d)(1) and inform
the sender, pursuant toSec. 1005.33(c)(1) or (d)(1), that it will
refund US$85 to the sender within three business days unless the sender
chooses to apply the US$85 towards a new remittance transfer. The
provider is required to refund its own $10 fee but not 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
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 toSec. 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 ofSec. 1005.31(f) and the cancellation provision
ofSec. 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 toSec. 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 bothSec. 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 toSec.
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 Sec.Sec. 1005.11 and 1005.33. For example, if a sender asserts an
error underSec. 1005.11 with a remittance transfer provider that holds
the sender's account, and the error is not also an error underSec.
1005.33 (such as the omission of an EFT on a periodic statement), then
the error-resolution provisions ofSec. 1005.11 exclusively apply to
the error. However, if a sender asserts an error underSec. 1005.33
with a remittance transfer provider that holds the sender's account, and
the error is also an error underSec. 1005.11 (such as
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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 ofSec. 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 the 45-day error resolution period underSec.
1005.11.
33(g) Error Resolution Standards and Recordkeeping Requirements
1. Record retention requirements. As noted inSec. 1005.31(g)(2),
remittance transfer providers are subject to the record retention
requirements underSec. 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 inSec. 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 inSec.
1005.33(a)(1)(iv)(D) will apply, assuming that the provider can satisfy
the other conditions inSec. 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 inSec. 1005.33(a)(1)(iv)(D) also will apply, again
assuming the provider can satisfy the other conditions inSec.
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 inSec.
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. UnderSec. 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:
[[Page 251]]
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 toSec. 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 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 underSec. 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 ofSec.
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 underSec. 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
[[Page 252]]
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 inSec. 1005.31 and providing any remedies as set
forth inSec. 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 in Advance
1. Applicability of subpart B. The requirements set forth in subpart
B apply to remittance transfers subject toSec. 1005.36, to the extent
thatSec. 1005.36 does not modify those requirements. For example, the
foreign language disclosure requirements inSec. 1005.31(g) and related
commentary continue to apply to disclosures provided in accordance with
Sec. 1005.36(a)(2).
Section 1005.36--Transfers Scheduled Before the Date of Transfer
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 inSec. 1005.31(e). While certain
information in those disclosures is expressly permitted to be estimated
(seeSec. 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 toSec.
1005.36(a)(1)(i) or (a)(2)(i), other than the temporal disclosures
required bySec. 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 bySec. 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 bySec. 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 Sec.Sec. 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 Sec.Sec. 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 bySec. 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 bySec.
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 bySec.
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 bySec.
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 inSec.
1005.36(a)(1)(i) or (a)(2)(i), remittance transfer providers may use
estimates to the extent permitted by any of the exceptions inSec.
1005.32. When estimates are permitted, however, they must be disclosed
in accordance withSec. 1005.31(d).
2. Subsequent preauthorized remittance transfers. For a subsequent
transfer in a series of preauthorized remittance transfers, the receipt
provided pursuant toSec. 1005.36(a)(1)(i),
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except for the temporal disclosures in that receipt required bySec.
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 toSec.
1005.36(a)(2)(i). For each subsequent preauthorized remittance transfer,
only the most recent receipt provided pursuant toSec. 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 bySec. 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 toSec.
1005.32(b)(2). However, the remittance transfer provider may continue to
disclose estimates to the extent permitted bySec. 1005.32(a) or
(b)(1). In providing receipts pursuant toSec. 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 toSec. 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 toSec. 1005.36(a)(1)(i) and that
receipt contained an estimate of the exchange rate pursuant toSec.
1005.32(b)(2), the second receipt provided pursuant toSec.
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, andSec. 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 requests the transfer. A remittance transfer is not scheduled,
andSec. 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 inSec. 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 underSec. 1005.10 and cancellation obligations underSec.
1005.36. If a sender cancels a remittance transfer underSec. 1005.36
with a remittance transfer provider that holds the sender's account, and
the transfer is a preauthorized transfer underSec. 1005.10, then the
cancellation provisions ofSec. 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 bySec. 1005.36(d)(1) may be provided to senders. The
disclosure described inSec. 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 inSec.
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 toSec. 1005.36(a)(1)(i); a receipt
provided pursuant toSec. 1005.36(a)(2); or in a separate disclosure
created by the provider. Thus, for example, a remittance transfer
provider complies withSec. 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).
[[Page 254]]
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 bySec.
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 underSec. 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 toSec.
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 Sec.Sec.
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 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 ofSec. 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 underSec. 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 bySec.
1005.31(b)(4), and Model Form A-37 provides short form model error
resolution and cancellation disclosures required bySec.
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
[[Page 255]]
on the model forms as permitted bySec. 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 ofSec.
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 underSec. 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 underSec.
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 inSec. 1005.31(b)(1) and (2), as
required underSec. 1005.31(d).
F. Providing the disclosures in a foreign language, or multiple
foreign languages, subject to the requirements ofSec. 1005.31(g).
G. Substituting cancellation language to reflect the right to a
cancellation made pursuant to the requirements ofSec. 1005.36(c).
iv. Changes to the model forms that are not permissible include, for
example, adding information that is not segregated from the required
disclosures, other than as permitted bySec. 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]
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.
[[Page 256]]
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 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
[[Page 257]]
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, 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 inSec. 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 Sec.Sec. 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
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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 inSec. 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 inSec. 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 underSec. 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 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]
[[Page 259]]
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 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
[[Page 260]]
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:
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 inSec. 1007.101(c)(1). Covered financial institution also
includes a non-federally insured credit union that registers subject to
the conditions ofSec. 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).
[[Page 261]]
(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.
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;
[[Page 262]]
(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 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;
[[Page 263]]
(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 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
[[Page 264]]
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.
(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 inSec. 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;
[[Page 265]]
(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 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:
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(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
(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.
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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 [Reserved]
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 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
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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 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
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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. SeeSec. 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 withSec. 1008.103(a), or is not required to be licensed, in
accordance withSec. 1008.103(e)(5), (6), or (7).
Loan originator. SeeSec. 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 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.
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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
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:
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(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;
(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
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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 underSec. 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 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 underSec. 1008.103(f), a state must require the
individual:
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(1) To continue to meet the minimum standards for license issuance
provided inSec. 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 Sec.Sec. 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
Sec.Sec. 1008.103, 1008.105, and 1008.107 to 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 inSec. 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
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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 inSec.
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 inSec. 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, 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.
[[Page 275]]
(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 inSec. 1008.115(e).
The S.A.F.E. Act also authorizes the Bureau to establish and maintain a
nationwide mortgage licensing system 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 withSec. 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
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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 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.
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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 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.
Sec. 1008.403 [Reserved]
Sec. 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 inSec. 1008.23 of this part.
(a) Taking a Loan Application. Taking a residential mortgage loan
application within the meaning ofSec. 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 inSec. 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''
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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 ofSec. 1008.103(c)(2) 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 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
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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 ofSec. 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 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 inSec. 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 inSec. 1008.103(e)(6)
of this part are met.
(5) If all applicable conditions inSec. 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
[[Page 280]]
the examples below, the term ``loan'' refers to a residential mortgage
loan as defined inSec. 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 inSec. 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 inSec.
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 inSec. 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 inSec. 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 withSec. 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 toSec. 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 withSec. 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,
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 withSec. 1008.103 (or, as applicable, an
individual who is excluded from the licensing and registration
requirements underSec. 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 inSec.
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
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(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 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)).