[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2024 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 12
Banks and Banking
________________________
Parts 900 to 1025
Revised as of January 1, 2024
Containing a codification of documents of general
applicability and future effect
As of January 1, 2024
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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Table of Contents
Page
Explanation................................................. v
Title 12:
Chapter IX [Reserved]
Chapter X--Consumer Financial Protection Bureau 5
Finding Aids:
Table of CFR Titles and Chapters........................ 789
Alphabetical List of Agencies Appearing in the CFR...... 809
List of CFR Sections Affected........................... 819
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Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 12 CFR 1001.1 refers
to title 12, part 1001,
section 1.
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[[Page v]]
EXPLANATION
The Code of Federal Regulations is a codification of the general and
permanent rules published in the Federal Register by the Executive
departments and agencies of the Federal Government. The Code is divided
into 50 titles which represent broad areas subject to Federal
regulation. Each title is divided into chapters which usually bear the
name of the issuing agency. Each chapter is further subdivided into
parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
The appropriate revision date is printed on the cover of each
volume.
LEGAL STATUS
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HOW TO USE THE CODE OF FEDERAL REGULATIONS
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To determine whether a Code volume has been amended since its
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EFFECTIVE AND EXPIRATION DATES
Each volume of the Code contains amendments published in the Federal
Register since the last revision of that volume of the Code. Source
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OMB CONTROL NUMBERS
The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires
Federal agencies to display an OMB control number with their information
collection request.
[[Page vi]]
Many agencies have begun publishing numerous OMB control numbers as
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PAST PROVISIONS OF THE CODE
Provisions of the Code that are no longer in force and effect as of
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for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.
``[RESERVED]'' TERMINOLOGY
The term ``[Reserved]'' is used as a place holder within the Code of
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INCORPORATION BY REFERENCE
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This material, like any other properly issued regulation, has the force
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What is a proper incorporation by reference? The Director of the
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approval is based are:
(a) The incorporation will substantially reduce the volume of
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(b) The matter incorporated is in fact available to the extent
necessary to afford fairness and uniformity in the administrative
process.
(c) The incorporating document is drafted and submitted for
publication in accordance with 1 CFR part 51.
What if the material incorporated by reference cannot be found? If
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CFR INDEXES AND TABULAR GUIDES
A subject index to the Code of Federal Regulations is contained in a
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this volume.
An index to the text of ``Title 3--The President'' is carried within
that volume.
[[Page vii]]
The Federal Register Index is issued monthly in cumulative form.
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the revision dates of the 50 CFR titles.
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INQUIRIES
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available at www.ecfr.gov.
Oliver A. Potts,
Director,
Office of the Federal Register
January 1, 2024
[[Page ix]]
THIS TITLE
Title 12--Banks and Banking is composed of ten volumes. The parts in
these volumes are arranged in the following order: Parts 1-199, 200-219,
220-229, 230-299, 300-346, 347-599, 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, 2024.
For this volume, Christine Colaninno was Chief Editor. The Code of
Federal Regulations publication program is under the direction of John
Hyrum Martinez, assisted by Stephen J. Frattini.
[[Page 1]]
TITLE 12--BANKS AND BANKING
(This book contains parts 900 to 1025)
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Part
chapter ix [Reserved]
chapter x--Consumer Financial Protection Bureau............. 1001
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CHAPTER IX [RESERVED]
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CHAPTER X--CONSUMER FINANCIAL PROTECTION BUREAU
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Part Page
1000 [Reserved]
1001 Financial products or services.............. 7
1002 Equal Credit Opportunity Act (Regulation B). 7
1003 Home mortgage disclosure (Regulation C)..... 119
1004 Alternative mortgage transaction parity
(Regulation D).......................... 182
1005 Electronic fund transfers (Regulation E).... 186
1006 Debt Collection Practices (Regulation F).... 367
1007 S.A.F.E. Mortgage Licensing Act--Federal
registration of residential mortgage
loan originators (Regulation G)......... 413
1008 S.A.F.E. Mortgage Licensing Act--State
compliance and bureau registration
system (Regulation H)................... 421
1009 Disclosure requirements for depository
institutions lacking Federal deposit
insurance (Regulation I)................ 435
1010 Land registration (Regulation J)............ 438
1011 Purchasers' revocation rights, sales
practices and standards (Regulation K).. 496
1012 Special rules of practice (Regulation L).... 500
1013 Consumer leasing (Regulation M)............. 504
1014 Mortgage acts and practices--Advertising
(Regulation N).......................... 530
1015 Mortgage assistance relief services
(Regulation O).......................... 533
1016 Privacy of consumer financial information
(Regulation P).......................... 540
1022 Fair credit reporting (Regulation V)........ 575
1024 Real Estate Settlement Procedures Act
(Regulation X).......................... 673
1025
[Reserved]
[[Page 7]]
PART 1000 [RESERVED]
PART 1001_FINANCIAL PRODUCTS OR SERVICES--Table of Contents
Sec.
1001.1 Authority and purpose.
1001.2 Definitions.
Authority: 12 U.S.C. 5481(15)(A)(xi); and 12 U.S.C. 5512(b)(1).
Source: 80 FR 37526, June 30, 2015, unless otherwise noted.
Sec. 1001.1 Authority and purpose.
Under 12 U.S.C. 5481(15)(A)(xi), the Bureau is authorized to define
certain financial products or services for purposes of title X of the
Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376 (2010) (Title X) in
addition to those defined in 12 U.S.C. 5481(15)(A)(i)-(x). The purpose
of this part is to implement that authority.
Sec. 1001.2 Definitions.
Except as otherwise provided in Title X, in addition to the
definitions set forth in 12 U.S.C. 5481(15)(A)(i)-(x), the term
``financial product or service'' means, for purposes of Title X:
(a) Extending or brokering leases of an automobile, as automobile is
defined by 12 CFR 1090.108(a), where the lease:
(1) Qualifies as a full-payout lease and a net lease, as provided by
12 CFR 23.3(a), and has an initial term of not less than 90 days, as
provided by 12 CFR 23.11; and
(2) Is not a financial product or service under 12 U.S.C.
5481(15)(A)(ii).
(b) [Reserved]
PART 1002_EQUAL CREDIT OPPORTUNITY ACT (REGULATION B)--Table of Contents
Subpart A_General
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.
Subpart B_Small Business Lending Data Collection
1002.101 Authority, purpose, and scope.
1002.102 Definitions.
1002.103 Covered applications.
1002.104 Covered credit transactions and excluded transactions.
1002.105 Covered financial institutions and exempt institutions.
1002.106 Business and small business.
1002.107 Compilation of reportable data.
1002.108 Firewall.
1002.109 Reporting of data to the Bureau.
1002.110 Publication of data and other disclosures.
1002.111 Recordkeeping.
1002.112 Enforcement.
1002.113 Severability.
1002.114 Effective date, compliance date, and special transitional
rules.
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
Appendix E to Part 1002--Sample Form for Collecting Certain Applicant-
Provided Data Under Subpart B
Appendix F to Part 1002--Tolerances for Bona Fide Errors in Data
Reported Under Subpart B
Supplement I to Part 1002--Official Interpretations
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1691b. Subpart B is also
issued under 15 U.S.C. 1691c-2.
Source: 76 FR 79445, Dec. 21, 2011, unless otherwise noted.
Subpart A_General
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
[[Page 8]]
(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 subpart applies to all persons who are creditors, as defined in
Sec. 1002.2(l), other than a person excluded from coverage of this part
by section 1029 of the Consumer Financial Protection Act of 2010, title
X of the Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376. Information collection requirements
contained in this part have been approved by the Office of Management
and Budget under the provisions of 44 U.S.C. 3501 et seq. and have been
assigned OMB No. 3170-0013.
(b) Purpose. The purpose of this part is to promote the availability
of credit to all creditworthy applicants without regard to race, color,
religion, national origin, sex, marital status, or age (provided the
applicant has the capacity to contract); to the fact that all or part of
the applicant's income derives from a public assistance program; or to
the fact that the applicant has in good faith exercised any right under
the 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.
[76 FR 79445, Dec. 21, 2011, as amended at 88 FR 35527, May 31, 2023]
Sec. 1002.2 Definitions.
For the purposes of this part, unless the context indicates
otherwise or as otherwise defined in subpart B, the following
definitions apply:
(a) Account means an extension of credit. When employed in relation
to an account, the word use refers only to open-end credit.
(b) Act means the Equal Credit Opportunity Act (Title VII of the
Consumer Credit Protection Act).
(c) Adverse action. (1) The term means:
(i) A refusal to grant credit in substantially the amount or on
substantially the terms requested in an application unless the creditor
makes a counteroffer (to grant credit in a different amount or on other
terms) and the applicant uses or expressly accepts the credit offered;
(ii) A termination of an account or an unfavorable change in the
terms of an account that does not affect all or substantially all of a
class of the creditor's accounts; or
(iii) A refusal to increase the amount of credit available to an
applicant who has made an application for an increase.
(2) The term does not include:
(i) A change in the terms of an account expressly agreed to by an
applicant;
(ii) Any action or forbearance relating to an account taken in
connection with inactivity, default, or delinquency as to that account;
(iii) A refusal or failure to authorize an account transaction at
point of sale or loan, except when the refusal is a termination or an
unfavorable change in the terms of an account that does not affect all
or substantially all of a class of the creditor's accounts, or when the
refusal is a denial of an application for an increase in the amount of
credit available under the account;
(iv) A refusal to extend credit because applicable law prohibits the
creditor from extending the credit requested; or
(v) A refusal to extend credit because the creditor does not offer
the type of credit or credit plan requested.
(3) An action that falls within the definition of both paragraphs
(c)(1) and (c)(2) of this section is governed by paragraph (c)(2) of
this section.
(d) Age refers only to the age of natural persons and means the
number of fully elapsed years from the date of an applicant's birth.
(e) Applicant means any person who requests or who has received an
extension of credit from a creditor, and includes any person who is or
may become contractually liable regarding an extension of credit. For
purposes of
[[Page 9]]
Sec. 1002.7(d), the term includes guarantors, sureties, endorsers, and
similar parties.
(f) Application means an oral or written request for an extension of
credit that is made in accordance with procedures used by a creditor for
the type of credit requested. The term application does not include the
use of an account or line of credit to obtain an amount of credit that
is within a previously established credit limit. A completed application
means an application in connection with which a creditor has received
all the information that the creditor regularly obtains and considers in
evaluating applications for the amount and type of credit requested
(including, but not limited to, credit reports, any additional
information requested from the applicant, and any approvals or reports
by governmental agencies or other persons that are necessary to
guarantee, insure, or provide security for the credit or collateral).
The creditor shall exercise reasonable diligence in obtaining such
information.
(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. 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.
(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
[[Page 10]]
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 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.
[76 FR 79445, Dec. 21, 2011, as amended at 88 FR 35527, May 31, 2023]
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
[[Page 11]]
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 alimony, child support, or separate maintenance payments;
(v) Section 1002.7(d) relating to the signature of a spouse or other
person;
(vi) Section 1002.9 relating to notifications;
(vii) Section 1002.10 relating to furnishing of credit information;
and
(viii) Section 1002.12(b) relating to record retention.
(d) Government credit--(1) Definition. Government credit refers to
extensions of credit made to governments or governmental subdivisions,
agencies, or instrumentalities.
(2) Applicability of regulation. Except for Sec. 1002.4(a), the
general rule against discrimination on a prohibited basis, the
requirements of this part do not apply to government credit.
Sec. 1002.4 General rules.
(a) Discrimination. A creditor shall not discriminate against an
applicant on a prohibited basis regarding any aspect of a credit
transaction.
(b) Discouragement. A creditor shall not make any oral or written
statement, in advertising or otherwise, to applicants or prospective
applicants that would discourage on a prohibited basis a reasonable
person from making or pursuing an application.
(c) Written applications. A creditor shall take written applications
for the dwelling-related types of credit covered by Sec. 1002.13(a).
[[Page 12]]
(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) 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.
[76 FR 79445, Dec. 21, 2011, as amended at 78 FR 7248, Jan. 31, 2013]
Sec. 1002.5 Rules concerning requests for information.
(a) General rules--(1) Requests for information. Except as provided
in paragraphs (b) through (d) of this section, a creditor may request
any information in connection with a credit transaction. This paragraph
does not limit or abrogate any Federal or state law regarding privacy,
privileged information, credit reporting limitations, or similar
restrictions on obtainable information.
(2) Required collection of information. Notwithstanding paragraphs
(b) through (d) of this section, a creditor shall request information
for monitoring purposes as required by Sec. 1002.13 for credit secured
by the applicant's dwelling. In addition, a creditor may obtain
information required by a regulation, order, or agreement issued by, or
entered into with, a court or an enforcement agency (including the
Attorney General of the United States or a similar state official) to
monitor or enforce compliance with the Act, this part, or other Federal
or state statutes or regulations.
(3) Special-purpose credit. A creditor may obtain information that
is otherwise restricted to determine eligibility for a special purpose
credit program, as provided in Sec. 1002.8(b), (c), and (d).
(4) Other permissible collection of information. Notwithstanding
paragraph (b) of this section, a creditor may collect information under
the following circumstances provided that the creditor collects the
information in compliance with Sec. 1002.107(a)(18) and (19) and
accompanying commentary, or appendix B to 12 CFR part 1003, as
applicable:
(i) A creditor that is a financial institution under 12 CFR
1003.2(g) may collect information regarding the ethnicity, race, and sex
of an applicant for a closed-end mortgage loan that is an excluded
transaction under 12 CFR 1003.3(c)(11) if it submits HMDA data
concerning such closed-end mortgage loans and applications or if it
submitted HMDA data concerning closed-end mortgage loans for any of the
preceding five calendar years;
(ii) A creditor that is a financial institution under 12 CFR
1003.2(g) may collect information regarding the ethnicity, race, and sex
of an applicant for an open-end line of credit that is an excluded
transaction under 12 CFR 1003.3(c)(12) if it submits HMDA data
concerning such open-end lines of credit and applications or if it
submitted HMDA data concerning open-end lines of credit for any of the
preceding five calendar years;
(iii) A creditor that submitted HMDA data for any of the preceding
five calendar years but is not currently a financial institution under
12 CFR 1003.2(g) may collect information regarding the ethnicity, race,
and sex of an applicant for a loan that would otherwise be a covered
loan under 12 CFR 1003.2(e) if not excluded by 12 CFR 1003.3(c)(11) or
(12);
(iv) A creditor that exceeded an applicable loan volume threshold in
the first year of the two-year threshold period provided in 12 CFR
1003.2(g), 1003.3(c)(11), or 1003.3(c)(12) may, in the
[[Page 13]]
second year, collect information regarding the ethnicity, race, and sex
of an applicant for a loan that would otherwise be a covered loan under
12 CFR 1003.2(e) if the loan were not excluded by 12 CFR 1003.3(c)(11)
or (12);
(v) A creditor that is a financial institution under 12 CFR
1003.2(g), or that submitted HMDA data for any of the preceding five
calendar years but is not currently a financial institution under 12 CFR
1003.2(g), may collect information regarding the ethnicity, race, and
sex of an applicant for a loan that would otherwise be a covered loan
under 12 CFR 1003.2(e) if the loan were not excluded by 12 CFR
1003.3(c)(10).
(vi) A creditor that is collecting information regarding the
ethnicity, race, and sex of an applicant or first co-applicant may
collect information regarding the ethnicity, race, and sex of a second
or additional co-applicant for a covered loan under 12 CFR 1003.2(e) or
for a second or additional co-applicant for a loan described in
paragraphs (a)(4)(i) through (v) of this section.
(vii) A creditor that was required to report small business lending
data pursuant to Sec. 1002.109 for any of the preceding five calendar
years but is not currently a covered financial institution under Sec.
1002.105(b) may collect information pursuant to subpart B of this part
for covered applications from small businesses as defined in Sec. Sec.
1002.103 and 1002.106(b) regarding whether an applicant is a minority-
owned business, a women-owned business, or an LGBTQI+-owned business,
and the ethnicity, race, and sex of the applicant's principal owners if
it complies with the requirements for covered financial institutions
pursuant to Sec. Sec. 1002.107(a)(18) and (19), 1002.108, 1002.111, and
1002.112 for that application. Such a creditor is permitted, but not
required, to report data to the Bureau collected pursuant to subpart B
of this part if it complies with the requirements of subpart B as
otherwise required for covered financial institutions pursuant to
Sec. Sec. 1002.109 and 1002.110.
(viii) A creditor that exceeded the loan-volume threshold in the
first year of the two-year threshold period provided in Sec.
1002.105(b) may, in the second year, collect information pursuant to
subpart B of this part for covered applications from small businesses as
defined in Sec. Sec. 1002.103 and 1002.106(b) regarding whether an
applicant is a minority-owned business, a women-owned business, or an
LGBTQI+-owned business, and the ethnicity, race, and sex of the
applicant's principal owners if it complies with the requirements for
covered financial institutions pursuant to Sec. Sec. 1002.107(a)(18)
and (19), 1002.108, 1002.111, and 1002.112 for that application. Such a
creditor is permitted, but not required, to report data to the Bureau
collected pursuant to subpart B of this part if it complies with the
requirements of subpart B as otherwise required for covered financial
institutions pursuant to Sec. Sec. 1002.109 and 1002.110.
(ix) A creditor that is not currently a covered financial
institution under Sec. 1002.105(b), and is not otherwise a creditor to
which Sec. 1002.5(a)(4)(vii) or (viii) applies, may collect information
pursuant to subpart B of this part for covered applications from small
businesses as defined in Sec. Sec. 1002.103 and 1002.106(b) regarding
whether an applicant for a covered credit transaction is a minority-
owned business, a women-owned business, or an LGBTQI+-owned business,
and the ethnicity, race, and sex of the applicant's principal owners for
a transaction if it complies with the requirements for covered financial
institutions pursuant to Sec. Sec. 1002.107 through 1002.112 for that
application.
(x) A creditor that is collecting information pursuant to subpart B
of this part or as described in paragraphs (a)(4)(vii) through (ix) of
this section for covered applications from small businesses as defined
in Sec. Sec. 1002.103 and 1002.106(b) regarding whether an applicant
for a covered credit transaction is a minority-owned business, a women-
owned business, or an LGBTQI+-owned business, and the ethnicity, race,
and sex of the applicant's principal owners may also collect that same
information for any co-applicants provided that it also complies with
the relevant requirements of subpart B of this part or as described in
paragraphs (a)(4)(vii) through (ix) of this section with respect to
those co-applicants.
(b) Limitation on information about race, color, religion, national
origin, or
[[Page 14]]
sex. A creditor shall not inquire about the race, color, religion,
national origin, or sex of an applicant or any other person in
connection with a credit transaction, except as provided in paragraphs
(b)(1) and (b)(2) of this section.
(1) Self-test. A creditor may inquire about the race, color,
religion, national origin, or sex of an applicant or any other person in
connection with a credit transaction for the purpose of conducting a
self-test that meets the requirements of Sec. 1002.15. A creditor that
makes such an inquiry shall disclose orally or in writing, at the time
the information is requested, that:
(i) The applicant will not be required to provide the information;
(ii) The creditor is requesting the information to monitor its
compliance with the Federal Equal Credit Opportunity Act;
(iii) Federal law prohibits the creditor from discriminating on the
basis of this information, or on the basis of an applicant's decision
not to furnish the information; and
(iv) If applicable, certain information will be collected based on
visual observation or surname if not provided by the applicant or other
person.
(2) Sex. An applicant may be requested to designate a title on an
application form (such as Ms., Miss, Mr., or Mrs.) if the form discloses
that the designation of a title is optional. An application form shall
otherwise use only terms that are neutral as to sex.
(c) Information about a spouse or former spouse--(1) General rule.
Except as permitted in this paragraph, a creditor may not request any
information concerning the spouse or former spouse of an applicant.
(2) Permissible inquiries. A creditor may request any information
concerning an applicant's spouse (or former spouse under paragraph
(c)(2)(v) of this section) that may be requested about the applicant if:
(i) The spouse will be permitted to use the account;
(ii) The spouse will be contractually liable on the account;
(iii) The applicant is relying on the spouse's income as a basis for
repayment of the credit requested;
(iv) The applicant resides in a community property state or is
relying on property located in such a state as a basis for repayment of
the credit requested; or
(v) The applicant is relying on alimony, child support, or separate
maintenance payments from a spouse or former spouse as a basis for
repayment of the credit requested.
(3) Other accounts of the applicant. A creditor may request that an
applicant list any account on which the applicant is contractually
liable and to provide the name and address of the person in whose name
the account is held. A creditor may also ask an applicant to list the
names in which the applicant has previously received credit.
(d) Other limitations on information requests--(1) Marital status.
If an applicant applies for individual unsecured credit, a creditor
shall not inquire about the applicant's marital status unless the
applicant resides in a community property state or is relying on
property located in such a state as a basis for repayment of the credit
requested. If an application is for other than individual unsecured
credit, a creditor may inquire about the applicant's marital status, but
shall use only the terms married, unmarried, and separated. A creditor
may explain that the category unmarried includes single, divorced, and
widowed persons.
(2) Disclosure about income from alimony, child support, or separate
maintenance. A creditor shall not inquire whether income stated in an
application is derived from alimony, child support, or separate
maintenance payments unless the creditor discloses to the applicant that
such income need not be revealed if the applicant does not want the
creditor to consider it in determining the applicant's creditworthiness.
(3) Childbearing, childrearing. A creditor shall not inquire about
birth control practices, intentions concerning the bearing or rearing of
children, or capability to bear children. A creditor may inquire about
the number and ages of an applicant's dependents or about dependent-
related financial obligations or expenditures, provided such information
is requested without regard to sex, marital status, or any other
prohibited basis.
[[Page 15]]
(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.
[76 FR 79445, Dec. 21, 2011, as amended at 82 FR 45694, Oct. 2, 2017; 88
FR 35527, May 31, 2023]
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;
(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.
[[Page 16]]
(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 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:
[[Page 17]]
(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 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
[[Page 18]]
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 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
[[Page 19]]
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].
(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 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
[[Page 20]]
the identity of each creditor on whose behalf the notice is given.
[76 FR 79445, Dec. 21, 2011, as amended at 88 FR 16537, Mar. 20, 2023]
Sec. 1002.10 Furnishing of credit information.
(a) Designation of accounts. A creditor that furnishes credit
information shall designate:
(1) Any new account to reflect the participation of both spouses if
the applicant's spouse is permitted to use or is contractually liable on
the account (other than as a guarantor, surety, endorser, or similar
party); and
(2) Any existing account to reflect such participation, within 90
days after receiving a written request to do so from one of the spouses.
(b) Routine reports to consumer reporting agency. If a creditor
furnishes credit information to a consumer reporting agency concerning
an account designated to reflect the participation of both spouses, the
creditor shall furnish the information in a manner that will enable the
agency to provide access to the information in the name of each spouse.
(c) Reporting in response to inquiry. If a creditor furnishes credit
information in response to an inquiry, concerning an account designated
to reflect the participation of both spouses, the creditor shall furnish
the information in the name of the spouse about whom the information is
requested.
Sec. 1002.11 Relation to state law.
(a) Inconsistent state laws. Except as otherwise provided in this
section, this part alters, affects, or preempts only those state laws
that are inconsistent with the Act and this part and then only to the
extent of the inconsistency. A state law is not inconsistent if it is
more protective of an applicant.
(b) Preempted provisions of state law. (1) A state law is deemed to
be inconsistent with the requirements of the Act and this part and less
protective of an applicant within the meaning of section 705(f) of the
Act to the extent that the law:
(i) Requires or permits a practice or act prohibited by the Act or
this part;
(ii) Prohibits the individual extension of consumer credit to both
parties to a marriage if each spouse individually and voluntarily
applies for such credit;
(iii) Prohibits inquiries or collection of data required to comply
with the Act or this part;
(iv) Prohibits asking about or considering age in an empirically
derived, demonstrably and statistically sound, credit scoring system to
determine a pertinent element of creditworthiness, or to favor an
elderly applicant; or
(v) Prohibits inquiries necessary to establish or administer a
special purpose credit program as defined by Sec. 1002.8.
(2) A creditor, state, or other interested party may request that
the Bureau determine whether a state law is inconsistent with the
requirements of the Act and this part.
(c) Laws on finance charges, loan ceilings. If married applicants
voluntarily apply for and obtain individual accounts with the same
creditor, the accounts shall not be aggregated or otherwise combined for
purposes of determining permissible finance charges or loan ceilings
under any Federal or state law. Permissible loan ceiling laws shall be
construed to permit each spouse to become individually liable up to the
amount of the loan ceilings, less the amount for which the applicant is
jointly liable.
(d) State and Federal laws not affected. This section does not alter
or annul any provision of state property laws, laws relating to the
disposition of decedents' estates, or Federal or state banking
regulations directed only toward insuring the solvency of financial
institutions.
(e) Exemption for state-regulated transactions--(1) Applications. A
state may apply to the Bureau for an exemption from the requirements of
the Act and this part for any class of credit transactions within the
state. The Bureau will grant such an exemption if the Bureau determines
that:
(i) The class of credit transactions is subject to state law
requirements substantially similar to those of the Act and this part or
that applicants are afforded greater protection under state law; and
(ii) There is adequate provision for state enforcement.
[[Page 21]]
(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 or otherwise provided for in subpart B of this part) 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, any
information obtained pursuant to Sec. 1002.5(a)(4), 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 or otherwise
provided for in subpart B of this part) 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 or
otherwise provided for in subpart B of this part) after the date that a
creditor receives an application for which the creditor is not required
to comply with the notification requirements of Sec. 1002.9, the
creditor shall retain all written or recorded information in its
possession concerning the applicant, including any notation of action
taken.
(4) Enforcement proceedings and investigations. A creditor shall
retain the information beyond 25 months (12 months for business credit,
except as provided in paragraph (b)(5) of this section or otherwise
provided for in subpart B) if the creditor has actual notice that it is
under investigation or is subject to an enforcement proceeding for an
alleged violation of the Act or this part, by the Attorney General of
the United States or by an enforcement agency charged with monitoring
that creditor's compliance with the Act and this part, or if it has been
served with notice of an action filed pursuant to section 706 of the Act
and Sec. 1002.16 of this part. The creditor shall retain the
information until final disposition of the matter, unless an earlier
time is allowed by order of the agency or court.
(5) Special rule for certain business credit applications. With
regard to a business that had gross revenues in excess of $1 million in
its preceding fiscal year, or an extension of trade credit,
[[Page 22]]
credit incident to a factoring agreement, or other similar types of
business credit, the creditor shall retain records for at least 60 days,
except as otherwise provided for in subpart B, after notifying the
applicant of the action taken. If within that time period the applicant
requests in writing the reasons for adverse action or that records be
retained, the creditor shall retain records for 12 months.
(6) Self-tests. For 25 months after a self-test (as defined in Sec.
1002.15) has been completed, the creditor shall retain all written or
recorded information about the self-test. A creditor shall retain
information beyond 25 months if it has actual notice that it is under
investigation or is subject to an enforcement proceeding for an alleged
violation, or if it has been served with notice of a civil action. In
such cases, the creditor shall retain the information until final
disposition of the matter, unless an earlier time is allowed by the
appropriate agency or court order.
(7) Prescreened solicitations. For 25 months after the date on which
an offer of credit is made to potential customers (12 months for
business credit, except as provided in paragraph (b)(5) of this section
or otherwise provided for in subpart B), 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.
[76 FR 79445, Dec. 21, 2011, as amended at 82 FR 45694, Oct. 2, 2017; 88
FR 35528, May 31, 2023]
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 and race using either:
(A) For ethnicity, the aggregate categories Hispanic or Latino and
not Hispanic or Latino; and, for race, the aggregate categories American
Indian or Alaska Native, Asian, Black or African American, Native
Hawaiian or Other Pacific Islander, and White; or
(B) The categories and subcategories for the collection of ethnicity
and race set forth in appendix B to 12 CFR part 1003.
(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. When a creditor collects ethnicity and race information
pursuant to Sec. 1002.13(a)(1)(i)(B), the creditor must comply with any
restrictions on the collection of an applicant's ethnicity or race on
the basis of visual observation or surname set forth in appendix B to 12
CFR part 1003. If there is more than one co-applicant, a creditor is
permitted, but is not required, to collect the information set forth in
paragraph (a) of this section from a second or additional co-applicant.
(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
[[Page 23]]
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.
[76 FR 79445, Dec. 21, 2011, as amended at 82 FR 45694, Oct. 2, 2017]
Sec. 1002.14 Rules on providing appraisals and other valuations.
(a) Providing appraisals and other valuations--(1) In general. A
creditor shall provide an applicant a copy of all appraisals and other
written valuations developed in connection with an application for
credit that is to be secured by a first lien on a dwelling. A creditor
shall provide a copy of each such appraisal or other written valuation
promptly upon completion, or three business days prior to consummation
of the transaction (for closed-end credit) or account opening (for open-
end credit), whichever is earlier. An applicant may waive the timing
requirement in this paragraph (a)(1) and agree to receive any copy at or
before consummation or account opening, except where otherwise
prohibited by law. Any such waiver must be obtained at least three
business days prior to consummation or account opening, unless the
waiver pertains solely to the applicant's receipt of a copy of an
appraisal or other written valuation that contains only clerical changes
from a previous version of the appraisal or other written valuation
provided to the applicant three or more business days prior to
consummation or account opening. If the applicant provides a waiver and
the transaction is not consummated or the account is not opened, the
creditor must provide these copies no later than 30 days after the
creditor determines consummation will not occur or the account will not
be opened.
(2) Disclosure. For applications subject to paragraph (a)(1) of this
section, a creditor shall mail or deliver to an applicant, not later
than the third business day after the creditor receives an application
for credit that is to be secured by a first lien on a dwelling, a notice
in writing of the applicant's right to receive a copy of all written
appraisals developed in connection with the application. In the case of
an application for credit that is not to be secured by a first lien on a
dwelling at the time of application, if the creditor later determines
the credit will be secured by a first lien on a dwelling, the creditor
shall mail or deliver the same notice in writing not later than the
third business day after the creditor determines that the loan is to be
secured by a first lien on a dwelling.
(3) Reimbursement. A creditor shall not charge an applicant for
providing a copy of appraisals and other written valuations as required
under this section, but may require applicants to pay a reasonable fee
to reimburse the creditor for the cost of the appraisal or other written
valuation unless otherwise provided by law.
(4) Withdrawn, denied, or incomplete applications. The requirements
set forth in paragraph (a)(1) of this section apply whether credit is
extended or denied or if the application is incomplete or withdrawn.
(5) Copies in electronic form. The copies required by Sec.
1002.14(a)(1) may be provided to the applicant in electronic form,
subject to compliance with the consumer consent and other applicable
provisions of the Electronic Signatures in Global and National Commerce
Act (E-Sign Act) (15 U.S.C. 7001 et seq.).
(b) Definitions. For purposes of paragraph (a) of this section:
(1) Consummation. The term ``consummation'' means the time that a
consumer becomes contractually obligated on a closed-end credit
transaction.
(2) Dwelling. The term ``dwelling'' means a residential structure
that contains one to four units whether or not 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.
[[Page 24]]
(3) Valuation. The term ``valuation'' means any estimate of the
value of a dwelling developed in connection with an application for
credit.
[78 FR 7248, Jan. 31, 2013]
Sec. 1002.15 Incentives for self-testing and self-correction.
(a) General rules--(1) Voluntary self-testing and correction. The
report or results of a self-test that a creditor voluntarily conducts
(or authorizes) are privileged as provided in this section. Data
collection required by law or by any governmental authority is not a
voluntary self-test.
(2) Corrective action required. The privilege in this section
applies only if the creditor has taken or is taking appropriate
corrective action.
(3) Other privileges. The privilege created by this section does not
preclude the assertion of any other privilege that may also apply.
(b) Self-test defined--(1) Definition. A self-test is any program,
practice, or study that:
(i) Is designed and used specifically to determine the extent or
effectiveness of a creditor's compliance with the Act or this part; and
(ii) Creates data or factual information that is not available and
cannot be derived from loan or application files or other records
related to credit transactions.
(2) Types of information privileged. The privilege under this
section applies to the report or results of the self-test, data or
factual information created by the self-test, and any analysis,
opinions, and conclusions pertaining to the self-test report or results.
The privilege covers workpapers or draft documents as well as final
documents.
(3) Types of information not privileged. The privilege under this
section does not apply to:
(i) Information about whether a creditor conducted a self-test, the
methodology used or the scope of the self-test, the time period covered
by the self-test, or the dates it was conducted; or
(ii) Loan and application files or other business records related to
credit transactions, and information derived from such files and
records, even if the information has been aggregated, summarized, or
reorganized to facilitate analysis.
(c) Appropriate corrective action--(1) General requirement. For the
privilege in this section to apply, appropriate corrective action is
required when the self-test shows that it is more likely than not that a
violation occurred, even though no violation has been formally
adjudicated.
(2) Determining the scope of appropriate corrective action. A
creditor must take corrective action that is reasonably likely to remedy
the cause and effect of a likely violation by:
(i) Identifying the policies or practices that are the likely cause
of the violation; and
(ii) Assessing the extent and scope of any violation.
(3) Types of relief. Appropriate corrective action may include both
prospective and remedial relief, except that to establish a privilege
under this section:
(i) A creditor is not required to provide remedial relief to a
tester used in a self-test;
(ii) A creditor is only required to provide remedial relief to an
applicant identified by the self-test as one whose rights were more
likely than not violated; and
(iii) A creditor is not required to provide remedial relief to a
particular applicant if the statute of limitations applicable to the
violation expired before the creditor obtained the results of the self-
test or the applicant is otherwise ineligible for such relief.
(4) No admission of violation. Taking corrective action is not an
admission that a violation occurred.
(d) Scope of privilege--(1) General rule. The report or results of a
privileged self-test may not be obtained or used:
(i) By a government agency in any examination or investigation
relating to compliance with the Act or this part; or
(ii) By a government agency or an applicant (including a prospective
applicant who alleges a violation of Sec. 1002.4(b)) in any proceeding
or civil 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
[[Page 25]]
the creditor or a person with lawful access to the report or results:
(i) Voluntarily discloses any part of the report or results, or any
other information privileged under this section, to an applicant or
government agency or to the public;
(ii) Discloses any part of the report or results, or any other
information privileged under this section, as a defense to charges that
the creditor has violated the Act or regulation; or
(iii) Fails or is unable to produce written or recorded information
about the self-test that is required to be retained under Sec.
1002.12(b)(6) when the information is needed to determine whether the
privilege applies. This paragraph does not limit any other penalty or
remedy that may be available for a violation of Sec. 1002.12.
(3) Limited use of privileged information. Notwithstanding paragraph
(d)(1) of this section, the self-test report or results and any other
information privileged under this section may be obtained and used by an
applicant or government agency solely to determine a penalty or remedy
after a violation of the Act or this part has been adjudicated or
admitted. Disclosures for this limited purpose may be used only for the
particular proceeding in which the adjudication or admission was made.
Information disclosed under this paragraph (d)(3) remains privileged
under paragraph (d)(1) of this section.
Sec. 1002.16 Enforcement, penalties and liabilities.
(a) Administrative enforcement. (1) As set forth more fully in
section 704 of the Act, administrative enforcement of the Act and this
part regarding certain creditors is assigned to the Comptroller of the
Currency, Board of Governors of the Federal Reserve System, Board of
Directors of the Federal Deposit Insurance Corporation, National Credit
Union Administration, Surface Transportation Board, Civil Aeronautics
Board, Secretary of Agriculture, Farm Credit Administration, Securities
and Exchange Commission, Small Business Administration, Secretary of
Transportation, and Bureau of Consumer Financial Protection.
(2) Except to the extent that administrative enforcement is
specifically assigned to some government agency other than the Bureau,
and subject to subtitle B of the Consumer Financial Protection Act of
2010, the Federal Trade Commission is authorized to enforce the
requirements imposed under the Act and this part.
(b) Penalties and liabilities. (1) Sections 702(g) and 706(a) and
(b) of the Act provide that any creditor that fails to comply with a
requirement imposed by the Act or this part is subject to civil
liability for actual and punitive damages in individual or class
actions. Pursuant to sections 702(g) and 704(b), (c), and (d) of the
Act, violations of the Act or this part also constitute violations of
other Federal laws. Liability for punitive damages can apply only to
nongovernmental entities and is limited to $10,000 in individual actions
and the lesser of $500,000 or 1 percent of the creditor's net worth in
class actions. Section 706(c) provides for equitable and declaratory
relief and section 706(d) authorizes the awarding of costs and
reasonable attorney's fees to an aggrieved applicant in a successful
action.
(2) As provided in section 706(f) of the Act, a civil action under
the Act or this part may be brought in the appropriate United States
district court without regard to the amount in controversy or in any
other court of competent jurisdiction within five years after the date
of the occurrence of the violation, or within one year after the
commencement of an administrative enforcement proceeding or of a civil
action brought by the Attorney General of the United States within five
years after the alleged violation.
(3) If an agency responsible for administrative enforcement is
unable to obtain compliance with the Act or this part, it may refer the
matter to the Attorney General of the United States. If the Bureau, the
Comptroller of the Currency, the Federal Deposit Insurance Corporation,
the Board of Governors of the Federal Reserve System, or the National
Credit Union Administration has reason to believe that one 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
[[Page 26]]
the agency has reason to believe that one or more creditors violated
section 701(a) of the Act, the agency may refer a matter to the Attorney
General.
(4) On referral, or whenever the Attorney General has reason to
believe that one or more creditors have engaged in a pattern or practice
in violation of the Act or this part, the Attorney General may bring a
civil action for such relief as may be appropriate, including actual and
punitive damages and injunctive relief.
(5) If the Comptroller of the Currency, the Federal Deposit
Insurance Corporation, the Board of Governors of the Federal Reserve
System, or the National Credit Union Administration has reason to
believe (as a result of a consumer complaint, a consumer compliance
examination, or some other basis) that a violation of the Act or this
part has occurred which is also a violation of the Fair Housing Act, and
the matter is not referred to the Attorney General, the agency shall:
(i) Notify the Secretary of Housing and Urban Development; and
(ii) Inform the applicant that the Secretary of Housing and Urban
Development has been notified and that remedies may be available under
the Fair Housing Act.
(c) Failure of compliance. A creditor's failure to comply with Sec.
1002.6(b)(6), Sec. 1002.9, Sec. 1002.10, Sec. 1002.12 or Sec.
1002.13 is not a violation if it results from an inadvertent error. On
discovering an error under 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 by
Sec. 1002.13, the creditor may retain information and act on the
application without violating the regulation.
Subpart B_Small Business Lending Data Collection
Source: 88 FR 35528, May 31, 2023, unless otherwise noted.
Sec. 1002.101 Authority, purpose, and scope.
(a) Authority and scope. This subpart to Regulation B is issued by
the Bureau pursuant to section 704B of the Equal Credit Opportunity Act
(15 U.S.C. 1691c-2). Except as otherwise provided herein, this subpart
applies to covered financial institutions, as defined in Sec.
1002.105(b), 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, 2004 (2010).
(b) Purpose. This subpart implements section 704B of the Equal
Credit Opportunity Act, which Congress intended:
(1) To facilitate enforcement of fair lending laws; and
(2) To enable communities, governmental entities, and creditors to
identify business and community development needs and opportunities of
women-owned, minority-owned, and small businesses.
Sec. 1002.102 Definitions.
In this subpart:
(a) Affiliate means, with respect to a financial institution, any
company that controls, is controlled by, or is under common control
with, another company, as set forth in the Bank Holding Company Act of
1956 (12 U.S.C. 1841 et seq.). With respect to a business or an
applicant, affiliate shall have the same meaning as in 13 CFR 121.103.
(b) Applicant means any person who requests or who has received an
extension of business credit from a financial institution.
(c) Business is defined in Sec. 1002.106(a).
(d) Business credit shall have the same meaning as in Sec.
1002.2(g).
(e) Closed-end credit transaction means an extension of business
credit that is not an open-end credit transaction under paragraph (n) of
this section.
(f) Covered application is defined in Sec. 1002.103.
(g) Covered credit transaction is defined in Sec. 1002.104.
(h) Covered financial institution is defined in Sec. 1002.105(b).
(i) Credit shall have the same meaning as in Sec. 1002.2(j).
(j) Financial institution is defined in Sec. 1002.105(a).
(k) LGBTQI+ individual includes an individual who identifies as
lesbian,
[[Page 27]]
gay, bisexual, transgender, queer, or intersex.
(l) LGBTQI+-owned business means a business for which one or more
LGBTQI+ individuals hold more than 50 percent of its ownership or
control, and for which more than 50 percent of the net profits or losses
accrue to one or more such individuals.
(m) Minority-owned business means a business for which one or more
American Indian or Alaska Native, Asian, Black or African American,
Native Hawaiian or Other Pacific Islander, or Hispanic or Latino
individuals hold more than 50 percent of its ownership or control, and
for which more than 50 percent of the net profits or losses accrue to
one or more such individuals.
(n) Open-end credit transaction means an open-end credit plan as
defined in Regulation Z, 12 CFR 1026.2(a)(20), but without regard to
whether the credit is consumer credit, as defined in Sec.
1026.2(a)(12), is extended by a creditor, as defined in Sec.
1026.2(a)(17), or is extended to a consumer, as defined in Sec.
1026.2(a)(11).
(o) Principal owner means an individual who directly owns 25 percent
or more of the equity interests of a business.
(p) Small business is defined in Sec. 1002.106(b).
(q) Small business lending application register or register means
the data reported, or required to be reported, annually pursuant to
Sec. 1002.109.
(r) State shall have the same meaning as in Sec. 1002.2(aa).
(s) Women-owned business means a business for which more than 50
percent of its ownership or control is held by one or more women, and
more than 50 percent of its net profits or losses accrue to one or more
women.
Sec. 1002.103 Covered applications.
(a) Covered application. Except as provided in paragraph (b) of this
section, covered application means an oral or written request for a
covered credit transaction that is made in accordance with procedures
used by a financial institution for the type of credit requested.
(b) Circumstances that are not covered applications. A covered
application does not include:
(1) Reevaluation, extension, or renewal requests on an existing
business credit account, unless the request seeks additional credit
amounts.
(2) Inquiries and prequalification requests.
Sec. 1002.104 Covered credit transactions and excluded transactions.
(a) Covered credit transaction means an extension of business credit
that is not an excluded transaction under paragraph (b) of this section.
(b) Excluded transactions. The requirements of this subpart do not
apply to:
(1) Trade credit. A financing arrangement wherein a business
acquires goods or services from another business without making
immediate payment in full to the business providing the goods or
services.
(2) Home Mortgage Disclosure Act (HMDA)-reportable transactions. A
covered loan, or application therefor, as defined by Regulation C, 12
CFR 1003.2(e).
(3) Insurance premium financing. A financing arrangement wherein a
business agrees to pay to a financial institution, in installments, the
principal amount advanced by the financial institution to an insurer or
insurance producer in payment of premium on the business's insurance
contract or contracts, plus charges, and, as security for repayment, the
business assigns to the financial institution certain rights,
obligations, and/or considerations (such as the unearned premiums,
accrued dividends, or loss payments) in its insurance contract or
contracts. Insurance premium financing does not include the financing of
insurance policy premiums obtained in connection with the financing of
goods and services.
(4) Public utilities credit. Public utilities credit as defined in
Sec. 1002.3(a)(1).
(5) Securities credit. Securities credit as defined in Sec.
1002.3(b)(1).
(6) Incidental credit. Incidental credit as defined in Sec.
1002.3(c)(1), but without regard to whether the credit is consumer
credit, as defined in Sec. 1002.2(h).
[[Page 28]]
Sec. 1002.105 Covered financial institutions and exempt institutions.
(a) Financial institution means any partnership, company,
corporation, association (incorporated or unincorporated), trust,
estate, cooperative organization, or other entity that engages in any
financial activity.
(b) Covered financial institution means a financial institution that
originated at least 100 covered credit transactions for small businesses
in each of the two preceding calendar years.
Sec. 1002.106 Business and small business.
(a) Business has the same meaning as the term ``business concern or
concern'' in 13 CFR 121.105.
(b) Small business definition--(1) Small business has the same
meaning as the term ``small business concern'' in 15 U.S.C. 632(a), as
implemented in 13 CFR 121.101 through 121.107. Notwithstanding the size
standards set forth in 13 CFR 121.201, for purposes of this subpart, a
business is a small business if its gross annual revenue, as defined in
Sec. 1002.107(a)(14), for its preceding fiscal year is $5 million or
less.
(2) Inflation adjustment. Every 5 years after January 1, 2025, the
gross annual revenue threshold set forth in paragraph (b)(1) of this
section shall adjust based on changes to the Consumer Price Index for
All Urban Consumers (U.S. city average series for all items, not
seasonally adjusted), as published by the United States Bureau of Labor
Statistics. Any adjustment that takes effect under this paragraph shall
be rounded to the nearest multiple of $500,000. If an adjustment is to
take effect, it will do so on January 1 of the following calendar year.
Sec. 1002.107 Compilation of reportable data.
(a) Data format and itemization. A covered financial institution
shall compile and maintain data regarding covered applications from
small businesses. The data shall be compiled in the manner prescribed
herein and the Filing Instructions Guide for this subpart for the
appropriate year. The data compiled shall include the items described in
paragraphs (a)(1) through (20) of this section.
(1) Unique identifier. An alphanumeric identifier, starting with the
legal entity identifier of the financial institution, unique within the
financial institution to the specific covered application, and which can
be used to identify and retrieve the specific file or files
corresponding to the application for or extension of credit.
(2) Application date. The date the covered application was received
or the date shown on a paper or electronic application form.
(3) Application method. The means by which the applicant submitted
the covered application directly or indirectly to the financial
institution.
(4) Application recipient. Whether the applicant submitted the
covered application directly to the financial institution or its
affiliate, or whether the applicant submitted the covered application
indirectly to the financial institution via a third party.
(5) Credit type. The following information regarding the type of
credit applied for or originated:
(i) Credit product. The credit product.
(ii) Guarantees. The type or types of guarantees that were obtained
for an extension of credit, or that would have been obtained if the
covered credit transaction were originated.
(iii) Loan term. The length of the loan term, in months, if
applicable.
(6) Credit purpose. The purpose or purposes of the credit applied
for or originated.
(7) Amount applied for. The initial amount of credit or the initial
credit limit requested by the applicant.
(8) Amount approved or originated. (i) For an application for a
closed-end credit transaction that is approved but not accepted, the
amount approved by the financial institution; or
(ii) For a closed-end credit transaction that is originated, the
amount of credit originated; or
(iii) For an application for an open-end credit transaction that is
originated or approved but not accepted, the amount of the credit limit
approved.
(9) Action taken. The action taken by the financial institution on
the covered application, reported as originated, approved but not
accepted, denied, withdrawn by the applicant, or incomplete.
[[Page 29]]
(10) Action taken date. The date of the action taken by the
financial institution.
(11) Denial reasons. For denied applications, the principal reason
or reasons the financial institution denied the covered application.
(12) Pricing information. The following information regarding the
pricing of a covered credit transaction that is originated or approved
but not accepted, as applicable:
(i) Interest rate. (A) If the interest rate is fixed, the interest
rate that is or would be applicable to the covered credit transaction;
or
(B) If the interest rate is adjustable, the margin, index value,
initial rate period expressed in months (if applicable), and index name
that is or would be applicable to the covered credit transaction;
(ii) Total origination charges. The total amount of all charges
payable directly or indirectly by the applicant and imposed directly or
indirectly by the financial institution at or before origination as an
incident to or a condition of the extension of credit, expressed in
dollars;
(iii) Broker fees. The total amount of all charges included in
paragraph (a)(12)(ii) of this section that are fees paid by the
applicant directly to a broker or to the financial institution for
delivery to a broker, expressed in dollars;
(iv) Initial annual charges. The total amount of all non-interest
charges that are scheduled to be imposed over the first annual period of
the covered credit transaction, expressed in dollars;
(v) Additional cost for merchant cash advances or other sales-based
financing. For a merchant cash advance or other sales-based financing
transaction, the difference between the amount advanced and the amount
to be repaid, expressed in dollars; and
(vi) Prepayment penalties. (A) Notwithstanding whether such a
provision was in fact included, whether the financial institution could
have included a charge to be imposed for paying all or part of the
transaction's principal before the date on which the principal is due
under the policies and procedures applicable to the covered credit
transaction; and
(B) Notwithstanding the response to paragraph (a)(12)(vi)(A) of this
section, whether the terms of the covered credit transaction do in fact
include a charge imposed for paying all or part of the transaction's
principal before the date on which the principal is due.
(13) Census tract. The census tract in which is located:
(i) The address or location where the proceeds of the credit applied
for or originated will be or would have been principally applied; or
(ii) If the information in paragraph (a)(13)(i) of this section is
unknown, the address or location of the main office or headquarters of
the applicant; or
(iii) If the information in both paragraphs (a)(13)(i) and (ii) of
this section is unknown, another address or location associated with the
applicant.
(iv) The financial institution shall also indicate which one of the
three types of addresses or locations listed in paragraphs (a)(13)(i),
(ii), or (iii) of this section the census tract is based on.
(14) Gross annual revenue. The applicant's gross annual revenue for
its preceding fiscal year.
(15) NAICS code. A 3-digit North American Industry Classification
System (NAICS) code for the applicant.
(16) Number of workers. The number of non-owners working for the
applicant.
(17) Time in business. The time the applicant has been in business.
(18) Minority-owned, women-owned, and LGBTQI+-owned business
statuses. Whether the applicant is a minority-owned, women-owned, and/or
LGBTQI+-owned business. When requesting minority-owned, women-owned, and
LGBTQI+-owned business statuses from an applicant, the financial
institution shall inform the applicant that the financial institution
cannot discriminate on the basis of minority-owned, women-owned, or
LGBTQI+-owned business statuses, or on whether the applicant provides
this information.
(19) Ethnicity, race, and sex of principal owners. The ethnicity,
race, and sex of the applicant's principal owners. When
[[Page 30]]
requesting ethnicity, race, and sex information from an applicant, the
financial institution shall inform the applicant that the financial
institution cannot discriminate on the basis of a principal owner's
ethnicity, race, or sex, or on whether the applicant provides this
information.
(20) Number of principal owners. The number of the applicant's
principal owners.
(b) Reliance on and verification of applicant-provided data. Unless
otherwise provided in this subpart, the financial institution may rely
on information from the applicant, or appropriate third-party sources,
when compiling data. If the financial institution verifies applicant-
provided data, however, it shall report the verified data.
(c) Time and manner of collection--(1) In general. A covered
financial institution shall not discourage an applicant from responding
to requests for applicant-provided data under paragraph (a) of this
section and shall otherwise maintain procedures to collect such data at
a time and in a manner that are reasonably designed to obtain a
response.
(2) Applicant-provided data collected directly from the applicant.
For data collected directly from the applicant, procedures that are
reasonably designed to obtain a response shall include provisions for
the following:
(i) The initial request for applicant-provided data occurs prior to
notifying an applicant of final action taken on a covered application;
(ii) The request for applicant-provided data is prominently
displayed or presented;
(iii) The collection does not have the effect of discouraging an
applicant from responding to a request for applicant-provided data; and
(iv) Applicants can easily respond to a request for applicant-
provided data.
(3) Procedures to monitor compliance. A covered financial
institution shall maintain procedures to identify and respond to indicia
of potential discouragement, including low response rates for applicant-
provided data.
(4) Low response rates. A low response rate for applicant-provided
data may indicate discouragement or other failure by a covered financial
institution to maintain procedures to collect applicant-provided data
that are reasonably designed to obtain a response.
(d) Previously collected data. A covered financial institution is
permitted, but not required, to reuse previously collected data to
satisfy paragraphs (a)(13) through (20) of this section if:
(1) To satisfy paragraphs (a)(13) and (a)(15) through (20) of this
section, the data were collected within the 36 months preceding the
current covered application, or to satisfy paragraph (a)(14) of this
section, the data were collected within the same calendar year as the
current covered application; and
(2) The financial institution has no reason to believe the data are
inaccurate.
Sec. 1002.108 Firewall.
(a) Definitions. For purposes of this section, the following terms
shall have the following meanings:
(1) Involved in making any determination concerning a covered
application from a small business means participating in a decision
regarding the evaluation of a covered application from a small business
or the creditworthiness of a small business applicant for a covered
credit transaction.
(2) Should have access means that an employee or officer may need to
collect, see, consider, refer to, or otherwise use the information to
perform that employee's or officer's assigned job duties.
(b) Prohibition on access to certain information. Unless the
exception under paragraph (c) of this section applies, an employee or
officer of a covered financial institution or a covered financial
institution's affiliate shall not have access to an applicant's
responses to inquiries that the financial institution makes pursuant to
this subpart regarding whether the applicant is a minority-owned
business, a women-owned business, or an LGBTQI+-owned business under
Sec. 1002.107(a)(18), and regarding the ethnicity, race, and sex of the
applicant's principal owners under Sec. 1002.107(a)(19), if that
employee or officer is involved in making any determination concerning
that applicant's covered application.
[[Page 31]]
(c) Exception to the prohibition on access to certain information.
The prohibition in paragraph (b) of this section shall not apply to an
employee or officer if the financial institution determines that it is
not feasible to limit that employee's or officer's access to an
applicant's responses to the financial institution's inquiries under
Sec. 1002.107(a)(18) or (19) and the financial institution provides the
notice required under paragraph (d) of this section to the applicant. It
is not feasible to limit access as required pursuant to paragraph (b) of
this section if the financial institution determines that an employee or
officer involved in making any determination concerning a covered
application from a small business should have access to one or more
applicants' responses to the financial institution's inquiries under
Sec. 1002.107(a)(18) or (19).
(d) Notice. In order to satisfy the exception set forth in paragraph
(c) of this section, a financial institution shall provide a notice to
each applicant whose responses will be accessed, informing the applicant
that one or more employees or officers involved in making determinations
concerning the covered application may have access to the applicant's
responses to the financial institution's inquiries regarding whether the
applicant is a minority-owned business, a women-owned business, or an
LGBTQI+-owned business, and regarding the ethnicity, race, and sex of
the applicant's principal owners. The financial institution shall
provide the notice required by this paragraph (d) when making the
inquiries required under Sec. 1002.107(a)(18) and (19) and together
with the notices required pursuant to Sec. 1002.107(a)(18) and (19).
Sec. 1002.109 Reporting of data to the Bureau.
(a) Reporting to the Bureau--(1) Annual reporting. (i) On or before
June 1 following the calendar year for which data are compiled and
maintained as required by Sec. 1002.107, a covered financial
institution shall submit its small business lending application register
in the format prescribed by the Bureau.
(ii) An authorized representative of the covered financial
institution with knowledge of the data shall certify to the accuracy and
completeness of the data reported pursuant to this paragraph (a).
(iii) When the last day for submission of data prescribed under
paragraph (a)(1) of this section falls on a Saturday or Sunday, a
submission shall be considered timely if it is submitted on the next
succeeding Monday.
(2) Reporting by subsidiaries. A covered financial institution that
is a subsidiary of another covered financial institution shall complete
a separate small business lending application register. The subsidiary
shall submit its small business lending application register, directly
or through its parent, to the Bureau.
(3) Reporting obligations where multiple financial institutions are
involved in a covered credit transaction. Where it is necessary for more
than one financial institution to make a credit decision in order to
approve a single covered credit transaction, only the last covered
financial institution with authority to set the material terms of the
covered credit transaction is required to report the application.
Financial institutions report the actions of their agents.
(b) Financial institution identifying information. A financial
institution shall provide each of the following with its submission:
(1) Its name.
(2) Its headquarters address.
(3) The name and business contact information of a person that the
Bureau or other regulators may contact about the financial institution's
submission.
(4) Its Federal prudential regulator, if applicable.
(5) Its Federal Taxpayer Identification Number (TIN).
(6) Its Legal Entity Identifier (LEI).
(7) Its Research, Statistics, Supervision, and Discount
identification (RSSD ID) number, if applicable.
(8) Parent entity information, if applicable, including:
(i) The name of the immediate parent entity;
(ii) The LEI of the immediate parent entity, if available;
(iii) The RSSD ID number of the immediate parent entity, if
available;
(iv) The name of the top-holding parent entity;
[[Page 32]]
(v) The LEI of the top-holding parent entity, if available; and
(vi) The RSSD ID number of the top-holding parent entity, if
available.
(9) The type of financial institution that it is, indicated by
selecting the appropriate type or types of institution from the list
provided.
(10) Whether the financial institution is voluntarily reporting
covered applications from small businesses.
(c) Procedures for the submission of data to the Bureau. The Bureau
shall make available a Filing Instructions Guide, containing technical
instructions for the submission of data to the Bureau pursuant to this
section, as well as any related materials, at https://
www.consumerfinance.gov/ data-research/small-business-lending/ filing-
instructions-guide/.
Sec. 1002.110 Publication of data and other disclosures.
(a) Publication of small business lending application registers and
associated financial institution information. The Bureau shall make
available to the public generally the data reported to it by financial
institutions pursuant to Sec. 1002.109, subject to deletions or
modifications made by the Bureau if the Bureau determines that the
deletion or modification of the data would advance a privacy interest.
The Bureau shall make such data available on an annual basis.
(b) Publication of aggregate data. The Bureau may compile and
aggregate data submitted by financial institutions pursuant to Sec.
1002.109, and make any compilations or aggregations of such data
publicly available as the Bureau deems appropriate.
(c) Statement of financial institution's small business lending data
available on the Bureau's website. A covered financial institution shall
make available to the public on its website, or otherwise upon request,
a statement that the covered financial institution's small business
lending application register, as modified by the Bureau pursuant to
Sec. 1002.110(a), is or will be available from the Bureau. A financial
institution shall use language provided by the Bureau, or substantially
similar language, to satisfy the requirement to provide a statement
pursuant to this paragraph (c).
(d) Availability of statements. A covered financial institution
shall make the notice required by paragraph (c) of this section
available to the public on its website when it submits a small business
lending application register to the Bureau pursuant to Sec.
1002.109(a)(1), and shall maintain the notice for as long as it has an
obligation to retain its small business lending application registers
pursuant to Sec. 1002.111(a).
(e) Further disclosure prohibited--(1) Disclosure by a financial
institution. A financial institution shall not disclose or provide to a
third party the information it collects pursuant to Sec.
1002.107(a)(18) and (19) except to further compliance with the Act or
this part or as required by law.
(2) Disclosure by a third party. A third party that obtains
information collected pursuant to Sec. 1002.107(a)(18) and (19) for the
purpose of furthering compliance with the Act or this part is prohibited
from any further disclosure of such information except to further
compliance with the Act or this part or as required by law.
Sec. 1002.111 Recordkeeping.
(a) Record retention. A covered financial institution shall retain
evidence of compliance with this subpart, which includes a copy of its
small business lending application register, for at least three years
after the register is required to be submitted to the Bureau pursuant to
Sec. 1002.109.
(b) Certain information kept separate from the rest of the
application. A financial institution shall maintain, separately from the
rest of the application and accompanying information, an applicant's
responses to the financial institution's inquiries pursuant to this
subpart regarding whether an applicant for a covered credit transaction
is a minority-owned business, a women-owned business, and/or an LGBTQI+-
owned business under Sec. 1002.107(a)(18), and regarding the ethnicity,
race, and sex of the applicant's principal owners under Sec.
1002.107(a)(19).
(c) Limitation on personally identifiable information in certain
records retained under this section. In reporting a small business
lending application register
[[Page 33]]
pursuant to Sec. 1002.109, maintaining the register pursuant to
paragraph (a) of this section, and maintaining a separate record of
information pursuant to paragraph (b) of this section, a financial
institution shall not include any name, specific address, telephone
number, email address, or any other personally identifiable information
concerning any individual who is, or is connected with, an applicant,
other than as required pursuant to Sec. 1002.107 or paragraph (b) of
this section.
Sec. 1002.112 Enforcement.
(a) Administrative enforcement and civil liability. A violation of
section 704B of the Act or this subpart is subject to administrative
sanctions and civil liability as provided in sections 704 (15 U.S.C.
1691c) and 706 (15 U.S.C. 1691e) of the Act, where applicable.
(b) Bona fide errors. A bona fide error in compiling, maintaining,
or reporting data with respect to a covered application is one that was
unintentional and occurred despite the maintenance of procedures
reasonably adapted to avoid such an error. A bona fide error is not a
violation of the Act or this subpart. A financial institution is
presumed to maintain procedures reasonably adapted to avoid such errors
with respect to a given data field if the number of errors found in a
random sample of the financial institution's submission for the data
field does not equal or exceed a threshold specified by the Bureau for
this purpose in appendix F to this part. However, an error is not a bona
fide error if either there is a reasonable basis to believe the error
was intentional or there is evidence that the financial institution does
not or has not maintained procedures reasonably adapted to avoid such
errors.
(c) Safe harbors--(1) Incorrect entry for application date. A
financial institution does not violate the Act or this subpart if it
reports on its small business lending application register an
application date that is within three business days of the actual
application date pursuant to Sec. 1002.107(a)(2).
(2) Incorrect entry for census tract. An incorrect entry for census
tract is not a violation of the Act or this subpart if the financial
institution obtained the census tract by correctly using a geocoding
tool provided by the FFIEC or the Bureau.
(3) Incorrect entry for NAICS code. An incorrect entry for a 3-digit
NAICS code is not a violation of the Act or this subpart, provided that
the financial institution obtained the 3-digit NAICS code by:
(i) Relying on an applicant's representations or on an appropriate
third-party source, in accordance with Sec. 1002.107(b), regarding the
NAICS code; or
(ii) Identifying the NAICS code itself, provided that the financial
institution maintains procedures reasonably adapted to correctly
identify a 3-digit NAICS code.
(4) Incorrect determination of small business status, covered credit
transaction, or covered application. A financial institution that
initially collects data regarding whether an applicant for a covered
credit transaction is a minority-owned business, a women-owned business,
or an LGBTQI+-owned business, and the ethnicity, race, and sex of the
applicant's principal owners pursuant to Sec. 1002.107(a)(18) and (19)
but later concludes that it should not have collected such data does not
violate the Act or this regulation if the financial institution, at the
time it collected this data, had a reasonable basis for believing that
the application was a covered application for a covered credit
transaction from a small business pursuant to Sec. Sec. 1002.103,
1002.104, and 1002.106, respectively. A financial institution seeking to
avail itself of this safe harbor shall comply with the requirements of
this subpart as otherwise required pursuant to Sec. Sec. 1002.107,
1002.108, and 1002.111 with respect to the collected data.
Sec. 1002.113 Severability.
If any provision of this subpart, or any application of a provision,
is stayed or determined to be invalid, the remaining provisions or
applications are severable and shall continue in effect.
Sec. 1002.114 Effective date, compliance date, and special transitional
rules.
(a) Effective date. The effective date for this subpart is August
29, 2023.
[[Page 34]]
(b) Compliance date. The dates by which covered financial
institutions are initially required to comply with the requirements of
this subpart are as follows:
(1) A covered financial institution that originated at least 2,500
covered credit transactions for small businesses in each of calendar
years 2022 and 2023 shall comply with the requirements of this subpart
beginning October 1, 2024.
(2) A covered financial institution that is not subject to paragraph
(b)(1) of this section and that originated at least 500 covered credit
transactions for small businesses in each of calendar years 2022 and
2023 shall comply with the requirements of this subpart beginning April
1, 2025.
(3) A covered financial institution that is not subject to
paragraphs (b)(1) or (2) of this section and that originated at least
100 covered credit transactions for small businesses in each of calendar
years 2022 and 2023 shall comply with the requirements of this subpart
beginning January 1, 2026.
(4) A financial institution that did not originate at least 100
covered credit transactions for small businesses in each of calendar
years 2022 and 2023 but subsequently originates at least 100 such
transactions in two consecutive calendar years shall comply with the
requirements of this subpart in accordance with Sec. 1002.105(b), but
in any case no earlier than January 1, 2026.
(c) Special transitional rules--(1) Collection of certain
information prior to a financial institution's compliance date. A
financial institution as described in paragraphs (b)(1), (2), or (3) of
this section is permitted, but not required, to collect information
regarding whether an applicant for a covered credit transaction is a
minority-owned business, a women-owned business, and/or an LGBTQI+-owned
business under Sec. 1002.107(a)(18), and the ethnicity, race, and sex
of the applicant's principal owners under Sec. 1002.107(a)(19)
beginning 12 months prior to its applicable compliance date as set forth
in paragraphs (b)(1), (2), or (3) of this section. A financial
institution collecting such information pursuant to this paragraph
(c)(1) must do so in accordance with the requirements set out in
Sec. Sec. 1002.107(a)(18) and (19), 1002.108, and 1002.111(b) and (c).
(2) Determining which compliance date applies to a financial
institution that does not collect information sufficient to determine
small business status. A financial institution that is unable to
determine the number of covered credit transactions it originated for
small businesses in each of calendar years 2022 and 2023 for purposes of
determining its compliance date pursuant to paragraph (b) of this
section, because for some or all of this period it does not have readily
accessible the information needed to determine whether its covered
credit transactions were originated for small businesses as defined in
Sec. 1002.106(b), is permitted to use any reasonable method to estimate
its originations to small businesses for either or both of the calendar
years 2022 and 2023.
Sec. Appendix A to Part 1002--Federal Agencies To Be Listed in Adverse
Action Notices
The following list indicates the Federal agency or agencies that
should be listed in notices provided by creditors pursuant to Sec.
1002.9(b)(1). Any questions concerning a particular creditor may be
directed to such agencies. This list is not intended to describe
agencies' enforcement authority for ECOA and Regulation B. Terms that
are not defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(s))
shall have the meaning given to them in the International Banking Act of
1978 (12 U.S.C. 3101).
1. Banks, savings associations, and credit unions with total assets
of over $10 billion and their affiliates: Bureau of Consumer Financial
Protection, 1700 G Street NW, Washington, DC 20552. Such affiliates that
are not banks, savings associations, or credit unions also should list,
in addition to the Bureau: Federal Trade Commission, Consumer Response
Center, 600 Pennsylvania Avenue NW, 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, P.O. Box 53570,
Houston, TX 77052.
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
[[Page 35]]
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: Division of Depositor and
Consumer Protection, National Center for Consumer and Depositor
Assistance, Federal Deposit Insurance Corporation, 1100 Walnut Street,
Box 11, Kansas City, MO 64106.
d. Federal Credit Unions: National Credit Union Administration,
Office of Consumer Financial Protection (OCFP), 1775 Duke Street,
Alexandria, VA 22314.
3. Air Carriers: Assistant General Counsel for Office of Aviation
Consumer Protection, Department of Transportation, 1200 New Jersey
Avenue SE, Washington, DC 20590.
4. Creditors Subject to Surface Transportation Board: Office of
Public Assistance, Governmental Affairs, and Compliance, Surface
Transportation Board, 395 E Street SW, Washington, DC 20423.
5. Creditors Subject to Packers and Stockyards Act: Nearest Packers
and Stockyards Division Regional Office.
6. Small Business Investment Companies: Associate Administrator,
Office of Capital Access, United States Small Business Association, 409
Third Street SW, Suite 8200, Washington, DC 20416.
7. Brokers and Dealers: Securities and Exchange Commission, 100 F
Street NE, 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: Federal Trade Commission, Consumer Response Center, 600
Pennsylvania Avenue NW, Washington, DC 20580.
[88 FR 58065, Aug. 25, 2023]
Sec. Appendix B to Part 1002--Model Application Forms
1. This appendix contains four 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; and the fourth in
transactions involving community property or occurring in community
property States. This appendix also contains a data collection model
form for collecting information concerning an applicant's ethnicity,
race, and sex that complies with the requirements of Sec.
1002.13(a)(1)(i)(A) and (ii). Appendix B to 12 CFR part 1003 provides a
data collection model form for collecting information concerning an
applicant's ethnicity, race, and sex that complies with the requirements
of Sec. 1002.13(a)(1)(i)(B) and (ii). All forms contained in this
appendix are models; their use by creditors is optional.
2. The use or modification of these forms is governed by the
following instructions. A creditor may change the forms: by asking for
additional information not prohibited by Sec. 1002.5; by deleting any
information request; or by rearranging the format without modifying the
substance of the inquiries. In any of these three instances, however,
the appropriate notices regarding the optional nature of courtesy
titles, the option to disclose alimony, child support, or separate
maintenance, and the limitation concerning marital status inquiries must
be included in the appropriate places if the items to which they relate
appear on the creditor's form.
3. If a creditor uses an appropriate appendix B model form, or
modifies a form in accordance with the above instructions, that creditor
shall be deemed to be acting in compliance with the provisions of
paragraphs (b), (c) and (d) of Sec. 1002.5 of this part.
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[76 FR 79445, Dec. 21, 2011, as amended at 82 FR 45694, 45695, Oct. 2,
2017]
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, under Sec. 1002.9(c)(2), that an application is
incomplete. Forms C-7 and C-8 are intended for use in connection with
applications for business credit under Sec. 1002.9(a)(3). Form C-9 is
designed for use in notifying an applicant of the right to receive a
copy of appraisals under Sec. 1002.14. Form C-10 is designed for use in
notifying an applicant for nonmortgage credit that the creditor is
requesting applicant characteristic information.
2. Form C-1 contains the Fair Credit Reporting Act disclosure as
required by sections 615(a) and (b) of that act. Forms C-2 through C-5
contain only the section 615(a) disclosure (that a creditor obtained
information from a consumer reporting agency that was considered in the
credit decision). A creditor must provide the section 615(a) disclosure
when adverse action is taken against a consumer based on information
from a consumer reporting agency. A creditor must provide the section
615(b) disclosure when adverse action is taken based on information from
an outside source other than a consumer reporting agency. In addition, a
creditor must provide the section 615(b) disclosure if the creditor
obtained information from an affiliate other than information in a
consumer report or other than information concerning the affiliate's own
transactions or experiences with the consumer. Creditors may comply with
the disclosure requirements for adverse action based on information in a
consumer report obtained from an affiliate by providing either the
section 615(a) or section 615(b) disclosure. Optional language in Forms
C-1 through C-5 may be used to direct the consumer to the entity that
provided the credit score for any questions about the credit score,
along with the entity's contact information. Creditors may use or not
use this additional language without losing the safe harbor, since the
language is optional.
3. The sample forms are illustrative and may not be appropriate for
all creditors. They were designed to include some of the factors that
creditors most commonly consider. If a creditor chooses to use the
checklist of reasons provided in one of the sample
[[Page 45]]
forms in this appendix and if reasons commonly used by the creditor are
not provided on the form, the creditor should modify the checklist by
substituting or adding other reasons. For example, if ``inadequate down
payment'' or ``no deposit relationship with us'' are common reasons for
taking adverse action on an application, the creditor ought to add or
substitute such reasons for those presently contained on the sample
forms.
4. If the reasons listed on the forms are not the factors actually
used, a creditor will not satisfy the notice requirement by simply
checking the closest identifiable factor listed. For example, some
creditors consider only references from banks or other depository
institutions and disregard finance company references altogether; their
statement of reasons should disclose ``insufficient bank references,''
not ``insufficient credit references.'' Similarly, a creditor that
considers bank references and other credit references as distinct
factors should treat the two factors separately and disclose them as
appropriate. The creditor should either add such other factors to the
form or check ``other'' and include the appropriate explanation. The
creditor need not, however, describe how or why a factor adversely
affected the application. For example, the notice may say ``length of
residence'' rather than ``too short a period of residence.''
5. A creditor may design its own notification forms or use all or a
portion of the forms contained in this Appendix. Proper use of Forms C-1
through C-4 will satisfy the requirement of Sec. 1002.9(a)(2)(i).
Proper use of Forms C-5 and C-6 constitutes full compliance with
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 of Sec.
1002.14 of this part. Proper use of Form C-10 will satisfy the
requirements of Sec. 1002.5(b)(1).
Form C-1--Sample Notice of Action Taken and Statement of Reasons
Statement of Credit Denial, Termination or Change
Date:___________________________________________________________________
Applicant's Name:_______________________________________________________
Applicant's Address:____________________________________________________
Description of Account, Transaction, or Requested Credit:_______________
Description of Action Taken:____________________________________________
Part I--Principal Reason(s) for Credit Denial, Termination, or Other
Action Taken Concerning Credit
This section must be completed in all instances.
____Credit application incomplete
____Insufficient number of credit references provided
____Unacceptable type of credit references provided
____Unable to verify credit references
____Temporary or irregular employment
____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 ________.
[[Page 46]]
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.
____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
[[Page 47]]
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:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
[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
[[Page 48]]
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 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).
[[Page 49]]
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, marital status, age (provided the
applicant has the capacity to enter into a binding contract); because
all or part of the applicant's income derives from any public assistance
program; or because the applicant has in good faith exercised any right
under the Consumer Credit Protection Act. The Federal agency that
administers compliance with this law concerning this creditor is [name
and address as specified by the appropriate agency listed in appendix
A].
Form C-9--Sample Disclosure of Right To Receive a Copy of Appraisals
We may order an appraisal to determine the property's value and
charge you for this appraisal. We will promptly give you a copy of any
appraisal, even if your loan does not close.
You can pay for an additional appraisal for your own use at your own
cost.
[In your letter, give us the following information:]
Form C-10--Sample Disclosure About Voluntary Data Notation
We are requesting the following information to monitor our
compliance with the Federal Equal Credit Opportunity Act, which
prohibits unlawful discrimination. You are not required to provide this
information. We will not take this information (or your decision not to
provide this information) into account in connection with your
application or credit transaction. The law provides that a creditor may
not discriminate based on this information, or based on whether or not
you choose to provide it. [If you choose not to provide the information,
we will note it by visual observation or surname].
[76 FR 79445, Dec. 21, 2011, as amended at 78 FR 7248, Jan. 31, 2013]
Sec. Appendix D to Part 1002--Issuance of Official Interpretations
1.Official Interpretations. Interpretations of this part issued by
officials of the Bureau provide the protection afforded under section
706(e) of the Act. Except in unusual circumstances, such interpretations
will not be issued separately but will be incorporated in an official
commentary to the regulation, which will be amended periodically.
2. Requests for Issuance of Official Interpretations. A request for
an official interpretation
[[Page 50]]
should be in writing and addressed to the Assistant Director, Office of
Regulations, Division of Research, Monitoring, and Regulations, Bureau
of Consumer Financial Protection, 1700 G Street, NW., Washington, DC
20552. 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.
[76 FR 79445, Dec. 21, 2011, as amended at 88 FR 16538, Mar. 20, 2023]
Sec. Appendix E to Part 1002--Sample Form for Collecting Certain
Applicant-Provided Data Under Subpart B
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[[Page 51]]
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[88 FR 35534, May 31, 2023]
Sec. Appendix F to Part 1002--Tolerances for Bona Fide Errors in Data
Reported Under Subpart B
As set out in Sec. 1002.112(b) and in comment 112(b)-1, a financial
institution is presumed
[[Page 52]]
to maintain procedures reasonably adapted to avoid errors with respect
to a given data field if the number of errors found in a random sample
of a financial institution's data submission for a given data field do
not equal or exceed the threshold in column C of the following table
(Table 1, Tolerance Thresholds for Bona Fide Errors):
Table 1 to Appendix F--Tolerance Thresholds for Bona Fide Errors
----------------------------------------------------------------------------------------------------------------
Random sample
Small business lending application register count size \986\ Threshold () Threshold (%)
(A) (B) (C) (D)
----------------------------------------------------------------------------------------------------------------
100-130........................................................ 47 3 6.4
131-190........................................................ 56 3 5.4
191-500........................................................ 59 3 5.1
501-100,000.................................................... 79 4 5.1
100,001+....................................................... 159 4 2.5
----------------------------------------------------------------------------------------------------------------
The size of the random sample, under column B, shall depend on the
size of the financial institution's small business lending application
register, as shown in column A of the Threshold Table.
---------------------------------------------------------------------------
\986\ For a financial institution with fewer than 30 entries in its
small business lending application register, the full sample size is the
financial institution's total number of entries. The threshold number
for such financial institutions remains three. Accordingly, the
threshold percentage will be higher for financial institutions with
fewer than 30 entries in their registers
---------------------------------------------------------------------------
The thresholds in column C of the Threshold Table reflect the number
of unintentional errors a financial institution may make within a
particular data field (e.g., the credit product data field within the
credit type data point or the ethnicity data field for a particular
principal owner within the ethnicity, race, and sex of principal owners
data point) in a small business lending application register that would
be deemed bona fide errors for purposes of Sec. 1002.112(b).
For instance, a financial institution that submitted a small
business lending application register containing 105 applications would
be subject to a threshold of three errors per data field. If the
financial institution had made two errors in reporting loan amount and
two errors reporting gross annual income, all of these errors would be
covered by the bona fide error provision of Sec. 1002.112(b) and would
not constitute a violation of the Act or this part. If the same
financial institution had made four errors in reporting loan amount and
two errors reporting gross annual income, the bona fide error provision
of Sec. 1002.112(b) would not apply to the four loan amount errors but
would still apply to the two gross annual income errors.
Even when the number of errors in a particular data field do not
equal or exceed the threshold in column C, if either there is a
reasonable basis to believe that errors in that field were intentional
or there is evidence that the financial institution did not maintain
procedures reasonably adapted to avoid such errors, then the errors are
not bona fide errors under Sec. 1002.112(b).
For purposes of determining bona fide errors under Sec.
1002.112(b), the term ``data field'' generally refers to individual
fields. Some data fields may allow for more than one response. For
example, with respect to information on the ethnicity or race of an
applicant's principal owners, a data field may identify more than one
race or more than one ethnicity for a given person. If one or more of
the ethnicities or races identified in a data field are erroneous, they
count as one (and only one) error for that data field.
[88 FR 35534, May 31, 2023]
Sec. Supplement I to Part 1002--Official Interpretations
Following is an official interpretation of Regulation B (12 CFR part
1002) issued by the Bureau of Consumer Financial Protection. References
are to sections of the regulation or the Equal Credit Opportunity Act
(15 U.S.C. 1601 et seq.).
Introduction
1.Official status. Section 706(e) of the Equal Credit Opportunity
Act protects a creditor from civil liability for any act done or omitted
in good faith in conformity with an interpretation issued by a duly
authorized official of the Bureau. This commentary is the means by which
the Bureau of Consumer Financial Protection issues official
interpretations of Regulation B. Good-faith compliance with this
commentary affords a creditor protection under section 706(e) of the
Act.
2. Issuance of interpretations. Under appendix D to the regulation,
any person may request an official interpretation. Interpretations will
be issued at the discretion of designated officials and incorporated in
this
[[Page 53]]
commentary following publication for comment in the Federal Register.
Except in unusual circumstances, official interpretations will be issued
only by means of this commentary.
3. Comment designations. The comments are designated with as much
specificity as possible according to the particular regulatory provision
addressed. Each comment in the commentary is identified by a number and
the regulatory section or paragraph that it interprets. For example,
comments to Sec. 1002.2(c) are further divided by subparagraph, such as
comment 2(c)(1)(ii)-1 and comment 2(c)(2)(ii-1.
Section 1002.1--Authority, Scope, and Purpose
1(a) Authority and scope.
1. Scope. The Equal Credit Opportunity Act and Regulation B apply to
all credit--commercial as well as personal--without regard to the nature
or type of the credit or the creditor, except for an entity excluded
from coverage of this part (but not the Act) by section 1029 of the
Consumer Financial Protection Act of 2010 (12 U.S.C. 5519). If a
transaction provides for the deferral of the payment of a debt, it is
credit covered by Regulation B even though it may not be a credit
transaction covered by Regulation Z (Truth in Lending) (12 CFR part
1026). Further, the definition of creditor is not restricted to the
party or person to whom the obligation is initially payable, as is the
case under Regulation Z. Moreover, the Act and regulation apply to all
methods of credit evaluation, whether performed judgmentally or by use
of a credit scoring system.
2. Foreign applicability. Regulation B generally does not apply to
lending activities that occur outside the United States. The regulation
does apply to lending activities that take place within the United
States (as well as the Commonwealth of Puerto Rico and any territory or
possession of the United States), whether or not the applicant is a
citizen.
3. Bureau. The term Bureau, as used in this part, means the Bureau
of Consumer Financial Protection.
Section 1002.2--Definitions
2(c) Adverse action.
Paragraph 2(c)(1)(i).
1. Application for credit. If the applicant applied in accordance
with the creditor's procedures, a refusal to refinance or extend the
term of a business or other loan is adverse action.
Paragraph 2(c)(1)(ii).
1. Move from service area. If a credit card issuer terminates the
open-end account of a customer because the customer has moved out of the
card issuer's service area, the termination is adverse action unless
termination on this ground was explicitly provided for in the credit
agreement between the parties. In cases where termination is adverse
action, notification is required under Sec. 1002.9.
2. Termination based on credit limit. If a creditor terminates
credit accounts that have low credit limits (for example, under $400)
but keeps open accounts with higher credit limits, the termination is
adverse action and notification is required under Sec. 1002.9.
Paragraph 2(c)(2)(ii).
1. Default--exercise of due-on-sale clause. If a mortgagor sells or
transfers mortgaged property without the consent of the mortgagee, and
the mortgagee exercises its contractual right to accelerate the mortgage
loan, the mortgagee may treat the mortgagor as being in default. An
adverse action notice need not be given to the mortgagor or the
transferee. (See comment 2(e)-1 for treatment of a purchaser who
requests to assume the loan.)
2. Current delinquency or default. The term adverse action does not
include a creditor's termination of an account when the accountholder is
currently in default or delinquent on that account. Notification in
accordance with Sec. 1002.9 of the regulation generally is required,
however, if the creditor's action is based on a past delinquency or
default on the account.
Paragraph 2(c)(2)(iii).
1. Point-of-sale transactions. Denial of credit at point of sale is
not adverse action except under those circumstances specified in the
regulation. For example, denial at point of sale is not adverse action
in the following situations:
i. A credit cardholder presents an expired card or a card that has
been reported to the card issuer as lost or stolen.
ii. The amount of a transaction exceeds a cash advance or credit
limit.
iii. The circumstances (such as excessive use of a credit card in a
short period of time) suggest that fraud is involved.
iv. The authorization facilities are not functioning.
v. Billing statements have been returned to the creditor for lack of
a forwarding address.
2. Application for increase in available credit. A refusal or
failure to authorize an account transaction at the point of sale or loan
is not adverse action except when the refusal is a denial of an
application, submitted in accordance with the creditor's procedures, for
an increase in the amount of credit.
Paragraph 2(c)(2)(v).
1. Terms of credit versus type of credit offered. When an applicant
applies for credit and the creditor does not offer the credit terms
requested by the applicant (for example, the interest rate, length of
maturity, collateral, or amount of downpayment), a denial of the
application for that reason is adverse action (unless the creditor makes
a counteroffer that is accepted by the applicant) and the
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applicant is entitled to notification under Sec. 1002.9.
2(e) Applicant.
1. Request to assume loan. If a mortgagor sells or transfers the
mortgaged property and the buyer makes an application to the creditor to
assume the mortgage loan, the mortgagee must treat the buyer as an
applicant unless its policy is not to permit assumptions.
2(f) Application.
1. General. A creditor has the latitude under the regulation to
establish its own application process and to decide the type and amount
of information it will require from credit applicants.
2. Procedures used. The term ``procedures'' refers to the actual
practices followed by a creditor for making credit decisions as well as
its stated application procedures. For example, if a creditor's stated
policy is to require all applications to be in writing on the creditor's
application form, but the creditor also makes credit decisions based on
oral requests, the creditor's procedures are to accept both oral and
written applications.
3. When an inquiry or prequalification request becomes an
application. A creditor is encouraged to provide consumers with
information about loan terms. However, if in giving information to the
consumer the creditor also evaluates information about the consumer,
decides to decline the request, and communicates this to the consumer,
the creditor has treated the inquiry or prequalification request as an
application and must then comply with the notification requirements
under Sec. 1002.9. Whether the inquiry or prequalification request
becomes an application depends on how the creditor responds to the
consumer, not on what the consumer says or asks. (See comment 9-5 for
further discussion of prequalification requests; see comment 2(f)-5 for
a discussion of preapproval requests.)
4. Examples of inquiries that are not applications. The following
examples illustrate situations in which only an inquiry has taken place:
i. A consumer calls to ask about loan terms and an employee explains
the creditor's basic loan terms, such as interest rates, loan-to-value
ratio, and debt-to-income ratio.
ii. A consumer calls to ask about interest rates for car loans, and,
in order to quote the appropriate rate, the loan officer asks for the
make and sales price of the car and the amount of the downpayment, then
gives the consumer the rate.
iii. A consumer asks about terms for a loan to purchase a home and
tells the loan officer her income and intended downpayment, but the loan
officer only explains the creditor's loan-to-value ratio policy and
other basic lending policies, without telling the consumer whether she
qualifies for the loan.
iv. A consumer calls to ask about terms for a loan to purchase
vacant land and states his income and the sales price of the property to
be financed, and asks whether he qualifies for a loan; the employee
responds by describing the general lending policies, explaining that he
would need to look at all of the consumer's qualifications before making
a decision, and offering to send an application form to the consumer.
5. Examples of an application. An application for credit includes
the following situations:
i. A person asks a financial institution to ``preapprove'' her for a
loan (for example, to finance a house or a vehicle she plans to buy) and
the institution reviews the request under a program in which the
institution, after a comprehensive analysis of her creditworthiness,
issues a written commitment valid for a designated period of time to
extend a loan up to a specified amount. The written commitment may not
be subject to conditions other than conditions that require the
identification of adequate collateral, conditions that require no
material change in the applicant's financial condition or
creditworthiness prior to funding the loan, and limited conditions that
are not related to the financial condition or creditworthiness of the
applicant that the lender ordinarily attaches to a traditional
application (such as certification of a clear termite inspection for a
home purchase loan, or a maximum mileage requirement for a used car
loan). But if the creditor's program does not provide for giving written
commitments, requests for preapprovals are treated as prequalification
requests for purposes of the regulation.
ii. Under the same facts as above, the financial institution
evaluates the person's creditworthiness and determines that she does not
qualify for a preapproval.
6. Completed application--diligence requirement. The regulation
defines a completed application in terms that give a creditor the
latitude to establish its own information requirements. Nevertheless,
the creditor must act with reasonable diligence to collect information
needed to complete the application. For example, the creditor should
request information from third parties, such as a credit report,
promptly after receiving the application. If additional information is
needed from the applicant, such as an address or a telephone number to
verify employment, the creditor should contact the applicant promptly.
(But see comment 9(a)(1)-3, which discusses the creditor's option to
deny an application on the basis of incompleteness.)2(g) Business
credit.
1. Definition. The test for deciding whether a transaction qualifies
as business credit is one of primary purpose. For example, an open-end
credit account used for both personal and business purposes is not
business
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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 with Sec. 1002.4(a),
the general rule prohibiting discrimination, and with Sec. 1002.4(b),
the general rule against discouraging applications.
2(p) Empirically derived and other credit scoring systems.
1. Purpose of definition. The definition under 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. See Sec. 1002.6(b)(2).)
2. Periodic revalidation. The regulation does not specify how often
credit scoring systems must be revalidated. The credit scoring system
must be revalidated frequently enough to ensure that it continues to
meet recognized professional statistical standards for statistical
soundness. To ensure that predictive ability is being maintained, the
creditor must periodically review the performance of the system. This
could be done, for example, by analyzing the loan portfolio to determine
the delinquency rate for each score interval, or by analyzing population
stability over time to detect deviations of recent applications from the
applicant population used to validate the system. If this analysis
indicates that the system no longer predicts risk with statistical
soundness, the system must be adjusted as necessary to reestablish its
predictive ability. A creditor is responsible for ensuring its system is
validated and revalidated based on the creditor's own data.
3. Pooled data scoring systems. A scoring system or the data from
which to develop such a system may be obtained from either a single
credit grantor or multiple credit grantors. The resulting system will
qualify as an empirically derived, demonstrably and statistically sound,
credit scoring system provided the criteria set forth in paragraph
(p)(1)(i) through (iv) of this section are met. A creditor is
responsible for ensuring its system is validated and revalidated based
on the creditor's own data when it becomes available.
4. Effects test and disparate treatment. An empirically derived,
demonstrably and statistically sound, credit scoring system may include
age as a predictive factor (provided that the age of an elderly
applicant is not assigned a negative factor or value). Besides age, no
other prohibited basis may be used as a variable. Generally, credit
scoring systems treat all applicants objectively and thus avoid problems
of disparate treatment. In cases where a credit scoring system is used
in conjunction with individual discretion, disparate treatment could
conceivably occur in the evaluation process. In addition, neutral
factors used in credit scoring systems could nonetheless be subject to
challenge under the effects test. (See comment 6(a)-2 for a discussion
of the effects test).
2(w) Open-end credit.
1. Open-end real estate mortgages. The term ``open-end credit'' does
not include negotiated advances under an open-end real estate mortgage
or a letter of credit.
2(z) Prohibited basis.
1. Persons associated with applicant. As used in this part,
prohibited basis refers not only to characteristics--the race, color,
religion, national origin, sex, marital status, or age--of an applicant
(or officers of an applicant in the case of a corporation) but also to
the characteristics of individuals with whom an applicant is affiliated
or with whom the applicant associates. This means, for example, that
under the general rule stated in Sec. 1002.4(a), a creditor may not
discriminate against an applicant because of that person's personal or
business dealings with members of a certain religion, because of the
national origin of any persons associated with the extension of credit
(such as the tenants in the apartment complex being financed), or
because of the race of other residents in the neighborhood where the
property offered as collateral is located.
2. National origin. A creditor may not refuse to grant credit
because an applicant comes from a particular country but may take the
applicant's immigration status into
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account. A creditor may also take into account any applicable law,
regulation, or executive order restricting dealings with citizens (or
the government) of a particular country or imposing limitations
regarding credit extended for their use.
3. Public assistance program. Any Federal, state, or local
governmental assistance program that provides a continuing, periodic
income supplement, whether premised on entitlement or need, is ``public
assistance'' for purposes of the regulation. The term includes (but is
not limited to) Temporary Aid to Needy Families, food stamps, rent and
mortgage supplement or assistance programs, social security and
supplemental security income, and unemployment compensation. Only
physicians, hospitals, and others to whom the benefits are payable need
consider Medicare and Medicaid as public assistance.
Section 1002.3--Limited Exceptions for Certain Classes of Transactions
1. Scope. Under this section, procedural requirements of the
regulation do not apply to certain types of credit. All classes of
transactions remain subject to Sec. 1002.4(a), the general rule barring
discrimination on a prohibited basis, and to any other provision not
specifically excepted.
3(a) Public-utilities credit.
1. Definition. This definition applies only to credit for the
purchase of a utility service, such as electricity, gas, or telephone
service. Credit provided or offered by a public utility for some other
purpose--such as for financing the purchase of a gas dryer, telephone
equipment, or other durable goods, or for insulation or other home
improvements--is not excepted.
2. Security deposits. A utility company is a creditor when it
supplies utility service and bills the user after the service has been
provided. Thus, any credit term (such as a requirement for a security
deposit) is subject to the regulation's bar against discrimination on a
prohibited basis.
3. Telephone companies. A telephone company's credit transactions
qualify for the exceptions provided in Sec. 1002.3(a)(2) only if the
company is regulated by a government unit or files the charges for
service, delayed payment, or any discount for prompt payment with a
government unit.
3(c) Incidental credit.
1. Examples. If a service provider (such as a hospital, doctor,
lawyer, or merchant) allows the client or customer to defer the payment
of a bill, this deferral of debt is credit for purposes of the
regulation, even though there is no finance charge and no agreement for
payment in installments. Because of the exceptions provided by this
section, however, these particular credit extensions are excepted from
compliance with certain procedural requirements as specified in Sec.
1002.3(c).
3(d) Government credit.
1. Credit to governments. The exception relates to credit extended
to (not by) governmental entities. For example, credit extended to a
local government is covered by this exception, but credit extended to
consumers by a Federal or state housing agency does not qualify for
special treatment under this category.
Section 1002.4--General Rules
Paragraph 4(a).
1. Scope of rule. The general rule stated in Sec. 1002.4(a) covers
all dealings, without exception, between an applicant and a creditor,
whether or not addressed by other provisions of the regulation. Other
provisions of the regulation identify specific practices that the Bureau
has decided are impermissible because they could result in credit
discrimination on a basis prohibited by the Act. The general rule
covers, for example, application procedures, criteria used to evaluate
creditworthiness, administration of accounts, and treatment of
delinquent or slow accounts. Thus, whether or not specifically
prohibited elsewhere in the regulation, a credit practice that treats
applicants differently on a prohibited basis violates the law because it
violates the general rule. Disparate treatment on a prohibited basis is
illegal whether or not it results from a conscious intent to
discriminate.
2. Examples.
i. Disparate treatment would exist, for example, in the following
situations:
A. A creditor provides information only on ``subprime'' and similar
products to minority applicants who request information about the
creditor's mortgage products, but provides information on a wider
variety of mortgage products to similarly situated nonminority
applicants.
B. A creditor provides more comprehensive information to men than to
similarly situated women.
C. A creditor requires a minority applicant to provide greater
documentation to obtain a loan than a similarly situated nonminority
applicant.
D. A creditor waives or relaxes credit standards for a nonminority
applicant but not for a similarly situated minority applicant.
ii. Treating applicants differently on a prohibited basis is
unlawful if the creditor lacks a legitimate nondiscriminatory reason for
its action, or if the asserted reason is found to be a pretext for
discrimination.
Paragraph 4(b).
1. Prospective applicants. Generally, the regulation's protections
apply only to persons who have requested or received an extension of
credit. In keeping with the purpose of the Act--to promote the
availability of credit on a nondiscriminatory basis--Sec. 1002.4(b)
covers
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acts or practices directed at prospective applicants that could
discourage a reasonable person, on a prohibited basis, from applying for
credit. Practices prohibited by this section include:
i. A statement that the applicant should not bother to apply, after
the applicant states that he is retired.
ii. The use of words, symbols, models or other forms of
communication in advertising that express, imply, or suggest a
discriminatory preference or a policy of exclusion in violation of the
Act.
iii. The use of interview scripts that discourage applications on a
prohibited basis.
2. Affirmative advertising. A creditor may affirmatively solicit or
encourage members of traditionally disadvantaged groups to apply for
credit, especially groups that might not normally seek credit from that
creditor.
Paragraph 4(c).
1. Requirement for written applications. Model application forms are
provided in appendix B to the regulation, although use of a printed form
is not required. A creditor will satisfy the requirement by writing down
the information that it normally considers in making a credit decision.
The creditor may complete an application on behalf of an applicant and
need not require the applicant to sign the application.
2. Telephone applications. A creditor that accepts applications by
telephone for dwelling-related credit covered by Sec. 1002.13 can meet
the requirement for written applications by writing down pertinent
information that is provided by the applicant.
3. Computerized entry. Information entered directly into and
retained by a computerized system qualifies as a written application
under this paragraph. (See the commentary to Sec. 1002.13(b),
Applications through electronic media and Applications through video.)
Paragraph 4(d).
1. Clear and conspicuous. This standard requires that disclosures be
presented in a reasonably understandable format in a way that does not
obscure the required information. No minimum type size is mandated, but
the disclosures must be legible, whether typewritten, handwritten, or
printed by computer.
2. Form of disclosures. Whether the disclosures required to be on or
with an application must be in electronic form depends upon the
following:
i. If an applicant accesses a credit application electronically
(other than as described under ii below), such as online at a home
computer, the creditor must provide the disclosures in electronic form
(such as with the application form on its Web site) in order to meet the
requirement to provide disclosures in a timely manner on or with the
application. If the creditor instead mailed paper disclosures to the
applicant, this requirement would not be met.
ii. In contrast, if an applicant is physically present in the
creditor's office, and accesses a credit application electronically,
such as via a terminal or kiosk (or if the applicant uses a terminal or
kiosk located on the premises of an affiliate or third party that has
arranged with the creditor to provide applications to consumers), the
creditor may provide disclosures in either electronic or paper form,
provided the creditor complies with the timing, delivery, and
retainability requirements of the regulation.
Section 1002.5--Rules Concerning Requests for Information
5(a) General rules.
Paragraph 5(a)(1).
1. Requests for information. This section governs the types of
information that a creditor may gather. Section1002.6 governs how
information may be used.
5(a)(2) Required Collection of Information
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, 12 CFR part
1003, 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 certain dwelling-secured loans,
including some types of loans not covered by Sec. 1002.13.
3. Collecting information on behalf of creditors. Persons such as
loan brokers and correspondents do not violate the ECOA or Regulation B
if they collect information that they are otherwise prohibited from
collecting, where the purpose of collecting the information is to
provide it to a creditor that is subject to subpart B of this part, the
Home Mortgage Disclosure Act, or another Federal or State statute or
regulation requiring data collection.
4. Information required by subpart B. Subpart B of this part
generally requires creditors that are covered financial institutions as
defined in Sec. 1002.105(b) to collect and report information about the
ethnicity, race, and sex of the principal owners of applicants for
certain small business credit, as well as whether the applicant is a
minority-owned business, a women-owned business, or an LGBTQI+-owned
business, as defined in Sec. 1002.102(m), (s), and (l), respectively.
5(a)(4) Other Permissible Collection of Information
1. Other permissible collection of information. Information
regarding ethnicity, race, and sex that is not required to be collected
pursuant to Regulation C, 12 CFR part 1003, or subpart B of this part,
may nevertheless be collected under the circumstances set forth in Sec.
1002.5(a)(4) without violating Sec. 1002.5(b). The information
collected pursuant to 12
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CFR part 1003 must be retained pursuant to the requirements of Sec.
1002.12. The information collected pursuant to subpart B of this part
must be retained pursuant to the requirements set forth in Sec.
1002.111.
5(d) Other limitations on information requests.
Paragraph 5(d)(1).
1. Indirect disclosure of prohibited information. The fact that
certain credit-related information may indirectly disclose marital
status does not bar a creditor from seeking such information. For
example, the creditor may ask about:
i. The applicant's obligation to pay alimony, child support, or
separate maintenance income.
ii. The source of income to be used as the basis for repaying the
credit requested, which could disclose that it is the income of a
spouse.
iii. Whether any obligation disclosed by the applicant has a co-
obligor, which could disclose that the co-obligor is a spouse or former
spouse.
iv. The ownership of assets, which could disclose the interest of a
spouse.
Paragraph 5(d)(2).
1. Disclosure about income. The sample application forms in appendix
B to the regulation illustrate how a creditor may inform an applicant of
the right not to disclose alimony, child support, or separate
maintenance income.
2. General inquiry about source of income. Since a general inquiry
about the source of income may lead an applicant to disclose alimony,
child support, or separate maintenance income, a creditor making such an
inquiry on an application form should preface the request with the
disclosure required by this paragraph.
3. Specific inquiry about sources of income. A creditor need not
give the disclosure if the inquiry about income is specific and worded
in a way that is unlikely to lead the applicant to disclose the fact
that income is derived from alimony, child support, or separate
maintenance payments. For example, an application form that asks about
specific types of income such as salary, wages, or investment income
need not include the disclosure.
Section 1002.6--Rules Concerning Evaluation of Applications
6(a) General rule concerning use of information.
1. General. When evaluating an application for credit, a creditor
generally may consider any information obtained. However, a creditor may
not consider in its evaluation of creditworthiness any information that
it is barred by Sec. 1002.5 from obtaining or from using for any
purpose other than to conduct a self-test under Sec. 1002.15.
2. Effects test. The effects test is a judicial doctrine that was
developed in a series of employment cases decided by the U.S. Supreme
Court under title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e
et seq.,) and the burdens of proof for such employment cases were
codified by Congress in the Civil Rights Act of 1991 (42 U.S.C. 2000e-
2). Congressional intent that this doctrine apply to the credit area is
documented in the Senate Report that accompanied H.R. 6516, No. 94-589,
pp. 4-5; and in the House Report that accompanied H.R. 6516, No. 94-210,
p.5. The Act and regulation may prohibit a creditor practice that is
discriminatory in effect because it has a disproportionately negative
impact on a prohibited basis, even though the creditor has no intent to
discriminate and the practice appears neutral on its face, unless the
creditor practice meets a legitimate business need that cannot
reasonably be achieved as well by means that are less disparate in their
impact. For example, requiring that applicants have income in excess of
a certain amount to qualify for an overdraft line of credit could mean
that women and minority applicants will be rejected at a higher rate
than men and nonminority applicants. If there is a demonstrable
relationship between the income requirement and creditworthiness for the
level of credit involved, however, use of the income standard would
likely be permissible.
6(b) Specific rules concerning use of information.
Paragraph 6(b)(1).
1. Prohibited basis--special purpose credit. In a special purpose
credit program, a creditor may consider a prohibited basis to determine
whether the applicant possesses a characteristic needed for eligibility.
(See Sec. 1002.8.)
Paragraph 6(b)(2).
1. Favoring the elderly. Any system of evaluating creditworthiness
may favor a credit applicant who is age 62 or older. A credit program
that offers more favorable credit terms to applicants age 62 or older is
also permissible; a program that offers more favorable credit terms to
applicants at an age lower than 62 is permissible only if it meets the
special-purpose credit requirements of Sec. 1002.8.
2. Consideration of age in a credit scoring system. Age may be taken
directly into account in a credit scoring system that is ``demonstrably
and statistically sound,'' as defined in Sec. 1002.2(p), with one
limitation: Applicants age 62 years or older must be treated at least as
favorably as applicants who are under age 62. If age is scored by
assigning points to an applicant's age category, elderly applicants must
receive the same or a greater number of points as the most favored class
of nonelderly applicants.
i. Age-split scorecards. Some credit systems segment the population
and use different scorecards based on the age of an applicant. In such a
system, one card may cover a narrow age range (for example, applicants
in
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their twenties or younger) who are evaluated under attributes predictive
for that age group. A second card may cover all other applicants, who
are evaluated under the attributes predictive for that broader class.
When a system uses a card covering a wide age range that encompasses
elderly applicants, the credit scoring system is not deemed to score
age. Thus, the system does not raise the issue of assigning a negative
factor or value to the age of elderly applicants. But if a system
segments the population by age into multiple scorecards, and includes
elderly applicants in a narrower age range, the credit scoring system
does score age. To comply with the Act and regulation in such a case,
the creditor must ensure that the system does not assign a negative
factor or value to the age of elderly applicants as a class.
3. Consideration of age in a judgmental system. In a judgmental
system, defined in Sec. 1002.2(t), a creditor may not decide whether to
extend credit or set the terms and conditions of credit based on age or
information related exclusively to age. Age or age-related information
may be considered only in evaluating other ``pertinent elements of
creditworthiness'' that are drawn from the particular facts and
circumstances concerning the applicant. For example, a creditor may not
reject an application or terminate an account because the applicant is
60 years old. But a creditor that uses a judgmental system may relate
the applicant's age to other information about the applicant that the
creditor considers in evaluating creditworthiness. As the following
examples illustrate, the evaluation must be made in an individualized,
case-by-case manner:
i. A creditor may consider the applicant's occupation and length of
time to retirement to ascertain whether the applicant's income
(including retirement income) will support the extension of credit to
its maturity.
ii. A creditor may consider the adequacy of any security offered
when the term of the credit extension exceeds the life expectancy of the
applicant and the cost of realizing on the collateral could exceed the
applicant's equity. An elderly applicant might not qualify for a 5
percent down, 30-year mortgage loan but might qualify with a larger
downpayment or a shorter loan maturity.
iii. A creditor may consider the applicant's age to assess the
significance of length of employment (a young applicant may have just
entered the job market) or length of time at an address (an elderly
applicant may recently have retired and moved from a long-term
residence).
4. Consideration of age in a reverse mortgage. A reverse mortgage is
a home-secured loan in which the borrower receives payments from the
creditor, and does not become obligated to repay these amounts (other
than in the case of default) until the borrower dies, moves permanently
from the home, or transfers title to the home, or upon a specified
maturity date. Disbursements to the borrower under a reverse mortgage
typically are determined by considering the value of the borrower's
home, the current interest rate, and the borrower's life expectancy. A
reverse mortgage program that requires borrowers to be age 62 or older
is permissible under Sec. 1002.6(b)(2)(iv). In addition, under Sec.
1002.6(b)(2)(iii), a creditor may consider a borrower's age to evaluate
a pertinent element of creditworthiness, such as the amount of the
credit or monthly payments that the borrower will receive, or the
estimated repayment date.
5. Consideration of age in a combined system. A creditor using a
credit scoring system that qualifies as ``empirically derived'' under
Sec. 1002.2(p) may consider other factors (such as a credit report or
the applicant's cash flow) on a judgmental basis. Doing so will not
negate the classification of the credit scoring component of the
combined system as ``demonstrably and statistically sound.'' While age
could be used in the credit scoring portion, however, in the judgmental
portion age may not be considered directly. It may be used only for the
purpose of determining a ``pertinent element of creditworthiness.'' (See
comment 6(b)(2)-3.)
6. Consideration of public assistance. When considering income
derived from a public assistance program, a creditor may take into
account, for example:
i. The length of time an applicant will likely remain eligible to
receive such income.
ii. Whether the applicant will continue to qualify for benefits
based on the status of the applicant's dependents (as in the case of
Temporary Aid to Needy Families, or social security payments to a
minor).
iii. Whether the creditor can attach or garnish the income to assure
payment of the debt in the event of default.
Paragraph 6(b)(5).
1. Consideration of an individual applicant. A creditor must
evaluate income derived from part-time employment, alimony, child
support, separate maintenance payments, retirement benefits, or public
assistance on an individual basis, not on the basis of aggregate
statistics; and must assess its reliability or unreliability by
analyzing the applicant's actual circumstances, not by analyzing
statistical measures derived from a group.
2. Payments consistently made. In determining the likelihood of
consistent payments of alimony, child support, or separate maintenance,
a creditor may consider factors such as whether payments are received
pursuant to a written agreement or court decree; the length of time that
the payments have been received; whether the payments are regularly
received by the applicant; the
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availability of court or other procedures to compel payment; and the
creditworthiness of the payor, including the credit history of the payor
when it is available to the creditor.
3. Consideration of income.
i. A creditor need not consider income at all in evaluating
creditworthiness. If a creditor does consider income, there are several
acceptable methods, whether in a credit scoring or a judgmental system:
A. A creditor may score or take into account the total sum of all
income stated by the applicant without taking steps to evaluate the
income for reliability.
B. A creditor may evaluate each component of the applicant's income,
and then score or take into account income determined to be reliable
separately from other income; or the creditor may disregard that portion
of income that is not reliable when it aggregates reliable income.
C. A creditor that does not evaluate all income components for
reliability must treat as reliable any component of protected income
that is not evaluated.
ii. In considering the separate components of an applicant's income,
the creditor may not automatically discount or exclude from
consideration any protected income. Any discounting or exclusion must be
based on the applicant's actual circumstances.
4. Part-time employment, sources of income. A creditor may score or
take into account the fact that an applicant has more than one source of
earned income--a full-time and a part-time job or two part-time jobs. A
creditor may also score or treat earned income from a secondary source
differently than earned income from a primary source. The creditor may
not, however, score or otherwise take into account the number of sources
for income such as retirement income, social security, supplemental
security income, and alimony. Nor may the creditor treat negatively the
fact that an applicant's only earned income is derived from, for
example, a part-time job.
Paragraph 6(b)(6).
1. Types of credit references. A creditor may restrict the types of
credit history and credit references that it will consider, provided
that the restrictions are applied to all credit applicants without
regard to sex, marital status, or any other prohibited basis. On the
applicant's request, however, a creditor must consider credit
information not reported through a credit bureau when the information
relates to the same types of credit references and history that the
creditor would consider if reported through a credit bureau.
Paragraph 6(b)(7).
1. National origin--immigration status. The applicant's immigration
status and ties to the community (such as employment and continued
residence in the area) could have a bearing on a creditor's ability to
obtain repayment. Accordingly, the creditor may consider immigration
status and differentiate, for example, between a noncitizen who is a
long-time resident with permanent resident status and a noncitizen who
is temporarily in this country on a student visa.
2. National origin--citizenship. A denial of credit on the ground
that an applicant is not a United States citizen is not per se
discrimination based on national origin.
Paragraph 6(b)(8).
1. Prohibited basis--marital status. A creditor may consider the
marital status of an applicant or joint applicant for the purpose of
ascertaining the creditor's rights and remedies applicable to the
particular extension of credit. For example, in a secured transaction
involving real property, a creditor could take into account whether
state law gives the applicant's spouse an interest in the property being
offered as collateral.
Section 1002.7--Rules Concerning Extensions of Credit
7(a) Individual accounts.
1. Open-end credit--authorized user. A creditor may not require a
creditworthy applicant seeking an individual credit account to provide
additional signatures. But the creditor may condition the designation of
an authorized user by the account holder on the authorized user's
becoming contractually liable for the account, as long as the creditor
does not differentiate on any prohibited basis in imposing this
requirement.
2. Open-end credit--choice of authorized user. A creditor that
permits an account holder to designate an authorized user may not
restrict this designation on a prohibited basis. For example, if the
creditor allows the designation of spouses as authorized users, the
creditor may not refuse to accept a non-spouse as an authorized user.
3. Overdraft authority on transaction accounts. If a transaction
account (such as a checking account or NOW account) includes an
overdraft line of credit, the creditor may require that all persons
authorized to draw on the transaction account assume liability for any
overdraft.
7(b) Designation of name.
1. Single name on account. A creditor may require that joint
applicants on an account designate a single name for purposes of
administering the account and that a single name be embossed on any
credit cards issued on the account. But the creditor may not require
that the name be the husband's name. (See Sec. 1002.10 for rules
governing the furnishing of credit history on accounts held by spouses.)
7(c) Action concerning existing open-end accounts.
Paragraph 7(c)(1).
1. Termination coincidental with marital status change. When an
account holder's marital status changes, a creditor generally may not
terminate the account unless it has evidence
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that the account holder is now unable or unwilling to repay. But the
creditor may terminate an account on which both spouses are jointly
liable, even if the action coincides with a change in marital status,
when one or both spouses:
i. Repudiate responsibility for future charges on the joint account.
ii. Request separate accounts in their own names.
iii. Request that the joint account be closed.
2. Updating information. A creditor may periodically request updated
information from applicants but may not use events related to a
prohibited basis--such as an applicant's retirement or reaching a
particular age, or a change in name or marital status--to trigger such a
request.
Paragraph 7(c)(2).
1. Procedure pending reapplication. A creditor may require a
reapplication from an account holder, even when there is no evidence of
unwillingness or inability to repay, if (1) the credit was based on the
qualifications of a person who is no longer available to support the
credit and (2) the creditor has information indicating that the account
holder's income may be insufficient to support the credit. While a
reapplication is pending, the creditor must allow the account holder
full access to the account under the existing contract terms. The
creditor may specify a reasonable time period within which the account
holder must submit the required information.
7(d) Signature of spouse or other person.
1. Qualified applicant. The signature rules ensure that qualified
applicants are able to obtain credit in their own names. Thus, when an
applicant requests individual credit, a creditor generally may not
require the signature of another person unless the creditor has first
determined that the applicant alone does not qualify for the credit
requested.
2. Unqualified applicant. When an applicant requests individual
credit but does not meet a creditor's standards, the creditor may
require a cosigner, guarantor, endorser, or similar party--but cannot
require that it be the spouse. (See commentary to 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
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to the property in the event of the applicant's death or default, but
does not impose personal liability unless necessary under state law
(such as a limited guarantee). A creditor may not routinely require,
however, that a joint owner sign an instrument (such as a quitclaim
deed) that would result in the forfeiture of the joint owner's interest
in the property.
2. Need for signature--reasonable belief. A creditor's reasonable
belief as to what instruments need to be signed by a person other than
the applicant should be supported by a thorough review of pertinent
statutory and decisional law or an opinion of the state attorney
general.
Paragraph 7(d)(3).
1. Residency. In assessing the creditworthiness of a person who
applies for credit in a community property state, a creditor may assume
that the applicant is a resident of the state unless the applicant
indicates otherwise.
Paragraph 7(d)(4).
1. Creation of enforceable lien. Some state laws require that both
spouses join in executing any instrument by which real property is
encumbered. If an applicant offers such property as security for credit,
a creditor may require the applicant's spouse to sign the instruments
necessary to create a valid security interest in the property. The
creditor may not require the spouse to sign the note evidencing the
credit obligation if signing only the mortgage or other security
agreement is sufficient to make the property available to satisfy the
debt in the event of default. However, if under state law both spouses
must sign the note to create an enforceable lien, the creditor may
require the signatures.
2. Need for signature--reasonable belief. Generally, a signature to
make the secured property available will only be needed on a security
agreement. A creditor's reasonable belief that, to ensure access to the
property, the spouse's signature is needed on an instrument that imposes
personal liability should be supported by a thorough review of pertinent
statutory and decisional law or an opinion of the state attorney
general.
3. Integrated instruments. When a creditor uses an integrated
instrument that combines the note and the security agreement, the spouse
cannot be asked to sign the integrated instrument if the signature is
only needed to grant a security interest. But the spouse could be asked
to sign an integrated instrument that makes clear--for example, by a
legend placed next to the spouse's signature--that the spouse's
signature is only to grant a security interest and that signing the
instrument does not impose personal liability.
Paragraph 7(d)(5).
1. Qualifications of additional parties. In establishing guidelines
for eligibility of guarantors, cosigners, or similar additional parties,
a creditor may restrict the applicant's choice of additional parties but
may not discriminate on the basis of sex, marital status, or any other
prohibited basis. For example, the creditor could require that the
additional party live in the creditor's market area.
2. Reliance on income of another person--individual credit. An
applicant who requests individual credit relying on the income of
another person (including a spouse in a non-community property state)
may be required to provide the signature of the other person to make the
income available to pay the debt. In community property states, the
signature of a spouse may be required if the applicant relies on the
spouse's separate income. If the applicant relies on the spouse's future
earnings that as a matter of state law cannot be characterized as
community property until earned, the creditor may require the spouse's
signature, but need not do so--even if it is the creditor's practice to
require the signature when an applicant relies on the future earnings of
a person other than a spouse. (See Sec. 1002.6(c) on consideration of
state property laws.)
3. Renewals. If the borrower's creditworthiness is reevaluated when
a credit obligation is renewed, the creditor must determine whether an
additional party is still warranted and, if not warranted, release the
additional party.
Paragraph 7(d)(6).
1. Guarantees. A guarantee on an extension of credit is part of a
credit transaction and therefore subject to the regulation. A creditor
may require the personal guarantee of the partners, directors, or
officers of a business, and the shareholders of a closely held
corporation, even if the business or corporation is creditworthy. The
requirement must be based on the guarantor's relationship with the
business or corporation, however, and not on a prohibited basis. For
example, a creditor may not require guarantees only for women-owned or
minority-owned businesses. Similarly, a creditor may not require
guarantees only of the married officers of a business or the married
shareholders of a closely held corporation.
2. Spousal guarantees. The rules in Sec. 1002.7(d) bar a creditor
from requiring the signature of a guarantor's spouse just as they bar
the creditor from requiring the signature of an applicant's spouse. For
example, although a creditor may require all officers of a closely held
corporation to personally guarantee a corporate loan, the creditor may
not automatically require that spouses of married officers also sign the
guarantee. If an evaluation of the financial circumstances of an officer
indicates that an additional signature
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is necessary, however, the creditor may require the signature of another
person in appropriate circumstances in accordance with Sec.
1002.7(d)(2).
7(e) Insurance.
1. Differences in terms. Differences in the availability, rates, and
other terms on which credit-related casualty insurance or credit life,
health, accident, or disability insurance is offered or provided to an
applicant does not violate Regulation B.
2. Insurance information. A creditor may obtain information about an
applicant's age, sex, or marital status for insurance purposes. The
information may only be used for determining eligibility and premium
rates for insurance, however, and not in making the credit decision.
Section 1002.8--Special Purpose Credit Programs
8(a) Standards for programs.
1. Determining qualified programs. The Bureau does not determine
whether individual programs qualify for special purpose credit status,
or whether a particular program benefits an ``economically disadvantaged
class of persons.'' The agency or creditor administering or offering the
loan program must make these decisions regarding the status of its
program.
2. Compliance with a program authorized by Federal or state law. A
creditor does not violate Regulation B when it complies in good faith
with a regulation promulgated by a government agency implementing a
special purpose credit program under Sec. 1002.8(a)(1). It is the
agency's responsibility to promulgate a regulation that is consistent
with Federal and state law.
3. Expressly authorized. Credit programs authorized by Federal or
state law include programs offered pursuant to Federal, state, or local
statute, regulation or ordinance, or pursuant to judicial or
administrative order.
4. Creditor liability. A refusal to grant credit to an applicant is
not a violation of the Act or regulation if the applicant does not meet
the eligibility requirements under a special purpose credit program.
5. Determining need. In designing a special purpose credit program
under Sec. 1002.8(a), a for-profit organization must determine that the
program will benefit a class of people who would otherwise be denied
credit or would receive it on less favorable terms. This determination
can be based on a broad analysis using the organization's own research
or data from outside sources, including governmental reports and
studies. For example, a creditor might design new products to reach
consumers who would not meet, or have not met, its traditional standards
of creditworthiness due to such factors as credit inexperience or the
use of credit sources that may not report to consumer reporting
agencies. Or, a bank could review Home Mortgage Disclosure Act data
along with demographic data for its assessment area and conclude that
there is a need for a special purpose credit program for low-income
minority borrowers.
6. Elements of the program. The written plan must contain
information that supports the need for the particular program. The plan
also must either state a specific period of time for which the program
will last, or contain a statement regarding when the program will be
reevaluated to determine if there is a continuing need for it.
8(b) Rules in other sections.
1. Applicability of rules. A creditor that rejects an application
because the applicant does not meet the eligibility requirements (common
characteristic or financial need, for example) must nevertheless notify
the applicant of action taken as required by Sec. 1002.9.
8(c) Special rule concerning requests and use of information.
1. Request of prohibited basis information. This section permits a
creditor to request and consider certain information that would
otherwise be prohibited by 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 by Sec. 1002.7(d).
2. Examples. Examples of programs in which financial need is a
criterion are:
i. Subsidized housing programs for low-to moderate-income
households, for which a creditor may have to consider the applicant's
receipt of alimony or child support, the spouse's or parents' income,
etc.
ii. Student loan programs based on the family's financial need, for
which a creditor may have to consider the spouse's or parents' financial
resources.
3. Student loans. In a guaranteed student loan program, a creditor
may obtain the signature of a parent as a guarantor when required by
Federal or state law or agency regulation, or when the student does not
meet the creditor's standards of creditworthiness. (See 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.
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Section 1002.9--Notifications
1. Use of the term adverse action. The regulation does not require
that a creditor use the term adverse action in communicating to an
applicant that a request for an extension of credit has not been
approved. In notifying an applicant of adverse action as defined by
Sec. 1002.2(c)(1), a creditor may use any words or phrases that
describe the action taken on the application.
2. Expressly withdrawn applications. When an applicant expressly
withdraws a credit application, the creditor is not required to comply
with the notification requirements under Sec. 1002.9. (The creditor
must comply, however, with the record retention requirements of the
regulation. See Sec. 1002.12(b)(3).)
3. When notification occurs. Notification occurs when a creditor
delivers or mails a notice to the applicant's last known address or, in
the case of an oral notification, when the creditor communicates the
credit decision to the applicant.
4. Location of notice. The notifications required under Sec. 1002.9
may appear on either or both sides of a form or letter.
5. Prequalification requests. Whether a creditor must provide a
notice of action taken for a prequalification request depends on the
creditor's response to the request, as discussed in comment 2(f)-3. For
instance, a creditor may treat the request as an inquiry if the creditor
evaluates specific information about the consumer and tells the consumer
the loan amount, rate, and other terms of credit the consumer could
qualify for under various loan programs, explaining the process the
consumer must follow to submit a mortgage application and the
information the creditor will analyze in reaching a credit decision. On
the other hand, a creditor has treated a request as an application, and
is subject to the adverse action notice requirements of Sec. 1002.9 if,
after evaluating information, the creditor decides that it will not
approve the request and communicates that decision to the consumer. For
example, if the creditor tells the consumer that it would not approve an
application for a mortgage because of a bankruptcy in the consumer's
record, the creditor has denied an application for credit.
9(a) Notification of action taken, ECOA notice, and statement of
specific reasons.
Paragraph 9(a)(1).
1. Timing of notice--when an application is complete. Once a
creditor has obtained all the information it normally considers in
making a credit decision, the application is complete and the creditor
has 30 days in which to notify the applicant of the credit decision.
(See also comment 2(f)-6.)
2. Notification of approval. Notification of approval may be express
or by implication. For example, the creditor will satisfy the
notification requirement when it gives the applicant the credit card,
money, property, or services requested.
3. Incomplete application--denial for incompleteness. When an
application is incomplete regarding information that the applicant can
provide and the creditor lacks sufficient data for a credit decision,
the creditor may deny the application giving as the reason for denial
that the application is incomplete. The creditor has the option,
alternatively, of providing a notice of incompleteness under Sec.
1002.9(c).
4. Incomplete application--denial for reasons other than
incompleteness. When an application is missing information but provides
sufficient data for a credit decision, the creditor may evaluate the
application, make its credit decision, and notify the applicant
accordingly. If credit is denied, the applicant must be given the
specific reasons for the credit denial (or notice of the right to
receive the reasons); in this instance missing information or
``incomplete application'' cannot be given as the reason for the denial.
5. Length of counteroffer. Section 1002.9(a)(1)(iv) does not require
a creditor to hold a counteroffer open for 90 days or any other
particular length of time.
6. Counteroffer combined with adverse action notice. A creditor that
gives the applicant a combined counteroffer and adverse action notice
that complies with Sec. 1002.9(a)(2) need not send a second adverse
action notice if the applicant does not accept the counteroffer. A
sample of a combined notice is contained in form C-4 of appendix C to
the regulation.
7. Denial of a telephone application. When an application is made by
telephone and adverse action is taken, the creditor must request the
applicant's name and address in order to provide written notification
under this section. If the applicant declines to provide that
information, then the creditor has no further notification
responsibility.
Paragraph 9(a)(3).
1. Coverage. In determining which rules in this paragraph apply to a
given business credit application, a creditor may rely on the
applicant's assertion about the revenue size of the business.
(Applications to start a business are governed by the rules in Sec.
1002.9(a)(3)(i).) If an applicant applies for credit as a sole
proprietor, the revenues of the sole proprietorship will determine which
rules govern the application. However, if an applicant applies for
business credit as an individual, the rules in Sec. 1002.9(a)(3)(i)
apply unless the application is for trade or similar credit.
2. Trade credit. The term trade credit generally is limited to a
financing arrangement that involves a buyer and a seller--such as a
supplier who finances the sale of equipment, supplies, or inventory; it
does not apply to
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an extension of credit by a bank or other financial institution for the
financing of such items.
3. Factoring. Factoring refers to a purchase of accounts receivable,
and thus is not subject to the Act or regulation. If there is a credit
extension incident to the factoring arrangement, the notification rules
in Sec. 1002.9(a)(3)(ii) apply, as do other relevant sections of the
Act and regulation.
4. Manner of compliance. In complying with the notice provisions of
the Act and regulation, creditors offering business credit may follow
the rules governing consumer credit. Similarly, creditors may elect to
treat all business credit the same (irrespective of revenue size) by
providing notice in accordance with Sec. 1002.9(a)(3)(i).
5. Timing of notification. A creditor subject to Sec.
1002.9(a)(3)(ii)(A) is required to notify a business credit applicant,
orally or in writing, of action taken on an application within a
reasonable time of receiving a completed application. Notice provided in
accordance with the timing requirements of Sec. 1002.9(a)(1) is deemed
reasonable in all instances.
9(b) Form of ECOA notice and statement of specific reasons.
Paragraph 9(b)(1).
1. Substantially similar notice. The ECOA notice sent with a
notification of a credit denial or other adverse action will comply with
the regulation if it is ``substantially similar'' to the notice
contained in Sec. 1002.9(b)(1). For example, a creditor may add a
reference to the fact that the ECOA permits age to be considered in
certain credit scoring systems, or add a reference to a similar state
statute or regulation and to a state enforcement agency.
Paragraph 9(b)(2).
1. Number of specific reasons. A creditor must disclose the
principal reasons for denying an application or taking other adverse
action. The regulation does not mandate that a specific number of
reasons be disclosed, but disclosure of more than four reasons is not
likely to be helpful to the applicant.
2. Source of specific reasons. The specific reasons disclosed under
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
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bankruptcy, or the fact that the applicant is a minor). When a creditor
denies the credit request because of an automatic-denial factor, the
creditor must disclose that specific factor.
9. Combined ECOA-FCRA disclosures. The ECOA requires disclosure of
the principal reasons for denying or taking other adverse action on an
application for an extension of credit. The Fair Credit Reporting Act
(FCRA) requires a creditor to disclose when it has based its decision in
whole or in part on information from a source other than the applicant
or its own files. Disclosing that a credit report was obtained and used
in the denial of the application, as the FCRA requires, does not satisfy
the ECOA requirement to disclose specific reasons. For example, if the
applicant's credit history reveals delinquent credit obligations and the
application is denied for that reason, to satisfy Sec. 1002.9(b)(2) the
creditor must disclose that the application was denied because of the
applicant's delinquent credit obligations. The FCRA also requires a
creditor to disclose, as applicable, a credit score it used in taking
adverse action along with related information, including up to four key
factors that adversely affected the consumer's credit score (or up to
five factors if the number of inquiries made with respect to that
consumer report is a key factor). Disclosing the key factors that
adversely affected the consumer's credit score does not satisfy the ECOA
requirement to disclose specific reasons for denying or taking other
adverse action on an application or extension of credit. Sample forms C-
1 through C-5 of appendix C of the regulation provide for both the ECOA
and FCRA disclosures. See also comment 9(b)(2)-1.
9(c) Incomplete applications.
Paragraph 9(c)(1).
1. Exception for preapprovals. The requirement to provide a notice
of incompleteness does not apply to preapprovals that constitute
applications under Sec. 1002.2(f).
Paragraph 9(c)(2).
1. Reapplication. If information requested by a creditor is
submitted by an applicant after the expiration of the time period
designated by the creditor, the creditor may require the applicant to
make a new application.
Paragraph 9(c)(3).
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 with Sec. 1002.9(a).
9(g) Applications submitted through a third party.
1. Third parties. The notification of adverse action may be given by
one of the creditors to whom an application was submitted, or by a
noncreditor third party. If one notification is provided on behalf of
multiple creditors, the notice must contain the name and address of each
creditor. The notice must either disclose the applicant's right to a
statement of specific reasons within 30 days, or give the primary
reasons each creditor relied upon in taking the adverse action--clearly
indicating which reasons relate to which creditor.
2. Third party notice--enforcement agency. If a single adverse
action notice is being provided to an applicant on behalf of several
creditors and they are under the jurisdiction of different Federal
enforcement agencies, the notice need not name each agency; disclosure
of any one of them will suffice.
3. Third-party notice--liability. When a notice is to be provided
through a third party, a creditor is not liable for an act or omission
of the third party that constitutes a violation of the regulation if the
creditor accurately and in a timely manner provided the third party with
the information necessary for the notification and maintains reasonable
procedures adapted to prevent such violations.
Section 1002.10--Furnishing of Credit Information
1. Scope. The requirements of Sec. 1002.10 for designating and
reporting credit information apply only to consumer credit transactions.
Moreover, they apply only to creditors that opt to furnish credit
information to credit bureaus or to other creditors; there is no
requirement that a creditor furnish credit information on its accounts.
2. Reporting on all accounts. The requirements of Sec. 1002.10
apply only to accounts held or used by spouses. However, a creditor has
the option to designate all joint accounts (or all accounts with an
authorized user) to reflect the participation of both parties, whether
or not the accounts are held by persons married to each other.
3. Designating accounts. In designating accounts and reporting
credit information, a creditor need not distinguish between accounts on
which the spouse is an authorized user and accounts on which the spouse
is a contractually liable party.
4. File and index systems. The regulation does not require the
creation or maintenance of separate files in the name of each
participant on a joint or user account, or require any other particular
system of recordkeeping or indexing. It requires only that a creditor be
able to report information in the name of each spouse on accounts
covered by Sec. 1002.10. Thus, if a creditor receives a credit inquiry
about the wife, it should be able to locate her credit file without
asking the husband's name.
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10(a) Designation of accounts.
1. New parties. When new parties who are spouses undertake a legal
obligation on an account, as in the case of a mortgage loan assumption,
the creditor must change the designation on the account to reflect the
new parties and must furnish subsequent credit information on the
account in the new names.
2. Request to change designation of account. A request to change the
manner in which information concerning an account is furnished does not
alter the legal liability of either spouse on the account and does not
require a creditor to change the name in which the account is
maintained.
Section 1002.11--Relation to State Law
11(a) Inconsistent state laws.
1. Preemption determination--New York. The Bureau recognizes state
law preemption determinations made by the Board of Governors of the
Federal Reserve System prior to July 21, 2011, until and unless the
Bureau makes and publishes any contrary determination. The Board of
Governors determined that the following provisions in the state law of
New York are preempted by the Federal law, effective November 11, 1988:
i. Article 15, section 296a(1)(b). Unlawful discriminatory practices
in relation to credit on the basis of race, creed, color, national
origin, age, sex, marital status, or disability. This provision is
preempted to the extent that it bars taking a prohibited basis into
account when establishing eligibility for certain special-purpose credit
programs.
ii. Article 15, section 296a(1)(c). Unlawful discriminatory practice
to make any record or inquiry based on race, creed, color, national
origin, age, sex, marital status, or disability. This provision is
preempted to the extent that it bars a creditor from requesting and
considering information regarding the particular characteristics (for
example, race, national origin, or sex) required for eligibility for
special-purpose credit programs.
2. Preemption determination--Ohio. The Bureau recognizes state law
preemption determinations made by the Board of Governors of the Federal
Reserve System prior to July 21, 2011, until and unless the Bureau makes
and publishes any contrary determination. The Board of Governors
determined that the following provision in the state law of Ohio is
preempted by the Federal law, effective July 23, 1990:
i. Section 4112.021(B)(1)--Unlawful discriminatory practices in
credit transactions. This provision is preempted to the extent that it
bars asking or favorably considering the age of an elderly applicant;
prohibits the consideration of age in a credit scoring system; permits
without limitation the consideration of age in real estate transactions;
and limits the consideration of age in special-purpose credit programs
to certain government-sponsored programs identified in the state law.
Section 1002.12--Record Retention
12(a) Retention of prohibited information.
1. Receipt of prohibited information. Unless the creditor
specifically requested such information, a creditor does not violate
this section when it receives prohibited information from a consumer
reporting agency.
2. Use of retained information. Although a creditor may keep in its
files prohibited information as provided in Sec. 1002.12(a), the
creditor may use the information in evaluating credit applications only
if permitted to do so by Sec. 1002.6.
12(b) Preservation of records.
1. Copies. Copies of the original record include carbon copies,
photocopies, microfilm or microfiche copies, or copies produced by any
other accurate retrieval system, such as documents stored and reproduced
by computer. A creditor that uses a computerized or mechanized system
need not keep a paper copy of a document (for example, of an adverse
action notice) if it can regenerate all pertinent information in a
timely manner for examination or other purposes.
2. Computerized decisions. A creditor that enters information items
from a written application into a computerized or mechanized system and
makes the credit decision mechanically, based only on the items of
information entered into the system, may comply with Sec. 1002.12(b) by
retaining the information actually entered. It is not required to store
the complete written application, nor is it required to enter the
remaining items of information into the system. If the transaction is
subject to Sec. 1002.13 or the creditor is collecting information
pursuant to Sec. 1002.5(a)(4), 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
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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 Sec. 1002.12(b)(7) if it retains a copy of each
solicitation mailing that contains different terms, such as the amount
of credit offered, annual percentage rate, or annual fee.
2. List of criteria. A creditor must retain the list of criteria
used to select potential recipients. This includes the criteria used by
the creditor both to determine the potential recipients of the
particular solicitation and to determine who will actually be offered
credit.
3. Correspondence. A creditor may retain correspondence relating to
consumers' complaints about prescreened solicitations in any manner that
is reasonably accessible and is understandable to examiners. There is no
requirement to establish a separate database or set of files for such
correspondence, or to match consumer complaints with specific
solicitation programs.
Section 1002.13--Information for Monitoring Purposes
13(a) Information to be requested.
1. Natural person. Section 1002.13 applies only to applications from
natural persons.
2. Principal residence. The requirements of Sec. 1002.13 apply only
if an application relates to a dwelling that is or will be occupied by
the applicant as the principal residence. A credit application related
to a vacation home or a rental unit is not covered. In the case of a
two-to four-unit dwelling, the application is covered if the applicant
intends to occupy one of the units as a principal residence.
3. Temporary financing. An application for temporary financing to
construct a dwelling is not subject to Sec. 1002.13. But an application
for both a temporary loan to finance construction of a dwelling and a
permanent mortgage loan to take effect upon the completion of
construction is subject to Sec. 1002.13.
4. New principal residence. A person can have only one principal
residence at a time. However, if a person buys or builds a new dwelling
that will become that person's principal residence within a year or upon
completion of construction, the new dwelling is considered the principal
residence for purposes of Sec. 1002.13.
5. Transactions not covered. The information-collection requirements
of this section apply to applications for credit primarily for the
purchase or refinancing of a dwelling that is or will become the
applicant's principal residence. Therefore, applications for credit
secured by the applicant's principal residence but made primarily for a
purpose other than the purchase or refinancing of the principal
residence (such as loans for home improvement and debt consolidation)
are not subject to the information-collection requirements. An
application for an open-end home equity line of credit is not subject to
this section unless it is readily apparent to the creditor when the
application is taken that the primary purpose of the line is for the
purchase or refinancing of a principal dwelling.
6. Refinancings. A refinancing occurs when an existing obligation is
satisfied and replaced by a new obligation undertaken by the same
borrower. A creditor that receives an application to refinance an
existing extension of credit made by that creditor for the purchase of
the applicant's dwelling may request the monitoring information again
but is not required to do so if it was obtained in the earlier
transaction.
7. Data collection under Regulation C. For applications subject to
Sec. 1002.13(a)(1), a creditor that collects information about the
ethnicity, race, and sex of an applicant in compliance with the
requirements of appendix B to 12 CFR part 1003 is acting in compliance
with Sec. 1002.13 concerning the collection of an applicant's
ethnicity, race, and sex information. See also comment 5(a)(2)-2.
8. Application-by-application basis. For applications subject to
Sec. 1002.13(a)(1), a creditor may choose on an application-by-
application basis whether to collect aggregate information pursuant to
Sec. 1002.13(a)(1)(i)(A) or disaggregated information pursuant to Sec.
1002.13(a)(1)(i)(B) about the ethnicity and race of the applicant.
13(b) Obtaining of Information
1. Forms for collecting data. A creditor may collect the information
specified in Sec. 1002.13(a) either on an application form or on a
separate form referring to the application. Appendix B to this part
provides for two alternative data collection model forms for use in
complying with the requirements of Sec. 1002.13(a)(1)(i) and (ii) to
collect information concerning an applicant's ethnicity, race, and sex.
When a creditor collects ethnicity and race information pursuant to
Sec. 1002.13(a)(1)(i)(A), the applicant must be offered the option to
select more than one racial designation. When a creditor collects
ethnicity and race information pursuant to
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Sec. 1002.13(a)(1)(i)(B), the applicant must be offered the option to
select more than one ethnicity designation and more than one racial
designation.
2. Written applications. The regulation requires written
applications for the types of credit covered by Sec. 1002.13. A
creditor can satisfy this requirement by recording on paper or by means
of computer the information that the applicant provides orally and that
the creditor normally considers in a credit decision.
3. Telephone, mail applications. i. A creditor that accepts an
application by telephone or mail must request the monitoring
information.
ii. A creditor that accepts an application by mail need not make a
special request for the monitoring information if the applicant has
failed to provide it on the application form returned to the creditor.
iii. If it is not evident on the face of an application that it was
received by mail, telephone, or via an electronic medium, the creditor
should indicate on the form or other application record how the
application was received.
4. Video and other electronic-application processes. i. If a
creditor takes an application through an electronic medium that allows
the creditor to see the applicant, the creditor must treat the
application as taken in person. The creditor must note the monitoring
information on the basis of visual observation or surname, if the
applicant chooses not to provide the information.
ii. If an applicant applies through an electronic medium without
video capability, the creditor treats the application as if it were
received by mail.
5. Applications through loan-shopping services. When a creditor
receives an application through an unaffiliated loan-shopping service,
it does not have to request the monitoring information for purposes of
the ECOA or subpart A of this Regulation B. Creditors subject to the
Home Mortgage Disclosure Act should be aware, however, that data
collection may be called for under Regulation C (12 CFR part 1003),
which generally requires creditors to report, among other things, the
sex and race of an applicant on brokered applications or applications
received through a correspondent. Similarly, creditors that are covered
financial institutions under subpart B of this Regulation may also be
required to collect, report, and maintain certain data, as set forth in
subpart B of this Regulation.
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 provides data collection model forms for use in
complying with Sec. 1002.13 and that comply with Sec. 1002.13(c). A
creditor may devise its own disclosure so long as it is substantially
similar. The creditor need not orally request the monitoring information
if it is requested in writing.
13(d) Substitute monitoring program.
1. Substitute program. An enforcement agency may adopt, under its
established rulemaking or enforcement procedures, a program requiring
creditors under its jurisdiction to collect information in addition to
information required by this section.
Section 1002.14--Rules on Providing Appraisals and Valuations
14(a) Providing appraisals and other valuations.
1. Multiple applicants. If there is more than one applicant, the
written disclosure about written appraisals, and the copies of
appraisals and other written valuations, need only be given to one
applicant. However, these materials must be given to the primary
applicant where one is readily apparent. Similarly, if there is more
than one applicant for credit in the transaction, one applicant may
provide a waiver under Sec. 1002.14(a)(1), but it must be the primary
applicant where one is readily apparent.
14(a)(1) In general.
1. Coverage. Section 1002.14 covers applications for credit to be
secured by a first lien on a dwelling, as that term is defined in Sec.
1002.14(b)(2), whether the credit is for a business purpose (for
example, a loan to start a business) or a consumer purpose (for example,
a loan to purchase a home).
2. Renewals. Section 1002.14(a)(1) applies when an applicant
requests the renewal of an existing extension of credit and the creditor
develops a new appraisal or other written valuation. Section
1002.14(a)(1) does not apply to the extent a creditor uses the
appraisals and other written valuations that were previously developed
in connection with the prior extension of credit to evaluate the renewal
request.
3. Written. For purposes of Sec. 1002.14, an ``appraisal or other
written valuation'' includes, without limitation, an appraisal or other
valuation received or developed by the creditor in paper form (hard
copy); electronically, such as CD or email; or by any other similar
media. See Sec. 1002.14(a)(5) regarding the provision of copies of
appraisals and other written valuations to applicants via electronic
means.
4. Timing. Section 1002.14(a)(1) requires that the creditor
``provide'' copies of appraisals and other written valuations to the
applicant ``promptly upon completion,'' or no later than three business
days before consummation (for closed-end credit) or account
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opening (for open-end credit), whichever is earlier.
i. For purposes of this timing requirement, ``provide'' means
``deliver.'' Delivery occurs three business days after mailing or
delivering the copies to the last-known address of the applicant, or
when evidence indicates actual receipt by the applicant, whichever is
earlier. Delivery to or actual receipt by the applicant by electronic
means must comply with the E-Sign Act, as provided for in Sec.
1002.14(a)(5).
ii. The application and meaning of the ``promptly upon completion''
standard depends upon the facts and circumstances, including but not
limited to when the creditor receives the appraisal or other written
valuation, and the extent of any review or revision after the creditor
receives it.
iii. ``Completion'' occurs when the last version is received by the
creditor, or when the creditor has reviewed and accepted the appraisal
or other written valuation to include any changes or corrections
required, whichever is later. See also comment 14(a)(1)-7.
iv. In a transaction that is being consummated (for closed-end
credit) or in which the account is being opened (for open-end credit),
if an appraisal or other written valuation has been developed but is not
yet complete, the deadline for providing a copy of three business days
before consummation or account opening still applies, unless the
applicant waived that deadline as provided under Sec. 1002.14(a)(1), in
which case the copy must be provided at or before consummation or
account opening.
v. Even if the transaction will not be consummated (for closed-end
credit) or the account will not be opened (for open-end credit), the
copy must be provided ``promptly upon completion'' as provided for in
Sec. 1002.14(a)(1), unless the applicant has waived that deadline as
provided under Sec. 1002.14(a)(1), in which case as provided for in
Sec. 1002.14(a)(1) the copy must be provided to the applicant no later
than 30 days after the creditor determines the transaction will not be
consummated or the account will not be opened.
5. Promptly upon completion-examples. Examples in which the
``promptly upon completion'' standard would be satisfied include, but
are not limited to, those in subparagraphs i, ii, and iii below.
Examples in which the ``promptly upon completion'' standard would not be
satisfied include, but are not limited to, those in subparagraphs iv and
v below.
i. Sending a copy of an appraisal within a week of completion with
sufficient time before consummation (or account opening for open-end
credit). On day 15 after receipt of the application, the creditor's
underwriting department reviews an appraisal and determines it is
acceptable. One week later, the creditor sends a copy of the appraisal
to the applicant. The applicant actually receives the copy more than
three business days before the date of consummation (or account
opening). The creditor has provided the copy of the appraisal promptly
upon completion.
ii. Sending a copy of a revised appraisal within a week after
completion and with sufficient time before consummation (or account
opening for open-end credit). An appraisal is being revised, and the
creditor does not receive the revised appraisal until day 45 after the
application, when the creditor immediately determines the revised
appraisal is acceptable. A week later, the creditor sends a copy of the
revised appraisal to the applicant, and does not send a copy of the
initial appraisal to the applicant. The applicant actually receives the
copy of the revised appraisal three business days before the date of
consummation (or account opening). The creditor has provided the
appraisal copy promptly upon completion.
iii. Sending a copy of an AVM report within a week after its receipt
and with sufficient time before consummation (or account opening for
open-end credit). The creditor receives an automated valuation model
(AVM) report on day 5 after receipt of the application and treats the
AVM report as complete when it is received. On day 12 after receipt of
the application, the creditor sends the applicant a copy of the
valuation. The applicant actually receives the valuation more than three
business days before the date of consummation (or account opening). The
creditor has provided the copy of the AVM report promptly upon
completion.
iv. Delay in sending an appraisal. On day 12 after receipt of the
application, the creditor's underwriting department reviews an appraisal
and determines it is acceptable. Although the creditor has determined
the appraisal is complete, the creditor waits to provide a copy to the
applicant until day 42, when the creditor schedules the consummation (or
account opening) to occur on day 50. The creditor has not provided the
copy of the appraisal promptly upon completion.
v. Delay in sending an AVM report while waiting for completion of a
second valuation. The creditor receives an AVM report on day 5 after
application and completes its review of the AVM report the day it is
received. The creditor also has ordered an appraisal, but the initial
version of the appraisal received by the creditor is found to be
deficient and is sent for review. The creditor waits 30 days to provide
a copy of the completed AVM report, until the appraisal is completed on
day 35. The creditor then provides the applicant with copies of the AVM
report and the revised appraisal. While the appraisal report was
provided promptly upon completion, the AVM report was not.
6. Waiver. Section 1002.14(a)(1) permits the applicant to waive the
timing requirement if
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the creditor provides the copies at or before consummation or account
opening, except where otherwise prohibited by law. Except where
otherwise prohibited by law, an applicant's waiver is effective under
Sec. 1002.14(a)(1) in either of the following two situations:
i. If, no later than three business days prior to consummation or
account opening, the applicant provides the creditor an affirmative oral
or written statement waiving the timing requirement under this rule; or
ii. If, within three business days of consummation or account
opening, the applicant provides the creditor an affirmative oral or
written statement waiving the timing requirement under this rule and the
waiver pertains solely to the applicant's receipt of a copy of an
appraisal or other written valuation that contains only clerical changes
from a previous version of the appraisal or other written valuation
provided to the applicant three or more business days prior to
consummation or account opening. For purpose of this second type of
waiver, revisions will only be considered to be clerical in nature if
they have no impact on the estimated value, and have no impact on the
calculation or methodology used to derive the estimate. In addition,
under Sec. 1002.14(a)(1) the applicant still must receive the copy of
the revision at or prior to consummation or account opening.
7. Multiple versions of appraisals or valuations. For purposes of
Sec. 1002.14(a)(1), the reference to ``all'' appraisals and other
written valuations does not refer to all versions of the same appraisal
or other valuation. If a creditor has received multiple versions of an
appraisal or other written valuation, the creditor is required to
provide only a copy of the latest version received. If, however, a
creditor already has provided a copy of one version of an appraisal or
other written valuation to an applicant, and the creditor later receives
a revision of that appraisal or other written valuation, then the
creditor also must provide the applicant with a copy of the revision to
comply with Sec. 1002.14(a)(1). If a creditor receives only one version
of an appraisal or other valuation that is developed in connection with
the applicant's application, then that version must be provided to the
applicant to comply with Sec. 1002.14(a)(1). See also comment 14(a)(1)-
4 above.
14(a)(2) Disclosure.
1. Appraisal independence requirements not affected. Nothing in the
text of the disclosure required by Sec. 1002.14(a)(2) should be
construed to affect, modify, limit, or supersede the operation of any
legal, regulatory, or other requirements or standards relating to
independence in the conduct of appraisers or the use of applicant-
ordered appraisals by creditors.
14(a)(3) Reimbursement.
1. Photocopy, postage, or other costs. Creditors may not charge for
photocopy, postage, or other costs incurred in providing a copy of an
appraisal or other written valuation in accordance with section
14(a)(1).
2. Reasonable fee for reimbursement. Section 1002.14(a)(3) does not
prohibit a creditor from imposing a reasonable fee to reimburse the
creditor's costs of the appraisal or other written valuation, so long as
the fee is not increased to cover the costs of providing copies of such
appraisals or other written valuations under Sec. 1002.14(a)(1). A
creditor's cost may include an administration fee charged to the
creditor by an appraisal management company as defined in 12 U.S.C.
3350(11). Section 1002.14(a)(3) does not, however, legally obligate the
applicant to pay such fees. Further, creditors may not impose fees for
reimbursement of the costs of an appraisal or other valuation where
otherwise prohibited by law. For instance, a creditor may not charge a
consumer a fee for the performance of a second appraisal if the second
appraisal is required under 15 U.S.C. 1639h(b)(2) and 12 CFR 1026.35(c).
14(b) Definitions.
14(b)(1) Consummation.
1. State law governs. When a contractual obligation on the
consumer's part is created is a matter to be determined under applicable
law; Sec. 1002.14 does not make this determination. A contractual
commitment agreement, for example, that under applicable law binds the
consumer to the credit terms would be consummation. Consummation,
however, does not occur merely because the consumer has made some
financial investment in the transaction (for example, by paying a
nonrefundable fee) unless, of course, applicable law holds otherwise.
2. Credit vs. sale. Consummation does not occur when the consumer
becomes contractually committed to a sale transaction, unless the
consumer also becomes legally obligated to accept a particular credit
arrangement.
14(b)(2) Dwelling.
1. ``Motor vehicles'' not covered. The requirements of Sec. 1002.14
do not apply to ``motor vehicles'' as defined by 12 U.S.C. 5519(f)(1).
14(b)(3) Valuation.
1. Valuations--examples. Examples of valuations include but are not
limited to:
i. A report prepared by an appraiser (whether or not licensed or
certified) including the appraiser's estimate of the property's value or
opinion of value.
ii. A document prepared by the creditor's staff that assigns value
to the property.
iii. A report approved by a government-sponsored enterprise for
describing to the applicant the estimate of the property's value
developed pursuant to the proprietary methodology or mechanism of the
government-sponsored enterprise.
iv. A report generated by use of an automated valuation model to
estimate the property's value.
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v. A broker price opinion prepared by a real estate broker, agent,
or sales person to estimate the property's value.
2. Attachments and exhibits. The term ``valuation'' includes any
attachments and exhibits that are an integrated part of the valuation.
3. Other documentation. Not all documents that discuss or restate a
valuation of an applicant's property constitute a ``valuation'' for
purposes of Sec. 1002.14(b)(3). Examples of documents that discuss the
valuation of the applicant's property or may reflect its value but
nonetheless are not ``valuations'' include but are not limited to:
i. Internal documents that merely restate the estimated value of the
dwelling contained in an appraisal or written valuation being provided
to the applicant.
ii. Governmental agency statements of appraised value that are
publically available.
iii. Publicly-available lists of valuations (such as published sales
prices or mortgage amounts, tax assessments, and retail price ranges).
iv. Manufacturers' invoices for manufactured homes.
v. Reports reflecting property inspections that do not provide an
estimate of the value of the property and are not used to develop an
estimate of the value of the property.
vi. Appraisal reviews that do not include the appraiser's estimate
of the property's value or opinion of value.
Section 1002.15--Incentives for Self-Testing and Self-Correction
15(a) General rules.
15(a)(1) Voluntary self-testing and correction.
1. Activities required by any governmental authority are not
voluntary self-tests. A governmental authority includes both
administrative and judicial authorities for Federal, State, and local
governments.
15(a)(2) Corrective action required.
1. To qualify for the privilege, appropriate corrective action is
required when the results of a self-test show that it is more likely
than not that there has been a violation of the ECOA or this part. A
self-test is also privileged when it identifies no violations.
2. In some cases, the issue of whether certain information is
privileged may arise before the self-test is complete or corrective
actions are fully under way. This would not necessarily prevent a
creditor from asserting the privilege. In situations where the self-test
is not complete, for the privilege to apply the lender must satisfy the
regulation's requirements within a reasonable period of time. To assert
the privilege where the self-test shows a likely violation, the rule
requires, at a minimum, that the creditor establish a plan for
corrective action and a method to demonstrate progress in implementing
the plan. Creditors must take appropriate corrective action on a timely
basis after the results of the self-test are known.
3. A creditor's determination about the type of corrective action
needed, or a finding that no corrective action is required, is not
conclusive in determining whether the requirements of this paragraph
have been satisfied. If a creditor's claim of privilege is challenged,
an assessment of the need for corrective action or the type of
corrective action that is appropriate must be based on a review of the
self-testing results, which may require an in camera inspection of the
privileged documents.
15(a)(3) Other privileges.
1. A creditor may assert the privilege established under this
section in addition to asserting any other privilege that may apply,
such as the attorney-client privilege or the work-product privilege.
Self-testing 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
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hiring testers to submit fictitious loan applications for processing.
2. The privilege does not protect a creditor's analysis performed as
part of processing or underwriting a credit application. A creditor's
evaluation or analysis of its loan files, Home Mortgage Disclosure Act
data, or similar types of records (such as broker or loan officer
compensation records) does not produce new information about a
creditor's compliance and is not a self-test for purposes of this
section. Similarly, a statistical analysis of data derived from existing
loan files is not privileged.
15(b)(3) Types of information not privileged.
Paragraph 15(b)(3)(i).
1. The information listed in this paragraph is not privileged and
may be used to determine whether the prerequisites for the privilege
have been satisfied. Accordingly, a creditor might be asked to identify
the self-testing method, for example, whether preapplication testers
were used or data were compiled by surveying loan applicants.
Information about the scope of the self-test (such as the types of
credit transactions examined, or the geographic area covered by the
test) also is not privileged.
Paragraph 15(b)(3)(ii).
1. Property appraisal reports, minutes of loan committee meetings or
other documents reflecting the basis for a decision to approve or deny
an application, loan policies or procedures, underwriting standards, and
broker compensation records are examples of the types of records that
are not privileged. If a creditor arranges for testers to submit loan
applications for processing, the records are not related to actual
credit transactions for purposes of this paragraph and may be privileged
self-testing records.
15(c) Appropriate corrective action.
1. The rule only addresses the corrective actions required for a
creditor to take advantage of the privilege in this section. A creditor
may be required to take other actions or provide additional relief if a
formal finding of discrimination is made.
15(c)(1) General requirement.
1. Appropriate corrective action is required even though no
violation has been formally adjudicated or admitted by the creditor. In
determining whether it is more likely than not that a violation
occurred, a creditor must treat testers as if they are actual applicants
for credit. A creditor may not refuse to take appropriate corrective
action under this section because the self-test used fictitious loan
applicants. The fact that a tester's agreement with the creditor waives
the tester's legal right to assert a violation does not eliminate the
requirement for the creditor to take corrective action, although no
remedial relief for the tester is required under paragraph 15(c)(3).
15(c)(2) Determining the scope of appropriate corrective action.
1. Whether a creditor has taken or is taking corrective action that
is appropriate will be determined on a case-by-case basis. Generally,
the scope of the corrective action that is needed to preserve the
privilege is governed by the scope of the self-test. For example, a
creditor that self-tests mortgage loans and discovers evidence of
discrimination may focus its corrective actions on mortgage loans, and
is not required to expand its testing to other types of loans.
2. In identifying the policies or practices that are a likely cause
of the violation, a creditor might identify inadequate or improper
lending policies, failure to implement established policies, employee
conduct, or other causes. The extent and scope of a likely violation may
be assessed by determining 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
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be available by law. An applicant might also be ineligible for certain
types of relief due to changed circumstances. For example, a creditor is
not required to offer credit to a denied applicant if the applicant no
longer qualifies for the credit due to a change in financial
circumstances, although some other type of relief might be appropriate.
15(d)(1) Scope of privilege.
1. The privilege applies with respect to any examination,
investigation or proceeding by Federal, State, or local government
agencies relating to compliance with the Act or this part. Accordingly,
in a case brought under the ECOA, the privilege established under this
section preempts any inconsistent laws or court rules to the extent they
might require disclosure of privileged self-testing data. The privilege
does not apply in other cases (such as in litigation filed solely under
a State's fair lending statute). In such cases, if a court orders a
creditor to disclose self-test results, the disclosure is not a
voluntary disclosure or waiver of the privilege for purposes of
paragraph 15(d)(2); a creditor may protect the information by seeking a
protective order to limit availability and use of the self-testing data
and prevent dissemination beyond what is necessary in that case.
Paragraph 15(d)(1) precludes a party who has obtained privileged
information from using it in a case brought under the ECOA, provided the
creditor has not lost the privilege through voluntary disclosure under
paragraph 15(d)(2).
15(d)(2) Loss of privilege.
Paragraph 15(d)(2)(i).
1. A creditor's corrective action, by itself, is not considered a
voluntary disclosure of the self-test report or results. For example, a
creditor does not disclose the results of a self-test merely by offering
to extend credit to a denied applicant or by inviting the applicant to
reapply for credit. Voluntary disclosure could occur under this
paragraph, however, if the creditor disclosed the self-test results in
connection with a new offer of credit.
2. The disclosure of self-testing results to an independent
contractor acting as an auditor or consultant for the creditor on
compliance matters does not result in loss of the privilege.
Paragraph 15(d)(2)(ii).
1. The privilege is lost if the creditor discloses privileged
information, such as the results of the self-test. The privilege is not
lost if the creditor merely reveals or refers to the existence of the
self-test.
Paragraph 15(d)(2)(iii).
1. A creditor's claim of privilege may be challenged in a court or
administrative law proceeding with appropriate jurisdiction. In
resolving the issue, the presiding officer may require the creditor to
produce privileged information about the self-test.
Paragraph 15(d)(3) Limited use of privileged information.
1. A creditor may be required to produce privileged documents for
the purpose of determining a penalty or remedy after a violation of the
ECOA or Regulation B has been formally adjudicated or admitted. A
creditor's compliance with such a requirement does not evidence the
creditor's intent to forfeit the privilege.
Section 1002.16--Enforcement, Penalties, and Liabilities
16(c) Failure of compliance.
1. Inadvertent errors. Inadvertent errors include, but are not
limited to, clerical mistake, calculation error, computer malfunction,
and printing error. An error of legal 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.
Section 1002.102--Definitions
102(b) Applicant
1. General. In no way are the limitations to the term applicant in
Sec. 1002.102(b) of subpart B intended to repeal, abrogate, annul,
impair, change, or interfere with the scope of the term applicant in
Sec. 1002.2(e) as applicable to subpart A.
102(l) LGBTQI+-Owned Business
1. General. In order to be an LGBTQI+-owned business for purposes of
subpart B of this part, a business must satisfy both prongs of the
definition of LGBTQI+-owned business. First, one or more LGBTQI+
individuals must own or control more than 50 percent of the business.
However, it is not necessary that one or more LGBTQI+ individuals both
own and control more than 50 percent of the business. For example, a
business that is owned entirely by one or more LGBTQI+ individuals but
is not controlled by any one or more such individuals satisfies the
first prong of the definition. Similarly, a business that is controlled
by an LGBTQI+ individual satisfies this first prong of the definition,
even if none of the individuals with ownership in the business are
LGBTQI+ individuals. If a business does not satisfy this first prong of
the definition, it is not an LGBTQI+-owned business. Second, 50 percent
or more of the net profits or losses must accrue to one or more LGBTQI+
individuals. If a business does not satisfy this second prong of the
definition, it is not an LGBTQI+-owned business, regardless of whether
it satisfies the first prong of the definition.
2. Purpose of definition. The definition of LGBTQI+-owned business
is used only when an applicant determines if it is an LGBTQI+-
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owned business for purposes of Sec. 1002.107(a)(18). A financial
institution shall provide an applicant with the definition of LGBTQI+-
owned business when asking the applicant to provide its LGBTQI+-owned
business status pursuant to Sec. 1002.107(a)(18). A financial
institution satisfies this requirement if it provides the definition as
set forth in the sample data collection form in appendix E. The
financial institution must provide additional clarification by
referencing the definition of LGBTQI+ individual as set forth in Sec.
1002.102(k) if asked by the applicant. The financial institution is
neither permitted nor required to make its own determination regarding
the applicant's LGBTQI+-owned business status.
3. Further clarifications of terms used in the definition of
LGBTQI+-owned business. In order to assist an applicant when determining
whether it is an LGBTQI+-owned business, a financial institution may
provide the applicant with the definitions of ownership, control, and
accrual of net profits or losses and related concepts set forth in
comments 102(l)-4 through -6. A financial institution may assist an
applicant when the applicant is determining its LGBTQI+-owned business
status but is not required to do so. For purposes of reporting an
applicant's status, a financial institution relies on the applicant's
determinations of its ownership, control, and accrual of net profits and
losses.
4. Ownership. For purposes of determining if a business is an
LGBTQI+-owned business, an individual owns a business if that individual
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has an equity interest in the
business. Examples of ownership include being the sole proprietor of a
sole proprietorship, directly or indirectly owning or holding the stock
of a corporation or company, directly or indirectly having a partnership
interest in a business, or directly or indirectly having a membership
interest in a limited liability company. Indirect as well as direct
ownership are used when determining ownership for purposes of Sec. Sec.
1002.102(l) and 1002.107(a)(18). Thus, where applicable, ownership must
be traced through corporate or other indirect ownership structures. For
example, assume that the applicant is company A. If company B owns 60
percent of applicant company A and an individual owns 100 percent of
company B, the individual owns 60 percent of applicant company A.
Similarly, if an individual directly owns 20 percent of applicant
company A and is an equal partner in partnership B that owns the
remaining 80 percent of applicant company A, the individual owns 60
percent of applicant company A (i.e., 20 percent due through direct
ownership and 40 percent indirectly through partnership B). A trustee is
considered the owner of the trust. Thus, if a trust owns a business and
the trust has two co-trustees, each co-trustee owns 50 percent of the
business.
5. Control. An individual controls a business if that individual has
significant responsibility to manage or direct the business. An
individual controls a business if the individual is an executive officer
or senior manager (e.g., a chief executive officer, chief financial
officer, chief operating officer, managing member, general partner,
president, vice president, or treasurer) or regularly performs similar
functions. Additionally, a business may be controlled by two or more
LGBTQI+ individuals if those individuals collectively control the
business, such as constituting a majority of the board of directors or a
majority of the partners of a partnership.
6. Accrual of net profits or losses. A business's net profits and
losses accrue to an individual if that individual receives the net
profits or losses, is legally entitled or required to receive the net
profits or losses, or is legally entitled or required to recognize the
net profits or losses for tax purposes.
102(m) Minority-Owned Business
1. General. In order to be a minority-owned business for purposes of
subpart B of this part, a business must satisfy both prongs of the
definition of minority-owned business. First, one or more American
Indian or Alaska Native, Asian, Black or African American, Native
Hawaiian or Other Pacific Islander, or Hispanic or Latino individuals
must own or control more than 50 percent of the business. However, it is
not necessary that one or more American Indian or Alaska Native, Asian,
Black or African American, Native Hawaiian or Other Pacific Islander, or
Hispanic or Latino individuals both own and control more than 50 percent
of the business. For example, a business that is owned entirely, but is
not controlled by, individuals belonging to one of these groups
satisfies the first prong of the definition. Similarly, a business that
is controlled by an American Indian or Alaska Native, Asian, Black or
African American, Native Hawaiian or Other Pacific Islander, or Hispanic
or Latino individual satisfies this first prong of the definition, even
if none of the individuals with ownership in the business are American
Indian or Alaska Native, Asian, Black or African American, Native
Hawaiian or Other Pacific Islander, or Hispanic or Latino. If a business
does not satisfy this first prong of the definition, it is not a
minority-owned business. Second, 50 percent or more of the net profits
or losses must accrue to one or more individuals belonging to these
groups. If a business does not satisfy this second prong of the
definition, it is not a minority-owned business, regardless of whether
it satisfies the first prong of the definition.
2. Purpose of definition. The definition of minority-owned business
is used only when
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an applicant determines if it is a minority-owned business for purposes
of Sec. 1002.107(a)(18). A financial institution shall provide an
applicant with the definition of minority-owned business when asking the
applicant to provide its minority-owned business status pursuant to
Sec. 1002.107(a)(18), but the financial institution is neither
permitted nor required to make its own determination regarding the
applicant's minority-owned business status.
3. Further clarifications of terms used in the definition of
minority-owned business. In order to assist an applicant when
determining whether it is a minority-owned business, a financial
institution may provide the applicant with the definitions of ownership,
control, and accrual of net profits or losses and related concepts set
forth in comments 102(m)-4 through -6. A financial institution may
assist an applicant when the applicant is determining its minority-owned
business status but is not required to do so. For purposes of reporting
an applicant's status, a financial institution relies on the applicant's
determinations of its ownership, control, and accrual of net profits and
losses.
4. Ownership. For purposes of determining if a business is a
minority-owned business, an individual owns a business if that
individual directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has an equity interest in the
business. Examples of ownership include being the sole proprietor of a
sole proprietorship, directly or indirectly owning or holding the stock
of a corporation or company, directly or indirectly having a partnership
interest in a business, or directly or indirectly having a membership
interest in a limited liability company. Indirect as well as direct
ownership are used when determining ownership for purposes of Sec. Sec.
1002.102(m) and 1002.107(a)(18). Thus, where applicable, ownership must
be traced through corporate or other indirect ownership structures. For
example, assume that the applicant is company A. If company B owns 60
percent of applicant company A and an individual owns 100 percent of
company B, the individual owns 60 percent of applicant company A.
Similarly, if an individual directly owns 20 percent of applicant
company A and is an equal partner in partnership B that owns the
remaining 80 percent of applicant company A, the individual owns 60
percent of applicant company A (i.e., 20 percent due through direct
ownership and 40 percent indirectly through partnership B). A trustee is
considered the owner of the trust. Thus, if a trust owns a business and
the trust has two co-trustees, each co-trustee owns 50 percent of the
business.
5. Control. An individual controls a business if that individual has
significant responsibility to manage or direct the business. An
individual controls a business if the individual is an executive officer
or senior manager (e.g., a chief executive officer, chief financial
officer, chief operating officer, managing member, general partner,
president, vice president, or treasurer) or regularly performs similar
functions. Additionally, a business may be controlled by two or more
American Indian or Alaska Native, Asian, Black or African American,
Native Hawaiian or Other Pacific Islander, or Hispanic or Latino
individuals if those individuals collectively control the business, such
as constituting a majority of the board of directors or a majority of
the partners of a partnership.
6. Accrual of net profits or losses. A business's net profits and
losses accrue to an individual if that individual receives the net
profits or losses, is legally entitled or required to receive the net
profits or losses, or is legally entitled or required to recognize the
net profits or losses for tax purposes.
7. Multi-racial and multi-ethnic individuals. For purposes of
subpart B of this part, an individual who is multi-racial or multi-
ethnic constitutes an individual for whom the definition of minority-
owned business may apply, depending on whether the individual meets the
other requirements of the definition. For example, an individual who is
both Asian and White is an individual for whom the definition of
minority-owned business shall apply if the individual meets the other
requirements of the definition related to ownership or control and
accrual of profits or losses.
8. Relationship to disaggregated subcategories used to determine
ethnicity and race of principal owners. The ethnicity and race
categories used in this section are aggregate ethnicity (Hispanic or
Latino) and race (American Indian or Alaska Native, Asian, Black or
African American, and Native Hawaiian or Other Pacific Islander)
categories. Those ethnicity and race categories are the same aggregate
categories used (along with Not Hispanic or Latino for ethnicity, and
White for race) to collect an applicant's principal owners' ethnicity
and race pursuant to Sec. 1002.107(a)(19).
102(o) Principal Owner
1. Individual. Only an individual can be a principal owner of a
business for purposes of subpart B of this part. Entities, such as
trusts, partnerships, limited liability companies, and corporations, are
not principal owners for this purpose. Additionally, an individual must
directly own an equity share of 25 percent or more in the business in
order to be a principal owner. Unlike the determination of ownership for
purposes of collecting and reporting minority-owned business status,
women-owned business status, and LGBTQI+-owned business status, indirect
ownership is not considered when determining if someone is a principal
owner for
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purposes of collecting and reporting principal owners' ethnicity, race,
and sex or the number of principal owners. Thus, when determining who is
a principal owner, ownership is not traced through multiple corporate
structures to determine if an individual owns 25 percent or more of the
equity interests. For example, if individual A directly owns 20 percent
of a business, individual B directly owns 20 percent, and partnership C
owns 60 percent, the business does not have any owners who satisfy the
definition of principal owner set forth in Sec. 1002.102(o), even if
individual A and individual B are the only partners in the partnership
C. Similarly, if individual A directly owns 30 percent of a business,
individual B directly owns 20 percent, and trust D owns 50 percent,
individual A is the only principal owner as defined in Sec.
1002.102(o), even if individual B is the sole trustee of trust D.
2. Trustee. Although a trust is not considered a principal owner of
a business for the purposes of subpart B, if the applicant for a covered
credit transaction is a trust, a trustee is considered the owner of the
trust. Thus, if a trust is an applicant for a covered credit transaction
and the trust has two co-trustees, each co-trustee is considered to own
50 percent of the business and would each be a principal owner as
defined in Sec. 1002.102(o). In contrast, if the trust has five co-
trustees, each co-trustee is considered to own 20 percent of the
business and would not meet the definition of principal owner under
Sec. 1002.102(o).
3. Purpose of definition. A financial institution shall provide an
applicant with the definition of principal owner when asking the
applicant to provide the number of its principal owners pursuant to
Sec. 1002.107(a)(20) and the ethnicity, race, and sex of its principal
owners pursuant to Sec. 1002.107(a)(19). See comments 107(a)(19)-2 and
107(a)(20)-1.
102(s) Women-Owned Business
1. General. In order to be a women-owned business for purposes of
subpart B of this part, a business must satisfy both prongs of the
definition of women-owned business. First, one or more women must own or
control more than 50 percent of the business. However, it is not
necessary that one or more women both own and control more than 50
percent of the business. For example, a business that is owned entirely
by women but is not controlled by any women satisfies the first prong of
the definition. Similarly, a business that is controlled by a woman
satisfies this first prong of the definition, even if none of the
individuals with ownership in the business are women. If a business does
not satisfy this first prong of the definition, it is not a women-owned
business. Second, 50 percent or more of the net profits or losses must
accrue to one or more women. If a business does not satisfy this second
prong of the definition, it is not a women-owned business, regardless of
whether it satisfies the first prong of the definition.
2. Purpose of definition. The definition of women-owned business is
used only when an applicant determines if it is a women-owned business
pursuant to Sec. 1002.107(a)(18). A financial institution shall provide
an applicant with the definition of women-owned business when asking the
applicant to provide its women-owned business status pursuant to Sec.
1002.107(a)(18), but the financial institution is neither permitted nor
required to make its own determination regarding the applicant's women-
owned business status.
3. Further clarifications of terms used in the definition of women-
owned business. In order to assist an applicant when determining whether
it is a women-owned business, a financial institution may provide the
applicant with the definitions of ownership, control, and accrual of net
profits or losses and related concepts set forth in comments 102(s)-4
through -6. A financial institution may assist an applicant when the
applicant is determining its women-owned business status but is not
required to do so. For purposes of reporting an applicant's status, a
financial institution relies on the applicant's determinations of its
ownership, control, and accrual of net profits and losses.
4. Ownership. For purposes of determining if a business is a women-
owned business, an individual owns a business if that individual
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has an equity interest in the
business. Examples of ownership include being the sole proprietor of a
sole proprietorship, directly or indirectly owning or holding the stock
of a corporation or company, directly or indirectly having a partnership
interest in a business, or directly or indirectly having a membership
interest in a limited liability company. Indirect as well as direct
ownership are used when determining ownership for purposes of Sec. Sec.
1002.102(s) and 1002.107(a)(18). Thus, where applicable, ownership must
be traced through corporate or other indirect ownership structures. For
example, assume that the applicant is company A. If company B owns 60
percent of the applicant company A and an individual owns 100 percent of
company B, the individual owns 60 percent of the applicant company A.
Similarly, if an individual directly owns 20 percent of the applicant
company A and is an equal partner in a partnership B that owns the
remaining 80 percent of the applicant company A, the individual owns 60
percent of applicant company A (i.e., 20 percent due through direct
ownership and 40 percent indirectly through partnership B). A trustee is
considered the owner of the trust. Thus, if a trust owns a business and
the trust has two
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co-trustees, each co-trustee owns 50 percent of the business.
5. Control. An individual controls a business if that individual has
significant responsibility to manage or direct the business. An
individual controls a business if the individual is an executive officer
or senior manager (e.g., a chief executive officer, chief financial
officer, chief operating officer, managing member, general partner,
president, vice president, or treasurer) or regularly performs similar
functions. Additionally, a business may be controlled by two or more
women if those women collectively control the business, such as
constituting a majority of the board of directors or a majority of the
partners of a partnership.
6. Accrual of net profits or losses. A business's net profits and
losses accrue to an individual if that individual receives the net
profits or losses, is legally entitled or required to receive the net
profits or losses, or is legally entitled or required to recognize the
net profits or losses for tax purposes.
Section 1002.103--Covered Applications
103(a) Covered Application
1. General. Subject to the requirements of subpart B of this part, a
financial institution has latitude to establish its own application
procedures, including designating the type and amount of information it
will require from applicants.
2. Procedures used. The term ``procedures'' refers to the actual
practices followed by a financial institution as well as its stated
application procedures. For example, if a financial institution's stated
policy is to require all applications to be in writing on the financial
institution's application form, but the financial institution also makes
credit decisions based on oral requests, the financial institution's
procedures are to accept both oral and written applications.
3. Consistency with subpart A. Bureau interpretations that appear in
this supplement I in connection with Sec. Sec. 1002.2(f) and 1002.9 are
generally applicable to the definition of a covered application in Sec.
1002.103. However, the definition of a covered application in Sec.
1002.103 does not include inquiries and prequalification requests. The
definition of a covered application also does not include reevaluation,
extension, or renewal requests on an existing business credit account,
unless the request seeks additional credit amounts. See Sec.
1002.103(b).
4. Solicitations and firm offers of credit. For purposes of subpart
B of this part, the term covered application does not include
solicitations, firm offers of credit, or other evaluations initiated by
the financial institution because in these situations the business has
not made a request for credit. For example, if a financial institution
sends a firm offer of credit to a business for a $10,000 line of credit,
and the business does not respond, it is not a covered application
because the business never made a request for credit. However, using the
same example, if the business seeks to obtain the credit offered,
assuming the requirements of a covered application are otherwise met,
the business's request constitutes a covered application for purposes of
subpart B of this part. See also comment 103(b)-4.
5. Requests for multiple covered credit transactions at one time.
Assuming the requirements of a covered application are met, if an
applicant makes a request for two or more covered credit transactions at
the same time, the financial institution reports each request as a
separate covered application. For example, if an applicant is seeking
both a term loan and a line of credit and requests them both on the same
application form, the financial institution reports the requests as two
separate covered applications, one for a term loan and another for a
line of credit. See Sec. 1002.107(d) for the requirements for reusing
data so that a financial institution need only ask once for certain data
required under Sec. 1002.107(a). If, on the other hand, the applicant
is only requesting a single covered credit transaction, but has not
decided on which particular product, the financial institution reports
the request as a single covered application. For example, if the
applicant indicates interest in either a term loan or a line of credit,
but not both, the financial institution reports the request as a single
covered application. See comment 107(a)(5)-1 for instructions on
reporting credit product in this situation.
6. Initial request for a single covered credit transaction that
would result in the origination of multiple covered credit transactions.
Assuming the requirements of a covered application are met, if an
applicant initially makes a request for one covered credit transaction,
but over the course of the application process requests multiple covered
credit transactions, each covered credit transaction must be reported as
a separate covered application. See Sec. 1002.107(d) for the
requirements for reusing data so that a financial institution need only
ask once for certain data required under Sec. 1002.107(a).
7. Requests for multiple lines of credit at one time. Assuming the
requirements of a covered application are met, if an applicant requests
multiple lines of credit on a single credit account, it is reported as
one or more covered applications based on the procedures used by the
financial institution for the type of credit account. For example, if a
financial institution treats a request for multiple lines of credit at
one time as sub-components of a single account, the financial
institution reports the request as a single covered application. If, on
the other hand, the financial institution treats each line of credit as
a separate account, then the financial institution
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reports each request for a line of credit as a separate covered
application, as set forth in comment 103(a)-5.
8. Duplicate applications. If a financial institution receives two
or more duplicate covered applications (i.e., from the same applicant,
for the same credit product, for the same amount, at or around the same
time), the financial institution may treat the request as a single
covered application for purposes of subpart B, so long as for purposes
of determining whether to extend credit, it would also treat one or more
of the applications as a duplicate under its procedures.
9. Changes in whether there is a covered credit transaction. In
certain circumstances, an applicant may change the type of product
requested during the course of the application process. Assuming other
requirements of a covered application are met, if an applicant initially
requests a product that is not a covered credit transaction, but prior
to final action taken decides to seek instead a product that is a
covered credit transaction, the application is a covered application and
must be reported pursuant to Sec. 1002.109. In this circumstance, the
financial institution shall endeavor to compile, maintain, and report
the data required under Sec. 1002.107(a) in a manner that is reasonable
under the circumstances. If, on the other hand, an applicant initially
requests a product that is a covered credit transaction, but prior to
final action taken decides instead to seek a product that is not a
covered credit transaction, the application is not a covered application
and thus is not reported. See also Sec. 1002.112(c)(4), which provides
a safe harbor for incorrect collection of certain data if, at the time
of collection, the financial institution had a reasonable basis for
believing that the application was a covered application. Assuming other
requirements of a covered application are met, if an applicant initially
requests a product that is a covered credit transaction, the financial
institution counteroffers with a product that is not a covered credit
transaction, and the applicant declines to proceed or fails to respond,
the application is reported as a covered application. For example, if an
applicant initially applies for a term loan, but then, after
consultation with the financial institution, decides that a lease would
better meet its needs and decides to proceed with that product, the
application is not a covered application and thus is not reported.
However, if an applicant initially applies for a term loan, the
financial institution offers to consider the applicant only for a lease,
and the applicant refuses, the transaction is a covered application that
must be reported.
10. Multiple unaffiliated co-applicants. If a covered financial
institution receives a covered application from multiple businesses that
are not affiliates, as defined by Sec. 1002.102(a), it shall compile,
maintain, and report data pursuant to Sec. Sec. 1002.107 through
1002.109 for only a single applicant that is a small business, as
defined in Sec. 1002.106(b). A covered financial institution shall
establish consistent procedures for designating a single small business
for purposes of collecting and reporting data under subpart B in
situations where there is more than one small business co-applicant,
such as reporting on the first small business listed on an application
form. For example, if three businesses jointly apply as co-applicants
for a term loan to purchase a piece of equipment, but only one of the
businesses is a small business, as defined in Sec. 1002.106(b), the
financial institution reports on the single small business. If, however,
two of the businesses are small businesses, as defined in Sec.
1002.106(b), the financial institution must have a procedure for
designating which small business among multiple small business co-
applicants it will report information on, such as consistently reporting
on the first small business listed on an application form. See also
Sec. 1002.5(a)(4)(x), which permits a creditor to collect certain
protected information about co-applicants under certain circumstances.
11. Refinancings and evaluation, extension, or renewal requests that
request additional credit amounts. As discussed in comments 103(b)-2 and
-3, assuming other requirements of a covered application are met, an
applicant's request to refinance and an applicant's request for
additional credit amounts on an existing account both constitute covered
applications.
103(b) Circumstances That Are Not Covered Applications
1. In general. The circumstances set forth in Sec. 1002.103(b) are
not covered applications for purposes of subpart B of this part, even if
considered applications under subpart A of this part. However, in no way
are the exclusions in Sec. 1002.103(b) intended to repeal, abrogate,
annul, impair, change, or interfere with the scope of the term
application in Sec. 1002.2(f) as applicable to subpart A.
2. Reevaluation, extension, or renewal requests that do not request
additional credit amounts. An applicant's request to change one or more
terms of an existing account does not constitute a covered application,
unless the applicant is requesting additional credit amounts on the
account. For example, an applicant's request to extend the duration on a
line of credit or to remove a guarantor would not be a covered
application. However, assuming other requirements of a covered
application are met, an applicant's request to refinance would be
reportable. A refinancing occurs when an existing obligation is
satisfied and replaced by a new obligation undertaken by the same
borrower.
3. Reevaluation, extension, or renewal requests that request
additional credit amounts. A Assuming other requirements of a covered
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application are met, an applicant's request for additional credit
amounts on an existing account constitutes a covered application. For
example, an applicant's request for a line increase on an existing line
of credit, made in accordance with a financial institution's procedures
for the type of credit requested, would be a covered application. As
discussed in comment 107(a)(7)-4, when reporting a covered application
that seeks additional credit amounts on an existing account, the
financial institution need only report the additional credit amount
sought, and not the entire credit amount. For example, if an applicant
currently has a line of credit account for $100,000, and seeks to
increase the line to $150,000, the financial institution reports the
amount applied for as $50,000.
4. Reviews or evaluations initiated by the financial institution.
For purposes of subpart B of this part, the term covered application
does not include evaluations or reviews of existing accounts initiated
by the financial institution because the business has not made a request
for credit. For example, if a financial institution conducts periodic
reviews of its existing lines of credit and decides to increase the
business's line by $10,000, it is not a covered application because the
business never made a request for the additional credit amounts.
However, if such an evaluation or review of an existing account by a
financial institution results in the financial institution inviting the
business to apply for additional credit amounts on an existing account
and the business does so, the business's request constitutes a covered
application for purposes of subpart B of this part, assuming other
requirements of a covered application are met. Similarly, as noted in
comment 103(a)-4, the term covered application also does not include
solicitations and firm offers of credit.
5. Inquiries and prequalification requests. An inquiry is a request
by a prospective applicant for information about credit terms offered by
the financial institution. A prequalification request is a request by a
prospective applicant for a preliminary determination on whether the
prospective applicant would likely qualify for credit under a financial
institution's standards or for a determination on the amount of credit
for which the prospective applicant would likely qualify. Inquiries and
prequalification requests are not covered applications under subpart B
of this part, even though in certain circumstances inquiries and
prequalification requests may constitute applications under subpart A.
For example, while an inquiry or prequalification request may become an
``application'' under subpart A if the creditor evaluates information
about the business, decides to decline the request, and communicates
this to the business, such inquiries or prequalifications would not be
``covered applications'' under subpart B of this part. Whether a
particular request is a covered application, or whether instead it is an
inquiry or prequalification request that is not reportable under subpart
B, may turn, for instance, on how a financial institution structures and
processes such requests: does the financial institution require or
encourage a preliminary review in order for a business to be considered
for a covered credit transaction, or does the business voluntarily seek
preliminary feedback as a tool to explore its options before it decides
whether to apply for credit with the financial institution? The name
used by the financial institution for such a request is not
determinative. For example, under subpart B, a review is a reportable
covered application if the financial institution requires the business,
before it may apply for credit, to pass through a mandatory screening
process that considers particular information about the business and
denies or turns away the business if it is ineligible or unlikely to
qualify for credit. In contrast, a business that requests a financial
institution to identify credit products for which the business might
qualify based on limited or self-described characteristics, and without
any commitment from the financial institution to extend credit, may not
have submitted a covered application for purposes of subpart B.
Section 1002.104--Covered Credit Transactions and Excluded Transactions
104(a) Covered Credit Transaction
1. General. The term ``covered credit transaction'' includes all
business credit (including loans, lines of credit, credit cards, and
merchant cash advances) unless otherwise excluded under Sec.
1002.104(b).
104(b) Excluded Transactions
1. Factoring. The term ``covered credit transaction'' does not cover
factoring as described herein. For the purpose of this subpart,
factoring is an accounts receivable purchase transaction between
businesses that includes an agreement to purchase, transfer, or sell a
legally enforceable claim for payment for goods that the recipient has
supplied or services that the recipient has rendered but for which
payment in full has not yet been made. The name used by the financial
institution for a product is not determinative of whether or not it is a
``covered credit transaction.'' This description of factoring is not
intended to repeal, abrogate, annul, impair, or interfere with any
existing interpretations, orders, agreements, ordinances, rules, or
regulations adopted or issued pursuant to comment 9(a)(3)-3. A financial
institution shall report an extension of business credit incident to a
factoring arrangement that is otherwise a covered credit
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transaction as ``Other sales-based financing transaction'' under Sec.
1002.107(a)(5).
2. Leases. The term ``covered credit transaction'' does not cover
leases as described herein. A lease, for the purpose of this subpart, is
a transfer from one business to another of the right to possession and
use of goods for a term, and for primarily business or commercial
(including agricultural) purposes, in return for consideration. A lease
does not include a sale, including a sale on approval or a sale or
return, or a transaction resulting in the retention or creation of a
security interest. The name used by the financial institution for a
product is not determinative of whether or not it is a ``covered credit
transaction.''
3. Consumer-designated credit. The term ``covered credit
transaction'' does not include consumer-designated credit that is used
for business or agricultural purposes. A transaction qualifies as
consumer-designated credit if the financial institution offers or
extends the credit primarily for personal, family, or household
purposes. For example, an open-end credit account used for both personal
and business/agricultural purposes is not business credit for the
purpose of subpart B of this part unless the financial institution
designated or intended for the primary purpose of the account to be
business/agricultural-related.
4. Credit transaction purchases, purchases of an interest in a pool
of credit transactions, and purchases of a partial interest in a credit
transaction. The term ``covered credit transaction'' does not cover the
purchase of an originated credit transaction, the purchase of an
interest in a pool of credit transactions, or the purchase of a partial
interest in a credit transaction such as through a loan participation
agreement. Such purchases do not, in themselves, constitute an
application for credit. See also comment 109(a)(3)-2.i.
104(b)(1) Trade Credit
1. General. Trade credit, as defined in Sec. 1002.104(b)(1), is
excluded from the definition of a covered credit transaction. An example
of trade credit involves a supplier that finances the sale of equipment,
supplies, or inventory. However, an extension of business credit by a
financial institution other than the supplier for the financing of such
items is not trade credit. Also, credit extended by a business providing
goods or services to another business is not trade credit for the
purposes of this subpart where the supplying business intends to sell or
transfer its rights as a creditor to a third party.
2. Trade credit under subpart A. The definition of trade credit
under comment 9(a)(3)-2 applies to relevant provisions under subpart A,
and Sec. 1002.104(b)(1) is not intended to repeal, abrogate, annul,
impair, or interfere with any existing interpretations, orders,
agreements, ordinances, rules, or regulations adopted or issued pursuant
to comment 9(a)(3)-2.
Section 1002.105--Covered Financial Institutions and Exempt Institutions
105(a) Financial Institution
1. Examples. Section 1002.105(a) defines a financial institution as
any partnership, company, corporation, association (incorporated or
unincorporated), trust, estate, cooperative organization, or other
entity that engages in any financial activity. This definition includes,
but is not limited to, banks, savings associations, credit unions,
online lenders, platform lenders, community development financial
institutions, Farm Credit System lenders, lenders involved in equipment
and vehicle financing (captive financing companies and independent
financing companies), commercial finance companies, organizations exempt
from taxation pursuant to 26 U.S.C. 501(c), and governments or
governmental subdivisions or agencies.
2. Motor vehicle dealers. Pursuant to Sec. 1002.101(a), subpart B
of this part excludes from coverage persons defined 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, 2004 (2010).
105(b) Covered Financial Institution
1. Preceding calendar year. The definition of covered financial
institution refers to preceding calendar years. For example, in 2029,
the two preceding calendar years are 2027 and 2028. Accordingly, in
2029, Financial Institution A does not meet the loan-volume threshold in
Sec. 1002.105(b) if did not originate at least 100 covered credit
transactions for small businesses both during 2027 and during 2028.
2. Origination threshold. A financial institution qualifies as a
covered financial institution based on total covered credit transactions
originated for small businesses, rather than covered applications
received from small businesses. For example, if in both 2024 and 2025,
Financial Institution B received 105 covered applications from small
businesses and originated 95 covered credit transactions for small
businesses, then for 2026, Financial Institution B is not a covered
financial institution.
3. Counting originations when multiple financial institutions are
involved in originating a covered credit transaction. For the purpose of
counting originations to determine whether a financial institution is a
covered financial institution under Sec. 1002.105(b), in a situation
where multiple financial institutions are involved in originating a
single covered credit transaction, only the last financial institution
with authority to set the material
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terms of the covered credit transaction is required to count the
origination.
4. Counting originations after adjustments to the gross annual
revenue threshold due to inflation. Pursuant to Sec. 1002.106(b)(2),
every five years, the gross annual revenue threshold used to define a
small business in Sec. 1002.106(b)(1) shall be adjusted, if necessary,
to account for inflation. The first time such an adjustment could occur
is in 2030, with an effective date of January 1, 2031. A financial
institution seeking to determine whether it is a covered financial
institution applies the gross annual revenue threshold that is in effect
for each year it is evaluating. For example, a financial institution
seeking to determine whether it is a covered financial institution in
2032 counts its originations of covered credit transactions for small
businesses in calendar years 2030 and 2031. The financial institution
applies the initial $5 million threshold to evaluate whether its
originations were to small businesses in 2030. In this example, if the
small business threshold were increased to $5.5 million effective
January 1, 2031, the financial institution applies the $5.5 million
threshold to count its originations for small businesses in 2031.
5. Reevaluation, extension, or renewal requests, as well as credit
line increases and other requests for additional credit amounts. While
requests for additional credit amounts on an existing account can
constitute a ``covered application'' pursuant to Sec. 1002.103(b)(1),
such requests are not counted as originations for the purpose of
determining whether a financial institution is a covered financial
institution pursuant to Sec. 1002.105(b). In addition, transactions
that extend, renew, or otherwise amend a transaction are not counted as
originations. For example, if a financial institution originates 50 term
loans and 30 lines of credit for small businesses in each of the
preceding two calendar years, along with 25 line increases for small
businesses in each of those years, the financial institution is not a
covered financial institution because it has not originated at least 100
covered credit transactions in each of the two preceding calendar years.
6. Annual consideration. Whether a financial institution is a
covered financial institution for a particular year depends on its small
business lending activity in the preceding two calendar years.
Therefore, whether a financial institution is a covered financial
institution is an annual consideration for each year that data may be
compiled and maintained for purposes of subpart B of this part. A
financial institution may be a covered financial institution for a given
year of data collection (and the obligations arising from qualifying as
a covered financial institution shall continue into subsequent years,
pursuant to Sec. Sec. 1002.110 and 1002.111), but the same financial
institution may not be a covered financial institution for the following
year of data collection. For example, Financial Institution C originated
105 covered transactions for small businesses in both 2024 and 2025. In
2026, Financial Institution C is a covered financial institution and
therefore is obligated to compile and maintain applicable 2026 small
business lending data under Sec. 1002.107(a). During 2026, Financial
Institution C originates 95 covered transactions for small businesses.
In 2027, Financial Institution C is not a covered financial institution
with respect to 2027 small business lending data, and is not obligated
to compile and maintain 2027 data under Sec. 1002.107(a) (although
Financial Institution C may volunteer to collect and maintain 2027 data
pursuant to Sec. 1002.5(a)(4)(vii) and as explained in comment 105(b)-
10). Pursuant to Sec. 1002.109(a), Financial Institution C shall submit
its small business lending application register for 2026 data in the
format prescribed by the Bureau by June 1, 2027 because Financial
Institution C is a covered financial institution with respect to 2026
data, and the data submission deadline of June 1, 2027 applies to 2026
data.
7. Merger or acquisition--coverage of surviving or newly formed
institution. After a merger or acquisition, the surviving or newly
formed financial institution is a covered financial institution under
Sec. 1002.105(b) if it, considering the combined lending activity of
the surviving or newly formed institution and the merged or acquired
financial institutions (or acquired branches or locations), satisfies
the criteria included in Sec. 1002.105(b). For example, Financial
Institutions A and B merge. The surviving or newly formed financial
institution meets the threshold in Sec. 1002.105(b) if the combined
previous components of the surviving or newly formed financial
institution (A plus B) would have originated at least 100 covered credit
transactions for small businesses for each of the two preceding calendar
years. Similarly, if the combined previous components and the surviving
or newly formed financial institution would have reported at least 100
covered transactions for small businesses for the year previous to the
merger as well as 100 covered transactions for small businesses for the
year of the merger, the threshold described in Sec. 1002.105(b) would
be met and the surviving or newly formed financial institution would be
a covered institution under Sec. 1002.105(b) for the year following the
merger. Comment 105(b)-8 discusses a financial institution's
responsibilities with respect to compiling and maintaining (and
subsequently reporting) data during the calendar year of a merger.
8. Merger or acquisition--coverage specific to the calendar year of
the merger or acquisition. The scenarios described below illustrate a
financial institution's responsibilities specifically for data from the
calendar year of a merger or acquisition. For purposes of these
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illustrations, an ``institution that is not covered'' means either an
institution that is not a financial institution, as defined in Sec.
1002.105(a), or a financial institution that is not a covered financial
institution, as defined in Sec. 1002.105(b).
i. Two institutions that are not covered financial institutions
merge. The surviving or newly formed institution meets all of the
requirements necessary to be a covered financial institution. No data
are required to be compiled, maintained, or reported for the calendar
year of the merger (even though the merger creates an institution that
meets all of the requirements necessary to be a covered financial
institution).
ii. A covered financial institution and an institution that is not
covered merge. The covered financial institution is the surviving
institution, or a new covered financial institution is formed. For the
calendar year of the merger, data are required to be compiled,
maintained, and reported for covered applications from the covered
financial institution and is optional for covered applications from the
financial institution that was previously not covered.
iii. A covered financial institution and an institution that is not
covered merge. The institution that is not covered is the surviving
institution and remains not covered after the merger, or a new
institution that is not covered is formed. For the calendar year of the
merger, data are required to be compiled and maintained (and
subsequently reported) for covered applications from the previously
covered financial institution that took place prior to the merger. After
the merger date, compiling, maintaining, and reporting data is optional
for applications from the institution that was previously covered for
the remainder of the calendar year of the merger.
iv. Two covered financial institutions merge. The surviving or newly
formed financial institution is a covered financial institution. Data
are required to be compiled and maintained (and subsequently reported)
for the entire calendar year of the merger. The surviving or newly
formed financial institution files either a consolidated submission or
separate submissions for that calendar year.
9. Foreign applicability. As discussed in comment 1(a)-2, Regulation
B (including subpart B) generally does not apply to lending activities
that occur outside the United States.
10. Voluntary collection and reporting. Section 1002.5(a)(4)(vii)
through (x) permits a creditor that is not a covered financial
institution under Sec. 1002.105(b) to voluntarily collect and report
information regarding covered applications from small businesses in
certain circumstances. If a creditor is voluntarily collecting
information for covered applications regarding whether the applicant is
a minority-owned business, a women-owned business, and/or an LGBTQI+-
owned business under Sec. 1002.107(a)(18), and regarding the ethnicity,
race, and sex of the applicant's principal owners under Sec.
1002.107(a)(19), it shall do so in compliance with Sec. Sec. 1002.107,
1002.108, 1002.111, 1002.112 as though it were a covered financial
institution. If a creditor is reporting those covered applications from
small businesses to the Bureau, it shall do so in compliance with
Sec. Sec. 1002.109 and 1002.110 as though it were a covered financial
institution.
Section 1002.106--Business and Small Business
106(b) Small Business Definition
106(b)(1) Small Business
1. Change in determination of small business status--business is
ultimately not a small business. If a financial institution initially
determines an applicant is a small business as defined in Sec. 1002.106
based on available information and collects data required by Sec.
1002.107(a)(18) and (19) but later concludes that the applicant is not a
small business, the financial institution does not violate the Act or
this regulation if it meets the requirements of Sec. 1002.112(c)(4).
The financial institution shall not report the application on its small
business lending application register pursuant to Sec. 1002.109.
2. Change in determination of small business status--business is
ultimately a small business. Consistent with comment 107(a)(14)-1, a
financial institution need not independently verify gross annual
revenue. If a financial institution initially determines that the
applicant is not a small business as defined in Sec. 1002.106(b), but
later concludes the applicant is a small business prior to taking final
action on the application, the financial institution must report the
covered application pursuant to Sec. 1002.109. In this situation, the
financial institution shall endeavor to compile, maintain, and report
the data required under Sec. 1002.107(a) in a manner that is reasonable
under the circumstances. For example, if the applicant initially
provides a gross annual revenue of $5.5 million (that is, above the
threshold for a small business as initially defined in Sec.
1002.106(b)(1)), but during the course of underwriting the financial
institution discovers the applicant's gross annual revenue was in fact
$4.75 million (meaning that the applicant is within the definition of a
small business under Sec. 1002.106(b)), the financial institution is
required to report the covered application pursuant to Sec. 1002.109.
In this situation, the financial institution shall take reasonable steps
upon discovery to compile, maintain, and report the data necessary under
Sec. 1002.107(a) to comply with subpart B of this part for that covered
application. Thus, in this example, even if the financial institution's
procedure is typically to request applicant-provided data
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together with the application form, in this circumstance, the financial
institution shall seek to collect the data during the application
process necessary to comply with subpart B in a manner that is
reasonable under the circumstances.
3. Applicant's representations regarding gross annual revenue;
inclusion of affiliate revenue; updated or verified information. A
financial institution is permitted to rely on an applicant's
representations regarding gross annual revenue (which may or may not
include any affiliate's revenue) for purposes of determining small
business status under Sec. 1002.106(b). However, if the applicant
provides updated gross annual revenue information or the financial
institution verifies the gross annual revenue information (see comment
107(b)-1), the financial institution must use the updated or verified
information in determining small business status.
4. Multiple unaffiliated co-applicants--size determination. The
financial institution shall not aggregate unaffiliated co-applicants'
gross annual revenues for purposes of determining small business status
under Sec. 1002.106(b). If a covered financial institution receives a
covered application from multiple businesses who are not affiliates, as
defined by Sec. 1002.102(a), where at least one business is a small
business under Sec. 1002.106(b), the financial institution shall
compile, maintain, and report data pursuant to Sec. Sec. 1002.107
through 1002.109 regarding the covered application for only a single
applicant that is a small business. See comment 103(a)-10 for additional
details.
106(b)(2) Inflation Adjustment
1. Inflation adjustment methodology. The small business gross annual
revenue threshold set forth in Sec. 1002.106(b)(1) will be adjusted
upward or downward to reflect changes, if any, in the Consumer Price
Index for All Urban Consumers (U.S. city average series for all items,
not seasonally adjusted), as published by the United States Bureau of
Labor Statistics (``CPI-U''). The base for computing each adjustment is
the January 2025 CPI-U; this base value shall be compared to the CPI-U
value in January 2030 and every five years thereafter. For example,
after the January 2030 CPI-U is made available, the adjustment is
calculated by determining the percentage change in the CPI-U between
January 2025 and January 2030, applying this change to the $5 million
gross annual revenue threshold, and rounding to the nearest $500,000.
If, as a result of this rounding, there is no change in the gross annual
revenue threshold, there will be no adjustment. For example, if in
January 2030 the adjusted value were $4.9 million (reflecting a $100,000
decrease from January 2025 CPI-U), then the threshold would not adjust
because $4.9 million would be rounded up to $5 million. If on the other
hand, the adjusted value were $5.7 million, then the threshold would
adjust to $5.5 million. Where the adjusted value is a multiple of
$250,000 (e.g., $5,250,000), then the threshold adjusts upward (in this
example, to $5,500,000).
2. Substitute for CPI-U. If publication of the CPI-U ceases, or if
the CPI-U otherwise becomes unavailable or is altered in such a way as
to be unusable, then the Bureau shall substitute another reliable cost
of living indicator from the United States Government for the purpose of
calculating adjustments pursuant to Sec. 1002.106(b)(2).
Section 1002.107--Compilation of Reportable Data
107(a) Data Format and Itemization
1. General. Section 1002.107(a) describes a covered financial
institution's obligation to compile and maintain data regarding the
covered applications it receives from small businesses.
i. A covered financial institution reports these data even if the
credit originated pursuant to the reported application was subsequently
sold by the institution.
ii. A covered financial institution annually reports data for
covered applications for which final action was taken in the previous
calendar year.
iii. A covered financial institution reports data for a covered
application on its small business lending application register for the
calendar year during which final action was taken on the application,
even if the institution received the application in a previous calendar
year.
2. Free-form text fields. A covered financial institution may use
technology such as autocorrect and predictive text when requesting
applicant-provided data under subpart B of this part that the financial
institution reports via free-form text fields, provided that such
technology does not restrict the applicant's ability to write in its own
response instead of using text suggested by the technology.
3. Filing Instructions Guide. Additional details and procedures for
compiling data pursuant to Sec. 1002.107 are included in the Filing
Instructions Guide, which is available at https://
www.consumerfinance.gov/ data-research/small-business-lending/ filing-
instructions-guide/.
4. Additional data point response options. The Bureau may add
additional response options to the lists of responses contained in the
commentary that follows for certain of the data points set forth in
Sec. 1002.107(a), via the Filing Instructions Guide. Refer to the
Filing Instructions Guide for any updates for each reporting year.
107(a)(1) Unique Identifier
1. Unique within the financial institution. A financial institution
complies with
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Sec. 1002.107(a)(1) by compiling and reporting an alphanumeric
application or loan identifier unique within the financial institution
to the specific application. The identifier must not exceed 45
characters, and must begin with the financial institution's Legal Entity
Identifier (LEI), as defined in comment 109(b)(6)-1. Separate
applications for the same applicant must have separate identifiers. The
identifier may only include standard numerical and/or upper-case
alphabetical characters and cannot include dashes, other special
characters, or characters with diacritics. The financial institution may
assign the unique identifier at any time prior to reporting the
application. Refinancings or applications for refinancing must be
assigned a different identifier than the transaction that is being
refinanced. A financial institution with multiple branches must ensure
that its branches do not use the same identifiers to refer to multiple
applications.
2. Does not include directly identifying information. The unique
identifier must not include any directly identifying information, such
as a whole or partial Social Security number or employer identification
number, about the applicant or persons (natural or legal) associated
with the applicant. See also Sec. 1002.111(c) and related commentary.
107(a)(2) Application Date
1. Consistency. Section 1002.107(a)(2) requires that, in reporting
the date of covered application, a financial institution shall report
the date the covered application was received or the date shown on a
paper or electronic application form. Although a financial institution
need not choose the same approach for its entire small business lending
application register, it should generally be consistent in its approach
by, for example, establishing procedures for how to report this date
within particular scenarios, products, or divisions. If the financial
institution chooses to report the date shown on an application form and
the institution retains multiple versions of the application form, the
institution reports the date shown on the first application form
satisfying the definition of covered application pursuant to Sec.
1002.103.
2. Application received. For an application submitted directly to
the financial institution or its affiliate (as described in Sec.
1002.107(a)(4)), the financial institution shall report the date it
received the covered application, as defined under Sec. 1002.103, or
the date shown on a paper or electronic application form. For an
application initially submitted to a third party, see comment 107(a)(2)-
3.
3. Indirect applications. For an application that was not submitted
directly to the financial institution or its affiliate (as described in
Sec. 1002.107(a)(4)), the financial institution shall report the date
the application was received by the party that initially received the
application, the date the application was received by the financial
institution, or the date shown on the application form. Although a
financial institution need not choose the same approach for its entire
small business lending application register, it should generally be
consistent in its approach by, for example, establishing procedures for
how to report this date within particular scenarios, products, or
divisions.
4. Safe harbor. Pursuant to Sec. 1002.112(c)(1), a financial
institution that reports on its small business lending application
register an application date that is within three business days of the
actual application date pursuant to Sec. 1002.107(a)(2) does not
violate the Act or subpart B of this part. For purposes of this
paragraph, a business day means any day the financial institution is
open for business.
107(a)(3) Application Method
1. General. A financial institution complies with Sec.
1002.107(a)(3) by reporting the means by which the applicant submitted
the application from one of the following options: in-person, telephone,
online, or mail. If the financial institution retains multiple versions
of the application form, the institution reports the means by which the
first application form satisfying the definition of covered application
pursuant to Sec. 1002.103 was submitted.
i. In-person. A financial institution reports the application method
as ``in-person'' if the applicant submitted the application to the
financial institution, or to another party acting on the financial
institution's behalf, in person. The in-person application method
applies, for example, to applications submitted at a branch office
(including applications hand delivered by the applicant), at the
applicant's place of business, or via electronic media with a video
component).
ii. Telephone. A financial institution reports the application
method as ``telephone'' if the applicant submitted the application to
the financial institution, or another party acting on the financial
institution's behalf, by telephone call or via audio-based electronic
media without a video component.
iii. Online. A financial institution reports the application method
as ``online'' if the applicant submitted the application to the
financial institution, or another party acting on the financial
institution's behalf, through a website, mobile application (app), fax
transmission, electronic mail, text message, or some other form of text-
based electronic communication.
iv. Mail. A financial institution reports the application method as
``mail'' if the applicant submitted the application to the financial
institution, or another party acting on the financial institution's
behalf, via United States mail, courier or overnight service, or an
overnight drop box.
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107(a)(4) Application Recipient
1. Agents. When a financial institution is reporting actions taken
by its agent consistent with comment 109(a)(3)-3, the agent is
considered the financial institution for the purposes of Sec.
1002.107(a)(4). For example, assume that an applicant submitted an
application to Financial Institution B, and Financial Institution B made
the credit decision acting as Financial Institution A's agent under
State law. Financial Institution A reports the application and indicates
that the application was submitted directly to Financial Institution A.
107(a)(5) Credit Type
1. Reporting credit product--in general. A financial institution
complies with Sec. 1002.107(a)(5)(i) by selecting the credit product
applied for or originated, from the list below. If the credit product
applied for or originated is not included on this list, the financial
institution selects ``other,'' and reports the credit product via free-
form text field. If an applicant requested more than one credit product
at the same time, the financial institution reports each credit product
requested as a separate application. However, if the applicant only
requested a single covered credit transaction, but had not decided on
which particular product, the financial institution complies with Sec.
1002.107(a)(5)(i) by reporting the credit product originated (if
originated), or the credit product denied (if denied), or the credit
product of greater interest to the applicant, if readily determinable.
If the credit product of greater interest to the applicant is not
readily determinable, the financial institution complies with Sec.
1002.107(a)(5)(i) by reporting one of the credit products requested as
part of the request for a single covered credit transaction, in its
discretion. See comment 103(a)-5 for instructions on reporting requests
for multiple covered credit transactions at one time.
i. Term loan--unsecured.
ii. Term loan--secured.
iii. Line of credit--unsecured.
iv. Line of credit--secured.
v. Credit card account, not private-label.
vi. Private-label credit card account.
vii. Merchant cash advance.
viii. Other sales-based financing transaction.
ix. Other.
x. Not provided by applicant and otherwise undetermined.
2. Credit card account, not private-label. A financial institution
complies with Sec. 1002.107(a)(5)(i) by reporting the credit product as
a ``credit card account, not private-label'' when the product is a
business-purpose open-end credit account that is not private label and
that may be accessed from time to time by a card, plate, or other single
credit device to obtain credit, except that accounts or lines of credit
secured by real property and overdraft lines of credit accessed by debit
cards are not credit card accounts. The term credit card account does
not include debit card accounts or closed-end credit that may be
accessed by a card, plate, or single credit device. The term credit card
account does include charge card accounts that are generally paid in
full each billing period, as well as hybrid prepaid-credit cards. A
financial institution reports multiple credit card account, not private-
label applications requested at one time using the guidance in comment
103(a)-7.
3. Private-label credit card account. A financial institution
complies with Sec. 1002.107(a)(5)(i) by reporting the credit product as
a ``private-label credit card account'' when the product is a business-
purpose open-end private-label credit account that otherwise meets the
description of a credit card account in comment 107(a)(5)-2. A private-
label credit card account is a credit card account that can only be used
to acquire goods or services provided by one business (for example, a
specific merchant, retailer, independent dealer, or manufacturer) or a
small group of related businesses. A co-branded or other card that can
also be used for purchases at unrelated businesses is not a private-
label credit card. A financial institution reports multiple private-
label credit card account applications requested at one time in the same
manner as credit card account, not private-label applications, using the
guidance in comment 103(a)-7.
4. Credit product not provided by the applicant and otherwise
undetermined. Pursuant to Sec. 1002.107(c), a financial institution is
required to maintain procedures reasonably designed to collect
applicant-provided data, which includes credit product. However, if a
financial institution is nonetheless unable to collect or otherwise
determine credit product information because the applicant does not
indicate what credit product it seeks and the application is denied,
withdrawn, or closed for incompleteness before a credit product is
identified, the financial institution reports that the credit product is
``not provided by applicant and otherwise undetermined.''
5. Reporting credit product involving counteroffers. If a financial
institution presents a counteroffer for a different credit product than
the product the applicant had initially requested, and the applicant
does not agree to proceed with the counteroffer, the financial
institution reports the application for the original credit product as
denied pursuant to Sec. 1002.107(a)(9). If the applicant agrees to
proceed with consideration of the financial institution's counteroffer,
the financial institution reports the disposition of the application
based on the credit product that was offered and does not report the
original
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credit product applied for. See comment 107(a)(9)-2.
6. Other sales-based financing transaction. For an extension of
business credit incident to a factoring arrangement that is otherwise a
covered credit transaction, a financial institution selects ``other
sales-based financing transaction'' as the credit product. See comment
104(b)-1.
7. Guarantees. A financial institution complies with Sec.
1002.107(a)(5)(ii) by selecting the type or types of guarantees that
were obtained for an originated covered credit transaction, or that
would have been obtained if the covered credit transaction was
originated, from the list below. The financial institution selects, if
applicable, up to a maximum of five guarantees for a single application.
If the type of guarantee does not appear on the list, the financial
institution selects ``other'' and reports the type of guarantee via
free-form text field. If no guarantee is obtained or would have been
obtained if the covered credit transaction was originated, the financial
institution selects ``no guarantee.'' If an application is denied,
withdrawn, or closed for incompleteness before any guarantee has been
identified, the financial institution selects ``no guarantee.'' The
financial institution chooses State government guarantee or local
government guarantee, as applicable, based on the entity directly
administering the program, not the source of funding.
i. Personal guarantee--owner(s).
ii. Personal guarantee--non-owner(s).
iii. SBA guarantee--7(a) program.
iv. SBA guarantee--504 program.
v. SBA guarantee--other.
vi. USDA guarantee.
vii. FHA insurance.
viii. Bureau of Indian Affairs guarantee.
ix. Other Federal guarantee.
x. State government guarantee.
xi. Local government guarantee.
xii. Other.
xiii. No guarantee.
8. Loan term. A financial institution complies with Sec.
1002.107(a)(5)(iii) by reporting the number of months in the loan term
for the covered credit transaction. The loan term is the number of
months after which the legal obligation will mature or terminate,
measured from the date of origination. For transactions involving real
property, the financial institution may instead measure the loan term
from the date of the first payment period and disregard the time that
elapses, if any, between the settlement of the transaction and the first
payment period. For example, if a loan closes on April 12, but the first
payment is not due until June 1 and includes the interest accrued in May
(but not April), the financial institution may choose not to include the
month of April in the loan term. In addition, the financial institution
may round the loan term to the nearest full month or may count only full
months and ignore partial months, as it so chooses. If a credit product,
such as a credit card, does not have a loan term, the financial
institution reports that the loan term is ``not applicable.'' The
financial institution also reports that the loan term is ``not
applicable'' if the credit product is reported as ``not provided by
applicant and otherwise undetermined.'' For a credit product that
generally has a loan term, the financial institution reports ``not
provided by applicant and otherwise undetermined'' if the application is
denied, withdrawn, or determined to be incomplete before a loan term has
been identified. For merchant cash advances and other sales-based
financing transactions, the financial institution complies with Sec.
1002.107(a)(5)(iii) by reporting the loan term, if any, that the
financial institution estimated or specified in processing, underwriting
or providing disclosures for the application or transaction. If more
than one such loan term is estimated or specified, the financial
institution reports the one it considers to be most accurate, in its
discretion. For merchant cash advances and other sales-based financing
transactions that do not have a loan term, the financial institution
reports ``not provided by applicant and otherwise undetermined.''
107(a)(6) Credit Purpose
1. General. A financial institution complies with Sec.
1002.107(a)(6) by selecting the purpose or purposes of the covered
credit transaction applied for or originated from the list below.
i. Purchase, construction/improvement, or refinance of non-owner-
occupied real property.
ii. Purchase, construction/improvement, or refinance of owner-
occupied real property.
iii. Purchase, refinance, or rehabilitation/repair of motor
vehicle(s) (including light and heavy trucks).
iv. Purchase, refinance, or rehabilitation/repair of equipment.
v. Working capital (includes inventory or floor planning).
vi. Business start-up.
vii. Business expansion.
viii. Business acquisition.
ix. Refinance existing debt (other than refinancings listed above).
x. Line increase.
xi. Overdraft.
xii. Other.
xiii. Not provided by applicant and otherwise undetermined.
xiv. Not applicable.
2. More than one purpose. If the applicant indicates or the
financial institution is otherwise aware of more than one purpose for
the credit applied for or originated, the financial institution reports
those purposes, up to a maximum of three, using the list provided, in
any order it chooses. For example, if an applicant refinances a
commercial
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building it owns and uses the funds to purchase a motor vehicle and
expand the business it runs in a part of that building, the financial
institution reports that the three purposes of the credit are purchase,
construction/improvement, or refinance of owner-occupied real property;
purchase, refinance, or rehabilitation/repair of motor vehicle(s)
(including light and heavy trucks); and business expansion. If an
application has more than three purposes, the financial institution
reports any three of those purposes. In the example above, if the funds
were also used to purchase equipment, the financial institution would
select only three of the relevant purposes to report.
3. ``Other'' credit purpose. If a purpose of an application does not
appear on the list of purposes provided, the financial institution
reports ``other'' as the credit purpose and reports the credit purpose
via free-form text field. If the application has more than one ``other''
purpose, the financial institution chooses the most significant
``other'' purpose, in its discretion, and reports that ``other''
purpose. The financial institution reports a maximum of three credit
purposes, including any ``other'' purpose.
4. Credit purpose not provided by applicant and otherwise
undetermined. Pursuant to Sec. 1002.107(c), a financial institution
shall maintain procedures reasonably designed to collect applicant-
provided data, which includes credit purpose. However, if a financial
institution is nonetheless unable to collect or determine credit purpose
information, the financial institution reports that the credit purpose
is ``not provided by applicant and otherwise undetermined.''
5. Not applicable. If the application is for a credit product that
generally has indeterminate or numerous potential purposes, such as a
credit card, the financial institution may report credit purpose as
``not applicable.''
6. Collecting credit purpose. Pursuant to Sec. 1002.107(c), a
financial institution shall maintain procedures reasonably designed to
collect applicant-provided data, including credit purpose. The financial
institution is permitted, but not required, to present the list of
credit purposes provided in comment 107(a)(6)-1 to the applicant. The
financial institution is also permitted to ask about purposes not
included on the list provided in comment 107(a)(6)-1. If the applicant
chooses a purpose or purposes not included on the provided list, the
financial institution follows the instructions in comment 107(a)(6)-3
regarding reporting of ``other'' as the credit purpose. If an applicant
chooses a purpose or purposes that are similar to purposes on the list
provided, but uses different language, the financial institution reports
the purpose or purposes from the list provided.
7. Owner-occupied real property. Real property is owner-occupied if
any physical portion of the property is used by the owner for any
activity, including storage.
8. Overdraft. When overdraft is provided as an aspect of the covered
credit transaction applied for or originated, the financial institution
reports ``Overdraft'' as a purpose of the credit. The financial
institution reports credit type pursuant to Sec. 1002.107(a)(5)(i) as
appropriate for the underlying covered credit transaction, such as
``Line of credit--unsecured.'' Providing occasional overdraft services
as part of a deposit account offering would not be reported for the
purpose of subpart B.
107(a)(7) Amount Applied For
1. Initial amount requested. A financial institution complies with
Sec. 1002.107(a)(7) by reporting the initial amount of credit or the
initial credit limit requested by the applicant. The financial
institution is not required to report credit amounts or limits discussed
before an application is made, but must capture the initial amount
requested at the application stage. If the applicant requests an amount
as a range of numbers, the financial institution reports the midpoint of
that range.
2. No amount requested. If the applicant does not request a specific
amount at the application stage, but the financial institution
underwrites the application for a specific amount, the financial
institution complies with Sec. 1002.107(a)(7) by reporting the amount
considered for underwriting as the amount applied for. If the particular
type of credit product applied for does not involve a specific amount
requested, the financial institution reports that the requirement is
``not applicable.''
3. Firm offers. When an applicant responds to a ``firm offer'' that
specifies an amount or limit, which may occur in conjunction with a pre-
approved credit solicitation, the financial institution reports the
amount of the firm offer as the amount applied for, unless the applicant
requests a different amount. If the firm offer does not specify an
amount or limit and the applicant does not request a specific amount,
the amount applied for is the amount underwritten by the financial
institution. If the firm offer specifies an amount or limit as a range
and the applicant does not request a specific amount, the amount applied
for is the amount underwritten by the financial institution.
4. Additional amounts on an existing account. When reporting a
covered application that seeks additional credit amounts on an existing
account, the financial institution reports only the additional credit
amount sought, and not any previous amounts extended. See comment
103(b)-3.
5. Initial amount otherwise undetermined. Pursuant to Sec.
1002.107(c), a financial institution shall maintain procedures
reasonably designed to collect applicant-provided data,
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which includes the credit amount initially requested by the applicant
(other than for products that do not involve a specific amount
requested). However, if a financial institution is nonetheless unable to
collect or otherwise determine the amount initially requested, the
financial institution reports that the amount applied for is ``not
provided by applicant and otherwise undetermined.'' But see comment
107(a)(7)-2 for how to report the credit amount initially requested by
the applicant for particular types of credit products that do not
involve a specific amount requested.
107(a)(8) Amount Approved or Originated
1. General. A financial institution complies with Sec.
1002.107(a)(8) by reporting the amount approved or originated for credit
that is originated or approved but not accepted. For applications that
the financial institution, pursuant to Sec. 1002.107(a)(9), reports as
denied, withdrawn by the applicant, or incomplete, the financial
institution reports that the amount approved or originated is ``not
applicable.''
2. Multiple approval amounts. A financial institution may sometimes
approve an applicant for more than one credit amount, allowing the
applicant to choose which amount the applicant prefers for the extension
or line of credit. When multiple approval amounts are offered for a
closed-end credit transaction for which the action taken is approved but
not accepted, and the applicant does not accept the approved offer of
credit in any amount, the financial institution reports the highest
amount approved. If the applicant accepts the offer of closed-end
credit, the financial institution reports the amount originated. When
multiple approval amounts are offered for an open-end credit transaction
for which the action taken is approved but not accepted, and the
applicant does not accept the approved offer of credit in any amount,
the financial institution reports the highest amount approved. If the
applicant accepts the offer of open-end credit, the financial
institution reports the actual credit limit established.
3. Amount approved or originated--closed-end credit transaction. For
an originated closed-end credit transaction, the financial institution
reports the principal amount to be repaid. This amount will generally be
disclosed on the legal obligation.
4. Amount approved or originated--refinancing. For a refinancing,
the financial institution reports the amount of credit approved or
originated under the terms of the new debt obligation.
5. Amount approved or originated--counteroffer. If an applicant
agrees to proceed with consideration of a counteroffer for an amount or
limit different from the amount for which the applicant applied, and the
covered credit transaction is approved and originated, the financial
institution reports the amount granted. If an applicant does not agree
to proceed with consideration of a counteroffer or fails to respond, the
institution reports the application as denied and reports ``not
applicable'' for the amount approved or originated. See comment
107(a)(9)-2.
6. Amount approved or originated--existing accounts. For additional
credit amounts that were approved for or originated on an existing
account, the financial institution reports only the additional credit
amount approved or originated, and not any previous amounts extended.
107(a)(9) Action Taken
1. General. A financial institution complies with Sec.
1002.107(a)(9) by selecting the action taken by the financial
institution on the application from the following list: originated,
approved but not accepted, denied, withdrawn by the applicant, or
incomplete. A financial institution identifies the applicable action
taken code based on final action taken on the covered application.
i. Originated. A financial institution reports that the application
was originated if the financial institution made a credit decision
approving the application and that credit decision resulted in an
extension of credit.
ii. Approved but not accepted. A financial institution reports that
the application was approved but not accepted if the financial
institution made a credit decision approving the application, but the
applicant or the party that initially received the application failed to
respond to the financial institution's approval within the specified
time, or the covered credit transaction was not otherwise consummated or
the account was not otherwise opened.
iii. Denied. A financial institution reports that the application
was denied if it made a credit decision denying the application before
an applicant withdrew the application, before the application was closed
for incompleteness, or before the application was denied on the basis of
incompleteness.
iv. Withdrawn by the applicant. A financial institution reports that
the application was withdrawn if the application was expressly withdrawn
by the applicant before the financial institution made a credit decision
approving or denying the application, before the application was closed
for incompleteness, or before the application was denied on the basis of
incompleteness.
v. Incomplete. A financial institution reports that the application
was incomplete if the financial institution took adverse action on the
basis of incompleteness under Sec. 1002.9(a)(1)(ii) and (c)(1)(i) or
provided a written notice of incompleteness under Sec. 1002.9(c)(1)(ii)
and (2), and the applicant did
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not respond to the request for additional information within the period
of time specified in the notice.
2. Treatment of counteroffers. If a financial institution makes a
counteroffer to grant credit on terms other than those originally
requested by the applicant (for example, for a shorter loan maturity,
with a different interest rate, or in a different amount) and the
applicant declines the counteroffer or fails to respond, the institution
reports the action taken as a denial on the original terms requested by
the applicant. If the applicant agrees to proceed with consideration of
the financial institution's counteroffer, the financial institution
reports the action taken as the disposition of the application based on
the terms of the counteroffer. For example, assume an applicant applies
for a term loan and the financial institution makes a counteroffer to
proceed with consideration of a line of credit. If the applicant
declines to be considered for a line of credit, the financial
institution reports the application as a denied request for a term loan.
If, on the other hand, the applicant agrees to be considered for a line
of credit, then the financial institution reports the action taken as
the disposition of the application for the line of credit. For instance,
using the same example, if the financial institution makes a credit
decision approving the line of credit, but the applicant fails to
respond to the financial institution's approval within the specified
time by accepting the credit offer, the financial institution reports
the application on the line of credit as approved but not accepted.
3. Treatment of rescinded transactions. If a borrower successfully
rescinds a transaction after closing but before a financial institution
is required to submit its small business lending application register
containing the information for the application under Sec. 1002.109, the
institution reports the application as approved but not accepted.
4. Treatment of pending applications. A financial institution does
not report any application still pending at the end of the calendar
year; it reports such applications on its small business lending
application register for the year in which final action is taken.
5. Treatment of conditional approvals. If a financial institution
issues an approval that is subject to the applicant meeting certain
conditions prior to closing, the financial institution reports the
action taken as provided below dependent on whether the conditions are
solely customary commitment or closing conditions or if the conditions
include any underwriting or creditworthiness conditions. Customary
commitment or closing conditions may include, for example, a clear-title
requirement, proof of insurance policies, or a subordination agreement
from another lienholder. Underwriting or creditworthiness conditions may
include, for example, conditions that constitute a counteroffer (such as
a demand for a higher down-payment), satisfactory loan-to-value ratios,
or verification or confirmation, in whatever form the institution
requires, that the applicant meets underwriting conditions concerning
applicant creditworthiness, including documentation or verification of
revenue, income or assets.
i. Conditional approval--denial. If the approval is conditioned on
satisfying underwriting or creditworthiness conditions, those conditions
are not met, and the financial institution takes adverse action on some
basis other than incompleteness, the financial institution reports the
action taken as denied.
ii. Conditional approval--incompleteness. If the approval is
conditioned on satisfying underwriting or creditworthiness conditions
that the financial institution needs to make the credit decision, and
the financial institution takes adverse action on the basis of
incompleteness under Sec. 1002.9(a)(1)(ii) and (c)(1)(i), or has sent a
written notice of incompleteness under Sec. 1002.9(c)(1)(ii) and (2),
and the applicant did not respond within the period of time specified in
the notice, the financial institution reports the action taken as
incomplete.
iii. Conditional approval--approved but not accepted. If the
approval is conditioned on satisfying conditions that are solely
customary commitment or closing conditions and the conditions are not
met, the financial institution reports the action taken as approved but
not accepted. If all the conditions (underwriting, creditworthiness, or
customary commitment or closing conditions) are satisfied and the
financial institution agrees to extend credit but the covered credit
transaction is not originated (for example, because the applicant
withdraws), the financial institution reports the action taken as
approved but not accepted.
iv. Conditional approval--withdrawn by the applicant. If the
applicant expressly withdraws before satisfying all underwriting or
creditworthiness conditions and before the institution denies the
application or before the institution closes the file for
incompleteness, the financial institution reports the action taken as
withdrawn.
107(a)(10) Action Taken Date
1. Reporting action taken date for denied applications. For
applications that are denied, a financial institution reports either the
date the application was denied or the date the denial notice was sent
to the applicant.
2. Reporting action taken date for applications withdrawn by
applicant. For applications that are withdrawn by the applicant, the
financial institution reports the date the express withdrawal was
received, or the date shown on the notification form in the case of a
written withdrawal.
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3. Reporting action taken date for applications that are approved
but not accepted. For applications approved by a financial institution
but not accepted by the applicant, the financial institution reports any
reasonable date, such as the approval date, the deadline for accepting
the offer, or the date the file was closed. A financial institution
should generally be consistent in its approach to reporting by, for
example, establishing procedures for how to report this date for
particular scenarios, products, or divisions.
4. Reporting action taken date for originated applications. For
applications that result in an extension of credit, a financial
institution generally reports the closing or account opening date. If
the disbursement of funds takes place on a date later than the closing
or account opening date, the institution may, alternatively, use the
date of initial disbursement. A financial institution should generally
be consistent in its approach to reporting by, for example, establishing
procedures for how to report this date for particular scenarios,
products, or divisions.
5. Reporting action taken date for incomplete applications. For
applications closed for incompleteness or denied for incompleteness, the
financial institution reports either the date the action was taken or
the date the denial or incompleteness notice was sent to the applicant.
107(a)(11) Denial Reasons
1. Reason for denial--in general. A financial institution complies
with Sec. 1002.107(a)(11) by reporting the principal reason or reasons
it denied the application, indicating up to four reasons. The financial
institution reports only the principal reason or reasons it denied the
application. For example, if a financial institution denies an
application due to insufficient cashflow, unacceptable collateral, and
unverifiable business information, the financial institution is required
to report these three reasons. The reasons reported must accurately
describe the principal reason or reasons the financial institution
denied the application. A financial institution reports denial reasons
by selecting its principal reason or reasons for denying the application
from the following list:
i. Credit characteristics of the business. A financial institution
reports the denial reason as ``credit characteristics of the business''
if it denies the application based on an assessment of the business's
ability to meet its current or future credit obligations. Examples
include business credit score, history of business bankruptcy or
delinquency, and/or a high number of recent business credit inquiries.
ii. Credit characteristics of the principal owner(s) or
guarantor(s). A financial institution reports the denial reason as
``credit characteristics of the principal owner(s) or guarantor(s)'' if
it denies the application based on an assessment of the principal
owner(s) or guarantor(s)'s ability to meet its current or future credit
obligations. Examples include principal owner(s) or guarantor(s)'s
credit score, history of charge offs, bankruptcy or delinquency, low net
worth, limited or insufficient credit history, or history of excessive
overdraft.
iii. Use of credit proceeds. A financial institution reports the
denial reason as ``use of credit proceeds'' if it denies an application
because, as a matter of policy or practice, it places limits on lending
to certain kinds of businesses, products, or activities it has
identified as high risk.
iv. Cashflow. A financial institution reports the denial reason as
``cashflow'' when it denies an application due to insufficient or
inconsistent cashflow.
v. Collateral. A financial institution reports the denial reason as
``collateral'' when it denies an application due to collateral that it
deems insufficient or otherwise unacceptable.
vi. Time in business. A financial institution reports the denial
reason as ``time in business'' when it denies an application due to
insufficient time or experience in a line of business.
vii. Government loan program criteria. Certain loan programs are
backed by government agencies that have specific eligibility
requirements. When those requirements are not met by an applicant, and
the financial institution denies the application, the financial
institution reports the denial reason as ``government loan program
criteria.'' For example, if an applicant cannot meet a government-
guaranteed loan program's requirement to provide a guarantor or proof of
insurance, the financial institution reports the reason for the denial
as ``government loan program criteria.''
viii. Aggregate exposure. Aggregate exposure is a measure of the
total exposure or level of indebtedness of the business and its
principal owner(s) associated with an application. A financial
institution reports the denial reason as ``aggregate exposure'' where
the total debt associated with the application is deemed high or exceeds
certain debt thresholds set by the financial institution. For example,
if an application for unsecured credit exceeds the maximum amount a
financial institution is permitted to approve per applicant, as stated
in its credit guidelines, and the financial institution denies the
application for this reason, the financial institution reports the
reason for denial as ``aggregate exposure.''
ix. Unverifiable information. A financial institution reports the
denial reason as ``unverifiable information'' when it is unable to
verify information provided as part of the application, and denies the
application for that reason. The unverifiable information
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must be necessary for the financial institution to make a credit
decision based on its procedures for the type of credit requested.
Examples include unverifiable assets or collateral, unavailable business
credit report, and unverifiable business ownership composition.
x. Other. A financial institution reports the denial reason as
``other'' where none of the enumerated denial reasons adequately
describe the principal reason or reasons it denied the application, and
the institution reports the denial reason or reasons via free-form text
field.
2. Reason for denial--not applicable. A financial institution
complies with Sec. 1002.107(a)(11) by reporting that the requirement is
not applicable if the action taken on the application, pursuant to Sec.
1002.107(a)(9), is not a denial. For example, if the application
resulted in an originated covered credit transaction, or the application
was approved but not accepted, the financial institution complies with
Sec. 1002.107(a)(11) by reporting not applicable.
107(a)(12) Pricing Information
1. General. For applications that a financial institution, pursuant
to Sec. 1002.107(a)(9), reports as denied, withdrawn by the applicant,
or incomplete, the financial institution reports that pricing
information is ``not applicable.''
107(a)(12)(i) Interest Rate
1. General. A financial institution complies with Sec.
1002.107(a)(12)(i) by reporting the interest rate applicable to the
amount of credit approved or originated as reported pursuant to Sec.
1002.107(a)(8).
2. Interest rate--initial period. If a covered credit transaction
includes an initial period with an introductory interest rate of 12
months or less, after which the interest rate adjusts upwards or shifts
from a fixed to variable rate, a financial institution complies with
Sec. 1002.107(a)(12)(i) by reporting information about the interest
rate applicable after the initial period. If a covered transaction
includes an initial period with an interest rate of more than 12 months
after which the interest rate resets, a financial institution complies
with Sec. 1002.107(a)(12)(i) by reporting information about the
interest rate applicable prior to the reset period. For example, if a
financial institution originates a covered credit transaction with a
fixed, initial interest rate of 0 percent for six months following
origination, after which the interest rate will adjust according to a
Prime index rate plus a 3 percent margin, the financial institution
reports the 3 percent margin, Prime as the name of the index used to
adjust the interest rate, the number 6 for the length of the initial
period, and ``not applicable'' for the index value. As another example,
in a 10/1 adjustable-rate mortgage transaction, where the first 10 years
of the repayment period has a fixed rate of 3 percent and after year 10
the interest rate will adjust according to a Prime index rate plus a 3
percent margin, a financial institution complies with Sec.
1002.107(a)(12)(i) by reporting the fixed rate of 3 percent, the number
120 for the initial period, and ``not applicable'' in the fields for the
index, margin, and index value.
3. Multiple interest rates. If a covered credit transaction includes
multiple interest rates applicable to different credit features, a
financial institution complies with Sec. 1002.107(a)(12)(i) by
reporting the interest rate applicable to the amount of credit approved
or originated reported pursuant to Sec. 1002.107(a)(8). For example, if
a financial institution originates a credit card with different interest
rates for purchases, balance transfers, cash advances, and overdraft
advances, the financial institution reports the interest rate applicable
for purchases.
4. Index names. A financial institution complies with Sec.
1002.107(a)(12)(i) by selecting the index used from the following list:
Wall Street Journal Prime, 6-month CD rate, 1-year T-Bill, 3-year T-
Bill, 5-year T-Note, 12-month average of 10-year T-Bill, Cost of Funds
Index (COFI)-National, Cost of Funds Index (COFI)-11th District,
Constant Maturity Treasury (CMT). If the index used is internal to the
financial institution, the financial institution reports ``internal
index'' via the list of indices provided. If the index used does not
appear on the list of indices provided (and is not internal to the
financial institution), the financial institution reports ``other'' and
reports the name of the index via free-form text field.
5. Index value. For covered transactions with an adjustable interest
rate, a financial institution complies with Sec. 1002.107(a)(12)(i)(B)
by reporting the index value used to set the rate that is or would be
applicable to the covered transaction.
107(a)(12)(ii) Total Origination Charges
1. Charges in comparable cash transactions. Charges imposed
uniformly in cash and credit transactions are not reportable under Sec.
1002.107(a)(12)(ii). In determining whether an item is part of the total
origination charges, a financial institution should compare the covered
credit transaction in question with a similar cash transaction. A
financial institution financing the sale of property or services may
compare charges with those payable in a similar cash transaction by the
seller of the property or service.
2. Charges by third parties. A financial institution includes fees
and amounts charged by someone other than the financial institution in
the total charges reported if the financial institution:
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i. Requires the use of a third party as a condition of or an
incident to the extension of credit, even if the applicant can choose
the third party; or
ii. Retains a portion of the third-party charge, to the extent of
the portion retained.
3. Special rule; broker fees. A financial institution complies with
Sec. 1002.107(a)(12)(ii) by including fees charged by a broker
(including fees paid by the applicant directly to the broker or to the
financial institution for delivery to the broker) in the total
origination charges reported even if the financial institution does not
require the applicant to use a broker and even if the financial
institution does not retain any portion of the charge. For more
information on broker fees, see commentary for Sec.
1002.107(a)(12)(iii).
4. Bundled services. Total origination charges include all charges
imposed directly or indirectly by the financial institution at or before
origination as an incident to or a condition of the extension of credit.
Accordingly, a financial institution complies with Sec.
1002.107(a)(12)(ii) by including charges for other products or services
paid at or before origination in the total origination charges reported
if the financial institution requires the purchase of such other product
or service as a condition of or an incident to the extension of credit.
5. Origination charges--examples. Examples of origination charges
may include application fees, credit report fees, points, appraisal
fees, and other similar charges.
6. Net lender credit. If a financial institution provides a credit
to an applicant that is greater than the total origination charges the
applicant would have paid, the financial institution complies with Sec.
1002.107(a)(12)(ii) by reporting the net lender credit as a negative
amount. For example, if a covered transaction has $500 provided to the
applicant at origination to offset closing costs, and the financial
institution does not charge any origination charges, the financial
institution complies with Sec. 1002.107(a)(12)(ii) by reporting
negative $500 as the total origination charges.
107(a)(12)(iii) Broker Fees
1. Amount. A financial institution complies with Sec.
1002.107(a)(12)(iii) by including the fees reported in Sec.
1002.107(a)(12)(ii) that are fees paid by the applicant directly to the
broker or to the financial institution for delivery to the broker. For
example, a covered transaction has $3,000 of total origination charges.
Of that $3,000, $250 are fees paid by the applicant directly to a broker
and an additional $300 are fees paid to the financial institution for
delivery to the broker. The financial institution complies with Sec.
1002.107(a)(12)(iii) by reporting $550 in the broker fees reported.
2. Fees paid directly to a broker by an applicant. A financial
institution complies with Sec. 1002.107(a)(12)(iii) by relying on the
best information readily available to the financial institution at the
time final action is taken. Information readily available could include,
for example, information provided by an applicant or broker that the
financial institution reasonably believes regarding the amount of fees
paid by the applicant directly to the broker.
107(a)(12)(iv) Initial Annual Charges
1. Charges during the initial annual period. The total initial
annual charges include all charges scheduled to be imposed during the
initial annual period following origination. For example, if a financial
institution originates a covered credit transaction with a $50 monthly
fee and a $100 annual fee, the financial institution complies with Sec.
1002.107(a)(12)(iv) by reporting $700 in the initial annual charges
reported. If there will be a charge in the initial annual period
following origination but the amount of that charge is uncertain at the
time of origination, a financial institution complies with Sec.
1002.107(a)(12)(iv) by not reporting that charge as scheduled to be
imposed during the initial annual period following origination.
2. Interest excluded. A financial institution complies with Sec.
1002.107(a)(12)(iv) by excluding any interest expense from the initial
annual charges reported.
3. Avoidable charges. A financial institution complies with Sec.
1002.107(a)(12)(iv) by only including scheduled charges and excluding
any charges for events that are avoidable by the applicant from the
initial annual charges reported. Examples of avoidable charges include
charges for late payment, for exceeding a credit limit, for delinquency
or default, or for paying items that overdraw an account.
4. Initial annual charges--examples. Examples of charges scheduled
to be imposed during the initial annual period may include monthly fees,
annual fees, and other similar charges.
5. Scheduled charges with variable amounts. A financial institution
complies with Sec. 1002.107(a)(12)(iv) by reporting as the default the
highest amount for a charge scheduled to be imposed. For example, if a
covered credit transaction has a $75 monthly fee, but the fee is reduced
to $0 if the applicant maintains an account at the financial institution
originating the covered credit transaction, the financial institution
complies with Sec. 1002.107(a)(12)(iv) by reporting $900 ($75 x 12) in
the initial annual charges reported.
6. Transactions with a term of less than one year. For a transaction
with a term of less than one year, a financial institution complies with
Sec. 1002.107(a)(12)(iv) by reporting all charges scheduled to be
imposed during the term of the transaction.
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107(a)(12)(v) Additional Cost for Merchant Cash Advances or Other Sales-
Based Financing
1. Merchant cash advances. Section 1002.107(a)(12)(v) requires a
financial institution to report the difference between the amount
advanced and the amount to be repaid for a merchant cash advance or
other sales-based financing transaction. Thus, in a merchant cash
advance, a financial institution reports the difference between the
amount advanced and the amount to be repaid, using the amounts
(expressed in dollars) provided in the contract between the financial
institution and the applicant.
107(a)(12)(vi) Prepayment Penalties
1. Policies and procedures applicable to the covered credit
transaction. The policies and procedures applicable to the covered
credit transaction include the practices that the financial institution
follows when evaluating applications for the specific credit type and
credit purpose requested. For example, assume that a financial
institution's written procedures permit it to include prepayment
penalties in the loan agreement for its term loans secured by non-owner
occupied commercial real estate. For such transactions, the financial
institution includes prepayment penalties in some loan agreements but
not others. For an application for, or origination of, a term loan
secured by non-owner occupied commercial real estate, the financial
institution reports under Sec. 1002.107(a)(12)(vi)(A) that a prepayment
penalty could have been included under the policies and procedures
applicable to the transaction, regardless of whether the term loan
secured by non-owner occupied commercial real estate actually includes a
prepayment penalty.
2. Balloon finance charges. A financial institution complies with
Sec. 1002.107(a)(12)(vi) by reporting as a prepayment penalty any
balloon finance charge that may be imposed for paying all or part of the
transaction's principal before the date on which the principal is due.
For example, under the terms of a transaction, the amount of funds
advanced is $12,000, the amount to be repaid is $24,000 (which includes
$12,000 in principal and $12,000 in interest and fees), the length of
the transaction is 12 months, and the applicant must repay $2,000 per
month. The terms of the transaction state that if the applicant prepays
the principal before the 12-month period is over, the applicant is
responsible for paying the difference between $24,000 and the amount the
applicant has already repaid prior to initiating prepayment. The
difference between the $24,000 to be repaid and what the applicant has
already repaid prior to initiating prepayment is a balloon finance
charge and should be reported as a prepayment penalty.
107(a)(13) Census Tract
1. General. A financial institution complies with Sec.
1002.107(a)(13) by reporting a census tract number as defined by the
U.S. Census Bureau, which includes State and county numerical codes. A
financial institution complies with Sec. 1002.107(a)(13) if it uses the
boundaries and codes in effect on January 1 of the calendar year covered
by the small business lending application register that it is reporting.
The financial institution reports census tract based on the following:
i. Proceeds address. A financial institution complies with Sec.
1002.107(a)(13) by reporting a census tract based on the address or
location where the proceeds of the credit applied for or originated will
be or would have been principally applied, if known. For example, a
financial institution would report a census tract based on the address
or location of the site where the proceeds of a construction loan will
be applied.
ii. Main office or headquarters address. If the address or location
where the proceeds of the credit applied for or originated will be or
would have been principally applied is unknown, a financial institution
complies with Sec. 1002.107(a)(13) by reporting a census tract number
based on the address or location of the main office or headquarters of
the applicant, if known. For example, the address or location of the
main office or headquarters of the applicant may be the home address of
a sole proprietor or the office address of a sole proprietor or other
applicant.
iii. Another address or location. If neither the address or location
where the proceeds of the credit applied for or originated will be or
would have been principally applied nor the address or location of the
main office or headquarters of the applicant are known, a financial
institution complies with Sec. 1002.107(a)(13) by reporting a census
tract number based on another address or location associated with the
applicant.
iv. Type of address used. In addition to reporting the census tract,
pursuant to Sec. 1002.107(a)(13)(iv) a financial institution must
report which one of the three types of addresses or locations listed in
Sec. 1002.107(a)(13)(i) through (iii) and described in comments
107(a)(13)-1.i through iii that the census tract is determined from.
2. Financial institution discretion. A financial institution
complies with Sec. 1002.107(a)(13) by identifying the appropriate
address or location and the type of that address or location in good
faith, using appropriate information from the applicant's credit file or
otherwise known by the financial institution. A financial institution is
not required to make inquiries beyond its standard procedures as to the
nature of the addresses or locations it collects.
3. Address or location not provided by applicant and otherwise
undetermined. Pursuant to
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Sec. 1002.107(c), a financial institution shall maintain procedures
reasonably designed to collect applicant-provided data, which includes
at least one address or location for an applicant for census tract
reporting. However, if a financial institution is nonetheless unable to
collect or otherwise determine any address or location for an
application, the financial institution reports that the census tract
information is ``not provided by applicant and otherwise undetermined.''
4. Safe harbor. As described in Sec. 1002.112(c)(2) and comment
112(c)-1, a financial institution that obtains an incorrect census tract
by correctly using a geocoding tool provided by the FFIEC or the Bureau
does not violate the Act or subpart B of this part.
107(a)(14) Gross Annual Revenue
1. Collecting gross annual revenue. A financial institution reports
the applicant's gross annual revenue, expressed in dollars, for its
fiscal year preceding when the information was collected. A financial
institution may rely on the applicant's statements or on information
provided by the applicant in collecting and reporting gross annual
revenue, even if the applicant's statement or information is based on
estimation or extrapolation. However, pursuant to Sec. 1002.107(b), if
the financial institution verifies the gross annual revenue provided by
the applicant, it must report the verified information. Also, pursuant
to comment 107(c)(1)-5, a financial institution reports updated gross
annual revenue data if it obtains more current data from the applicant
during the application process. If a financial institution has already
verified gross annual revenue data and then the applicant updates it,
the financial institution reports the information it believes to be more
accurate, in its discretion. The financial institution may use the
following language to ask about gross annual revenue and may rely on the
applicant's answer (unless subsequently verified or updated):
What was the gross annual revenue of the business applying for
credit in its last full fiscal year? Gross annual revenue is the amount
of money the business earned before subtracting taxes and other
expenses. You may provide gross annual revenue calculated using any
reasonable method.
2. Gross annual revenue not provided by applicant and otherwise
undetermined. Pursuant to Sec. 1002.107(c), a financial institution
shall maintain procedures reasonably designed to collect applicant-
provided data, which includes the gross annual revenue of the applicant.
However, if a financial institution is nonetheless unable to collect or
determine the gross annual revenue of the applicant, the financial
institution reports that the gross annual revenue is ``not provided by
applicant and otherwise undetermined.''
3. Affiliate revenue. A financial institution is permitted, but not
required, to report the gross annual revenue for the applicant that
includes the revenue of affiliates as well. Likewise, as explained in
comment 106(b)(1)-3, in determining whether the applicant is a small
business under Sec. 1002.106(b), a financial institution may rely on an
applicant's representations regarding gross annual revenue, which may or
may not include affiliates' revenue.
4. Gross annual revenue for a startup business. In a typical startup
business situation where the applicant has no gross annual revenue for
its fiscal year preceding when the information is collected, the
financial institution reports that the applicant's gross annual revenue
in the preceding fiscal year is ``zero.'' The financial institution
shall not report pro forma projected revenue figures because these
figures do not reflect actual gross revenue.
107(a)(15) NAICS Code
1. General. NAICS stands for North American Industry Classification
System. The Office of Management and Budget has charged the Economic
Classification Policy Committee with the maintenance and review of
NAICS. A financial institution complies with Sec. 1002.107(a)(15) if it
uses the 3-digit NAICS subsector codes in effect on January 1 of the
calendar year covered by the small business lending application register
that it is reporting.
2. NAICS not provided by applicant and otherwise undetermined.
Pursuant to Sec. 1002.107(c), a financial institution shall maintain
procedures reasonably designed to collect applicant-provided data, which
includes NAICS code. However, if a financial institution is nonetheless
unable to collect or otherwise determine a NAICS code for the applicant,
the financial institution reports that the NAICS code is ``not provided
by applicant and otherwise undetermined.''
3. Safe harbor. As described in Sec. 1002.112(c)(3) and comment
112(c)-2, a financial institution that obtains an incorrect NAICS code
does not violate the Act or subpart B of this part if it either relies
on an applicant's representations or on an appropriate third-party
source, in accordance with Sec. 1002.107(b), regarding the NAICS code,
or identifies the NAICS code itself, provided that the financial
institution maintains procedures reasonably adapted to correctly
identify a 3-digit NAICS code.
107(a)(16) Number of Workers
1. General. A financial institution complies with Sec.
1002.107(a)(16) by reporting the number of people who work for the
applicant, using the ranges prescribed in the Filing Instructions Guide.
2. Collecting number of workers. A financial institution may collect
number of workers
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from an applicant using the ranges for reporting as specified by the
Bureau (see comment 107(a)(16)-1) or as a numerical value. When asking
for the number of workers from an applicant, a financial institution
shall explain that full-time, part-time and seasonal employees, as well
as contractors who work primarily for the applicant, would be counted as
workers, but principal owners of the applicant would not. If asked, the
financial institution shall explain that volunteers are not counted as
workers, and workers for affiliates of the applicant are counted if the
financial institution were also collecting the affiliates' gross annual
revenue. The financial institution may use the following language to ask
about the number of workers and may rely on the applicant's answer
(unless subsequently verified or updated):
Counting full-time, part-time and seasonal workers, as well as
contractors who work primarily for the business applying for credit, but
not counting principal owners of the business, how many people work for
the business applying for credit?
3. Number of workers not provided by applicant and otherwise
undetermined. Pursuant to Sec. 1002.107(c), a financial institution
shall maintain procedures reasonably designed to collect applicant-
provided data, which includes the number of workers of the applicant.
However, if a financial institution is nonetheless unable to collect or
determine the number of workers of the applicant, the financial
institution reports that the number of workers is ``not provided by
applicant and otherwise undetermined.''
107(a)(17) Time in Business
1. Collecting time in business. A financial institution complies
with Sec. 1002.107(a)(17) by reporting the time the applicant has been
in business.
i. If a financial institution collects or otherwise obtains the
number of years an applicant has been in business as part of its
procedures for evaluating an application for credit, it reports the time
in business in whole years, rounded down to the nearest whole year.
ii. If a financial institution does not collect time in business as
described in comment 107(a)(17)-1.i, but as part of its procedures
determines whether or not the applicant's time in business is less than
two years, it reports the applicant's time in business as either less
than two years or two or more years in business.
iii. If a financial institution does not collect time in business as
part of its procedures for evaluating an application for credit as
described in comments 107(a)(17)-1.i or .ii, the financial institution
complies with Sec. 1002.107(a)(17) by asking the applicant whether it
has been in existence for less than two years or two or more years and
reporting the information provided by the applicant accordingly.
2. Time in business collected as part of the financial institution's
procedures for evaluating an application for credit. A financial
institution that collects or obtains an applicant's time in business as
part of its procedures for evaluating an application for credit is not
required to collect or obtain time in business pursuant to any
particular definition of time in business for this purpose. For example,
if the financial institution collects the number of years the applicant
has existed (such as by asking the applicant when its business was
started, or by obtaining the applicant's date of incorporation from a
Secretary of State or other State or Federal agency that registers or
licenses businesses) as the time in business, the financial institution
reports that information accordingly pursuant to comment 107(a)(17)-1.i.
Similarly, if the financial institution collects the number of years of
experience the applicant's owners have in the current line of business,
the financial institution reports that information accordingly pursuant
to comment 107(a)(17)-1.i. If, however, the financial institution
collects both the number of years the applicant has existed as well as
some other measure of time in business (such as the number of years of
experience the applicant's owners have in the current line of business),
the financial institution reports the number of years the applicant has
existed as the time in business pursuant to comment 107(a)(17)-1.i.
3. Time in business not provided by applicant and otherwise
undetermined. Pursuant to Sec. 1002.107(c), a financial institution
shall maintain procedures reasonably designed to collect applicant-
provided data, which includes the applicant's time in business. However,
if a financial institution is nonetheless unable to collect or determine
the applicant's time in business, the financial institution reports that
the time in business is ``not provided by applicant and otherwise
undetermined.''
107(a)(18) Minority-Owned, Women-Owned, and LGBTQI+-Owned Business
Statuses
1. General. A financial institution must ask an applicant whether it
is a minority-owned, women-owned, and/or LGBTQI+-owned business. The
financial institution must permit an applicant to refuse (i.e., decline)
to answer the financial institution's inquiry regarding business status
and must inform the applicant that the applicant is not required to
provide the information. See the sample data collection form in appendix
E to this part for sample language for providing this notice to
applicants. The financial institution must report the applicant's
substantive response regarding each business status, that the applicant
declined to answer the inquiry
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(that is, selected an answer option of ``I do not wish to provide this
information'' or similar), or its failure to respond to the inquiry
(that is, ``not provided by applicant''), as applicable.
2. Definitions. When inquiring about minority-owned, women-owned,
and LGBTQI+-owned business statuses (regardless of whether the request
is made on a paper form, electronically, or orally), the financial
institution also must provide the applicant with definitions of the
terms ``minority-owned business,'' ``women-owned business,'' and
``LGBTQI+-owned business'' as set forth in Sec. 1002.102 (m), (s) and
(l), respectively. The financial institution satisfies this requirement
if it provides the definitions as set forth in the sample data
collection form in appendix E.
3. Combining questions. A financial institution may combine on the
same paper or electronic data collection form the questions regarding
minority-owned, women-owned, and LGBTQI+-owned business status pursuant
to Sec. 1002.107(a)(18) with principal owners' ethnicity, race, and sex
pursuant to Sec. 1002.107(a)(19) and the applicant's number of
principal owners pursuant to Sec. 1002.107(a)(20). See the sample data
collection form in appendix E.
4. Notices. When requesting minority-owned, women-owned, and
LGBTQI+-owned business statuses from an applicant, a financial
institution must inform the applicant that the financial institution
cannot discriminate on the basis of the applicant's minority-owned,
women-owned, or LGBTQI+-owned business statuses, or on whether the
applicant provides its minority-owned, women-owned, or LGBTQI+-owned
business statuses. A financial institution must also inform the
applicant that Federal law requires it to ask for an applicant's
minority-owned, women-owned, and LGBTQI+-owned business statuses to help
ensure that all small business applicants for credit are treated fairly
and that communities' small business credit needs are being fulfilled. A
financial institution may combine these notices regarding minority-
owned, women-owned, and LGBTQI+-owned business statuses with the notices
that a financial institution is required to provide when requesting
principal owners' ethnicity, race, and sex if a financial institution
requests information pursuant to Sec. 1002.107(a)(18) and (19) in the
same data collection form or at the same time. See the sample data
collection form in appendix E for sample language that a financial
institution may use for these notices.
5. Maintaining the record of an applicant's response regarding
minority-owned, women-owned, and LGBTQI+-owned business statuses
separate from the application. A financial institution must maintain the
record of an applicant's responses to the financial institution's
inquiry pursuant to Sec. 1002.107(a)(18) separate from the application
and accompanying information. See Sec. 1002.111(b) and comment 111(b)-
1. If the financial institution provides a paper or electronic data
collection form, the data collection form must not be part of the
application form or any other document that the financial institution
uses to provide or collect any information other than minority-owned
business status, women-owned business status, LGBTQI+-owned business
status, principal owners' ethnicity, race, and sex, and the number of
the applicant's principal owners. See the sample data collection form in
appendix E. For example, if the financial institution sends the data
collection form via email, the data collection form should be a separate
attachment to the email or accessed through a separate link in the
email. If the financial institution uses a web-based data collection
form, the form should be on its own page.
6. Minority-owned, women-owned, and/or LGBTQI+-owned business
statuses not provided by applicant. Pursuant to Sec. 1002.107(c), a
financial institution shall maintain procedures reasonably designed to
collect applicant-provided data, which includes the applicant's
minority-owned, women-owned, and LGBTQI+-owned business statuses.
However, if a financial institution does not receive a response to the
financial institution's inquiry pursuant to Sec. 1002.107(a)(18), the
financial institution reports that the applicant's business statuses
were ``not provided by applicant.''
7. Applicant declines to provide information about minority-owned,
women-owned, and/or LGBTQI+-owned business statuses. A financial
institution reports that the applicant responded that it did not wish to
provide the information about an applicant's minority-owned, women-
owned, and LGBTQI+-owned business statuses, if the applicant declines to
provide the information by selecting such a response option on a paper
or electronic form (e.g., by selecting an answer option of ``I do not
wish to provide this information'' or similar). The financial
institution also reports an applicant's refusal to provide such
information in this way, if the applicant orally declines to provide
such information for a covered application taken by telephone or another
medium that does not involve providing any paper or electronic
documents.
8. Conflicting responses provided by applicants. If the applicant
both provides a substantive response to the financial institution's
inquiry regarding business status (that is, indicates that it is a
minority-owned, women-owned, and/or LGBTQI+-owned business, or checks
``none apply'' or similar) and also checks the box indicating ``I do not
wish to provide this information'' or similar, the financial institution
reports the substantive response(s) provided by the
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applicant (rather than reporting that the applicant declined to provide
the information).
9. No verification of business statuses. Notwithstanding Sec.
1002.107(b), a financial institution must report the applicant's
substantive response(s), that the applicant declined to answer the
inquiry (that is, selected an answer option of ``I do not wish to
provide this information'' or similar), or the applicant's failure to
respond to the inquiry (that is, that the information was ``not provided
by applicant'') pursuant to Sec. 1002.107(a)(18), even if the financial
institution verifies or otherwise obtains an applicant's minority-owned,
women-owned, and/or LGBTQI+-owned business statuses for other purposes.
For example, if a financial institution uses a paper data collection
form to ask an applicant if it is a minority-owned business, a women-
owned business, and/or an LGBTQI+-owned business and the applicant does
not indicate that it is a minority-owned business, the financial
institution must not report that the applicant is a minority-owned
business, even if the applicant indicates that it is a minority-owned
business for other purposes, such as for a special purpose credit
program or a Small Business Administration program.
107(a)(19) Ethnicity, Race, and Sex of Principal Owners
1. General. A financial institution must ask an applicant to provide
its principal owners' ethnicity, race, and sex. The financial
institution must permit an applicant to refuse (i.e., decline) to answer
the financial institution's inquiry and must inform the applicant that
it is not required to provide the information. See the sample data
collection form in appendix E to this part for sample language for
providing this notice to applicants. The financial institution must
report the applicant's substantive responses regarding principal owners'
ethnicity, race, and sex, that the applicant declined to answer an
inquiry (that is, selected an answer option of ``I do not wish to
provide this information'' or similar), or its failure to respond to an
inquiry (that is, ``not provided by applicant''), as applicable. The
financial institution must report an applicant's responses about its
principal owners' ethnicity, race, and sex, regardless of whether an
applicant declines or fails to answer an inquiry about the number of its
principal owners under Sec. 1002.107(a)(20). If an applicant provides
some, but not all, of the requested information about the ethnicity,
race, and sex of a principal owner, the financial institution reports
the information that was provided by the applicant and reports that the
applicant declined to provide or did not provide (as applicable) the
remainder of the information. See comments 107(a)(19)-6 and -7.
2. Definition of principal owner. When requesting a principal
owner's ethnicity, race, and sex, the financial institution must also
provide the applicant with the definition of the term ``principal
owner'' as set forth in Sec. 1002.102(o). The financial institution
satisfies this requirement if it provides the definition of principal
owner as set forth in the sample data collection form in appendix E.
3. Combining questions. A financial institution may combine on the
same paper or electronic data collection form the questions regarding
the principal owners' ethnicity, race, and sex pursuant to Sec.
1002.107(a)(19) with the applicant's number of principal owners pursuant
to Sec. 1002.107(a)(20) and the applicant's minority-owned, women-
owned, and LGBTQI+-owned business statuses pursuant to Sec.
1002.107(a)(18). See the sample data collection form in appendix E.
4. Notices. When requesting a principal owner's ethnicity, race, and
sex from an applicant, a financial institution must inform the applicant
that the financial institution cannot discriminate on the basis of a
principal owner's ethnicity, race, or sex/gender, or on whether the
applicant provides the information. A financial institution must also
inform the applicant that Federal law requires it to ask for the
principal owners' ethnicity, race, and sex/gender to help ensure that
all small business applicants for credit are treated fairly and that
communities' small business credit needs are being fulfilled. A
financial institution may combine these notices with the similar notices
that a financial institution is required to provide when requesting
minority-owned business status, women-owned business status, and
LGBTQI+-owned business status, if a financial institution requests
information pursuant to Sec. 1002.107(a)(18) and (19) in the same data
collection form or at the same time. See the sample data collection form
in appendix E for sample language that a financial institution may use
for these notices.
5. Maintaining the record of an applicant's responses regarding
principal owners' ethnicity, race, and sex separate from the
application. A financial institution must maintain the record of an
applicant's response to the financial institution's inquiries pursuant
to Sec. 1002.107(a)(19) separate from the application and accompanying
information. See Sec. 1002.111(b) and comment 111(b)-1. If the
financial institution provides a paper or electronic data collection
form, the data collection form must not be part of the application form
or any other document that the financial institution uses to provide or
collect any information other than minority-owned business status,
women-owned business status, LGBTQI+-owned business status, principal
owners' ethnicity, race, and sex, and the number of the applicant's
principal owners. See the sample data collection form in appendix E for
sample language. For example, if the financial institution sends the
data
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collection form via email, the data collection form should be a separate
attachment to the email or accessed through a separate link in the
email. If the financial institution uses a web-based data collection
form, the form should be on its own page.
6. Ethnicity, race, or sex of principal owners not provided by
applicant. Pursuant to Sec. 1002.107(c), a financial institution shall
maintain procedures reasonably designed to collect applicant-provided
data, which includes the ethnicity, race, and sex of an applicant's
principal owners. However, if an applicant does not provide the
information, such as in response to a request for a principal owner's
ethnicity, race, or sex on a paper or electronic data collection form,
the financial institution reports the ethnicity, race, or sex (as
applicable) as ``not provided by applicant'' for that principal owner.
For example, if the financial institution provides a paper data
collection form to an applicant with two principal owners, and asks the
applicant to complete and return the form but the applicant does not do
so, the financial institution reports that the two principal owners'
ethnicity, race, and sex were ``not provided by applicant.'' Similarly,
if the financial institution provides an electronic data collection
form, the applicant indicates that it has two principal owners, the
applicant provides ethnicity, race, and sex for the first principal
owner, and the applicant does not make any selections for the second
principal owner's ethnicity, race, and sex, the financial institution
reports the ethnicity, race, and sex that the applicant provided for the
first principal owner and reports that each of the ethnicity, race, and
sex for the second principal owner was ``not provided by applicant.''
Additionally, if the financial institution provides an electronic or
paper data collection form, the applicant indicates that it has one
principal owner, provides the principal owner's ethnicity and sex
information, but does not provide information about the principal
owner's race and also does not select a response of ``I do not wish to
provide this information'' with regard to race, the financial
institution reports the ethnicity and sex provided by the applicant and
reports that the race of the principal owner was ``not provided by
applicant.''
7. Applicant declines to provide information about a principal
owner's ethnicity, race, or sex. A financial institution reports that
the applicant responded that it did not wish to provide the information
about a principal owner's ethnicity, race, or sex (as applicable), if
the applicant declines to provide the information by selecting such a
response option on a paper or electronic form (e.g., by selecting an
answer option of ``I do not wish to provide this information'' or
similar). The financial institution also reports an applicant's refusal
to provide such information in this way, if the applicant orally
declines to provide such information for a covered application taken by
telephone or another medium that does not involve providing any paper or
electronic documents.
8. Conflicting responses provided by applicant. If the applicant
both provides a substantive response to a request for a principal
owner's ethnicity, race, or sex (that is, identifies a principal owner's
race, ethnicity, or sex) and also checks the box indicating ``I do not
wish to provide this information'' or similar, the financial institution
reports the information on ethnicity, race, or sex that was provided by
the applicant (rather than reporting that the applicant declined provide
the information). For example, if an applicant is completing a paper
data collection form and writes in a response that a principal owner's
sex is female and also indicates on the form that the applicant does not
wish to provide information regarding that principal owner's sex, the
financial institution reports the principal owner's sex as female.
9. No verification of ethnicity, race, and sex of principal owners.
Notwithstanding Sec. 1002.107(b), a financial institution must report
the applicant's substantive responses as to its principal owners'
ethnicity, race, and sex (that is, the applicant's identification of its
principal owners' race, ethnicity, and sex), that the applicant declined
to answer the inquiry (that is, selected an answer option of ``I do not
wish to provide this information'' or similar), or the applicant's
failure to respond to the inquiry (that is, the information was ``not
provided by applicant'') pursuant to Sec. 1002.107(a)(19), even if the
financial institution verifies or otherwise obtains the ethnicity, race,
or sex of the applicant's principal owners for other purposes.
10. Reporting for fewer than four principal owners. If an applicant
has fewer than four principal owners, the financial institution reports
ethnicity, race, and sex information for the number of principal owners
that the applicant has and reports the ethnicity, race, and sex fields
for additional principal owners as ``not applicable.'' For example, if
an applicant has only one principal owner, the financial institution
reports ethnicity, race, and sex information for the first principal
owner and reports as ``not applicable'' the ethnicity, race, and sex
data fields for principal owners two through four.
11. Previously collected ethnicity, race, and sex information. If a
financial institution reports one or more principal owners' ethnicity,
race, or sex information based on previously collected data under Sec.
1002.107(d), the financial institution does not need to collect any
additional ethnicity, race, or sex information for other principal
owners (if any). See also comment 107(d)-9.
12. Guarantors. A financial institution does not collect or report a
guarantor's ethnicity, race, and sex unless the guarantor is also a
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principal owner of the applicant, as defined in Sec. 1002.102(o).
13. Ethnicity. i. Aggregate categories. A financial institution must
permit an applicant to provide each principal owner's ethnicity for
purposes of Sec. 1002.107(a)(19) using one or more of the following
aggregate categories:
A. Hispanic or Latino.
B. Not Hispanic or Latino.
ii. Disaggregated subcategories. A financial institution must permit
an applicant to provide each principal owner's ethnicity for purposes of
Sec. 1002.107(a)(19) using one or more of the following disaggregated
subcategories, regardless of whether the applicant has indicated that
the relevant principal owner is Hispanic or Latino and regardless of
whether the applicant selects any aggregate categories: Cuban; Mexican;
Puerto Rican; or Other Hispanic or Latino. If an applicant indicates
that a principal owner is Other Hispanic or Latino, the financial
institution must permit the applicant to provide additional information
regarding the principal owner's ethnicity, by using free-form text on a
paper or electronic data collection form or using language that informs
the applicant of the opportunity to self-identify when taking the
application by means other than a paper or electronic data collection
form, such as by telephone. The financial institution must permit the
applicant to provide additional information indicating, for example,
that the principal owner is Argentinean, Colombian, Dominican,
Nicaraguan, Salvadoran, or Spaniard. See the sample data collection form
in appendix E for sample language. If an applicant chooses to provide
additional information regarding a principal owner's ethnicity, such as
by indicating that a principal owner is Argentinean orally or in writing
on a paper or electronic form, a financial institution must report that
additional information via free-form text. If the applicant provides
such additional information but does not also indicate that the
principal owner is Other Hispanic or Latino (e.g., by selecting Other
Hispanic or Latino on a paper or electronic form), a financial
institution is permitted, but not required, to report Other Hispanic or
Latino as well.
iii. Selecting multiple categories. The financial institution must
permit the applicant to select one, both, or none of the aggregate
categories and as many disaggregated subcategories as the applicant
chooses. A financial institution must permit an applicant to select a
disaggregated subcategory even if the applicant does not select the
corresponding aggregate category. For example, an applicant must be
permitted to select the Mexican disaggregated subcategory for a
principal owner without being required to select the Hispanic or Latino
aggregate category. If an applicant provides ethnicity information for a
principal owner, the financial institution reports all of the aggregate
categories and disaggregated subcategories provided by the applicant.
For example, if an applicant selects both aggregate categories and four
disaggregated subcategories for a principal owner, the financial
institution reports the two aggregate categories that the applicant
selected and all four of the disaggregated subcategories that the
applicant selected. Additionally, if an applicant selects only the
Mexican disaggregated subcategory for a principal owner and no aggregate
categories, the financial institution reports Mexican for the ethnicity
of the applicant's principal owner but does not also report Hispanic or
Latino. Further, if the applicant selects an aggregate category (e.g.,
Not Hispanic or Latino) and a disaggregated subcategory that does not
correspond to the aggregate category (e.g., Puerto Rican), the financial
institution reports the information as provided by the applicant (e.g.,
Not Hispanic or Latino, and Puerto Rican).
14. Race. i. Aggregate categories. A financial institution must
permit an applicant to provide each principal owner's race for purposes
of Sec. 1002.107(a)(19) using one or more of the following aggregate
categories:
A. American Indian or Alaska Native.
B. Asian.
C. Black or African American.
D. Native Hawaiian or Other Pacific Islander.
E. White.
ii. Disaggregated subcategories. The financial institution must
permit an applicant to provide a principal owner's race for purposes of
Sec. 1002.107(a)(19) using one or more of the disaggregated
subcategories as listed in this comment 107(a)(19)-14.ii, regardless of
whether the applicant has selected the corresponding aggregate category.
A. The Asian aggregate category includes the following disaggregated
subcategories: Asian Indian; Chinese; Filipino; Japanese; Korean;
Vietnamese; and Other Asian. An applicant must also be permitted to
provide the principal owner's race using one or more of these
disaggregated subcategories regardless of whether the applicant
indicates that the principal owner is Asian and regardless of whether
the applicant selects any aggregate categories. Additionally, if an
applicant indicates that a principal owner is Other Asian, the financial
institution must permit the applicant to provide additional information
about the principal owner's race, by using free-form text on a paper or
electronic data collection form or using language that informs the
applicant of the opportunity to self-identify when taking the
application by means other than a paper or electronic data collection
form, such as by telephone. The financial institution must permit the
applicant to provide additional information indicating, for example,
that the principal owner is Cambodian, Hmong, Laotian, Pakistani, or
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Thai. See the sample data collection form in appendix E for sample
language.
B. The Black or African American aggregate category includes the
following disaggregated subcategories: African American; Ethiopian;
Haitian; Jamaican; Nigerian; Somali; or Other Black or African American.
An applicant must also be permitted to provide the principal owner's
race using one or more of these disaggregated subcategories regardless
of whether the applicant indicates that the principal owner is Black or
African American and regardless of whether the applicant selects any
aggregate categories. Additionally, if an applicant indicates that a
principal owner is Other Black or African American, the financial
institution must permit the applicant to provide additional information
about the principal owner's race, by using free-form text on a paper or
electronic data collection form or using language that informs the
applicant of the opportunity to self-identify when taking the
application by means other than a paper or electronic data collection
form, such as by telephone. The financial institution must permit the
applicant to provide additional information indicating, for example,
that the principal owner is Barbadian, Ghanaian, or South African. See
the sample data collection form in appendix E for sample language.
C. The Native Hawaiian or Other Pacific Islander aggregate category
includes the following disaggregated subcategories: Guamanian or
Chamorro; Native Hawaiian; Samoan; and Other Pacific Islander. An
applicant must also be permitted to provide the principal owner's race
using one or more of these disaggregated subcategories regardless of
whether the applicant indicates that the principal owner is Native
Hawaiian or Other Pacific Islander and regardless of whether the
applicant selects any aggregate categories. Additionally, if an
applicant indicates that a principal owner is Other Pacific Islander,
the financial institution must permit the applicant to provide
additional information about the principal owner's race, by using free-
form text on a paper or electronic data collection form or using
language that informs the applicant of the opportunity to self-identify
when taking the application by means other than a paper or electronic
data collection form, such as by telephone. The financial institution
must permit the applicant to provide additional information indicating,
for example, that the principal owner is Fijian or Tongan. See the
sample data collection form in appendix E for sample language.
D. If an applicant chooses to provide additional information
regarding a principal owner's race, such as indicating that a principal
owner is Cambodian, Barbadian, or Fijian orally or in writing on a paper
or electronic form, a financial institution must report that additional
information via free-form text in the appropriate data reporting field.
If the applicant provides such additional information but does not also
indicate that the principal owner is Other Asian, Other Black or African
American, or Other Pacific Islander, as applicable (e.g., by selecting
Other Asian on a paper or electronic form), a financial institution is
permitted, but not required, to report the corresponding ``Other'' race
disaggregated subcategory (i.e., Other Asian, Other Black or African
American, or Other Pacific Islander).
E. In addition to permitting an applicant to indicate that a
principal owner is American Indian or Alaska Native, a financial
institution must permit an applicant to provide the name of an enrolled
or principal tribe, by using free-form text on a paper or electronic
data collection form or using language that informs the applicant of the
opportunity to self-identify when taking the application by means other
than a paper or electronic data collection form, such as by telephone.
If an applicant chooses to provide the name of an enrolled or principal
tribe, a financial institution must report that information via free-
form text in the appropriate data reporting field. If the applicant
provides the name of an enrolled or principal tribe but does not also
indicate that the principal owner is American Indian or Alaska Native
(e.g., by selecting American Indian or Alaska Native on a paper or
electronic form), a financial institution is permitted, but not
required, to report American Indian or Alaska Native as well.
iii. Selecting multiple categories. The financial institution must
permit the applicant to select as many aggregate categories and
disaggregated subcategories as the applicant chooses. A financial
institution must permit an applicant to select one or more disaggregated
subcategories even if the applicant does not select an aggregate
category. For example, an applicant must be permitted to select the
Chinese disaggregated subcategory for a principal owner without being
required to select the Asian aggregate category. If an applicant
provides race information for a principal owner, the financial
institution reports all of the aggregate categories and disaggregated
subcategories provided by the applicant. For example, if an applicant
selects two aggregate categories and five disaggregated subcategories
for a principal owner, the financial institution reports the two
aggregate categories that the applicant selected and the five
disaggregated subcategories that the applicant selected. Additionally,
if an applicant selects only the Chinese disaggregated subcategory for a
principal owner, the financial institution reports Chinese for the race
of the principal owner but does not also report that the principal owner
is Asian. Similarly, if the applicant selects an aggregate
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category (e.g., Asian) and a disaggregated subcategory that does not
correspond to the aggregate category (e.g., Native Hawaiian), the
financial institution reports the information as provided by the
applicant (e.g., Asian and Native Hawaiian).
15. Sex. Generally, a financial institution must permit an applicant
to provide each principal owner's sex for purposes of Sec.
1002.107(a)(19). When requesting information about a principal owner's
sex, a financial institution shall use the term ``sex/gender.'' If the
financial institution uses a paper or electronic data collection form to
collect the information, the financial institution must allow the
applicant to provide each principal owner's sex/gender using free-form
text. When a financial institution collects the information orally, such
as by telephone, the financial institution must inform the applicant of
the opportunity to provide each principal owner's sex/gender and record
the applicant's response. A financial institution reports the
substantive information provided by the applicant (reported via free-
form text in the appropriate data reporting field), or reports that the
applicant declined to provide the information.
16. Ethnicity and race information requested orally. As described in
comments 107(a)(19)-13 and -14, when collecting principal owners'
ethnicity and race pursuant to Sec. 1002.107(a)(19), a financial
institution must present the applicant with the specified aggregate
categories and disaggregated subcategories. When collecting ethnicity
and race information orally, such as by telephone, a financial
institution may not present the applicant with the option to decline to
provide the information without also presenting the applicant with the
specified aggregate categories and disaggregated subcategories.
i. Ethnicity and race categories. Notwithstanding comments
107(a)(19)-13 and -14, a financial institution is not required to read
aloud every disaggregated subcategory when collecting ethnicity and race
information orally, such as by telephone. Rather, the financial
institution must orally present the lists of aggregate ethnicity and
race categories, followed by the disaggregated subcategories (if any)
associated with the aggregate categories selected by the applicant or
which the applicant requests to be presented. After the applicant makes
any disaggregated category selections associated with the aggregate
ethnicity or race category, the financial institution must also ask if
the applicant wishes to hear the lists of disaggregated subcategories
for any aggregate categories not selected by the applicant. The
financial institution must record any aggregate categories selected by
the applicant, as well as any disaggregated subcategories regardless of
whether such subcategories were selected based on the disaggregated
subcategories read by the financial institution or were otherwise
provided by the applicant.
ii. More than one principal owner. If an applicant has more than one
principal owner, the financial institution is permitted to ask about
ethnicity and race in a manner that reduces repetition when collecting
ethnicity and race information orally, such as by telephone. For
example, if an applicant has two principal owners, the financial
institution may ask for both principal owners' ethnicity at the same
time, rather than asking about ethnicity, race, and sex for the first
principal owner followed by ethnicity, race, and sex for the second
principal owner.
107(a)(20) Number of Principal Owners
1. General. If the financial institution asks the applicant to
provide the number of its principal owners pursuant to Sec.
1002.107(a)(20), a financial institution must provide the definition of
principal owner set forth in Sec. 1002.102(o). The financial
institution satisfies this requirement if it provides the definition of
principal owner as set forth in the sample data collection form in
appendix E.
2. Number of principal owners provided by applicant; verification of
number of principal owners. The financial institution may rely on
statements or information provided by the applicant in collecting and
reporting the number of the applicant's principal owners. However,
pursuant to Sec. 1002.107(b), if the financial institution verifies the
number of principal owners provided by the applicant, it must report the
verified information.
3. Number of principal owners not provided by applicant and
otherwise undetermined. Pursuant to Sec. 1002.107(c), a financial
institution shall maintain procedures reasonably designed to collect
applicant-provided data, which includes the number of principal owners
of the applicant. However, if a financial institution is nonetheless
unable to collect or otherwise determine the applicant's number of
principal owners, the financial institution reports that the number of
principal owners is ``not provided by applicant and otherwise
undetermined.''
107(b) Reliance on and Verification of Applicant-Provided Data
1. Reliance on information provided by an applicant or appropriate
third-party sources. A financial institution may rely on statements made
by an applicant (whether made in writing or orally) or information
provided by an applicant when compiling and reporting data pursuant to
subpart B of this part for applicant-provided data; the financial
institution is not required to verify those statements or that
information. However, if the financial institution does verify applicant
statements or information for its own business purposes, such as
statements relating to gross annual
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revenue or time in business, the financial institution reports the
verified information. Depending on the circumstances and the financial
institution's procedures, certain applicant-provided data can be
collected from appropriate third-party sources without a specific
request from the applicant, and such information may also be relied on.
For example, gross annual revenue or NAICS code may be collected from
tax return documents; a financial institution may also collect an
applicant's NAICS code using third-party sources such as business
information products. Applicant-provided data are the data that are or
could be provided by the applicant, including Sec. 1002.107(a)(5)
through (7) and (13) through (20). See comment 107(c)(1)-3. In regard to
restrictions on verification of minority-owned, women-owned, and
LGBTQI+-owned business statuses, and principal owners' ethnicity, race,
and sex, see comments 107(a)(18)-9 and 107(a)(19)-9.
107(c) Time and Manner of Collection
107(c)(1) In General
1. Procedures. The term ``procedures'' refers to the actual
practices followed by a financial institution as well as its stated
procedures. For example, if a financial institution's stated procedure
is to collect applicant-provided data on or with a paper application
form, but employees encourage applicants to skip the page that asks
whether the applicant is a minority-owned business, a women-owned
business, or an LGBTQI+-owned business under Sec. 1002.107(a)(18), the
financial institution's procedures are not reasonably designed to obtain
a response.
2. Latitude to design procedures. A financial institution has
flexibility to establish procedures concerning the timing and manner in
which it collects applicant-provided data that work best for its
particular lending model and product offerings, provided those
procedures are reasonably designed to collect the applicant-provided
data in Sec. 1002.107(a), as required pursuant to Sec. 1002.107(c)(1),
and where applicable comply with the minimum requirements set forth in
Sec. 1002.107(c)(2).
3. Applicant-provided data. Applicant-provided data are the data
that are or could be provided by the applicant, including Sec.
1002.107(a)(5) (credit type), Sec. 1002.107(a)(6) (credit purpose),
Sec. 1002.107(a)(7) (amount applied for), Sec. 1002.107(a)(13)
(address or location for purposes of determining census tract), Sec.
1002.107(a)(14) (gross annual revenue), Sec. 1002.107(a)(15) (NAICS
code, or information about the business such that the financial
institution can determine the applicant's NAICS code), Sec.
1002.107(a)(16) (number of workers), Sec. 1002.107(a)(17) (time in
business), Sec. 1002.107(a)(18) (minority-owned business status, women-
owned business status, and LGBTQI+-owned business status), Sec.
1002.107(a)(19) (ethnicity, race, and sex of the applicant's principal
owners), and Sec. 1002.107(a)(20) (number of principal owners).
Applicant-provided data do not include data that are generated or
supplied only by the financial institution, including Sec.
1002.107(a)(1) (unique identifier), Sec. 1002.107(a)(2) (application
date), Sec. 1002.107(a)(3) (application method), Sec. 1002.107(a)(4)
(application recipient), Sec. 1002.107(a)(8) (amount approved or
originated), Sec. 1002.107(a)(9) (action taken), Sec. 1002.107(a)(10)
(action taken date), Sec. 1002.107(a)(11) (denial reasons), Sec.
1002.107(a)(12) (pricing information), and Sec. 1002.107(a)(13) (census
tract, based on address or location provided by the applicant).
4. Collecting applicant-provided data without a direct request to
the applicant. Depending on the circumstances and the financial
institution's procedures, certain applicant-provided data can be
collected without a direct request to the applicant. For example, credit
type may be collected based on the type of product chosen by the
applicant. Similarly, a financial institution may rely on appropriate
third-party sources to collect certain applicant-provided data. See
Sec. 1002.107(b) concerning the use of third-party sources.
5. Data updated by the applicant. A financial institution reports
updated data if it obtains more current data from the applicant during
the application process. For example, if an applicant states its gross
annual revenue for the preceding fiscal year was $3 million, but then
the applicant notifies the financial institution that its revenue in the
preceding fiscal year was actually $3.2 million, the financial
institution reports gross annual revenue of $3.2 million. For reporting
verified applicant-provided data, see Sec. 1002.107(b) and comment
107(b)-1. If a financial institution has already verified data and then
the applicant updates it, the financial institution reports the
information it believes to be more accurate, in its discretion. If a
financial institution receives updates from the applicant after the
application process has closed (for example, after closing or account
opening), the financial institution may, at its discretion, update the
data at any time prior to reporting the covered application to the
Bureau.
107(c)(2) Applicant-Provided Data Collected Directly From the Applicant
1. In general. Whether a financial institution's procedures are
reasonably designed to collect applicant-provided data is a fact-based
determination and may depend on the financial institution's particular
lending model, product offerings, and other circumstances; procedures
that are reasonably designed to obtain a response may therefore require
additional provisions beyond the minimum criteria set forth in Sec.
1002.107(c)(2). In general, reasonably designed procedures
[[Page 104]]
will seek to maximize collection of applicant-provided data and minimize
missing or erroneous data. While the requirements of Sec.
1002.107(c)(2) do not apply to applicant-provided data that a financial
institution obtains without a direct request to the applicant, as
explained in comment 107(c)(1)-4, in such instances, a covered financial
institution must still comply with Sec. 1002.107(c)(1).
2. Specific components. i. Timing of initial collection attempt.
While a financial institution has some flexibility concerning when
applicant-provided data is are collected, under no circumstances may the
initial request for applicant-provided data occur simultaneous with or
after notifying an applicant of final action taken on a covered
application. Generally, the earlier in the application process the
financial institution initially seeks to collect applicant-provided
data, the more likely the timing of collection is reasonably designed to
obtain a response.
ii. The request for applicant-provided data is prominently displayed
or presented. Pursuant to Sec. 1002.107(c)(2)(ii), a financial
institution must ensure an applicant actually sees, hears, or is
otherwise presented with the request for applicant-provided data. If an
applicant is likely to overlook or miss a request for applicant-provided
data, the financial institution does not have reasonably designed
procedures. Similarly, a financial institution also does not have
reasonably designed procedures if it obscures, prevents, or inhibits an
applicant from accessing or reviewing a request for applicant-provided
data.
iii. The collection does not have the effect of discouraging an
applicant from responding to a request for applicant-provided data. A. A
covered financial institution avoids discouraging a response by, for
example, communicating to the applicant that the collection of
applicant-provided data is worthy of the applicant's attention or is as
important as information collected in connection with the financial
institution's creditworthiness determination. In contrast, a covered
financial institution that collects applicant-provided data in a time or
manner that directly or indirectly discourages or obstructs an applicant
from responding or providing a particular response violates Sec.
1002.107(c)(2)(iii). For example, a financial institution may not
discourage a response to inquiries regarding the demographic data
pursuant to Sec. 1002.107(a)(18) and (19) by communicating to the
applicant that the request is unimportant, encouraging the applicant to
bypass the form altogether, or attempting to influence or alter the
applicant's preferred response.
B. A covered financial institution also avoids discouraging a
response by requiring an applicant to provide a response to one or more
requests for applicant-provided data in order to proceed with a covered
application, including, as applicable, a response of ``I do not wish to
provide this information'' or similar. (As described in comments
107(a)(18)-1 and 107(a)(19)-1, a financial institution must permit an
applicant to decline to provide the demographic data required by Sec.
1002.107(a)(18) and (19), which can be satisfied by providing a response
option of ``I do not wish to provide this information'' or similar.) For
example, in an electronic application, a financial institution may
require the applicant to either make a substantive selection about a
principal owner's ethnicity, race, or sex, select an option of ``I do
not wish to provide this information'' or similar, or indicate there are
no principal owners before allowing the applicant to proceed to the next
page of requested information.
iv. The applicant can easily provide a response. Pursuant to Sec.
1002.107(c)(2)(iv), a financial institution must structure the request
for information in a manner that makes it easy for the applicant to
provide a response. For example, a financial institution requests
applicant-provided data in the same format as other information required
for the covered application, provides applicants multiple methods to
provide or return applicant-provided data (for example, on a written
form, through a web portal, or through other means), or provides the
applicant some other type of straightforward and seamless method to
provide a response. Conversely, a financial institution must avoid
imposing unnecessary burden on an applicant to provide the information
requested or requiring the applicant to take steps that are inconsistent
with the rest of its application process. For example, a financial
institution does not have reasonably designed procedures if it collects
application information related to its own creditworthiness
determination in electronic form, but mails a paper form to the
applicant initially seeking the data required under Sec. 1002.107(a)
that the financial institution does not otherwise need for its
creditworthiness determination and requiring the applicant to mail it
back. On the other hand, a financial institution complies with Sec.
1002.107(c)(2)(iv) if, at its discretion, it requests the applicant to
respond to inquiries made pursuant to Sec. 1002.107(a)(18) and (19)
through a reasonable method intended to keep the applicant's responses
discrete and protected from view.
v. Multiple requests for applicant-provided data. A financial
institution is permitted, but not required, to make more than one
attempt to obtain applicant-provided data if the applicant does not
respond to an initial request. For example, if an applicant initially
does not respond when asked early in the application process (before
notifying the applicant of final action taken on the application,
pursuant to Sec. 1002.107(c)(2)(i)) to inquiries made pursuant to Sec.
1002.107(a)(18) and
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(19), a financial institution may request this information again, for
example, during a subsequent in-person meeting with the applicant or
after notifying the applicant of final action taken on the covered
application.
107(c)(3) Procedures To Monitor Compliance
1. Procedures to identify and respond to indicia of potential
discouragement, including low response rates. Section 1002.107(c)(3)
requires a covered financial institution to maintain procedures designed
to identify and respond to indicia of potential discouragement,
including low response rates for applicant-provided data. In general,
these include monitoring for low response rates (i.e., the percentage of
covered applications for which the financial institution has obtained
some type of response to requests for applicant-provided data,
including, as applicable, an applicant response of ``I do not wish to
provide this information'' or similar); monitoring for significant
irregularities in any particular response that may indicate steering,
improper interference, or other potential discouragement or obstruction
of applicants' preferred responses; monitoring response rates and
responses by division, location, loan officer, or other factors to
ensure that no discouragement or improper conduct is occurring in some
parts of a financial institution, even if the financial institution
maintains adequate response rates and responses overall; providing
adequate training to loan officers and other persons involved in
collecting applicant-provided data; promptly investigating any indicia
of potential discouragement; and taking prompt remedial action if
discouragement or other improper conduct is identified.
107(c)(4) Low Response Rates
1. In general. A low response rate for applicant-provided data may
indicate that the financial institution has engaged in discouragement or
otherwise failed to maintain reasonably designed procedures. Response
rate generally refers to whether the financial institution has obtained
some type of response to requests for applicant-provided data
(including, as applicable, an applicant response of ``I do not wish to
provide this information'' or similar). A response rate may be measured,
as appropriate, as compared to financial institutions of a similar size,
type, and/or geographic reach, or other factors, as appropriate.
Similarly, significant irregularities in a particular response (for
example, very high rates of an applicant response of ``I do not wish to
provide this information'' or similar) may also indicate that a
financial institution does not have reasonably designed procedures, for
example, because of steering, improper interference, or other potential
discouragement or obstruction of applicants' preferred responses.
Response rates may be relevant across all applicant-provided data,
though are particularly relevant for the collection of the demographic
data pursuant to Sec. 1002.107(a)(18) and (19) given the heightened
sensitivity of these inquiries and the importance of those data to the
purposes of subpart B.
107(d) Previously Collected Data
1. In general. A financial institution may, for the purpose of
reporting such data pursuant to Sec. 1002.109, reuse certain previously
collected data if the requirements of Sec. 1002.107(d) are met. In that
circumstance, a financial institution need not seek to collect the data
anew in connection with a subsequent covered application to satisfy the
requirements of this subpart. For example, if an applicant applies for
and is granted a term loan, and then subsequently applies for a credit
card in the same calendar year, the financial institution need not
request again the data specified in Sec. 1002.107(d). Similarly, if an
applicant applies for more than one covered credit transaction at one
time, a financial institution need only ask once for the data specified
in Sec. 1002.107(d).
2. Data that can be reused. Subject to the requirements of Sec.
1002.107(d), a financial institution may reuse the following data: Sec.
1002.107(a)(13) (address or location for purposes of determining census
tract), Sec. 1002.107(a)(14) (gross annual revenue) (subject to comment
107(d)-7), Sec. 1002.107(a)(15) (NAICS code), Sec. 1002.107(a)(16)
(number of workers), Sec. 1002.107(a)(17) (time in business) (subject
to comment 107(d)-8), Sec. 1002.107(a)(18) (minority-owned business
status, women-owned business status, and LGBTQI+-owned business status)
(subject to comment 107(d)-9), Sec. 1002.107(a)(19) (ethnicity, race,
and sex of applicant's principal owners) (subject to comment 107(d)-9),
and Sec. 1002.107(a)(20) (number of principal owners). A financial
institution is not, however, permitted to reuse other data, such as
Sec. 1002.107(a)(6) (credit purpose).
3. Previously reported data without a substantive response. Data
have not been ``previously collected'' within the meaning of Sec.
1002.107(d) if the applicant did not provide a substantive response to
the financial institution's request for that data and the financial
institution was not otherwise able to obtain the requested data (for
example, from the applicant's credit report, or tax returns).
4. Updated data. If, after the application process has closed on a
prior covered application, a financial institution obtains updated
information relevant to the data required to be collected and reported
pursuant to Sec. 1002.107(a)(13) through (20), and the applicant
subsequently submits a new covered application, the financial
institution must use the updated information in connection with the new
covered application (if the requirements of Sec. 1002.107(d) are
otherwise met) or
[[Page 106]]
seek to collect the data again. For example, if a business notifies a
financial institution of a change of address of its sole business
location, and subsequently submits a covered application within the time
period specified in Sec. 1002.107(d)(1) for reusing previously
collected data, the financial institution must report census tract based
on the updated information. In that circumstance, the financial
institution may still reuse other previously collected data to satisfy
Sec. 1002.107(a)(14) through (20) if the requirements of Sec.
1002.107(d) are met.
5. Collection within the preceding 36 months. Pursuant to Sec.
1002.107(d)(1), data can be reused to satisfy Sec. 1002.107(a)(13) and
(15) through (20) if they are collected within the preceding 36 months.
A financial institution may measure the 36-month period from the date of
final action taken (Sec. 1002.107(a)(9)) on a prior application to the
application date (Sec. 1002.107(a)(2)) on a subsequent application. For
example, if a financial institution takes final action on an application
on February 1, 2025, it may reuse certain previously collected data
pursuant to Sec. 1002.107(d)(1) for subsequent covered applications
dated or received by the financial institution through January 31, 2028.
6. Reason to believe data are inaccurate. Whether a financial
institution has reason to believe data are inaccurate pursuant to Sec.
1002.107(d)(2) depends on the particular facts and circumstances. For
example, a financial institution may have reason to believe data on the
applicant's minority-owned business status, women-owned business status,
and LGBTQI+-owned business status may be inaccurate if it knows that the
applicant has had a change in ownership or a change in an owner's
percentage of ownership.
7. Collection of gross annual revenue in the same calendar year.
Pursuant to Sec. 1002.107(d)(1), gross annual revenue information can
be reused to satisfy Sec. 1002.107(a)(14) provided it is collected in
the same calendar year as the current covered application, as measured
from the application date. For example, if an application is received
and gross annual revenue is collected in connection with a covered
application in one calendar year, but then final action was taken on the
application in the following calendar year, the data may only be reused
for the calendar year in which it was collected and not the calendar
year in which final action was taken on the application. However, if an
application is received and gross annual revenue is collected in
connection with a covered application in one calendar year, a financial
institution may reuse that data pursuant to Sec. 1002.107(d) in a
subsequent application initiated in the same calendar year, even if
final action was taken on the subsequent application in the following
calendar year.
8. Time in business. A financial institution that decides to reuse
previously collected data to satisfy Sec. 1002.107(a)(17) (time in
business) must update the data to reflect the passage of time since the
data were collected. If a financial institution only knows that the
applicant had been in business less than two years at the time the data
was initially collected, as described in comment 107(a)(17)-1.ii or iii,
it updates the data based on the assumption that the applicant had been
in business for 12 months at the time of the prior collection. For
example:
i. If a financial institution previously collected data on a prior
covered application that the applicant has been in business for four
years, and then seeks to reuse that data for a subsequent covered
application submitted one year later, it must update the data to reflect
that the applicant has been in business for five years.
ii. If a financial institution previously collected data on a prior
covered application that the applicant had been in business less than
two years (and was not aware of the business's actual length of time in
business at the time), and then seeks to reuse that data for a
subsequent covered application submitted 18 months later, the financial
institution reports time in business on the subsequent covered
application as over two years in business.
9. Minority-owned business status, women-owned business status,
LGBTQI+-owned business status, and principal owners' ethnicity, race,
and sex. A financial institution may not reuse data to satisfy Sec.
1002.107(a)(18) and (19) unless the data were collected in connection
with a prior covered application pursuant to this subpart B. If the
financial institution previously asked the applicant to provide its
minority-owned business status, women-owned business status, and
LGBTQI+-owned business status, and principal owners' ethnicity, race,
and sex for purposes of Sec. 1002.107(a)(18) and (19), and the
applicant declined to provide the information (such as by selecting ``I
do not wish to provide this information'' or similar on a data
collection form or by telling the financial institution that it did not
wish to provide the information), the financial institution may use that
response when reporting data for a subsequent application pursuant to
Sec. 1002.107(d). However, if the applicant failed to respond (such as
by leaving the response to the question blank or by failing to return a
data collection form), the financial institution must inquire about the
applicant's minority-owned business status, women-owned business status,
LGBTQI+-owned business status, and principal owners' ethnicity, race, or
sex, as applicable, in connection with a subsequent application because
the data were not previously obtained. See also comment 107(a)(19)-11
concerning previously collected ethnicity, race, and sex information.
[[Page 107]]
Section 1002.108--Firewall
108(a) Definitions
1. Involved in making any determination concerning a covered
application from a small business. i. General. An employee or officer is
involved in making a determination concerning a covered application from
a small business for purposes of Sec. 1002.108 if the employee or
officer makes, or otherwise participates in, a decision regarding the
evaluation of a covered application from a small business or the
creditworthiness of a small business applicant for a covered credit
transaction. This includes, but is not limited to, employees and
officers serving as underwriters. The decision that an employee or
officer makes or participates in must be about a specific covered
application or about the creditworthiness of a specific applicant. An
employee or officer is not involved in making a determination concerning
a covered application if the employee or officer is only involved in
making a decision that affects covered applications generally, or if the
employee or officer only interacts with small businesses prior to them
becoming applicants or submitting an application. An employee or officer
may be participating in a determination concerning a covered application
even if the employee or officer is not the ultimate decision maker or
the sole decision maker. For example, an employee participates in a
determination concerning a covered application if the employee
recommends that another employee or officer approve or deny the
application. Similarly, an employee or officer participates in a
determination concerning a covered application if the employee or
officer is part of a larger group, such as a committee, that makes a
determination concerning a covered application. For example, an employee
participates in a decision if the employee is a member of a committee
that approves the terms offered to an applicant for a covered
application. This is true even if the employee does not support the
committee's ultimate decision regarding the terms offered. Conversely,
an employee or officer does not participate in a determination
concerning a covered application if the employee or officer only
performs ministerial functions for the committee, such as recording the
minutes, or if the committee does not make a determination concerning a
specific covered application.
ii. Examples of activities that do not constitute being involved in
making a determination concerning a covered application from a small
business. The following are examples of activities that do not
constitute being involved in making a determination concerning a covered
application:
A. Developing policies and procedures, designing or programming
computer or other systems, or conducting marketing.
B. Discussing credit products, loan terms, or loan requirements with
a small business before it submits a covered application.
C. Making or participating in a decision after the financial
institution has taken final action on the covered application, such as a
decision about servicing or collecting a covered credit transaction.
D. Using a check box form to confirm whether an applicant has
submitted all necessary documents or handling a minor or clerical matter
during the application process, such as suggesting or selecting a time
for an appointment with an applicant.
E. Gathering information (including information collected pursuant
to Sec. 1002.107(a)(18) or (19)) and forwarding the information or a
covered application to other individuals or entities.
F. Reviewing previously collected data to determine if it can be
reused for a later covered application pursuant to Sec. 1002.107(d).
iii. Examples of activities that constitute being involved in making
a determination concerning a covered application from a small business.
The following are examples of activities (done individually or as part
of a group) that constitute being involved in making a determination
concerning a covered application:
A. Making or participating in a decision to approve or deny a
specific covered application. This includes, but is not limited to,
making or participating in a decision that an applicant does not satisfy
one or more of the requirements for the covered credit transaction for
which it has applied.
B. Making or participating in a decision regarding the reason(s) for
denial of a covered application.
C. Making or participating in a decision that a guarantor or
collateral is required in order to approve a specific covered
application.
D. Making or participating in a decision regarding the credit amount
or credit limit that will be approved for a specific covered
application.
E. Making or participating in a decision to set one or more of the
other terms that will be offered for a specific covered credit
transaction. This includes, but is not limited to, making or
participating in a decision regarding the interest rate, the loan term,
or the payment schedule that will be offered for a specific covered
credit transaction.
F. Making or participating in a decision regarding a counteroffer
made to a specific applicant, including a decision regarding the terms
of such a counteroffer.
G. Recommending that another decision maker approve or deny a
specific covered application, provide a specific reason for denying a
covered application, require a guarantor or collateral in order to
approve a covered application, approve a credit amount or credit limit
for a covered credit transaction, set one or more other terms for a
covered
[[Page 108]]
credit transaction, make a counteroffer regarding a covered application,
or set a specific term for such a counteroffer.
2. Should have access. i. General. A financial institution may
determine that an employee or officer who is involved in making a
determination concerning a covered application from a small business
should have access to information otherwise subject to the prohibition
in Sec. 1002.108(b) if that employee or officer is assigned one or more
job duties that may require the employee or officer to collect, see,
consider, refer to, or otherwise use information subject to the
prohibition in Sec. 1002.108(b). If the employee or officer might need
to collect, see, consider, refer to, or use such information to perform
the employee's or officer's assigned job duties, the financial
institution may determine that the employee or officer should have
access. For example, if a loan officer is involved in making a
determination concerning a covered application and that loan officer's
job description or the financial institution's policies and procedures
state that the loan officer may need to collect information pursuant to
Sec. 1002.107(a)(18) or (19), the financial institution may determine
that the loan officer should have access.
ii. When a group of employees or officers should have access. A
financial institution may determine that all employees or officers with
the same job description or assigned duties should have access for
purposes of Sec. 1002.108. For example, if a job description, a policy,
a procedure, or another document states that a loan officer may have to
collect or explain any part of a data collection form that includes the
inquiries described in Sec. 1002.107(a)(18) and (19), the financial
institution may determine that all employees and officers who have been
assigned the position of loan officer should have access for purposes of
Sec. 1002.108.
iii. Making a determination regarding who should have access. A
financial institution is permitted to choose what lawful factors it will
consider when determining whether an employee or officer should have
access. A financial institution's determination that an employee or
officer should have access may take into account relevant operational
factors and lawful business practices. For example, a financial
institution may consider its size, the number of employees and officers
within the relevant line of business or at a particular branch or office
location, and/or the number of covered applications the financial
institution has received or expects to receive. Additionally, a
financial institution may consider its current or its reasonably
anticipated staffing levels, operations, systems, processes, policies,
and procedures. A financial institution is not required to hire
additional staff, upgrade its systems, change its lending or operational
processes, or revise its policies or procedures for the sole purpose of
limiting who should have access.
108(b) Prohibition on Access to Certain Information
1. Scope of persons subject to the prohibition. The prohibition in
Sec. 1002.108(b) applies to an employee or officer of a covered
financial institution or its affiliate if the employee or officer is
involved in making any determination concerning a covered application
from a small business. For example, if a financial institution is
affiliated with company B and an employee of company B is involved in
making a determination concerning a covered application on behalf of the
financial institution, then the financial institution must comply with
Sec. 1002.108 with regard to company B's employee. Section 1002.108
does not require a financial institution to limit the access of
employees and officers of third parties who are not affiliates of the
financial institution.
2. Scope of information that cannot be accessed when the prohibition
applies to an employee or officer. i. Information that cannot be
accessed when the prohibition applies. If a particular employee or
officer is involved in making a determination concerning a covered
application from a small business, the prohibition in Sec. 1002.108(b)
only limits that employee's or officer's access to that small business
applicant's responses to the inquiries that the covered financial
institution makes to satisfy Sec. 1002.107(a)(18) and (19). For
example, if a financial institution uses a paper data collection form to
request information pursuant to Sec. 1002.107(a)(18) and (19), an
employee or officer that is subject to the prohibition is not permitted
access to the paper data collection form that contains the applicant's
responses to the inquiries made pursuant to pursuant to Sec.
1002.107(a)(18) and (19), or to any other record that identifies how the
particular applicant responded to those inquires. Similarly, if a
financial institution makes the inquiries required pursuant to Sec.
1002.107(a)(18) and (19) during a telephone call, the prohibition
applies to the applicant's responses to those inquiries provided during
that telephone call and to any record that identifies how the particular
applicant responded to those inquiries.
ii. Information that can be accessed when the prohibition applies.
If a particular employee or officer is involved in making a
determination concerning a covered application, the prohibition in Sec.
1002.108(b) does not limit that employee's or officer's access to an
applicant's responses to inquiries regarding whether the applicant is a
minority-owned, women-owned, or LGBTQI+-owned business, or principal
owners' ethnicity, race, or sex, made for purposes other than compliance
with Sec. 1002.107(a)(18) or (19). Thus, for example, an employee or
officer who is subject to
[[Page 109]]
the prohibition in Sec. 1002.108(b) may have access to information
regarding whether an applicant is eligible for a Small Business
Administration program for women-owned businesses without regard to
whether the exception in Sec. 1002.108(c) is satisfied. Additionally,
an employee or officer who knows that an applicant is a minority-owned
business, women-owned business, or LGBTQI+-owned business, or who knows
the ethnicity, race, or sex of any of the applicant's principal owners
due to activities unrelated to the inquiries made to satisfy the
financial institution's obligations under Sec. 1002.107(a)(18) and (19)
is not prohibited from making a determination concerning the applicant's
covered application. Thus, an employee or officer who knows, for
example, that an applicant is a minority-owned business due to a social
relationship or another professional relationship with the applicant or
any of its principal owners may make determinations concerning the
applicant's covered application. Furthermore, an employee or officer
that is involved in making a determination concerning a covered
application may see, consider, refer to, or use data collected to
satisfy aspects of Sec. 1002.107 other than Sec. 1002.107(a)(18) or
(19), such as gross annual revenue, number of workers, and time in
business.
108(c) Exception to the Prohibition on Access to Certain Information
1. General. A financial institution is not required to limit the
access of an employee or officer who is involved in making
determinations concerning a covered application from a small business if
the financial institution determines that the particular employee or
officer should have access to the information collected pursuant to
Sec. 1002.107(a)(18) or (19), and the financial institution provides
the notice required by Sec. 1002.108(d). A financial institution is not
required to perform a separate analysis of the feasibility of
maintaining a firewall. A determination that an employee or officer
should have access means that it is not feasible to maintain a firewall
as to that particular employee or officer, and the exception applies to
that employee or officer if the financial institution provides the
notice required by Sec. 1002.108(d). However, the fact that a financial
institution has made a determination that an employee or officer should
have access does not mean that the financial institution can permit
other employees and officers who are involved in making determinations
concerning a covered application to have access to the information
collected pursuant to Sec. 1002.107(a)(18) and (19). A financial
institution may only permit an employee or officer who is involved in
making a determination concerning a covered application to have access
to information collected pursuant to Sec. 1002.107(a)(18) and (19) if
it has determined that employee or officer or a group of which the
employee or officer is a member should have access to the information.
2. Applying the exception to a specific employee or officer or group
of similarly situated employees or officers. The exception applies to an
employee or officer if the financial institution determines that the
employee or officer should have access to the information collected
pursuant to Sec. 1002.107(a)(18) or (19), and the financial institution
provides the notice required by Sec. 1002.108(d). A financial
institution can also determine that several employees and officers
should have access, that all of a group of similarly situated employees
or officers should have access, and that multiple groups of similarly
situated employees or officers should have access to information
collected pursuant to Sec. 1002.107(a)(18) or (19). See also comment
108(a)-2. For example, a financial institution could determine that all
its small business loan officers, small business loan processors,
compliance officers, and legal officers should have access. If the
financial institution provides the notice required in Sec. 1002.108(d),
the financial institution may permit all of its small business loan
officers, small business loan processors, compliance officers, and legal
officers to have access. However, the financial institution cannot
permit other employees and officers to have access simply because it has
determined that the small business loan officers, loan processors,
compliance officers, and legal officers should have access. For example,
in this case, the financial institution may not permit its underwriters
or chief executive officer to have access to the information collected
from the applicant pursuant to Sec. 1002.107(a)(18) or (19) if they are
involved in making any determination concerning a covered application,
unless the financial institution also determines that they should have
access. This would be true even if the chief executive officer or
underwriter had some of the same assigned duties as a loan officer, such
as being a member of a credit committee, but has not been assigned the
task(s) that may require access to one or more applicants' responses to
the financial institution's inquiries under Sec. 1002.107(a)(18) or
(19). If the financial institution separately determines that
underwriters and the chief executive officer should have access, then
the underwriters and chief executive officer may also have access.
108(d) Notice
1. General. If a financial institution determines that one or more
employees or officers should have access pursuant to Sec. 1002.108(c),
the financial institution must provide the required notice to, at a
minimum, the applicant or applicants whose responses will be accessed by
an employee or officer involved
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in making determinations concerning the applicant's or applicants'
covered applications. Alternatively, a financial institution may also
provide the required notice to applicants whose responses will not or
might not be accessed. For example, a financial institution could
provide the notice to all applicants for covered credit transactions or
all applicants for a specific type of product.
2. Content of the required notice. The notice must inform the
applicant that one or more employees and officers involved in making
determinations concerning the applicant's covered application may have
access to the applicant's responses regarding the applicant's minority-
owned business status, women-owned business status, LGBTQI+-owned
business status, and its principal owners' ethnicity, race, and sex. See
the sample data collection form in appendix E to this part for sample
language for providing this notice to applicants. If a financial
institution establishes and maintains a firewall and chooses to use the
sample data collection form, the financial institution can delete this
sample language from the form.
3. Timing for providing the notice. If the financial institution is
providing the notice orally, it must provide the notice required by
Sec. 1002.108(d) prior to asking the applicant if it is a minority-
owned business, women-owned business, or LGBTQI+-owned business and
prior to asking for a principal owner's ethnicity, race, or sex. If the
notice is provided on the same paper or electronic data collection form
as the inquiries about minority-owned business status, women-owned
business status, LGBTQI+-owned business status and the principal owners'
ethnicity, race, or sex, the notice must appear before the inquiries. If
the notice is provided in an electronic or paper document that is
separate from the data collection form, the notice must be provided at
the same time as the data collection form or prior to providing the data
collection form. Additionally, the notice must be provided with the non-
discrimination notices required pursuant to Sec. 1002.107(a)(18) and
(19). See appendix E for sample language.
Section 1002.109--Reporting of Data to the Bureau
109(a) Reporting to the Bureau
109(a)(2) Reporting by Subsidiaries
1. Subsidiaries. A covered financial institution is considered a
subsidiary of another covered financial institution for purposes of
reporting data pursuant to Sec. 1002.109 if more than 50 percent of the
ownership or control of the first covered financial institution is held
by the second covered financial institution.
109(a)(3) Reporting Obligations Where Multiple Financial Institutions
Are Involved in a Covered Credit Transaction
1. General. The following clarifies how to report applications
involving more than one financial institution. The discussion below
assumes that all parties involved with the covered credit transaction
are covered financial institutions. However, the same principles apply
if any party is not a covered financial institution.
i. A financial institution shall report the action that it takes on
a covered application, whether or not the covered credit transaction
closed in the financial institution's name and even if the financial
institution used underwriting criteria supplied by another financial
institution. However, where it is necessary for more than one financial
institution to make a credit decision in order to approve a single
covered credit transaction, only the last financial institution with
authority to set the material terms of the covered credit transaction is
required to report. Setting the material terms of the covered credit
transaction include, for example, selecting among competing offers, or
modifying pricing information, amount approved or originated, or
repayment duration. In this situation, the determinative factor is not
which financial institution actually made the last credit decision prior
to closing, but rather which financial institution last had the
authority for setting the material terms of the covered credit
transaction prior to closing. Whether a financial institution has taken
action for purposes of Sec. 1002.109(a)(3) and comment 109(a)(3)-1 is
not relevant to, and is not intended to repeal, abrogate, annul, impair,
or interfere with, section 701(d) (15 U.S.C. 1691(d)) of the Act, Sec.
1002.9, or any other provision within subpart A of this Regulation.
ii. A financial institution takes action on a covered application
for purposes of Sec. 1002.109(a)(3) if it denies the application,
originates the application, approves the application but the applicant
did not accept the transaction, or closes the file or denies for
incompleteness. The financial institution must also report the
application if it was withdrawn. For reporting purposes, it is not
relevant whether the financial institution receives the application
directly from the applicant or indirectly through another party, such as
a broker, or (except as otherwise provided in comment 109(a)(3)-1.i)
whether another financial institution also reviews and reports an action
taken on a covered application involving the same credit transaction.
iii. Where it is necessary for more than one financial institution
to make a credit decision in order to approve a single covered credit
transaction and where more than one financial institution denies the
application
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or otherwise does not approve the application, the reporting financial
institution (the last financial institution with authority to set the
material terms of the covered credit transaction) shall have a
consistent procedure for determining how it reports inconsistent or
differing data points for purposes of subpart B. For example, Financial
Institution A is the reporting entity because it has the last authority
to set the material credit terms. Financial Institution A sends the
application to Financial Institution B and Financial Institution C for
review, but both Financial Institution B and Financial Institution C
deny the application, with different denial reasons. Based on these
denials, Financial Institution A follows suit and denies the
application. Financial Institution A must have a consistent procedure
for what denial reason(s) to report, such as reporting the denial
reason(s) from the first financial institution that denied the covered
application.
2. Examples. The following scenarios illustrate how a financial
institution reports a particular covered application. The illustrations
assume that all parties involved with the covered credit transaction are
covered financial institutions. However, the same principles apply if
any party is not a covered financial institution. Examples i through iv
involve a single financial institution with responsibility for making a
credit decision without the involvement of an intermediary. Example v
describes a financial institution intermediary with only passive
involvement in the covered credit transaction. Example vi describes a
transaction where multiple financial institutions independently decision
and take action on a covered application. Examples vii and viii describe
situations where more than one financial institution must make a credit
decision in order to approve the covered credit transaction. Examples ix
and x describe situations involving pooled and participation interests.
i. Financial Institution A received a covered application from an
applicant and approved the application before closing the covered credit
transaction in its name. Financial Institution A was not acting as
Financial Institution B's agent. Financial Institution B later purchased
the covered credit transaction from Financial Institution A. Financial
Institution A was not acting as Financial Institution B's agent.
Financial Institution A reports the application. Financial Institution B
has no reporting obligation for this transaction.
ii. Financial Institution A received a covered application from an
applicant. If approved, the covered credit transaction would have closed
in Financial Institution B's name. Financial Institution A denied the
application without sending it to Financial Institution B for approval.
Financial Institution A was not acting as Financial Institution B's
agent. Since Financial Institution A took action on the application,
Financial Institution A reports the application as denied. Financial
Institution B does not report the application.
iii. Financial Institution A reviewed a covered application and made
a credit decision to approve it using the underwriting criteria provided
by a Financial Institution B. Financial Institution B did not review the
application and did not make a credit decision prior to closing.
Financial Institution A was not acting as Financial Institution B's
agent. Financial Institution A reports the application. Financial
Institution B has no reporting obligation for this application.
iv. Financial Institution A reviewed and made the credit decision on
a covered application based on the criteria of a third-party insurer or
guarantor (for example, a government or private insurer or guarantor).
Financial Institution A reports the action taken on the application.
v. Financial Institution A received a covered application from an
applicant and forwarded that application to Financial Institution B.
Financial Institution B reviewed the application and made a credit
decision approving the application prior to closing. The covered credit
transaction closed in Financial Institution A's name. Financial
Institution B purchased the covered credit transaction from Financial
Institution A after closing. Financial Institution B was not acting as
Financial Institution A's agent. Since Financial Institution B made the
credit decision prior to closing, and Financial Institution A's approval
was not necessary for the credit transaction, Financial Institution B
reports the origination. Financial Institution A does not report the
application. Assume the same facts, except that Financial Institution B
reviewed the application before the covered credit transaction would
have closed, but Financial Institution B denied the application.
Financial Institution B reports the application as denied. Financial
Institution A does not report the application because it did not take an
action on the application. If, under the same facts, the application was
withdrawn before Financial Institution B made a credit decision,
Financial Institution B would report the application as withdrawn and
Financial Institution A would not report the application for the same
reason.
vi. Financial Institution A received a covered application and
forwarded it to Financial Institutions B and C. Financial Institution A
made a credit decision, acting as Financial Institution D's agent, and
approved the application. Financial Institutions B and C are not working
together with Financial Institutions A or D, or with each other, and are
solely responsible for setting the terms of their own credit
transactions. Financial
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Institution B made a credit decision approving the application, and
Financial Institution C made a credit decision denying the application.
The applicant did not accept the covered credit transaction from
Financial Institution D. Financial Institution D reports the application
as approved but not accepted. Financial Institution A does not report
the application, because it was acting as Financial Institution D's
agent. The applicant accepted the offer of credit from Financial
Institution B, and credit was extended. Financial Institution B reports
the application as originated. Financial Institution C reports the
application as denied.
vii. Financial Institution A received a covered application and made
a credit decision to approve it using the underwriting criteria provided
by Financial Institution B. Financial Institution A was not acting as
Financial Institution B's agent. Financial Institution A forwarded the
application to Financial Institution B. Financial Institution B reviewed
the application and made a credit decision approving the application
prior to closing. Financial Institution A makes a credit decision on the
application and modifies the credit terms (the interest rate and
repayment term) offered by Financial Institution B. The covered credit
transaction reflecting the modified terms closes in Financial
Institution A's name. Financial Institution B purchases the covered
credit transaction from Financial Institution A after closing. As the
last financial institution with the authority for setting the material
terms of the covered credit transaction, Financial Institution A reports
the application as originated. Financial Institution B does not report
the origination because it was not the last financial institution with
the authority to set the material terms on the application. If, under
the same facts, Financial Institution A did not modify the credit terms
offered by Financial Institution B, Financial Institution A still
reports the application as originated because it was still the last
financial institution with the authority for setting the material terms,
even if it chose not to so do in a particular instance. Financial
Institution B does not report the origination.
viii. Financial Institution A received a covered application and
forwarded it to Financial Institutions B, C, and D. Financial
Institution A was not acting as anyone's agent. Financial Institution B
and C reviewed the application and made a credit decision approving the
application and Financial Institution D reviewed the application and
made a credit decision denying the application. Prior to closing,
Financial Institution A makes a credit decision on the application by
deciding to offer to the applicant the credit terms offered by Financial
Institution B and does not convey to the applicant the credit terms
offered by Financial Institution C. The applicant does not accept the
covered credit transaction. As the last financial institution with the
authority for setting the material terms of the covered credit
transaction, Financial Institution A reports the application as approved
but not accepted. Financial Institutions B, C, and D do not report the
application because they were not the last financial institution with
the authority for setting the material terms of the covered credit
transaction. Assume the same facts, except the applicant accepts the
terms of the covered credit transaction from Financial Institution B as
offered by Financial Institution A. The covered credit transaction
closes in Financial Institution A's name. Financial Institution B
purchases the transaction after closing. Here, Financial Institution A
reports the application as originated. Financial Institutions B, C, and
D do not report the application because they were not the last financial
institution responsible for setting the material terms of the covered
credit transaction.
ix. Financial Institution A receives a covered application and
approves it, and then Financial Institution A elects to organize a loan
participation agreement where Financial Institutions B and C agree to
purchase a partial interest in the covered credit transaction. Financial
Institution A reports the application. Financial Institutions B and C
have no reporting obligation for this application.
x. Financial Institution A purchases an interest in a pool of
covered credit transactions, such as credit-backed securities or real
estate investment conduits. Financial Institution A does not report this
purchase.
3. Agents. If a covered financial institution takes action on a
covered application through its agent, the financial institution reports
the application. For example, acting as Financial Institution A's agent,
Financial Institution B approved an application prior to closing and a
covered credit transaction was originated. Financial Institution A
reports the covered credit transaction as an origination. State law
determines whether one party is the agent of another.
109(b) Financial Institution Identifying Information
1. Changes to financial institution identifying information. If a
financial institution's information required pursuant to Sec.
1002.109(b) changes, the financial institution shall provide the new
information with the data submission for the collection year of the
change. For example, assume two financial institutions that previously
reported data under subpart B of this part merge and the surviving
institution retained its Legal Entity Identifier but obtained a new TIN
in February 2026. The surviving institution must report the new TIN with
its data submission for its 2026 data (which is due by June 1, 2027)
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pursuant to Sec. 1002.109(b)(5). Likewise, if that financial
institution's Federal prudential regulator changes in February 2026 as a
result of the merger, it must identify its new Federal prudential
regulator in its annual submission for its 2026 data.
Paragraph 109(b)(4)
1. Federal prudential regulator. For purposes of Sec.
1002.109(b)(4), Federal prudential regulator means, if applicable, the
Federal prudential regulator for a financial institution that is a
depository institution as determined pursuant to section 3q of the
Federal Deposit Insurance Act (12 U.S.C. 1813(q)), including the Office
of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, or the Board of Governors of the Federal Reserve System; or
the National Credit Union Administration Board for financial
institutions that are Federal credit unions.
Paragraph 109(b)(6)
1. Legal Entity Identifier (LEI). A Legal Entity Identifier is a
utility endorsed by the LEI Regulatory oversight committee, or a utility
endorsed or otherwise governed by the Global LEI Foundation (GLEIF) (or
any successor of the GLEIF) after the GLEIF assumes operational
governance of the global LEI system. A financial institution complies
with Sec. 1002.109(b)(6) by reporting its current LEI number. A
financial institution that does not currently possess an LEI number must
obtain an LEI number, and has an ongoing obligation to maintain the LEI
number. The GLEIF website provides a list of LEI issuing organizations.
A financial institution may obtain an LEI, for purposes of complying
with Sec. 1002.109(b)(6), from any one of the issuing organizations
listed on the GLEIF website.
Paragraph 109(b)(7)
1. RSSD ID number. The RSSD ID is a unique identifying number
assigned to institutions, including main offices and branches, by the
Board of Governors of the Federal Reserve System. A financial
institution's RSSD ID may be found on the website of the National
Information Center, which provides comprehensive financial and structure
information on banks and other institutions for which the Federal
Reserve Board has a supervisory, regulatory, or research interest
including both domestic and foreign banking organizations that operate
in the United States. If a financial institution does not have an RSSD
ID, it reports that this information is not applicable.
Paragraph 109(b)(8)
1. Immediate parent entity. An entity is the immediate parent of a
financial institution for purposes of Sec. 1002.109(b)(8)(i) through
(iii) if it is a separate entity that directly owns more than 50 percent
of the financial institution.
2. Top-holding parent entity. An entity is the top-holding parent of
a financial institution for purposes of Sec. 1002.109(b)(8)(iv) through
(vi) if it ultimately owns more than 50 percent of the financial
institution, and the entity itself is not controlled by any other
entity. If the immediate parent entity and the top-holding parent entity
are the same, the financial institution reports that Sec.
1002.109(b)(8)(iv) through (vi) are not applicable.
3. LEI. For purposes of Sec. 1002.109(b)(8)(ii) and (v), a
financial institution shall report the LEI of a parent entity if the
parent entity has an LEI number. If a financial institution's parent
entity does not have an LEI, the financial institution reports that this
information is not applicable.
4. RSSD ID numbers. For purposes of Sec. 1002.109(b)(8)(iii) and
Sec. 1002.109(b)(8)(vi), a financial institution shall report the RSSD
ID number of a parent entity if the entity has an RSSD ID number. If a
financial institution's parent entity does not have an RSSD ID, the
financial institution reports that this information is not applicable.
Paragraph 109(b)(9)
1. Type of financial institution. A financial institution complies
with Sec. 1002.109(b)(9) by selecting the applicable type or types of
financial institution from the list below. A financial institution shall
select all applicable types.
i. Bank or savings association.
ii. Minority depository institution.
iii. Credit union.
iv. Nondepository institution.
v. Community development financial institution (CDFI).
vi. Other nonprofit financial institution.
vii. Farm Credit System institution.
viii. Government lender.
ix. Commercial finance company.
x. Equipment finance company.
xi. Industrial loan company.
xii. Online lender.
xiii. Other.
2. Use of ``other'' for type of financial institution. A financial
institution reports type of financial institution as ``other'' where
none of the enumerated types of financial institution appropriately
describe the applicable type of financial institution, and the
institution reports the type of financial institution via free-form text
field. A financial institution that selects at least one type from the
list is permitted, but not required, to also report ``other'' (with
appropriate free-form text) if there is an additional aspect of its
business that is not one of the enumerated types set out in comment
109(b)(9)-1.
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3. Additional types of financial institution. The Bureau may add
additional types of financial institutions via the Filing Instructions
Guide and related materials. Refer to the Filing Instructions Guide for
any updates for each reporting year.
Paragraph 109(b)(10)
1. Financial institutions that voluntarily report covered
applications under subpart B of this part. A financial institution that
is not a covered financial institution pursuant to Sec. 1002.105(b) but
that elects to voluntarily compile, maintain, and report data under
Sec. Sec. 1002.107 through 1002.109 (see comment 105(b)-10) complies
with Sec. 1002.109(b)(10) by selecting ``voluntary reporter.''
Section 1002.110--Publication of Data and Other Disclosures
110(c) Statement of Financial Institution's Small Business Lending Data
Available on the Bureau's Website
1. Statement. A financial institution shall provide the statement
required by Sec. 1002.110(c) using the following, or substantially
similar, language:
Small Business Lending Data Notice
Data about our small business lending are available online for
review at the Consumer Financial Protection Bureau's (CFPB's) website at
https://www.consumerfinance.gov/ data-research/small- business-lending/.
The data show the geographic distribution of our small business lending
applications; information about our loan approvals and denials; and
demographic information about the principal owners of our small business
applicants. The CFPB may delete or modify portions of our data prior to
posting it if doing so would advance a privacy interest. Small business
lending data for many other financial institutions are also available at
this website.
2. Website. A financial institution without a website complies with
Sec. 1002.110(c) by making a written statement using the language in
comment 110(c)-1, or substantially similar language, available upon
request.
3. Revised location for publicly available data. The Bureau may
modify the location specified in comment 110(c)-1 at which small
business lending data are available via the Filing Instructions Guide
and related materials. Refer to the Filing Instructions Guide for any
updates for each reporting year.
Section 1002.111--Recordkeeping
111(a) Record Retention
1. Evidence of compliance. Section 1002.111(a) requires a financial
institution to retain evidence of compliance with subpart B of this part
for at least three years after its small business lending application
register is required to be submitted to the Bureau pursuant to Sec.
1002.109. In addition to the financial institution's small business
lending application register, such evidence of compliance is likely to
include, but is not limited to, the applications for credit from which
information in the register is drawn, as well as the files or documents
that, under Sec. 1002.111(b), are kept separate from the applications
for credit. This three-year record retention requirement applies to any
records covered by Sec. 1002.111(a), notwithstanding the more general
12-month retention period for records related to business credit
specified in Sec. 1002.12(b).
2. Record retention for creditors under Sec. 1002.5(a)(4)(vii) and
(viii). A creditor that is voluntarily, under Sec. 1002.5(a)(4)(vii)
and (viii), collecting information pursuant to subpart B of this part
complies with Sec. 1002.111(a) by retaining evidence of compliance with
subpart B for at least three years after June 1 of the year following
the year that data was collected.
111(b) Certain Information Kept Separate From the Rest of the
Application
1. Separate from the application. A financial institution may
satisfy the requirement in Sec. 1002.111(b) by keeping an applicant's
responses to the financial institution's request pursuant to Sec.
1002.107(a)(18) and (19) in a file or document that is discrete or
distinct from the application and its accompanying information. For
example, such information could be collected on a piece of paper that is
separate from the rest of the application form. In order to satisfy the
requirement in Sec. 1002.111(b), an applicant's responses to the
financial institution's request pursuant to Sec. 1002.107(a)(18) and
(19) need not be maintained in a separate electronic system, nor need
they be removed from the physical files containing the application so
long as there is some separation between the demographic information and
the rest of the application and its accompanying information. However,
the financial institution may nonetheless need to keep this information
in a different electronic or physical file in order to satisfy the
prohibition in Sec. 1002.108(b).
2. Number of principal owners. A financial institution is permitted
to maintain information regarding the applicant's number of principal
owners pursuant to Sec. 1002.107(a)(20) with an applicant's responses
to the financial institution's request pursuant to Sec. 1002.107(a)(18)
and (19).
111(c) Limitation on Personally Identifiable Information in Certain
Records Retained Under This Section
1. Small business lending application register. The prohibition in
Sec. 1002.111(c) applies to data in the small business lending
application
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register submitted by the financial institution to the Bureau under
Sec. 1002.109, the version of the register that the financial
institution maintains under Sec. 1002.111(a), and the separate record
of certain information created pursuant to Sec. 1002.111(b).
2. Examples. Section 1002.111(c) prohibits a financial institution
from including any name, specific address (other than the census tract
required under Sec. 1002.107(a)(13)), telephone number, or email
address of any individual who is, or is connected with, an applicant in
the small business lending application register it reports pursuant to
Sec. 1002.109, in the copy of the register the financial institution
retains under Sec. 1002.111(a), and in the records of certain
information it must retain separately from the application pursuant to
Sec. 1002.111(b). It likewise prohibits a financial institution from
including any other personally identifiable information concerning any
individual who is, or is connected with, an applicant, except as
required pursuant to Sec. 1002.107 or Sec. 1002.111(b). Examples of
such personally identifiable information that a financial institution
may not include in its small business lending application register
include, but are not limited to, the following: date of birth, Social
Security number, official government-issued driver's license or
identification number, alien registration number, government passport
number, or employer or taxpayer identification number.
3. Other records. The prohibition in Sec. 1002.111(c) does not
extend to an application for credit, or any other records that the
financial institution maintains that are not specifically enumerated in
Sec. 1002.111(c).
4. Name and business contact information for submission. The
prohibition in Sec. 1002.111(c) does not bar financial institutions
from providing to the Bureau, pursuant to Sec. 1002.109(b)(3), the name
and business contact information of the person who may be contacted by
the Bureau or other regulators with questions about the financial
institution's submission under Sec. 1002.109.
Section 1002.112--Enforcement
112(b) Bona Fide Errors
1. Tolerances for bona fide errors. Section 1002.112(b) provides
that a financial institution is presumed to maintain procedures
reasonably adapted to avoid errors with respect to a given data field if
the number of errors found in a random sample of the financial
institution's data submission for the data field does not equal or
exceed a threshold specified by the Bureau for this purpose. The
Bureau's thresholds appear in column C of the table in appendix F. The
size of the random sample, set out in column B, shall depend on the size
of the financial institution's small business lending application
register, as shown in column A of the table in appendix F. A financial
institution has not maintained procedures reasonably adapted to avoid
errors if either there is a reasonable basis to believe the error was
intentional or there is evidence that the financial institution has not
maintained procedures reasonably adapted to avoid errors.
2. Tolerances and data fields. For purposes of determining whether
an error is bona fide under Sec. 1002.112(b), the term ``data field''
generally refers to individual fields. All required data fields, and
valid response options for those fields, are set forth in the Bureau's
Filing Instructions Guide, available at https://www.consumerfinance.gov/
data-research/small-business- lending/filing-instructions-guide/. Some
data fields may allow for more than one response. For example, with
respect to information on the ethnicity and race of an applicant's
principal owner, a data field may identify more than one race or
ethnicity. If there are one or more errors within an ethnicity data
field, or within a race data field, for a particular principal owner,
they would count as one (and only one) error for that data field. For
instance, in the ethnicity data field, if an applicant indicates that
one of its principal owners is Cuban, but the financial institution
reports that the principal owner is Mexican and Puerto Rican, the
financial institution has made one error in the ethnicity data field for
that principal owner. For purposes of the error threshold table in
appendix F, the financial institution is deemed to have made one error,
not two.
3. Tolerances and safe harbors. An error that meets the criteria for
one of the four safe harbor provisions in Sec. 1002.112(c) is not
counted as an error for purposes of determining whether a financial
institution has exceeded the relevant error threshold in appendix F for
a given data field.
112(c) Safe Harbors
1. Information from a Federal agency--census tract. Section
1002.112(c)(2) provides that an incorrect entry for census tract is not
a violation of the Act or subpart B of this part, if the financial
institution obtained the census tract using a geocoding tool provided by
the FFIEC or the Bureau. However, this safe harbor provision does not
extend to a financial institution's failure to provide the correct
census tract number for a covered application on its small business
lending application register, as required by Sec. 1002.107(a)(13),
because the FFIEC or Bureau geocoding tool did not return a census tract
for the address provided by the financial institution. In addition, this
safe harbor provision does not extend to a census tract error that
results from a financial institution entering an inaccurate address into
the FFIEC or Bureau geocoding tool.
2. Applicability of NAICS code safe harbor. The safe harbor in Sec.
1002.112(c)(3) applies to an incorrect entry for the 3-digit NAICS code
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that financial institutions must collect and report pursuant to Sec.
1002.107(a)(15), provided certain conditions are met. For purposes of
Sec. 1002.112(c)(3)(i), a financial institution is permitted to rely on
statements made by the applicant, information provided by the applicant,
or on other information obtained through its use of appropriate third-
party sources, including business information products. See also
comments 107(a)(15)-4 and 107(b)-1.
3. Incorrect determination of small business status, covered credit
transaction, or covered application--examples. Section 1002.112(c)(4)
provides a safe harbor from violations of the Act or this regulation for
a financial institution that initially collects data under Sec.
1002.107(a)(18) and (19) regarding whether an applicant for a covered
credit transaction is a minority-owned, a women-owned, or LGBTQI+-owned
business, and the ethnicity, race, and sex of the applicant's principal
owners, but later concludes that it should not have collected this data,
if certain conditions are met. Specifically, to qualify for this safe
harbor, Sec. 1002.112(c)(4) requires that the financial institution
have had a reasonable basis at the time it collected data under Sec.
1002.107(a)(18) and (19) for believing that the application was a
covered application for a covered credit transaction from a small
business pursuant to Sec. Sec. 1002.103, 1002.104, and 1002.106,
respectively. For example, Financial Institution A collected data under
Sec. 1002.107(a)(18) and (19) from an applicant for a covered credit
transaction that had self-reported its gross annual revenue as $4.8
million. Sometime after Financial Institution A had collected this data
from the applicant, the financial institution reviewed the applicant's
tax returns, which indicated the applicant's gross annual revenue was in
fact $5.2 million. Financial Institution A is permitted to rely on
representations made by the applicant regarding gross annual revenue in
determining whether an applicant is a small business (see Sec.
1002.107(b) and comments 106(b)(1)-3 and 107(a)(14)-1). Thus, Financial
Institution A may have had a reasonable basis to believe, at the time it
collected data under Sec. 1002.107(a)(18) and (19), that the applicant
was a small business pursuant to Sec. 1002.106, in which case Financial
Institution A's collection of such data would not violate the Act or
this regulation.
Section 1002.114--Effective Date, Compliance Date, and Special
Transition Rules
114(b) Compliance Date
1. Application of compliance date. The applicable compliance date in
Sec. 1002.114(b) is the date by which the covered financial institution
must begin to compile data as specified in Sec. 1002.107, comply with
the firewall requirements of Sec. 1002.108, and begin to maintain
records as specified in Sec. 1002.111. In addition, the covered
financial institution must comply with Sec. 1002.110(c) and (d) no
later than June 1 of the year after the applicable compliance date. For
instance, if Sec. 1002.114(b)(2) applies to a financial institution, it
must comply with Sec. Sec. 1002.107 and 1002.108, and portions of Sec.
1002.111, beginning April 1, 2025, and it must comply with Sec.
1002.110(c) and (d), and portions of Sec. 1002.111, no later than June
1, 2026.
2. Initial partial year collections pursuant to Sec. 1002.114(b).
i. When the compliance date of October 1, 2024 specified in Sec.
1002.114(b)(1) applies to a covered financial institution, the financial
institution is required to collect data for covered applications during
the period from October 1, 2024 to December 31, 2024. The financial
institution must compile data for this period pursuant to Sec.
1002.107, comply with the firewall requirements of Sec. 1002.108, and
maintain records as specified in Sec. 1002.111. In addition, for data
collected during this period, the covered financial institution must
comply with Sec. Sec. 1002.109 and 1002.110(c) and (d) by June 1, 2025.
ii. When the compliance date of April 1, 2025 specified in Sec.
1002.114(b)(2) applies to a covered financial institution, the financial
institution is required to collect data for covered applications during
the period from April 1, 2025 to December 31, 2025. The financial
institution must compile data for this period pursuant to Sec.
1002.107, comply with the firewall requirements of Sec. 1002.108, and
maintain records as specified in Sec. 1002.111. In addition, for data
collected during this period, the covered financial institution must
comply with Sec. Sec. 1002.109 and 1002.110(c) and (d) by June 1, 2026.
3. Informal names for compliance date provisions. To facilitate
discussion of the compliance dates specified in Sec. 1002.114(b)(1),
(2), and (3), in the official commentary and any other documents
referring to these compliance dates, the Bureau adopts the following
informal simplified names. Tier 1 refers to the cohort of covered
financial institutions that have a compliance date of October 1, 2024
pursuant to Sec. 1002.114(b)(1). Tier 2 refers to the cohort of covered
financial institutions that have a compliance date of April 1, 2025
pursuant to Sec. 1002.114(b)(2). Tier 3 refers to the cohort of covered
financial institutions that have a compliance date of January 1, 2026
pursuant to Sec. 1002.114(b)(3).
4. Examples. The following scenarios illustrate how to determine
whether a financial institution is a covered financial institution and
which compliance date specified in Sec. 1002.114(b) applies.
i. Financial Institution A originated 3,000 covered credit
transactions for small businesses in calendar year 2022, and 3,000 in
calendar year 2023. Financial Institution A is in Tier 1 and has a
compliance date of October 1, 2024.
[[Page 117]]
ii. Financial Institution B originated 2,000 covered credit
transactions for small businesses in calendar year 2022, and 3,000 in
calendar year 2023. Because Financial Institution B did not originate at
least 2,500 covered credit transactions for small businesses in each of
2022 and 2023, it is not in Tier 1. Because Financial Institution B did
originate at least 500 covered credit transactions for small businesses
in each of 2022 and 2023, it is in Tier 2 and has a compliance date of
April 1, 2025.
iii. Financial Institution C originated 400 covered credit
transactions to small businesses in calendar year 2022, and 1,000 in
calendar year 2023. Because Financial Institution C did not originate at
least 2,500 covered credit transactions for small businesses in each of
2022 and 2023, it is not in Tier 1, and because it did not originate at
least 500 covered credit transactions for small businesses in each of
2022 and 2023, it is not in Tier 2. Because Financial Institution C did
originate at least 100 covered credit transactions for small businesses
in each of 2022 and 2023, it is in Tier 3 and has a compliance date of
January 1, 2026.
iv. Financial Institution D originated 90 covered credit
transactions to small businesses in calendar year 2022, 120 in calendar
year 2023, and 90 in both of the calendar years 2024 and 2025. Because
Financial Institution D did not originate at least 100 covered credit
transactions for small businesses in each of 2022 and 2023, it is not in
Tier 1, Tier 2, or Tier 3. Because Financial Institution D did not
originate at least 100 covered credit transactions for small businesses
in subsequent consecutive calendar years, it is not a covered financial
institution under Sec. 1002.105(b) and is not required to comply with
the rule in 2024, 2025, or 2026.
v. Financial Institution E originated 120 covered credit
transactions for small businesses in each of calendar years 2022, 2023,
and 2024, and 90 in 2025. Because Financial Institution E did not
originate at least 2,500 or 500 covered credit transactions for small
businesses in each of 2022 and 2023, it is not in Tier 1 or Tier 2.
Because Financial Institution E originated at least 100 covered credit
transactions for small businesses in each of 2022 and 2023, it is in
Tier 3 and has a compliance date of January 1, 2026. However, because
Financial Institution E did not originate at least 100 covered credit
transactions for small businesses in each of 2024 and 2025, it no longer
satisfies the definition of a covered financial institution in Sec.
1002.105(b) at the time of the compliance date for Tier 3 institutions
and thus is not required to comply with the rule in 2026.
vi. Financial Institution F originated 90 covered credit
transactions for small businesses in calendar year 2022, and 120 in
2023, 2024, and 2025. Because Financial Institution F did not originate
at least 100 covered credit transactions for small businesses in each of
2022 and 2023, it is not in Tier 1, Tier 2, or Tier 3. Because Financial
Institution F originated at least 100 covered credit transactions for
small businesses in subsequent calendar years, Sec. 1002.114(b)(4),
which cross-references Sec. 1002.105(b), applies to Financial
Institution F. Because Financial Institution F originated at least 100
covered credit transactions for small businesses in each of 2024 and
2025, it is a covered financial institution under Sec. 1002.105(b) and
is required to comply with the rule beginning January 1, 2026.
vii. Financial Institution G originated 90 covered credit
transactions for small businesses in each of calendar years 2022, 2023,
2024, and 2025, and 120 in each of 2026 and 2027. Because Financial
Institution F did not originate at least 100 covered credit transactions
for small businesses in each of 2022 and 2023, it is not in Tier 1, Tier
2, or Tier 3. Because Financial Institution G originated at least 100
covered credit transactions for small businesses in subsequent calendar
years, Sec. 1002.114(b)(4), which cross-references Sec. 1002.105(b),
applies to Financial Institution G. Because Financial Institution G
originated at least 100 covered credit transactions for small businesses
in each of 2026 and 2027, it is a covered financial institution under
Sec. 1002.105(b) and is required to comply with the rule beginning
January 1, 2028.
114(c) Special Transition Rules
1. Collection of certain information prior to a financial
institution's compliance date. Notwithstanding Sec. 1002.5(a)(4)(ix), a
financial institution that chooses to collect information on covered
applications as permitted by Sec. 1002.114(c)(1) in the 12 months prior
to its initial compliance date as specified in Sec. 1002.114(b)(1), (2)
or (3) need comply only with the requirements set out in Sec. Sec.
1002.107(a)(18) and (19), 1002.108, and 1002.111(b) and (c) with respect
to the information collected. During this 12-month period, a covered
financial institution need not comply with the provisions of Sec.
1002.107 (other than Sec. Sec. 1002.107(a)(18) and (19)), 1002.109,
1002.110, 1002.111(a), or 1002.114.
2. Transition rule for applications received prior to a compliance
date but final action is taken after a compliance date. If a covered
financial institution receives a covered application from a small
business prior to its initial compliance date specified in Sec.
1002.114(b), but takes final action on or after that date, the financial
institution is not required to collect data regarding that application
pursuant to Sec. 1002.107 nor to report the application pursuant to
Sec. 1002.109. For example, if a financial institution is subject to a
compliance date of October 1, 2024, and it receives an application on
September 15, 2024 but does not take final action on the application
until October 5, 2024, the financial institution is
[[Page 118]]
not required to collect data pursuant to Sec. 1002.107 nor to report
data to the Bureau pursuant to Sec. 1002.109 regarding that
application.
3. Has readily accessible the information needed to determine small
business status. A financial institution has readily accessible the
information needed to determine whether its originations of covered
credit transactions were for small businesses as defined in Sec.
1002.106 if, for instance, it in the ordinary course of business
collects data on the precise gross annual revenue of the businesses for
which it originates loans, it obtains information sufficient to
determine whether an applicant for business credit had gross annual
revenues of $5 million or less, or if it collects and reports similar
data to Federal or State government agencies pursuant to other laws or
regulations.
4. Does not have readily accessible the information needed to
determine small business status. A financial institution does not have
readily accessible the information needed to determine whether its
originations of covered credit transactions were for small businesses as
defined in Sec. 1002.106 if it did not in the ordinary course of
business collect either precise or approximate information on whether
the businesses to which it originated covered credit had gross annual
revenue of $5 million or less. In addition, even if precise or
approximate information on gross annual revenue was initially collected,
a financial institution does not have readily accessible this
information if, to retrieve this information, for example, it must
review paper loan files, recall such information from either archived
paper records or scanned records in digital archives, or obtain such
information from third parties that initially obtained this information
but did not transmit such information to the financial institution.
5. Reasonable method to estimate the number of originations. The
reasonable methods that financial institutions may use to estimate
originations for 2022 and 2023 include, but are not limited to, the
following:
i. A financial institution may comply with Sec. 1002.114(c)(2) by
determining the small business status of covered credit transactions by
asking every applicant, prior to the closing of approved transactions,
to self-report whether it had gross annual revenue for its preceding
fiscal year of $5 million or less, during the period October 1 through
December 31, 2023. The financial institution may annualize the number of
covered credit transactions it originates to small businesses from
October 1 through December 31, 2023 by quadrupling the originations for
this period, and apply the annualized number of originations to both
calendar years 2022 and 2023.
ii. A financial institution may comply with Sec. 1002.114(c)(2) by
assuming that every covered credit transaction it originates for
business customers in calendar years 2022 and 2023 is to a small
business.
iii. A financial institution may comply with Sec. 1002.114(c)(2) by
using another methodology provided that such methodology is reasonable
and documented in writing.
6. Examples. The following scenarios illustrate the potential
application of Sec. 1002.114(c)(2) to a financial institution's
compliance date under Sec. 1002.114(b).
i. Prior to October 1, 2023, Financial Institution A did not collect
gross annual revenue or other information that would allow it to
determine the small business status of the businesses for whom it
originated covered credit transactions in calendar years 2022 and 2023.
Financial Institution A chose to use the methodology set out in comment
114(c)-5.i and as of October 1, 2023 began to collect information on
gross annual revenue as defined in Sec. 1002.107(a)(14) for its covered
credit transactions originated for businesses. Using this information,
Financial Institution A determined that it had originated 750 covered
credit transactions for businesses that were small as defined in Sec.
1002.106. On an annualized basis, Financial Institution A originated
3,000 covered credit transactions for small businesses (750 originations
* 4 = 3,000 originations per year). Applying this annualized figure of
3,000 originations to both calendar years 2022 and 2023, Financial
Institution A is in Tier 1 and has a compliance date of October 1, 2024.
ii. Prior to July 1, 2023, Financial Institution B collected gross
annual revenue information for some applicants for business credit, but
such information was only noted in its paper loan files. Financial
Institution B thus does not have reasonable access to information that
would allow it to determine the small business status of the businesses
for whom it originated covered credit transactions for calendar years
2022 and 2023. Financial Institution B chose to use the methodology set
out in comment 114(c)-5.i, and as of October 1, 2023, Financial
Institution B began to ask all businesses for whom it was closing
covered credit transactions if they had gross annual revenues in the
preceding fiscal year of $5 million or less. Using this information,
Financial Institution B determined that it had originated 350 covered
credit transactions for businesses that were small as defined in Sec.
1002.106. On an annualized basis, Financial Institution B originated
1,400 covered credit transactions for small businesses (350 originations
* 4 = 1,400 originations per year). Applying this estimated figure of
1,400 originations to both calendar years 2022 and 2023, Financial
Institution B is in Tier 2 and has a compliance date of April 1, 2025.
iii. Prior to April 1, 2023, Financial Institution C did not collect
gross annual revenue or other information that would allow it to
[[Page 119]]
determine the small business status of the businesses for whom it
originated covered credit transactions in calendar years 2022 and 2023.
Financial Institution C chose its own methodology pursuant to comment
114(c)-5.iii, basing it in part on the methodology specified in comment
114(c)-5.i. Starting on April 1, 2023, Financial Institution C began to
ask all business applicants for covered credit transactions if they had
gross annual revenue in their preceding fiscal year of $5 million or
less. Using this information, Financial Institution C determined that it
had originated 100 covered credit transactions for businesses that were
small as defined in Sec. 1002.106. On an annualized basis, Financial
Institution C originated approximately 133 covered credit transactions
for small businesses ((100 originations * 365 days)/275 days = 132.73
originations per year). Applying this estimate of 133 originations to
both calendar years 2022 and 2023, Financial Institution C is in Tier 3
and has a compliance date of January 1, 2026.
iv. Financial Institution D did not collect gross annual revenue or
other information that would allow it to determine the small business
status of the businesses for whom it originated covered credit
transactions in calendar years 2022 and 2023. Financial Institution D
determined that it had originated 3,000 total covered credit
transactions for businesses in each of 2022 and 2023. Applying the
methodology specified in comment 114(c)-5.ii, Financial Institution D
assumed that all 3,000 covered credit transactions originated in each of
2022 and 2023 were to small businesses. On that basis, Financial
Institution D is in Tier 1 and has a compliance date of October 1, 2024.
v. Financial Institution E did not collect gross annual revenue or
other information that would allow it to determine the small business
status of the businesses for whom it originated covered credit
transactions in calendar years 2022 and 2023. Financial Institution E
determined that it had originated 700 total covered credit transactions
for businesses in each of 2022 and 2023. Applying the methodology
specified in comment 114(c)-5.ii, Financial Institution E assumed that
all such transactions in each of 2022 and 2023 were originated for small
businesses. On that basis, Financial Institution E is in Tier 2 and has
a compliance date of April 1, 2025.
vi. Financial Institution F did does not have readily accessible
gross annual revenue or other information that would allow it to
determine the small business status of the businesses for whom it
originated covered credit transactions in calendar years 2022 and 2023.
Financial Institution F determined that it had originated 80 total
covered credit transactions for businesses in 2022 and 150 total covered
credit transactions for businesses in 2023. Applying the methodology set
out in comment 114(c)-5.ii, Financial Institution F assumed that all
such transactions originated in 2022 and 2023 were originated for small
businesses. On that basis, Financial Institution E is not in Tier 1,
Tier 2 or Tier 3, and is subject to the compliance date provision
specified in Sec. 1002.114(b)(4).
Appendix C--Sample Notification Forms
1. Form C-9. If not otherwise provided under other applicable
disclosure requirements, creditors may design their own form, add to, or
modify the model form to reflect their individual policies and
procedures. For example, a creditor may want to add:
i. A telephone number that applicants may call to leave their name
and the address to which a copy of the appraisal or other written
valuation should be sent.
ii. A notice of the cost the applicant will be required to pay the
creditor for the appraisal or other valuation.
[76 FR 79445, Dec. 21, 2011, as amended at 78 FR 7248, Jan. 31, 2013; 82
FR 45695, Oct. 2, 2017; 88 FR 35536, May 31, 2023]
PART 1003_HOME MORTGAGE DISCLOSURE (REGULATION C)--Table of Contents
Sec.
1003.1 Authority, purpose, and scope.
1003.2 Definitions.
1003.3 Exempt institutions and excluded and partially exempt
transactions.
1003.4 Compilation of reportable data.
1003.5 Disclosure and reporting.
1003.6 Enforcement.
Appendix A to Part 1003 [Reserved]
Appendix B to Part 1003--Form and Instructions for Data Collection on
Ethnicity, Race, and Sex
Appendix C to Part 1003--Procedures for Generating a Check Digit and
Validating a ULI
Supplement I to Part 1003--Official Interpretations
Authority: 12 U.S.C. 2803, 2804, 2805, 5512, 5581.
Source: 76 FR 78468, Dec. 19, 2011, unless otherwise noted.
Sec. 1003.1 Authority, purpose, and scope.
(a) Authority. This part, known as Regulation C, is issued by the
Bureau of Consumer Financial Protection (Bureau) pursuant to the Home
Mortgage Disclosure Act (HMDA) (12 U.S.C. 2801 et seq.,) as amended. The
information-collection requirements have been approved by the U.S.
Office of Management and Budget (OMB) under 44 U.S.C. 3501 et seq. and
have been assigned OMB numbers for institutions
[[Page 120]]
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 financial institutions as defined in
Sec. 1003.2(g). This part requires a financial institution to submit
data to the appropriate Federal agency for the financial institution as
defined in Sec. 1003.5(a)(4), and to disclose certain data to the
public, about covered loans for which the financial institution receives
applications, or that it originates or purchases, and that are secured
by a dwelling located in a State of the United States of America, the
District of Columbia, or the Commonwealth of Puerto Rico.
[76 FR 78468, Dec. 19, 2011, as amended at 80 FR 66308, Oct. 28, 2015]
Sec. 1003.2 Definitions.
In this part:
(a) Act means the Home Mortgage Disclosure Act (HMDA) (12 U.S.C.
2801 et seq.), as amended.
(b) Application--(1) In general. Application means an oral or
written request for a covered loan that is made in accordance with
procedures used by a financial institution for the type of credit
requested.
(2) Preapproval programs. A request for preapproval for a home
purchase loan, other than a home purchase loan that will be an open-end
line of credit, a reverse mortgage, or secured by a multifamily
dwelling, is an application under this section if the request is
reviewed under a program in which the financial institution, after a
comprehensive analysis of the creditworthiness of the applicant, issues
a written commitment to the applicant valid for a designated period of
time to extend a home purchase loan up to a specified amount. The
written commitment may not be subject to conditions other than:
(i) Conditions that require the identification of a suitable
property;
(ii) Conditions that require that no material change has occurred in
the applicant's financial condition or creditworthiness prior to
closing; and
(iii) Limited conditions that are not related to the financial
condition or creditworthiness of the applicant that the financial
institution ordinarily attaches to a traditional home mortgage
application.
(c) Branch office means:
(1) Any office of a bank, savings association, or credit union that
is considered a branch by the Federal or State supervisory agency
applicable to that institution, excluding automated teller machines and
other free-standing electronic terminals; and
(2) Any office of a for-profit mortgage-lending institution (other
than a bank, savings association, or credit union) that takes
applications from the public for covered loans. A for-profit mortgage-
lending institution (other than a bank, savings association, or credit
union) is also deemed to have a branch office in an MSA or in an MD, if,
in the preceding calendar year, it received applications for,
originated, or purchased five or more covered loans related to property
located in that MSA or MD, respectively.
(d) Closed-end mortgage loan means an extension of credit that is
secured by a lien on a dwelling and that is not an open-end line of
credit under paragraph (o) of this section.
(e) Covered loan means a closed-end mortgage loan or an open-end
line of credit that is not an excluded transaction under Sec.
1003.3(c).
(f) Dwelling means a residential structure, whether or not attached
to
[[Page 121]]
real property. The term includes but is not limited to a detached home,
an individual condominium or cooperative unit, a manufactured home or
other factory-built home, or a multifamily residential structure or
community.
(g) Financial institution means a depository financial institution
or a nondepository financial institution, where:
(1) Depository financial institution means a bank, savings
association, or credit union that:
(i) On the preceding December 31 had assets in excess of the asset
threshold established and published annually by the Bureau for coverage
by the Act, based on the year-to-year change in the average of the
Consumer Price Index for Urban Wage Earners and Clerical Workers, not
seasonally adjusted, for each twelve month period ending in November,
with rounding to the nearest million;
(ii) On the preceding December 31, had a home or branch office in an
MSA;
(iii) In the preceding calendar year, originated at least one home
purchase loan or refinancing of a home purchase loan, secured by a first
lien on a one- to four-unit dwelling;
(iv) Meets one or more of the following two criteria:
(A) The institution is federally insured or regulated; or
(B) Any loan referred to in paragraph (g)(1)(iii) of this section
was insured, guaranteed, or supplemented by a Federal agency, or was
intended by the institution for sale to the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation; and
(v) Meets at least one of the following criteria:
(A) In each of the two preceding calendar years, originated at least
25 closed-end mortgage loans that are not excluded from this part
pursuant to Sec. 1003.3(c)(1) through (10) or (c)(13); or
(B) In each of the two preceding calendar years, originated at least
200 open-end lines of credit that are not excluded from this part
pursuant to Sec. 1003.3(c)(1) through (10); and
(2) Nondepository financial institution means a for-profit mortgage-
lending institution (other than a bank, savings association, or credit
union) that:
(i) On the preceding December 31, had a home or branch office in an
MSA; and
(ii) Meets at least one of the following criteria:
(A) In each of the two preceding calendar years, originated at least
25 closed-end mortgage loans that are not excluded from this part
pursuant to Sec. 1003.3(c)(1) through (10) or (c)(13); or
(B) In each of the two preceding calendar years, originated at least
200 open-end lines of credit that are not excluded from this part
pursuant to Sec. 1003.3(c)(1) through (10).
(h) [Reserved]
(i) Home improvement loan means a closed-end mortgage loan or an
open-end line of credit that is for the purpose, in whole or in part, of
repairing, rehabilitating, remodeling, or improving a dwelling or the
real property on which the dwelling is located.
(j) Home purchase loan means a closed-end mortgage loan or an open-
end line of credit that is for the purpose, in whole or in part, of
purchasing a dwelling.
(k) Loan/Application Register means both the record of information
required to be collected pursuant to Sec. 1003.4 and the record
submitted annually or quarterly, as applicable, pursuant to Sec.
1003.5(a).
(l) Manufactured home means any residential structure as defined
under regulations of the U.S. Department of Housing and Urban
Development establishing manufactured home construction and safety
standards (24 CFR 3280.2). For purposes of Sec. 1003.4(a)(5), the term
also includes a multifamily dwelling that is a manufactured home
community.
(m) Metropolitan Statistical Area (MSA) and Metropolitan Division
(MD). (1) Metropolitan Statistical Area or MSA means a Metropolitan
Statistical Area as defined by the U.S. Office of Management and Budget.
(2) Metropolitan Division (MD) means a Metropolitan Division of an
MSA, as defined by the U.S. Office of Management and Budget.
(n) Multifamily dwelling means a dwelling, regardless of
construction method, that contains five or more individual dwelling
units.
(o) Open-end line of credit means an extension of credit that:
[[Page 122]]
(1) Is secured by a lien on a dwelling; and
(2) Is an open-end credit plan as defined in Regulation Z, 12 CFR
1026.2(a)(20), but without regard to whether the credit is consumer
credit, as defined in Sec. 1026.2(a)(12), is extended by a creditor, as
defined in Sec. 1026.2(a)(17), or is extended to a consumer, as defined
in Sec. 1026.2(a)(11).
(p) Refinancing means a closed-end mortgage loan or an open-end line
of credit in which a new, dwelling-secured debt obligation satisfies and
replaces an existing, dwelling-secured debt obligation by the same
borrower.
(q) Reverse mortgage means a closed-end mortgage loan or an open-end
line of credit that is a reverse mortgage transaction as defined in
Regulation Z, 12 CFR 1026.33(a), but without regard to whether the
security interest is created in a principal dwelling.
[80 FR 66308, Oct. 28, 2015, as amended at 82 FR 43132, Sept. 13, 2017;
84 FR 57980, Oct. 29, 2019; 85 FR 28404, 28406, May 12, 2020; 87 FR
77981, Dec. 21, 2022]
Sec. 1003.3 Exempt institutions and excluded and partially exempt
transactions.
(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.
(c) Excluded transactions. The requirements of this part do not
apply to:
(1) A closed-end mortgage loan or open-end line of credit originated
or purchased by a financial institution acting in a fiduciary capacity;
(2) A closed-end mortgage loan or open-end line of credit secured by
a lien on unimproved land;
(3) Temporary financing;
(4) The purchase of an interest in a pool of closed-end mortgage
loans or open-end lines of credit;
(5) The purchase solely of the right to service closed-end mortgage
loans or open-end lines of credit;
(6) The purchase of closed-end mortgage loans or open-end lines of
credit as part of a merger or acquisition, or as part of the acquisition
of all of the assets and liabilities of a branch office as defined in
Sec. 1003.2(c);
(7) A closed-end mortgage loan or open-end line of credit, or an
application for a closed-end mortgage loan or open-end line of credit,
for which the total dollar amount is less than $500;
(8) The purchase of a partial interest in a closed-end mortgage loan
or open-end line of credit;
(9) A closed-end mortgage loan or open-end line of credit used
primarily for agricultural purposes;
(10) A closed-end mortgage loan or open-end line of credit that is
or will be made primarily for a business or commercial purpose, unless
the closed-end mortgage loan or open-end line of credit is a home
improvement loan under Sec. 1003.2(i), a home purchase loan under Sec.
1003.2(j), or a refinancing under Sec. 1003.2(p);
(11) A closed-end mortgage loan, if the financial institution
originated fewer than 25 closed-end mortgage loans in either of the two
preceding calendar years; a financial institution may collect, record,
report, and disclose information, as described in Sec. Sec. 1003.4 and
1003.5, for such an excluded closed-end mortgage loan as though it were
a covered loan, provided that the financial institution complies with
such requirements for all applications for closed-end mortgage loans
that it receives, closed-end mortgage loans
[[Page 123]]
that it originates, and closed-end mortgage loans that it purchases that
otherwise would have been covered loans during the calendar year during
which final action is taken on the excluded closed-end mortgage loan;
(12) An open-end line of credit, if the financial institution
originated fewer than 200 open-end lines of credit in either of the two
preceding calendar years; a financial institution may collect, record,
report, and disclose information, as described in Sec. Sec. 1003.4 and
1003.5, for such an excluded open-end line of credit as though it were a
covered loan, provided that the financial institution complies with such
requirements for all applications for open-end lines of credit that it
receives, open-end lines of credit that it originates, and open-end
lines of credit that it purchases that otherwise would have been covered
loans during the calendar year during which final action is taken on the
excluded open-end line of credit; or
(13) A transaction that provided or, in the case of an application,
proposed to provide new funds to the applicant or borrower in advance of
being consolidated in a New York State consolidation, extension, and
modification agreement classified as a supplemental mortgage under New
York Tax Law section 255; the transaction is excluded only if final
action on the consolidation was taken in the same calendar year as final
action on the new funds transaction.
(d) Partially exempt transactions. (1) For purposes of this
paragraph (d), the following definitions apply:
(i) Insured credit union means an insured credit union as defined in
section 101 of the Federal Credit Union Act (12 U.S.C. 1752).
(ii) Insured depository institution means an insured depository
institution as defined in section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813).
(iii) Optional data means the data identified in Sec.
1003.4(a)(1)(i), (a)(9)(i), and (a)(12), (15) through (30), and (32)
through (38).
(iv) Partially exempt transaction means a covered loan or
application that is partially exempt under paragraph (d)(2) or (3) of
this section.
(2) Except as provided in paragraph (d)(6) of this section, an
insured depository institution or insured credit union that, in each of
the two preceding calendar years, originated fewer than 500 closed-end
mortgage loans that are not excluded from this part pursuant to
paragraphs (c)(1) through (10) or paragraph (c)(13) of this section is
not required to collect, record, or report optional data as defined in
paragraph (d)(1)(iii) of this section for applications for closed-end
mortgage loans that it receives, closed-end mortgage loans that it
originates, and closed-end mortgage loans that it purchases.
(3) Except as provided in paragraph (d)(6) of this section, an
insured depository institution or insured credit union that, in each of
the two preceding calendar years, originated fewer than 500 open-end
lines of credit that are not excluded from this part pursuant to
paragraphs (c)(1) through (10) of this section is not required to
collect, record, or report optional data as defined in paragraph
(d)(1)(iii) of this section for applications for open-end lines of
credit that it receives, open-end lines of credit that it originates,
and open-end lines of credit that it purchases.
(4) A financial institution eligible for a partial exemption under
paragraph (d)(2) or (3) of this section may collect, record, and report
optional data as defined in paragraph (d)(1)(iii) of this section for a
partially exempt transaction as though the institution were required to
do so, provided that:
(i) If the institution reports the street address, city name, or Zip
Code for the property securing a covered loan, or in the case of an
application, proposed to secure a covered loan pursuant to Sec.
1003.4(a)(9)(i), it reports all data that would be required by Sec.
1003.4(a)(9)(i) if the transaction were not partially exempt;
(ii) If the institution reports any data for the transaction
pursuant to Sec. 1003.4(a)(15), (16), (17), (27), (33), or (35), it
reports all data that would be required by Sec. 1003.4(a)(15), (16),
(17), (27), (33), or (35), respectively, if the transaction were not
partially exempt.
(5) If, pursuant to paragraph (d)(2) or (3) of this section, a
financial institution does not report a universal loan identifier (ULI)
pursuant to
[[Page 124]]
Sec. 1003.4(a)(1)(i) for an application for a covered loan that it
receives, a covered loan that it originates, or a covered loan that it
purchases, the financial institution shall assign and report a non-
universal loan identifier (NULI). The NULI must be composed of up to 22
characters to identify the covered loan or application, which:
(i) May be letters, numerals, or a combination of letters and
numerals;
(ii) Must be unique within the annual loan/application register in
which the covered loan or application is included; and
(iii) Must not include any information that could be used to
directly identify the applicant or borrower.
(6) Paragraphs (d)(2) and (3) of this section do not apply to an
insured depository institution that, as of the preceding December 31,
had received a rating of ``needs to improve record of meeting community
credit needs'' during each of its two most recent examinations or a
rating of ``substantial noncompliance in meeting community credit
needs'' on its most recent examination under section 807(b)(2) of the
Community Reinvestment Act of 1977 (12 U.S.C. 2906(b)(2)).
[76 FR 78468, Dec. 19, 2011, as amended at 80 FR 66309, Oct. 28, 2015;
82 FR 43132, Sept. 13, 2017; 84 FR 57980, Oct. 29, 2019; 85 FR 28404,
28406, May 12, 2020; 87 FR 77981, Dec. 21, 2022]
Sec. 1003.4 Compilation of reportable data.
(a) Data format and itemization. A financial institution shall
collect data regarding applications for covered loans that it receives,
covered loans that it originates, and covered loans that it purchases
for each calendar year. A financial institution shall collect data
regarding requests under a preapproval program, as defined in Sec.
1003.2(b)(2), only if the preapproval request is denied, is approved by
the financial institution but not accepted by the applicant, or results
in the origination of a home purchase loan. Except as provided in Sec.
1003.3(d), the data collected shall include the following items:
(1)(i) A universal loan identifier (ULI) or, for a partially exempt
transaction under Sec. 1003.3(d), either a ULI or a non-universal loan
identifier (NULI) as described in Sec. 1003.3(d)(5) for the covered
loan or application that can be used to identify and retrieve the
covered loan or application file. Except for a purchased covered loan or
application described in paragraphs (a)(1)(i)(D) and (E) of this section
or a partially exempt transaction for which a NULI is assigned and
reported under Sec. 1003.3(d), the financial institution shall assign
and report a ULI that:
(A) Begins with the financial institution's Legal Entity Identifier
(LEI) that is issued by:
(1) A utility endorsed by the LEI Regulatory Oversight Committee; or
(2) A utility endorsed or otherwise governed by the Global LEI
Foundation (GLEIF) (or any successor of the GLEIF) after the GLEIF
assumes operational governance of the global LEI system.
(B) Follows the LEI with up to 23 additional characters to identify
the covered loan or application, which:
(1) May be letters, numerals, or a combination of letters and
numerals;
(2) Must be unique within the financial institution; and
(3) Must not include any information that could be used to directly
identify the applicant or borrower; and
(C) Ends with a two-character check digit, as prescribed in appendix
C to this part.
(D) For a purchased covered loan that any financial institution has
previously assigned or reported with a ULI under this part, the
financial institution that purchases the covered loan must use the ULI
that was assigned or previously reported for the covered loan.
(E) For an application that was previously reported with a ULI under
this part and that results in an origination during the same calendar
year that is reported in a subsequent reporting period pursuant to Sec.
1003.5(a)(1)(ii), the financial institution may report the same ULI for
the origination that was previously reported for the application.
(ii) Except for purchased covered loans, the date the application
was received or the date shown on the application form.
(2) Whether the covered loan is, or in the case of an application
would have been, insured by the Federal Housing
[[Page 125]]
Administration, guaranteed by the Department of Veterans Affairs, or
guaranteed by the Rural Housing Service or the Farm Service Agency.
(3) Whether the covered loan is, or the application is for, a home
purchase loan, a home improvement loan, a refinancing, a cash-out
refinancing, or for a purpose other than home purchase, home
improvement, refinancing, or cash-out refinancing.
(4) Whether the application or covered loan involved a request for a
preapproval of a home purchase loan under a preapproval program.
(5) Whether the construction method for the dwelling related to the
property identified in paragraph (a)(9) of this section is site-built or
a manufactured home.
(6) Whether the property identified in paragraph (a)(9) of this
section is or will be used by the applicant or borrower as a principal
residence, as a second residence, or as an investment property.
(7) The amount of the covered loan or the amount applied for, as
applicable.
(i) For a closed-end mortgage loan, other than a purchased loan, an
assumption, or a reverse mortgage, the amount to be repaid as disclosed
on the legal obligation. For a purchased closed-end mortgage loan or an
assumption of a closed-end mortgage loan, the unpaid principal balance
at the time of purchase or assumption.
(ii) For an open-end line of credit, other than a reverse mortgage
open-end line of credit, the amount of credit available to the borrower
under the terms of the plan.
(iii) For a reverse mortgage, the initial principal limit, as
determined pursuant to section 255 of the National Housing Act (12
U.S.C. 1715z-20) and implementing regulations and mortgagee letters
issued by the U.S. Department of Housing and Urban Development.
(8) The following information about the financial institution's
action:
(i) The action taken by the financial institution, recorded as one
of the following:
(A) Whether a covered loan was originated or purchased;
(B) Whether an application for a covered loan that did not result in
the origination of a covered loan was approved but not accepted, denied,
withdrawn by the applicant, or closed for incompleteness; and
(C) Whether a preapproval request that did not result in the
origination of a home purchase loan was denied or approved but not
accepted.
(ii) The date of the action taken by the financial institution.
(9) The following information about the location of the property
securing the covered loan or, in the case of an application, proposed to
secure the covered loan:
(i) The property address; and
(ii) If the property is located in an MSA or MD in which the
financial institution has a home or branch office, or if the institution
is subject to paragraph (e) of this section, the location of the
property by:
(A) State;
(B) County; and
(C) Census tract if the property is located in a county with a
population of more than 30,000 according to the most recent decennial
census conducted by the U.S. Census Bureau.
(10) The following information about the applicant or borrower:
(i) Ethnicity, race, and sex, and whether this information was
collected on the basis of visual observation or surname;
(ii) Age; and
(iii) Except for covered loans or applications for which the credit
decision did not consider or would not have considered income, the gross
annual income relied on in making the credit decision or, if a credit
decision was not made, the gross annual income relied on in processing
the application.
(11) The type of entity purchasing a covered loan that the financial
institution originates or purchases and then sells within the same
calendar year.
(12)(i) For covered loans and applications that are approved but not
accepted, and that are subject to Regulation Z, 12 CFR part 1026, other
than assumptions, purchased covered loans, and reverse mortgages, the
difference between the covered loan's annual percentage rate and the
average prime offer rate for a comparable transaction as of the date the
interest rate is set.
[[Page 126]]
(ii) ``Average prime offer rate'' means an annual percentage rate
that is derived from average interest rates and other loan pricing terms
currently offered to consumers by a set of creditors for mortgage loans
that have low-risk pricing characteristics. The Bureau publishes tables
of average prime offer rates by transaction type at least weekly and
also publishes the methodology it uses to derive these rates.
(13) For covered loans subject to the Home Ownership and Equity
Protection Act of 1994, as implemented in Regulation Z, 12 CFR 1026.32,
whether the covered loan is a high-cost mortgage under Regulation Z, 12
CFR 1026.32(a).
(14) The lien status (first or subordinate lien) of the property
identified under paragraph (a)(9) of this section.
(15)(i) Except for purchased covered loans, the credit score or
scores relied on in making the credit decision and the name and version
of the scoring model used to generate each credit score.
(ii) For purposes of this paragraph (a)(15), ``credit score'' has
the meaning set forth in 15 U.S.C. 1681g(f)(2)(A).
(16) The principal reason or reasons the financial institution
denied the application, if applicable.
(17) For covered loans subject to Regulation Z, 12 CFR 1026.43(c),
the following information:
(i) If a disclosure is provided for the covered loan pursuant to
Regulation Z, 12 CFR 1026.19(f), the amount of total loan costs, as
disclosed pursuant to Regulation Z, 12 CFR 1026.38(f)(4); or
(ii) If the covered loan is not subject to the disclosure
requirements in Regulation Z, 12 CFR 1026.19(f), and is not a purchased
covered loan, the total points and fees charged in connection with the
covered loan, expressed in dollars and calculated pursuant to Regulation
Z, 12 CFR 1026.32(b)(1).
(18) For covered loans subject to the disclosure requirements in
Regulation Z, 12 CFR 1026.19(f), the total of all itemized amounts that
are designated borrower-paid at or before closing, as disclosed pursuant
to Regulation Z, 12 CFR 1026.38(f)(1).
(19) For covered loans subject to the disclosure requirements in
Regulation Z, 12 CFR 1026.19(f), the points paid to the creditor to
reduce the interest rate, expressed in dollars, as described in
Regulation Z, 12 CFR 1026.37(f)(1)(i), and disclosed pursuant to
Regulation Z, 12 CFR 1026.38(f)(1).
(20) For covered loans subject to the disclosure requirements in
Regulation Z, 12 CFR 1026.19(f), the amount of lender credits, as
disclosed pursuant to Regulation Z, 12 CFR 1026.38(h)(3).
(21) The interest rate applicable to the approved application, or to
the covered loan at closing or account opening.
(22) For covered loans or applications subject to Regulation Z, 12
CFR part 1026, other than reverse mortgages or purchased covered loans,
the term in months of any prepayment penalty, as defined in Regulation
Z, 12 CFR 1026.32(b)(6)(i) or (ii), as applicable.
(23) Except for purchased covered loans, the ratio of the
applicant's or borrower's total monthly debt to the total monthly income
relied on in making the credit decision.
(24) Except for purchased covered loans, the ratio of the total
amount of debt secured by the property to the value of the property
relied on in making the credit decision.
(25) The scheduled number of months after which the legal obligation
will mature or terminate or would have matured or terminated.
(26) The number of months, or proposed number of months in the case
of an application, until the first date the interest rate may change
after closing or account opening.
(27) Whether the contractual terms include or would have included
any of the following:
(i) A balloon payment as defined in Regulation Z, 12 CFR
1026.18(s)(5)(i);
(ii) Interest-only payments as defined in Regulation Z, 12 CFR
1026.18(s)(7)(iv);
(iii) A contractual term that would cause the covered loan to be a
negative amortization loan as defined in Regulation Z, 12 CFR
1026.18(s)(7)(v); or
(iv) Any other contractual term that would allow for payments other
than fully amortizing payments, as defined in Regulation Z, 12 CFR
1026.43(b)(2), during the loan term, other than the contractual terms
described in this paragraph (a)(27)(i), (ii), and (iii).
[[Page 127]]
(28) The value of the property securing the covered loan or, in the
case of an application, proposed to secure the covered loan relied on in
making the credit decision.
(29) If the dwelling related to the property identified in paragraph
(a)(9) of this section is a manufactured home and not a multifamily
dwelling, whether the covered loan is, or in the case of an application
would have been, secured by a manufactured home and land, or by a
manufactured home and not land.
(30) If the dwelling related to the property identified in paragraph
(a)(9) of this section is a manufactured home and not a multifamily
dwelling, whether the applicant or borrower:
(i) Owns the land on which it is or will be located or, in the case
of an application, did or would have owned the land on which it would
have been located, through a direct or indirect ownership interest; or
(ii) Leases or, in the case of an application, leases or would have
leased the land through a paid or unpaid leasehold.
(31) The number of individual dwelling units related to the property
securing the covered loan or, in the case of an application, proposed to
secure the covered loan.
(32) If the property securing the covered loan or, in the case of an
application, proposed to secure the covered loan includes a multifamily
dwelling, the number of individual dwelling units related to the
property that are income-restricted pursuant to Federal, State, or local
affordable housing programs.
(33) Except for purchased covered loans, the following information
about the application channel of the covered loan or application:
(i) Whether the applicant or borrower submitted the application for
the covered loan directly to the financial institution; and
(ii) Whether the obligation arising from the covered loan was, or in
the case of an application, would have been initially payable to the
financial institution.
(34) For a covered loan or application, the unique identifier
assigned by the Nationwide Mortgage Licensing System and Registry for
the mortgage loan originator, as defined in Regulation G, 12 CFR
1007.102, or Regulation H, 12 CFR 1008.23, as applicable.
(35)(i) Except for purchased covered loans, the name of the
automated underwriting system used by the financial institution to
evaluate the application and the result generated by that automated
underwriting system.
(ii) For purposes of this paragraph (a)(35), an ``automated
underwriting system'' means an electronic tool developed by a
securitizer, Federal government insurer, or Federal government guarantor
of closed-end mortgage loans or open-end lines of credit that provides a
result regarding the credit risk of the applicant and whether the
covered loan is eligible to be originated, purchased, insured, or
guaranteed by that securitizer, Federal government insurer, or Federal
government guarantor. A person is a securitizer, Federal government
insurer, or Federal government guarantor of closed-end mortgage loans or
open-end lines of credit, respectively, if it has ever securitized,
provided Federal government insurance, or provided a Federal government
guarantee for a closed-end mortgage loan or open-end line of credit.
(36) Whether the covered loan is, or the application is for, a
reverse mortgage.
(37) Whether the covered loan is, or the application is for, an
open-end line of credit.
(38) Whether the covered loan is, or the application is for a
covered loan that will be, made primarily for a business or commercial
purpose.
(b) Collection of data on ethnicity, race, sex, age, and income. (1)
A financial institution shall collect data about the ethnicity, race,
and sex of the applicant or borrower as prescribed in appendix B to this
part.
(2) Ethnicity, race, sex, age, and income data may but need not be
collected for covered loans purchased by a financial institution.
(c)-(d) [Reserved]
(e) Data reporting for banks and savings associations that are
required to report data on small business, small farm, and community
development lending
[[Page 128]]
under CRA. Banks and savings associations that are required to report
data on small business, small farm, and community development lending
under regulations that implement the Community Reinvestment Act of 1977
(12 U.S.C. 2901 et seq.) shall also collect the information required by
paragraph (a)(9)(ii) of this section for property located outside MSAs
and MDs in which the institution has a home or branch office, or outside
any MSA.
(f) Quarterly recording of data. A financial institution shall
record the data collected pursuant to this section on a loan/application
register within 30 calendar days after the end of the calendar quarter
in which final action is taken (such as origination or purchase of a
covered loan, sale of a covered loan in the same calendar year it is
originated or purchased, or denial or withdrawal of an application).
[80 FR 66310, Oct. 28, 2015, as amended at 82 FR 43132, Sept. 13, 2017;
84 FR 57981, Oct. 29, 2019]
Sec. 1003.5 Disclosure and reporting.
(a) Reporting to agency--(1)(i) Annual reporting. By March 1
following the calendar year for which data are collected and recorded as
required by Sec. 1003.4, a financial institution shall submit its
annual loan/application register in electronic format to the appropriate
Federal agency at the address identified by such agency. An authorized
representative of the financial institution with knowledge of the data
submitted shall certify to the accuracy and completeness of data
submitted pursuant to this paragraph (a)(1)(i). The financial
institution shall retain a copy of its annual loan/application register
submitted pursuant to this paragraph (a)(1)(i) for its records for at
least three years.
(ii) Quarterly reporting. Within 60 calendar days after the end of
each calendar quarter except the fourth quarter, a financial institution
that reported for the preceding calendar year at least 60,000 covered
loans and applications, combined, excluding purchased covered loans,
shall submit to the appropriate Federal agency its loan/application
register containing all data required to be recorded for that quarter
pursuant to Sec. 1003.4(f). The financial institution shall submit its
quarterly loan/application register pursuant to this paragraph
(a)(1)(ii) in electronic format at the address identified by the
appropriate Federal agency for the institution.
(iii) When the last day for submission of data prescribed under this
paragraph (a)(1) falls on a Saturday or Sunday, a submission shall be
considered timely if it is submitted on the next succeeding Monday.
(2) A financial institution that is a subsidiary of a bank or
savings association shall complete a separate loan/application register.
The subsidiary shall submit the loan/application register, directly or
through its parent, to the appropriate Federal agency for the
subsidiary's parent at the address identified by the agency.
(3) A financial institution shall provide with its submission:
(i) Its name;
(ii) The calendar year the data submission covers pursuant to
paragraph (a)(1)(i) of this section or calendar quarter and year the
data submission covers pursuant to paragraph (a)(1)(ii) of this section;
(iii) The name and contact information of a person who may be
contacted with questions about the institution's submission;
(iv) Its appropriate Federal agency;
(v) The total number of entries contained in the submission;
(vi) Its Federal Taxpayer Identification number; and
(vii) Its Legal Entity Identifier (LEI) as described in Sec.
1003.4(a)(1)(i)(A).
(4) For purposes of paragraph (a) of this section, ``appropriate
Federal agency'' means the appropriate agency for the financial
institution as determined pursuant to section 304(h)(2) of the Home
Mortgage Disclosure Act (12 U.S.C. 2803(h)(2)) or, with respect to a
financial institution subject to the Bureau's supervisory authority
under section 1025(a) of the Consumer Financial Protection Act of 2010
(12 U.S.C. 5515(a)), the Bureau.
(5) Procedures for the submission of data pursuant to paragraph (a)
of this section are available at www.consumerfinance.gov/hmda.
[[Page 129]]
(b) Disclosure statement. (1) The Federal Financial Institutions
Examination Council (FFIEC) will make available a disclosure statement
based on the data each financial institution submits for the preceding
calendar year pursuant to paragraph (a)(1)(i) of this section.
(2) No later than three business days after receiving notice from
the FFIEC that a financial institution's disclosure statement is
available, the financial institution shall make available to the public
upon request at its home office, and each branch office physically
located in each MSA and each MD, a written notice that clearly conveys
that the institution's disclosure statement may be obtained on the
Bureau's Web site at www.consumerfinance.gov/hmda.
(c) Modified loan/application register. (1) A financial institution
shall make available to the public upon request at its home office, and
each branch office physically located in each MSA and each MD, a written
notice that clearly conveys that the institution's loan/application
register, as modified by the Bureau to protect applicant and borrower
privacy, may be obtained on the Bureau's Web site at
www.consumerfinance.gov/hmda.
(2) A financial institution shall make available the notice required
by paragraph (c)(1) of this section following the calendar year for
which the data are collected.
(d) Availability of written notices. (1) A financial institution
shall make the notice required by paragraph (c) of this section
available to the public for a period of three years and the notice
required by paragraph (b)(2) of this section available to the public for
a period of five years. An institution shall make these notices
available during the hours the office is normally open to the public for
business.
(2) A financial institution may make available to the public, at its
discretion and in addition to the written notices required by paragraphs
(b)(2) or (c)(1) of this section, as applicable, its disclosure
statement or its loan/application register, as modified by the Bureau to
protect applicant and borrower privacy. A financial institution may
impose a reasonable fee for any cost incurred in providing or
reproducing these data.
(e) Posted notice of availability of data. A financial institution
shall post a general notice about the availability of its HMDA data in
the lobby of its home office and of each branch office physically
located in each MSA and each MD. This notice must clearly convey that
the institution's HMDA data is available on the Bureau's Web site at
www.consumerfinance.gov/hmda.
(f) Aggregated data. Using data submitted by financial institutions
pursuant to paragraph (a)(1)(i) of this section, the FFIEC will make
available aggregate data for each MSA and MD, showing lending patterns
by property location, age of housing stock, and income level, sex,
ethnicity, and race.
[80 FR 66312, Oct. 28, 2015, as amended at 80 FR 66313, Oct. 28, 2015;
82 FR 43145, Sept. 13, 2017]
Sec. 1003.6 Enforcement.
(a) Administrative enforcement. A violation of the Act or this part
is subject to administrative sanctions as provided in section 305 of the
Act (12 U.S.C. 2804), including the imposition of civil money penalties,
where applicable. Compliance is enforced by the agencies listed in
section 305 of the Act.
(b) Bona fide errors. (1) An error in compiling or recording data
for a covered loan or application is not a violation of the Act or this
part if the error was unintentional and occurred despite the maintenance
of procedures reasonably adapted to avoid such an error.
(2) An incorrect entry for a census tract number is deemed a bona
fide error, and is not a violation of the Act or this part, provided
that the financial institution maintains procedures reasonably adapted
to avoid such an error.
(c) Quarterly recording and reporting. (1) If a financial
institution makes a good-faith effort to record all data required to be
recorded pursuant to Sec. 1003.4(f) fully and accurately within 30
calendar days after the end of each calendar quarter, and some data are
nevertheless inaccurate or incomplete, the inaccuracy or omission is not
a violation of the Act or this part provided that the institution
corrects or completes the data prior to submitting its
[[Page 130]]
annual loan/application register pursuant to Sec. 1003.5(a)(1)(i).
(2) If a financial institution required to comply with Sec.
1003.5(a)(1)(ii) makes a good-faith effort to report all data required
to be reported pursuant to Sec. 1003.5(a)(1)(ii) fully and accurately
within 60 calendar days after the end of each calendar quarter, and some
data are nevertheless inaccurate or incomplete, the inaccuracy or
omission is not a violation of the Act or this part provided that the
institution corrects or completes the data prior to submitting its
annual loan/application register pursuant to Sec. 1003.5(a)(1)(i).
[80 FR 66313, Oct. 28, 2015, as amended at 82 FR 43145, 43146, Sept. 13,
2017]
Sec. Appendix A to Part 1003 [Reserved]
Sec. Appendix B to Part 1003--Form and Instructions for Data Collection
on Ethnicity, Race, and Sex
You may list questions regarding the ethnicity, race, and sex of the
applicant on your loan application form, or on a separate form that
refers to the application. (See the sample data collection form below
for model language.)
1. You must ask the applicant for this information (but you cannot
require the applicant to provide it) whether the application is taken in
person, by mail or telephone, or on the internet. For applications taken
by telephone, you must state the information in the collection form
orally, except for that information which pertains uniquely to
applications taken in writing, for example, the italicized language in
the sample data collection form.
2. Inform the applicant that Federal law requires this information
to be collected in order to protect consumers and to monitor compliance
with Federal statutes that prohibit discrimination against applicants on
these bases. Inform the applicant that if the information is not
provided where the application is taken in person, you are required to
note the information on the basis of visual observation or surname.
3. If you accept an application through electronic media with a
video component, you must treat the application as taken in person. If
you accept an application through electronic media without a video
component (for example, facsimile), you must treat the application as
accepted by mail.
4. For purposes of Sec. 1003.4(a)(10)(i), if a covered loan or
application includes a guarantor, you do not report the guarantor's
ethnicity, race, and sex.
5. If there are no co-applicants, you must report that there is no
co-applicant. If there is more than one co-applicant, you must provide
the ethnicity, race, and sex only for the first co-applicant listed on
the collection form. A co-applicant may provide an absent co-applicant's
ethnicity, race, and sex on behalf of the absent co-applicant. If the
information is not provided for an absent co-applicant, you must report
``information not provided by applicant in mail, internet, or telephone
application'' for the absent co-applicant.
6. When you purchase a covered loan and you choose not to report the
applicant's or co-applicant's ethnicity, race, and sex, you must report
that the requirement is not applicable.
7. You must report that the requirement to report the applicant's or
co-applicant's ethnicity, race, and sex is not applicable when the
applicant or co-applicant is not a natural person (for example, a
corporation, partnership, or trust). For example, for a transaction
involving a trust, you must report that the requirement to report the
applicant's ethnicity, race, and sex is not applicable if the trust is
the applicant. On the other hand, if the applicant is a natural person,
and is the beneficiary of a trust, you must report the applicant's
ethnicity, race, and sex.
8. You must report the ethnicity, race, and sex of an applicant as
provided by the applicant. For example, if an applicant selects the
``Asian'' box the institution reports ``Asian'' for the race of the
applicant. Only an applicant may self-identify as being of a particular
Hispanic or Latino subcategory (Mexican, Puerto Rican, Cuban, Other
Hispanic or Latino) or of a particular Asian subcategory (Asian Indian,
Chinese, Filipino, Japanese, Korean, Vietnamese, Other Asian) or of a
particular Native Hawaiian or Other Pacific Islander subcategory (Native
Hawaiian, Guamanian or Chamorro, Samoan, Other Pacific Islander) or of a
particular American Indian or Alaska Native enrolled or principal tribe.
An applicant may select an ethnicity or race subcategory even if the
applicant does not select an aggregate ethnicity or aggregate race
category. For example, if an applicant selects only the ``Mexican'' box,
the institution reports ``Mexican'' for the ethnicity of the applicant
but does not also report ``Hispanic or Latino.''
9. You must offer the applicant the option of selecting more than
one ethnicity or race. If an applicant selects more than one ethnicity
or race, you must report each selected designation, subject to the
limits described below.
i. Ethnicity--Aggregate categories and subcategories. There are two
aggregate ethnicity
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categories: Hispanic or Latino; and Not Hispanic or Latino. The Hispanic
or Latino category has four subcategories: Mexican; Puerto Rican; Cuban;
and Other Hispanic or Latino. You must report every aggregate ethnicity
category selected by the applicant. If the applicant also selects one or
more ethnicity subcategories, you must report each ethnicity subcategory
selected by the applicant, except that you must not report more than a
total of five aggregate ethnicity categories and ethnicity subcategories
combined. For example, if the applicant selects both aggregate ethnicity
categories and also selects all four ethnicity subcategories, you must
report Hispanic or Latino, Not Hispanic or Latino, and any three, at
your option, of the four ethnicity subcategories selected by the
applicant. To determine how to report the Other Hispanic or Latino
ethnicity subcategory for purposes of the five-ethnicity maximum, see
paragraph 9.ii below.
ii. Ethnicity--Other subcategories. An applicant may select the
Other Hispanic or Latino ethnicity subcategory, an applicant may provide
a particular Hispanic or Latino ethnicity not listed in the standard
subcategories, or an applicant may do both. If the applicant provides
only a particular Hispanic or Latino ethnicity in the space provided,
you are permitted, but are not required, to report Other Hispanic or
Latino in addition to reporting the particular Hispanic or Latino
ethnicity provided by the applicant. For example, if an applicant
provides only ``Dominican,'' you should report ``Dominican.'' You are
permitted, but not required, to report Other Hispanic or Latino as well.
If an applicant selects the Other Hispanic or Latino ethnicity
subcategory and also provides a particular Hispanic or Latino ethnicity
not listed in the standard subcategories, you must report both the
selection of Other Hispanic or Latino and the additional information
provided by the applicant, subject to the five-ethnicity maximum. For
purposes of the maximum of five reportable ethnicity categories and
ethnicity subcategories combined, as set forth in paragraph 9.i, the
Other Hispanic or Latino subcategory and additional information provided
by the applicant together constitute only one selection. For example, if
the applicant selects Other Hispanic or Latino and enters ``Dominican''
in the space provided, Other Hispanic or Latino and ``Dominican'' are
considered one selection. Similarly, if the applicant only enters
``Dominican'' in the space provided and you report both ``Dominican''
and Other Hispanic or Latino as permitted by this paragraph 9.ii, the
reported items together are considered one selection.
iii. Race--Aggregate categories and subcategories. There are five
aggregate race categories: American Indian or Alaska Native; Asian;
Black or African American; Native Hawaiian or Other Pacific Islander;
and White. The Asian and the Native Hawaiian or Other Pacific Islander
aggregate categories have seven and four subcategories, respectively.
The Asian race subcategories are: Asian Indian; Chinese; Filipino;
Japanese; Korean; Vietnamese; and Other Asian. The Native Hawaiian or
Other Pacific Islander race subcategories are: Native Hawaiian;
Guamanian or Chamorro; Samoan; and Other Pacific Islander. You must
report every aggregate race category selected by the applicant. If the
applicant also selects one or more race subcategories, you must report
each race subcategory selected by the applicant, except that you must
not report more than a total of five aggregate race categories and race
subcategories combined. For example, if the applicant selects all five
aggregate race categories and also selects some race subcategories, you
report only the five aggregate race categories. On the other hand, if
the applicant selects the White, Asian, and Native Hawaiian or Other
Pacific Islander aggregate race categories, and the applicant also
selects the Korean, Vietnamese, and Samoan race subcategories, you must
report White, Asian, Native Hawaiian or Other Pacific Islander, and any
two, at your option, of the three race subcategories selected by the
applicant. In this example, you must report White, Asian, and Native
Hawaiian or Other Pacific Islander, and in addition you must report (at
your option) either Korean and Vietnamese, Korean and Samoan, or
Vietnamese and Samoan. To determine how to report an Other race
subcategory and the American Indian or Alaska Native category for
purposes of the five-race maximum, see paragraphs 9.iv and 9.v below.
iv. Race--Other subcategories. An applicant may select the Other
Asian race subcategory or the Other Pacific Islander race subcategory,
an applicant may provide a particular Asian race or Pacific Islander
race not listed in the standard subcategories, or an applicant may do
both. If the applicant provides only a particular Asian race or Pacific
Islander race in the space provided, you are permitted, but are not
required, to report Other Asian or Other Pacific Islander, as
applicable, in addition to reporting the particular Asian race or
Pacific Islander race provided by the applicant. For example, if an
applicant provides only ``Hmong,'' you should report ``Hmong.'' You are
permitted, but not required, to report Other Asian as well. If an
applicant selects the Other Asian race or the Other Pacific Islander
race subcategory and provides a particular Asian race or Pacific
Islander race not listed in the standard subcategories, you must report
both the selection of Other Asian or Other Pacific Islander, as
applicable, and the additional information provided by the applicant,
subject to the five-race maximum. For
[[Page 132]]
purposes of the maximum of five reportable race categories and race
subcategories combined, as set forth in paragraph 9.iii, the Other race
subcategory and additional information provided by the applicant
together constitute only one selection. Thus, using the same facts in
the example offered in paragraph 9.iii above, if the applicant also
selects Other Asian and enters ``Thai'' in the space provided, Other
Asian and Thai are considered one selection. Similarly, if the applicant
enters only ``Thai'' in the space provided and you report both ``Thai''
and Other Asian as permitted by this paragraph 9.iv, the reported items
together are considered one selection. In the same example, you must
report any two (at your option) of the four race subcategories selected
by the applicant, Korean, Vietnamese, Other Asian-Thai, and Samoan, in
addition to the three aggregate race categories selected by the
applicant.
v. Race--American Indian or Alaska Native category. An applicant may
select the American Indian or Alaska Native race category, an applicant
may provide a particular American Indian or Alaska Native enrolled or
principal tribe, or an applicant may do both. If the applicant provides
only a particular American Indian or Alaska Native enrolled or principal
tribe in the space provided, you are permitted, but are not required, to
report American Indian or Alaska Native in addition to reporting the
particular American Indian or Alaska Native enrolled or principal tribe
provided by the applicant. For example, if an applicant provides only
``Navajo,'' you should report ``Navajo.'' You are permitted, but not
required, to report American Indian or Alaska Native as well. If an
applicant selects the American Indian or Alaska Native race category and
also provides a particular American Indian or Alaska Native enrolled or
principal tribe, you must report both the selection of American Indian
or Alaska Native and the additional information provided by the
applicant. For purposes of the maximum of five reportable race
categories and race subcategories combined, as set forth in paragraph
9.iii, the American Indian or Alaska Native category and additional
information provided by the applicant together constitute only one
selection.
10. If the applicant chooses not to provide the information for an
application taken in person, note this fact on the collection form and
then collect the applicant's ethnicity, race, and sex on the basis of
visual observation or surname. You must report whether the applicant's
ethnicity, race, and sex was collected on the basis of visual
observation or surname. When you collect an applicant's ethnicity, race,
and sex on the basis of visual observation or surname, you must select
from the following aggregate categories: Ethnicity (Hispanic or Latino;
not Hispanic or Latino); race (American Indian or Alaska Native; Asian;
Black or African American; Native Hawaiian or Other Pacific Islander;
White); sex (male; female).
11. If the applicant declines to answer these questions by checking
the ``I do not wish to provide this information'' box on an application
that is taken by mail or on the internet, or declines to provide this
information by stating orally that he or she does not wish to provide
this information on an application that is taken by telephone, you must
report ``information not provided by applicant in mail, internet, or
telephone application.''
12. If the applicant begins an application by mail, internet, or
telephone, and does not provide the requested information on the
application but does not check or select the ``I do not wish to provide
this information'' box on the application, and the applicant meets in
person with you to complete the application, you must request the
applicant's ethnicity, race, and sex. If the applicant does not provide
the requested information during the in-person meeting, you must collect
the information on the basis of visual observation or surname. If the
meeting occurs after the application process is complete, for example,
at closing or account opening, you are not required to obtain the
applicant's ethnicity, race, and sex.
13. When an applicant provides the requested information for some
but not all fields, you report the information that was provided by the
applicant, whether partial or complete. If an applicant provides partial
or complete information on ethnicity, race, and sex and also checks the
``I do not wish to provide this information'' box on an application that
is taken by mail or on the internet, or makes that selection when
applying by telephone, you must report the information on ethnicity,
race, and sex that was provided by the applicant.
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[GRAPHIC] [TIFF OMITTED] TR13SE17.000
[[Page 134]]
[80 FR 66314, Oct. 28, 2015, as amended at 82 FR 43133, Sept. 13, 2017]
Sec. Appendix C to Part 1003--Procedures for Generating a Check Digit
and Validating a ULI
The check digit for the Universal Loan Identifier (ULI) pursuant to
Sec. 1003.4(a)(1)(i)(C) is calculated using the ISO/IEC 7064, MOD 97-10
as it appears on the International Standard ISO/IEC 7064:2003, which is
published by the International Organization for Standardization (ISO).
(copyright)ISO. This material is reproduced from ISO/IEC 7064:2003
with permission of the American National Standards Institute (ANSI) on
behalf of ISO. All rights reserved.
Generating a Check Digit
Step 1: Starting with the leftmost character in the string that
consists of the combination of the Legal Entity Identifier (LEI)
pursuant to Sec. 1003.4(a)(1)(i)(A) and the additional characters
identifying the covered loan or application pursuant to Sec.
1003.4(a)(1)(i)(B), replace each alphabetic character with numbers in
accordance with Table I below to obtain all numeric values in the
string.
Table I--Alphabetic to Numeric Conversion Table
The alphabetic characters are not case-sensitive and each letter,
whether it is capitalized or in lower-case, is equal to the same value
as each letter illustrates in the conversion table. For example, A and a
are each equal to 10.
A = 10
B = 11
C = 12
D = 13
E = 14
F = 15
G = 16
H = 17
I = 18
J = 19
K = 20
L = 21
M = 22
N = 23
O = 24
P = 25
Q = 26
R = 27
S = 28
T = 29
U = 30
V = 31
W = 32
X = 33
Y = 34
Z = 35
Step 2: After converting the combined string of characters to all
numeric values, append two zeros to the rightmost positions.
Step 3: Apply the mathematical function mod = (n,97) where n = the
number obtained in step 2 above and 97 is the divisor.
Alternatively, to calculate without using the modulus operator,
divide the numbers in step 2 above by 97. Truncate the remainder to
three digits and multiply it by 97. Round the result to the nearest
whole number.
Step 4: Subtract the result in step 3 from 98. If the result is one
digit, add a leading 0 to make it two digits.
Step 5: The two digits in the result from step 4 is the check digit.
Append the resulting check digit to the rightmost position in the
combined string of characters described in step 1 above to generate the
ULI.
Example
For example, assume the LEI for a financial institution is
10Bx939c5543TqA1144M and the financial institution assigned the
following string of characters to identify the covered loan: 999143X.
The combined string of characters is 10Bx939c5543TqA 1144M999143X.
Step 1: Starting with the leftmost character in the combined string
of characters, replace each alphabetic character with numbers in
accordance with Table I above to obtain all numeric values in the
string. The result is 1011339391255432 9261011442299914333.
Step 2: Append two zeros to the rightmost positions in the combined
string. The result is 1011339391255432926101144229991433300.
Step 3: Apply the mathematical function mod = (n,97) where n = the
number obtained in step 2 above and 97 is the divisor. The result is 60.
Alternatively, to calculate without using the modulus operator,
divide the numbers in step 2 above by 97. The result is
10426179291293122 94946332267952920.618556701030928. Truncate the
remainder to three digits, which is .618, and multiply it by 97. The
result is 59.946. Round this result to the nearest whole number, which
is 60.
Step 4: Subtract the result in step 3 from 98. The result is 38.
Step 5: The two digits in the result from step 4 is the check digit.
Append the check digit to the rightmost positions in the combined string
of characters that consists of the LEI and the string of characters
assigned by the financial institution to identify the covered loan to
obtain the ULI. In this example, the ULI would be 10Bx939c5543T
qA1144M999143X38.
Validating A ULI
To determine whether the ULI contains a transcription error using
the check digit calculation, the procedures are described below.
[[Page 135]]
Step 1: Starting with the leftmost character in the ULI, replace
each alphabetic character with numbers in accordance with Table I above
to obtain all numeric values in the string.
Step 2: Apply the mathematical function mod=(n,97) where n=the
number obtained in step 1 above and 97 is the divisor.
Step 3: If the result is 1, the ULI does not contain transcription
errors.
Example
For example, the ULI assigned to a covered loan is 10Bx939c5543T
qA1144M999143X38.
Step 1: Starting with the leftmost character in the ULI, replace
each alphabetic character with numbers in accordance with Table I above
to obtain all numeric values in the string. The result is 10113393912554
32926101144229991 433338.
Step 2: Apply the mathematical function mod=(n,97) where n is the
number obtained in step 1 above and 97 is the divisor.
Step 3: The result is 1. The ULI does not contain transcription
errors.
[80 FR 66316, Oct. 28, 2015, as amended at 82 FR 43135, Sept. 13, 2017]
Sec. Supplement I to Part 1003--Official Interpretations
Introduction
1. Status. The commentary in this supplement is the vehicle by which
the Bureau of Consumer Financial Protection issues formal
interpretations of Regulation C (12 CFR part 1003).
Section 1003.2--Definitions
2(b) Application
1. Consistency with Regulation B. Bureau interpretations that appear
in the official commentary to Regulation B (Equal Credit Opportunity
Act, 12 CFR part 1002, Supplement I) are generally applicable to the
definition of application under Regulation C. However, under Regulation
C the definition of an application does not include prequalification
requests.
2. Prequalification. A prequalification request is a request by a
prospective loan applicant (other than a request for preapproval) for a
preliminary determination on whether the prospective loan applicant
would likely qualify for credit under an institution's standards, or for
a determination on the amount of credit for which the prospective
applicant would likely qualify. Some institutions evaluate
prequalification requests through a procedure that is separate from the
institution's normal loan application process; others use the same
process. In either case, Regulation C does not require an institution to
report prequalification requests on the loan/application register, even
though these requests may constitute applications under Regulation B for
purposes of adverse action notices.
3. Requests for preapproval. To be a preapproval program as defined
in Sec. 1003.2(b)(2), the written commitment issued under the program
must result from a comprehensive review of the creditworthiness of the
applicant, including such verification of income, resources, and other
matters as is typically done by the institution as part of its normal
credit evaluation program. In addition to conditions involving the
identification of a suitable property and verification that no material
change has occurred in the applicant's financial condition or
creditworthiness, the written commitment may be subject only to other
conditions (unrelated to the financial condition or creditworthiness of
the applicant) that the lender ordinarily attaches to a traditional home
mortgage application approval. These conditions are limited to
conditions such as requiring an acceptable title insurance binder or a
certificate indicating clear termite inspection, and, in the case where
the applicant plans to use the proceeds from the sale of the applicant's
present home to purchase a new home, a settlement statement showing
adequate proceeds from the sale of the present home. Regardless of its
name, a program that satisfies the definition of a preapproval program
in Sec. 1003.2(b)(2) is a preapproval program for purposes of
Regulation C. Conversely, a program that a financial institution
describes as a ``preapproval program'' that does not satisfy the
requirements of Sec. 1003.2(b)(2) is not a preapproval program for
purposes of Regulation C. If a financial institution does not regularly
use the procedures specified in Sec. 1003.2(b)(2), but instead
considers requests for preapprovals on an ad hoc basis, the financial
institution need not treat ad hoc requests as part of a preapproval
program for purposes of Regulation C. A financial institution should,
however, be generally consistent in following uniform procedures for
considering such ad hoc requests.
2(c) Branch Office
Paragraph 2(c)(1)
1. Credit unions. For purposes of Regulation C, a ``branch'' of a
credit union is any office where member accounts are established or
loans are made, whether or not the office has been approved as a branch
by a Federal or State agency. (See 12 U.S.C. 1752.)
2. Bank, savings association, or credit unions. A branch office of a
bank, savings association, or credit union does not include a loan-
production office if the loan-production office is not considered a
branch by the Federal or State supervisory authority applicable to that
institution. A branch office also does not include the office of an
affiliate or
[[Page 136]]
of a third party, such as a third-party broker.
Paragraph 2(c)(2)
1. General. A branch office of a for-profit mortgage lending
institution, other than a bank savings association or credit union, does
not include the office of an affiliate or of a third party, such as a
third-party broker.
2(d) Closed-end Mortgage Loan
1. Dwelling-secured. Section 1003.2(d) defines a closed-end mortgage
loan as an extension of credit that is secured by a lien on a dwelling
and that is not an open-end line of credit under Sec. 1003.2(o). Thus,
for example, a loan to purchase a dwelling and secured only by a
personal guarantee is not a closed-end mortgage loan because it is not
dwelling-secured.
2. Extension of credit. Under Sec. 1003.2(d), a dwelling-secured
loan is not a closed-end mortgage loan unless it involves an extension
of credit. For example, some transactions completed pursuant to
installment sales contracts, such as some land contracts, depending on
the facts and circumstances, may or may not involve extensions of credit
rendering the transactions closed-end mortgage loans. In general,
extension of credit under Sec. 1003.2(d) refers to the granting of
credit only pursuant to a new debt obligation. Thus, except as described
in comments 2(d)-2.i and .ii, if a transaction modifies, renews,
extends, or amends the terms of an existing debt obligation, but the
existing debt obligation is not satisfied and replaced, the transaction
is not a closed-end mortgage loan under Sec. 1003.2(d) because there
has been no new extension of credit. The phrase extension of credit thus
is defined differently under Regulation C than under Regulation B, 12
CFR part 1002.
i. Assumptions. For purposes of Regulation C, an assumption is a
transaction in which an institution enters into a written agreement
accepting a new borrower in place of an existing borrower as the obligor
on an existing debt obligation. For purposes of Regulation C,
assumptions include successor-in-interest transactions, in which an
individual succeeds the prior owner as the property owner and then
assumes the existing debt secured by the property. Under Sec.
1003.2(d), assumptions are extensions of credit even if the new borrower
merely assumes the existing debt obligation and no new debt obligation
is created. See also comment 2(j)-5.
ii. New York State consolidation, extension, and modification
agreements. A transaction completed pursuant to a New York State
consolidation, extension, and modification agreement and classified as a
supplemental mortgage under New York Tax Law section 255, such that the
borrower owes reduced or no mortgage recording taxes, is an extension of
credit under Sec. 1003.2(d). Comments 2(i)-1, 2(j)-5, and 2(p)-2
clarify whether such transactions are home improvement loans, home
purchase loans, or refinancings, respectively. Section 1003.3(c)(13)
provides an exclusion from the reporting requirement for a preliminary
transaction providing or, in the case of an application, proposing to
provide new funds to the borrower in advance of being consolidated
within the same calendar year into a supplemental mortgage under New
York Tax Law section 255. See comment 3(c)(13)-1 concerning how to
report a supplemental mortgage under New York Tax Law section 255 in
this situation.
2(f) Dwelling
1. General. The definition of a dwelling is not limited to the
principal or other residence of the applicant or borrower, and thus
includes vacation or second homes and investment properties.
2. Multifamily residential structures and communities. A dwelling
also includes a multifamily residential structure or community such as
an apartment, condominium, cooperative building or housing complex, or a
manufactured home community. A loan related to a manufactured home
community is secured by a dwelling for purposes of Sec. 1003.2(f) even
if it is not secured by any individual manufactured homes, but only by
the land that constitutes the manufactured home community including
sites for manufactured homes. However, a loan related to a multifamily
residential structure or community that is not a manufactured home
community is not secured by a dwelling for purposes of Sec. 1003.2(f)
if it is not secured by any individual dwelling units and is, for
example, instead secured only by property that only includes common
areas, or is secured only by an assignment of rents or dues.
3. Exclusions. Recreational vehicles, including boats, campers,
travel trailers, and park model recreational vehicles, are not
considered dwellings for purposes of Sec. 1003.2(f), regardless of
whether they are used as residences. Houseboats, floating homes, and
mobile homes constructed before June 15, 1976, are also excluded,
regardless of whether they are used as residences. Also excluded are
transitory residences such as hotels, hospitals, college dormitories,
and recreational vehicle parks, and structures originally designed as
dwellings but used exclusively for commercial purposes, such as homes
converted to daycare facilities or professional offices.
4. Mixed-use properties. A property used for both residential and
commercial purposes, such as a building containing apartment units and
retail space, is a dwelling if the property's primary use is
residential. An institution may use any reasonable standard
[[Page 137]]
to determine the primary use of the property, such as by square footage
or by the income generated. An institution may select the standard to
apply on a case-by-case basis.
5. Properties with service and medical components. For purposes of
Sec. 1003.2(f), a property used for both long-term housing and to
provide related services, such as assisted living for senior citizens or
supportive housing for persons with disabilities, is a dwelling and does
not have a non-residential purpose merely because the property is used
for both housing and to provide services. However, transitory residences
that are used to provide such services are not dwellings. See comment
2(f)-3. Properties that are used to provide medical care, such as
skilled nursing, rehabilitation, or long-term medical care, also are not
dwellings. See comment 2(f)-3. If a property that is used for both long-
term housing and to provide related services also is used to provide
medical care, the property is a dwelling if its primary use is
residential. An institution may use any reasonable standard to determine
the property's primary use, such as by square footage, income generated,
or number of beds or units allocated for each use. An institution may
select the standard to apply on a case-by-case basis.
2(g) Financial Institution
1. Preceding calendar year and preceding December 31. The definition
of financial institution refers both to the preceding calendar year and
the preceding December 31. These terms refer to the calendar year and
the December 31 preceding the current calendar year. For example, in
2019, the preceding calendar year is 2018 and the preceding December 31
is December 31, 2018. Accordingly, in 2019, Financial Institution A
satisfies the asset-size threshold described in Sec. 1003.2(g)(1)(i) if
its assets exceeded the threshold specified in comment 2(g)-2 on
December 31, 2018. Likewise, in 2020, Financial Institution A does not
meet the loan-volume test described in Sec. 1003.2(g)(1)(v)(A) if it
originated fewer than 25 closed-end mortgage loans during either 2018 or
2019.
2. Adjustment of exemption threshold for banks, savings
associations, and credit unions. For data collection in 2024, the asset-
size exemption threshold is $56 million. Banks, savings associations,
and credit unions with assets at or below $56 million as of December 31,
2023, are exempt from collecting data for 2024.
3. Merger or acquisition--coverage of surviving or newly formed
institution. After a merger or acquisition, the surviving or newly
formed institution is a financial institution under Sec. 1003.2(g) if
it, considering the combined assets, location, and lending activity of
the surviving or newly formed institution and the merged or acquired
institutions or acquired branches, satisfies the criteria included in
Sec. 1003.2(g). For example, A and B merge. The surviving or newly
formed institution meets the loan threshold described in Sec.
1003.2(g)(1)(v)(B) if the surviving or newly formed institution, A, and
B originated a combined total of at least 200 open-end lines of credit
in each of the two preceding calendar years. Likewise, the surviving or
newly formed institution meets the asset-size threshold in Sec.
1003.2(g)(1)(i) if its assets and the combined assets of A and B on
December 31 of the preceding calendar year exceeded the threshold
described in Sec. 1003.2(g)(1)(i). Comment 2(g)-4 discusses a financial
institution's responsibilities during the calendar year of a merger.
4. Merger or acquisition--coverage for calendar year of merger or
acquisition. The scenarios described below illustrate a financial
institution's responsibilities for the calendar year of a merger or
acquisition. For purposes of these illustrations, a ``covered
institution'' means a financial institution, as defined in Sec.
1003.2(g), that is not exempt from reporting under Sec. 1003.3(a), and
``an institution that is not covered'' means either an institution that
is not a financial institution, as defined in Sec. 1003.2(g), or an
institution that is exempt from reporting under Sec. 1003.3(a).
i. Two institutions that are not covered merge. The surviving or
newly formed institution meets all of the requirements necessary to be a
covered institution. No data collection is required for the calendar
year of the merger (even though the merger creates an institution that
meets all of the requirements necessary to be a covered institution).
When a branch office of an institution that is not covered is acquired
by another institution that is not covered, and the acquisition results
in a covered institution, no data collection is required for the
calendar year of the acquisition.
ii. A covered institution and an institution that is not covered
merge. The covered institution is the surviving institution, or a new
covered institution is formed. For the calendar year of the merger, data
collection is required for covered loans and applications handled in the
offices of the merged institution that was previously covered and is
optional for covered loans and applications handled in offices of the
merged institution that was previously not covered. When a covered
institution acquires a branch office of an institution that is not
covered, data collection is optional for covered loans and applications
handled by the acquired branch office for the calendar year of the
acquisition.
iii. A covered institution and an institution that is not covered
merge. The institution that is not covered is the surviving institution,
or a new institution that is not covered is formed. For the calendar
year of the merger, data collection is required for
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covered loans and applications handled in offices of the previously
covered institution that took place prior to the merger. After the
merger date, data collection is optional for covered loans and
applications handled in the offices of the institution that was
previously covered. When an institution remains not covered after
acquiring a branch office of a covered institution, data collection is
required for transactions of the acquired branch office that take place
prior to the acquisition. Data collection by the acquired branch office
is optional for transactions taking place in the remainder of the
calendar year after the acquisition.
iv. Two covered institutions merge. The surviving or newly formed
institution is a covered institution. Data collection is required for
the entire calendar year of the merger. The surviving or newly formed
institution files either a consolidated submission or separate
submissions for that calendar year. When a covered institution acquires
a branch office of a covered institution, data collection is required
for the entire calendar year of the merger. Data for the acquired branch
office may be submitted by either institution.
5. Originations. Whether an institution is a financial institution
depends in part on whether the institution originated at least 25
closed-end mortgage loans in each of the two preceding calendar years or
at least 200 open-end lines of credit in each of the two preceding
calendar years. Comments 4(a)-2 through -4 discuss whether activities
with respect to a particular closed-end mortgage loan or open-end line
of credit constitute an origination for purposes of Sec. 1003.2(g).
6. Branches of foreign banks--treated as banks. A Federal branch or
a State-licensed or insured branch of a foreign bank that meets the
definition of a ``bank'' under section 3(a)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(a)) is a bank for the purposes of Sec.
1003.2(g).
7. Branches and offices of foreign banks and other entities--treated
as nondepository financial institutions. A Federal agency, State-
licensed agency, State-licensed uninsured branch of a foreign bank,
commercial lending company owned or controlled by a foreign bank, or
entity operating under section 25 or 25A of the Federal Reserve Act, 12
U.S.C. 601 and 611 (Edge Act and agreement corporations) may not meet
the definition of ``bank'' under the Federal Deposit Insurance Act and
may thereby fail to satisfy the definition of a depository financial
institution under Sec. 1003.2(g)(1). An entity is nonetheless a
financial institution if it meets the definition of nondepository
financial institution under Sec. 1003.2(g)(2).
2(i) Home Improvement Loan
1. General. Section 1003.2(i) defines a home improvement loan as a
closed-end mortgage loan or an open-end line of credit that is for the
purpose, in whole or in part, of repairing, rehabilitating, remodeling,
or improving a dwelling or the real property on which the dwelling is
located. For example, a closed-end mortgage loan obtained to repair a
dwelling by replacing a roof is a home improvement loan under Sec.
1003.2(i). A loan or line of credit is a home improvement loan even if
only a part of the purpose is for repairing, rehabilitating, remodeling,
or improving a dwelling. For example, an open-end line of credit
obtained in part to remodel a kitchen and in part to pay college tuition
is a home improvement loan under Sec. 1003.2(i). Similarly, for
example, a loan that is completed pursuant to a New York State
consolidation, extension, and modification agreement and that is
classified as a supplemental mortgage under New York Tax Law section
255, such that the borrower owes reduced or no mortgage recording taxes,
is a home improvement loan if any of the loan's funds are for home
improvement purposes. See also comment 2(d)-2.ii.
2. Improvements to real property. Home improvements include
improvements both to a dwelling and to the real property on which the
dwelling is located (for example, installation of a swimming pool,
construction of a garage, or landscaping).
3. Commercial and other loans. A home improvement loan may include a
closed-end mortgage loan or an open-end line of credit originated
outside an institution's residential mortgage lending division, such as
a loan or line of credit to improve an apartment building originated in
the commercial loan department.
4. Mixed-use property. A closed-end mortgage loan or an open-end
line of credit to improve a multifamily dwelling used for residential
and commercial purposes (for example, a building containing apartment
units and retail space), or the real property on which such a dwelling
is located, is a home improvement loan if the loan's proceeds are used
either to improve the entire property (for example, to replace the
heating system), or if the proceeds are used primarily to improve the
residential portion of the property. An institution may use any
reasonable standard to determine the primary use of the loan proceeds.
An institution may select the standard to apply on a case-by-case basis.
See comment 3(c)(10)-3.ii for guidance on loans to improve primarily the
commercial portion of a dwelling other than a multifamily dwelling.
5. Multiple-purpose loans. A closed-end mortgage loan or an open-end
line of credit may be used for multiple purposes. For example, a closed-
end mortgage loan that is a home improvement loan under Sec. 1003.2(i)
may also be a refinancing under Sec. 1003.2(p) if the transaction is a
cash-out refinancing and the funds will be used to improve a home. Such
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a transaction is a multiple-purpose loan. Comment 4(a)(3)-3 provides
details about how to report multiple-purpose covered loans.
6. Statement of borrower. In determining whether a closed-end
mortgage loan or an open-end line of credit, or an application for a
closed-end mortgage loan or an open-end line of credit, is for home
improvement purposes, an institution may rely on the applicant's or
borrower's stated purpose(s) for the loan or line of credit at the time
the application is received or the credit decision is made. An
institution need not confirm that the borrower actually uses any of the
funds for the stated purpose(s).
2(j) Home Purchase Loan
1. Multiple properties. A home purchase loan includes a closed-end
mortgage loan or an open-end line of credit secured by one dwelling and
used to purchase another dwelling. For example, if a person obtains a
home-equity loan or a reverse mortgage secured by dwelling A to purchase
dwelling B, the home-equity loan or the reverse mortgage is a home
purchase loan under Sec. 1003.2(j).
2. Commercial and other loans. A home purchase loan may include a
closed-end mortgage loan or an open-end line of credit originated
outside an institution's residential mortgage lending division, such as
a loan or line of credit to purchase an apartment building originated in
the commercial loan department.
3. Construction and permanent financing. A home purchase loan
includes both a combined construction/permanent loan or line of credit,
and the separate permanent financing that replaces a construction-only
loan or line of credit for the same borrower at a later time. A home
purchase loan does not include a construction-only loan or line of
credit that is designed to be replaced by separate permanent financing
extended by any financial institution to the same borrower at a later
time or that is extended to a person exclusively to construct a dwelling
for sale, which are excluded from Regulation C as temporary financing
under Sec. 1003.3(c)(3). Comments 3(c)(3)-1 and -2 provide additional
details about transactions that are excluded as temporary financing.
4. Second mortgages that finance the downpayments on first
mortgages. If an institution making a first mortgage loan to a home
purchaser also makes a second mortgage loan or line of credit to the
same purchaser to finance part or all of the home purchaser's
downpayment, both the first mortgage loan and the second mortgage loan
or line of credit are home purchase loans.
5. Assumptions. Under Sec. 1003.2(j), an assumption is a home
purchase loan when an institution enters into a written agreement
accepting a new borrower as the obligor on an existing obligation to
finance the new borrower's purchase of the dwelling securing the
existing obligation, if the resulting obligation is a closed-end
mortgage loan or an open-end line of credit. A transaction in which
borrower B finances the purchase of borrower A's dwelling by assuming
borrower A's existing debt obligation and that is completed pursuant to
a New York State consolidation, extension, and modification agreement
and is classified as a supplemental mortgage under New York Tax Law
section 255, such that the borrower owes reduced or no mortgage
recording taxes, is an assumption and a home purchase loan. See comment
2(d)-2.ii. On the other hand, a transaction in which borrower B, a
successor-in-interest, assumes borrower A's existing debt obligation
only after acquiring title to borrower A's dwelling is not a home
purchase loan because borrower B did not assume the debt obligation for
the purpose of purchasing a dwelling. See Sec. 1003.4(a)(3) and comment
4(a)(3)-4 for guidance about how to report covered loans that are not
home improvement loans, home purchase loans, or refinancings.
6. Multiple-purpose loans. A closed-end mortgage loan or an open-end
line of credit may be used for multiple purposes. For example, a closed-
end mortgage loan that is a home purchase loan under Sec. 1003.2(j) may
also be a home improvement loan under Sec. 1003.2(i) and a refinancing
under Sec. 1003.2(p) if the transaction is a cash-out refinancing and
the funds will be used to purchase and improve a dwelling. Such a
transaction is a multiple-purpose loan. Comment 4(a)(3)-3 provides
details about how to report multiple-purpose covered loans.
2(l) Manufactured Home
1. Definition of a manufactured home. The definition in Sec.
1003.2(l) refers to the Federal building code for manufactured housing
established by the U.S. Department of Housing and Urban Development
(HUD) (24 CFR part 3280.2). Modular or other factory-built homes that do
not meet the HUD code standards are not manufactured homes for purposes
of Sec. 1003.2(l). Recreational vehicles are excluded from the HUD code
standards pursuant to 24 CFR 3282.8(g) and are also excluded from the
definition of dwelling for purposes of Sec. 1003.2(f). See comment
2(f)-3.
2. Identification. A manufactured home will generally bear a data
plate affixed in a permanent manner near the main electrical panel or
other readily accessible and visible location noting its compliance with
the Federal Manufactured Home Construction and Safety Standards in force
at the time of manufacture and providing other information about its
manufacture pursuant to 24 CFR 3280.5. A manufactured home will
generally also bear a HUD Certification Label pursuant to 24 CFR
3280.11.
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2(m) Metropolitan Statistical Area (MD) or Metropolitan Division (MD).
1. Use of terms ``Metropolitan Statistical Area (MSA)'' and
``Metropolitan Division (MD).'' The U.S. Office of Management and Budget
(OMB) defines Metropolitan Statistical Areas (MSAs) and Metropolitan
Divisions (MDs) to provide nationally consistent definitions for
collecting, tabulating, and publishing Federal statistics for a set of
geographic areas. For all purposes under Regulation C, if an MSA is
divided by OMB into MDs, the appropriate geographic unit to be used is
the MD; if an MSA is not so divided by OMB into MDs, the appropriate
geographic unit to be used is the MSA.
2(n) Multifamily Dwelling
1. Multifamily residential structures. The definition of dwelling in
Sec. 1003.2(f) includes multifamily residential structures and the
corresponding commentary provides guidance on when such residential
structures are included in that definition. See comments 2(f)-2 through
-5.
2. Special reporting requirements for multifamily dwellings. The
definition of multifamily dwelling in Sec. 1003.2(n) includes a
dwelling, regardless of construction method, that contains five or more
individual dwelling units. Covered loans secured by a multifamily
dwelling are subject to additional reporting requirements under Sec.
1003.4(a)(32), but are not subject to reporting requirements under Sec.
1003.4(a)(4), (10)(iii), (23), (29), or (30).
3. Separate dwellings. A covered loan secured by five or more
separate dwellings, which are not multifamily dwellings, in more than
one location is not a loan secured by a multifamily dwelling. For
example, assume a landlord uses a covered loan to improve five or more
dwellings, each with one individual dwelling unit, located in different
parts of a town, and the loan is secured by those properties. The
covered loan is not secured by a multifamily dwelling as defined by
Sec. 1003.2(n). Likewise, a covered loan secured by five or more
separate dwellings that are located within a multifamily dwelling, but
which is not secured by the entire multifamily dwelling (e.g., an entire
apartment building or housing complex), is not secured by a multifamily
dwelling as defined by Sec. 1003.2(n). For example, assume that an
investor purchases 10 individual unit condominiums in a 100-unit
condominium complex using a covered loan. The covered loan would not be
secured by a multifamily dwelling as defined by Sec. 1003.2(n). In both
of these situations, a financial institution reporting a covered loan or
application secured by these separate dwellings would not be subject to
the additional reporting requirements for covered loans secured by or
applications proposed to be secured by multifamily dwellings under Sec.
1003.4(a)(32). However, a financial institution would report the
information required by Sec. 1003.4(a)(4), (a)(10)(iii), and (a)(23),
(29), and (30), which is not applicable to covered loans secured by and
applications proposed to be secured by multifamily dwellings. See
comment 2(n)-2. In addition, in both of these situations, the financial
institution reports the number of individual dwelling units securing the
covered loan or proposed to secure a covered loan as required by Sec.
1003.4(a)(31). See comment 4(a)(31)-3.
2(o) Open-End Line of Credit
1. General. Section 1003.2(o) defines an open-end line of credit as
an extension of credit that is secured by a lien on a dwelling and that
is an open-end credit plan as defined in Regulation Z, 12 CFR
1026.2(a)(20), but without regard to whether the credit is consumer
credit, as defined in Sec. 1026.2(a)(12), is extended by a creditor, as
defined in Sec. 1026.2(a)(17), or is extended to a consumer, as defined
in Sec. 1026.2(a)(11). Aside from these distinctions, institutions may
rely on 12 CFR 1026.2(a)(20) and its related commentary in determining
whether a transaction is an open-end line of credit under Sec.
1003.2(o). For example, assume a business-purpose transaction that is
exempt from Regulation Z pursuant to Sec. 1026.3(a)(1) but that
otherwise is open-end credit under Regulation Z Sec. 1026.2(a)(20). The
business-purpose transaction is an open-end line of credit under
Regulation C, provided the other requirements of Sec. 1003.2(o) are
met. Similarly, assume a transaction in which the person extending open-
end credit is a financial institution under Sec. 1003.2(g) but is not a
creditor under Regulation Z, Sec. 1026.2(a)(17). In this example, the
transaction is an open-end line of credit under Regulation C, provided
the other requirements of Sec. 1003.2(o) are met.
2. Extension of credit. Extension of credit has the same meaning
under Sec. 1003.2(o) as under Sec. 1003.2(d) and comment 2(d)-2. Thus,
for example, a renewal of an open-end line of credit is not an extension
of credit under Sec. 1003.2(o) and is not covered by Regulation C
unless the existing debt obligation is satisfied and replaced. Likewise,
under Sec. 1003.2(o), each draw on an open-end line of credit is not an
extension of credit.
2(p) Refinancing
1. General. Section 1003.2(p) defines a refinancing as a closed-end
mortgage loan or an open-end line of credit in which a new, dwelling-
secured debt obligation satisfies and replaces an existing, dwelling-
secured debt obligation by the same borrower. Except as described in
comment 2(p)-2, whether a refinancing has occurred is determined by
reference to whether, based on the parties' contract and applicable law,
the original debt obligation has been satisfied or replaced by a
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new debt obligation. Whether the original lien is satisfied is
irrelevant. For example:
i. A new closed-end mortgage loan that satisfies and replaces one or
more existing closed-end mortgage loans is a refinancing under Sec.
1003.2(p).
ii. A new open-end line of credit that satisfies and replaces an
existing closed-end mortgage loan is a refinancing under Sec.
1003.2(p).
iii. Except as described in comment 2(p)-2, a new debt obligation
that renews or modifies the terms of, but that does not satisfy and
replace, an existing debt obligation, is not a refinancing under Sec.
1003.2(p).
2. New York State consolidation, extension, and modification
agreements. Where a transaction is completed pursuant to a New York
State consolidation, extension, and modification agreement and is
classified as a supplemental mortgage under New York Tax Law
sectionSec. 255, such that the borrower owes reduced or no mortgage
recording taxes, and where, but for the agreement, the transaction would
have met the definition of a refinancing under Sec. 1003.2(p), the
transaction is considered a refinancing under Sec. 1003.2(p). See also
comment 2(d)-2.ii.
3. Existing debt obligation. A closed-end mortgage loan or an open-
end line of credit that satisfies and replaces one or more existing debt
obligations is not a refinancing under Sec. 1003.2(p) unless the
existing debt obligation (or obligations) also was secured by a
dwelling. For example, assume that a borrower has an existing $30,000
closed-end mortgage loan and obtains a new $50,000 closed-end mortgage
loan that satisfies and replaces the existing $30,000 loan. The new
$50,000 loan is a refinancing under Sec. 1003.2(p). However, if the
borrower obtains a new $50,000 closed-end mortgage loan that satisfies
and replaces an existing $30,000 loan secured only by a personal
guarantee, the new $50,000 loan is not a refinancing under Sec.
1003.2(p). See Sec. 1003.4(a)(3) and related commentary for guidance
about how to report the loan purpose of such transactions, if they are
not otherwise excluded under Sec. 1003.3(c).
4. Same borrower. Section 1003.2(p) provides that, even if all of
the other requirements of Sec. 1003.2(p) are met, a closed-end mortgage
loan or an open-end line of credit is not a refinancing unless the same
borrower undertakes both the existing and the new obligation(s). Under
Sec. 1003.2(p), the ``same borrower'' undertakes both the existing and
the new obligation(s) even if only one borrower is the same on both
obligations. For example, assume that an existing closed-end mortgage
loan (obligation X) is satisfied and replaced by a new closed-end
mortgage loan (obligation Y). If borrowers A and B both are obligated on
obligation X, and only borrower B is obligated on obligation Y, then
obligation Y is a refinancing under Sec. 1003.2(p), assuming the other
requirements of Sec. 1003.2(p) are met, because borrower B is obligated
on both transactions. On the other hand, if only borrower A is obligated
on obligation X, and only borrower B is obligated on obligation Y, then
obligation Y is not a refinancing under Sec. 1003.2(p). For example,
assume that two spouses are divorcing. If both spouses are obligated on
obligation X, but only one spouse is obligated on obligation Y, then
obligation Y is a refinancing under Sec. 1003.2(p), assuming the other
requirements of Sec. 1003.2(p) are met. On the other hand, if only
spouse A is obligated on obligation X, and only spouse B is obligated on
obligation Y, then obligation Y is not a refinancing under Sec.
1003.2(p). See Sec. 1003.4(a)(3) and related commentary for guidance
about how to report the loan purpose of such transactions, if they are
not otherwise excluded under Sec. 1003.3(c).
5. Two or more debt obligations. Section 1003.2(p) provides that, to
be a refinancing, a new debt obligation must satisfy and replace an
existing debt obligation. Where two or more new obligations replace an
existing obligation, each new obligation is a refinancing if, taken
together, the new obligations satisfy the existing obligation.
Similarly, where one new obligation replaces two or more existing
obligations, the new obligation is a refinancing if it satisfies each of
the existing obligations.
6. Multiple-purpose loans. A closed-end mortgage loan or an open-end
line of credit may be used for multiple purposes. For example, a closed-
end mortgage loan that is a refinancing under Sec. 1003.2(p) may also
be a home improvement loan under Sec. 1003.2(i) and be used for other
purposes if the refinancing is a cash-out refinancing and the funds will
be used both for home improvement and to pay college tuition. Such a
transaction is a multiple-purpose loan. Comment 4(a)(3)-3 provides
details about how to report multiple-purpose covered loans.
Section 1003.3--Exempt Institutions and Excluded and Partially Exempt
Transactions
3(c) Excluded Transactions
Paragraph 3(c)(1)
1. Financial institution acting in a fiduciary capacity. Section
1003.3(c)(1) provides that a closed-end mortgage loan or an open-end
line of credit originated or purchased by a financial institution acting
in a fiduciary capacity is an excluded transaction. A financial
institution acts in a fiduciary capacity if, for example, the financial
institution acts as a trustee.
Paragraph 3(c)(2)
1. Loan or line of credit secured by a lien on unimproved land.
Section 1003.3(c)(2) provides that a closed-end mortgage loan or an
open-end line of credit secured by a lien on unimproved land is an
excluded transaction. A
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loan or line of credit is secured by a lien on unimproved land if the
loan or line of credit is secured by vacant or unimproved property,
unless the institution knows, based on information that it receives from
the applicant or borrower at the time the application is received or the
credit decision is made, that the proceeds of that loan or credit line
will be used within two years after closing or account opening to
construct a dwelling on, or to purchase a dwelling to be placed on, the
land. A loan or line of credit that is not excludable under Sec.
1003.3(c)(2) nevertheless may be excluded, for example, as temporary
financing under Sec. 1003.3(c)(3).
Paragraph 3(c)(3)
1. Temporary financing. Section 1003.3(c)(3) provides that closed-
end mortgage loans or open-end lines of credit obtained for temporary
financing are excluded transactions. A loan or line of credit is
considered temporary financing and excluded under Sec. 1003.3(c)(3) if
the loan or line of credit is designed to be replaced by separate
permanent financing extended by any financial institution to the same
borrower at a later time. For example:
i. Lender A extends credit in the form of a bridge or swing loan to
finance a borrower's down payment on a home purchase. The borrower pays
off the bridge or swing loan with funds from the sale of his or her
existing home and obtains permanent financing for his or her new home
from Lender A or from another lender. The bridge or swing loan is
excluded as temporary financing under Sec. 1003.3(c)(3).
ii. Lender A extends credit to a borrower to finance construction of
a dwelling. The borrower will obtain a new extension of credit for
permanent financing for the dwelling, either from Lender A or from
another lender, and either through a refinancing of the initial
construction loan or a separate loan. The initial construction loan is
excluded as temporary financing under Sec. 1003.3(c)(3).
iii. Assume the same scenario as in comment 3(c)(3)-1.ii, except
that the initial construction loan is, or may be, renewed one or more
times before the separate permanent financing is obtained. The initial
construction loan, including any renewal thereof, is excluded as
temporary financing under Sec. 1003.3(c)(3).
iv. Lender A extends credit to finance construction of a dwelling.
The loan automatically will convert to permanent financing extended to
the same borrower with Lender A once the construction phase is complete.
Under Sec. 1003.3(c)(3), the loan is not designed to be replaced by
separate permanent financing extended to the same borrower, and
therefore the temporary financing exclusion does not apply. See also
comment 2(j)-3.
v. Lender A originates a loan with a nine-month term to enable an
investor to purchase a home, renovate it, and re-sell it before the term
expires. Under Sec. 1003.3(c)(3), the loan is not designed to be
replaced by separate permanent financing extended to the same borrower,
and therefore the temporary financing exclusion does not apply. Such a
transaction is not temporary financing under Sec. 1003.3(c)(3) merely
because its term is short.
2. Loan or line of credit to construct a dwelling for sale. A
construction-only loan or line of credit is considered temporary
financing and excluded under Sec. 1003.3(c)(3) if the loan or line of
credit is extended to a person exclusively to construct a dwelling for
sale. See comment 3(c)(3)-1.ii through .iv for examples of the reporting
requirement for construction loans that are not extended to a person
exclusively to construct a dwelling for sale.
Paragraph 3(c)(4)
1. Purchase of an interest in a pool of loans. Section 1003.3(c)(4)
provides that the purchase of an interest in a pool of closed-end
mortgage loans or open-end lines of credit is an excluded transaction.
The purchase of an interest in a pool of loans or lines of credit
includes, for example, mortgage-participation certificates, mortgage-
backed securities, or real estate mortgage investment conduits.
Paragraph 3(c)(6)
1. Mergers and acquisitions. Section 1003.3(c)(6) provides that the
purchase of closed-end mortgage loans or open-end lines of credit as
part of a merger or acquisition, or as part of the acquisition of all of
the assets and liabilities of a branch office, are excluded
transactions. If a financial institution acquires loans or lines of
credit in bulk from another institution (for example, from the receiver
for a failed institution), but no merger or acquisition of an
institution, or acquisition of a branch office, is involved and no other
exclusion applies, the acquired loans or lines of credit are covered
loans and are reported as described in comment 4(a)-1.iii.
Paragraph 3(c)(8)
1. Partial interest. Section 1003.3(c)(8) provides that the purchase
of a partial interest in a closed-end mortgage loan or an open-end line
of credit is an excluded transaction. If an institution acquires only a
partial interest in a loan or line of credit, the institution does not
report the transaction even if the institution participated in the
underwriting and origination of the loan or line of credit. If an
institution acquires a 100 percent interest in a loan or line of credit,
the transaction is not excluded under Sec. 1003.3(c)(8).
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Paragraph 3(c)(9)
1. Loan or line of credit used primarily for agricultural purposes.
Section 1003.3(c)(9) provides that an institution does not report a
closed-end mortgage loan or an open-end line of credit used primarily
for agricultural purposes. A loan or line of credit is used primarily
for agricultural purposes if its funds will be used primarily for
agricultural purposes, or if the loan or line of credit is secured by a
dwelling that is located on real property that is used primarily for
agricultural purposes (e.g., a farm). An institution may refer to
comment 3(a)-8 in the official interpretations of Regulation Z, 12 CFR
part 1026, supplement I, for guidance on what is an agricultural
purpose. An institution may use any reasonable standard to determine the
primary use of the property. An institution may select the standard to
apply on a case-by-case basis.
Paragraph 3(c)(10)
1. General. Section 1003.3(c)(10) provides a special rule for
reporting a closed-end mortgage loan or an open-end line of credit that
is or will be made primarily for a business or commercial purpose. If an
institution determines that a closed-end mortgage loan or an open-end
line of credit primarily is for a business or commercial purpose, then
the loan or line of credit is a covered loan only if it is a home
improvement loan under Sec. 1003.2(i), a home purchase loan under Sec.
1003.2(j), or a refinancing under Sec. 1003.2(p) and no other exclusion
applies. Section 1003.3(c)(10) does not categorically exclude all
business- or commercial-purpose loans and lines of credit from coverage.
2. Primary purpose. An institution must determine in each case if a
closed-end mortgage loan or an open-end line of credit primarily is for
a business or commercial purpose. If a closed-end mortgage loan or an
open-end line of credit is deemed to be primarily for a business,
commercial, or organizational purpose under Regulation Z, 12 CFR
1026.3(a) and its related commentary, then the loan or line of credit
also is deemed to be primarily for a business or commercial purpose
under Sec. 1003.3(c)(10).
3. Examples--covered business- or commercial-purpose transactions.
The following are examples of closed-end mortgage loans and open-end
lines of credit that are not excluded from reporting under Sec.
1003.3(c)(10) because, although they primarily are for a business or
commercial purpose, they also meet the definition of a home improvement
loan under Sec. 1003.2(i), a home purchase loan under Sec. 1003.2(j),
or a refinancing under Sec. 1003.2(p):
i. A closed-end mortgage loan or an open-end line of credit to
purchase or to improve a multifamily dwelling or a single-family
investment property, or a refinancing of a closed-end mortgage loan or
an open-end line of credit secured by a multifamily dwelling or a
single-family investment property;
ii. A closed-end mortgage loan or an open-end line of credit to
improve a doctor's office or a daycare center that is located in a
dwelling other than a multifamily dwelling; and
iii. A closed-end mortgage loan or an open-end line of credit to a
corporation, if the funds from the loan or line of credit will be used
to purchase or to improve a dwelling, or if the transaction is a
refinancing.
4. Examples--excluded business- or commercial-purpose transactions.
The following are examples of closed-end mortgage loans and open-end
lines of credit that are not covered loans because they primarily are
for a business or commercial purpose, but they do not meet the
definition of a home improvement loan under Sec. 1003.2(i), a home
purchase loan under Sec. 1003.2(j), or a refinancing under Sec.
1003.2(p):
i. A closed-end mortgage loan or an open-end line of credit whose
funds will be used primarily to improve or expand a business, for
example to renovate a family restaurant that is not located in a
dwelling, or to purchase a warehouse, business equipment, or inventory;
ii. A closed-end mortgage loan or an open-end line of credit to a
corporation whose funds will be used primarily for business purposes,
such as to purchase inventory; and
iii. A closed-end mortgage loan or an open-end line of credit whose
funds will be used primarily for business or commercial purposes other
than home purchase, home improvement, or refinancing, even if the loan
or line of credit is cross-collateralized by a covered loan.
Paragraph 3(c)(11)
1. General. Section 1003.3(c)(11) provides that a closed-end
mortgage loan is an excluded transaction if a financial institution
originated fewer than 25 closed-end mortgage loans in either of the two
preceding calendar years. For example, assume that a bank is a financial
institution in 2018 under Sec. 1003.2(g) because it originated 600
open-end lines of credit in 2016, 650 open-end lines of credit in 2017,
and met all of the other requirements under Sec. 1003.2(g)(1). Also
assume that the bank originated 10 and 20 closed-end mortgage loans in
2016 and 2017, respectively. The open-end lines of credit that the bank
originated or purchased, or for which it received applications, during
2018 are covered loans and must be reported, unless they otherwise are
excluded transactions under Sec. 1003.3(c). However, the closed-end
mortgage loans that the bank originated or purchased, or for which it
received applications, during 2018 are excluded transactions under Sec.
1003.3(c)(11) and need not be reported. See comments 4(a)-2 through -4
for guidance about the activities that constitute an origination.
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2. Optional reporting. A financial institution may report
applications for, originations of, or purchases of closed-end mortgage
loans that are excluded transactions because the financial institution
originated fewer than 25 closed-end mortgage loans in either of the two
preceding calendar years. However, a financial institution that chooses
to report such excluded applications for, originations of, or purchases
of closed-end mortgage loans must report all such applications for
closed-end mortgage loans that it receives, closed-end mortgage loans
that it originates, and closed-end mortgage loans that it purchases that
otherwise would be covered loans for a given calendar year. Note that
applications which remain pending at the end of a calendar year are not
reported, as described in comment 4(a)(8)(i)-14.
Paragraph 3(c)(12)
1. General. Section 1003.3(c)(12) provides that an open-end line of
credit is an excluded transaction if a financial institution originated
fewer than 200 open-end lines of credit in either of the two preceding
calendar years. For example, assume that a bank is a financial
institution in 2022 under Sec. 1003.2(g) because it originated 100
closed-end mortgage loans in 2020, 175 closed-end mortgage loans in
2021, and met all of the other requirements under Sec. 1003.2(g)(1).
Also assume that the bank originated 175 and 185 open-end lines of
credit in 2020 and 2021, respectively. The closed-end mortgage loans
that the bank originated or purchased, or for which it received
applications, during 2022 are covered loans and must be reported, unless
they otherwise are excluded transactions under Sec. 1003.3(c). However,
the open-end lines of credit that the bank originated or purchased, or
for which it received applications, during 2022 are excluded
transactions under Sec. 1003.3(c)(12) and need not be reported. See
comments 4(a)-2 through -4 for guidance about the activities that
constitute an origination.
2. Optional reporting. A financial institution may report
applications for, originations of, or purchases of open-end lines of
credit that are excluded transactions because the financial institution
originated fewer than 200 open-end lines of credit in either of the two
preceding calendar years. However, a financial institution that chooses
to report such excluded applications for, originations of, or purchases
of open-end lines of credit must report all such applications for open-
end lines of credit which it receives, open-end lines of credit that it
originates, and open-end lines of credit that it purchases that
otherwise would be covered loans for a given calendar year. Note that
applications which remain pending at the end of a calendar year are not
reported, as described in comment 4(a)(8)(i)-14.
Paragraph 3(c)(13)
1. New funds extended before consolidation. Section 1003.3(c)(13)
provides an exclusion for a transaction that provided or, in the case of
an application, proposed to provide new funds to the borrower in advance
of being consolidated in a New York State consolidation, extension, and
modification agreement classified as a supplemental mortgage under New
York Tax Law section 255 (New York CEMA) and for which final action is
taken on both transactions within the same calendar year. The excluded
transaction provides or proposes to provide funds that are not part of
any existing debt obligation of the borrower and that are then
consolidated or proposed to be consolidated with an existing debt
obligation or obligations as part of the supplemental mortgage. The new
funds are reported only insofar as they form part of the total amount of
the reported New York CEMA, and not as a separate amount. This exclusion
applies only if, at the time the transaction that provided new funds was
originated, the financial institution intended to consolidate the loan
into a New York CEMA. If a New York CEMA that consolidates an excluded
preliminary transaction is carried out in a transaction involving an
assumption, the financial institution reports the New York CEMA and does
not report the preliminary transaction separately. The Sec.
1003.3(c)(13) exclusion does not apply to similar preliminary
transactions that provide or propose to provide new funds to be
consolidated not pursuant to New York Tax Law section 255 but under some
other law in a transaction that is not an extension of credit. For
example, assume a financial institution extends new funds to a consumer
in a preliminary transaction that is then consolidated as part of a
consolidation, extension and modification agreement pursuant to the law
of a State other than New York. If the preliminary extension of new
funds is a covered loan, it must be reported. If the consolidation,
extension and modification agreement pursuant to the law of a State
other than New York is not an extension of credit pursuant to Regulation
C, it may not be reported. For discussion of how to report a cash-out
refinancing, see comment 4(a)(3)-2.
3(d) Partially Exempt Transactions
1. Merger or acquisition--application of partial exemption
thresholds to surviving or newly formed institution. After a merger or
acquisition, the surviving or newly formed institution falls below the
loan threshold described in Sec. 1003.3(d)(2) or (3) if it, considering
the combined lending activity of the surviving or newly formed
institution and the merged or acquired institutions or acquired
branches, falls below the loan threshold described in Sec. 1003.3(d)(2)
or (3). For example, A and B merge. The surviving or newly formed
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institution falls below the loan threshold described in Sec.
1003.3(d)(2) if the surviving or newly formed institution, A, and B
originated a combined total of fewer than 500 closed-end mortgage loans
that are not excluded from this part pursuant to Sec. 1003.3(c)(1)
through (10) or (c)(13) in each of the two preceding calendar years.
Comment 3(d)-3 discusses eligibility for partial exemptions during the
calendar year of a merger.
2. Merger or acquisition--Community Reinvestment Act examination
history. After a merger or acquisition, the surviving or newly formed
institution is deemed to be ineligible for the partial exemptions
pursuant to Sec. 1003.3(d)(6) if either it or any of the merged or
acquired institutions received a rating of ``needs to improve record of
meeting community credit needs'' during each of its two most recent
examinations or a rating of ``substantial noncompliance in meeting
community credit needs'' on its most recent examination under section
807(b)(2) of the Community Reinvestment Act of 1977 (12 U.S.C.
2906(b)(2)). Comment 3(d)-3.iii discusses eligibility for partial
exemptions during the calendar year of a merger when an institution that
is eligible for a partial exemption merges with an institution that is
ineligible for the partial exemption (including, for example, an
institution that is ineligible for the partial exemptions pursuant to
Sec. 1003.3(d)(6)) and the surviving or newly formed institution is
ineligible for the partial exemption.
3. Merger or acquisition--applicability of partial exemptions during
calendar year of merger or acquisition. The scenarios described below
illustrate the applicability of partial exemptions under Sec. 1003.3(d)
during the calendar year of a merger or acquisition. For purposes of
these illustrations, ``institution'' means a financial institution, as
defined in Sec. 1003.2(g), that is not exempt from reporting under
Sec. 1003.3(a). Although the scenarios below refer to the partial
exemption for closed-end mortgage loans under Sec. 1003.3(d)(2), the
same principles apply with respect to the partial exemption for open-end
lines of credit under Sec. 1003.3(d)(3).
i. Assume two institutions that are eligible for the partial
exemption for closed-end mortgage loans merge and the surviving or newly
formed institution meets all of the requirements for the partial
exemption. The partial exemption for closed-end mortgage loans applies
for the calendar year of the merger.
ii. Assume two institutions that are eligible for the partial
exemption for closed-end mortgage loans merge and the surviving or newly
formed institution does not meet the requirements for the partial
exemption. Collection of optional data for closed-end mortgage loans is
permitted but not required for the calendar year of the merger (even
though the merger creates an institution that does not meet the
requirements for the partial exemption for closed-end mortgage loans).
When a branch office of an institution that is eligible for the partial
exemption is acquired by another institution that is eligible for the
partial exemption, and the acquisition results in an institution that is
not eligible for the partial exemption, data collection for closed-end
mortgage loans is permitted but not required for the calendar year of
the acquisition.
iii. Assume an institution that is eligible for the partial
exemption for closed-end mortgage loans merges with an institution that
is ineligible for the partial exemption and the surviving or newly
formed institution is ineligible for the partial exemption. For the
calendar year of the merger, collection of optional data as defined in
Sec. 1003.3(d)(1)(iii) for closed-end mortgage loans is required for
covered loans and applications handled in the offices of the merged
institution that was previously ineligible for the partial exemption.
For the calendar year of the merger, collection of optional data for
closed-end mortgage loans is permitted but not required for covered
loans and applications handled in the offices of the merged institution
that was previously eligible for the partial exemption. When an
institution that is ineligible for the partial exemption for closed-end
mortgage loans acquires a branch office of an institution that is
eligible for the partial exemption, collection of optional data for
closed-end mortgage loans is permitted but not required for covered
loans and applications handled by the acquired branch office for the
calendar year of the acquisition.
iv. Assume an institution that is eligible for the partial exemption
for closed-end mortgage loans merges with an institution that is
ineligible for the partial exemption and the surviving or newly formed
institution is eligible for the partial exemption. For the calendar year
of the merger, collection of optional data for closed-end mortgage loans
is required for covered loans and applications handled in the offices of
the previously ineligible institution that took place prior to the
merger. After the merger date, collection of optional data for closed-
end mortgage loans is permitted but not required for covered loans and
applications handled in the offices of the institution that was
previously ineligible for the partial exemption. When an institution
remains eligible for the partial exemption for closed-end mortgage loans
after acquiring a branch office of an institution that is ineligible for
the partial exemption, collection of optional data for closed-end
mortgage loans is required for transactions of the acquired branch
office that take place prior to the acquisition. Collection of optional
data for closed-end mortgage loans by the acquired branch office is
permitted but not required for transactions
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taking place in the remainder of the calendar year after the
acquisition.
4. Originations. Whether applications for covered loans that an
insured depository institution or insured credit union receives, covered
loans that it originates, or covered loans that it purchases are
partially exempt transactions under Sec. 1003.3(d) depends, in part, on
whether the institution originated fewer than 500 closed-end mortgage
loans that are not excluded from this part pursuant to Sec.
1003.3(c)(1) through (10) or (c)(13) in each of the two preceding
calendar years or fewer than 500 open-end lines of credit that are not
excluded from this part pursuant to Sec. 1003.3(c)(1) through (10) in
each of the two preceding calendar years. See comments 4(a)-2 through -4
for guidance about the activities that constitute an origination for
purposes of Sec. 1003.3(d).
5. Affiliates. A financial institution that is not itself an insured
credit union or an insured depository institution as defined in Sec.
1003.3(d)(1)(i) and (ii) is not eligible for the partial exemptions
under Sec. 1003.3(d)(1) through (3), even if it is owned by or
affiliated with an insured credit union or an insured depository
institution. For example, an institution that is a subsidiary of an
insured credit union or insured depository institution may not claim a
partial exemption under Sec. 1003.3(d) for its closed-end mortgage
loans unless the subsidiary institution itself:
i. Is an insured credit union or insured depository institution,
ii. In each of the two preceding calendar years originated fewer
than 500 closed-end mortgage loans that are not excluded from this part
pursuant to Sec. 1003.3(c)(1) through (10) or (c)(13), and
iii. If the subsidiary is an insured depository institution, had not
received as of the preceding December 31 a rating of ``needs to improve
record of meeting community credit needs'' during each of its two most
recent examinations or a rating of ``substantial noncompliance in
meeting community credit needs'' on its most recent examination under
section 807(b)(2) of the Community Reinvestment Act of 1977 (12 U.S.C.
2906(b)(2)).
Paragraph 3(d)(1)(iii)
1. Optional data. The definition of optional data in Sec.
1003.3(d)(1)(iii) identifies the data that are covered by the partial
exemptions for certain transactions of insured depository institutions
and insured credit unions under Sec. 1003.3(d). If a transaction is not
partially exempt under Sec. 1003.3(d)(2) or (3), a financial
institution must collect, record, and report optional data as otherwise
required under this part.
Paragraph 3(d)(2)
1. General. Section 1003.3(d)(2) provides that, except as provided
in Sec. 1003.3(d)(6), an insured depository institution or insured
credit union that, in each of the two preceding calendar years,
originated fewer than 500 closed-end mortgage loans that are not
excluded from this part pursuant to Sec. 1003.3(c)(1) through (10) or
(c)(13) is not required to collect, record, or report optional data as
defined in Sec. 1003.3(d)(1)(iii) for applications for closed-end
mortgage loans that it receives, closed-end mortgage loans that it
originates, and closed-end mortgage loans that it purchases. For
example, assume that an insured credit union is a financial institution
in 2020 under Sec. 1003.2(g) and originated, in 2018 and 2019
respectively, 100 and 200 closed-end mortgage loans that are not
excluded from this part pursuant to Sec. 1003.3(c)(1) through (10) or
(c)(13). The closed-end mortgage loans that the insured credit union
originated or purchased, or for which it received applications, during
2020 are not excluded transactions under Sec. 1003.3(c)(11). However,
due to the partial exemption in Sec. 1003.3(d)(2), the insured credit
union is not required to collect, record, or report optional data as
defined in Sec. 1003.3(d)(1)(iii) for the closed-end mortgage loans
that it originated or purchased, or for which it received applications,
for which final action is taken during 2020. See comments 4(a)-2 through
-4 for guidance about the activities that constitute an origination.
Paragraph 3(d)(3)
1. General. Section 1003.3(d)(3) provides that, except as provided
in Sec. 1003.3(d)(6), an insured depository institution or insured
credit union that, in each of the two preceding calendar years,
originated fewer than 500 open-end lines of credit that are not excluded
from this part pursuant to Sec. 1003.3(c)(1) through (10) is not
required to collect, record, or report optional data as defined in Sec.
1003.3(d)(1)(iii) for applications for open-end lines of credit that it
receives, open-end lines of credit that it originates, and open-end
lines of credit that it purchases. See Sec. 1003.3(c)(12) and comments
3(c)(12)-1 and -2, which provide an exclusion for certain open-end lines
of credit from this part and permit voluntary reporting of such
transactions under certain circumstances. See also comments 4(a)-2
through -4 for guidance about the activities that constitute an
origination.
Paragraph 3(d)(4)
1. General. Section 1003.3(d)(4) provides that an insured depository
institution or insured credit union may collect, record, and report
optional data as defined in Sec. 1003.3(d)(1)(iii) for a partially
exempt transaction as though the institution were required to do so,
provided that, if an institution voluntarily reports any data pursuant
to any of the seven paragraphs identified in Sec. 1003.3(d)(4)(i) and
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(ii) (Sec. 1003.4(a)(9)(i) and (a)(15), (16), (17), (27), (33), and
(35)), it also must report all other data for the covered loan or
application that would be required by that applicable paragraph if the
transaction were not partially exempt. For example, an insured
depository institution or insured credit union may voluntarily report
the existence of a balloon payment for a partially exempt transaction
pursuant to Sec. 1003.4(a)(27), but, if it does so, it must also report
all other data for the transaction that would be required by Sec.
1003.4(a)(27) if the transaction were not partially exempt (i.e.,
whether the transaction has interest-only payments, negative
amortization, or other non-amortizing features).
2. Partially exempt transactions within the same loan/application
register. A financial institution may collect, record, and report
optional data for some partially exempt transactions under Sec.
1003.3(d) in the manner specified in Sec. 1003.3(d)(4), even if it does
not collect, record, and report optional data for other partially exempt
transactions under Sec. 1003.3(d).
3. Exempt or not applicable. i. If a financial institution would
otherwise report that a transaction is partially exempt pursuant to
Sec. 1003.3(d) and a particular requirement to report optional data is
not applicable to the transaction, the insured depository institution or
insured credit union complies with the particular requirement by
reporting either that the transaction is exempt from the requirement or
that the requirement is not applicable. For example, assume that an
insured depository institution or insured credit union originates a
partially exempt reverse mortgage. The requirement to report lender
credits is not applicable to reverse mortgages, as comment 4(a)(20)-1
explains. Accordingly, the institution could report either exempt or not
applicable for lender credits for the reverse mortgage transaction.
ii. An institution is considered as reporting data in a data field
for purposes of Sec. 1003.3(d)(4)(i) and (ii) when it reports not
applicable for that data field for a partially exempt transaction. For
example, assume an insured depository institution or insured credit
union originates a covered loan that is eligible for a partial exemption
and is made primarily for business or commercial purposes. The
requirement to report total loan costs or total points and fees is not
applicable to loans made primarily for business or commercial purposes,
as comments 4(a)(17)(i)-1 and (ii)-1 explain. The institution can report
not applicable for both total loan costs and total points and fees, or
it can report exempt for both total loan costs and total points and fees
for the loan. Pursuant to Sec. 1003.3(d)(4)(ii), the institution is not
permitted to report not applicable for total loan costs and report
exempt for total points and fees for the business or commercial purpose
loan.
Paragraph 3(d)(4)(i)
1. State. Section 1003.3(d)(4)(i) provides that if an institution
eligible for a partial exemption under Sec. 1003.3(d)(2) or (3) reports
the street address, city name, or Zip Code for a partially exempt
transaction pursuant to Sec. 1003.4(a)(9)(i), it reports all data that
would be required by Sec. 1003.4(a)(9)(i) if the transaction were not
partially exempt, including the State. An insured depository institution
or insured credit union that reports the State pursuant to Sec.
1003.4(a)(9)(ii) or comment 4(a)(9)(ii)-1 for a partially exempt
transaction without reporting any other data required by Sec.
1003.4(a)(9)(i) is not required to report the street address, city name,
or Zip Code pursuant to Sec. 1003.4(a)(9)(i).
Paragraph 3(d)(5)
1. NULI--uniqueness. For a partially exempt transaction under Sec.
1003.3(d), a financial institution may report a ULI or a NULI. Section
1003.3(d)(5)(ii) requires an insured depository institution or insured
credit union that assigns a NULI to a covered loan or application to
ensure that the character sequence it assigns is unique within the
institution's annual loan/application register in which it appears. A
financial institution should assign only one NULI to any particular
covered loan or application within each annual loan/application
register, and each NULI should correspond to a single application and
ensuing loan within the annual loan/application register in which the
NULI appears in the case that the application is approved and a loan is
originated. A financial institution may use a NULI more than once within
an annual loan/application register only if the NULI refers to the same
loan or application or a loan that ensues from an application referred
to elsewhere in the annual loan/application register. Refinancings or
applications for refinancing that are included in same annual loan/
application register as the loan that is being refinanced should be
assigned a different NULI than the loan that is being refinanced. An
insured depository institution or insured credit union with multiple
branches must ensure that its branches do not use the same NULI to refer
to multiple covered loans or applications within the institution's same
annual loan/application register.
2. NULI--privacy. Section 1003.3(d)(5)(iii) prohibits an insured
depository institution or insured credit union from including
information in the NULI that could be used to directly identify the
applicant or borrower. Information that could be used to directly
identify the applicant or borrower includes, but is not limited to, the
applicant's or borrower's name, date of birth, Social Security number,
official government-issued driver's
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license or identification number, alien registration number, government
passport number, or employer or taxpayer identification number.
Paragraph 3(d)(6)
1. Preceding calendar year. Section 1003.3(d)(6) refers to the
preceding December 31, which means the December 31 preceding the current
calendar year. For example, in 2020, the preceding December 31 is
December 31, 2019. Assume that, as of December 31, 2019, an insured
depository institution received ratings of ``needs to improve record of
meeting community credit needs'' during its two most recent examinations
under section 807(b)(2) of the Community Reinvestment Act (12 U.S.C.
2906(b)(2)) in 2018 and 2014. Accordingly, in 2020, the insured
depository institution's transactions are not partially exempt pursuant
to Sec. 1003.3(d).
Section 1003.4--Compilation of Reportable Data
4(a) Data Format and Itemization
1. General. Except as otherwise provided in Sec. 1003.3, Sec.
1003.4(a) describes a financial institution's obligation to collect data
on applications it received, on covered loans that it originated, and on
covered loans that it purchased during the calendar year covered by the
loan/application register.
i. A financial institution reports these data even if the covered
loans were subsequently sold by the institution.
ii. A financial institution reports data for applications that did
not result in an origination but on which actions were taken--for
example, an application that the institution denied, that it approved
but that was not accepted, that it closed for incompleteness, or that
the applicant withdrew during the calendar year covered by the loan/
application register. A financial institution is required to report data
regarding requests under a preapproval program (as defined in Sec.
1003.2(b)(2)) only if the preapproval request is denied, results in the
origination of a home purchase loan, or was approved but not accepted.
iii. If a financial institution acquires covered loans in bulk from
another institution (for example, from the receiver for a failed
institution), but no merger or acquisition of an institution, or
acquisition of a branch office, is involved, the acquiring financial
institution reports the covered loans as purchased loans.
iv. A financial institution reports the data for an application on
the loan/application register for the calendar year during which the
application was acted upon even if the institution received the
application in a previous calendar year.
2. Originations and applications involving more than one
institution. Section 1003.4(a) requires a financial institution to
collect certain information regarding applications for covered loans
that it receives and regarding covered loans that it originates. The
following provides guidance on how to report originations and
applications involving more than one institution. The discussion below
assumes that all of the parties are financial institutions as defined by
Sec. 1003.2(g). The same principles apply if any of the parties is not
a financial institution. Comment 4(a)-3 provides examples of
transactions involving more than one institution, and comment 4(a)-4
discusses how to report actions taken by agents.
i. Only one financial institution reports each originated covered
loan as an origination. If more than one institution was involved in the
origination of a covered loan, the financial institution that made the
credit decision approving the application before closing or account
opening reports the loan as an origination. It is not relevant whether
the loan closed or, in the case of an application, would have closed in
the institution's name. If more than one institution approved an
application prior to closing or account opening and one of those
institutions purchased the loan after closing, the institution that
purchased the loan after closing reports the loan as an origination. If
a financial institution reports a transaction as an origination, it
reports all of the information required for originations, even if the
covered loan was not initially payable to the financial institution that
is reporting the covered loan as an origination.
ii. In the case of an application for a covered loan that did not
result in an origination, a financial institution reports the action it
took on that application if it made a credit decision on the application
or was reviewing the application when the application was withdrawn or
closed for incompleteness. It is not relevant whether the financial
institution received the application from the applicant or from another
institution, such as a broker, or whether another financial institution
also reviewed and reported an action taken on the same application.
3. Examples--originations and applications involving more than one
institution. The following scenarios illustrate how an institution
reports a particular application or covered loan. The illustrations
assume that all of the parties are financial institutions as defined by
Sec. 1003.2(g). However, the same principles apply if any of the
parties is not a financial institution.
i. Financial Institution A received an application for a covered
loan from an applicant and forwarded that application to Financial
Institution B. Financial Institution B reviewed the application and
approved the
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loan prior to closing. The loan closed in Financial Institution A's
name. Financial Institution B purchased the loan from Financial
Institution A after closing. Financial Institution B was not acting as
Financial Institution A's agent. Since Financial Institution B made the
credit decision prior to closing, Financial Institution B reports the
transaction as an origination, not as a purchase. Financial Institution
A does not report the transaction.
ii. Financial Institution A received an application for a covered
loan from an applicant and forwarded that application to Financial
Institution B. Financial Institution B reviewed the application before
the loan would have closed, but the application did not result in an
origination because Financial Institution B denied the application.
Financial Institution B was not acting as Financial Institution A's
agent. Since Financial Institution B made the credit decision, Financial
Institution B reports the application as a denial. Financial Institution
A does not report the application. If, under the same facts, the
application was withdrawn before Financial Institution B made a credit
decision, Financial Institution B would report the application as
withdrawn and Financial Institution A would not report the application.
iii. Financial Institution A received an application for a covered
loan from an applicant and approved the application before closing the
loan in its name. Financial Institution A was not acting as Financial
Institution B's agent. Financial Institution B purchased the covered
loan from Financial Institution A. Financial Institution B did not
review the application before closing. Financial Institution A reports
the loan as an origination. Financial Institution B reports the loan as
a purchase.
iv. Financial Institution A received an application for a covered
loan from an applicant. If approved, the loan would have closed in
Financial Institution B's name. Financial Institution A denied the
application without sending it to Financial Institution B for approval.
Financial Institution A was not acting as Financial Institution B's
agent. Since Financial Institution A made the credit decision before the
loan would have closed, Financial Institution A reports the application.
Financial Institution B does not report the application.
v. Financial Institution A reviewed an application and made the
credit decision to approve a covered loan using the underwriting
criteria provided by a third party (e.g., another financial institution,
Fannie Mae, or Freddie Mac). The third party did not review the
application and did not make a credit decision prior to closing.
Financial Institution A was not acting as the third party's agent.
Financial Institution A reports the application or origination. If the
third party purchased the loan and is subject to Regulation C, the third
party reports the loan as a purchase whether or not the third party
reviewed the loan after closing. Assume the same facts, except that
Financial Institution A approved the application, and the applicant
chose not to accept the loan from Financial Institution A. Financial
Institution A reports the application as approved but not accepted and
the third party, assuming the third party is subject to Regulation C,
does not report the application.
vi. Financial Institution A reviewed and made the credit decision on
an application based on the criteria of a third-party insurer or
guarantor (for example, a government or private insurer or guarantor).
Financial Institution A reports the action taken on the application.
vii. Financial Institution A received an application for a covered
loan and forwarded it to Financial Institutions B and C. Financial
Institution A made a credit decision, acting as Financial Institution
D's agent, and approved the application. The applicant did not accept
the loan from Financial Institution D. Financial Institution D reports
the application as approved but not accepted. Financial Institution A
does not report the application. Financial Institution B made a credit
decision, approving the application, the applicant accepted the offer of
credit from Financial Institution B, and credit was extended. Financial
Institution B reports the origination. Financial Institution C made a
credit decision and denied the application. Financial Institution C
reports the application as denied.
4. Agents. If a financial institution made the credit decision on a
covered loan or application through the actions of an agent, the
institution reports the application or origination. State law determines
whether one party is the agent of another. For example, acting as
Financial Institution A's agent, Financial Institution B approved an
application prior to closing and a covered loan was originated.
Financial Institution A reports the loan as an origination.
5. Purchased loans. i. A financial institution is required to
collect data regarding covered loans it purchases. For purposes of Sec.
1003.4(a), a purchase includes a repurchase of a covered loan,
regardless of whether the institution chose to repurchase the covered
loan or was required to repurchase the covered loan because of a
contractual obligation and regardless of whether the repurchase occurs
within the same calendar year that the covered loan was originated or in
a different calendar year. For example, assume that Financial
Institution A originates or purchases a covered loan and then sells it
to Financial Institution B, who later requires Financial Institution A
to repurchase the covered loan pursuant to the relevant contractual
obligations. Financial Institution B reports the
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purchase from Financial Institution A, assuming it is a financial
institution as defined under Sec. 1003.2(g). Financial Institution A
reports the repurchase from Financial Institution B as a purchase.
ii. In contrast, for purposes of Sec. 1003.4(a), a purchase does
not include a temporary transfer of a covered loan to an interim funder
or warehouse creditor as part of an interim funding agreement under
which the originating financial institution is obligated to repurchase
the covered loan for sale to a subsequent investor. Such agreements,
often referred to as ``repurchase agreements,'' are sometimes employed
as functional equivalents of warehouse lines of credit. Under these
agreements, the interim funder or warehouse creditor acquires legal
title to the covered loan, subject to an obligation of the originating
institution to repurchase at a future date, rather than taking a
security interest in the covered loan as under the terms of a more
conventional warehouse line of credit. To illustrate, assume Financial
Institution A has an interim funding agreement with Financial
Institution B to enable Financial Institution B to originate loans.
Assume further that Financial Institution B originates a covered loan
and that, pursuant to this agreement, Financial Institution A takes a
temporary transfer of the covered loan until Financial Institution B
arranges for the sale of the covered loan to a subsequent investor and
that Financial Institution B repurchases the covered loan to enable it
to complete the sale to the subsequent investor (alternatively,
Financial Institution A may transfer the covered loan directly to the
subsequent investor at Financial Institution B's direction, pursuant to
the interim funding agreement). The subsequent investor could be, for
example, a financial institution or other entity that intends to hold
the loan in portfolio, a GSE or other securitizer, or a financial
institution or other entity that intends to package and sell multiple
loans to a GSE or other securitizer. In this example, the temporary
transfer of the covered loan from Financial Institution B to Financial
Institution A is not a purchase, and any subsequent transfer back to
Financial Institution B for delivery to the subsequent investor is not a
purchase, for purposes of Sec. 1003.4(a). Financial Institution B
reports the origination of the covered loan as well as its sale to the
subsequent investor. If the subsequent investor is a financial
institution under Sec. 1003.2(g), it reports a purchase of the covered
loan pursuant to Sec. 1003.4(a), regardless of whether it acquired the
covered loan from Financial Institution B or directly from Financial
Institution A.
Section 1003.4--Compilation of Reportable Data
Paragraph 4(a)(1)(i)
1. ULI--uniqueness. Section 1003.4(a)(1)(i)(B)(2) requires a
financial institution that assigns a universal loan identifier (ULI) to
each covered loan or application (except as provided in Sec.
1003.4(a)(1)(i)(D) and (E)) to ensure that the character sequence it
assigns is unique within the institution and used only for the covered
loan or application. A financial institution should assign only one ULI
to any particular covered loan or application, and each ULI should
correspond to a single application and ensuing loan in the case that the
application is approved and a loan is originated. A financial
institution may use a ULI that was reported previously to refer only to
the same loan or application for which the ULI was used previously or a
loan that ensues from an application for which the ULI was used
previously. A financial institution may not report an application for a
covered loan in 2030 using the same ULI that was reported for a covered
loan that was originated in 2020. Similarly, refinancings or
applications for refinancing should be assigned a different ULI than the
loan that is being refinanced. A financial institution with multiple
branches must ensure that its branches do not use the same ULI to refer
to multiple covered loans or applications.
2. ULI--privacy. Section 1003.4(a)(1)(i)(B)(3) prohibits a financial
institution from including information that could be used to directly
identify the applicant or borrower in the identifier that it assigns for
the application or covered loan of the applicant or borrower.
Information that could be used to directly identify the applicant or
borrower includes, but is not limited to, the applicant's or borrower's
name, date of birth, Social Security number, official government-issued
driver's license or identification number, alien registration number,
government passport number, or employer or taxpayer identification
number.
3. ULI--purchased covered loan. If a financial institution has
previously assigned a covered loan with a ULI or reported a covered loan
with a ULI under this part, a financial institution that purchases that
covered loan must report the same ULI that was previously assigned or
reported unless the purchase of the covered loan is a partially exempt
transaction under Sec. 1003.3(d). For example, if a financial
institution that submits an annual loan/application register pursuant to
Sec. 1003.5(a)(1)(i) originates a covered loan that is purchased by a
financial institution that also submits an annual loan/application
register pursuant to Sec. 1003.5(a)(1)(i), the financial institution
that purchases the covered loan must report the purchase of the covered
loan using the same ULI that was reported
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by the originating financial institution if the purchase is not a
partially exempt transaction. If a financial institution that originates
a covered loan has previously assigned the covered loan with a ULI under
this part but has not yet reported the covered loan, a financial
institution that purchases that covered loan must report the same ULI
that was previously assigned if the purchase is not a partially exempt
transaction. For example, if a financial institution that submits an
annual loan/application register pursuant to Sec. 1003.5(a)(1)(i)
(Institution A) originates a covered loan that is purchased by a
financial institution that submits a quarterly loan/application register
pursuant to Sec. 1003.5(a)(1)(ii) (Institution B) and Institution A
assigned a ULI to the loan, then unless the purchase is a partially
exempt transaction Institution B must report the ULI that was assigned
by Institution A on Institution B's quarterly loan/application register
pursuant to Sec. 1003.5(a)(1)(ii), even though Institution A has not
yet submitted its annual loan/application register pursuant to Sec.
1003.5(a)(1)(i). A financial institution that purchases a covered loan
and is ineligible for a partial exemption with respect to the purchased
covered loan must assign it a ULI pursuant to Sec. 1003.4(a)(1)(i) and
report it pursuant to Sec. 1003.5(a)(1)(i) or (ii), whichever is
applicable, if the covered loan was not assigned a ULI by the financial
institution that originated the loan because, for example, the loan was
originated prior to January 1, 2018, the loan was originated by an
institution not required to report under this part, or the loan was
assigned a non-universal loan identifier (NULI) under Sec. 1003.3(d)(5)
rather than a ULI by the loan originator.
4. ULI--reinstated or reconsidered application. A financial
institution may, at its option, report a ULI previously reported under
this part if, during the same calendar year, an applicant asks the
institution to reinstate a counteroffer that the applicant previously
did not accept or asks the financial institution to reconsider an
application that was previously denied, withdrawn, or closed for
incompleteness. For example, if a financial institution reports a denied
application in its second-quarter 2020 data submission, pursuant to
Sec. 1003.5(a)(1)(ii), but then reconsiders the application, resulting
in an origination in the third quarter of 2020, the financial
institution may report the origination in its third-quarter 2020 data
submission using the same ULI that was reported for the denied
application in its second-quarter 2020 data submission, so long as the
financial institution treats the origination as the same transaction for
reporting. However, a financial institution may not use a ULI previously
reported if it reinstates or reconsiders an application that was
reported in a prior calendar year. For example, if a financial
institution reports a denied application that is not partially exempt in
its fourth-quarter 2020 data submission, pursuant to Sec.
1003.5(a)(1)(ii), but then reconsiders the application, resulting in an
origination that is not partially exempt in the first quarter of 2021,
the financial institution reports a denied application under the
original ULI in its fourth-quarter 2020 data submission and an
origination with a different ULI in its first-quarter 2021 data
submission, pursuant to Sec. 1003.5(a)(1)(ii).
5. ULI--check digit. Section 1003.4(a)(1)(i)(C) requires that the
two right-most characters in the ULI represent the check digit. Appendix
C prescribes the requirements for generating a check digit and
validating a ULI.
6. NULI. For a partially exempt transaction under Sec. 1003.3(d), a
financial institution may report a ULI or a NULI. See Sec. 1003.3(d)(5)
and comments 3(d)(5)-1 and -2 for guidance on the NULI.
Paragraph 4(a)(1)(ii)
1. Application date--consistency. Section 1003.4(a)(1)(ii) requires
that, in reporting the date of application, a financial institution
report the date it received the application, as defined under Sec.
1003.2(b), or the date shown on the application form. Although a
financial institution need not choose the same approach for its entire
HMDA submission, it should be generally consistent (such as by routinely
using one approach within a particular division of the institution or
for a category of loans). If the financial institution chooses to report
the date shown on the application form and the institution retains
multiple versions of the application form, the institution reports the
date shown on the first application form satisfying the application
definition provided under Sec. 1003.2(b).
2. Application date--indirect application. For an application that
was not submitted directly to the financial institution, the institution
may report the date the application was received by the party that
initially received the application, the date the application was
received by the institution, or the date shown on the application form.
Although an institution need not choose the same approach for its entire
HMDA submission, it should be generally consistent (such as by routinely
using one approach within a particular division of the institution or
for a category of loans).
3. Application date--reinstated application. If, within the same
calendar year, an applicant asks a financial institution to reinstate a
counteroffer that the applicant previously did not accept (or asks the
institution to reconsider an application that was denied, withdrawn, or
closed for incompleteness), the institution may treat that request as
the continuation of the earlier transaction using the same ULI or NULI
or as a new transaction with a new ULI or NULI. If the institution
treats the request for reinstatement
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or reconsideration as a new transaction, it reports the date of the
request as the application date. If the institution does not treat the
request for reinstatement or reconsideration as a new transaction, it
reports the original application date.
Paragraph 4(a)(2)
1. Loan type--general. If a covered loan is not, or in the case of
an application would not have been, insured by the Federal Housing
Administration, guaranteed by the Department of Veterans Affairs, or
guaranteed by the Rural Housing Service or the Farm Service Agency, an
institution complies with Sec. 1003.4(a)(2) by reporting the covered
loan as not insured or guaranteed by the Federal Housing Administration,
Department of Veterans Affairs, Rural Housing Service, or Farm Service
Agency.
Paragraph 4(a)(3)
1. Purpose--statement of applicant. A financial institution may rely
on the oral or written statement of an applicant regarding the proposed
use of covered loan proceeds. For example, a lender could use a check-
box or a purpose line on a loan application to determine whether the
applicant intends to use covered loan proceeds for home improvement
purposes. If an applicant provides no statement as to the proposed use
of covered loan proceeds and the covered loan is not a home purchase
loan, cash-out refinancing, or refinancing, a financial institution
reports the covered loan as for a purpose other than home purchase, home
improvement, refinancing, or cash-out refinancing for purposes of Sec.
1003.4(a)(3).
2. Purpose--refinancing and cash-out refinancing. Section
1003.4(a)(3) requires a financial institution to report whether a
covered loan is, or an application is for, a refinancing or a cash-out
refinancing. A financial institution reports a covered loan or an
application as a cash-out refinancing if it is a refinancing as defined
by Sec. 1003.2(p) and the institution considered it to be a cash-out
refinancing in processing the application or setting the terms (such as
the interest rate or origination charges) under its guidelines or an
investor's guidelines. For example:
i. Assume a financial institution considers an application for a
loan product to be a cash-out refinancing under an investor's guidelines
because of the amount of cash received by the borrower at closing or
account opening. Assume also that under the investor's guidelines, the
applicant qualifies for the loan product and the financial institution
approves the application, originates the covered loan, and sets the
terms of the covered loan consistent with the loan product. In this
example, the financial institution would report the covered loan as a
cash-out refinancing for purposes of Sec. 1003.4(a)(3).
ii. Assume a financial institution does not consider an application
for a covered loan to be a cash-out refinancing under its own guidelines
because the amount of cash received by the borrower does not exceed a
certain threshold. Assume also that the institution approves the
application, originates the covered loan, and sets the terms of the
covered loan consistent with its own guidelines applicable to
refinancings other than cash-out refinancings. In this example, the
financial institution would report the covered loan as a refinancing for
purposes of Sec. 1003.4(a)(3).
iii. Assume a financial institution does not distinguish between a
cash-out refinancing and a refinancing under its own guidelines, and
sets the terms of all refinancings without regard to the amount of cash
received by the borrower at closing or account opening, and does not
offer loan products under investor guidelines. In this example, the
financial institution reports all covered loans and applications for
covered loans that are defined by Sec. 1003.2(p) as refinancings for
purposes of Sec. 1003.4(a)(3).
3. Purpose--multiple-purpose loan. Section 1003.4(a)(3) requires a
financial institution to report the purpose of a covered loan or
application. If a covered loan is a home purchase loan as well as a home
improvement loan, a refinancing, or a cash-out refinancing, an
institution complies with Sec. 1003.4(a)(3) by reporting the loan as a
home purchase loan. If a covered loan is a home improvement loan as well
as a refinancing or cash-out refinancing, but the covered loan is not a
home purchase loan, an institution complies with Sec. 1003.4(a)(3) by
reporting the covered loan as a refinancing or a cash-out refinancing,
as appropriate. If a covered loan is a refinancing or cash-out
refinancing as well as for another purpose, such as for the purpose of
paying educational expenses, but the covered loan is not a home purchase
loan, an institution complies with Sec. 1003.4(a)(3) by reporting the
covered loan as a refinancing or a cash-out refinancing, as appropriate.
See comment 4(a)(3)-2. If a covered loan is a home improvement loan as
well as for another purpose, but the covered loan is not a home purchase
loan, a refinancing, or cash-out refinancing, an institution complies
with Sec. 1003.4(a)(3) by reporting the covered loan as a home
improvement loan. See comment 2(i)-1.
4. Purpose--other. If a covered loan is not, or an application is
not for, a home purchase loan, a home improvement loan, a refinancing,
or a cash-out refinancing, a financial institution complies with Sec.
1003.4(a)(3) by reporting the covered loan or application as for a
purpose other than home purchase, home improvement, refinancing, or
cash-out refinancing. For example, if a covered loan is for the purpose
of paying educational expenses, the financial institution complies
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with Sec. 1003.4(a)(3) by reporting the covered loan as for a purpose
other than home purchase, home improvement, refinancing, or cash-out
refinancing. Section 1003.4(a)(3) also requires an institution to report
a covered loan or application as for a purpose other than home purchase,
home improvement, refinancing, or cash-out refinancing if it is a
refinancing but, under the terms of the agreement, the financial
institution was unconditionally obligated to refinance the obligation
subject to conditions within the borrower's control.
5. Purpose--business or commercial purpose loans. If a covered loan
primarily is for a business or commercial purpose as described in Sec.
1003.3(c)(10) and comment 3(c)(10)-2 and is a home purchase loan, home
improvement loan, or a refinancing, Sec. 1003.4(a)(3) requires the
financial institution to report the applicable loan purpose. If a loan
primarily is for a business or commercial purpose but is not a home
purchase loan, home improvement loan, or a refinancing, the loan is an
excluded transaction under Sec. 1003.3(c)(10).
6. Purpose--purchased loans. For purchased covered loans where
origination took place prior to January 1, 2018, a financial institution
complies with Sec. 1003.4(a)(3) by reporting that the requirement is
not applicable.
Paragraph 4(a)(4)
1. Request under a preapproval program. Section 1003.4(a)(4)
requires a financial institution to report whether an application or
covered loan involved a request for a preapproval of a home purchase
loan under a preapproval program as defined by Sec. 1003.2(b)(2). If an
application or covered loan did not involve a request for a preapproval
of a home purchase loan under a preapproval program as defined by Sec.
1003.2(b)(2), a financial institution complies with Sec. 1003.4(a)(4)
by reporting that the application or covered loan did not involve such a
request, regardless of whether the institution has such a program and
the applicant did not apply through that program or the institution does
not have a preapproval program as defined by Sec. 1003.2(b)(2).
2. Scope of requirement. A financial institution reports that the
application or covered loan did not involve a preapproval request for a
purchased covered loan; an application or covered loan for any purpose
other than a home purchase loan; an application for a home purchase loan
or a covered loan that is a home purchase loan secured by a multifamily
dwelling; an application or covered loan that is an open-end line of
credit or a reverse mortgage; or an application that is denied,
withdrawn by the applicant, or closed for incompleteness.
Paragraph 4(a)(5)
1. Modular homes and prefabricated components. Covered loans or
applications related to modular homes should be reported with a
construction method of site-built, regardless of whether they are on-
frame or off-frame modular homes. Modular homes comply with local or
other recognized buildings codes rather than standards established by
the National Manufactured Housing Construction and Safety Standards Act,
42 U.S.C. 5401 et seq. Modular homes are not required to have HUD
Certification Labels under 24 CFR 3280.11 or data plates under 24 CFR
3280.5. Modular homes may have a certification from a State licensing
agency that documents compliance with State or other applicable building
codes. On-frame modular homes are constructed on permanent metal chassis
similar to those used in manufactured homes. The chassis are not removed
on site and are secured to the foundation. Off-frame modular homes
typically have floor construction similar to the construction of other
site-built homes, and the construction typically includes wooden floor
joists and does not include permanent metal chassis. Dwellings built
using prefabricated components assembled at the dwelling's permanent
site should also be reported with a construction method of site-built.
2. Multifamily dwelling. For a covered loan or an application for a
covered loan related to a multifamily dwelling, the financial
institution should report the construction method as site-built unless
the multifamily dwelling is a manufactured home community, in which case
the financial institution should report the construction method as
manufactured home.
3. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
Paragraph 4(a)(6)
1. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
2. Principal residence. Section 1003.4(a)(6) requires a financial
institution to identify whether the property to which the covered loan
or application relates is or will be used as a residence that the
applicant or borrower physically occupies and uses, or will occupy and
use, as his or her principal residence. For purposes of Sec.
1003.4(a)(6), an applicant or borrower can have only one principal
residence at a time. Thus, a vacation or other second home would not be
a principal residence. However, if an applicant or borrower buys or
builds a new dwelling that will become the applicant's or borrower's
principal
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residence within a year or upon the completion of construction, the new
dwelling is considered the principal residence for purposes of applying
this definition to a particular transaction.
3. Second residences. Section 1003.4(a)(6) requires a financial
institution to identify whether the property to which the loan or
application relates is or will be used as a second residence. For
purposes of Sec. 1003.4(a)(6), a property is a second residence of an
applicant or borrower if the property is or will be occupied by the
applicant or borrower for a portion of the year and is not the
applicant's or borrower's principal residence. For example, if a person
purchases a property, occupies the property for a portion of the year,
and rents the property for the remainder of the year, the property is a
second residence for purposes of Sec. 1003.4(a)(6). Similarly, if a
couple occupies a property near their place of employment on weekdays,
but the couple returns to their principal residence on weekends, the
property near the couple's place of employment is a second residence for
purposes of Sec. 1003.4(a)(6).
4. Investment properties. Section 1003.4(a)(6) requires a financial
institution to identify whether the property to which the covered loan
or application relates is or will be used as an investment property. For
purposes of Sec. 1003.4(a)(6), a property is an investment property if
the borrower does not, or the applicant will not, occupy the property.
For example, if a person purchases a property, does not occupy the
property, and generates income by renting the property, the property is
an investment property for purposes of Sec. 1003.4(a)(6). Similarly, if
a person purchases a property, does not occupy the property, and does
not generate income by renting the property, but intends to generate
income by selling the property, the property is an investment property
for purposes of Sec. 1003.4(a)(6). Section 1003.4(a)(6) requires a
financial institution to identify a property as an investment property
if the borrower or applicant does not or will not occupy the property,
even if the borrower or applicant does not consider the property as
owned for investment purposes. For example, if a corporation purchases a
property that is a dwelling under Sec. 1003.2(f), that it does not
occupy, but that is for the long-term residential use of its employees,
the property is an investment property for purposes of Sec.
1003.4(a)(6), even if the corporation considers the property as owned
for business purposes rather than investment purposes, does not generate
income by renting the property, and does not intend to generate income
by selling the property at some point in time. If the property is for
transitory use by employees, the property would not be considered a
dwelling under Sec. 1003.2(f). See comment 2(f)-3.
5. Purchased covered loans. For purchased covered loans, a financial
institution may report principal residence unless the loan documents or
application indicate that the property will not be occupied as a
principal residence.
Paragraph 4(a)(7)
1. Covered loan amount--counteroffer. If an applicant accepts a
counteroffer for an amount different from the amount for which the
applicant applied, the financial institution reports the covered loan
amount granted. If an applicant does not accept a counteroffer or fails
to respond, the institution reports the amount initially requested.
2. Covered loan amount--application approved but not accepted or
preapproval request approved but not accepted. A financial institution
reports the covered loan amount that was approved.
3. Covered loan amount--preapproval request denied, application
denied, closed for incompleteness or withdrawn. For a preapproval
request that was denied, and for an application that was denied, closed
for incompleteness, or withdrawn, a financial institution reports the
amount for which the applicant applied.
4. Covered loan amount--multiple-purpose loan. A financial
institution reports the entire amount of the covered loan, even if only
a part of the proceeds is intended for home purchase, home improvement,
or refinancing.
5. Covered loan amount--closed-end mortgage loan. For a closed-end
mortgage loan, other than a purchased loan, an assumption, or a reverse
mortgage, a financial institution reports the amount to be repaid as
disclosed on the legal obligation. For a purchased closed-end mortgage
loan or an assumption of a closed-end mortgage loan, a financial
institution reports the unpaid principal balance at the time of purchase
or assumption.
6. Covered loan amount--open-end line of credit. For an open-end
line of credit, a financial institution reports the entire amount of
credit available to the borrower under the terms of the open-end plan,
including a purchased open-end line of credit and an assumption of an
open-end line of credit, but not for a reverse mortgage open-end line of
credit.
7. Covered loan amount--refinancing. For a refinancing, a financial
institution reports the amount of credit extended under the terms of the
new debt obligation.
8. Covered loan amount--home improvement loan. A financial
institution reports the entire amount of a home improvement loan, even
if only a part of the proceeds is intended for home improvement.
9. Covered loan amount--non-federally insured reverse mortgage. A
financial institution reports the initial principal limit of a non-
federally insured reverse mortgage as set forth in Sec.
1003.4(a)(7)(iii).
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Paragraph 4(a)(8)(i)
1. Action taken--covered loan originated. A financial institution
reports that the covered loan was originated if the financial
institution made a credit decision approving the application before
closing or account opening and that credit decision results in an
extension of credit. The same is true for an application that began as a
request for a preapproval that subsequently results in a covered loan
being originated. See comments 4(a)-2 through -4 for guidance on
transactions in which more than one institution is involved.
2. Action taken--covered loan purchased. A financial institution
reports that the covered loan was purchased if the covered loan was
purchased by the financial institution after closing or account opening
and the financial institution did not make a credit decision on the
application prior to closing or account opening, or if the financial
institution did make a credit decision on the application prior to
closing or account opening, but is repurchasing the loan from another
entity that the loan was sold to. See comment 4(a)-5. See comments 4(a)-
2 through -4 for guidance on transactions in which more than one
financial institution is involved.
3. Action taken--application approved but not accepted. A financial
institution reports application approved but not accepted if the
financial institution made a credit decision approving the application
before closing or account opening, subject solely to outstanding
conditions that are customary commitment or closing conditions, but the
applicant or the party that initially received the application fails to
respond to the financial institution's approval within the specified
time, or the closed-end mortgage loan was not otherwise consummated or
the account was not otherwise opened. See comment 4(a)(8)(i)-13.
4. Action taken--application denied. A financial institution reports
that the application was denied if it made a credit decision denying the
application before an applicant withdraws the application or the file is
closed for incompleteness. See comments 4(a)-2 through -4 for guidance
on transactions in which more than one institution is involved.
5. Action taken--application withdrawn. A financial institution
reports that the application was withdrawn when the application is
expressly withdrawn by the applicant before the financial institution
makes a credit decision denying the application, before the financial
institution makes a credit decision approving the application, or before
the file is closed for incompleteness. A financial institution also
reports application withdrawn if the financial institution provides a
conditional approval specifying underwriting or creditworthiness
conditions, pursuant to comment 4(a)(8)(i)-13, and the application is
expressly withdrawn by the applicant before the applicant satisfies all
specified underwriting or creditworthiness conditions. A preapproval
request that is withdrawn is not reportable under HMDA. See Sec.
1003.4(a).
6. Action taken--file closed for incompleteness. A financial
institution reports that the file was closed for incompleteness if the
financial institution sent a written notice of incompleteness under
Regulation B, 12 CFR 1002.9(c)(2), and the applicant did not respond to
the request for additional information within the period of time
specified in the notice before the applicant satisfies all underwriting
or creditworthiness conditions. See comment 4(a)(8)(i)-13. If a
financial institution then provides a notification of adverse action on
the basis of incompleteness under Regulation B, 12 CFR 1002.9(c)(1)(i),
the financial institution may report the action taken as either file
closed for incompleteness or application denied. A preapproval request
that is closed for incompleteness is not reportable under HMDA. See
Sec. 1003.4(a) and comment 4(a)-1.ii.
7. Action taken--preapproval request denied. A financial institution
reports that the preapproval request was denied if the application was a
request for a preapproval under a preapproval program as defined in
Sec. 1003.2(b)(2) and the institution made a credit decision denying
the preapproval request.
8. Action taken--preapproval request approved but not accepted. A
financial institution reports that the preapproval request was approved
but not accepted if the application was a request for a preapproval
under a preapproval program as defined in Sec. 1003.2(b)(2) and the
institution made a credit decision approving the preapproval request but
the application did not result in a covered loan originated by the
financial institution.
9. Action taken--counteroffers. If a financial institution makes a
counteroffer to lend on terms different from the applicant's initial
request (for example, for a shorter loan maturity, with a different
interest rate, or in a different amount) and the applicant declines to
proceed with the counteroffer or fails to respond, the institution
reports the action taken as a denial on the original terms requested by
the applicant. If the applicant agrees to proceed with consideration of
the financial institution's counteroffer, the financial institution
reports the action taken as the disposition of the application based on
the terms of the counteroffer. For example, assume a financial
institution makes a counteroffer, the applicant agrees to proceed with
the terms of the counteroffer, and the financial institution then makes
a credit decision approving the application conditional on satisfying
underwriting or creditworthiness conditions, and the applicant expressly
withdraws before satisfying all underwriting or creditworthiness
conditions and before
[[Page 156]]
the institution denies the application or closes the file for
incompleteness. The financial institution reports the action taken as
application withdrawn in accordance with comment 4(a)(8)(i)-13.i.
Similarly, assume a financial institution makes a counteroffer, the
applicant agrees to proceed with consideration of the counteroffer, and
the financial institution provides a conditional approval stating the
conditions to be met to originate the counteroffer. The financial
institution reports the action taken on the application in accordance
with comment 4(a)(8)(i)-13 regarding conditional approvals.
10. Action taken--rescinded transactions. If a borrower rescinds a
transaction after closing and before a financial institution is required
to submit its loan/application register containing the information for
the transaction under Sec. 1003.5(a), the institution reports the
transaction as an application that was approved but not accepted.
11. Action taken--purchased covered loans. An institution reports
the covered loans that it purchased during the calendar year. An
institution does not report the covered loans that it declined to
purchase, unless, as discussed in comments 4(a)-2 through -4, the
institution reviewed the application prior to closing, in which case it
reports the application or covered loan according to comments 4(a)-2
through -4.
12. Action taken--repurchased covered loans. See comment 4(a)-5
regarding reporting requirements when a covered loan is repurchased by
the originating financial institution.
13. Action taken--conditional approvals. If an institution issues an
approval other than a commitment pursuant to a preapproval program as
defined under Sec. 1003.2(b)(2), and that approval is subject to the
applicant meeting certain conditions, the institution reports the action
taken as provided below dependent on whether the conditions are solely
customary commitment or closing conditions or if the conditions include
any underwriting or creditworthiness conditions.
i. Action taken examples. If the approval is conditioned on
satisfying underwriting or creditworthiness conditions and they are not
met, the institution reports the action taken as a denial. If, however,
the conditions involve submitting additional information about
underwriting or creditworthiness that the institution needs to make the
credit decision, and the institution has sent a written notice of
incompleteness under Regulation B, 12 CFR 1002.9(c)(2), and the
applicant did not respond within the period of time specified in the
notice, the institution reports the action taken as file closed for
incompleteness. See comment 4(a)(8)(i)-6. If the conditions are solely
customary commitment or closing conditions and the conditions are not
met, the institution reports the action taken as approved but not
accepted. If all the conditions (underwriting, creditworthiness, or
customary commitment or closing conditions) are satisfied and the
institution agrees to extend credit but the covered loan is not
originated, the institution reports the action taken as application
approved but not accepted. If the applicant expressly withdraws before
satisfying all underwriting or creditworthiness conditions and before
the institution denies the application or closes the file for
incompleteness, the institution reports the action taken as application
withdrawn. If all underwriting and creditworthiness conditions have been
met, and the outstanding conditions are solely customary commitment or
closing conditions and the applicant expressly withdraws before the
covered loan is originated, the institution reports the action taken as
application approved but not accepted.
ii. Customary commitment or closing conditions. Customary commitment
or closing conditions include, for example: A clear-title requirement,
an acceptable property survey, acceptable title insurance binder, clear
termite inspection, a subordination agreement from another lienholder,
and, where the applicant plans to use the proceeds from the sale of one
home to purchase another, a settlement statement showing adequate
proceeds from the sale.
iii. Underwriting or creditworthiness conditions. Underwriting or
creditworthiness conditions include, for example: Conditions that
constitute a counter-offer, such as a demand for a higher down-payment;
satisfactory debt-to-income or loan-to-value ratios, a determination of
need for private mortgage insurance, or a satisfactory appraisal
requirement; or verification or confirmation, in whatever form the
institution requires, that the applicant meets underwriting conditions
concerning applicant creditworthiness, including documentation or
verification of income or assets.
14. Action taken--pending applications. An institution does not
report any covered loan application still pending at the end of the
calendar year; it reports that application on its loan/application
register for the year in which final action is taken.
Paragraph 4(a)(8)(ii)
1. Action taken date--general. A financial institution reports the
date of the action taken.
2. Action taken date--applications denied and files closed for
incompleteness. For applications, including requests for a preapproval,
that are denied or for files closed for incompleteness, the financial
institution reports either the date the action was taken or the date the
notice was sent to the applicant.
3. Action taken date--application withdrawn. For applications
withdrawn, the financial institution may report the date the express
withdrawal was received or the date shown
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on the notification form in the case of a written withdrawal.
4. Action taken date--approved but not accepted. For a covered loan
approved by an institution but not accepted by the applicant, the
institution reports any reasonable date, such as the approval date, the
deadline for accepting the offer, or the date the file was closed.
Although an institution need not choose the same approach for its entire
HMDA submission, it should be generally consistent (such as by routinely
using one approach within a particular division of the institution or
for a category of covered loans).
5. Action taken date--originations. For covered loan originations,
including a preapproval request that leads to an origination by the
financial institution, an institution generally reports the closing or
account opening date. For covered loan originations that an institution
acquires from a party that initially received the application, the
institution reports either the closing or account opening date, or the
date the institution acquired the covered loan from the party that
initially received the application. If the disbursement of funds takes
place on a date later than the closing or account opening date, the
institution may use the date of initial disbursement. For a
construction/permanent covered loan, the institution reports either the
closing or account opening date, or the date the covered loan converts
to the permanent financing. Although an institution need not choose the
same approach for its entire HMDA submission, it should be generally
consistent (such as by routinely using one approach within a particular
division of the institution or for a category of covered loans).
Notwithstanding this flexibility regarding the use of the closing or
account opening date in connection with reporting the date action was
taken, the institution must report the origination as occurring in the
year in which the origination goes to closing or the account is opened.
6. Action taken date--loan purchased. For covered loans purchased, a
financial institution reports the date of purchase.
Paragraph 4(a)(9)
1. Multiple properties with one property taken as security. If a
covered loan is related to more than one property, but only one property
is taken as security (or, in the case of an application, proposed to be
taken as security), a financial institution reports the information
required by Sec. 1003.4(a)(9) for the property taken as or proposed to
be taken as security. A financial institution does not report the
information required by Sec. 1003.4(a)(9) for the property or
properties related to the loan that are not taken as or proposed to be
taken as security. For example, if a covered loan is secured by property
A, and the proceeds are used to purchase or rehabilitate (or to
refinance home purchase or home improvement loans related to) property
B, the institution reports the information required by Sec.
1003.4(a)(9) for property A and does not report the information required
by Sec. 1003.4(a)(9) for property B.
2. Multiple properties with more than one property taken as
security. If more than one property is taken or, in the case of an
application, proposed to be taken as security for a single covered loan,
a financial institution reports the covered loan or application in a
single entry on its loan/application register and provides the
information required by Sec. 1003.4(a)(9) for one of the properties
taken as security that contains a dwelling. A financial institution does
not report information about the other properties taken as security. If
an institution is required to report specific information about the
property identified in Sec. 1003.4(a)(9), the institution reports the
information that relates to the property identified in Sec.
1003.4(a)(9) (or, if the transaction is partially exempt under Sec.
1003.3(d) and no data are reported pursuant to Sec. 1003.4(a)(9), the
property that the institution would have identified in Sec.
1003.4(a)(9) if the transaction were not partially exempt). For example,
Financial Institution A originated a covered loan that is secured by
both property A and property B, each of which contains a dwelling.
Financial Institution A reports the loan as one entry on its loan/
application register, reporting the information required by Sec.
1003.4(a)(9) for either property A or property B. If Financial
Institution A elects to report the information required by Sec.
1003.4(a)(9) about property A, Financial Institution A also reports the
information required by Sec. 1003.4(a)(5), (6), (14), (29), and (30)
related to property A. For aspects of the entries that do not refer to
the property identified in Sec. 1003.4(a)(9) (i.e., Sec. 1003.4(a)(1)
through (4), (7), (8), (10) through (13), (15) through (28), and (31)
through (38)), Financial Institution A reports the information
applicable to the covered loan or application and not information that
relates only to the property identified in Sec. 1003.4(a)(9).
3. Multifamily dwellings. A single multifamily dwelling may have
more than one postal address. For example, three apartment buildings,
each with a different street address, comprise a single multifamily
dwelling that secures a covered loan. For the purposes of Sec.
1003.4(a)(9), a financial institution reports the information required
by Sec. 1003.4(a)(9) in the same manner described in comment 4(a)(9)-2.
4. Loans purchased from another institution. The requirement to
report the property location information required by Sec. 1003.4(a)(9)
applies not only to applications and originations but also to purchased
covered loans.
5. Manufactured home. If the site of a manufactured home has not
been identified, a financial institution complies by reporting
[[Page 158]]
that the information required by Sec. 1003.4(a)(9) is not applicable.
Paragraph 4(a)(9)(i)
1. General. Except for partially exempt transactions under Sec.
1003.3(d), Sec. 1003.4(a)(9)(i) requires a financial institution to
report the property address of the location of the property securing a
covered loan or, in the case of an application, proposed to secure a
covered loan. The address should correspond to the property identified
on the legal obligation related to the covered loan. For applications
that did not result in an origination, the address should correspond to
the location of the property proposed to secure the loan as identified
by the applicant. For example, assume a loan is secured by a property
located at 123 Main Street, and the applicant's or borrower's mailing
address is a post office box. The financial institution should not
report the post office box, and should report 123 Main Street.
2. Property address--format. A financial institution complies with
the requirements in Sec. 1003.4(a)(9)(i) by reporting the following
information about the physical location of the property securing the
loan.
i. Street address. When reporting the street address of the
property, a financial institution complies by including, as applicable,
the primary address number, the predirectional, the street name, street
prefixes and/or suffixes, the postdirectional, the secondary address
identifier, and the secondary address, as applicable. For example, 100 N
Main ST Apt 1.
ii. City name. A financial institution complies by reporting the
name of the city in which the property is located.
iii. State name. A financial institution complies by reporting the
two letter State code for the State in which the property is located,
using the U.S. Postal Service official State abbreviations.
iv. Zip Code. A financial institution complies by reporting the five
or nine digit Zip Code in which the property is located.
3. Property address--not applicable. A financial institution
complies with Sec. 1003.4(a)(9)(i) by reporting that the requirement is
not applicable if the property address of the property securing the
covered loan is not known. For example, if the property did not have a
property address at closing or if the applicant did not provide the
property address of the property to the financial institution before the
application was denied, withdrawn, or closed for incompleteness, the
financial institution complies with Sec. 1003.4(a)(9)(i) by reporting
that the requirement is not applicable.
Paragraph 4(a)(9)(ii)
1. Optional reporting. Section 1003.4(a)(9)(ii) requires a financial
institution to report the State, county, and census tract of the
property securing the covered loan or, in the case of an application,
proposed to secure the covered loan if the property is located in an MSA
or MD in which the financial institution has a home or branch office or
if the institution is subject to Sec. 1003.4(e). Section
1003.4(a)(9)(ii)(C) further limits the requirement to report census
tract to covered loans secured by or applications proposed to be secured
by properties located in counties with a population of more than 30,000
according to the most recent decennial census conducted by the U.S.
Census Bureau. For transactions for which State, county, or census tract
reporting is not required under Sec. 1003.4(a)(9)(ii) or (e), financial
institutions may report that the requirement is not applicable, or they
may voluntarily report the State, county, or census tract information.
Paragraph 4(a)(9)(ii)(A)
1. Applications--State not provided. When reporting an application,
a financial institution complies with Sec. 1003.4(a)(9)(ii)(A) by
reporting that the requirement is not applicable if the State in which
the property is located was not known before the application was denied,
withdrawn, or closed for incompleteness.
Paragraph 4(a)(9)(ii)(B)
1. General. A financial institution complies by reporting the five-
digit Federal Information Processing Standards (FIPS) numerical county
code.
2. Applications--county not provided. When reporting an application,
a financial institution complies with Sec. 1003.4(a)(9)(ii)(B) by
reporting that the requirement is not applicable if the county in which
the property is located was not known before the application was denied,
withdrawn, or closed for incompleteness.
Paragraph 4(a)(9)(ii)(C)
1. General. Census tract numbers are defined by the U.S. Census
Bureau. A financial institution complies with Sec. 1003.4(a)(9)(ii)(C)
if it uses the boundaries and codes in effect on January 1 of the
calendar year covered by the loan/application register that it is
reporting.
2. Applications--census tract not provided. When reporting an
application, a financial institution complies with Sec.
1003.4(a)(9)(ii)(C) by reporting that the requirement is not applicable
if the census tract in which the property is located was not known
before the application was denied, withdrawn, or closed for
incompleteness.
[[Page 159]]
Paragraph 4(a)(10)(i)
1. Applicant data--general. Refer to appendix B to this part for
instructions on collection of an applicant's ethnicity, race, and sex.
2. Transition rule for applicant data collected prior to January 1,
2018. If a financial institution receives an application prior to
January 1, 2018, but final action is taken on or after January 1, 2018,
the financial institution complies with Sec. 1003.4(a)(10)(i) and (b)
if it collects the information in accordance with the requirements in
effect at the time the information was collected. For example, if a
financial institution receives an application on November 15, 2017,
collects the applicant's ethnicity, race, and sex in accordance with the
instructions in effect on that date, and takes final action on the
application on January 5, 2018, the financial institution has complied
with the requirements of Sec. 1003.4(a)(10)(i) and (b), even though
those instructions changed after the information was collected but
before the date of final action. However, if, in this example, the
financial institution collected the applicant's ethnicity, race, and sex
on or after January 1, 2018, Sec. 1003.4(a)(10)(i) and (b) requires the
financial institution to collect the information in accordance with the
amended instructions.
Paragraph 4(a)(10)(ii)
1. Applicant data--completion by financial institution. A financial
institution complies with Sec. 1003.4(a)(10)(ii) by reporting the
applicant's age, as of the application date under Sec.
1003.4(a)(1)(ii), as the number of whole years derived from the date of
birth as shown on the application form. For example, if an applicant
provides a date of birth of 01/15/1970 on the application form that the
financial institution receives on 01/14/2015, the institution reports 44
as the applicant's age.
2. Applicant data--co-applicant. If there are no co-applicants, the
financial institution reports that there is no co-applicant. If there is
more than one co-applicant, the financial institution reports the age
only for the first co-applicant listed on the application form. A co-
applicant may provide an absent co-applicant's age on behalf of the
absent co-applicant.
3. Applicant data--purchased loan. A financial institution complies
with Sec. 1003.4(a)(10)(ii) by reporting that the requirement is not
applicable when reporting a purchased loan for which the institution
chooses not to report the age.
4. Applicant data--non-natural person. A financial institution
complies with Sec. 1003.4(a)(10)(ii) by reporting that the requirement
is not applicable if the applicant or co-applicant is not a natural
person (for example, a corporation, partnership, or trust). For example,
for a transaction involving a trust, a financial institution reports
that the requirement to report the applicant's age is not applicable if
the trust is the applicant. On the other hand, if the applicant is a
natural person, and is the beneficiary of a trust, a financial
institution reports the applicant's age.
5. Applicant data--guarantor. For purposes of Sec.
1003.4(a)(10)(ii), if a covered loan or application includes a
guarantor, a financial institution does not report the guarantor's age.
Paragraph 4(a)(10)(iii)
1. Income data--income relied on. When a financial institution
evaluates income as part of a credit decision, it reports the gross
annual income relied on in making the credit decision. For example, if
an institution relies on an applicant's salary to compute a debt-to-
income ratio but also relies on the applicant's annual bonus to evaluate
creditworthiness, the institution reports the salary and the bonus to
the extent relied upon. If an institution relies on only a portion of an
applicant's income in its determination, it does not report that portion
of income not relied on. For example, if an institution, pursuant to
lender and investor guidelines, does not rely on an applicant's
commission income because it has been earned for less than 12 months,
the institution does not include the applicant's commission income in
the income reported. Likewise, if an institution relies on the verified
gross income of the applicant in making the credit decision, then the
institution reports the verified gross income. Similarly, if an
institution relies on the income of a cosigner to evaluate
creditworthiness, the institution includes the cosigner's income to the
extent relied upon. An institution, however, does not include the income
of a guarantor who is only secondarily liable.
2. Income data--co-applicant. If two persons jointly apply for a
covered loan and both list income on the application, but the financial
institution relies on the income of only one applicant in evaluating
creditworthiness, the institution reports only the income relied on.
3. Income data--loan to employee. A financial institution complies
with Sec. 1003.4(a)(10)(iii) by reporting that the requirement is not
applicable for a covered loan to, or an application from, its employee
to protect the employee's privacy, even though the institution relied on
the employee's income in making the credit decision.
4. Income data--assets. A financial institution does not include as
income amounts considered in making a credit decision based on factors
that an institution relies on in addition to income, such as amounts
derived from underwriting calculations of the potential annuitization or
depletion of an applicant's remaining assets. Actual distributions from
retirement accounts or other assets
[[Page 160]]
that are relied on by the financial institution as income should be
reported as income. The interpretation of income in this paragraph does
not affect Sec. 1003.4(a)(23), which requires, except for purchased
covered loans, the collection of the ratio of the applicant's or
borrower's total monthly debt to the total monthly income relied on in
making the credit decision.
5. Income data--credit decision not made. Section 1003.4(a)(10)(iii)
requires a financial institution to report the gross annual income
relied on in processing the application if a credit decision was not
made. For example, assume an institution received an application that
included an applicant's self-reported income, but the application was
withdrawn before a credit decision that would have considered income was
made. The financial institution reports the income information relied on
in processing the application at the time that the application was
withdrawn or the file was closed for incompleteness.
6. Income data--credit decision not requiring consideration of
income. A financial institution complies with Sec. 1003.4(a)(10)(iii)
by reporting that the requirement is not applicable if the application
did not or would not have required a credit decision that considered
income under the financial institution's policies and procedures. For
example, if the financial institution's policies and procedures do not
consider income for a streamlined refinance program, the institution
reports that the requirement is not applicable, even if the institution
received income information from the applicant.
7. Income data--non-natural person. A financial institution reports
that the requirement is not applicable when the applicant or co-
applicant is not a natural person (e.g., a corporation, partnership, or
trust). For example, for a transaction involving a trust, a financial
institution reports that the requirement to report income data is not
applicable if the trust is the applicant. On the other hand, if the
applicant is a natural person, and is the beneficiary of a trust, a
financial institution is required to report the information described in
Sec. 1003.4(a)(10)(iii).
8. Income data--multifamily properties. A financial institution
complies with Sec. 1003.4(a)(10)(iii) by reporting that the requirement
is not applicable when the covered loan is secured by, or application is
proposed to be secured by, a multifamily dwelling.
9. Income data--purchased loans. A financial institution complies
with Sec. 1003.4(a)(10)(iii) by reporting that the requirement is not
applicable when reporting a purchased covered loan for which the
institution chooses not to report the income.
10. Income data--rounding. A financial institution complies by
reporting the dollar amount of the income in thousands, rounded to the
nearest thousand ($500 rounds up to the next $1,000). For example,
$35,500 is reported as 36.
Paragraph 4(a)(11)
1. Type of purchaser--loan-participation interests sold to more than
one entity. A financial institution that originates a covered loan, and
then sells it to more than one entity, reports the ``type of purchaser''
based on the entity purchasing the greatest interest, if any. For
purposes of Sec. 1003.4(a)(11), if a financial institution sells some
interest or interests in a covered loan but retains a majority interest
in that loan, it does not report the sale.
2. Type of purchaser--swapped covered loans. Covered loans
``swapped'' for mortgage-backed securities are to be treated as sales;
the purchaser is the entity receiving the covered loans that are
swapped.
3. Type of purchaser--affiliate institution. For purposes of
complying with Sec. 1003.4(a)(11), the term ``affiliate'' means any
company that controls, is controlled by, or is under common control
with, another company, as set forth in the Bank Holding Company Act of
1956 (12 U.S.C. 1841 et seq.).
4. Type of purchaser--private securitizations. A financial
institution that knows or reasonably believes that the covered loan it
is selling will be securitized by the entity purchasing the covered
loan, other than by one of the government-sponsored enterprises, reports
the purchasing entity type as a private securitizer regardless of the
type or affiliation of the purchasing entity. Knowledge or reasonable
belief could, for example, be based on the purchase agreement or other
related documents, the financial institution's previous transactions
with the purchaser, or the purchaser's role as a securitizer (such as an
investment bank). If a financial institution selling a covered loan does
not know or reasonably believe that the purchaser will securitize the
loan, and the seller knows that the purchaser frequently holds or
disposes of loans by means other than securitization, then the financial
institution should report the covered loan as purchased by, as
appropriate, a commercial bank, savings bank, savings association, life
insurance company, credit union, mortgage company, finance company,
affiliate institution, or other type of purchaser.
5. Type of purchaser--mortgage company. For purposes of complying
with Sec. 1003.4(a)(11), a mortgage company means a nondepository
institution that purchases covered loans and typically originates such
loans. A mortgage company might be an affiliate or a subsidiary of a
bank holding company or thrift holding company, or it might be an
independent mortgage company. Regardless, a financial institution
reports the purchasing entity type as a mortgage company, unless the
mortgage company is an affiliate of the
[[Page 161]]
seller institution, in which case the seller institution should report
the loan as purchased by an affiliate institution.
6. Purchases by subsidiaries. A financial institution that sells a
covered loan to its subsidiary that is a commercial bank, savings bank,
or savings association, should report the covered loan as purchased by a
commercial bank, savings bank, or savings association. A financial
institution that sells a covered loan to its subsidiary that is a life
insurance company, should report the covered loan as purchased by a life
insurance company. A financial institution that sells a covered loan to
its subsidiary that is a credit union, mortgage company, or finance
company, should report the covered loan as purchased by a credit union,
mortgage company, or finance company. If the subsidiary that purchases
the covered loan is not a commercial bank, savings bank, savings
association, life insurance company, credit union, mortgage company, or
finance company, the seller institution should report the loan as
purchased by other type of purchaser. The financial institution should
report the covered loan as purchased by an affiliate institution when
the subsidiary is an affiliate of the seller institution.
7. Type of purchaser--bank holding company or thrift holding
company. When a financial institution sells a covered loan to a bank
holding company or thrift holding company (rather than to one of its
subsidiaries), it should report the loan as purchased by other type of
purchaser, unless the bank holding company or thrift holding company is
an affiliate of the seller institution, in which case the seller
institution should report the loan as purchased by an affiliate
institution.
8. Repurchased covered loans. See comment 4(a)-5 regarding reporting
requirements when a covered loan is repurchased by the originating
financial institution.
9. Type of purchaser--quarterly recording. For purposes of recording
the type of purchaser within 30 calendar days after the end of the
calendar quarter pursuant to Sec. 1003.4(f), a financial institution
records that the requirement is not applicable if the institution
originated or purchased a covered loan and did not sell it during the
calendar quarter for which the institution is recording the data. If the
financial institution sells the covered loan in a subsequent quarter of
the same calendar year, the financial institution records the type of
purchaser on its loan/application register for the quarter in which the
covered loan was sold. If a financial institution sells the covered loan
in a succeeding year, the financial institution should not record the
sale.
10. Type of purchaser--not applicable. A financial institution
reports that the requirement is not applicable for applications that
were denied, withdrawn, closed for incompleteness or approved but not
accepted by the applicant; and for preapproval requests that were denied
or approved but not accepted by the applicant. A financial institution
also reports that the requirement is not applicable if the institution
originated or purchased a covered loan and did not sell it during that
same calendar year.
Paragraph 4(a)(12)
1. Average prime offer rate. Average prime offer rates are annual
percentage rates derived from average interest rates and other loan
pricing terms offered to borrowers by a set of creditors for mortgage
loans that have low-risk pricing characteristics. Other loan pricing
terms may include commonly used indices, margins, and initial fixed-rate
periods for variable-rate transactions. Relevant pricing characteristics
may 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
creditor data by transaction type.
2. Bureau tables. The Bureau publishes tables of current and
historic average prime offer rates by transaction type on the FFIEC's
website (http://www.ffiec.gov/hmda) and the Bureau's website (https://
www.consumerfinance.gov). The Bureau calculates an annual percentage
rate, consistent with Regulation Z (see 12 CFR 1026.22 and 12 CFR part
1026, appendix J), for each transaction type for which pricing terms are
available from the creditor data described in comment 4(a)(12)-1. The
Bureau uses loan pricing terms available in the creditor data and other
information to estimate annual percentage rates for other types of
transactions for which the creditor data are limited or not available.
The Bureau publishes on the FFIEC's website and the Bureau's website the
methodology it uses to arrive at these estimates. A financial
institution may either use the average prime offer rates published by
the Bureau or determine average prime offer rates itself by employing
the methodology published on the FFIEC's website and the Bureau's
website. A financial institution that determines average prime offer
rates itself, however, is responsible for correctly determining the
rates in accordance with the published methodology.
3. Rate spread calculation--annual percentage rate. The requirements
of Sec. 1003.4(a)(12)(i) refer to the covered loan's annual percentage
rate. For closed-end mortgage loans, a financial institution complies
with Sec. 1003.4(a)(12)(i) by relying on the annual percentage rate for
the covered loan, as calculated and disclosed pursuant to Regulation Z,
12 CFR 1026.18 or 1026.38. For open-end lines of credit, a financial
institution complies with Sec. 1003.4(a)(12)(i) by relying on the
annual percentage rate for the covered loan, as calculated and disclosed
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pursuant to Regulation Z, 12 CFR 1026.6. If multiple annual percentage
rates are calculated and disclosed pursuant to Regulation Z, 12 CFR
1026.6, a financial institution relies on the annual percentage rate in
effect at the time of account opening. If an open-end line of credit has
a variable-rate feature and a fixed-rate and -term payment option during
the draw period, a financial institution relies on the annual percentage
rate in effect at the time of account opening under the variable-rate
feature, which would be a discounted initial rate if one is offered
under the variable-rate feature. See comment 4(a)(12)-8 for guidance
regarding the annual percentage rate a financial institution relies on
in the case of an application or preapproval request that was approved
but not accepted.
4. Rate spread calculation--comparable transaction. The rate spread
calculation in Sec. 1003.4(a)(12)(i) is defined by reference to a
comparable transaction, which is determined according to the covered
loan's amortization type (i.e., fixed- or variable-rate) and loan term.
For covered loans that are open-end lines of credit, Sec.
1003.4(a)(12)(i) requires a financial institution to identify the most
closely comparable closed-end transaction. The tables of average prime
offer rates published by the Bureau (see comment 4(a)(12)-2) provide
additional detail about how to identify the comparable transaction.
i. Fixed-rate transactions. For fixed-rate covered loans, the term
for identifying the comparable transaction is the transaction's maturity
(i.e., the period until the last payment will be due under the closed-
end mortgage loan contract or open-end line of credit agreement). If an
open-end credit plan has a fixed rate but no definite plan length, a
financial institution complies with Sec. 1003.4(a)(12)(i) by using a
30-year fixed-rate loan as the most closely comparable closed-end
transaction. Financial institutions may refer to the table on the FFIEC
website entitled ``Average Prime Offer Rates-Fixed'' when identifying a
comparable fixed-rate transaction.
ii. Variable-rate transactions. For variable-rate covered loans, the
term for identifying the comparable transaction is the initial, fixed-
rate period (i.e., the period until the first scheduled rate
adjustment). For example, five years is the relevant term for a
variable-rate transaction with a five-year, fixed-rate introductory
period that is amortized over thirty years. Financial institutions may
refer to the table on the FFIEC website entitled ``Average Prime Offer
Rates-Variable'' when identifying a comparable variable-rate
transaction. If an open-end line of credit has a variable rate and an
optional, fixed-rate feature, a financial institution uses the rate
table for variable-rate transactions.
iii. Term not in whole years. When a covered loan's term to maturity
(or, for a variable-rate transaction, the initial fixed-rate period) is
not in whole years, the financial institution uses the number of whole
years closest to the actual loan term or, if the actual loan term is
exactly halfway between two whole years, by using the shorter loan term.
For example, for a loan term of ten years and three months, the relevant
term is ten years; for a loan term of ten years and nine months, the
relevant term is 11 years; for a loan term of ten years and six months,
the relevant term is ten years. If a loan term includes an odd number of
days, in addition to an odd number of months, the financial institution
rounds to the nearest whole month, or rounds down if the number of odd
days is exactly halfway between two months. The financial institution
rounds to one year any covered loan with a term shorter than six months,
including variable-rate covered loans with no initial, fixed-rate
periods. For example, if an open-end covered loan has a rate that varies
according to an index plus a margin, with no introductory, fixed-rate
period, the transaction term is one year.
iv. Amortization period longer than loan term. If the amortization
period of a covered loan is longer than the term of the transaction to
maturity, Sec. 1003.4(a)(12)(i) requires a financial institution to use
the loan term to determine the applicable average prime offer rate. For
example, assume a financial institution originates a closed-end, fixed-
rate loan that has a term to maturity of five years and a thirty-year
amortization period that results in a balloon payment. The financial
institution complies with Sec. 1003.4(a)(12)(i) by using the five-year
loan term.
5. Rate-set date. The relevant date to use to determine the average
prime offer rate for a comparable transaction is the date on which the
interest rate was set by the financial institution for the final time
before final action is taken (i.e., the application was approved but not
accepted or the covered loan was originated).
i. Rate-lock agreement. If an interest rate is set pursuant to a
``lock-in'' agreement between the financial institution and the
borrower, then the date on which the agreement fixes the interest rate
is the date the rate was set. Except as provided in comment 4(a)(12)-
5.ii, if a rate is reset after a lock-in agreement is executed (for
example, because the borrower exercises a float-down option or the
agreement expires), then the relevant date is the date the financial
institution exercises discretion in setting the rate for the final time
before final action is taken. The same rule applies when a rate-lock
agreement is extended and the rate is reset at the same rate, regardless
of whether market rates have increased, decreased, or remained the same
since the initial rate was set. If no
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lock-in agreement is executed, then the relevant date is the date on
which the institution sets the rate for the final time before final
action is taken.
ii. Change in loan program. If a financial institution issues a
rate-lock commitment under one loan program, the borrower subsequently
changes to another program that is subject to different pricing terms,
and the financial institution changes the rate promised to the borrower
under the rate-lock commitment accordingly, the rate-set date is the
date of the program change. However, if the financial institution
changes the promised rate to the rate that would have been available to
the borrower under the new program on the date of the original rate-lock
commitment, then that is the date the rate is set, provided the
financial institution consistently follows that practice in all such
cases or the original rate-lock agreement so provided. For example,
assume that a borrower locks a rate of 2.5 percent on June 1 for a 30-
year, variable-rate loan with a five-year, fixed-rate introductory
period. On June 15, the borrower decides to switch to a 30-year, fixed-
rate loan, and the rate available to the borrower for that product on
June 15 is 4.0 percent. On June 1, the 30-year, fixed-rate loan would
have been available to the borrower at a rate of 3.5 percent. If the
financial institution offers the borrower the 3.5 percent rate (i.e.,
the rate that would have been available to the borrower for the fixed-
rate product on June 1, the date of the original rate-lock) because the
original agreement so provided or because the financial institution
consistently follows that practice for borrowers who change loan
programs, then the financial institution should use June 1 as the rate-
set date. In all other cases, the financial institution should use June
15 as the rate-set date.
iii. Brokered loans. When a financial institution has reporting
responsibility for an application for a covered loan that it received
from a broker, as discussed in comment 4(a)-2 (e.g., because the
financial institution makes a credit decision prior to closing or
account opening), the rate-set date is the last date the financial
institution set the rate with the broker, not the date the broker set
the borrower's rate.
6. Compare the annual percentage rate to the average prime offer
rate. Section 1003.4(a)(12)(i) requires a financial institution to
compare the covered loan's annual percentage rate to the most recently
available average prime offer rate that was in effect for the comparable
transaction as of the rate-set date. For purposes of Sec.
1003.4(a)(12)(i), the most recently available rate means the average
prime offer rate set forth in the applicable table with the most recent
effective date as of the date the interest rate was set. However, Sec.
1003.4(a)(12)(i) does not permit a financial institution to use an
average prime offer rate before its effective date.
7. Rate spread--scope of requirement. If the covered loan is an
assumption, reverse mortgage, a purchased loan, or is not subject to
Regulation Z, 12 CFR part 1026, a financial institution complies with
Sec. 1003.4(a)(12) by reporting that the requirement is not applicable.
If the application did not result in an origination for a reason other
than the application was approved but not accepted by the applicant, a
financial institution complies with Sec. 1003.4(a)(12) by reporting
that the requirement is not applicable. For partially exempt
transactions under Sec. 1003.3(d), an insured depository institution or
insured credit union is not required to report the rate spread. See
Sec. 1003.3(d) and related commentary.
8. Application or preapproval request approved but not accepted. In
the case of an application or preapproval request that was approved but
not accepted, Sec. 1003.4(a)(12) requires a financial institution to
report the applicable rate spread. In such cases, the financial
institution would provide early disclosures under Regulation Z, 12 CFR
1026.18 or 1026.37 (for closed-end mortgage loans), or 1026.40 (for
open-end lines of credit), but might never provide any subsequent
disclosures. In such cases where no subsequent disclosures are provided,
a financial institution complies with Sec. 1003.4(a)(12)(i) by relying
on the annual percentage rate for the application or preapproval
request, as calculated and disclosed pursuant to Regulation Z, 12 CFR
1026.18 or 1026.37 (for closed-end mortgage loans), or 1026.40 (for
open-end lines of credit), as applicable. For transactions subject to
Regulation C for which no disclosures under Regulation Z are required, a
financial institution complies with Sec. 1003.4(a)(12)(i) by reporting
that the requirement is not applicable.
9. Corrected disclosures. In the case of a covered loan or an
application that was approved but not accepted, if the annual percentage
rate changes because a financial institution provides a corrected
version of the disclosures required under Regulation Z, 12 CFR
1026.19(a), pursuant to 12 CFR 1026.19(a)(2), under 12 CFR 1026.19(f),
pursuant to 12 CFR 1026.19(f)(2), or under 12 CFR 1026.6(a), the
financial institution complies with Sec. 1003.4(a)(12)(i) by comparing
the corrected and disclosed annual percentage rate to the most recently
available average prime offer rate that was in effect for a comparable
transaction as of the rate-set date, provided that the corrected
disclosure was provided to the borrower prior to the end of the
reporting period in which final action is taken. For purposes of Sec.
1003.4(a)(12), the date the corrected disclosure was provided to the
borrower is the date the disclosure was mailed or delivered to the
borrower in person; the financial institution's method of delivery does
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not affect the date provided. For example, where a financial institution
provides a corrected version of the disclosures required under 12 CFR
1026.19(f), pursuant to 12 CFR 1026.19(f)(2), the date provided is the
date disclosed pursuant to Regulation Z, 12 CFR 1026.38(a)(3)(i). The
provision of a corrected disclosure does not affect how a financial
institution determines the rate-set date. See comment 4(a)(12)-5. For
example:
i. In the case of a financial institution's annual loan/application
register submission made pursuant to Sec. 1003.5(a)(1)(i), if the
financial institution provides a corrected disclosure pursuant to
Regulation Z, 12 CFR 1026.19(f)(2)(v), that reflects a corrected annual
percentage rate, the financial institution reports the difference
between the corrected annual percentage rate and the most recently
available average prime offer rate that was in effect for a comparable
transaction as of the rate-set date only if the corrected disclosure was
provided to the borrower prior to the end of the calendar year in which
final action is taken.
ii. In the case of a financial institution's quarterly submission
made pursuant to Sec. 1003.5(a)(1)(ii), if the financial institution
provides a corrected disclosure pursuant to Regulation Z, 12 CFR
1026.19(f)(2)(v), that reflects a corrected annual percentage rate, the
financial institution reports the difference between the corrected
annual percentage rate and the most recently available average prime
offer rate that was in effect for a comparable transaction as of the
rate-set date only if the corrected disclosure was provided to the
borrower prior to the end of the quarter in which final action is taken.
The financial institution does not report the difference between the
corrected annual percentage rate and the most recently available average
prime offer rate that was in effect for a comparable transaction as of
the rate-set date if the corrected disclosure was provided to the
borrower after the end of the quarter in which final action is taken,
even if the corrected disclosure was provided to the borrower prior to
the deadline for timely submission of the financial institution's
quarterly data. However, the financial institution reports the
difference between the corrected annual percentage rate and the most
recently available average prime offer rate that was in effect for a
comparable transaction as of the rate-set date on its annual loan/
application register, provided that the corrected disclosure was
provided to the borrower prior to the end of the calendar year in which
final action is taken.
Paragraph 4(a)(13)
1. HOEPA status--not applicable. If the covered loan is not subject
to the Home Ownership and Equity Protection Act of 1994, as implemented
in Regulation Z, 12 CFR 1026.32, a financial institution complies with
Sec. 1003.4(a)(13) by reporting that the requirement is not applicable.
If an application did not result in an origination, a financial
institution complies with Sec. 1003.4(a)(13) by reporting that the
requirement is not applicable.
Paragraph 4(a)(14)
1. Determining lien status for applications and covered loans
originated and purchased.
i. Financial institutions are required to report lien status for
covered loans they originate and purchase and applications that do not
result in originations (preapproval requests that are approved but not
accepted, preapproval requests that are denied, applications that are
approved but not accepted, denied, withdrawn, or closed for
incompleteness). For covered loans purchased by a financial institution,
lien status is determined by reference to the best information readily
available to the financial institution at the time of purchase. For
covered loans that a financial institution originates and applications
that do not result in originations, lien status is determined by
reference to the best information readily available to the financial
institution at the time final action is taken and to the financial
institution's own procedures. Thus, financial institutions may rely on
the title search they routinely perform as part of their underwriting
procedures--for example, for home purchase loans. Regulation C does not
require financial institutions to perform title searches solely to
comply with HMDA reporting requirements. Financial institutions may rely
on other information that is readily available to them at the time final
action is taken and that they reasonably believe is accurate, such as
the applicant's statement on the application or the applicant's credit
report. For example, where the applicant indicates on the application
that there is a mortgage on the property or where the applicant's credit
report shows that the applicant has a mortgage--and that mortgage will
not be paid off as part of the transaction--the financial institution
may assume that the loan it originates is secured by a subordinate lien.
If the same application did not result in an origination--for example,
because the application was denied or withdrawn--the financial
institution would report the application as an application for a
subordinate-lien loan.
ii. Financial institutions may also consider their established
procedures when determining lien status for applications that do not
result in originations. For example, assume an applicant applies to a
financial institution to refinance a $100,000 first mortgage; the
applicant also has an open-end line of credit for $20,000. If the
financial institution's practice in such a case is to ensure that it
will have first-lien position--through
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a subordination agreement with the holder of the lien securing the open-
end line of credit--then the financial institution should report the
application as an application for a first-lien covered loan.
2. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
Paragraph 4(a)(15)
1. Credit score--relied on. Except for purchased covered loans and
partially exempt transactions under Sec. 1003.3(d), Sec. 1003.4(a)(15)
requires a financial institution to report the credit score or scores
relied on in making the credit decision and information about the
scoring model used to generate each score. A financial institution
relies on a credit score in making the credit decision if the credit
score was a factor in the credit decision even if it was not a
dispositive factor. For example, if a credit score is one of multiple
factors in a financial institution's credit decision, the financial
institution has relied on the credit score even if the financial
institution denies the application because one or more underwriting
requirements other than the credit score are not satisfied.
2. Credit score--multiple credit scores. When a financial
institution obtains or creates two or more credit scores for a single
applicant or borrower but relies on only one score in making the credit
decision (for example, by relying on the lowest, highest, most recent,
or average of all of the scores), the financial institution complies
with Sec. 1003.4(a)(15) by reporting that credit score and information
about the scoring model used. When a financial institution uses more
than one credit scoring model and combines the scores into a composite
credit score that it relies on, the financial institution reports that
score and reports that more than one credit scoring model was used. When
a financial institution obtains or creates two or more credit scores for
an applicant or borrower and relies on multiple scores for the applicant
or borrower in making the credit decision (for example, by relying on a
scoring grid that considers each of the scores obtained or created for
the applicant or borrower without combining the scores into a composite
score), Sec. 1003.4(a)(15) requires the financial institution to report
one of the credit scores for the applicant or borrower that was relied
on in making the credit decision. In choosing which credit score to
report in this circumstance, a financial institution need not use the
same approach for its entire HMDA submission, but it should be generally
consistent (such as by routinely using one approach within a particular
division of the institution or for a category of covered loans). In
instances such as these, the financial institution should report the
name and version of the credit scoring model for the score reported.
3. Credit score--multiple applicants or borrowers. In a transaction
involving two or more applicants or borrowers for whom the financial
institution obtains or creates a single credit score and relies on that
credit score in making the credit decision for the transaction, the
institution complies with Sec. 1003.4(a)(15) by reporting that credit
score for the applicant and reporting that the requirement is not
applicable for the first co-applicant or, at the financial institution's
discretion, by reporting that credit score for the first co-applicant
and reporting that the requirement is not applicable for the applicant.
Otherwise, a financial institution complies with Sec. 1003.4(a)(15) by
reporting a credit score for the applicant that it relied on in making
the credit decision, if any, and a credit score for the first co-
applicant that it relied on in making the credit decision, if any. To
illustrate, assume a transaction involves one applicant and one co-
applicant and that the financial institution obtains or creates two
credit scores for the applicant and two credit scores for the co-
applicant. Assume further that the financial institution relies on a
single credit score that is the lowest, highest, most recent, or average
of all of the credit scores obtained or created to make the credit
decision for the transaction. The financial institution complies with
Sec. 1003.4(a)(15) by reporting that credit score and information about
the scoring model used for the applicant and reporting that the
requirement is not applicable for the first co-applicant or, at the
financial institution's discretion, by reporting the data for the first
co-applicant and reporting that the requirement is not applicable for
the applicant. Alternatively, assume a transaction involves one
applicant and one co-applicant and that the financial institution
obtains or creates three credit scores for the applicant and three
credit scores for the co-applicant. Assume further that the financial
institution relies on the middle credit score for the applicant and the
middle credit score for the co-applicant to make the credit decision for
the transaction. The financial institution complies with Sec.
1003.4(a)(15) by reporting both the middle score for the applicant and
the middle score for the co-applicant.
4. Transactions for which no credit decision was made. If a file was
closed for incompleteness or the application was withdrawn before a
credit decision was made, the financial institution complies with Sec.
1003.4(a)(15) by reporting that the requirement is not applicable, even
if the financial institution had obtained or created a credit score for
the applicant or co-applicant. For example, if a file is closed for
incompleteness and is so reported in accordance with Sec. 1003.4(a)(8),
the financial
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institution complies with Sec. 1003.4(a)(15) by reporting that the
requirement is not applicable, even if the financial institution had
obtained or created a credit score for the applicant or co-applicant.
Similarly, if an application was withdrawn by the applicant before a
credit decision was made and is so reported in accordance with Sec.
1003.4(a)(8), the financial institution complies with Sec.
1003.4(a)(15) by reporting that the requirement is not applicable, even
if the financial institution had obtained or created a credit score for
the applicant or co-applicant.
5. Transactions for which no credit score was relied on. If a
financial institution makes a credit decision without relying on a
credit score for the applicant or borrower, the financial institution
complies with Sec. 1003.4(a)(15) by reporting that the requirement is
not applicable.
6. Purchased covered loan. A financial institution complies with
Sec. 1003.4(a)(15) by reporting that the requirement is not applicable
when the covered loan is a purchased covered loan.
7. Non-natural person. When the applicant and co-applicant, if
applicable, are not natural persons, a financial institution complies
with Sec. 1003.4(a)(15) by reporting that the requirement is not
applicable.
Paragraph 4(a)(16)
1. Reason for denial--general. A financial institution complies with
Sec. 1003.4(a)(16) by reporting the principal reason or reasons it
denied the application, indicating up to four reasons. The financial
institution should report only the principal reason or reasons it denied
the application, even if there are fewer than four reasons. For example,
if a financial institution denies the application because of the
applicant's credit history and debt-to-income ratio, the financial
institution need only report these two principal reasons. The reasons
reported must be specific and accurately describe the principal reason
or reasons the financial institution denied the application.
2. Reason for denial--preapproval request denied. Section
1003.4(a)(16) requires a financial institution to report the principal
reason or reasons it denied the application. A request for a preapproval
under a preapproval program as defined by Sec. 1003.2(b)(2) is an
application. If a financial institution denies a preapproval request,
the financial institution complies with Sec. 1003.4(a)(16) by reporting
the reason or reasons it denied the preapproval request.
3. Reason for denial--adverse action model form or similar form. If
a financial institution chooses to provide the applicant the reason or
reasons it denied the application using the model form contained in
appendix C to Regulation B (Form C-1, Sample Notice of Action Taken and
Statement of Reasons) or a similar form, Sec. 1003.4(a)(16) requires
the financial institution to report the reason or reasons that were
specified on the form by the financial institution, which includes
reporting the ``Other'' reason or reasons that were specified on the
form by the financial institution, if applicable. If a financial
institution chooses to provide a disclosure of the applicant's right to
a statement of specific reasons using the model form contained in
appendix C to Regulation B (Form C-5, Sample Disclosure of Right to
Request Specific Reasons for Credit Denial) or a similar form, or
chooses to provide the denial reason or reasons orally under Regulation
B, 12 CFR 1002.9(a)(2)(ii), the financial institution complies with
Sec. 1003.4(a)(16) by entering the principal reason or reasons it
denied the application.
4. Reason for denial--scope of requirement. A financial institution
complies with Sec. 1003.4(a)(16) by reporting that the requirement is
not applicable if the action taken on the application, pursuant to Sec.
1003.4(a)(8), is not a denial. For example, a financial institution
complies with Sec. 1003.4(a)(16) by reporting that the requirement is
not applicable if the loan is originated or purchased by the financial
institution, or the application or preapproval request was approved but
not accepted, or the application was withdrawn before a credit decision
was made, or the file was closed for incompleteness. For partially
exempt transactions under Sec. 1003.3(d), an insured depository
institution or insured credit union is not required to report the
principal reason or reasons it denied an application. See Sec.
1003.3(d) and related commentary.
Paragraph 4(a)(17)(i)
1. Total loan costs--scope of requirement. Section 1003.4(a)(17)(i)
does not require financial institutions to report the total loan costs
for applications, or for transactions not subject to Regulation Z, 12
CFR 1026.43(c), and 12 CFR 1026.19(f), such as open-end lines of credit,
reverse mortgages, or loans or lines of credit made primarily for
business or commercial purposes. In these cases, a financial institution
complies with Sec. 1003.4(a)(17)(i) by reporting that the requirement
is not applicable to the transaction. For partially exempt transactions
under Sec. 1003.3(d), an insured depository institution or insured
credit union is not required to report the total loan costs. See Sec.
1003.3(d) and related commentary.
2. Purchased loans--applications received prior to the integrated
disclosure effective date. For purchased covered loans subject to this
reporting requirement for which applications were received by the
selling entity prior to the effective date of Regulation Z, 12 CFR
1026.19(f), a financial institution complies with Sec. 1003.4(a)(17)(i)
by reporting that the requirement is not applicable to the transaction.
3. Corrected disclosures. If the amount of total loan costs changes
because a financial
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institution provides a corrected version of the disclosures required
under Regulation Z, 12 CFR 1026.19(f), pursuant to 12 CFR 1026.19(f)(2),
the financial institution complies with Sec. 1003.4(a)(17)(i) by
reporting the corrected amount, provided that the corrected disclosure
was provided to the borrower prior to the end of the reporting period in
which closing occurs. For purposes of Sec. 1003.4(a)(17)(i), the date
the corrected disclosure was provided to the borrower is the date
disclosed pursuant to Regulation Z, 12 CFR 1026.38(a)(3)(i). For
example:
i. In the case of a financial institution's annual loan/application
register submission made pursuant to Sec. 1003.5(a)(1)(i), if the
financial institution provides a corrected disclosure to the borrower to
reflect a refund made pursuant to Regulation Z, 12 CFR 1026.19(f)(2)(v),
the financial institution reports the corrected amount of total loan
costs only if the corrected disclosure was provided to the borrower
prior to the end of the calendar year in which closing occurs.
ii. In the case of a financial institution's quarterly submission
made pursuant to Sec. 1003.5(a)(1)(ii), if the financial institution
provides a corrected disclosure to the borrower to reflect a refund made
pursuant to Regulation Z, 12 CFR 1026.19(f)(2)(v), the financial
institution reports the corrected amount of total loan costs only if the
corrected disclosure was provided to the borrower prior to the end of
the quarter in which closing occurs. The financial institution does not
report the corrected amount of total loan costs in its quarterly
submission if the corrected disclosure was provided to the borrower
after the end of the quarter in which closing occurs, even if the
corrected disclosure was provided to the borrower prior to the deadline
for timely submission of the financial institution's quarterly data.
However, the financial institution reports the corrected amount of total
loan costs on its annual loan/application register, provided that the
corrected disclosure was provided to the borrower prior to the end of
the calendar year in which closing occurs.
Paragraph 4(a)(17)(ii)
1. Total points and fees--scope of requirement. Section
1003.4(a)(17)(ii) does not require financial institutions to report the
total points and fees for transactions not subject to Regulation Z, 12
CFR 1026.43(c), such as open-end lines of credit, reverse mortgages, or
loans or lines of credit made primarily for business or commercial
purposes, or for applications or purchased covered loans. In these
cases, a financial institution complies with Sec. 1003.4(a)(17)(ii) by
reporting that the requirement is not applicable to the transaction. For
partially exempt transactions under Sec. 1003.3(d), an insured
depository institution or insured credit union is not required to report
the total points and fees. See Sec. 1003.3(d) and related commentary.
2. Total points and fees cure mechanism. For covered loans subject
to this reporting requirement, if a financial institution determines
that the transaction's total points and fees exceeded the applicable
limit and cures the overage pursuant to Regulation Z, 12 CFR
1026.43(e)(3)(iii) and (iv), a financial institution complies with Sec.
1003.4(a)(17)(ii) by reporting the correct amount of total points and
fees, provided that the cure was effected during the same reporting
period in which closing occurred. For example, in the case of a
financial institution's quarterly submission, the financial institution
reports the revised amount of total points and fees only if it cured the
overage prior to the end of the quarter in which closing occurred. The
financial institution does not report the revised amount of total points
and fees in its quarterly submission if it cured the overage after the
end of the quarter, even if the cure was effected prior to the deadline
for timely submission of the financial institution's quarterly data.
However, the financial institution reports the revised amount of total
points and fees on its annual loan/application register.
Paragraph 4(a)(18)
1. Origination charges--scope of requirement. Section 1003.4(a)(18)
does not require financial institutions to report the total borrower-
paid origination charges for applications, or for transactions not
subject to Regulation Z, 12 CFR 1026.19(f), such as open-end lines of
credit, reverse mortgages, or loans or lines of credit made primarily
for business or commercial purposes. In these cases, a financial
institution complies with Sec. 1003.4(a)(18) by reporting that the
requirement is not applicable to the transaction. For partially exempt
transactions under Sec. 1003.3(d), an insured depository institution or
insured credit union is not required to report the total borrower-paid
origination charges. See Sec. 1003.3(d) and related commentary.
2. Purchased loans--applications received prior to the integrated
disclosure effective date. For purchased covered loans subject to this
reporting requirement for which applications were received by the
selling entity prior to the effective date of Regulation Z, 12 CFR
1026.19(f), a financial institution complies with Sec. 1003.4(a)(18) by
reporting that the requirement is not applicable to the transaction.
3. Corrected disclosures. If the total amount of borrower-paid
origination charges changes because a financial institution provides a
corrected version of the disclosures required under Regulation Z, 12 CFR
1026.19(f), pursuant to 12 CFR 1026.19(f)(2), the financial institution
complies with Sec. 1003.4(a)(18) by reporting the corrected amount,
provided that the
[[Page 168]]
corrected disclosure was provided to the borrower prior to the end of
the reporting period in which closing occurs. For purposes of Sec.
1003.4(a)(18), the date the corrected disclosure was provided to the
borrower is the date disclosed pursuant to Regulation Z, 12 CFR
1026.38(a)(3)(i). For example:
i. In the case of a financial institution's annual loan/application
register submission made pursuant to Sec. 1003.5(a)(1)(i), if the
financial institution provides a corrected disclosure to the borrower to
reflect a refund made pursuant to Regulation Z, 12 CFR 1026.19(f)(2)(v),
the financial institution reports the corrected amount of borrower-paid
origination charges only if the corrected disclosure was provided to the
borrower prior to the end of the calendar year in which closing occurs.
ii. In the case of a financial institution's quarterly submission
made pursuant to Sec. 1003.5(a)(1)(ii), if the financial institution
provides a corrected disclosure to the borrower to reflect a refund made
pursuant to Regulation Z, 12 CFR 1026.19(f)(2)(v), the financial
institution reports the corrected amount of borrower-paid origination
charges only if the corrected disclosure was provided to the borrower
prior to the end of the quarter in which closing occurs. The financial
institution does not report the corrected amount of borrower-paid
origination charges in its quarterly submission if the corrected
disclosure was provided to the borrower after the end of the quarter in
which closing occurs, even if the corrected disclosure was provided to
the borrower prior to the deadline for timely submission of the
financial institution's quarterly data. However, the financial
institution reports the corrected amount of borrower-paid origination
charges on its annual loan/application register, provided that the
corrected disclosure was provided to the borrower prior to the end of
the calendar year in which closing occurs.
Paragraph 4(a)(19)
1. Discount points--scope of requirement. Section 1003.4(a)(19) does
not require financial institutions to report the discount points for
applications, or for transactions not subject to Regulation Z, 12 CFR
1026.19(f), such as open-end lines of credit, reverse mortgages, or
loans or lines of credit made primarily for business or commercial
purposes. In these cases, a financial institution complies with Sec.
1003.4(a)(19) by reporting that the requirement is not applicable to the
transaction. For partially exempt transactions under Sec. 1003.3(d), an
insured depository institution or insured credit union is not required
to report the discount points. See Sec. 1003.3(d) and related
commentary.
2. Purchased loans--applications received prior to the integrated
disclosure effective date. For purchased covered loans subject to this
reporting requirement for which applications were received by the
selling entity prior to the effective date of Regulation Z, 12 CFR
1026.19(f), a financial institution complies with Sec. 1003.4(a)(19) by
reporting that the requirement is not applicable to the transaction.
3. Corrected disclosures. If the amount of discount points changes
because a financial institution provides a corrected version of the
disclosures required under Regulation Z, 12 CFR 1026.19(f), pursuant to
12 CFR 1026.19(f)(2), the financial institution complies with Sec.
1003.4(a)(19) by reporting the corrected amount, provided that the
corrected disclosure was provided to the borrower prior to the end of
the reporting period in which closing occurs. For purposes of Sec.
1003.4(a)(19), the date the corrected disclosure was provided to the
borrower is the date disclosed pursuant to Regulation Z, 12 CFR
1026.38(a)(3)(i). For example:
i. In the case of a financial institution's annual loan/application
register submission made pursuant to Sec. 1003.5(a)(1)(i), if the
financial institution provides a corrected disclosure to the borrower to
reflect a refund made pursuant to Regulation Z, 12 CFR 1026.19(f)(2)(v),
the financial institution reports the corrected amount of discount
points only if the corrected disclosure was provided to the borrower
prior to the end of the calendar year in which closing occurred.
ii. In the case of a financial institution's quarterly submission
made pursuant to Sec. 1003.5(a)(1)(ii), if the financial institution
provides a corrected disclosure to the borrower to reflect a refund made
pursuant to Regulation Z, 12 CFR 1026.19(f)(2)(v), the financial
institution reports the corrected amount of discount points only if the
corrected disclosure was provided to the borrower prior to the end of
the quarter in which closing occurred. The financial institution does
not report the corrected amount of discount points in its quarterly
submission if the corrected disclosure was provided to the borrower
after the end of the quarter in which closing occurred, even if the
corrected disclosure was provided to the borrower prior to the deadline
for timely submission of the financial institution's quarterly data.
However, the financial institution reports the corrected amount of
discount points on its annual loan/application register, provided that
the corrected disclosure was provided to the borrower prior to the end
of the calendar year in which closing occurred.
Paragraph 4(a)(20)
1. Lender credits--scope of requirement. Section 1003.4(a)(20) does
not require financial institutions to report lender credits for
applications, or for transactions not subject to Regulation Z, 12 CFR
1026.19(f), such as open-end lines of credit, reverse mortgages, or
loans or lines of credit made primarily for
[[Page 169]]
business or commercial purposes. In these cases, a financial institution
complies with Sec. 1003.4(a)(20) by reporting that the requirement is
not applicable to the transaction. For partially exempt transactions
under Sec. 1003.3(d), an insured depository institution or insured
credit union is not required to report lender credits. See Sec.
1003.3(d) and related commentary.
2. Purchased loans--applications received prior to the integrated
disclosure effective date. For purchased covered loans subject to this
reporting requirement for which applications were received by the
selling entity prior to the effective date of Regulation Z, 12 CFR
1026.19(f), a financial institution complies with Sec. 1003.4(a)(20) by
reporting that the requirement is not applicable to the transaction.
3. Corrected disclosures. If the amount of lender credits changes
because a financial institution provides a corrected version of the
disclosures required under Regulation Z, 12 CFR 1026.19(f), pursuant to
12 CFR 1026.19(f)(2), the financial institution complies with Sec.
1003.4(a)(20) by reporting the corrected amount, provided that the
corrected disclosure was provided to the borrower prior to the end of
the reporting period in which closing occurred. For purposes of Sec.
1003.4(a)(20), the date the corrected disclosure was provided to the
borrower is the date disclosed pursuant to Regulation Z, 12 CFR
1026.38(a)(3)(i). For example:
i. In the case of a financial institution's annual loan/application
register submission made pursuant to Sec. 1003.5(a)(1)(i), if the
financial institution provides a corrected disclosure to the borrower to
reflect a refund made pursuant to Regulation Z, 12 CFR 1026.19(f)(2)(v),
the financial institution reports the corrected amount of lender credits
only if the corrected disclosure was provided to the borrower prior to
the end of the calendar year in which closing occurred.
ii. In the case of a financial institution's quarterly submission
made pursuant to Sec. 1003.5(a)(1)(ii), if the financial institution
provides a corrected disclosure to the borrower to reflect a refund made
pursuant to Regulation Z, 12 CFR 1026.19(f)(2)(v), the financial
institution reports the corrected amount of lender credits only if the
corrected disclosure was provided to the borrower prior to the end of
the quarter in which closing occurred. The financial institution does
not report the corrected amount of lender credits in its quarterly
submission if the corrected disclosure was provided to the borrower
after the end of the quarter in which closing occurred, even if the
corrected disclosure was provided to the borrower prior to the deadline
for timely submission of the financial institution's quarterly data.
However, the financial institution reports the corrected amount of
lender credits on its annual loan/application register, provided that
the corrected disclosure was provided to the borrower prior to the end
of the calendar year in which closing occurred.
Paragraph 4(a)(21)
1. Interest rate--disclosures. Except for partially exempt
transactions under Sec. 1003.3(d), Sec. 1003.4(a)(21) requires a
financial institution to identify the interest rate applicable to the
approved application, or to the covered loan at closing or account
opening. For covered loans or applications subject to the integrated
mortgage disclosure requirements of Regulation Z, 12 CFR 1026.19(e) and
(f), a financial institution complies with Sec. 1003.4(a)(21) by
reporting the interest rate disclosed on the applicable disclosure. For
covered loans or approved applications for which disclosures were
provided pursuant to both the early and the final disclosure
requirements in Regulation Z, 12 CFR 1026.19(e) and (f), a financial
institution reports the interest rate disclosed pursuant to 12 CFR
1026.19(f). A financial institution may rely on the definitions and
commentary to the sections of Regulation Z relevant to the disclosure of
the interest rate pursuant to 12 CFR 1026.19(e) or (f). If a financial
institution provides a revised or corrected version of the disclosures
required under Regulation Z, 12 CFR 1026.19(e) or (f), pursuant to 12
CFR 1026.19(e)(3)(iv) or (f)(2), as applicable, the financial
institution complies with Sec. 1003.4(a)(21) by reporting the interest
rate on the revised or corrected disclosure, provided that the revised
or corrected disclosure was provided to the borrower prior to the end of
the reporting period in which final action is taken. For purposes of
Sec. 1003.4(a)(21), the date the revised or corrected disclosure was
provided to the borrower is the date disclosed pursuant to Regulation Z,
12 CFR 1026.37(a)(4) or 1026.38(a)(3)(i), as applicable.
2. Applications. In the case of an application, Sec. 1003.4(a)(21)
requires a financial institution to report the applicable interest rate
only if the application has been approved by the financial institution
but not accepted by the borrower. In such cases, a financial institution
reports the interest rate applicable at the time that the application
was approved by the financial institution. A financial institution may
report the interest rate appearing on the disclosure provided pursuant
to 12 CFR 1026.19(e) or (f) if such disclosure accurately reflects the
interest rate at the time the application was approved. For applications
that have been denied or withdrawn, or files closed for incompleteness,
a financial institution reports that no interest rate was applicable to
the application.
3. Adjustable rate--interest rate unknown. Except as provided in
comment 4(a)(21)-1, for adjustable-rate covered loans or applications,
if the interest rate is unknown at the time that the application was
approved, or
[[Page 170]]
at closing or account opening, a financial institution reports the
fully-indexed rate based on the index applicable to the covered loan or
application. For purposes of Sec. 1003.4(a)(21), the fully-indexed rate
is the index value and margin at the time that the application was
approved, or, for covered loans, at closing or account opening.
Paragraph 4(a)(22)
1. Prepayment penalty term--scope of requirement. Section
1003.4(a)(22) does not require financial institutions to report the term
of any prepayment penalty for transactions not subject to Regulation Z,
12 CFR part 1026, such as loans or lines of credit made primarily for
business or commercial purposes, or for reverse mortgages or purchased
covered loans. In these cases, a financial institution complies with
Sec. 1003.4(a)(22) by reporting that the requirement is not applicable
to the transaction. For partially exempt transactions under Sec.
1003.3(d), an insured depository institution or insured credit union is
not required to report the term of any prepayment penalty. See Sec.
1003.3(d) and related commentary.
2. Transactions for which no prepayment penalty exists. For covered
loans or applications that have no prepayment penalty, a financial
institution complies with Sec. 1003.4(a)(22) by reporting that the
requirement is not applicable to the transaction. A financial
institution may rely on the definitions and commentary to Regulation Z,
12 CFR 1026.32(b)(6)(i) or (ii) in determining whether the terms of a
transaction contain a prepayment penalty.
Paragraph 4(a)(23)
1. General. For covered loans that are not purchased covered loans
and that are not partially exempt under Sec. 1003.3(d), Sec.
1003.4(a)(23) requires a financial institution to report the ratio of
the applicant's or borrower's total monthly debt to total monthly income
(debt-to-income ratio) relied on in making the credit decision. For
example, if a financial institution calculated the applicant's or
borrower's debt-to-income ratio twice--once according to the financial
institution's own requirements and once according to the requirements of
a secondary market investor--and the financial institution relied on the
debt-to-income ratio calculated according to the secondary market
investor's requirements in making the credit decision, Sec.
1003.4(a)(23) requires the financial institution to report the debt-to-
income ratio calculated according to the requirements of the secondary
market investor.
2. Transactions for which a debt-to-income ratio was one of multiple
factors. A financial institution relies on the ratio of the applicant's
or borrower's total monthly debt to total monthly income (debt-to-income
ratio) in making the credit decision if the debt-to-income ratio was a
factor in the credit decision even if it was not a dispositive factor.
For example, if the debt-to-income ratio was one of multiple factors in
a financial institution's credit decision, the financial institution has
relied on the debt-to-income ratio and complies with Sec. 1003.4(a)(23)
by reporting the debt-to-income ratio, even if the financial institution
denied the application because one or more underwriting requirements
other than the debt-to-income ratio were not satisfied.
3. Transactions for which no credit decision was made. If a file was
closed for incompleteness, or if an application was withdrawn before a
credit decision was made, a financial institution complies with Sec.
1003.4(a)(23) by reporting that the requirement is not applicable, even
if the financial institution had calculated the ratio of the applicant's
total monthly debt to total monthly income (debt-to-income ratio). For
example, if a file was closed for incompleteness and was so reported in
accordance with Sec. 1003.4(a)(8), the financial institution complies
with Sec. 1003.4(a)(23) by reporting that the requirement is not
applicable, even if the financial institution had calculated the
applicant's debt-to-income ratio. Similarly, if an application was
withdrawn by the applicant before a credit decision was made, the
financial institution complies with Sec. 1003.4(a)(23) by reporting
that the requirement is not applicable, even if the financial
institution had calculated the applicant's debt-to-income ratio.
4. Transactions for which no debt-to-income ratio was relied on.
Section 1003.4(a)(23) does not require a financial institution to
calculate the ratio of an applicant's or borrower's total monthly debt
to total monthly income (debt-to-income ratio), nor does it require a
financial institution to rely on an applicant's or borrower's debt-to-
income ratio in making a credit decision. If a financial institution
made a credit decision without relying on the applicant's or borrower's
debt-to-income ratio, the financial institution complies with Sec.
1003.4(a)(23) by reporting that the requirement is not applicable since
no debt-to-income ratio was relied on in connection with the credit
decision.
5. Non-natural person. A financial institution complies with Sec.
1003.4(a)(23) by reporting that the requirement is not applicable when
the applicant and co-applicant, if applicable, are not natural persons.
6. Multifamily dwellings. A financial institution complies with
Sec. 1003.4(a)(23) by reporting that the requirement is not applicable
for a covered loan secured by, or an application proposed to be secured
by, a multifamily dwelling.
7. Purchased covered loans. A financial institution complies with
Sec. 1003.4(a)(23) by reporting that the requirement is not applicable
when reporting a purchased covered loan.
[[Page 171]]
Paragraph 4(a)(24)
1. General. Except for purchased covered loans and partially exempt
transactions under Sec. 1003.3(d), Sec. 1003.4(a)(24) requires a
financial institution to report the ratio of the total amount of debt
secured by the property to the value of the property (combined loan-to-
value ratio) relied on in making the credit decision. For example, if a
financial institution calculated a combined loan-to-value ratio twice--
once according to the financial institution's own requirements and once
according to the requirements of a secondary market investor--and the
financial institution relied on the combined loan-to-value ratio
calculated according to the secondary market investor's requirements in
making the credit decision, Sec. 1003.4(a)(24) requires the financial
institution to report the combined loan-to-value ratio calculated
according to the requirements of the secondary market investor.
2. Transactions for which a combined loan-to-value ratio was one of
multiple factors. A financial institution relies on the ratio of the
total amount of debt secured by the property to the value of the
property (combined loan-to-value ratio) in making the credit decision if
the combined loan-to-value ratio was a factor in the credit decision,
even if it was not a dispositive factor. For example, if the combined
loan-to-value ratio is one of multiple factors in a financial
institution's credit decision, the financial institution has relied on
the combined loan-to-value ratio and complies with Sec. 1003.4(a)(24)
by reporting the combined loan-to-value ratio, even if the financial
institution denies the application because one or more underwriting
requirements other than the combined loan-to-value ratio are not
satisfied.
3. Transactions for which no credit decision was made. If a file was
closed for incompleteness, or if an application was withdrawn before a
credit decision was made, a financial institution complies with Sec.
1003.4(a)(24) by reporting that the requirement is not applicable, even
if the financial institution had calculated the ratio of the total
amount of debt secured by the property to the value of the property
(combined loan-to-value ratio). For example, if a file is closed for
incompleteness and is so reported in accordance with Sec. 1003.4(a)(8),
the financial institution complies with Sec. 1003.4(a)(24) by reporting
that the requirement is not applicable, even if the financial
institution had calculated a combined loan-to-value ratio. Similarly, if
an application was withdrawn by the applicant before a credit decision
was made and is so reported in accordance with Sec. 1003.4(a)(8), the
financial institution complies with Sec. 1003.4(a)(24) by reporting
that the requirement is not applicable, even if the financial
institution had calculated a combined loan-to-value ratio.
4. Transactions for which no combined loan-to-value ratio was relied
on. Section 1003.4(a)(24) does not require a financial institution to
calculate the ratio of the total amount of debt secured by the property
to the value of the property (combined loan-to-value ratio), nor does it
require a financial institution to rely on a combined loan-to-value
ratio in making a credit decision. If a financial institution makes a
credit decision without relying on a combined loan-to-value ratio, the
financial institution complies with Sec. 1003.4(a)(24) by reporting
that the requirement is not applicable since no combined loan-to-value
ratio was relied on in making the credit decision.
5. Purchased covered loan. A financial institution complies with
Sec. 1003.4(a)(24) by reporting that the requirement is not applicable
when the covered loan is a purchased covered loan.
6. Property. A financial institution reports the combined loan-to-
value ratio relied on in making the credit decision, regardless of which
property or properties it used in the combined loan-to-value ratio
calculation. The property used in the combined loan-to-value ratio
calculation does not need to be the property identified in Sec.
1003.4(a)(9) and may include more than one property and non-real
property. For example, if a financial institution originated a covered
loan for the purchase of a multifamily dwelling, the loan was secured by
the multifamily dwelling and by non-real property, such as securities,
and the financial institution used the multifamily dwelling and the non-
real property to calculate the combined loan-to-value ratio that it
relied on in making the credit decision, Sec. 1003.4(a)(24) requires
the financial institution to report the relied upon ratio. Section
1003.4(a)(24) does not require a financial institution to use a
particular combined loan-to-value ratio calculation method but instead
requires financial institutions to report the combined loan-to-value
ratio relied on in making the credit decision.
Paragraph 4(a)(25)
1. Amortization and maturity. For a fully amortizing covered loan,
the number of months after which the legal obligation matures is the
number of months in the amortization schedule, ending with the final
payment. Some covered loans do not fully amortize during the maturity
term, such as covered loans with a balloon payment; such loans should
still be reported using the maturity term rather than the amortization
term, even in the case of covered loans that mature before fully
amortizing but have reset options. For example, a 30-year fully
amortizing covered loan would be reported with a term of ``360,'' while
a five year balloon covered loan would be reported with a loan term of
``60.''
[[Page 172]]
2. Non-monthly repayment periods. If a covered loan or application
includes a schedule with repayment periods measured in a unit of time
other than months, the financial institution should report the covered
loan or application term using an equivalent number of whole months
without regard for any remainder.
3. Purchased loans. For a covered loan that was purchased, a
financial institution reports the number of months after which the legal
obligation matures as measured from the covered loan's origination.
4. Open-end line of credit. For an open-end line of credit with a
definite term, a financial institution reports the number of months from
origination until the account termination date, including both the draw
and repayment period.
5. Loan term--scope of requirement. For a covered loan or
application without a definite term, such as a reverse mortgage, a
financial institution complies with Sec. 1003.4(a)(25) by reporting
that the requirement is not applicable. For partially exempt
transactions under Sec. 1003.3(d), an insured depository institution or
insured credit union is not required to report the loan term. See Sec.
1003.3(d) and related commentary.
Paragraph 4(a)(26)
1. Types of introductory rates. Except for partially exempt
transactions under Sec. 1003.3(d), Sec. 1003.4(a)(26) requires a
financial institution to report the number of months, or proposed number
of months in the case of an application, from closing or account opening
until the first date the interest rate may change. For example, assume
an open-end line of credit contains an introductory or ``teaser''
interest rate for two months after the date of account opening, after
which the interest rate may adjust. In this example, the financial
institution complies with Sec. 1003.4(a)(26) by reporting the number of
months as ``2.'' Section 1003.4(a)(26) requires a financial institution
to report the number of months based on when the first interest rate
adjustment may occur, even if an interest rate adjustment is not
required to occur at that time and even if the rates that will apply, or
the periods for which they will apply, are not known at closing or
account opening. For example, if a closed-end mortgage loan with a 30-
year term has an adjustable-rate product with an introductory interest
rate for the first 60 months, after which the interest rate is
permitted, but not required to vary, according to the terms of an index
rate, the financial institution complies with Sec. 1003.4(a)(26) by
reporting the number of months as ``60.'' Similarly, if a closed-end
mortgage loan with a 30-year term is a step-rate product with an
introductory interest rate for the first 24 months, after which the
interest rate will increase to a different known interest rate for the
next 36 months, the financial institution complies with Sec.
1003.4(a)(26) by reporting the number of months as ``24.''
2. Preferred rates. Section 1003.4(a)(26) does not require reporting
of introductory interest rate periods based on preferred rates unless
the terms of the legal obligation provide that the preferred rate will
expire at a certain defined date. Preferred rates include terms of the
legal obligation that provide that the initial underlying rate is fixed
but that it may increase or decrease upon the occurrence of some future
event, such as an employee leaving the employ of the financial
institution, the borrower closing an existing deposit account with the
financial institution, or the borrower revoking an election to make
automated payments. In these cases, because it is not known at the time
of closing or account opening whether the future event will occur, and
if so, when it will occur, Sec. 1003.4(a)(26) does not require
reporting of an introductory interest rate period.
3. Loan or application with a fixed rate. A financial institution
complies with Sec. 1003.4(a)(26) by reporting that the requirement is
not applicable for a covered loan with a fixed rate or an application
for a covered loan with a fixed rate.
4. Purchased loan. A financial institution complies with Sec.
1003.4(a)(26) by reporting that requirement is not applicable when the
covered loan is a purchased covered loan with a fixed rate.
5. Non-monthly introductory periods. If a covered loan or
application includes an introductory interest rate period measured in a
unit of time other than months, the financial institution complies with
Sec. 1003.4(a)(26) by reporting the introductory interest rate period
for the covered loan or application using an equivalent number of whole
months without regard for any remainder. For example, assume an open-end
line of credit contains an introductory interest rate for 50 days after
the date of account opening, after which the interest rate may adjust.
In this example, the financial institution complies with Sec.
1003.4(a)(26) by reporting the number of months as ``1.'' The financial
institution must report one month for any introductory interest rate
period that totals less than one whole month.
Paragraph 4(a)(27)
1. General. Except for partially exempt transactions under Sec.
1003.3(d), Sec. 1003.4(a)(27) requires reporting of contractual
features that would allow payments other than fully amortizing payments.
Section 1003.4(a)(27) defines the contractual features by reference to
Regulation Z, 12 CFR part 1026, but without regard to whether the
covered loan is consumer credit, as defined in Sec. 1026.2(a)(12), is
extended by a creditor, as defined in Sec. 1026.2(a)(17), or is
extended to a consumer,
[[Page 173]]
as defined in Sec. 1026.2(a)(11), and without regard to whether the
property is a dwelling as defined in Sec. 1026.2(a)(19). For example,
assume that a financial institution originates a business-purpose
transaction that is exempt from Regulation Z pursuant to 12 CFR
1026.3(a)(1), to finance the purchase of a multifamily dwelling, and
that there is a balloon payment, as defined by Regulation Z, 12 CFR
1026.18(s)(5)(i), at the end of the loan term. The multifamily dwelling
is a dwelling under Sec. 1003.2(f), but not under Regulation Z, 12 CFR
1026.2(a)(19). In this example, the financial institution should report
the business-purpose transaction as having a balloon payment under Sec.
1003.4(a)(27)(i), assuming the other requirements of this part are met.
Aside from these distinctions, financial institutions may rely on the
definitions and related commentary provided in the appropriate sections
of Regulation Z referenced in Sec. 1003.4(a)(27) of this part in
determining whether the contractual feature should be reported.
Paragraph 4(a)(28)
1. General. Except for partially exempt transactions under Sec.
1003.3(d), Sec. 1003.4(a)(28) requires a financial institution to
report the property value relied on in making the credit decision. For
example, if the institution relies on an appraisal or other valuation
for the property in calculating the loan-to-value ratio, it reports that
value; if the institution relies on the purchase price of the property
in calculating the loan-to-value ratio, it reports that value.
2. Multiple property values. When a financial institution obtains
two or more valuations of the property securing or proposed to secure
the covered loan, the financial institution complies with Sec.
1003.4(a)(28) by reporting the value relied on in making the credit
decision. For example, when a financial institution obtains an
appraisal, an automated valuation model report, and a broker price
opinion with different values for the property, it reports the value
relied on in making the credit decision. Section Sec. 1003.4(a)(28)
does not require a financial institution to use a particular property
valuation method, but instead requires a financial institution to report
the valuation relied on in making the credit decision.
3. Transactions for which no credit decision was made. If a file was
closed for incompleteness or the application was withdrawn before a
credit decision was made, the financial institution complies with Sec.
1003.4(a)(28) by reporting that the requirement is not applicable, even
if the financial institution had obtained a property value. For example,
if a file is closed for incompleteness and is so reported in accordance
with Sec. 1003.4(a)(8), the financial institution complies with Sec.
1003.4(a)(28) by reporting that the requirement is not applicable, even
if the financial institution had obtained a property value. Similarly,
if an application was withdrawn by the applicant before a credit
decision was made and is so reported in accordance with Sec.
1003.4(a)(8), the financial institution complies with Sec.
1003.4(a)(28) by reporting that the requirement is not applicable, even
if the financial institution had obtained a property value.
4. Transactions for which no property value was relied on. Section
1003.4(a)(28) does not require a financial institution to obtain a
property valuation, nor does it require a financial institution to rely
on a property value in making a credit decision. If a financial
institution makes a credit decision without relying on a property value,
the financial institution complies with Sec. 1003.4(a)(28) by reporting
that the requirement is not applicable since no property value was
relied on in making the credit decision.
Paragraph 4(a)(29)
1. Classification under State law. A financial institution should
report a covered loan that is or would have been secured only by a
manufactured home but not the land on which it is sited as secured by a
manufactured home and not land, even if the manufactured home is
considered real property under applicable State law.
2. Manufactured home community. A manufactured home community that
is a multifamily dwelling is not considered a manufactured home for
purposes of Sec. 1003.4(a)(29).
3. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
4. Scope of requirement. A financial institution reports that the
requirement is not applicable for a covered loan where the dwelling
related to the property identified in Sec. 1003.4(a)(9) is not a
manufactured home. For partially exempt transactions under Sec.
1003.3(d), an insured depository institution or insured credit union is
not required to report the information specified in Sec. 1003.4(a)(29).
See Sec. 1003.3(d) and related commentary.
Paragraph 4(a)(30)
1. Indirect land ownership. Indirect land ownership can occur when
the applicant or borrower is or will be a member of a resident-owned
community structured as a housing cooperative in which the occupants own
an entity that holds the underlying land of the manufactured home
community. In such communities, the applicant or borrower may still have
a lease and pay rent for the lot on which his or her manufactured home
is or will be located, but the property interest
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type for such an arrangement should be reported as indirect ownership if
the applicant is or will be a member of the cooperative that owns the
underlying land of the manufactured home community. If an applicant
resides or will reside in such a community but is not a member, the
property interest type should be reported as a paid leasehold.
2. Leasehold interest. A leasehold interest could be formalized in a
lease with a defined term and specified rent payments, or could arise as
a tenancy at will through permission of a land owner without any
written, formal arrangement. For example, assume a borrower will locate
the manufactured home in a manufactured home community, has a written
lease for a lot in that park, and the lease specifies rent payments. In
this example, a financial institution complies with Sec. 1003.4(a)(30)
by reporting a paid leasehold. However, if instead the borrower will
locate the manufactured home on land owned by a family member without a
written lease and with no agreement as to rent payments, a financial
institution complies with Sec. 1003.4(a)(30) by reporting an unpaid
leasehold.
3. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
4. Manufactured home community. A manufactured home community that
is a multifamily dwelling is not considered a manufactured home for
purposes of Sec. 1003.4(a)(30).
5. Direct ownership. An applicant or borrower has a direct ownership
interest in the land on which the dwelling is or is to be located when
it has a more than possessory real property ownership interest in the
land such as fee simple ownership.
6. Scope of requirement. A financial institution reports that the
requirement is not applicable for a covered loan where the dwelling
related to the property identified in Sec. 1003.4(a)(9) is not a
manufactured home. For partially exempt transactions under Sec.
1003.3(d), an insured depository institution or insured credit union is
not required to report the information specified in Sec. 1003.4(a)(30).
See Sec. 1003.3(d) and related commentary.
Paragraph 4(a)(31)
1. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
2. Manufactured home community. For an application or covered loan
secured by a manufactured home community, the financial institution
should include in the number of individual dwelling units the total
number of manufactured home sites that secure the loan and are available
for occupancy, regardless of whether the sites are currently occupied or
have manufactured homes currently attached. A financial institution may
include in the number of individual dwelling units other units such as
recreational vehicle pads, manager apartments, rental apartments, site-
built homes or other rentable space that are ancillary to the operation
of the secured property if it considers such units under its
underwriting guidelines or the guidelines of an investor, or if it
tracks the number of such units for its own internal purposes. For a
loan secured by a single manufactured home that is or will be located in
a manufactured home community, the financial institution should report
one individual dwelling unit.
3. Condominium and cooperative projects. For a covered loan secured
by a condominium or cooperative property, the financial institution
reports the total number of individual dwelling units securing the
covered loan or proposed to secure the covered loan in the case of an
application. For example:
i. Assume that a loan is secured by the entirety of a cooperative
property. The financial institution would report the number of
individual dwelling units in the cooperative property.
ii. Assume that a covered loan is secured by 30 individual dwelling
units in a condominium property that contains 100 individual dwelling
units and that the loan is not exempt from Regulation C under Sec.
1003.3(c)(3). The financial institution reports 30 individual dwelling
units.
4. Best information available. A financial institution may rely on
the best information readily available to the financial institution at
the time final action is taken and on the financial institution's own
procedures in reporting the information required by Sec. 1003.4(a)(31).
Information readily available could include, for example, information
provided by an applicant that the financial institution reasonably
believes, information contained in a property valuation or inspection,
or information obtained from public records.
Paragraph 4(a)(32)
1. Affordable housing income restrictions. For purposes of Sec.
1003.4(a)(32), affordable housing income-restricted units are individual
dwelling units that have restrictions based on the income level of
occupants pursuant to restrictive covenants encumbering the property.
Such income levels are frequently expressed as a percentage of area
median income by household size as established by the U.S. Department of
Housing and Urban Development or another agency responsible for
implementing the applicable affordable housing program. Such
restrictions are frequently part of compliance with programs
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that provide public funds, special tax treatment, or density bonuses to
encourage development or preservation of affordable housing. Such
restrictions are frequently evidenced by a use agreement, regulatory
agreement, land use restriction agreement, housing assistance payments
contract, or similar agreement. Rent control or rent stabilization laws,
and the acceptance by the owner or manager of a multifamily dwelling of
Housing Choice Vouchers (24 CFR part 982) or other similar forms of
portable housing assistance that are tied to an occupant and not an
individual dwelling unit, are not affordable housing income-restricted
dwelling units for purposes of Sec. 1003.4(a)(32).
2. Federal affordable housing sources. Examples of Federal programs
and funding sources that may result in individual dwelling units that
are reportable under Sec. 1003.4(a)(32) include, but are not limited
to:
i. Affordable housing programs pursuant to Section 8 of the United
States Housing Act of 1937 (42 U.S.C. 1437f);
ii. Public housing (42 U.S.C. 1437a(b)(6));
iii. The HOME Investment Partnerships program (24 CFR part 92);
iv. The Community Development Block Grant program (24 CFR part 570);
v. Multifamily tax subsidy project funding through tax-exempt bonds
or tax credits (26 U.S.C. 42; 26 U.S.C. 142(d));
vi. Project-based vouchers (24 CFR part 983);
vii. Federal Home Loan Bank affordable housing program funding (12
CFR part 1291); and
viii. Rural Housing Service multifamily housing loans and grants (7
CFR part 3560).
3. State and local government affordable housing sources. Examples
of State and local sources that may result in individual dwelling units
that are reportable under Sec. 1003.4(a)(32) include, but are not
limited to: State or local administration of Federal funds or programs;
State or local funding programs for affordable housing or rental
assistance, including programs operated by independent public
authorities; inclusionary zoning laws; and tax abatement or tax
increment financing contingent on affordable housing requirements.
4. Multiple properties. See comment 4(a)(9)-2 regarding transactions
involving multiple properties with more than one property taken as
security.
5. Best information available. A financial institution may rely on
the best information readily available to the financial institution at
the time final action is taken and on the financial institution's own
procedures in reporting the information required by Sec. 1003.4(a)(32).
Information readily available could include, for example, information
provided by an applicant that the financial institution reasonably
believes, information contained in a property valuation or inspection,
or information obtained from public records.
6. Scope of requirement. A financial institution reports that the
requirement is not applicable if the property securing the covered loan
or, in the case of an application, proposed to secure the covered loan
is not a multifamily dwelling. For partially exempt transactions under
Sec. 1003.3(d), an insured depository institution or insured credit
union is not required to report the information specified in Sec.
1003.4(a)(32). See Sec. 1003.3(d) and related commentary.
Paragraph 4(a)(33)
1. Agents. If a financial institution is reporting actions taken by
its agent consistent with comment 4(a)-4, the agent is not considered
the financial institution for the purposes of Sec. 1003.4(a)(33). For
example, assume that an applicant submitted an application to Financial
Institution A, and Financial Institution A made the credit decision
acting as Financial Institution B's agent under State law. A covered
loan was originated and the obligation arising from a covered loan was
initially payable to Financial Institution A. Financial Institution B
purchased the loan. Financial Institution B reports the origination and
not the purchase, and indicates that the application was not submitted
directly to the financial institution and that the transaction was not
initially payable to the financial institution.
Paragraph 4(a)(33)(i)
1. General. Except for partially exempt transactions under Sec.
1003.3(d), Sec. 1003.4(a)(33)(i) requires a financial institution to
indicate whether the applicant or borrower submitted the application
directly to the financial institution that is reporting the covered loan
or application. The following scenarios demonstrate whether an
application was submitted directly to the financial institution that is
reporting the covered loan or application.
i. The application was submitted directly to the financial
institution if the mortgage loan originator identified pursuant to Sec.
1003.4(a)(34) was an employee of the reporting financial institution
when the originator performed the origination activities for the covered
loan or application that is being reported.
ii. The application was also submitted directly to the financial
institution reporting the covered loan or application if the reporting
financial institution directed the applicant to a third-party agent
(e.g., a credit union service organization) that performed loan
origination activities on behalf of the financial institution and did
not assist the applicant with applying for covered loans with other
institutions.
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iii. If an applicant contacted and completed an application with a
broker or correspondent that forwarded the application to a financial
institution for approval, an application was not submitted to the
financial institution.
Paragraph 4(a)(33)(ii)
1. General. Except for partially exempt transactions under Sec.
1003.3(d), Sec. 1003.4(a)(33)(ii) requires financial institutions to
report whether the obligation arising from a covered loan was or, in the
case of an application, would have been initially payable to the
institution. An obligation is initially payable to the institution if
the obligation is initially payable either on the face of the note or
contract to the financial institution that is reporting the covered loan
or application. For example, if a financial institution reported an
origination of a covered loan that it approved prior to closing, that
closed in the name of a third-party, such as a correspondent lender, and
that the financial institution purchased after closing, the covered loan
was not initially payable to the financial institution.
2. Applications. A financial institution complies with Sec.
1003.4(a)(33)(ii) by reporting that the requirement is not applicable if
the institution had not determined whether the covered loan would have
been initially payable to the institution reporting the application when
the application was withdrawn, denied, or closed for incompleteness.
Paragraph 4(a)(34)
1. NMLSR ID. Except for partially exempt transactions under Sec.
1003.3(d), Sec. 1003.4(a)(34) requires a financial institution to
report the Nationwide Mortgage Licensing System and Registry unique
identifier (NMLSR ID) for the mortgage loan originator, as defined in
Regulation G, 12 CFR 1007.102, or Regulation H, 12 CFR 1008.23, as
applicable. The NMLSR ID is a unique number or other identifier
generally assigned to individuals registered or licensed through NMLSR
to provide loan originating services. For more information, see the
Secure and Fair Enforcement for Mortgage Licensing Act of 2008, title V
of the Housing and Economic Recovery Act of 2008 (S.A.F.E. Act), 12
U.S.C. 5101 et seq., and its implementing regulations (12 CFR part 1007
and 12 CFR part 1008).
2. Mortgage loan originator without NMLSR ID. An NMLSR ID for the
mortgage loan originator is not required by Sec. 1003.4(a)(34) to be
reported by a financial institution if the mortgage loan originator is
not required to obtain and has not been assigned an NMLSR ID. For
example, certain individual mortgage loan originators may not be
required to obtain an NMLSR ID for the particular transaction being
reported by the financial institution, such as a commercial loan.
However, some mortgage loan originators may have obtained an NMLSR ID
even if they are not required to obtain one for that particular
transaction. If a mortgage loan originator has been assigned an NMLSR
ID, a financial institution complies with Sec. 1003.4(a)(34) by
reporting the mortgage loan originator's NMLSR ID regardless of whether
the mortgage loan originator is required to obtain an NMLSR ID for the
particular transaction being reported by the financial institution. In
the event that the mortgage loan originator is not required to obtain
and has not been assigned an NMLSR ID, a financial institution complies
with Sec. 1003.4(a)(34) by reporting that the requirement is not
applicable.
3. Multiple mortgage loan originators. If more than one individual
associated with a covered loan or application meets the definition of a
mortgage loan originator, as defined in Regulation G, 12 CFR 1007.102,
or Regulation H, 12 CFR 1008.23, a financial institution complies with
Sec. 1003.4(a)(34) by reporting the NMLSR ID of the individual mortgage
loan originator with primary responsibility for the transaction as of
the date of action taken pursuant to Sec. 1003.4(a)(8)(ii). A financial
institution that establishes and follows a reasonable, written policy
for determining which individual mortgage loan originator has primary
responsibility for the reported transaction as of the date of action
taken complies with Sec. 1003.4(a)(34).
4. Purchased loans. If a financial institution purchases a covered
loan that satisfies the coverage criteria of Regulation Z, 12 CFR
1026.36(g), and that was originated prior to January 10, 2014, the
financial institution complies with Sec. 1003.4(a)(34) by reporting
that the requirement is not applicable. In addition, if a financial
institution purchases a covered loan that does not satisfy the coverage
criteria of Regulation Z, 12 CFR 1026.36(g), and that was originated
prior to January 1, 2018, the financial institution complies with Sec.
1003.4(a)(34) by reporting that the requirement is not applicable.
Purchasers of both such types of covered loans may report the NMLSR ID.
Paragraph 4(a)(35)
1. Automated underwriting system data--general. Except for purchased
covered loans and partially exempt transactions under Sec. 1003.3(d),
Sec. 1003.4(a)(35) requires a financial institution to report the name
of the automated underwriting system (AUS) used by the financial
institution to evaluate the application and the result generated by that
AUS. The following scenarios illustrate when a financial institution
reports the name of the AUS used by the financial institution to
evaluate the application and the result generated by that AUS.
i. A financial institution that uses an AUS, as defined in Sec.
1003.4(a)(35)(ii), to evaluate an
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application, must report the name of the AUS used by the financial
institution to evaluate the application and the result generated by that
system, regardless of whether the AUS was used in its underwriting
process. For example, if a financial institution uses an AUS to evaluate
an application prior to submitting the application through its
underwriting process, the financial institution complies with Sec.
1003.4(a)(35) by reporting the name of the AUS it used to evaluate the
application and the result generated by that system.
ii. A financial institution that uses an AUS, as defined in Sec.
1003.4(a)(35)(ii), to evaluate an application, must report the name of
the AUS it used to evaluate the application and the result generated by
that system, regardless of whether the financial institution intends to
hold the covered loan in its portfolio or sell the covered loan. For
example, if a financial institution uses an AUS developed by a
securitizer to evaluate an application and intends to sell the covered
loan to that securitizer but ultimately does not sell the covered loan
and instead holds the covered loan in its portfolio, the financial
institution complies with Sec. 1003.4(a)(35) by reporting the name of
the securitizer's AUS that the institution used to evaluate the
application and the result generated by that system. Similarly, if a
financial institution uses an AUS developed by a securitizer to evaluate
an application to determine whether to originate the covered loan but
does not intend to sell the covered loan to that securitizer and instead
holds the covered loan in its portfolio, the financial institution
complies with Sec. 1003.4(a)(35) by reporting the name of the
securitizer's AUS that the institution used to evaluate the application
and the result generated by that system.
iii. A financial institution that uses an AUS, as defined in Sec.
1003.4(a)(35)(ii), that is developed by a securitizer to evaluate an
application, must report the name of the AUS it used to evaluate the
application and the result generated by that system, regardless of
whether the securitizer intends to hold the covered loan it purchased
from the financial institution in its portfolio or securitize the
covered loan. For example, if a financial institution uses an AUS
developed by a securitizer to evaluate an application and the financial
institution sells the covered loan to that securitizer but the
securitizer holds the covered loan it purchased in its portfolio, the
financial institution complies with Sec. 1003.4(a)(35) by reporting the
name of the securitizer's AUS that the institution used to evaluate the
application and the result generated by that system.
iv. A financial institution, which is also a securitizer, that uses
its own AUS, as defined in Sec. 1003.4(a)(35)(ii), to evaluate an
application, must report the name of the AUS it used to evaluate the
application and the result generated by that system, regardless of
whether the financial institution intends to hold the covered loan it
originates in its portfolio, purchase the covered loan, or securitize
the covered loan. For example, if a financial institution, which is also
a securitizer, has developed its own AUS and uses that AUS to evaluate
an application that it intends to originate and hold in its portfolio
and not purchase or securitize the covered loan, the financial
institution complies with Sec. 1003.4(a)(35) by reporting the name of
its AUS that it used to evaluate the application and the result
generated by that system.
2. Definition of automated underwriting system. A financial
institution must report the information required by Sec.
1003.4(a)(35)(i) if the financial institution uses an automated
underwriting system (AUS), as defined in Sec. 1003.4(a)(35)(ii), to
evaluate an application. To be covered by the definition in Sec.
1003.4(a)(35)(ii), a system must be an electronic tool that has been
developed by a securitizer, Federal government insurer, or a Federal
government guarantor of closed-end mortgage loans or open-end lines of
credit. A person is a securitizer, Federal government insurer, or
Federal government guarantor of closed-end mortgage loans or open-end
lines of credit, respectively, if it has securitized, provided Federal
government insurance, or provided a Federal government guarantee for a
closed-end mortgage loan or open-end line of credit at any point in
time. A person may be a securitizer, Federal government insurer, or
Federal government guarantor of closed-end mortgage loans or open-end
lines of credit, respectively, for purposes of Sec. 1003.4(a)(35) even
if it is not actively securitizing, insuring, or guaranteeing closed-end
mortgage loans or open-end lines of credit at the time a financial
institution uses the AUS to evaluate an application. Where the person
that developed the electronic tool has never been a securitizer, Federal
government insurer, or Federal government guarantor of closed-end
mortgage loans or open-end lines of credit, respectively, at the time a
financial institution uses the tool to evaluate an application, the
financial institution complies with Sec. 1003.4(a)(35) by reporting
that the requirement is not applicable because an AUS was not used to
evaluate the application. If a financial institution has developed its
own proprietary system that it uses to evaluate an application and the
financial institution is also a securitizer, then the financial
institution complies with Sec. 1003.4(a)(35) by reporting the name of
that system and the result generated by that system. On the other hand,
if a financial institution has developed its own proprietary system that
it uses to evaluate an application and the financial institution is not
a securitizer, then the financial institution is not required by Sec.
1003.4(a)(35) to report the use of that system
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and the result generated by that system. In addition, for an AUS to be
covered by the definition in Sec. 1003.4(a)(35)(ii), the system must
provide a result regarding both the credit risk of the applicant and the
eligibility of the covered loan to be originated, purchased, insured, or
guaranteed by the securitizer, Federal government insurer, or Federal
government guarantor that developed the system being used to evaluate
the application. For example, if a system is an electronic tool that
provides a determination of the eligibility of the covered loan to be
originated, purchased, insured, or guaranteed by the securitizer,
Federal government insurer, or Federal government guarantor that
developed the system being used by a financial institution to evaluate
the application, but the system does not also provide an assessment of
the creditworthiness of the applicant--such as an evaluation of the
applicant's income, debt, and credit history--then that system does not
qualify as an AUS, as defined in Sec. 1003.4(a)(35)(ii). A financial
institution that uses a system that is not an AUS, as defined in Sec.
1003.4(a)(35)(ii), to evaluate an application does not report the
information required by Sec. 1003.4(a)(35)(i).
3. Reporting automated underwriting system data--multiple results.
When a financial institution uses one or more automated underwriting
systems (AUS) to evaluate the application and the system or systems
generate two or more results, the financial institution complies with
Sec. 1003.4(a)(35) by reporting, except for purchased covered loans,
the name of the AUS used by the financial institution to evaluate the
application and the result generated by that AUS as determined by the
following principles. To determine what AUS (or AUSs) and result (or
results) to report under Sec. 1003.4(a)(35), a financial institution
follows each of the principles that is applicable to the application in
question, in the order in which they are set forth below.
i. If a financial institution obtains two or more AUS results and
the AUS generating one of those results corresponds to the loan type
reported pursuant to Sec. 1003.4(a)(2), the financial institution
complies with Sec. 1003.4(a)(35) by reporting that AUS name and result.
For example, if a financial institution evaluates an application using
the Federal Housing Administration's (FHA) Technology Open to Approved
Lenders (TOTAL) Scorecard and subsequently evaluates the application
with an AUS used to determine eligibility for a non-FHA loan, but
ultimately originates an FHA loan, the financial institution complies
with Sec. 1003.4(a)(35) by reporting TOTAL Scorecard and the result
generated by that system. If a financial institution obtains two or more
AUS results and more than one of those AUS results is generated by a
system that corresponds to the loan type reported pursuant to Sec.
1003.4(a)(2), the financial institution identifies which AUS result
should be reported by following the principle set forth below in comment
4(a)(35)-3.ii.
ii. If a financial institution obtains two or more AUS results and
the AUS generating one of those results corresponds to the purchaser,
insurer, or guarantor, if any, the financial institution complies with
Sec. 1003.4(a)(35) by reporting that AUS name and result. For example,
if a financial institution evaluates an application with the AUS of
Securitizer A and subsequently evaluates the application with the AUS of
Securitizer B, but the financial institution ultimately originates a
covered loan that it sells within the same calendar year to Securitizer
A, the financial institution complies with Sec. 1003.4(a)(35) by
reporting the name of Securitizer A's AUS and the result generated by
that system. If a financial institution obtains two or more AUS results
and more than one of those AUS results is generated by a system that
corresponds to the purchaser, insurer, or guarantor, if any, the
financial institution identifies which AUS result should be reported by
following the principle set forth below in comment 4(a)(35)-3.iii.
iii. If a financial institution obtains two or more AUS results and
none of the systems generating those results correspond to the
purchaser, insurer, or guarantor, if any, or the financial institution
is following this principle because more than one AUS result is
generated by a system that corresponds to either the loan type or the
purchaser, insurer, or guarantor, the financial institution complies
with Sec. 1003.4(a)(35) by reporting the AUS result generated closest
in time to the credit decision and the name of the AUS that generated
that result. For example, if a financial institution evaluates an
application with the AUS of Securitizer A, subsequently again evaluates
the application with Securitizer A's AUS, the financial institution
complies with Sec. 1003.4(a)(35) by reporting the name of Securitizer
A's AUS and the second AUS result. Similarly, if a financial institution
obtains a result from an AUS that requires the financial institution to
underwrite the loan manually, but the financial institution subsequently
processes the application through a different AUS that also generates a
result, the financial institution complies with Sec. 1003.4(a)(35) by
reporting the name of the second AUS that it used to evaluate the
application and the AUS result generated by that system.
iv. If a financial institution obtains two or more AUS results at
the same time and the principles in comment 4(a)(35)-3.i through .iii do
not apply, the financial institution complies with Sec. 1003.4(a)(35)
by reporting the name of all of the AUSs used by the financial
institution to evaluate the application and the results generated by
each of those systems. For example, if a financial institution
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simultaneously evaluates an application with the AUS of Securitizer A
and the AUS of Securitizer B, the financial institution complies with
Sec. 1003.4(a)(35) by reporting the name of both Securitizer A's AUS
and Securitizer B's AUS and the results generated by each of those
systems. In any event, however, the financial institution does not
report more than five AUSs and five results. If more than five AUSs and
five results meet the criteria in this principle, the financial
institution complies with Sec. 1003.4(a)(35) by choosing any five among
them to report.
4. Transactions for which an automated underwriting system was not
used to evaluate the application. Section 1003.4(a)(35) does not require
a financial institution to evaluate an application using an automated
underwriting system (AUS), as defined in Sec. 1003.4(a)(35)(ii). For
example, if a financial institution only manually underwrites an
application and does not use an AUS to evaluate the application, the
financial institution complies with Sec. 1003.4(a)(35) by reporting
that the requirement is not applicable since an AUS was not used to
evaluate the application.
5. Purchased covered loan. A financial institution complies with
Sec. 1003.4(a)(35) by reporting that the requirement is not applicable
when the covered loan is a purchased covered loan.
6. Non-natural person. When the applicant and co-applicant, if
applicable, are not natural persons, a financial institution complies
with Sec. 1003.4(a)(35) by reporting that the requirement is not
applicable.
7. Determination of securitizer, Federal government insurer, or
Federal government guarantor. Section 1003.4(a)(35)(ii) provides that an
``automated underwriting system'' means an electronic tool developed by
a securitizer, Federal government insurer, or Federal government
guarantor of closed-end mortgage loans or open-end lines of credit that
provides a result regarding the credit risk of the applicant and whether
the covered loan is eligible to be originated, purchased, insured, or
guaranteed by that securitizer, Federal government insurer, or Federal
government guarantor. A person is a securitizer, Federal government
insurer, or Federal government guarantor of closed-end mortgage loans or
open-end lines of credit, respectively, if it has ever securitized,
insured, or guaranteed a closed-end mortgage loan or open-end line of
credit. If a financial institution knows or reasonably believes that the
system it is using to evaluate an application is an electronic tool that
has been developed by a securitizer, Federal government insurer, or
Federal government guarantor of closed-end mortgage loans or open-end
lines of credit, then the financial institution complies with Sec.
1003.4(a)(35) by reporting the name of that system and the result
generated by that system. Knowledge or reasonable belief could, for
example, be based on a sales agreement or other related documents, the
financial institution's previous transactions or relationship with the
developer of the electronic tool, or representations made by the
developer of the electronic tool demonstrating that the developer of the
electronic tool is a securitizer, Federal government insurer, or Federal
government guarantor of closed-end mortgage loans or open-end lines of
credit. If a financial institution does not know or reasonably believe
that the system it is using to evaluate an application is an electronic
tool that has been developed by a securitizer, Federal government
insurer, or Federal government guarantor of closed-end mortgage loans or
open-end lines of credit, the financial institution complies with Sec.
1003.4(a)(35) by reporting that the requirement is not applicable,
provided that the financial institution maintains procedures reasonably
adapted to determine whether the electronic tool it is using to evaluate
an application meets the definition in Sec. 1003.4(a)(35)(ii).
Reasonably adapted procedures include attempting to determine with
reasonable frequency, such as annually, whether the developer of the
electronic tool is a securitizer, Federal government insurer, or Federal
government guarantor of closed-end mortgage loans or open-end lines of
credit. For example:
i. In the course of renewing an annual sales agreement the developer
of the electronic tool represents to the financial institution that it
has never been a securitizer, Federal government insurer, or Federal
government guarantor of closed-end mortgage loans or open-end lines of
credit. On this basis, the financial institution does not know or
reasonably believe that the system it is using to evaluate an
application is an electronic tool that has been developed by a
securitizer, Federal government insurer, or Federal government guarantor
of closed-end mortgage loans or open-end lines of credit and complies
with Sec. 1003.4(a)(35) by reporting that the requirement is not
applicable.
ii. Based on their previous transactions a financial institution is
aware that the developer of the electronic tool it is using to evaluate
an application has securitized a closed-end mortgage loan or open-end
line of credit in the past. On this basis, the financial institution
knows or reasonably believes that the developer of the electronic tool
is a securitizer and complies with Sec. 1003.4(a)(35) by reporting the
name of that system and the result generated by that system.
Paragraph 4(a)(37)
1. Open-end line of credit. Except for partially exempt transactions
under Sec. 1003.3(d), Sec. 1003.4(a)(37) requires a financial
institution to identify whether the covered loan or the application is
for an open-end line of credit.
[[Page 180]]
See comments 2(o)-1 and -2 for a discussion of open-end line of credit
and extension of credit.
Paragraph 4(a)(38)
1. Primary purpose. Except for partially exempt transactions under
Sec. 1003.3(d), Sec. 1003.4(a)(38) requires a financial institution to
identify whether the covered loan is, or the application is for a
covered loan that will be, made primarily for a business or commercial
purpose. See comment 3(c)(10)-2 for a discussion of how to determine the
primary purpose of the transaction and the standard applicable to a
financial institution's determination of the primary purpose of the
transaction. See comments 3(c)(10)-3 and 4 for examples of excluded and
reportable business- or commercial-purpose transactions.
4(f) Quarterly Recording of Data
1. General. Section 1003.4(f) requires a financial institution to
record the data collected pursuant to Sec. 1003.4 on a loan/application
register within 30 calendar days after the end of the calendar quarter
in which final action is taken. Section 1003.4(f) does not require a
financial institution to record data on a single loan/application
register on a quarterly basis. Rather, for purposes of Sec. 1003.4(f),
a financial institution may record data on a single loan/application
register or separately for different branches or different loan types
(such as home purchase or home improvement loans, or loans on
multifamily dwellings).
2. Agency requirements. Certain State or Federal regulations may
require a financial institution to record its data more frequently than
is required under Regulation C.
3. Form of quarterly records. A financial institution may maintain
the records required by Sec. 1003.4(f) in electronic or any other
format, provided the institution can make the information available to
its regulatory agency in a timely manner upon request.
Section 1003.5--Disclosure and Reporting
5(a) Reporting to Agency
1. Quarterly reporting--coverage. i. Section 1003.5(a)(1)(ii)
requires that, within 60 calendar days after the end of each calendar
quarter except the fourth quarter, a financial institution that reported
for the preceding calendar year at least 60,000 covered loans and
applications, combined, excluding purchased covered loans, must submit
its loan/application register containing all data required to be
recorded for that quarter pursuant to Sec. 1003.4(f). For example, if
for calendar year 2019 Financial Institution A reports 60,000 covered
loans, excluding purchased covered loans, it must comply with Sec.
1003.5(a)(1)(ii) in calendar year 2020. Similarly, if for calendar year
2019 Financial Institution A reports 20,000 applications and 40,000
covered loans, combined, excluding purchased covered loans, it must
comply with Sec. 1003.5(a)(1)(ii) in calendar year 2020. If for
calendar year 2020 Financial Institution A reports fewer than 60,000
covered loans and applications, combined, excluding purchased covered
loans, it is not required to comply with Sec. 1003.5(a)(1)(ii) in
calendar year 2021.
ii. In the calendar year of a merger or acquisition, the surviving
or newly formed financial institution is required to comply with Sec.
1003.5(a)(1)(ii), effective the date of the merger or acquisition, if a
combined total of at least 60,000 covered loans and applications,
combined, excluding purchased covered loans, is reported for the
preceding calendar year by or for the surviving or newly formed
financial institution and each financial institution or branch office
merged or acquired. For example, Financial Institution A and Financial
Institution B merge to form Financial Institution C in 2020. Financial
Institution A reports 40,000 covered loans and applications, combined,
excluding purchased covered loans, for 2019. Financial Institution B
reports 21,000 covered loans and applications, combined, excluding
purchased covered loans, for 2019. Financial Institution C is required
to comply with Sec. 1003.5(a)(1)(ii) effective the date of the merger.
Similarly, for example, Financial Institution A acquires a branch office
of Financial Institution B in 2020. Financial Institution A reports
58,000 covered loans and applications, combined, excluding purchased
covered loans, for 2019. Financial Institution B reports 3,000 covered
loans and applications, combined, excluding purchased covered loans, for
2019 for the branch office acquired by Financial Institution A.
Financial Institution A is required to comply with Sec.
1003.5(a)(1)(ii) in 2020 effective the date of the branch acquisition.
iii. In the calendar year following a merger or acquisition, the
surviving or newly formed financial institution is required to comply
with Sec. 1003.5(a)(1)(ii) if a combined total of at least 60,000
covered loans and applications, combined, excluding purchased covered
loans, is reported for the preceding calendar year by or for the
surviving or newly formed financial institution and each financial
institution or branch office merged or acquired. For example, Financial
Institution A and Financial Institution B merge to form Financial
Institution C in 2019. Financial Institution C reports 21,000 covered
loans and applications, combined, excluding purchased covered loans,
each for Financial Institution A, B, and C for 2019, for a combined
total of 63,000 covered loans and applications reported, excluding
purchased covered loans. Financial Institution C is required to comply
with Sec. 1003.5(a)(1)(ii) in 2020. Similarly, for example, Financial
Institution A acquires a branch office of Financial Institution B in
[[Page 181]]
2019. Financial Institution A reports 58,000 covered loans and
applications, combined, excluding purchased covered loans, for 2019.
Financial Institution A or B reports 3,000 covered loans and
applications, combined, excluding purchased covered loans, for 2019 for
the branch office acquired by Financial Institution A. Financial
Institution A is required to comply with Sec. 1003.5(a)(1)(ii) in 2020.
2. Change in appropriate Federal agency. If the appropriate Federal
agency for a financial institution changes (as a consequence of a merger
or a change in the institution's charter, for example), the institution
must identify its new appropriate Federal agency in its annual
submission of data pursuant to Sec. 1003.5(a)(1)(i) for the year of the
change. For example, if an institution's appropriate Federal agency
changes in February 2018, it must identify its new appropriate Federal
agency beginning with the annual submission of its 2018 data by March 1,
2019 pursuant to Sec. 1003.5(a)(1)(i). For an institution required to
comply with Sec. 1003.5(a)(1)(ii), the institution also must identify
its new appropriate Federal agency in its quarterly submission of data
pursuant to Sec. 1003.5(a)(1)(ii) beginning with its submission for the
quarter of the change, unless the change occurs during the fourth
quarter. For example, if the appropriate Federal agency for an
institution required to comply with Sec. 1003.5(a)(1)(ii) changes
during February 2020, the institution must identify its new appropriate
Federal agency beginning with its quarterly submission pursuant to Sec.
1003.5(a)(1)(ii) for the first quarter of 2020. If the appropriate
Federal agency for an institution required to comply with Sec.
1003.5(a)(1)(ii) changes during December 2020, the institution must
identify its new appropriate Federal agency beginning with the annual
submission of its 2020 data by March 1, 2021 pursuant to Sec.
1003.5(a)(1)(i).
3. Subsidiaries. A financial institution is a subsidiary of a bank
or savings association (for purposes of reporting HMDA data to the same
agency as the parent) if the bank or savings association holds or
controls an ownership interest in the institution that is greater than
50 percent.
4. Retention. A financial institution may satisfy the requirement
under Sec. 1003.5(a)(1)(i) that it retain a copy of its submitted
annual loan/application register for three years by retaining a copy of
the annual loan/application register in either electronic or paper form.
5. Federal Taxpayer Identification Number. Section 1003.5(a)(3)
requires a financial institution to provide its Federal Taxpayer
Identification Number with its data submission. If a financial
institution obtains a new Federal Taxpayer Identification Number, it
should provide the new number in its subsequent data submission. For
example, if two financial institutions that previously reported HMDA
data under this part merge and the surviving institution retained its
Legal Entity Identifier but obtained a new Federal Taxpayer
Identification Number, then the surviving institution should report the
new Federal Taxpayer Identification Number with its HMDA data
submission.
5(b) Disclosure Statement
1. Business day. For purposes of Sec. 1003.5(b), a business day is
any calendar day other than a Saturday, Sunday, or legal public holiday.
2. Format of notice. A financial institution may make the written
notice required under Sec. 1003.5(b)(2) available in paper or
electronic form.
3. Notice--suggested text. A financial institution may use any text
that meets the requirements of Sec. 1003.5(b)(2). The following
language is suggested but is not required:
Home Mortgage Disclosure Act Notice
The HMDA data about our residential mortgage lending are available
online for review. The data show geographic distribution of loans and
applications; ethnicity, race, sex, age, and income of applicants and
borrowers; and information about loan approvals and denials. These data
are available online at the Consumer Financial Protection Bureau's Web
site (www.consumerfinance.gov/hmda). HMDA data for many other financial
institutions are also available at this Web site.
4. Combined notice. A financial institution may use the same notice
to satisfy the requirements of both Sec. 1003.5(b)(2) and Sec.
1003.5(c).
5(c) Modified loan/application Register
1. Format of notice. A financial institution may make the written
notice required under Sec. 1003.5(c)(1) available in paper or
electronic form.
2. Notice--suggested text. A financial institution may use any text
that meets the requirements of Sec. 1003.5(c)(1). The following
language is suggested but is not required:
Home Mortgage Disclosure Act Notice
The HMDA data about our residential mortgage lending are available
online for review. The data show geographic distribution of loans and
applications; ethnicity, race, sex, age, and income of applicants and
borrowers; and information about loan approvals and denials. These data
are available online at the Consumer Financial Protection Bureau's Web
site (www.consumerfinance.gov/hmda). HMDA data for many other financial
institutions are also available at this Web site.
3. Combined notice. A financial institution may use the same notice
to satisfy the requirements of both Sec. 1003.5(c) and Sec.
1003.5(b)(2).
[[Page 182]]
5(e) Posted Notice of Availability of Data
1. Posted notice--suggested text. A financial institution may post
any text that meets the requirements of Sec. 1003.5(e). The Bureau or
other appropriate Federal agency for a financial institution may provide
a notice that the institution can post to inform the public of the
availability of its HMDA data, or an institution may create its own
notice. The following language is suggested but is not required:
Home Mortgage Disclosure Act Notice
The HMDA data about our residential mortgage lending are available
online for review. The data show geographic distribution of loans and
applications; ethnicity, race, sex, age, and income of applicants and
borrowers; and information about loan approvals and denials. HMDA data
for many other financial institutions are also available online. For
more information, visit the Consumer Financial Protection Bureau's Web
site (www.consumerfinance.gov/hmda).
Section 1003.6--Enforcement
6(b) Bona Fide Errors
1. Information from third parties. Section 1003.6(b) provides that
an error in compiling or recording data for a covered loan or
application is not a violation of the Act or this part if the error was
unintentional and occurred despite the maintenance of procedures
reasonably adapted to avoid such an error. A financial institution that
obtains the required data, such as property-location information, from
third parties is responsible for ensuring that the information reported
pursuant to Sec. 1003.5 is correct. See comment 6(b)-2 concerning
obtaining census tract information from a geocoding tool that the Bureau
makes available on its Web site.
2. Information from the Bureau. Section 1003.6(b)(2) provides that
an incorrect entry for census tract number is deemed a bona fide error,
and is not a violation of the Act or this part, provided that the
financial institution maintains procedures reasonably adapted to avoid
an error. Obtaining the census tract numbers for covered loans and
applications from a geocoding tool available on the Bureau's Web site
that identifies the census tract of a property using property addresses
entered by users is an example of a procedure reasonably adapted to
avoid errors under Sec. 1003.6(b)(2). Accordingly, a census tract error
is not a violation of the Act or this part if the financial institution
obtained the census tract number from the geocoding tool on the Bureau's
Web site. However, a financial institution's failure to provide the
correct census tract number for a covered loan or application on its
loan/application register, as required by Sec. 1003.4(a)(9)(ii)(C) or
(e), because the geocoding tool on the Bureau's Web site did not provide
a census tract number for the property address entered by the financial
institution is not excused as a bona fide error. In addition, a census
tract error caused by a financial institution entering an inaccurate
property address into the geocoding tool on the Bureau's Web site is not
excused as a bona fide error.
[80 FR 66317, 66339, Oct. 28, 2015, as amended at 82 FR 43136, 43145,
Sept. 13, 2017; 82 FR 61146, Dec. 27, 2017; 84 FR 514, Jan. 31, 2019; 84
FR 57981, Oct. 29, 2019; 84 FR 69994, Dec. 20, 2019; 85 FR 28404, 28406,
May 12, 2020; 85 FR 83410, Dec. 22, 2020; 86 FR 72819, Dec. 23, 2021; 87
FR 77981, Dec. 21, 2022; 87 FR 80434, Dec. 30, 2022; 88 FR 88222, Dec.
21, 2023]
PART 1004_ALTERNATIVE MORTGAGE TRANSACTION PARITY (REGULATION D)--Table of
Contents
Sec.
1004.1 Authority, purpose, and scope.
1004.2 Definitions.
1004.3 Preemption of State law.
1004.4 Requirements for alternative mortgage transactions.
Appendix A to Part 1004--Official Commentary on Regulation D
Authority: 12 U.S.C. 3802, 3803; 15 U.S.C. 1604, 1639b; Pub. L. No.
111-203, 124 Stat. 1376.
Source: 76 FR 44242, July 22, 2011, unless otherwise noted.
Sec. 1004.1 Authority, purpose, and scope.
(a) Authority. This regulation, known as Regulation D, is issued by
the Bureau of Consumer Financial Protection to implement the Alternative
Mortgage Transaction Parity Act, 12 U.S.C. 3801 et seq., as amended by
title X, Section 1083 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Pub. L. 111-203, 124 Stat. 1376). Section 1004.4 is
issued pursuant to the Alternative Mortgage Transaction Parity Act (as
amended) and the Truth in Lending Act, 15 U.S.C. 1601 et seq.
(b) Purpose. Consistent with the Alternative Mortgage Transaction
Parity Act, the Truth in Lending Act, and the Dodd-Frank Wall Street
Reform and Consumer Protection Act, the purpose of this regulation is to
balance access to responsible credit and enhanced parity between State
and federal housing creditors regarding the making, purchase, and
enforcement of alternative mortgage transactions with consumer
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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 with Sec. 1004.4(a) through (c) of this part
(as applicable), notwithstanding any provision of State law that
restricts the ability of the housing creditor to adjust or renegotiate
an interest rate or finance charge with respect to the transaction or to
change the amount of interest or finance charges included in a regular
periodic payment as a result of such an adjustment or renegotiation.
Sec. 1004.4 Requirements for alternative mortgage transactions.
(a) Mortgages with adjustable rates or finance charges and home
equity lines of credit. A creditor that makes an alternative mortgage
transaction with an adjustable rate or finance charge may only increase
the interest rate or finance charge as follows:
(1) If the transaction is subject to 12 CFR 226.5b, the creditor
must comply with 12 CFR 226.5b(f)(1).
(2) For all other transactions, the creditor must use either:
(i) An index to which changes in the interest rate are tied that is
readily available to and verifiable by the borrower and beyond the
control of the creditor; or
(ii) A formula or schedule identifying the amount that the interest
rate or finance charge may increase and the times at which, or
circumstances under which, a change may be made.
(b) Renegotiable rates for renewable balloon-payment mortgages. A
creditor that makes an alternative mortgage transaction with payments
based on an amortization period and a large final payment due after a
shorter term may negotiate an increase or decrease in the interest rate
when the transaction is renewed only if the creditor makes a written
commitment to renew the transaction at specified intervals throughout
the amortization period.
[[Page 184]]
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 to Sec. 1004.3 of this part may make that
transaction consistent with applicable State or Federal law other than
this section.
(e) Reductions in interest rate or finance charge. Nothing in this
section prohibits a creditor from decreasing the interest rate or
finance charge on an alternative mortgage transaction.
Sec. Appendix A to Part 1004--Official Commentary on Regulation D
Sec. 1004.1 Authority, Purpose, and Scope
1(c) Scope.
1. Application received before July 22, 2011. This part does not
apply to a transaction if the creditor received the application for that
transaction before July 22, 2011, even if the transaction was
consummated or completed on or after July 22, 2011. Whether 12 U.S.C.
3803(c) preempts State law with respect to such a transaction depends on
whether: (1) The transaction was an alternative mortgage transaction as
defined by the version of 12 U.S.C. 3802(1) in effect at the time of
application; and (2) the State housing creditor complied with applicable
federal regulations issued by the Office of the Comptroller of the
Currency, the National Credit Union Administration, the Office of Thrift
Supervision, or the Federal Home Loan Bank Board in effect at the time
of application.
2. Subsequent modifications and other actions. If applicable
regulations under 12 U.S.C. 3803(c) (including this Part) preempted
State law with respect to an alternative mortgage transaction at the
time the application was received, the following actions with respect to
that transaction are entitled to the same degree of preemption under
such regulations:
i. The subsequent consummation, completion, purchase, or enforcement
of the transaction by a housing creditor.
ii. The subsequent modification, renewal, or extension of the
transaction. However, if such a transaction is satisfied and replaced by
another transaction, the second transaction must independently meet the
requirements for preemption in effect at the time the application for
the second transaction was received.
Sec. 1004.2 Definitions
2(a) Alternative Mortgage Transaction
1. Alternative mortgage transaction. For purposes of this Part, an
alternative mortgage transaction that meets the definition in Sec.
1004.2(a) includes any consumer credit transaction that is secured by a
mortgage, deed of trust, or other equivalent consensual security
interest in a dwelling or in residential real property that includes a
dwelling. The dwelling need not be the primary dwelling of the consumer.
Home equity lines of credit and subordinate lien mortgages are
alternative mortgage transactions for purposes of this part to the
extent they meet the definition in Sec. 1004.2(a).
2. Examples of alternative mortgage transactions. Examples of
alternative mortgage transactions include:
i. Transactions in which the interest rate changes in accordance
with fluctuations in an index.
ii. Transactions in which the interest rate or finance charge may be
increased or decreased after a specified period of time or under
specified circumstances.
iii. Balloon transactions in which payments are based on an
amortization schedule and a large final payment is due after a shorter
term, where the creditor makes a commitment to renew the transaction at
specified intervals throughout the amortization period, but the interest
rate may be renegotiated at renewal. For example, a fixed-rate mortgage
loan with a 30-year amortization period but a balloon payment due five
years after consummation is an alternative
[[Page 185]]
mortgage transaction under Sec. 1004.2(a) if the creditor commits to
renew the mortgage at five-year intervals for the entire 30-year
amortization period.
iv. Transactions in which the creditor and the consumer agree to
share some or all of the appreciation in the value of the property
(shared equity/shared appreciation).
However, this part preempts State law only to the extent provided in
Sec. 1004.3 and only to the extent that the requirements of Sec.
1004.4(a) through (c) (as applicable) are met.
3. Examples of transactions that are not alternative mortgage
transactions. The following are examples of transactions that are not
alternative mortgage transactions:
i. Transactions with a fixed interest rate where one or more of the
regular periodic payments may be applied solely to accrued interest and
not to loan principal (an interest-only feature).
ii. Balloon transactions with a fixed interest rate where payments
are based on an amortization schedule and a large final payment is due
after a shorter term, where the creditor does not make a commitment to
renew the transaction at specified intervals throughout the amortization
period.
iii. Transactions with a fixed interest rate where one or more of
the regular periodic payments may result in an increase in the principal
balance (a negative amortization feature).
2(b) Creditor
1. Creditor. As defined in 12 CFR 226.2, ``creditor'' includes
federally and State-chartered banks, thrifts, and credit unions, as well
as non-depository institutions, such as State-licensed lenders. The
Official Staff Commentary to 12 CFR 226.2 contains additional guidance
on the definition of the term ``creditor.'' See 12 CFR 226.2, Supp. I.
Sec. 1004.3 Preemption of State Law
1. Scope of State laws. Regardless of whether a State law applies
solely to alternative mortgage transactions or applies to both
alternative mortgage transactions and other mortgage or consumer credit
transactions, that law is preempted by Sec. 1004.3 only to the extent
that it restricts the ability of a State-chartered or -licensed housing
creditor to adjust or renegotiate an interest rate or finance charge
with respect to an alternative mortgage transaction or to change the
amount of interest or finance charges included in a regular periodic
payment as a result of such an adjustment or renegotiation.
2. Examples of State laws that are preempted. The following are
examples of State laws that are preempted by Sec. 1004.3:
i. Restrictions on the adjustment or renegotiation of an interest
rate or finance charge, including restrictions on the circumstances
under which a rate or charge may be adjusted, the method by which a rate
or charge may be adjusted, and the amount of the adjustment to the rate
or charge. For example, if a provision of State law prohibits creditors
from increasing an adjustable rate more than two percentage points or
from increasing an adjustable rate more than once during a year, that
provision is preempted by Sec. 1004.3 with respect to alternative
mortgage transactions that comply with Sec. 1004.4(a) through (c), as
applicable. Similarly, if a provision of State law prohibits housing
creditors from renewing balloon transactions that meet the definition of
an alternative mortgage transaction in Sec. 1004.2(a) on different
terms, that provision is preempted by Sec. 1004.3 only to the extent
that it restricts a state housing creditor's ability to adjust or
renegotiate the interest rate or finance charge at renewal. See also
comment 1004.3-3.i.
ii. Restrictions on the ability of a housing creditor to change the
amount of interest or finance charges included in regular periodic
payments as a result of the adjustment or renegotiation of an interest
rate or finance charge. For example, if a provision of State law
prohibits housing creditors from increasing payments or limits the
amount of such increases with respect to both alternative mortgage
transactions and other mortgage or consumer credit transactions, that
provision is preempted by Sec. 1004.3 to the extent that it restricts a
housing creditor's ability to adjust payments as a result of the
adjustment or renegotiation of an interest rate on an alternative
mortgage transaction. Other restrictions on changes to payments are not
preempted, including restrictions on transactions in which one or more
of the regular periodic payments may result in an increase in the
principal balance (a negative amortization feature) or may be applied
solely to accrued interest and not to loan principal (an interest-only
feature).
iii. Restrictions on the creditor and the consumer sharing some or
all of the appreciation in the value of the property (shared equity/
shared appreciation).
iv. Underwriting requirements that address the adjustment or
renegotiation of interest rates or finance charges. For example, if a
provision of State law requires housing creditors to underwrite based on
the maximum contractual rate, that provision is preempted by Sec.
1004.3 with respect to alternative mortgage transactions, regardless of
whether the provision applies solely to alternative mortgage
transactions or to both alternative mortgage transactions and other
mortgage or consumer credit transactions.
3. Examples of State laws that are not preempted. The following are
examples of State laws that are not preempted by Sec. 1004.3 regardless
of whether the provision applies solely to alternative mortgage
transactions or to both alternative mortgage transactions
[[Page 186]]
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 in Sec. 1004.4(a)(2)(i). For example, the index
may be either single values as of a specific date or an average of
values calculated over a specified period.
2. Index beyond creditor's control. A creditor may increase an
adjustable interest rate pursuant to Sec. 1004.4(a)(2)(i) only if the
increase is based on an index that is beyond the creditor's control. For
purposes of Sec. 1004.4(a)(2)(i), an index is not beyond the creditor's
control if the index is the creditor's own prime rate or cost of funds.
A creditor is permitted, however, to use a published prime rate, such as
the prime rate published in the Wall Street Journal, even if the
creditor's own prime rate is one of several rates used to establish the
published rate.
3. Publicly available. For purposes of Sec. 1004.4(a)(2)(i), the
index must be available to the public. A publicly available index need
not be published in a newspaper, but it must be one the consumer can
independently obtain (by telephone, for example) and use to verify the
annual percentage rate applied to the alternative mortgage transaction.
4(c) Requirements for High-Cost and Higher-Priced Mortgage Loans
1. Prepayment penalties. If applicable, creditors must comply with
12 CFR 226.32, including 12 CFR 226.32(d)(6) and (d)(7) which provide
limitations on prepayment penalties. Similarly, if applicable, creditors
must comply with 12 CFR 226.35, including 12 CFR 226.35(b)(2), which
also provides limitations on prepayment penalties. However, under Sec.
1004.3, State laws regarding prepayment penalties are not preempted. See
comment 1004.3-3.i. Accordingly, creditors must also comply with any
State laws regarding prepayment penalties unless an independent basis
for preemption exists, such as because the State law is inconsistent
with the requirements of Regulation Z, 12 CFR part 226. See 12 CFR
226.28.
4(d) Other Applicable Law
1. Other applicable law. Section 1004.4(d) permits state housing
creditors that do not seek preemption under Sec. 1004.3 and federal
housing creditors to make alternative mortgage transactions consistent
with applicable State or federal law other than Sec. 1004.4(a) through
(c). However, Sec. 1004.4(d) does not exempt those housing creditors
from complying with the provisions of federal law that are incorporated
by reference in Sec. 1004.4 and are otherwise applicable to the
creditor. Specifically, nothing in Sec. 1004.4(d) exempts a housing
creditor from complying with 12 CFR 226.5b, 226.32, 226.34, or 226.35.
PART 1005_ELECTRONIC FUND TRANSFERS (REGULATION E)--Table of Contents
Subpart A_General
Sec.
1005.1 Authority and purpose.
1005.2 Definitions.
1005.3 Coverage.
1005.4 General disclosure requirements; jointly offered services.
1005.5 Issuance of access devices.
1005.6 Liability of consumer for unauthorized transfers.
1005.7 Initial disclosures.
1005.8 Change in terms notice; error resolution notice.
1005.9 Receipts at electronic terminals; periodic statements.
1005.10 Preauthorized transfers.
1005.11 Procedures for resolving errors.
1005.12 Relation to other laws.
1005.13 Administrative enforcement; record retention.
1005.14 Electronic fund transfer service provider not holding consumer's
account.
1005.15 Electronic fund transfer of government benefits.
1005.16 Disclosures at automated teller machines.
1005.17 Requirements for overdraft services.
1005.18 Requirements for financial institutions offering prepaid
accounts.
1005.19 Internet posting of prepaid account agreements.
1005.20 Requirements for gift cards and gift certificates.
Subpart B_Requirements for Remittance Transfers
1005.30 Remittance transfer definitions.
1005.31 Disclosures.
1005.32 Estimates.
1005.33 Procedures for resolving errors.
1005.34 Procedures for cancellation and refund of remittance transfers.
[[Page 187]]
1005.35 Acts of agents.
1005.36 Transfers scheduled before the date of transfer.
Appendix A to Part 1005--Model Disclosure Clauses and Forms
Appendix B to Part 1005 [Reserved]
Appendix C to Part 1005--Issuance of Official Interpretations
Supplement I to Part 1005--Official Interpretations
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1693b. Subpart B is also
issued under 12 U.S.C. 5601 and 15 U.S.C. 1693o-1.
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 does not include an account held by a financial
institution under a bona fide trust agreement.
(3) The term includes a prepaid account.
(i) ``Prepaid account'' means:
(A) A ``payroll card account,'' which is an account that is directly
or indirectly established through an employer and to which electronic
fund transfers of the consumer's wages, salary, or other employee
compensation (such as commissions) are made on a recurring basis,
whether the account is operated or managed by the employer, a third-
party payroll processor, a depository institution, or any other person;
or
(B) A ``government benefit account,'' as defined in Sec.
1005.15(a)(2); or
(C) An account that is marketed or labeled as ``prepaid'' and that
is redeemable upon presentation at multiple, unaffiliated merchants for
goods or services or usable at automated teller machines; or
(D) An account:
(1) That is issued on a prepaid basis in a specified amount or not
issued on a prepaid basis but capable of being loaded with funds
thereafter,
(2) Whose primary function is to conduct transactions with multiple,
unaffiliated merchants for goods or services, or at automated teller
machines, or to conduct person-to-person transfers, and
[[Page 188]]
(3) That is not a checking account, share draft account, or
negotiable order of withdrawal account.
(ii) For purposes of paragraphs (b)(3)(i)(C) and (D) of this
section, the term ``prepaid account'' does not include:
(A) An account that is loaded only with funds from a health savings
account, flexible spending arrangement, medical savings account, health
reimbursement arrangement, dependent care assistance program, or transit
or parking reimbursement arrangement;
(B) An account that is directly or indirectly established through a
third party and loaded only with qualified disaster relief payments;
(C) The person-to-person functionality of an account established by
or through the United States government whose primary function is to
conduct closed-loop transactions on U.S. military installations or
vessels, or similar government facilities;
(D)(1) A gift certificate as defined in Sec. 1005.20(a)(1) and (b);
(2) A store gift card as defined in Sec. 1005.20(a)(2) and (b);
(3) A loyalty, award, or promotional gift card as defined in Sec.
1005.20(a)(4), or that satisfies the criteria in Sec. 1005.20(a)(4)(i)
and (ii) and is excluded from Sec. 1005.20 pursuant to Sec.
1005.20(b)(4); or
(4) A general-use prepaid card as defined in Sec. 1005.20(a)(3) and
(b) that is both marketed and labeled as a gift card or gift
certificate; or
(E) An account established for distributing needs-tested benefits in
a program established under state or local law or administered by a
state or local agency, as set forth in Sec. 1005.15(a)(2).
(c) ``Act'' means the Electronic Fund Transfer Act (Title IX of the
Consumer Credit Protection Act, 15 U.S.C. 1693 et seq.).
(d) ``Business day'' means any day on which the offices of the
consumer's financial institution are open to the public for carrying on
substantially all business functions.
(e) ``Consumer'' means a natural person.
(f) ``Credit'' means the right granted by a financial institution to
a consumer to defer payment of debt, incur debt and defer its payment,
or purchase property or services and defer payment therefor.
(g) ``Electronic fund transfer'' is defined in Sec. 1005.3.
(h) ``Electronic terminal'' means an electronic device, other than a
telephone operated by a consumer, through which a consumer may initiate
an electronic fund transfer. The term includes, but is not limited to,
point-of-sale terminals, automated teller machines (ATMs), and cash
dispensing machines.
(i) ``Financial institution'' means a bank, savings association,
credit union, or any other person that directly or indirectly holds an
account belonging to a consumer, or that issues an access device and
agrees with a consumer to 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;
[[Page 189]]
(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; 81
FR 84325, Nov. 22, 2016; 83 FR 6417, Feb. 13, 2018]
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;
(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-
[[Page 190]]
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 through a similar wire transfer system that is used primarily
for transfers between financial institutions or between businesses.
(4) Securities and commodities transfers. Any transfer of funds the
primary purpose of which is the purchase or sale of a security or
commodity, if the security or commodity is:
(i) Regulated by the Securities and Exchange Commission or the
Commodity Futures Trading Commission;
(ii) Purchased or sold through a broker-dealer regulated by the
Securities and Exchange Commission or through a futures commission
merchant regulated by the Commodity Futures Trading Commission; or
(iii) Held in book-entry form by a Federal Reserve Bank or Federal
agency.
(5) Automatic transfers by account-holding institution. Any transfer
of funds under an agreement between a consumer and a financial
institution which provides that the institution will initiate individual
transfers without a specific request from the consumer:
(i) Between a consumer's accounts within the financial institution;
(ii) From a consumer's account to an account of a member of the
consumer's family held in the same financial institution; or
(iii) Between a consumer's account and an account of the financial
institution, except that these transfers remain subject to Sec.
1005.10(e) regarding compulsory use and sections 916 and 917 of the Act
regarding civil and criminal liability.
(6) Telephone-initiated transfers. Any transfer of funds that:
(i) Is initiated by a telephone communication between a consumer and
a financial institution making the transfer; and
(ii) Does not take place under a telephone bill-payment or other
written plan in which periodic or recurring transfers are contemplated.
(7) Small institutions. Any preauthorized transfer to or from an
account if the assets of the account-holding financial institution were
$100 million or less on the preceding December 31. If assets of the
account-holding institution subsequently exceed $100 million, the
institution's exemption for preauthorized transfers terminates one year
from the end of the calendar year in which the assets exceed $100
million. Preauthorized transfers exempt under this paragraph (c)(7)
remain subject to Sec. 1005.10(e) regarding compulsory use and sections
916 and 917 of the Act regarding civil and criminal liability.
[76 FR 81023, Dec. 27, 2011, as amended at 77 FR 6285, Feb. 7, 2012]
Sec. 1005.4 General disclosure requirements; jointly offered services.
(a)(1) Form of disclosures. Disclosures required under this part
shall be clear and readily understandable, in writing, and in a form the
consumer may keep,
[[Page 191]]
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.
(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 by Sec. 1005.7, of the
consumer's rights and liabilities that will apply if the access device
is validated; and
(4) Validated only in response to the consumer's oral or written
request for validation, after the institution has verified the
consumer's identity by a reasonable means.
Sec. 1005.6 Liability of consumer for unauthorized transfers.
(a) Conditions for liability. A consumer may be held liable, within
the limitations described in paragraph (b) of this section, for an
unauthorized electronic fund transfer involving the consumer's account
only if the financial institution has provided the disclosures required
by Sec. 1005.7(b)(1), (2), and (3). If the unauthorized transfer
involved an access device, it must be an accepted access device and the
financial institution must have provided a means to identify the
consumer to whom it was issued.
(b) Limitations on amount of liability. A consumer's liability for
an unauthorized electronic fund transfer or a series of related
unauthorized transfers shall be determined as follows:
(1) Timely notice given. If the consumer notifies the financial
institution within two business days after learning of the loss or theft
of the access device, the consumer's liability shall not exceed the
lesser of $50 or the amount of unauthorized transfers that occur before
notice to the financial institution.
[[Page 192]]
(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 institution was due to extenuating circumstances, the
institution shall extend the times specified above to a reasonable
period.
(5) Notice to financial institution. (i) Notice to a financial
institution is given when a consumer takes steps reasonably necessary to
provide the institution with the pertinent information, whether or not a
particular employee or agent of the institution actually receives the
information.
(ii) The consumer may notify the institution in person, by
telephone, or in writing.
(iii) Written notice is considered given at the time the consumer
mails the notice or delivers it for transmission to the institution by
any other usual means. Notice may be considered constructively given
when the institution becomes aware of circumstances leading to the
reasonable belief that an unauthorized transfer to or from the
consumer's account has been or may be made.
(6) Liability under state law or agreement. If state law or an
agreement between the consumer and the financial institution imposes
less liability than is provided by this section, the consumer's
liability shall not exceed the amount imposed under the state law or
agreement.
Sec. 1005.7 Initial disclosures.
(a) Timing of disclosures. A financial institution shall make the
disclosures required by this section at the time a consumer contracts
for an electronic fund transfer service or before the first electronic
fund transfer is made involving the consumer's account.
(b) Content of disclosures. A financial institution shall provide
the following disclosures, as applicable:
(1) Liability of consumer. A summary of the consumer's liability,
under Sec. 1005.6 or under state or other applicable law or agreement,
for unauthorized electronic fund transfers.
(2) Telephone number and address. The telephone number and address
of the person or office to be notified when the consumer believes that
an unauthorized electronic fund transfer has been or may be made.
(3) Business days. The financial institution's business days.
(4) Types of transfers; limitations. The type of electronic fund
transfers that the consumer may make and any limitations on the
frequency and dollar amount of transfers. Details of the limitations
need not be disclosed if confidentiality is essential to maintain the
security of the electronic fund transfer system.
(5) Fees. Any fees imposed by the financial institution for
electronic fund transfers or for the right to make transfers.
(6) Documentation. A summary of the consumer's right to receipts and
periodic statements, as provided in Sec. 1005.9 of this part, and
notices regarding
[[Page 193]]
preauthorized transfers as provided in Sec. 1005.10(a) and (d).
(7) Stop payment. A summary of the consumer's right to stop payment
of a preauthorized electronic fund transfer and the procedure for
placing a stop-payment order, as provided in Sec. 1005.10(c).
(8) Liability of institution. A summary of the financial
institution's liability to the consumer under section 910 of the Act for
failure to make or to stop certain transfers.
(9) Confidentiality. The circumstances under which, in the ordinary
course of business, the financial institution may provide information
concerning the consumer's account to third parties.
(10) Error resolution. A notice that is substantially similar to
Model Form A-3 as set out in appendix A of this part concerning error
resolution.
(11) ATM fees. A notice that a fee may be imposed by an automated
teller machine operator as defined in Sec. 1005.16(a), when the
consumer initiates an electronic fund transfer or makes a balance
inquiry, and by any network used to complete the transaction.
(c) Addition of electronic fund transfer services. If an electronic
fund transfer service is added to a consumer's account and is subject to
terms and conditions different from those described in the initial
disclosures, disclosures for the new service are required.
[76 FR 81023, Dec. 27, 2011, as amended at 81 FR 70320, Oct. 12, 2016]
Sec. 1005.8 Change in terms notice; error resolution notice.
(a) Change in terms notice--(1) Prior notice required. A financial
institution shall mail or deliver a written notice to the consumer, at
least 21 days before the effective date, of any change in a term or
condition required to be disclosed under Sec. 1005.7(b) of this part if
the change would result in:
(i) Increased fees for the consumer;
(ii) Increased liability for the consumer;
(iii) Fewer types of available electronic fund transfers; or
(iv) Stricter limitations on the frequency or dollar amount of
transfers.
(2) Prior notice exception. A financial institution need not give
prior notice if an immediate change in terms or conditions is necessary
to maintain or restore the security of an account or an electronic fund
transfer system. If the institution makes such a change permanent and
disclosure would not jeopardize the security of the account or system,
the institution shall notify the consumer in writing on or with the next
regularly scheduled periodic statement or within 30 days of making the
change permanent.
(b) Error resolution notice. For accounts to or from which
electronic fund transfers can be made, a financial institution shall
mail or deliver to the consumer, at least once each calendar year, an
error resolution notice substantially similar to the model form set
forth in appendix A of this part (Model Form A-3). Alternatively, an
institution may include an abbreviated notice substantially similar to
the model form error resolution notice set forth in appendix A of this
part (Model Form A-3), on or with each periodic statement required by
Sec. 1005.9(b).
Sec. 1005.9 Receipts at electronic terminals; periodic statements.
(a) Receipts at electronic terminals--General. Except as provided in
paragraph (e) of this section, a financial institution shall make a
receipt available to a consumer at the time the consumer initiates an
electronic fund transfer at an electronic terminal. The receipt shall
set forth the following information, as applicable:
(1) Amount. The amount of the transfer. A transaction fee may be
included in this amount, provided the amount of the fee is disclosed on
the receipt and displayed on or at the terminal.
(2) Date. The date the consumer initiates the transfer.
(3) Type. The type of transfer and the type of the consumer's
account(s) to or from which funds are transferred. The type of account
may be omitted if the access device used is able to access only one
account at that terminal.
(4) Identification. A number or code that identifies the consumer's
account or accounts, or the access device used to initiate the transfer.
The number or code need not exceed four digits or letters to comply with
the requirements of this paragraph (a)(4).
[[Page 194]]
(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
(v) The name of any third party to or from whom funds were
transferred.
(2) Account number. The number of the account.
(3) Fees. The amount of any fees assessed against the account during
the statement period for electronic fund transfers, the right to make
transfers, or account maintenance.
(4) Account balances. The balance in the account at the beginning
and at the close of the statement period.
(5) Address and telephone number for inquiries. The address and
telephone number to be used for inquiries or notice of errors, preceded
by ``Direct inquiries to'' or similar language. The address and
telephone number provided on an error resolution notice under Sec.
1005.8(b) given on or with the statement satisfies this requirement.
(6) Telephone number for preauthorized transfers. A telephone number
the consumer may call to ascertain whether preauthorized transfers to
the consumer's account have occurred, if the financial institution uses
the telephone-notice option under Sec. 1005.10(a)(1)(iii).
(c) Exceptions to the periodic statement requirement for certain
accounts--(1) Preauthorized transfers to accounts. For accounts that may
be accessed only by preauthorized transfers to the account the following
rules apply:
(i) Passbook accounts. For passbook accounts, the financial
institution need not provide a periodic statement if the institution
updates the passbook upon presentation or enters on a separate document
the amount and date of each electronic fund transfer since the passbook
was last presented.
(ii) Other accounts. For accounts other than passbook accounts, the
financial institution must send a periodic statement at least quarterly.
(2) Intra-institutional transfers. For an electronic fund transfer
initiated by the consumer between two accounts of the consumer in the
same institution, documenting the transfer on a periodic statement for
one of the two accounts satisfies the periodic statement requirement.
(3) Relationship between paragraphs (c)(1) and (2) of this section.
An account that is accessed by preauthorized transfers to the account
described in paragraph (c)(1) of this section and by intra-institutional
transfers described in paragraph (c)(2) of this section, but by no other
type of electronic fund transfers, qualifies for the exceptions provided
by paragraph (c)(1) of this section.
(d) Documentation for foreign-initiated transfers. The failure by a
financial institution to provide a terminal receipt for an electronic
fund transfer or to document the transfer on a periodic statement does
not violate this part if:
(1) The transfer is not initiated within a state; and
[[Page 195]]
(2) The financial institution treats an inquiry for clarification or
documentation as a notice of error in accordance with Sec. 1005.11.
(e) Exception for receipts in small-value transfers. A financial
institution is not subject to the requirement to make available a
receipt under paragraph (a) of this section if the amount of the
transfer is $15 or less.
Sec. 1005.10 Preauthorized transfers.
(a) Preauthorized transfers to consumer's account--(1) Notice by
financial institution. When a person initiates preauthorized electronic
fund transfers to a consumer's account at least once every 60 days, the
account-holding financial institution shall provide notice to the
consumer by:
(i) Positive notice. Providing oral or written notice of the
transfer within two business days after the transfer occurs; or
(ii) Negative notice. Providing oral or written notice, within two
business days after the date on which the transfer was scheduled to
occur, that the transfer did not occur; or
(iii) Readily-available telephone line. Providing a readily
available telephone line that the consumer may call to determine whether
the transfer occurred and disclosing the telephone number on the initial
disclosure of account terms and on each periodic statement.
(2) Notice by payor. A financial institution need not provide notice
of a transfer if the payor gives the consumer positive notice that the
transfer has been initiated.
(3) Crediting. A financial institution that receives a preauthorized
transfer of the type described in paragraph (a)(1) of this section shall
credit the amount of the transfer as of the date the funds for the
transfer are received.
(b) Written authorization for preauthorized transfers from
consumer's account. Preauthorized electronic fund transfers from a
consumer's account may be authorized only by a writing signed or
similarly authenticated by the consumer. The person that obtains the
authorization shall provide a copy to the consumer.
(c) Consumer's right to stop payment--(1) Notice. A consumer may
stop payment of a preauthorized electronic fund transfer from the
consumer's account by notifying the financial institution orally or in
writing at least three business days before the scheduled date of the
transfer.
(2) Written confirmation. The financial institution may require the
consumer to give written confirmation of a stop-payment order within 14
days of an oral notification. An institution that requires written
confirmation shall inform the consumer of the requirement and provide
the address where confirmation must be sent when the consumer gives the
oral notification. An oral stop-payment order ceases to be binding after
14 days if the consumer fails to provide the required written
confirmation.
(d) Notice of transfers varying in amount--(1) Notice. When a
preauthorized electronic fund transfer from the consumer's account will
vary in amount from the previous transfer under the same authorization
or from the preauthorized amount, the designated payee or the financial
institution shall send the consumer written notice of the amount and
date of the transfer at least 10 days before the scheduled date of
transfer.
(2) Range. The designated payee or the institution shall inform the
consumer of the right to receive notice of all varying transfers, but
may give the consumer the option of receiving notice only when a
transfer falls outside a specified range of amounts or only when a
transfer differs from the most recent transfer by more than an agreed-
upon amount.
(e) Compulsory use--(1) Credit. No financial institution or other
person may condition an extension of credit to a consumer on the
consumer's repayment by preauthorized electronic fund transfers, except
for credit extended under an overdraft credit plan or extended to
maintain a specified minimum balance in the consumer's account. This
exception does not apply to a covered separate credit feature accessible
by a hybrid prepaid-credit card as defined in Regulation Z, 12 CFR
1026.61.
(2) Employment or government benefit. No financial institution or
other person may require a consumer to establish an account for receipt
of electronic
[[Page 196]]
fund transfers with a particular institution as a condition of
employment or receipt of a government benefit.
[76 FR 81023, Dec. 27, 2011, as amended at 81 FR 84326, Nov. 22, 2016]
Sec. 1005.11 Procedures for resolving errors.
(a) Definition of error--(1) Types of transfers or inquiries
covered. The term ``error'' means:
(i) An unauthorized electronic fund transfer;
(ii) An incorrect electronic fund transfer to or from the consumer's
account;
(iii) The omission of an electronic fund transfer from a periodic
statement;
(iv) A computational or bookkeeping error made by the financial
institution relating to an electronic fund transfer;
(v) The consumer's receipt of an incorrect amount of money from an
electronic terminal;
(vi) An electronic fund transfer not identified in accordance with
Sec. 1005.9 or Sec. 1005.10(a); or
(vii) The consumer's request for documentation required by Sec.
1005.9 or Sec. 1005.10(a) or for additional information or
clarification concerning an electronic fund transfer, including a
request the consumer makes to determine whether an error exists under
paragraphs (a)(1)(i) through (vi) of this section.
(2) Types of inquiries not covered. The term ``error'' does not
include:
(i) A routine inquiry about the consumer's account balance;
(ii) A request for information for tax or other recordkeeping
purposes; or
(iii) A request for duplicate copies of documentation.
(b) Notice of error from consumer--(1) Timing; contents. A financial
institution shall comply with the requirements of this section with
respect to any oral or written notice of error from the consumer that:
(i) Is received by the institution no later than 60 days after the
institution sends the periodic statement or provides the passbook
documentation, required by Sec. 1005.9, on which the alleged error is
first reflected;
(ii) Enables the institution to identify the consumer's name and
account number; and
(iii) Indicates why the consumer believes an error exists and
includes to the extent possible the type, date, and amount of the error,
except for requests described in paragraph (a)(1)(vii) of this section.
(2) Written confirmation. A financial institution may require the
consumer to give written confirmation of an error within 10 business
days of an oral notice. An institution that requires written
confirmation shall inform the consumer of the requirement and provide
the address where confirmation must be sent when the consumer gives the
oral notification.
(3) Request for documentation or clarifications. When a notice of
error is based on documentation or clarification that the consumer
requested under paragraph (a)(1)(vii) of this section, the consumer's
notice of error is timely if received by the financial institution no
later than 60 days after the institution sends the information
requested.
(c) Time limits and extent of investigation--(1) Ten-day period. A
financial institution shall investigate promptly and, except as
otherwise provided in this paragraph (c), shall determine whether an
error occurred within 10 business days of receiving a notice of error.
The institution shall report the results to the consumer within three
business days after completing its investigation. The institution shall
correct the error within one business day after determining that an
error occurred.
(2) Forty-five day period. If the financial institution is unable to
complete its investigation within 10 business days, the institution may
take up to 45 days from receipt of a notice of error to investigate and
determine whether an 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
[[Page 197]]
the institution has satisfied the requirements of Sec. 1005.6(a), the
institution may withhold a maximum of $50 from the amount credited. An
institution need not provisionally credit the consumer's account if:
(A) The institution requires but does not receive written
confirmation within 10 business days of an oral notice of error; or
(B) The alleged error involves an account that is subject to
Regulation T of the Board of Governors of the Federal Reserve System
(Securities Credit by Brokers and Dealers, 12 CFR part 220).
(ii) Informs the consumer, within two business days after the
provisional crediting, of the amount and date of the provisional
crediting and gives the consumer full use of the funds during the
investigation;
(iii) Corrects the error, if any, within one business day after
determining that an error occurred; and
(iv) Reports the results to the consumer within three business days
after completing its investigation (including, if applicable, notice
that a provisional credit has been made final).
(3) Extension of time periods. The time periods in paragraphs (c)(1)
and (c)(2) of this section are extended as follows:
(i) The applicable time is 20 business days in place of 10 business
days under paragraphs (c)(1) and (2) of this section if the notice of
error involves an electronic fund transfer to or from the account within
30 days after the first deposit to the account was made.
(ii) The applicable time is 90 days in place of 45 days under
paragraph (c)(2) of this section, for completing an investigation, if a
notice of error involves an electronic fund transfer that:
(A) Was not initiated within a state;
(B) Resulted from a point-of-sale debit card transaction; or
(C) Occurred within 30 days after the first deposit to the account
was made.
(4) Investigation. With the exception of transfers covered by Sec.
1005.14 of this part, a financial institution's review of its own
records regarding an alleged error satisfies the requirements of this
section if:
(i) The alleged error concerns a transfer to or from a third party;
and
(ii) There is no agreement between the institution and the third
party for the type of electronic fund transfer involved.
(d) Procedures if financial institution determines no error or
different error occurred. In addition to following the procedures
specified in paragraph (c) of this section, the financial institution
shall follow the procedures set forth in this paragraph (d) if it
determines that no error occurred or that an error occurred in a manner
or amount different from that described by the consumer:
(1) Written explanation. The institution's report of the results of
its investigation shall include a written explanation of the
institution's findings and shall note the consumer's right to request
the documents that the institution relied on in making its
determination. Upon request, the institution shall promptly provide
copies of the documents.
(2) Debiting provisional credit. Upon debiting a provisionally
credited amount, the financial institution shall:
(i) Notify the consumer of the date and amount of the debiting;
(ii) Notify the consumer that the institution will honor checks,
drafts, or similar instruments payable to third parties and
preauthorized transfers from the consumer's account (without charge to
the consumer as a result of an overdraft) for five business days after
the notification. The institution shall honor items as specified in the
notice, but need honor only items that it would have paid if the
provisionally credited funds had not been debited.
(e) Reassertion of error. A financial institution that has fully
complied with the error resolution requirements has no further
responsibilities under this section should the consumer later reassert
the same error, except in the case of an error asserted by the consumer
following receipt of information provided under paragraph (a)(1)(vii) of
this section.
[76 FR 81023, Dec. 27, 2011, as amended at 81 FR 84326, Nov. 22, 2016;
83 FR 6417, Feb. 13, 2018]
Sec. 1005.12 Relation to other laws.
(a) Relation to Truth in Lending. (1) The Electronic Fund Transfer
Act and this part govern:
[[Page 198]]
(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 (other than an access device
for a prepaid account) that permits credit extensions (under a
preexisting agreement between a consumer and a financial institution)
only when the consumer's account is overdrawn or to maintain a specified
minimum balance in the consumer's account, or under an overdraft
service, as defined in Sec. 1005.17(a) of this part;
(iii) The addition of an overdraft service, as defined in Sec.
1005.17(a), to an accepted access device; and
(iv) A consumer's liability for an unauthorized electronic fund
transfer and the investigation of errors involving:
(A) Except with respect to a prepaid account, an extension of credit
that is incident to an electronic fund transfer that occurs under an
agreement between the consumer and a financial institution to extend
credit when the consumer's account is overdrawn or to maintain a
specified minimum balance in the consumer's account, or under an
overdraft service, as defined in Sec. 1005.17(a);
(B) With respect to transactions that involve a covered separate
credit feature and an asset feature on a prepaid account that are both
accessible by a hybrid prepaid-credit card as those terms are defined in
Regulation Z, 12 CFR 1026.61, an extension of credit that is incident to
an electronic fund transfer that occurs when the hybrid prepaid-credit
card accesses both funds in the asset feature of the prepaid account and
a credit extension from the credit feature with respect to a particular
transaction;
(C) Transactions that involves credit extended through a negative
balance to the asset feature of a prepaid account that meets the
conditions set forth in Regulation Z, 12 CFR 1026.61(a)(4); and
(D) With respect to transactions involving a prepaid account and a
non-covered separate credit feature as defined in Regulation Z, 12 CFR
1026.61, transactions that access the prepaid account, as applicable.
(2) 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 or plan to an accepted access
device, including an access device for a prepaid account, that would
make the access device into a credit card under Regulation Z (12 CFR
part 1026);
(ii) Except as provided in paragraph (a)(1)(ii) of this section, the
issuance of a credit card that is also an access device; and
(iii) With respect to transactions involving a prepaid account and a
non-covered separate credit feature as defined in Regulation Z, 12 CFR
1026.61, a consumer's liability for unauthorized use and the
investigation of errors involving transactions that access the non-
covered separate credit feature, as applicable.
(b) Preemption of inconsistent state laws--(1) Inconsistent
requirements. The Bureau shall determine, upon its own motion or upon
the request of a state, financial institution, or other interested
party, whether the Act and this part preempt state law relating to
electronic fund transfers, or dormancy, inactivity, or service fees, or
expiration dates in the case of gift certificates, store gift cards, or
general-use prepaid cards.
(2) Standards for determination. State law is inconsistent with the
requirements of the Act and this part if state law:
(i) Requires or permits a practice or act prohibited by the Federal
law;
(ii) Provides for consumer liability for unauthorized electronic
fund transfers that exceeds the limits imposed by the Federal law;
(iii) Allows longer time periods than the Federal law for
investigating and correcting alleged errors, or does not require the
financial institution to credit the consumer's account during an error
investigation in accordance with Sec. 1005.11(c)(2)(i) of this part; or
(iv) Requires initial disclosures, periodic statements, or receipts
that are different in content from those required by the Federal law
except to the extent that the disclosures relate to consumer rights
granted by the state law and not by the Federal law.
[[Page 199]]
(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.
[76 FR 81023, Dec. 27, 2011, as amended at 81 FR 84326, Nov. 22, 2016]
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 by Sec. 1005.9(b) if the following conditions are
met:
(i) The debit card (or other access device) issued to the consumer
bears the service provider's name and an address or telephone number for
making inquiries or giving notice of error;
(ii) The consumer receives a notice concerning use of the debit card
that is substantially similar to the notice contained in appendix A of
this part;
(iii) The consumer receives, on or with the receipts required by
Sec. 1005.9(a), the address and telephone number to be used for an
inquiry, to give notice of an error, or to report the loss or theft of
the debit card;
(iv) The service provider transmits to the account-holding
institution the information specified in Sec. 1005.9(b)(1), in the
format prescribed by the automated clearinghouse (ACH) system used to
clear the fund transfers;
(v) The service provider extends the time period for notice of loss
or theft of a debit card, set forth in Sec. 1005.6(b)(1) and (2), from
two business days to four business days after the consumer learns of the
loss or theft; and extends the time periods for reporting unauthorized
transfers or errors, set forth
[[Page 200]]
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 in Sec. 1005.11(b)(1)(i), if a delay resulted from an initial
attempt by the consumer to notify the account-holding institution.
(ii) The service provider shall disclose to the consumer the date on
which it initiates a transfer to effect a provisional credit in
accordance with Sec. 1005.11(c)(2)(ii).
(iii) If the service provider determines an error occurred, it shall
transfer funds to or from the consumer's account, in the appropriate
amount and within the applicable time period, in accordance with Sec.
1005.11(c)(2)(i).
(iv) If funds were provisionally credited and the service provider
determines no error occurred, it may reverse the credit. The service
provider shall notify the account-holding institution of the period
during which the account-holding institution must honor debits to the
account in accordance with Sec. 1005.11(d)(2)(ii). If an overdraft
results, the service provider shall promptly reimburse the account-
holding institution in the amount of the overdraft.
(c) Compliance by account-holding institution. The account-holding
institution need not comply with the requirements of the Act and this
part with respect to electronic fund transfers initiated through the
service provider except as follows:
(1) Documentation. The account-holding institution shall provide a
periodic statement that describes each electronic fund transfer
initiated by the consumer with the access device issued by the service
provider. The account-holding institution has no liability for the
failure to comply with this requirement if the service provider did not
provide the necessary information; and
(2) Error resolution. Upon request, the account-holding institution
shall provide information or copies of documents needed by the service
provider to investigate errors or to furnish copies of documents to the
consumer. The account-holding institution shall also honor debits to the
account in accordance with Sec. 1005.11(d)(2)(ii).
Sec. 1005.15 Electronic fund transfer of government benefits.
(a) Government agency subject to regulation. (1) A government agency
is deemed to be a financial institution for purposes of the Act and this
part if directly or indirectly it issues an access device to a consumer
for use in initiating an electronic fund transfer of government benefits
from an account, other than needs-tested benefits in a program
established under state or local law or administered by a state or local
agency. The agency shall comply with all applicable requirements of the
Act and this part except as modified by this section.
(2) For purposes of this section, the term ``account'' or
``government benefit account'' means an account established by a
government agency for distributing government benefits to a consumer
electronically, such as through automated teller machines or point-of-
sale terminals, but does not include an account for distributing needs-
tested benefits in a program established under state or local law or
administered by a state or local agency.
(b) Issuance of access devices. For purposes of this section, a
consumer is deemed to request an access device when the consumer applies
for government benefits that the agency disburses or will disburse by
means of an electronic fund transfer. The agency shall verify the
identity of the consumer receiving the device by reasonable means before
the device is activated.
(c) Pre-acquisition disclosure requirements. (1) Before a consumer
acquires a government benefit account, a government agency shall comply
with the pre-acquisition disclosure requirements applicable to prepaid
accounts as set forth in Sec. 1005.18(b).
(2) Additional content for government benefit accounts--(i)
Statement regarding consumer's payment options. As part of its short
form pre-acquisition disclosures, the agency must provide a statement
that the consumer does not have to accept the government benefit account
and directing the consumer to ask about other ways to receive their
[[Page 201]]
benefit payments from the agency instead of receiving them via the
account, using the following clause or a substantially similar clause:
``You do not have to accept this benefits card. Ask about other ways to
receive your benefits.'' Alternatively, an agency may provide a
statement that the consumer has several options to receive benefit
payments, followed by a list of the options available to the consumer,
and directing the consumer to indicate which option the consumer chooses
using the following clause or a substantially similar clause: ``You have
several options to receive your payments: [list of options available to
the consumer]; or this benefits card. Tell the benefits office which
option you choose.'' This statement must be located above the
information required by Sec. 1005.18(b)(2)(i) through (iv). This
statement must appear in a minimum type size of eight points (or 11
pixels) and appear in no larger a type size than what is used for the
fee headings required by Sec. 1005.18(b)(2)(i) through (iv).
(ii) Statement regarding state-required information or other fee
discounts and waivers. An agency may, but is not required to, include a
statement in one additional line of text in the short form disclosure
directing the consumer to a particular location outside the short form
disclosure for information on ways the consumer may access government
benefit account funds and balance information for free or for a reduced
fee. This statement must be located directly below any statements
disclosed pursuant to Sec. 1005.18(b)(3)(i) and (ii), or, if no such
statements are disclosed, above the statement required by Sec.
1005.18(b)(2)(x). This statement must appear in the same type size used
to disclose variable fee information pursuant to Sec. 1005.18(b)(3)(i)
and (ii), or, if none, the same type size used for the information
required by Sec. 1005.18(b)(2)(x) through (xiii).
(3) Form of disclosures. When a short form disclosure required by
paragraph (c) of this section is provided in writing or electronically,
the information required by Sec. 1005.18(b)(2)(i) through (ix) shall be
provided in the form of a table. Except as provided in Sec.
1005.18(b)(6)(iii)(B), the short form disclosure required by Sec.
1005.18(b)(2) shall be provided in a form substantially similar to Model
Form A-10(a) of appendix A of this part. Sample Form A-10(f) in appendix
A of this part provides an example of the long form disclosure required
by Sec. 1005.18(b)(4) when the agency does not offer multiple service
plans.
(d) Access to account information--(1) Periodic statement
alternative. A government agency need not furnish periodic statements
required by Sec. 1005.9(b) if the agency makes available to the
consumer:
(i) The consumer's account balance, through a readily available
telephone line and at a terminal (such as by providing balance
information at a balance-inquiry terminal or providing it, routinely or
upon request, on a terminal receipt at the time of an electronic fund
transfer);
(ii) An electronic history of the consumer's account transactions,
such as through a Web site, that covers at least 12 months preceding the
date the consumer electronically accesses the account; and
(iii) A written history of the consumer's account transactions that
is provided promptly in response to an oral or written request and that
covers at least 24 months preceding the date the agency receives the
consumer's request.
(2) Additional access to account information requirements. For
government benefit accounts, a government agency shall comply with the
account information requirements applicable to prepaid accounts as set
forth in Sec. 1005.18(c)(3) through (5).
(e) Modified disclosure, limitations on liability, and error
resolution requirements. A government agency that provides information
under paragraph (d)(1) of this section shall comply with the following:
(1) Initial disclosures. The agency shall modify the disclosures
under Sec. 1005.7(b) by disclosing:
(i) Access to account information. A telephone number that the
consumer may call to obtain the account balance, the means by which the
consumer can obtain an electronic account history, such as the address
of a Web site, and a summary of the consumer's
[[Page 202]]
right to receive a written account history upon request (in place of the
summary of the right to receive a periodic statement required by Sec.
1005.7(b)(6)), including a telephone number to call to request a
history. The disclosure required by this paragraph (e)(1)(i) may be made
by providing a notice substantially similar to the notice contained in
paragraph (a) of appendix A-5 of this part.
(ii) Error resolution. A notice concerning error resolution that is
substantially similar to the notice contained in paragraph (b) of
appendix A-5 of this part, in place of the notice required by Sec.
1005.7(b)(10).
(2) Annual error resolution notice. The agency shall provide an
annual notice concerning error resolution that is substantially similar
to the notice contained in paragraph (b) of appendix A-5 of this part,
in place of the notice required by Sec. 1005.8(b). Alternatively, the
agency may include on or with each electronic or written history
provided in accordance with paragraph (d)(1) of this section, a notice
substantially similar to the abbreviated notice for periodic statements
contained in paragraph (b) in appendix A-3 of this part, modified as
necessary to reflect the error resolution provisions set forth in this
section.
(3) Modified limitations on liability requirements. (i) For purposes
of Sec. 1005.6(b)(3), the 60-day period for reporting any unauthorized
transfer shall begin on the earlier of:
(A) The date the consumer electronically accesses the consumer's
account under paragraph (d)(1)(ii) of this section, provided that the
electronic history made available to the consumer reflects the
unauthorized transfer; or
(B) The date the agency sends a written history of the consumer's
account transactions requested by the consumer under paragraph
(d)(1)(iii) of this section in which the unauthorized transfer is first
reflected.
(ii) An agency may comply with paragraph (e)(3)(i) of this section
by limiting the consumer's liability for an unauthorized transfer as
provided under Sec. 1005.6(b)(3) for any transfer reported by the
consumer within 120 days after the transfer was credited or debited to
the consumer's account.
(4) Modified error resolution requirements. (i) The agency shall
comply with the requirements of Sec. 1005.11 in response to an oral or
written notice of an error from the consumer that is received by the
earlier of:
(A) Sixty days after the date the consumer electronically accesses
the consumer's account under paragraph (d)(1)(ii) of this section,
provided that the electronic history made available to the consumer
reflects the alleged error; or
(B) Sixty days after the date the agency sends a written history of
the consumer's account transactions requested by the consumer under
paragraph (d)(1)(iii) of this section in which the alleged error is
first reflected.
(ii) In lieu of following the procedures in paragraph (e)(4)(i) of
this section, an agency complies with the requirements for resolving
errors in Sec. 1005.11 if it investigates any oral or written notice of
an error from the consumer that is received by the agency within 120
days after the transfer allegedly in error was credited or debited to
the consumer's account.
(f) Disclosure of fees and other information. For government benefit
accounts, a government agency shall comply with the disclosure and
change-in-terms requirements applicable to prepaid accounts as set forth
in Sec. 1005.18(f).
(g) Government benefit accounts accessible by hybrid prepaid-credit
cards. For government benefit accounts accessible by hybrid prepaid-
credit cards as defined in Regulation Z, 12 CFR 1026.61, a government
agency shall comply with prohibitions and requirements applicable to
prepaid accounts as set forth in Sec. 1005.18(g).
[81 FR 84326, Nov. 22, 2016]
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
[[Page 203]]
consumer for initiating an electronic fund transfer or a balance inquiry
must provide a notice that a fee will be imposed for providing
electronic fund transfer services or a balance inquiry that discloses
the amount of the fee.
(c) Notice requirement. An automated teller machine operator must
provide the notice required by paragraph (b) of this section either by
showing it on the screen of the automated teller machine or by providing
it on paper, before the consumer is committed to paying a fee.
(d) Imposition of fee. An automated teller machine operator may
impose a fee on a consumer for initiating an electronic fund transfer or
a balance inquiry only if:
(1) The consumer is provided the notice required under paragraph (c)
of this section, and
(2) The consumer elects to continue the transaction or inquiry after
receiving such notice.
[76 FR 81023, Dec. 27, 2011, as amended at 78 FR 18224, Mar. 26, 2013]
Sec. 1005.17 Requirements for overdraft services.
(a) Definition. For purposes of this section, the term ``overdraft
service'' means a service under which a financial institution assesses a
fee or charge on a consumer's account held by the institution for paying
a transaction (including a check or other item) when the consumer has
insufficient or unavailable funds in the account. The term ``overdraft
service'' does not include any payment of overdrafts pursuant to:
(1) A line of credit subject to Regulation Z (12 CFR part 1026),
including transfers from a credit card account, home equity line of
credit, or overdraft line of credit;
(2) A service that transfers funds from another account held
individually or jointly by a consumer, such as a savings account;
(3) A line of credit or other transaction exempt from Regulation Z
(12 CFR part 1026) pursuant to 12 CFR 1026.3(d); or
(4) A covered separate credit feature accessible by a hybrid
prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61; or
credit extended through a negative balance on the asset feature of the
prepaid account that meets the conditions of 12 CFR 1026.61(a)(4).
(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
[[Page 204]]
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 with Sec. 1005.17(b)(1)
and obtained the consumer's affirmative consent.
(2) New account holders. For accounts opened on or after July 1,
2010, the financial institution must comply with Sec. 1005.17(b)(1) and
obtain the consumer's affirmative consent before the institution
assesses any fee or charge on the consumer's account for paying an ATM
or one-time debit card transaction pursuant to the institution's
overdraft service.
(d) Content and format. The notice required by paragraph (b)(1)(i)
of this section shall be substantially similar to Model Form A-9 set
forth in appendix A of this part, include all applicable items in this
paragraph, and may not contain any information not specified in or
otherwise permitted by this paragraph.
(1) Overdraft service. A brief description of the financial
institution's overdraft service and the types of transactions for which
a fee or charge for paying an overdraft may be imposed, including ATM
and one-time debit card transactions.
(2) Fees imposed. The dollar amount of any fees or charges assessed
by the financial institution for paying an ATM or one-time debit card
transaction pursuant to the institution's overdraft service, including
any daily or other overdraft fees. If the amount of the fee is
determined on the basis of the number of times the consumer has
overdrawn the account, the amount of the overdraft, or other factors,
the institution must disclose the maximum fee that may be imposed.
(3) Limits on fees charged. The maximum number of overdraft fees or
charges that may be assessed per day, or, if applicable, that there is
no limit.
(4) Disclosure of opt-in right. An explanation of the consumer's
right to affirmatively consent to the financial institution's payment of
overdrafts for ATM and one-time debit card transactions pursuant to the
institution's overdraft service, including the methods by which the
consumer may consent to the service; and
(5) Alternative plans for covering overdrafts. If the institution
offers a line of credit subject to Regulation Z (12 CFR part 1026) or a
service that transfers funds from another account of the consumer held
at the institution to cover overdrafts, the institution must state that
fact. An institution may, but is not required to, list additional
alternatives for the payment of overdrafts.
(6) Permitted modifications and additional content. If applicable,
the institution may modify the content required by Sec. 1005.17(d) to
indicate that the consumer has the right to opt into, or opt out of, the
payment of overdrafts under the institution's overdraft service for
other types of transactions, such as checks, ACH transactions, or
automatic bill payments; to provide a means for the consumer to exercise
this choice; and to disclose the associated returned item fee and that
additional merchant fees may apply. The institution may also disclose
the consumer's right to revoke consent. For notices provided to
consumers who have opened accounts prior to July 1, 2010, the financial
institution may describe the institution's overdraft service with
respect to ATM and one-time debit card transactions with a statement
such as ``After August 15, 2010, we will not authorize and pay
overdrafts for the following types of transactions unless you ask us to
(see below).''
(e) Joint relationships. If two or more consumers jointly hold an
account, the financial institution shall treat the affirmative consent
of any of the joint consumers as affirmative consent for that account.
Similarly, the financial institution shall treat a revocation of
affirmative consent by any of the joint consumers as revocation of
consent for that account.
(f) Continuing right to opt in or to revoke the opt-in. A consumer
may affirmatively consent to the financial institution's overdraft
service at any time in the manner described in the notice required by
paragraph (b)(1)(i) of
[[Page 205]]
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.
[76 FR 81023, Dec. 27, 2011, as amended at 81 FR 84328, Nov. 22, 2016]
Sec. 1005.18 Requirements for financial institutions offering prepaid
accounts.
(a) Coverage. A financial institution shall comply with all
applicable requirements of the Act and this part with respect to prepaid
accounts except as modified by this section. For rules governing
government benefit accounts, see Sec. 1005.15.
(b) Pre-acquisition disclosure requirements--(1) Timing of
disclosures--(i) General. Except as provided in paragraph (b)(1)(ii) or
(iii) of this section, a financial institution shall provide the
disclosures required by paragraph (b) of this section before a consumer
acquires a prepaid account. When a prepaid account is used for
disbursing funds to a consumer, and the financial institution or third
party making the disbursement does not offer any alternative means for
the consumer to receive those funds in lieu of accepting the prepaid
account, for purposes of this paragraph, the disclosures required by
paragraph (b) of this section may be provided at the time the consumer
receives the prepaid account.
(ii) Disclosures for prepaid accounts acquired in retail locations.
A financial institution is not required to provide the long form
disclosure required by paragraph (b)(4) of this section before a
consumer acquires a prepaid account in person at a retail location if
the following conditions are met:
(A) The prepaid account access device is contained inside the
packaging material.
(B) The disclosure required by paragraph (b)(2) of this section is
provided on or are visible through an outward-facing, external surface
of a prepaid account access device's packaging material.
(C) The disclosure required by paragraph (b)(2) of this section
includes the information set forth in paragraph (b)(2)(xiii) of this
section that allows a consumer to access the information required to be
disclosed by paragraph (b)(4) of this section by telephone and via a
website.
(D) The long form disclosure required by paragraph (b)(4) of this
section is provided after the consumer acquires the prepaid account. If
a financial institution does not provide the long form disclosure inside
the prepaid account packaging material, and it is not otherwise already
mailing or delivering to the consumer written account-related
communications within 30 days of obtaining the consumer's contact
information, it may provide the long form disclosure pursuant to this
paragraph in electronic form without regard to the consumer notice and
consent requirements of section 101(c) of the Electronic Signatures in
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).
(iii) Disclosures for prepaid accounts acquired orally by telephone.
A financial institution is not required to provide the long form
disclosure required by paragraph (b)(4) of this section before a
consumer acquires a prepaid account orally by telephone if the following
conditions are met:
(A) The financial institution communicates to the consumer orally,
before the consumer acquires the prepaid account, that the information
required to be disclosed by paragraph (b)(4) of this section is
available both by telephone and on a Web site.
(B) The financial institution makes the information required to be
disclosed by paragraph (b)(4) of this section available both by
telephone and on a Web site.
(C) The long form disclosure required by paragraph (b)(4) of this
section is provided after the consumer acquires the prepaid account.
(2) Short form disclosure content. In accordance with paragraph
(b)(1) of this section, a financial institution shall provide a
disclosure setting forth the
[[Page 206]]
following fees and information for a prepaid account, as applicable:
(i) Periodic fee. The periodic fee charged for holding the prepaid
account, assessed on a monthly or other periodic basis, using the term
``Monthly fee,'' ``Annual fee,'' or a substantially similar term.
(ii) Per purchase fee. The fee for making a purchase using the
prepaid account, using the term ``Per purchase'' or a substantially
similar term.
(iii) ATM withdrawal fees. Two fees for using an automated teller
machine to initiate a withdrawal of cash in the United States from the
prepaid account, both within and outside of the financial institution's
network or a network affiliated with the financial institution, using
the term ``ATM withdrawal'' or a substantially similar term, and ``in-
network'' or ``out-of-network,'' respectively, or substantially similar
terms.
(iv) Cash reload fee. The fee for reloading cash into the prepaid
account using the term ``Cash reload'' or a substantially similar term.
The fee disclosed must be the total of all charges from the financial
institution and any third parties for a cash reload.
(v) ATM balance inquiry fees. Two fees for using an automated teller
machine to check the balance of the prepaid account in the United
States, both within and outside of the financial institution's network
or a network affiliated with the financial institution, using the term
``ATM balance inquiry'' or a substantially similar term, and ``in-
network'' or ``out-of-network,'' respectively, or substantially similar
terms.
(vi) Customer service fees. Two fees for calling the financial
institution about the prepaid account, both for calling an interactive
voice response system and a live customer service agent, using the term
``Customer service'' or a substantially similar term, and ``automated''
or ``live agent,'' or substantially similar terms, respectively, and
``per call'' or a substantially similar term. When providing a short
form disclosure for multiple service plans pursuant to paragraph
(b)(6)(iii)(B)(2) of this section, disclose only the fee for calling the
live agent customer service about the prepaid account, using the term
``Live customer service'' or a substantially similar term and ``per
call'' or a substantially similar term.
(vii) Inactivity fee. The fee for non-use, dormancy, or inactivity
of the prepaid account, using the term ``Inactivity'' or a substantially
similar term, as well as the conditions that trigger the financial
institution to impose that fee.
(viii) Statements regarding additional fee types--(A) Statement
regarding number of additional fee types charged. A statement disclosing
the number of additional fee types the financial institution may charge
consumers with respect to the prepaid account, using the following
clause or a substantially similar clause: ``We charge [x] other types of
fees.'' The number of additional fee types disclosed must reflect the
total number of fee types under which the financial institution may
charge fees, excluding:
(1) Fees required to be disclosed pursuant to paragraphs (b)(2)(i)
through (vii) and (b)(5) of this section; and
(2) Any finance charges as described in Regulation Z, 12 CFR
1026.4(b)(11), imposed in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in 12 CFR
1026.61.
(B) Statement directing consumers to disclosure of additional fee
types. If a financial institution makes a disclosure pursuant to
paragraph (b)(2)(ix) of this section, a statement directing consumers to
that disclosure, located after but on the same line of text as the
statement regarding the number of additional fee types required by
paragraph (b)(2)(viii)(A) of this section, using the following clause or
a substantially similar clause: ``Here are some of them:''.
(ix) Disclosure of additional fee types--(A) Determination of which
additional fee types to disclose. The two fee types that generate the
highest revenue from consumers for the prepaid account program or across
prepaid account programs that share the same fee schedule during the
time period provided in paragraphs (b)(2)(ix)(D) and (E) of this
section, excluding:
(1) Fees required to be disclosed pursuant to paragraphs (b)(2)(i)
through (vii) and (b)(5) of this section;
[[Page 207]]
(2) Any fee types that generated less than 5 percent of the total
revenue from consumers for the prepaid account program or across prepaid
account programs that share the same fee schedule during the time period
provided in paragraphs (b)(2)(ix)(D) and (E) of this section; and
(3) Any finance charges as described in Regulation Z, 12 CFR
1026.4(b)(11), imposed in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in 12 CFR
1026.61.
(B) Disclosure of fewer than two additional fee types. A financial
institution that has only one additional fee type that satisfies the
criteria in paragraph (b)(2)(ix)(A) of this section must disclose that
one additional fee type; it may, but is not required to, also disclose
another additional fee type of its choice. A financial institution that
has no additional fee types that satisfy the criteria in paragraph
(b)(2)(ix)(A) of this section is not required to make a disclosure under
this paragraph (b)(2)(ix); it may, but is not required to, disclose one
or two fee types of its choice.
(C) Fee variations in additional fee types. If an additional fee
type required to be disclosed pursuant to paragraph (b)(2)(ix)(A) of
this section has more than two fee variations, or when providing a short
form disclosure for multiple service plans pursuant to paragraph
(b)(6)(iii)(B)(2) of this section, the financial institution must
disclose the name of the additional fee type and the highest fee amount
in accordance with paragraph (b)(3)(i) of this section; for disclosures
other than for multiple service plans, it may, but is not required to,
consolidate the fee variations into two categories and disclose the
names of those two fee variation categories and the fee amounts in a
format substantially similar to that used to disclose the two-tier fees
required by paragraphs (b)(2)(v) and (vi) of this section and in
accordance with paragraphs (b)(3)(i) and (b)(7)(ii)(B)(1) of this
section. Except when providing a short form disclosure for multiple
service plans pursuant to paragraph (b)(6)(iii)(B)(2) of this section,
if an additional fee type has two fee variations, the financial
institution must disclose the name of the additional fee type together
with the names of the two fee variations and the fee amounts in a format
substantially similar to that used to disclose the two-tier fees
required by paragraphs (b)(2)(v) and (vi) of this section and in
accordance with paragraph (b)(7)(ii)(B)(1) of this section. If a
financial institution only charges one fee under a particular fee type,
the financial institution must disclose the name of the additional fee
type and the fee amount; it may, but is not required to, disclose also
the name of the one fee variation for which the fee amount is charged,
in a format substantially similar to that used to disclose the two-tier
fees required by paragraphs (b)(2)(v) and (vi) of this section, except
that the financial institution would disclose only the one fee variation
name and fee amount instead of two.
(D) Timing of initial assessment of additional fee types
disclosure--(1) Existing prepaid account programs as of April 1, 2019.
For a prepaid account program in effect as of April 1, 2019, the
financial institution must disclose the additional fee types based on
revenue for a 24-month period that begins no earlier than October 1,
2014.
(2) Existing prepaid account programs as of April 1, 2019 with
unavailable data. If a financial institution does not have 24 months of
fee revenue data for a particular prepaid account program from which to
calculate the additional fee types disclosure in advance of April 1,
2019, the financial institution must disclose the additional fee types
based on revenue it reasonably anticipates the prepaid account program
will generate over the 24-month period that begins on April 1, 2019.
(3) New prepaid account programs created on or after April 1, 2019.
For a prepaid account program created on or after April 1, 2019, the
financial institution must disclose the additional fee types based on
revenue it reasonably anticipates the prepaid account program will
generate over the first 24 months of the program.
(E) Timing of periodic reassessment and update of additional fee
types disclosure--(1) General. A financial institution must reassess its
additional fee types disclosure periodically as described in
[[Page 208]]
paragraph (b)(2)(ix)(E)(2) of this section and upon a fee schedule
change as described in paragraph (b)(2)(ix)(E)(3) of this section. The
financial institution must update its additional fee types disclosure if
the previous disclosure no longer complies with the requirements of this
paragraph (b)(2)(ix).
(2) Periodic reassessment. A financial institution must reassess
whether its previously disclosed additional fee types continue to comply
with the requirements of this paragraph (b)(2)(ix) every 24 months based
on revenue for the previous 24-month period. The financial institution
must complete this reassessment and update its disclosure, if
applicable, within three months of the end of the 24-month period,
except as provided in the update printing exception in paragraph
(b)(2)(ix)(E)(4) of this section. A financial institution may, but is
not required to, carry out this reassessment and update, if applicable,
more frequently than every 24 months, at which time a new 24-month
period commences.
(3) Fee schedule change. If a financial institution revises the fee
schedule for a prepaid account program, it must determine whether it
reasonably anticipates that the previously disclosed additional fee
types will continue to comply with the requirements of this paragraph
(b)(2)(ix) for the 24 months following implementation of the fee
schedule change. If the financial institution reasonably anticipates
that the previously disclosed additional fee types will not comply with
the requirements of this paragraph (b)(2)(ix), it must update the
disclosure based on its reasonable anticipation of what those additional
fee types will be at the time the fee schedule change goes into effect,
except as provided in the update printing exception in paragraph
(b)(2)(ix)(E)(4) of this section. If an immediate change in terms and
conditions is necessary to maintain or restore the security of an
account or an electronic fund transfer system as described in Sec.
1005.8(a)(2) and that change affects the prepaid account program's fee
schedule, the financial institution must complete its reassessment and
update its disclosure, if applicable, within three months of the date it
makes the change permanent, except as provided in the update printing
exception in paragraph (b)(2)(ix)(E)(4) of this section.
(4) Update printing exception. Notwithstanding the requirements to
update an additional fee types disclosure in paragraph (b)(2)(ix)(E) of
this section, a financial institution is not required to update the
listing of additional fee types that are provided on, in, or with
prepaid account packaging materials that were manufactured, printed, or
otherwise produced prior to a periodic reassessment and update pursuant
to paragraph (b)(2)(ix)(E)(2) of this section or prior to a fee schedule
change pursuant to paragraph (b)(2)(ix)(E)(3) of this section.
(x) Statement regarding overdraft credit features. If a covered
separate credit feature accessible by a hybrid prepaid-credit card as
defined in Regulation Z, 12 CFR 1026.61, may be offered at any point to
a consumer in connection with the prepaid account, a statement that
overdraft/credit may be offered, the time period after which it may be
offered, and that fees would apply, using the following clause or a
substantially similar clause: ``You may be offered overdraft/credit
after [x] days. Fees would apply.'' If no such credit feature will be
offered at any point to a consumer in connection with the prepaid
account, a statement that no overdraft credit feature is offered, using
the following clause or a substantially similar clause: ``No overdraft/
credit feature.''
(xi) Statement regarding registration and FDIC or NCUA insurance. A
statement regarding the prepaid account program's eligibility for FDIC
deposit insurance or NCUA share insurance, as appropriate, and directing
the consumer to register the prepaid account for insurance and other
account protections, where applicable, as follows:
(A) Account is insurance eligible and does not have pre-acquisition
consumer identification/verification. If a prepaid account program is
set up to be eligible for FDIC deposit or NCUA share insurance, and
consumer identification and verification does not occur before the
account is opened, using the following clause or a substantially similar
clause: ``Register your card for [FDIC
[[Page 209]]
insurance eligibility] [NCUA insurance, if eligible,] and other
protections.''
(B) Account is not insurance eligible and does not have pre-
acquisition consumer identification/verification. If a prepaid account
program is not set up to be eligible for FDIC deposit or NCUA share
insurance, and consumer identification and verification does not occur
before the account is opened, using the following clause or a
substantially similar clause: ``Not [FDIC] [NCUA] insured. Register your
card for other protections.''
(C) Account is insurance eligible and has pre-acquisition consumer
identification/verification. If a prepaid account program is set up to
be eligible for FDIC deposit or NCUA share insurance, and consumer
identification and verification occurs for all prepaid accounts within
the prepaid program before the account is opened, using the following
clause or a substantially similar clause: ``Your funds are [eligible for
FDIC insurance] [NCUA insured, if eligible].''
(D) Account is not insurance eligible and has pre-acquisition
consumer identification/verification. If a prepaid account program is
not set up to be eligible for FDIC deposit or NCUA share insurance, and
consumer identification and verification occurs for all prepaid accounts
within the prepaid account program before the account is opened, using
the following clause or a substantially similar clause: ``Your funds are
not [FDIC] [NCUA] insured.''
(E) No consumer identification/verification. If a prepaid account
program is set up such that there is no consumer identification and
verification process for any prepaid accounts within the prepaid account
program, using the following clause or a substantially similar clause:
``Treat this card like cash. Not [FDIC] [NCUA] insured.''
(xii) Statement regarding CFPB Web site. A statement directing the
consumer to a Web site URL of the Consumer Financial Protection Bureau
(cfpb.gov/prepaid) for general information about prepaid accounts, using
the following clause or a substantially similar clause: ``For general
information about prepaid accounts, visit cfpb.gov/prepaid.''
(xiii) Statement regarding information on all fees and services. A
statement directing the consumer to the location of the long form
disclosure required by paragraph (b)(4) of this section to find details
and conditions for all fees and services. For a financial institution
offering prepaid accounts at a retail location pursuant to the retail
location exception in paragraph (b)(1)(ii) of this section, this
statement must also include a telephone number and a Web site URL that a
consumer may use to directly access, respectively, an oral and an
electronic version of the long form disclosure required under paragraph
(b)(4) of this section. The disclosure required by this paragraph must
be made using the following clause or a substantially similar clause:
``Find details and conditions for all fees and services in [location]''
or, for prepaid accounts offered at retail locations pursuant to
paragraph (b)(1)(ii) of this section, made using the following clause or
a substantially similar clause: ``Find details and conditions for all
fees and services inside the package, or call [telephone number] or
visit [Web site].'' The Web site URL may not exceed 22 characters and
must be meaningfully named. A financial institution may, but is not
required to, disclose an SMS code at the end of the statement disclosing
the telephone number and Web site URL, if the SMS code can be
accommodated on the same line of text as the statement required by this
paragraph.
(xiv) Additional content for payroll card accounts--(A) Statement
regarding wage or salary payment options. For payroll card accounts, a
statement that the consumer does not have to accept the payroll card
account and directing the consumer to ask about other ways to receive
wages or salary from the employer instead of receiving them via the
payroll card account using the following clause or a substantially
similar clause: ``You do not have to accept this payroll card. Ask your
employer about other ways to receive your wages.'' Alternatively, a
financial institution may provide a statement that the consumer has
several options to receive wages or salary, followed by a list of the
options available to the consumer, and directing the consumer to
[[Page 210]]
tell the employer which option the consumer chooses using the following
clause or a substantially similar clause: ``You have several options to
receive your wages: [list of options available to the consumer]; or this
payroll card. Tell your employer which option you choose.'' This
statement must be located above the information required by paragraphs
(b)(2)(i) through (iv).
(B) Statement regarding state-required information or other fee
discounts and waivers. For payroll card accounts, a financial
institution may, but is not required to, include a statement in one
additional line of text directing the consumer to a particular location
outside the short form disclosure for information on ways the consumer
may access payroll card account funds and balance information for free
or for a reduced fee. This statement must be located directly below any
statements disclosed pursuant to paragraphs (b)(3)(i) and (ii) of this
section, or, if no such statements are disclosed, above the statement
required by paragraph (b)(2)(x) of this section.
(3) Short form disclosure of variable fees and third-party fees and
prohibition on disclosure of finance charges--(i) General disclosure of
variable fees. If the amount of any fee that is required to be disclosed
in the short form disclosure pursuant to paragraphs (b)(2)(i) through
(vii) and (ix) of this section could vary, a financial institution shall
disclose the highest amount it may impose for that fee, followed by a
symbol, such as an asterisk, linked to a statement explaining that the
fee could be lower depending on how and where the prepaid account is
used, using the following clause or a substantially similar clause:
``This fee can be lower depending on how and where this card is used.''
Except as provided in paragraph (b)(3)(ii) of this section, a financial
institution must use the same symbol and statement for all fees that
could vary. The linked statement must be located above the statement
required by paragraph (b)(2)(x) of this section.
(ii) Disclosure of variable periodic fee. If the amount of the
periodic fee disclosed in the short form disclosure pursuant to
paragraph (b)(2)(i) of this section could vary, as an alternative to the
disclosure required by paragraph (b)(3)(i) of this section, the
financial institution may disclose the highest amount it may impose for
the periodic fee, followed by a symbol, such as a dagger, that is
different from the symbol the financial institution uses pursuant to
paragraph (b)(3)(i) of this section, to indicate that a waiver of the
fee or a lower fee might apply, linked to a statement in one additional
line of text disclosing the waiver or reduced fee amount and explaining
the circumstances under which the fee waiver or reduction may occur. The
linked statement must be located directly above or in place of the
linked statement required by paragraph (b)(3)(i) of this section, as
applicable.
(iii) Single disclosure for like fees. As an alternative to the two-
tier fee disclosure required by paragraphs (b)(2)(iii), (v), and (vi) of
this section and any two-tier fee required by paragraph (b)(2)(ix) of
this section, a financial institution may disclose a single fee amount
when the amount is the same for both fees.
(iv) Third-party fees in general. Except as provided in paragraph
(b)(3)(v) of this section, a financial institution may not include any
third-party fees in a disclosure made pursuant to paragraph (b)(2) of
this section.
(v) Third-party cash reload fees. Any third-party fee included in
the cash reload fee disclosed in the short form pursuant to paragraph
(b)(2)(iv) of this section must be the highest fee known by the
financial institution at the time it prints, or otherwise prepares, the
short form disclosure required by paragraph (b)(2) of this section. A
financial institution is not required to revise its short form
disclosure to reflect a cash reload fee change by a third party until
such time that the financial institution manufactures, prints, or
otherwise produces new prepaid account packaging materials or otherwise
updates the short form disclosure.
(vi) Prohibition on disclosure of finance charges. A financial
institution may not include in a disclosure made pursuant to paragraphs
(b)(2)(i) through (ix) of this section any finance charges as described
in Regulation Z, 12 CFR 1026.4(b)(11), imposed in connection with a
covered separate credit feature
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accessible by a hybrid prepaid-credit card as defined in 12 CFR 1026.61.
(4) Long form disclosure content. In accordance with paragraph
(b)(1) of this section, a financial institution shall provide a
disclosure setting forth the following fees and information for a
prepaid account, as applicable:
(i) Title for long form disclosure. A heading stating the name of
the prepaid account program and that the long form disclosure contains a
list of all fees for that particular prepaid account program.
(ii) Fees. All fees that may be imposed in connection with a prepaid
account. For each fee, the financial institution must disclose the
amount of the fee and the conditions, if any, under which the fee may be
imposed, waived, or reduced. A financial institution may not use any
symbols, such as an asterisk, to explain conditions under which any fee
may be imposed. A financial institution may, but is not required to,
include in the long form disclosure any service or feature it provides
or offers at no charge to the consumer. The financial institution must
also disclose any third-party fee amounts known to the financial
institution that may apply. For any such third-party fee disclosed, the
financial institution may, but is not required to, include either or
both a statement that the fee is accurate as of or through a specific
date or that the third-party fee is subject to change. If a third-party
fee may apply but the amount of that fee is not known by the financial
institution, it must include a statement indicating that the third-party
fee may apply without specifying the fee amount. A financial institution
is not required to revise the long form disclosure required by paragraph
(b)(4) of this section to reflect a fee change by a third party until
such time that the financial institution manufactures, prints, or
otherwise produces new prepaid account packaging materials or otherwise
updates the long form disclosure.
(iii) Statement regarding registration and FDIC or NCUA insurance.
The statement required by paragraph (b)(2)(xi) of this section, together
with an explanation of FDIC or NCUA insurance coverage and the benefit
of such coverage or the consequence of the lack of such coverage, as
applicable.
(iv) Statement regarding overdraft credit features. The statement
required by paragraph (b)(2)(x) of this section.
(v) Statement regarding financial institution contact information. A
statement directing the consumer to a telephone number, mailing address,
and Web site URL of the person or office that a consumer may contact to
learn about the terms and conditions of the prepaid account, to obtain
prepaid account balance information, to request a copy of transaction
history pursuant to paragraph (c)(1)(iii) of this section if the
financial institution does not provide periodic statements pursuant to
Sec. 1005.9(b), or to notify the financial institution when the
consumer believes that an unauthorized electronic fund transfer occurred
as required by Sec. 1005.7(b)(2) and paragraph (d)(1)(ii) of this
section.
(vi) Statement regarding CFPB Web site and telephone number. A
statement directing the consumer to a Web site URL of the Consumer
Financial Protection Bureau (cfpb.gov/prepaid) for general information
about prepaid accounts, and a statement directing the consumer to a
Consumer Financial Protection Bureau telephone number (1-855-411-2372)
and Web site URL (cfpb.gov/complaint) to submit a complaint about a
prepaid account, using the following clause or a substantially similar
clause: ``For general information about prepaid accounts, visit
cfpb.gov/prepaid. If you have a complaint about a prepaid account, call
the Consumer Financial Protection Bureau at 1-855-411-2372 or visit
cfpb.gov/complaint.''
(vii) Regulation Z disclosures for overdraft credit features. The
disclosures described in Regulation Z, 12 CFR 1026.60(e)(1), in
accordance with the requirements for such disclosures in 12 CFR 1026.60,
if, at any point, a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in 12 CFR 1026.61, may be offered
in connection with the prepaid account. A financial institution may, but
is not required to, include above the Regulation Z disclosures required
by this paragraph a heading and other explanatory information
introducing the overdraft
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credit feature. A financial institution is not required to revise the
disclosure required by this paragraph to reflect a change in the fees or
other terms disclosed therein until such time as the financial
institution manufactures, prints, or otherwise produces new prepaid
account packaging materials or otherwise updates the long form
disclosure.
(5) Disclosure requirements outside the short form disclosure. At
the time a financial institution provides the short form disclosure, it
must also disclose the following information: the name of the financial
institution; the name of the prepaid account program; the purchase price
for the prepaid account, if any; and the fee for activating the prepaid
account, if any. In a setting other than in a retail location, this
information must be disclosed in close proximity to the short form. In a
retail location, this information, other than the purchase price, must
be disclosed on the exterior of the access device's packaging material.
In a retail location, the purchase price must be disclosed either on the
exterior of or in close proximity to the prepaid account access device's
packaging material.
(6) Form of pre-acquisition disclosures--(i) General--(A) Written
disclosures. Except as provided in paragraphs (b)(6)(i)(B) and (C) of
this section, disclosures required by paragraph (b) of this section must
be in writing.
(B) Electronic disclosures. Unless provided in written form prior to
acquisition pursuant to paragraph (b)(1)(i) of this section, the
disclosures required by paragraph (b) of this section must be provided
in electronic form when a consumer acquires a prepaid account through
electronic means, including via a website or mobile application, and
must be viewable across all screen sizes. The long form disclosure must
be provided electronically through a website when a financial
institution is offering prepaid accounts at a retail location pursuant
to the retail location exception in paragraph (b)(1)(ii) of this
section. Electronic disclosures must be provided in a manner which is
reasonably expected to be accessible in light of how a consumer is
acquiring the prepaid account, in a responsive form, and using machine-
readable text that is accessible via Web browsers or mobile
applications, as applicable, and via screen readers. Electronic
disclosures provided pursuant to paragraph (b) of this section need not
meet the consumer consent and other applicable provisions of the
Electronic Signatures in Global and National Commerce Act (E-Sign Act)
(15 U.S.C. 7001 et seq.).
(C) Oral disclosures. Unless provided in written form prior to
acquisition pursuant to paragraph (b)(1)(i) of this section, disclosures
required by paragraphs (b)(2) and (5) of this section must be provided
orally when a consumer acquires a prepaid account orally by telephone
pursuant to the exception in paragraph (b)(1)(iii) of this section. For
prepaid accounts acquired in retail locations or orally by telephone,
the disclosure required by paragraph (b)(4) of this section provided by
telephone pursuant to paragraph (b)(1)(ii)(C) or (b)(1)(iii)(B) of this
section also must be made orally.
(ii) Retainable form. Pursuant to Sec. 1005.4(a)(1), disclosures
required by paragraph (b) of this section must be made in a form that a
consumer may keep, except for disclosures provided orally pursuant to
paragraphs (b)(1)(ii) or (iii) of this section, a long form disclosure
provided via SMS as permitted by paragraph (b)(2)(xiii) of this section
for a prepaid account sold at retail locations pursuant to the retail
location exception in paragraph (b)(1)(ii) of this section, and the
disclosure of a purchase price pursuant to paragraph (b)(5) of this
section that is not disclosed on the exterior of the packaging material
for a prepaid account sold at a retail location pursuant to the retail
location exception in paragraph (b)(1)(ii) of this section.
(iii) Tabular format--(A) General. When a short form disclosure is
provided in writing or electronically, the information required by
paragraphs (b)(2)(i) through (ix) of this section shall be provided in
the form of a table. Except as provided in paragraph (b)(6)(iii)(B) of
this section, the short form disclosure required by paragraph (b)(2) of
this section shall be provided in a form substantially similar to Model
Forms A-10(a) through (d) in appendix A of this part, as applicable.
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When a long form disclosure is provided in writing or electronically,
the information required by paragraph (b)(4)(ii) of this section shall
be provided in the form of a table. Sample Form A-10(f) in appendix A of
this part provides an example of the long form disclosure required by
paragraph (b)(4) of this section when the financial institution does not
offer multiple service plans.
(B) Multiple service plans--(1) Short form disclosure for default
service plan. When a financial institution offers multiple service plans
within a particular prepaid account program and each plan has a
different fee schedule, the information required by paragraphs (b)(2)(i)
through (ix) of this section may be provided in the tabular format
described in paragraph (b)(6)(iii)(A) of this section for the service
plan in which a consumer is initially enrolled by default upon acquiring
the prepaid account.
(2) Short form disclosure for multiple service plans. As an
alternative to disclosing the default service plan pursuant to paragraph
(b)(6)(iii)(B)(1) of this section, when a financial institution offers
multiple service plans within a particular prepaid account program and
each plan has a different fee schedule, fee disclosures required by
paragraphs (b)(2)(i) through (vii) and (ix) of this section may be
provided in the form of a table with separate columns for each service
plan, in a form substantially similar to Model Form A-10(e) in appendix
A of this part. Column headings must describe each service plan included
in the table, using the terms ``Pay-as-you-go plan,'' ``Monthly plan,''
``Annual plan,'' or substantially similar terms; or, for multiple
service plans offering preferred rates or fees for the prepaid accounts
of consumers who also use another non-prepaid service, column headings
must describe each service plan included in the table for the preferred
and non-preferred service plans, as applicable.
(3) Long form disclosure. The information in the long form
disclosure required by paragraph (b)(4)(ii) of this section must be
presented in the form of a table for all service plans.
(7) Specific formatting requirements for pre-acquisition
disclosures--(i) Grouping--(A) Short form disclosure. The information
required in the short form disclosure by paragraphs (b)(2)(i) through
(iv) of this section must be grouped together and provided in that
order. The information required by paragraphs (b)(2)(v) through (ix) of
this section must be generally grouped together and provided in that
order. The information required by paragraphs (b)(3)(i) and (ii) of this
section, as applicable, must be generally grouped together and in the
location described by paragraphs (b)(3)(i) and (ii) of this section. The
information required by paragraphs (b)(2)(x) through (xiii) of this
section must be generally grouped together and provided in that order.
The statement regarding wage or salary payment options for payroll card
accounts required by paragraph (b)(2)(xiv)(A) of this section must be
located above the information required by paragraphs (b)(2)(i) through
(iv) of this section, as described in paragraph (b)(2)(xiv)(A) of this
section. The statement regarding state-required information or other fee
discounts or waivers permitted by paragraph (b)(2)(xiv)(B) of this
section, when applicable, must appear in the location described by
paragraph (b)(2)(xiv)(B) of this section.
(B) Long form disclosure. The information required by paragraph
(b)(4)(i) of this section must be located in the first line of the long
form disclosure. The information required by paragraph (b)(4)(ii) of
this section must be generally grouped together and organized under
subheadings by the categories of function for which a financial
institution may impose the fee. Text describing the conditions under
which a fee may be imposed must appear in the table required by
paragraph (b)(6)(iii)(A) of this section in close proximity to the fee
amount. The statements in the long form disclosure required by
paragraphs (b)(4)(iii) through (vi) of this section must be generally
grouped together, provided in that order, and appear below the
information required by paragraph (b)(4)(ii) of this section. If,
pursuant to paragraph (b)(4)(vii) of this section, the financial
institution includes the disclosures described in Regulation Z, 12 CFR
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1026.60(e)(1), such disclosures must appear below the statements
required by paragraph (b)(4)(vi) of this section.
(C) Multiple service plan disclosure. When providing a short form
disclosure for multiple service plans pursuant to paragraph
(b)(6)(iii)(B)(2) of this section, in lieu of the requirements in
paragraph (b)(7)(i)(A) of this section for grouping of the disclosures
required by paragraphs (b)(2)(i) through (iv) and (v) through (ix) of
this section, the information required by paragraphs (b)(2)(i) through
(ix) of this section must be grouped together and provided in that
order.
(ii) Prominence and size--(A) General. All text used to disclose
information in the short form or in the long form disclosure pursuant to
paragraphs (b)(2), (b)(3)(i) and (ii), and (b)(4) of this section must
be in a single, easy-to-read type that is all black or one color and
printed on a background that provides a clear contrast.
(B) Short form disclosure--(1) Fees and other information. The
information required in the short form disclosure by paragraphs
(b)(2)(i) through (iv) of this section must appear as follows: Fee
amounts in bold-faced type; single fee amounts in a minimum type size of
15 points (or 21 pixels); two-tier fee amounts for ATM withdrawal in a
minimum type size of 11 points (or 16 pixels) and in no larger a type
size than what is used for the single fee amounts; and fee headings in a
minimum type size of eight points (or 11 pixels) and in no larger a type
size than what is used for the single fee amounts. The information
required by paragraphs (b)(2)(v) through (ix) of this section must
appear in a minimum type size of eight points (or 11 pixels) and appear
in the same or a smaller type size than what is used for the fee
headings required by paragraphs (b)(2)(i) through (iv) of this section.
The information required by paragraphs (b)(2)(x) through (xiii) of this
section must appear in a minimum type size of seven points (or nine
pixels) and appear in no larger a type size than what is used for the
information required to be disclosed by paragraphs (b)(2)(v) through
(ix) of this section. Additionally, the statements disclosed pursuant to
paragraphs (b)(2)(viii)(A) and (b)(2)(x) of this section and the
telephone number and URL disclosed pursuant to paragraph (b)(2)(xiii) of
this section, where applicable, must appear in bold-faced type. The
following information must appear in a minimum type size of six points
(or eight pixels) and appear in no larger a type size that what is used
for the information required by paragraphs (b)(2)(x) through (xiii) of
this section: text used to distinguish each of the two-tier fees
pursuant to paragraphs (b)(2)(iii), (v), (vi), and (ix) of this section;
text used to explain that the fee required by paragraph (b)(2)(vi) of
this section applies ``per call,'' where applicable; and text used to
explain the conditions that trigger an inactivity fee and that the fee
applies monthly or for the applicable time period, pursuant to paragraph
(b)(2)(vii) of this section.
(2) Variable fees. The symbols and corresponding statements
regarding variable fees disclosed in the short form pursuant to
paragraphs (b)(3)(i) and (ii) of this section, when applicable, must
appear in a minimum type size of seven points (or nine pixels) and
appear in no larger a type size than what is used for the information
required by paragraphs (b)(2)(x) through (xiii) of this section. A
symbol required next to the fee amount pursuant to paragraphs (b)(3)(i)
and (ii) of this section must appear in the same type size or pixel size
as what is used for the corresponding fee amount.
(3) Payroll card account additional content. The statement regarding
wage or salary payment options for payroll card accounts required by
paragraph (b)(2)(xiv)(A) of this section, when applicable, must appear
in a minimum type size of eight points (or 11 pixels) and appear in no
larger a type size than what is used for the fee headings required by
paragraphs (b)(2)(i) through (iv) of this section. The statement
regarding state-required information and other fee discounts or waivers
permitted by paragraph (b)(2)(xiv)(B) of this section must appear in the
same type size used to disclose variable fee information pursuant to
paragraph (b)(3)(i) and (ii) of this section, or, if none, the same type
size used for the information required by paragraphs (b)(2)(x) through
(xiii) of this section.
(C) Long form disclosure. The long form disclosure required by
paragraph
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(b)(4) of this section must appear in a minimum type size of eight
points (or 11 pixels).
(D) Multiple service plan short form disclosure. When providing a
short form disclosure for multiple service plans pursuant to paragraph
(b)(6)(iii)(B)(2) of this section, the fee headings required by
paragraphs (b)(2)(i) through (iv) of this section must appear in bold-
faced type. The information required by paragraphs (b)(2)(i) through
(xiii) of this section must appear in a minimum type size of seven
points (or nine pixels), except the following must appear in a minimum
type size of six points (or eight pixels) and appear in no larger a type
size than what is used for the information required by paragraphs
(b)(2)(i) through (xiii) of this section: Text used to distinguish each
of the two-tier fees required by paragraphs (b)(2)(iii) and (v) of this
section; text used to explain that the fee required by paragraph
(b)(2)(vi) of this section applies ``per call,'' where applicable; text
used to explain the conditions that trigger an inactivity fee pursuant
to paragraph (b)(2)(vii) of this section; and text used to distinguish
that fees required by paragraphs (b)(2)(i) and (vii) of this section
apply monthly or for the applicable time period.
(iii) Segregation. Short form and long form disclosures required by
paragraphs (b)(2) and (4) of this section must be segregated from other
information and must contain only information that is required or
permitted for those disclosures by paragraph (b) of this section.
(8) Terminology of pre-acquisition disclosures. Fee names and other
terms must be used consistently within and across the disclosures
required by paragraph (b) of this section.
(9) Prepaid accounts acquired in foreign languages--(i) General. A
financial institution must provide the pre-acquisition disclosures
required by paragraph (b) of this section in a foreign language, if the
financial institution uses that same foreign language in connection with
the acquisition of a prepaid account in the following circumstances:
(A) The financial institution principally uses a foreign language on
the prepaid account packaging material;
(B) The financial institution principally uses a foreign language to
advertise, solicit, or market a prepaid account and provides a means in
the advertisement, solicitation, or marketing material that the consumer
uses to acquire the prepaid account by telephone or electronically; or
(C) The financial institution provides a means for the consumer to
acquire a prepaid account by telephone or electronically principally in
a foreign language. However, foreign language pre-acquisition
disclosures are not required for payroll card accounts and government
benefit accounts where the foreign language is offered by telephone via
a real-time language interpretation service provided by a third party or
by the employer or government agency on an informal or ad hoc basis as
an accommodation to prospective payroll card account or government
benefit account holders.
(ii) Long form disclosures in English upon request. A financial
institution required to provide pre-acquisition disclosures in a foreign
language pursuant to paragraph (b)(9)(i) of this section must also
provide the information required to be disclosed in its pre-acquisition
long form disclosure pursuant to paragraph (b)(4) of this section in
English upon a consumer's request and on any part of the Web site where
it discloses this information in a foreign language.
(c) Access to prepaid account information--(1) Periodic statement
alternative. A financial institution need not furnish periodic
statements required by Sec. 1005.9(b) if the financial institution
makes available to the consumer:
(i) The consumer's account balance, through a readily available
telephone line;
(ii) An electronic history of the consumer's account transactions,
such as through a Web site, that covers at least 12 months preceding the
date the consumer electronically accesses the account; and
(iii) A written history of the consumer's account transactions that
is provided promptly in response to an oral or written request and that
covers
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at least 24 months preceding the date the financial institution receives
the consumer's request.
(2) Periodic statement alternative for unverified prepaid accounts.
For prepaid accounts that are not payroll card accounts or government
benefit accounts, a financial institution is not required to provide a
written history of the consumer's account transactions pursuant to
paragraph (c)(1)(iii) of this section for any prepaid account for which
the financial institution has not completed its consumer identification
and verification process as described in paragraph (e)(3)(i)(A) through
(C) of this section.
(3) Information included on electronic or written histories. The
history of account transactions provided under paragraphs (c)(1)(ii) and
(iii) of this section must include the information set forth in Sec.
1005.9(b).
(4) Inclusion of all fees charged. A financial institution must
disclose the amount of any fees assessed against the account, whether
for electronic fund transfers or otherwise, on any periodic statement
provided pursuant to Sec. 1005.9(b) and on any history of account
transactions provided or made available by the financial institution.
(5) Summary totals of fees. A financial institution must display a
summary total of the amount of all fees assessed by the financial
institution against the consumer's prepaid account for the prior
calendar month and for the calendar year to date on any periodic
statement provided pursuant to Sec. 1005.9(b) and on any history of
account transactions provided or made available by the financial
institution.
(d) Modified disclosure requirements. A financial institution that
provides information under paragraph (c)(1) of this section shall comply
with the following:
(1) Initial disclosures. The financial institution shall modify the
disclosures under Sec. 1005.7(b) by disclosing:
(i) Access to account information. A telephone number that the
consumer may call to obtain the account balance, the means by which the
consumer can obtain an electronic account transaction history, such as
the address of a Web site, and a summary of the consumer's right to
receive a written account transaction history upon request (in place of
the summary of the right to receive a periodic statement required by
Sec. 1005.7(b)(6)), including a telephone number to call to request a
history. The disclosure required by this paragraph may be made by
providing a notice substantially similar to the notice contained in
paragraph (a) of appendix A-7 of this part.
(ii) Error resolution. A notice concerning error resolution that is
substantially similar to the notice contained in paragraph (b) of
appendix A-7 of this part, in place of the notice required by Sec.
1005.7(b)(10). Alternatively, for prepaid account programs for which the
financial institution does not have a consumer identification and
verification process, the financial institution must describe its error
resolution process and limitations on consumers' liability for
unauthorized transfers or, if none, state that there are no such
protections.
(2) Annual error resolution notice. The financial institution shall
provide an annual notice concerning error resolution that is
substantially similar to the notice contained in paragraph (b) of
appendix A-7 of this part, in place of the notice required by Sec.
1005.8(b). Alternatively, a financial institution may include on or with
each electronic and written account transaction history provided in
accordance with paragraph (c)(1) of this section, a notice substantially
similar to the abbreviated notice for periodic statements contained in
paragraph (b) of appendix A-3 of this part, modified as necessary to
reflect the error resolution provisions set forth in paragraph (e) of
this section.
(e) Modified limitations on liability and error resolution
requirements--(1) Modified limitations on liability requirements. A
financial institution that provides information under paragraph (c)(1)
of this section shall comply with the following:
(i) For purposes of Sec. 1005.6(b)(3), the 60-day period for
reporting any unauthorized transfer shall begin on the earlier of:
(A) The date the consumer electronically accesses the consumer's
account
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under paragraph (c)(1)(ii) of this section, provided that the electronic
account transaction history made available to the consumer reflects the
unauthorized transfer; or
(B) The date the financial institution sends a written history of
the consumer's account transactions requested by the consumer under
paragraph (c)(1)(iii) of this section in which the unauthorized transfer
is first reflected.
(ii) A financial institution may comply with paragraph (e)(1)(i) of
this section by limiting the consumer's liability for an unauthorized
transfer as provided under Sec. 1005.6(b)(3) for any transfer reported
by the consumer within 120 days after the transfer was credited or
debited to the consumer's account.
(2) Modified error resolution requirements. A financial institution
that provides information under paragraph (c)(1) of this section shall
comply with the following:
(i) The financial institution shall comply with the requirements of
Sec. 1005.11 in response to an oral or written notice of an error from
the consumer that is received by the earlier of:
(A) Sixty days after the date the consumer electronically accesses
the consumer's account under paragraph (c)(1)(ii) of this section,
provided that the electronic account transaction history made available
to the consumer reflects the alleged error; or
(B) Sixty days after the date the financial institution sends a
written history of the consumer's account transactions requested by the
consumer under paragraph (c)(1)(iii) of this section in which the
alleged error is first reflected.
(ii) In lieu of following the procedures in paragraph (e)(2)(i) of
this section, a financial institution complies with the requirements for
resolving errors in Sec. 1005.11 if it investigates any oral or written
notice of an error from the consumer that is received by the institution
within 120 days after the transfer allegedly in error was credited or
debited to the consumer's account.
(3) Limitations on liability and error resolution for unverified
accounts. (i) For prepaid accounts that are not payroll card accounts or
government benefit accounts, a financial institution is not required to
comply with the liability limits and error resolution requirements in
Sec. Sec. 1005.6 and 1005.11 for any prepaid account for which it has
not successfully completed its consumer identification and verification
process.
(ii) For purposes of paragraph (e)(3)(i) of this section, a
financial institution has not successfully completed its consumer
identification and verification process where:
(A) The financial institution has not concluded its consumer
identification and verification process with respect to a particular
prepaid account, provided that it has disclosed to the consumer the
risks of not registering and verifying the account using a notice that
is substantially similar to the model notice contained in paragraph (c)
of appendix A-7 of this part.
(B) The financial institution has concluded its consumer
identification and verification process with respect to a particular
prepaid account, but could not verify the identity of the consumer,
provided that it has disclosed to the consumer the risks of not
registering and verifying the account using a notice that is
substantially similar to the model notice contained in paragraph (c) of
appendix A-7 of this part; or
(C) The financial institution does not have a consumer
identification and verification process for the prepaid account program,
provided that it has made the alternative disclosure described in
paragraph (d)(1)(ii) of this section and complies with the process it
has disclosed.
(iii) Resolution of errors following successful verification. Once a
financial institution successfully completes its consumer identification
and verification process with respect to a prepaid account, the
financial institution must limit the consumer's liability for
unauthorized transfers and resolve errors that occur following
verification in accordance with Sec. 1005.6 or Sec. 1005.11, or the
modified timing requirements in this paragraph (e), as applicable.
(f) Disclosure of fees and other information--(1) Initial disclosure
of fees and other information. A financial institution must include, as
part of the initial disclosures given pursuant to Sec. 1005.7, all of
the information required to be
[[Page 218]]
disclosed in its pre-acquisition long form disclosure pursuant to
paragraph (b)(4) of this section.
(2) Change-in-terms notice. The change-in-terms notice provisions in
Sec. 1005.8(a) apply to any change in a term or condition that is
required to be disclosed under Sec. 1005.7 or paragraph (f)(1) of this
section. If a financial institution discloses the amount of a third-
party fee in its pre-acquisition long form disclosure pursuant to
paragraph (b)(4)(ii) of this section and initial disclosures pursuant to
paragraph (f)(1) of this section, the financial institution is not
required to provide a change-in-terms notice solely to reflect a change
in that fee amount imposed by the third party. If a financial
institution provides pursuant to paragraph (f)(1) of this section the
Regulation Z disclosures required by paragraph (b)(4)(vii) of this
section for an overdraft credit feature, the financial institution is
not required to provide a change-in-terms notice solely to reflect a
change in the fees or other terms disclosed therein.
(3) Disclosures on prepaid account access devices. The name of the
financial institution and the Web site URL and a telephone number a
consumer can use to contact the financial institution about the prepaid
account must be disclosed on the prepaid account access device. If a
financial institution does not provide a physical access device in
connection with a prepaid account, the disclosure must appear on the Web
site, mobile application, or other entry point a consumer must visit to
access the prepaid account electronically.
(g) Prepaid accounts accessible by hybrid prepaid-credit cards--(1)
In general. Except as provided in paragraph (g)(2) of this section, with
respect to a prepaid account program where consumers may be offered a
covered separate credit feature accessible by a hybrid prepaid-credit
card as defined by Regulation Z, 12 CFR 1026.61, a financial institution
must provide to any prepaid account without a covered separate credit
feature the same account terms, conditions, and features that it
provides on prepaid accounts in the same prepaid account program that
have such a credit feature.
(2) Exception for higher fees or charges. A financial institution is
not prohibited under paragraph (g)(1) of this section from imposing a
higher fee or charge on the asset feature of a prepaid account with a
covered separate credit feature accessible by a hybrid prepaid-credit
card than the amount of a comparable fee or charge that it imposes on
any prepaid account in the same prepaid account program that does not
have such a credit feature.
(h) Effective date and special transition rules for disclosure
provisions--(1) Effective date generally. Except as provided in
paragraphs (h)(2) and (3) of this section, the requirements of this
subpart, as modified by this section, apply to prepaid accounts as
defined in Sec. 1005.2(b)(3), including government benefit accounts
subject to Sec. 1005.15, beginning April 1, 2019.
(2) Early disclosures--(i) Exception for disclosures on existing
prepaid account access devices and prepaid account packaging materials.
The disclosure requirements of this subpart, as modified by this
section, shall not apply to any disclosures that are provided, or that
would otherwise be required to be provided, on prepaid account access
devices, or on, in, or with prepaid account packaging materials that
were manufactured, printed, or otherwise produced in the normal course
of business prior to April 1, 2019.
(ii) Disclosures for prepaid accounts acquired on or after April 1,
2019. This paragraph applies to prepaid accounts acquired by consumers
on or after April 1, 2019 via packaging materials that were
manufactured, printed, or otherwise produced prior to April 1, 2019.
(A) Notices of certain changes. If a financial institution has
changed a prepaid account's terms and conditions as a result of
paragraph (h)(1) of this section taking effect such that a change-in-
terms notice would have been required under Sec. 1005.8(a) or paragraph
(f)(2) of this section for existing customers, the financial institution
must provide to the consumer a notice of the change within 30 days of
obtaining the consumer's contact information.
(B) Initial disclosures. The financial institution must mail or
deliver to the consumer initial disclosures pursuant
[[Page 219]]
to Sec. 1005.7 and paragraph (f)(1) of this section that have been
updated as a result of paragraph (h)(1) of this section taking effect,
within 30 days of obtaining the consumer's contact information.
(iii) Disclosures for prepaid accounts acquired before April 1,
2019. This paragraph applies to prepaid accounts acquired by consumers
before April 1, 2019. If a financial institution has changed a prepaid
account's terms and conditions as a result of paragraph (h)(1) of this
section taking effect such that a change-in-terms notice would have been
required under Sec. 1005.8(a) or paragraph (f)(2) of this section for
existing customers, the financial institution must provide to the
consumer a notice of the change at least 21 days in advance of the
change becoming effective, provided the financial institution has the
consumer's contact information. If the financial institution obtains the
consumer's contact information less than 30 days in advance of the
change becoming effective or after it has become effective, the
financial institution is permitted instead to notify the consumer of the
change in accordance with the timing requirements set forth in paragraph
(h)(2)(ii)(A) of this section.
(iv) Method of providing notice to consumers. With respect to
prepaid accounts governed by paragraph (h)(2)(ii) or (iii) of this
section, if a financial institution has not obtained a consumer's
consent to provide disclosures in electronic form pursuant to the
Electronic Signatures in Global and National Commerce Act (E-Sign Act)
(15 U.S.C. 7001 et seq.), or is not otherwise already mailing or
delivering to the consumer written account-related communications within
the respective time periods specified in paragraphs (h)(2)(ii) or (iii)
of this section, the financial institution may provide to the consumer a
notice of a change in terms and conditions pursuant to paragraph
(h)(2)(ii) or (iii) of this section or required or voluntary updated
initial disclosures as a result of paragraph (h)(1) of this section
taking effect in electronic form without regard to the consumer notice
and consent requirements of section 101(c) of the E-Sign Act.
(3) Account information not available on April 1, 2019--(i)
Electronic and written account transaction history. If, on April 1,
2019, a financial institution does not have readily accessible the data
necessary to make available 12 months of electronic account transaction
history pursuant to paragraph (c)(1)(ii) of this section or to provide
24 months of written account transaction history upon request pursuant
to paragraph (c)(1)(iii) of this section, the financial institution may
make available or provide such histories using the data for the time
period it has until the financial institution has accumulated the data
necessary to comply in full with the requirements set forth in
paragraphs (c)(1)(ii) and (iii) of this section.
(ii) Summary totals of fees. If, on April 1, 2019, the financial
institution does not have readily accessible the data necessary to
calculate the summary totals of the amount of all fees assessed by the
financial institution on the consumer's prepaid account for the prior
calendar month and for the calendar year to date pursuant to paragraph
(c)(5) of this section, the financial institution may display the
summary totals using the data it has until the financial institution has
accumulated the data necessary to display the summary totals as required
by paragraph (c)(5) of this section.
[81 FR 84328, Nov. 22, 2016, as amended at 82 FR 18980, Apr. 25, 2017;
83 FR 6417, Feb. 13, 2018]
Sec. 1005.19 Internet posting of prepaid account agreements.
(a) Definitions--(1) Agreement. For purposes of this section,
``agreement'' or ``prepaid account agreement'' means the written
document or documents evidencing the terms of the legal obligation, or
the prospective legal obligation, between a prepaid account issuer and a
consumer for a prepaid account. ``Agreement'' or ``prepaid account
agreement'' also includes fee information, as defined in paragraph
(a)(3) of this section.
(2) Amends. For purposes of this section, an issuer ``amends'' an
agreement if it makes a substantive change (an ``amendment'') to the
agreement. A change is substantive if it alters the
[[Page 220]]
rights or obligations of the issuer or the consumer under the agreement.
Any change in the fee information, as defined in paragraph (a)(3) of
this section, is deemed to be substantive.
(3) Fee information. For purposes of this section, ``fee
information'' means the short form disclosure for the prepaid account
pursuant to Sec. 1005.18(b)(2) and the fee information and statements
required to be disclosed in the pre-acquisition long form disclosure for
the prepaid account pursuant to Sec. 1005.18(b)(4).
(4) Issuer. For purposes of this section, ``issuer'' or ``prepaid
account issuer'' means the entity to which a consumer is legally
obligated, or would be legally obligated, under the terms of a prepaid
account agreement.
(5) Offers. For purposes of this section, an issuer ``offers'' an
agreement if the issuer markets, solicits applications for, or otherwise
makes available a prepaid account that would be subject to that
agreement, regardless of whether the issuer offers the prepaid account
to the general public.
(6) Offers to the general public. For purposes of this section, an
issuer ``offers to the general public'' an agreement if the issuer
markets, solicits applications for, or otherwise makes available to the
general public a prepaid account that would be subject to that
agreement.
(7) Open account. For purposes of this section, a prepaid account is
an ``open account'' or ``open prepaid account'' if: There is an
outstanding balance in the account; the consumer can load funds to the
account even if the account does not currently hold a balance; or the
consumer can access credit from a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Regulation Z,
12 CFR 1026.61, in connection with the account. A prepaid account that
has been suspended temporarily (for example, due to a report by the
consumer of unauthorized use of the card) is considered an ``open
account'' or ``open prepaid account.''
(8) Prepaid account. For purposes of this section, ``prepaid
account'' means a prepaid account as defined in Sec. 1005.2(b)(3).
(b) Submission of agreements to the Bureau--(1) Submissions on a
rolling basis. An issuer must make submissions of prepaid account
agreements to the Bureau on a rolling basis, in the form and manner
specified by the Bureau. Rolling submissions must be sent to the Bureau
no later than 30 days after an issuer offers, amends, or ceases to offer
any prepaid account agreement as described in paragraphs (b)(1)(ii)
through (iv) of this section. Each submission must contain:
(i) Identifying information about the issuer and the agreements
submitted, including the issuer's name, address, and identifying number
(such as an RSSD ID number or tax identification number), the effective
date of the prepaid account agreement, the name of the program manager,
if any, and the list of names of other relevant parties, if applicable
(such as the employer for a payroll card program or the agency for a
government benefit program);
(ii) Any prepaid account agreement offered by the issuer that has
not been previously submitted to the Bureau;
(iii) Any prepaid account agreement previously submitted to the
Bureau that has been amended, as described in paragraph (b)(2)(i) of
this section; and
(iv) Notification regarding any prepaid account agreement previously
submitted to the Bureau that the issuer is withdrawing, as described in
paragraphs (b)(3), (b)(4)(ii), and (b)(5)(ii) of this section.
(2) Amended agreements--(i) Submission of amended agreements
generally. If a prepaid account agreement previously submitted to the
Bureau is amended, the issuer must submit the entire amended agreement
to the Bureau, in the form and manner specified by the Bureau, no later
than 30 days after the change becomes effective. If other identifying
information about the issuer and its submitted agreements pursuant to
paragraph (b)(1)(i) of this section previously submitted to the Bureau
is amended, the issuer must submit updated information to the Bureau, in
the form and manner specified by the Bureau, no later than 30 days after
the change becomes effective.
(ii) Submission of updated list of names of other relevant parties.
Notwithstanding paragraph (b)(2)(i) of this section, an issuer may delay
submitting a change to the list of names of other
[[Page 221]]
relevant parties to a particular agreement until the earlier of:
(A) Such time as the issuer is otherwise submitting an amended
agreement or changes to other identifying information about the issuer
and its submitted agreements pursuant to paragraph (b)(1)(i) of this
section; or
(B) May 1 of each year, for any updates to the list of names of
other relevant parties for that agreement that occurred between the
issuer's last submission of relevant party information and April 1 of
that year.
(3) Withdrawal of agreements no longer offered. If an issuer no
longer offers a prepaid account agreement that was previously submitted
to the Bureau, the issuer must notify the Bureau, in the form and manner
specified by the Bureau, no later than 30 days after the issuer ceases
to offer the agreement, that it is withdrawing the agreement.
(4) De minimis exception. (i) An issuer is not required to submit
any prepaid account agreements to the Bureau if the issuer has fewer
than 3,000 open prepaid accounts. If the issuer has 3,000 or more open
prepaid accounts as of the last day of the calendar quarter, the issuer
must submit to the Bureau its prepaid account agreements no later than
30 days after the last day of that calendar quarter.
(ii) If an issuer that did not previously qualify for the de minimis
exception newly qualifies for the de minimis exception, the issuer must
continue to make submissions to the Bureau on a rolling basis until the
issuer notifies the Bureau that the issuer is withdrawing all agreements
it previously submitted to the Bureau.
(5) Product testing exception. (i) An issuer is not required to
submit a prepaid account agreement to the Bureau if the agreement meets
the criteria set forth in paragraphs (b)(5)(i)(A) through (C) of this
section. If the agreement fails to meet the criteria set forth in
paragraphs (b)(5)(i)(A) through (C) of this section as of the last day
of the calendar quarter, the issuer must submit to the Bureau that
prepaid account agreement no later than 30 days after the last day of
that calendar quarter. An agreement qualifies for the product testing
exception if the agreement:
(A) Is offered as part of a product test offered to only a limited
group of consumers for a limited period of time;
(B) Is used for fewer than 3,000 open prepaid accounts; and
(C) Is not offered other than in connection with such a product
test.
(ii) If an agreement that did not previously qualify for the product
testing exception newly qualifies for the exception, the issuer must
continue to make submissions to the Bureau on a rolling basis with
respect to that agreement until the issuer notifies the Bureau that the
issuer is withdrawing the agreement.
(6) Form and content of agreements submitted to the Bureau--(i) Form
and content generally. (A) Each agreement must contain the provisions of
the agreement and the fee information currently in effect.
(B) Agreements must not include any personally identifiable
information relating to any consumer, such as name, address, telephone
number, or account number.
(C) The following are not deemed to be part of the agreement for
purposes of this section, and therefore are not required to be included
in submissions to the Bureau:
(1) Ancillary disclosures required by state or Federal law, such as
affiliate marketing notices, privacy policies, or disclosures under the
E-Sign Act;
(2) Solicitation or marketing materials;
(3) Periodic statements; and
(4) Documents that may be sent to the consumer along with the
prepaid account or prepaid account agreement such as a cover letter, a
validation sticker on the card, or other information about card
security.
(D) Agreements must be presented in a clear and legible font.
(ii) Fee information. Fee information must be set forth either in
the prepaid account agreement or in addenda to that agreement that
attach either or both the short form disclosure for the prepaid account
pursuant to Sec. 1005.18(b)(2) and the fee information and statements
required to be disclosed in the long form disclosure for the prepaid
account pursuant to Sec. 1005.18(b)(4). The agreement or addenda
thereto
[[Page 222]]
must contain all of the fee information, as defined by paragraph (a)(3)
of this section.
(iii) Integrated agreement. An issuer may not provide provisions of
the agreement or fee information to the Bureau in the form of change-in-
terms notices or riders (other than the optional fee information addenda
described in paragraph (b)(6)(ii) of this section). Changes in
provisions or fee information must be integrated into the text of the
agreement, or the optional fee information addenda, as appropriate.
(c) Posting of agreements offered to the general public. (1) An
issuer must post and maintain on its publicly available Web site any
prepaid account agreements offered to the general public that the issuer
is required to submit to the Bureau under paragraph (b) of this section.
(2) Agreements posted pursuant to this paragraph (c) must conform to
the form and content requirements for agreements submitted to the Bureau
set forth in paragraph (b)(6) of this section.
(3) The issuer must post and update the agreements posted on its Web
site pursuant to this paragraph (c) as frequently as the issuer is
required to submit new or amended agreements to the Bureau pursuant to
paragraph (b)(2)(i) of this section.
(4) Agreements posted pursuant to this paragraph (c) may be posted
in any electronic format that is readily usable by the general public.
Agreements must be placed in a location that is prominent and readily
accessible to the public and must be accessible without submission of
personally identifiable information.
(d) Agreements for all open accounts--(1) Availability of an
individual consumer's prepaid account agreement. With respect to any
open prepaid account, an issuer must either:
(i) Post and maintain the consumer's agreement on its Web site; or
(ii) Promptly provide a copy of the consumer's agreement to the
consumer upon the consumer's request. If the issuer makes an agreement
available upon request, the issuer must provide the consumer with the
ability to request a copy of the agreement by telephone. The issuer must
send to the consumer a copy of the consumer's prepaid account agreement
no later than five business days after the issuer receives the
consumer's request.
(2) Form and content of agreements. (i) Except as provided in this
paragraph (d), agreements posted on the issuer's Web site pursuant to
paragraph (d)(1)(i) of this section or sent to the consumer upon the
consumer's request pursuant to paragraph (d)(1)(ii) of this section must
conform to the form and content requirements for agreements submitted to
the Bureau as set forth in paragraph (b)(6) of this section.
(ii) If the issuer posts an agreement on its Web site under
paragraph (d)(1)(i) of this section, the agreement may be posted in any
electronic format that is readily usable by the general public and must
be placed in a location that is prominent and readily accessible to the
consumer.
(iii) Agreements posted or otherwise provided pursuant to this
paragraph (d) may contain personally identifiable information relating
to the consumer, such as name, address, telephone number, or account
number, provided that the issuer takes appropriate measures to make the
agreement accessible only to the consumer or other authorized persons.
(iv) Agreements posted or otherwise provided pursuant to this
paragraph (d) must set forth the specific provisions and fee information
applicable to the particular consumer.
(v) Agreements posted pursuant to paragraph (d)(1)(i) of this
section must be updated as frequently as the issuer is required to
submit amended agreements to the Bureau pursuant to paragraph (b)(2)(i)
of this section. Agreements provided upon consumer request pursuant to
paragraph (d)(1)(ii) of this section must be accurate as of the date the
agreement is sent to the consumer.
(vi) Agreements provided upon consumer request pursuant to paragraph
(d)(1)(ii) of this section must be provided by the issuer in paper form,
unless the consumer agrees to receive the agreement electronically.
(e) E-Sign Act requirements. Except as otherwise provided in this
section, issuers may provide prepaid account agreements in electronic
form under
[[Page 223]]
paragraphs (c) and (d) of this section without regard to the consumer
notice and consent requirements of section 101(c) of the Electronic
Signatures in Global and National Commerce Act(E-Sign Act) (15 U.S.C.
7001 et seq.).
(f) Initial submission date. The requirements of this section apply
to prepaid accounts beginning on April 1, 2019. An issuer must submit to
the Bureau no later than May 1, 2019 all prepaid account agreements it
offers as of April 1, 2019.
[81 FR 84336, Nov. 22, 2016, as amended at 83 FR 6419, Feb. 13, 2018]
Sec. 1005.20 Requirements for gift cards and gift certificates.
(a) Definitions. For purposes of this section, except as excluded
under paragraph (b), the following definitions apply:
(1) ``Gift certificate'' means a card, code, or other device that
is:
(i) Issued on a prepaid basis primarily for personal, family, or
household purposes to a consumer in a specified amount that may not be
increased or reloaded in exchange for payment; and
(ii) Redeemable upon presentation at a single merchant or an
affiliated group of merchants for goods or services.
(2) ``Store gift card'' means a card, code, or other device that is:
(i) Issued on a prepaid basis primarily for personal, family, or
household purposes to a consumer in a specified amount, whether or not
that amount may be increased or reloaded, in exchange for payment; and
(ii) Redeemable upon presentation at a single merchant or an
affiliated group of merchants for goods or services.
(3) ``General-use prepaid card'' means a card, code, or other device
that is:
(i) Issued on a prepaid basis primarily for personal, family, or
household purposes to a consumer in a specified amount, whether or not
that amount may be increased or reloaded, in exchange for payment; and
(ii) Redeemable upon presentation at multiple, unaffiliated
merchants for goods or services, or usable at automated teller machines.
(4) ``Loyalty, award, or promotional gift card'' means a card, code,
or other device that:
(i) Is issued on a prepaid basis primarily for personal, family, or
household purposes to a consumer in connection with a loyalty, award, or
promotional program;
(ii) Is redeemable upon presentation at one or more merchants for
goods or services, or usable at automated teller machines; and
(iii) Sets forth the following disclosures, as applicable:
(A) A statement indicating that the card, code, or other device is
issued for 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
[[Page 224]]
paragraph (a) of this section, do not include any card, code, or other
device that is:
(1) Useable solely for telephone services;
(2) Reloadable and not marketed or labeled as a gift card or gift
certificate. For purposes of this paragraph (b)(2), the term
``reloadable'' includes a temporary non-reloadable card issued solely in
connection with a reloadable card, code, or other device;
(3) A loyalty, award, or promotional gift card;
(4) Not marketed to the general public;
(5) Issued in paper form only; or
(6) Redeemable solely for admission to events or venues at a
particular location or group of affiliated locations, or to obtain goods
or services in conjunction with admission to such events or venues,
either at the event or venue or at specific locations affiliated with
and in geographic proximity to the event or venue.
(c) Form of disclosures--(1) Clear and conspicuous. Disclosures made
under this section must be clear and conspicuous. The disclosures may
contain commonly accepted or readily understandable abbreviations or
symbols.
(2) Format. Disclosures made under this section generally must be
provided to the consumer in written or electronic form. Except for the
disclosures in paragraphs (c)(3) and (h)(2) of this section, written and
electronic disclosures made under this section must be in a retainable
form. Only disclosures provided under paragraphs (c)(3) and (h)(2) may
be given orally.
(3) Disclosures prior to purchase. Before a gift certificate, store
gift card, or general-use prepaid card is purchased, a person that
issues or sells such certificate or card must disclose to the consumer
the information required by paragraphs (d)(2), (e)(3), and (f)(1) of
this section. The fees and terms and conditions of expiration that are
required to be disclosed prior to purchase may not be changed after
purchase.
(4) Disclosures on the certificate or card. Disclosures required by
paragraphs (a)(4)(iii), (d)(2), (e)(3), and (f)(2) of this section must
be made on the certificate or card, or in the case of a loyalty, award,
or promotional gift card, on the card, code, or other device. A
disclosure made in an accompanying terms and conditions document, on
packaging surrounding a certificate or card, or on a sticker or other
label affixed to the certificate or card does not constitute a
disclosure on the certificate or card. For an electronic certificate or
card, disclosures must be provided electronically on the certificate or
card provided to the consumer. An issuer that provides a code or
confirmation to a consumer orally must provide to the consumer a written
or 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:
[[Page 225]]
(i) Five years after the date the gift certificate was initially
issued, or the date on which funds were last loaded to a store gift card
or general-use prepaid card; or
(ii) The certificate or card expiration date, if any;
(3) The following disclosures are provided on the certificate or
card, as applicable:
(i) The expiration date for the underlying funds or, if the
underlying funds do not expire, that fact;
(ii) A toll-free telephone number and, if one is maintained, a Web
site that a consumer may use to obtain a replacement certificate or card
after the certificate or card expires if the underlying funds may be
available; and
(iii) Except where a non-reloadable certificate or card bears an
expiration date that is at least seven years from the date of
manufacture, a statement, disclosed with equal prominence and in close
proximity to the certificate or card expiration date, that:
(A) The certificate or card expires, but the underlying funds either
do not expire or expire later than the certificate or card, and;
(B) The consumer may contact the issuer for a replacement card; and
(4) No fee or charge is imposed on the cardholder for replacing the
gift certificate, store gift card, or general-use prepaid card or for
providing the certificate or card holder with the remaining balance in
some other manner prior to the funds expiration date, unless such
certificate or card has been lost or stolen.
(f) Additional disclosure requirements for gift certificates or
cards. The following disclosures must be provided in connection with a
gift certificate, store gift card, or general-use prepaid card, as
applicable:
(1) Fee disclosures. For each type of fee that may be imposed in
connection with the certificate or card (other than a dormancy,
inactivity, or service fee subject to the disclosure requirements under
paragraph (d)(2) of this section), the following information must be
provided on or with the certificate or card:
(i) The type of fee;
(ii) The amount of the fee (or an explanation of how the fee will be
determined); and
(iii) The conditions under which the fee may be imposed.
(2) Telephone number for fee information. A toll-free telephone
number and, if one is maintained, a Web site, that a consumer may use to
obtain information about fees described in paragraphs (d)(2) and (f)(1)
of this section must be disclosed on the certificate or card.
(g) Compliance dates--(1) Effective date for gift certificates,
store gift cards, and general-use prepaid cards. Except as provided in
paragraph (h) of this section, the requirements of this section apply to
any gift certificate, store gift card, or general-use prepaid card sold
to a consumer on or after August 22, 2010, or provided to a consumer as
a replacement for such certificate or card.
(2) Effective date for loyalty, award, or promotional gift cards.
The requirements in paragraph (a)(4)(iii) of this section apply to any
card, code, or other device provided to a consumer in connection with a
loyalty, award, or promotional program if the period of eligibility for
such program began on or after August 22, 2010.
(h) Temporary exemption--(1) Delayed mandatory compliance date. For
any gift certificate, store gift card, or general-use prepaid card
produced prior to April 1, 2010, the mandatory compliance date of the
requirements of paragraphs (c)(3), (d)(2), (e)(1), (e)(3), and (f) of
this section is January 31, 2011, provided that an issuer of such
certificate or card:
(i) Complies with all other provisions of this section;
(ii) Does not impose an expiration date with respect to the funds
underlying such certificate or card;
(iii) At the consumer's request, replaces such certificate or card
if it has funds remaining at no cost to the consumer; and
(iv) Satisfies the requirements of paragraph (h)(2) of this section.
(2) Additional disclosures. Issuers relying on the delayed effective
date in Sec. 1005.20(h)(1) must disclose through in-store signage,
messages during customer service calls, Web sites, and general
advertising, that:
(i) The underlying funds of such certificate or card do not expire;
[[Page 226]]
(ii) Consumers holding such certificate or card have a right to a
free replacement certificate or card, which must be accompanied by the
packaging and materials typically associated with such certificate or
card; and
(iii) Any dormancy, inactivity, or service fee for such certificate
or card that might otherwise be charged will not be charged if such fees
do not comply with section 916 of the Act.
(3) Expiration of additional disclosure requirements. The
disclosures in paragraph (h)(2) of this section:
(i) Are not required to be provided on or after January 31, 2011,
with respect to in-store signage and general advertising.
(ii) Are not required to be provided on or after January 31, 2013,
with respect to messages during customer service calls and Web sites.
Subpart B_Requirements for Remittance Transfers
Source: 77 FR 6285, Feb. 7, 2012, unless otherwise noted.
Sec. 1005.30 Remittance transfer definitions.
Except as otherwise provided, for purposes of this subpart, the
following definitions apply:
(a) ``Agent'' means an agent, authorized delegate, or person
affiliated with a remittance transfer provider, as defined under State
or other applicable law, when such agent, authorized delegate, or
affiliate acts for that remittance transfer provider.
(b) ``Business day'' means any day on which the offices of a
remittance transfer provider are open to the public for carrying on
substantially all business functions.
(c) ``Designated recipient'' means any person specified by the
sender as the authorized recipient of a remittance transfer to be
received at a location in a foreign country.
(d) ``Preauthorized remittance transfer'' means a remittance
transfer authorized in advance to recur at substantially regular
intervals.
(e) Remittance transfer--(1) General definition. A ``remittance
transfer'' means the electronic transfer of funds requested by a sender
to a designated recipient that is sent by a remittance transfer
provider. The term applies regardless of whether the sender holds an
account with the remittance transfer provider, and regardless of whether
the transaction is also an electronic fund transfer, as defined in Sec.
1005.3(b).
(2) Exclusions from coverage. The term ``remittance transfer'' does
not include:
(i) Small value transactions. Transfer amounts, as described in
Sec. 1005.31(b)(1)(i), of $15 or less.
(ii) Securities and commodities transfers. Any transfer that is
excluded from the definition of electronic fund transfer under Sec.
1005.3(c)(4).
(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 500 or fewer remittance transfers in the previous
calendar year; and
(B) Provides 500 or fewer remittance transfers in the current
calendar year.
(ii) Transition period--coming into compliance. Beginning on July
21, 2020, if a person that provided 500 or fewer remittance transfers in
the previous calendar year provides more than 500 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.
(iii) Transition period--qualifying for the safe harbor. If a person
who previously provided remittance transfers in the normal course of its
business in excess of the safe harbor threshold set
[[Page 227]]
forth in this paragraph (f)(2) determines that, as of a particular date,
it will qualify for the safe harbor, it may cease complying with the
requirements of this subpart with respect to any remittance transfers
for which payment is made after that date. The requirements of the Act
and this part, including those set forth in Sec. Sec. 1005.33 and
1005.34, as well as the requirements set forth in Sec. 1005.13,
continue to apply to transfers for which payment is made prior to that
date.
(g) ``Sender'' means a consumer in a State who primarily for
personal, family, or household purposes requests a remittance transfer
provider to send a remittance transfer to a designated recipient.
(h) Third-party fees. (1) ``Covered third-party fees.'' The term
``covered third-party fees'' means any fees imposed on the remittance
transfer by a person other than the remittance transfer provider except
for fees described in paragraph (h)(2) of this section.
(2) ``Non-covered third-party fees.'' The term ``non-covered third-
party fees'' means any fees imposed by the designated recipient's
institution for receiving a remittance transfer into an account except
if the institution acts as an agent of the remittance transfer provider.
[77 FR 6285, Feb. 7, 2012, as amended at 77 FR 50282, Aug. 20, 2012; 78
FR 30703, May 22, 2013; 85 FR 34904, June 5, 2020]
Sec. 1005.31 Disclosures.
(a) General form of disclosures--(1) Clear and conspicuous.
Disclosures required by this subpart or permitted by paragraph
(b)(1)(viii) of this section or Sec. 1005.33(h)(3) must be clear and
conspicuous. Disclosures required by this subpart or permitted by
paragraph (b)(1)(viii) of this section or Sec. 1005.33(h)(3) may
contain commonly accepted or readily understandable abbreviations or
symbols.
(2) Written and electronic disclosures. Disclosures required by this
subpart generally must be provided to the sender in writing. Disclosures
required by paragraph (b)(1) of this section may be provided
electronically, if the sender electronically requests the remittance
transfer provider to send the remittance transfer. Written and
electronic disclosures required by this subpart generally must be made
in a retainable form. Disclosures provided via mobile application or
text message, to the extent permitted by paragraph (a)(5) of this
section, need not be retainable.
(3) Disclosures for oral telephone transactions. The information
required by paragraph (b)(1) of this section may be disclosed orally if:
(i) The transaction is conducted orally and entirely by telephone;
(ii) The remittance transfer provider complies with the requirements
of paragraph (g)(2) of this section;
(iii) The provider discloses orally a statement about the rights of
the sender regarding cancellation required by paragraph (b)(2)(iv) of
this section pursuant to the timing requirements in paragraph (e)(1) of
this section; and
(iv) The provider discloses orally, as each is applicable, the
information required by paragraph (b)(2)(vii) of this section and the
information required by Sec. 1005.36(d)(1)(i)(A), with respect to
transfers subject to Sec. 1005.36(d)(2)(ii), pursuant to the timing
requirements in paragraph (e)(1) of this section.
(4) Oral disclosures for certain error resolution notices. The
information required by Sec. 1005.33(c)(1) may be disclosed orally if:
(i) The remittance transfer provider determines that an error
occurred as described by the sender; and
(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
[[Page 228]]
(iv) The provider discloses orally or via mobile application or text
message, as each is applicable, the information required by paragraph
(b)(2)(vii) of this section and the information required by Sec.
1005.36(d)(1)(i)(A), with respect to transfers subject to Sec.
1005.36(d)(2)(ii), pursuant to the timing requirements in paragraph
(e)(1) of this section.
(b) Disclosure requirements--(1) Pre-payment disclosure. A
remittance transfer provider must disclose to a sender, as applicable:
(i) The amount that will be transferred to the designated recipient,
in the currency in which the remittance transfer is funded, using the
term ``Transfer Amount'' or a substantially similar term;
(ii) Any fees imposed and any taxes collected on the remittance
transfer by the provider, in the currency in which the remittance
transfer is funded, using the terms ``Transfer Fees'' for fees and
``Transfer Taxes'' for taxes, or substantially similar terms;
(iii) The total amount of the transaction, which is the sum of
paragraphs (b)(1)(i) and (ii) of this section, in the currency in which
the remittance transfer is funded, using the term ``Total'' or a
substantially similar term;
(iv) The exchange rate used by the provider for the remittance
transfer, rounded consistently for each currency to no fewer than two
decimal places and no more than four decimal places, using the term
``Exchange Rate'' or a substantially similar term;
(v) The amount in paragraph (b)(1)(i) of this section, in the
currency in which the funds will be received by the designated
recipient, but only if covered third-party fees are imposed under
paragraph (b)(1)(vi) of this section, using the term ``Transfer Amount''
or a substantially similar term. The exchange rate used to calculate
this amount is the exchange rate in paragraph (b)(1)(iv) of this
section, including an estimated exchange rate to the extent permitted by
Sec. 1005.32, prior to any rounding of the exchange rate;
(vi) Any covered third-party fees, in the currency in which the
funds will be received by the designated recipient, using the term
``Other Fees,'' or a substantially similar term. The exchange rate used
to calculate any covered third-party fees is the exchange rate in
paragraph (b)(1)(iv) of this section, including an estimated exchange
rate to the extent permitted by Sec. 1005.32, prior to any rounding of
the exchange rate;
(vii) The amount that will be received by the designated recipient,
in the currency in which the funds will be received, using the term
``Total to Recipient'' or a substantially similar term except that this
amount shall not include non-covered third party fees or taxes collected
on the remittance transfer by a person other than the provider
regardless of whether such fees or taxes are disclosed pursuant to
paragraph (b)(1)(viii) of this section. The exchange rate used to
calculate this amount is the exchange rate in paragraph (b)(1)(iv) of
this section, including an estimated exchange rate to the extent
permitted by Sec. 1005.32, prior to any rounding of the exchange rate.
(viii) A statement indicating that non-covered third-party fees or
taxes collected on the remittance transfer by a person other than the
provider may apply to the remittance transfer and result in the
designated recipient receiving less than the amount disclosed pursuant
to paragraph (b)(1)(vii) of this section. A provider may only include
this statement to the extent that such fees or taxes do or may apply to
the transfer, using the language set forth in Model Forms A-30(a)
through (c) of Appendix A to this part, as appropriate, or substantially
similar language. In this statement, a provider also may, but is not
required, to disclose any applicable non-covered third-party fees or
taxes collected by a person other than the provider. Any such figure
must be disclosed in the currency in which the funds will be received,
using the language set forth in Model Forms A-30(b) through (d) of
Appendix A to this part, as appropriate, or substantially similar
language. The exchange rate used to calculate any disclosed non-covered
third-party fees or taxes collected on the remittance transfer by a
person other than the provider is the exchange rate in paragraph
(b)(1)(iv) of this section, including an estimated exchange rate to the
extent permitted by Sec. 1005.32, prior to any rounding of the exchange
rate;
[[Page 229]]
(2) Receipt. A remittance transfer provider must disclose to a
sender, as applicable:
(i) The disclosures described in paragraphs (b)(1)(i) through (viii)
of this section;
(ii) The date in the foreign country on which funds will be
available to the designated recipient, using the term ``Date Available''
or a substantially similar term. A provider may provide a statement that
funds may be available to the designated recipient earlier than the date
disclosed, using the term ``may be available sooner'' or a substantially
similar term;
(iii) The name and, if provided by the sender, the telephone number
and/or address of the designated recipient, using the term ``Recipient''
or a substantially similar term;
(iv) A statement about the rights of the sender regarding the
resolution of errors and cancellation, using language set forth in Model
Form A-37 of Appendix A to this part or substantially similar language.
For any remittance transfer scheduled by the sender at least three
business days before the date of the transfer, the statement about the
rights of the sender regarding cancellation must instead reflect the
requirements of Sec. 1005.36(c);
(v) The name, telephone number(s), and Web site of the remittance
transfer provider;
(vi) A statement that the sender can contact the State agency that
licenses or charters the remittance transfer provider with respect to
the remittance transfer and the Consumer Financial Protection Bureau for
questions or complaints about the remittance transfer provider, using
language set forth in Model Form A-37 of Appendix A to this part or
substantially similar language. The disclosure must provide the name,
telephone number(s), and Web site of the State agency that licenses or
charters the remittance transfer provider with respect to the remittance
transfer and the name, toll-free telephone number(s), and Web site of
the Consumer Financial Protection Bureau; and
(vii) For any remittance transfer scheduled by the sender at least
three business days before the date of the transfer, or the first
transfer in a series of preauthorized remittance transfers, the date the
remittance transfer provider will make or made the remittance transfer,
using the term ``Transfer Date,'' or a substantially similar term.
(3) Combined disclosure--(i) In general. As an alternative to
providing the disclosures described in paragraph (b)(1) and (2) of this
section, a remittance transfer provider may provide the disclosures
described in paragraph (b)(2) of this section, as applicable, in a
single disclosure pursuant to the timing requirements in paragraph
(e)(1) of this section. Except as provided in paragraph (b)(3)(ii) of
this section, if the remittance transfer provider provides the combined
disclosure and the sender completes the transfer, the remittance
transfer provider must provide the sender with proof of payment when
payment is made for the remittance transfer. The proof of payment must
be clear and conspicuous, provided in writing or electronically, and
provided in a retainable form.
(ii) Transfers scheduled before the date of transfer. If the
disclosure described in paragraph (b)(3)(i) of this section is provided
in accordance with Sec. 1005.36(a)(1)(i) and payment is not processed
by the remittance transfer provider at the time the remittance transfer
is scheduled, a remittance transfer provider may provide confirmation
that the transaction has been scheduled in lieu of the proof of 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).
[[Page 230]]
(c) Specific format requirements--(1) Grouping. The information
required by paragraphs (b)(1)(i), (ii), and (iii) of this section
generally must be grouped together. The information required by
paragraphs (b)(1)(v), (vi), (vii), and (viii) of this section generally
must be grouped together. Disclosures provided via mobile application or
text message, to the extent permitted by paragraph (a)(5) of this
section, generally need not comply with the grouping requirements of
this paragraph, however information required or permitted by paragraph
(b)(1)(viii) of this section must be grouped with information required
by paragraph (b)(1)(vii) of this section.
(2) Proximity. The information required by paragraph (b)(1)(iv) of
this section generally must be disclosed in close proximity to the other
information required by paragraph (b)(1) of this section. The
information required by paragraph (b)(2)(iv) of this section generally
must be disclosed in close proximity to the other information required
by paragraph (b)(2) of this section. The information required or
permitted by paragraph (b)(1)(viii) must be in close proximity to the
information required by paragraph (b)(1)(vii) of this section.
Disclosures provided via mobile application or text message, to the
extent permitted by paragraph (a)(5) of this section, generally need not
comply with the proximity requirements of this paragraph, however
information required or permitted by paragraph (b)(1)(viii) of this
section must follow the information required by paragraph (b)(1)(vii) of
this section.
(3) Prominence and size. Written disclosures required by this
subpart or permitted by paragraph (b)(1)(viii) of this section must be
provided on the front of the page on which the disclosure is printed.
Disclosures required by this subpart or permitted by paragraph
(b)(1)(viii) of this section that are provided in writing or
electronically must be in a minimum eight-point font, except for
disclosures provided via mobile application or text message, to the
extent permitted by paragraph (a)(5) of this section. Disclosures
required by paragraph (b) of this section or permitted by paragraph
(b)(1)(viii) of this section that are provided in writing or
electronically must be in equal prominence to each other.
(4) Segregation. Except for disclosures provided via mobile
application or text message, to the extent permitted by paragraph (a)(5)
of this section, disclosures required by this subpart that are provided
in writing or electronically must be segregated from everything else and
must contain only information that is directly related to the
disclosures required under this subpart.
(d) Estimates. Estimated disclosures may be provided to the extent
permitted by Sec. 1005.32. Estimated disclosures must be described
using the term ``Estimated'' or a substantially similar term in close
proximity to the estimated term or terms.
(e) Timing. (1) Except as provided in Sec. 1005.36(a), a pre-
payment disclosure required by paragraph (b)(1) of this section or a
combined disclosure required by paragraph (b)(3) of this section must be
provided to the sender when the sender requests the remittance transfer,
but prior to payment for the transfer.
(2) Except as provided in Sec. 1005.36(a), a receipt required by
paragraph (b)(2) of this section generally must be provided to the
sender when payment is made for the remittance transfer. If a
transaction is conducted entirely by telephone, a receipt required by
paragraph (b)(2) of this section may be mailed or delivered to the
sender no later than one business day after the date on 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.
[[Page 231]]
(f) Accurate when payment is made. Except as provided in Sec.
1005.36(b), disclosures required by this section or permitted by
paragraph (b)(1)(viii) of this section must be accurate when a sender
makes payment for the remittance transfer, except to the extent
estimates are permitted by Sec. 1005.32.
(g) Foreign language disclosures--(1) General. Except as provided in
paragraph (g)(2) of this section, disclosures required by this subpart
or permitted by paragraph (b)(1)(viii) of this section or Sec.
1005.33(h)(3) must be made in English and, if applicable, either in:
(i) Each of the foreign languages principally used by the remittance
transfer provider to advertise, solicit, or market remittance transfer
services, either orally, in writing, or electronically, at the office in
which a sender conducts a transaction or asserts an error; or
(ii) The foreign language primarily used by the sender with the
remittance transfer provider to conduct the transaction (or for written
or electronic disclosures made pursuant to Sec. 1005.33, in the foreign
language primarily used by the sender with the remittance transfer
provider to assert the error), provided that such foreign language is
principally used by the remittance transfer provider to advertise,
solicit, or market remittance transfer services, either orally, in
writing, or electronically, at the office in which a sender conducts a
transaction or asserts an error, respectively.
(2) Oral, mobile application, or text message disclosures.
Disclosures provided orally for transactions conducted orally and
entirely by telephone under paragraph (a)(3) of this section or orally
or via mobile application or text message for transactions conducted via
mobile application or text message under paragraph (a)(5) of this
section shall be made in the language primarily used by the sender with
the remittance transfer provider to conduct the transaction. Disclosures
provided orally under paragraph (a)(4) of this section for error
resolution purposes shall be made in the language primarily used by the
sender with the remittance transfer provider to assert the error.
[77 FR 6285, Feb. 7, 2012, as amended at 77 FR 50282, Aug. 20, 2012; 77
FR 30703, May 22, 2013]
Sec. 1005.32 Estimates.
(a) Temporary exception for insured institutions--(1) General. For
disclosures described in 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
under Sec. 1005.31(b)(1)(iv) through (vii), if:
(i) A remittance transfer provider cannot determine the exact
amounts for reasons beyond its control;
(ii) A remittance transfer provider is an insured institution; and
(iii) The remittance transfer is sent from the sender's account with
the institution; provided however, for the purposes of this paragraph, a
sender's account does not include a prepaid account, unless the prepaid
account is a payroll card account or a government benefit account.
(2) Sunset date. Paragraph (a)(1) of this section expires on July
21, 2020.
(3) Insured institution. For purposes of this section, the term
``insured institution'' means insured depository institutions (which
includes uninsured U.S. branches and agencies of foreign depository
institutions) as defined in section 3 of the Federal Deposit Insurance
Act (12 U.S.C. 1813), and insured credit unions as defined in section
101 of the Federal Credit Union Act (12 U.S.C. 1752).
(b) Permanent exceptions--(1) Permanent exception for transfers to
certain countries--(i) General. For disclosures described in 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
under Sec. 1005.31(b)(1)(iv) through (b)(1)(vii), if a remittance
transfer provider cannot determine the exact amounts when the disclosure
is required because:
(A) The laws of the recipient country do not permit such a
determination, or
(B) The method by which transactions are made in the recipient
country does not permit such determination.
[[Page 232]]
(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 in Sec. 1005.31(b)(1)(vi)
may be estimated under paragraph (b)(2)(i) of this section only if the
exchange rate is also estimated under paragraph (b)(2)(i) of this
section and the estimated exchange rate affects the amount of such fees.
(iii) Fees and taxes described in Sec. 1005.31(b)(1)(ii) may be
estimated under paragraph (b)(2)(i) of this section only if the amount
that will be transferred in the currency in which it is funded is also
estimated under paragraph (b)(2)(i) of this section, and the estimated
amount affects the amount of such fees and taxes.
(3) Permanent exception for optional disclosure of non-covered
third-party fees and taxes collected by a person other than the
provider. For disclosures described in 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 under Sec. 1005.31(b)(1)(viii), provided such estimates are
based on reasonable sources of information.
(4) Permanent exception for estimation of the exchange rate by an
insured institution. (i) Except as provided in paragraph (b)(4)(ii) of
this section, for disclosures described in Sec. Sec. 1005.31(b)(1)
through (3) and 1005.36(a)(1) and (2), estimates may be provided for a
remittance transfer to a particular country in accordance with paragraph
(c) of this section for the amounts required to be disclosed under Sec.
1005.31(b)(1)(iv) through (vii), if the designated recipient of the
remittance transfer will receive funds in the country's local currency
and all of the following conditions are met:
(A) The remittance transfer provider is an insured institution as
defined in paragraph (a)(3) of this section;
(B) At the time the insured institution must provide, as applicable,
the disclosure required by Sec. 1005.31(b)(1) through (3) or Sec.
1005.36(a)(1) or (2), the insured institution cannot determine the exact
exchange rate required to be disclosed under Sec. 1005.31(b)(1)(iv) for
that remittance transfer;
(C) The insured institution made 1,000 or fewer remittance transfers
in the prior calendar year to the particular country for which the
designated recipients of those transfers received funds in the country's
local currency; and
(D) The remittance transfer is sent from the sender's account with
the insured institution; provided however, for the purposes of this
paragraph, a sender's account does not include a prepaid account, unless
the prepaid account is a payroll card account or a government benefit
account.
(ii) The disclosures in Sec. 1005.31(b)(1)(v) through (vii) may be
estimated under paragraph (b)(4)(i) of this section only if the exchange
rate is permitted to be estimated under paragraph (b)(4)(i) of this
section and the estimated exchange rate affects the amount of such
disclosures.
(5) Permanent exception for estimation of covered third-party fees
by an insured institution. (i) Except as provided in paragraph
(b)(5)(ii) of this section, for
[[Page 233]]
disclosures described in Sec. Sec. 1005.31(b)(1) through (3) and
1005.36(a)(1) and (2), estimates may be provided for a remittance
transfer to a particular designated recipient's institution in
accordance with paragraph (c) of this section for the amounts required
to be disclosed under Sec. 1005.31(b)(1)(vi) through (vii), if all of
the following conditions are met:
(A) The remittance transfer provider is an insured institution as
defined in paragraph (a)(3) of this section;
(B) At the time the insured institution must provide, as applicable,
the disclosure required by Sec. 1005.31(b)(1) through (3) or Sec.
1005.36(a)(1) or (2), the insured institution cannot determine the exact
covered third-party fees required to be disclosed under Sec.
1005.31(b)(1)(vi) for that remittance transfer;
(C) The insured institution made 500 or fewer remittance transfers
in the prior calendar year to that designated recipient's institution,
or a United States Federal statute or regulation prohibits the insured
institution from being able to determine the exact covered third-party
fees required to be disclosed under Sec. 1005.31(b)(1)(vi) for that
remittance transfer; and
(D) The remittance transfer is sent from the sender's account with
the insured institution; provided however, for the purposes of this
paragraph, a sender's account does not include a prepaid account, unless
the prepaid account is a payroll card account or a government benefit
account.
(ii) The disclosure in Sec. 1005.31(b)(1)(vii) may be estimated
under paragraph (b)(5)(i) of this section only if covered third-party
fees are permitted to be estimated under paragraph (b)(5)(i) of this
section and the estimated covered third-party fees affect the amount of
such disclosure.
(c) Bases for estimates generally. Estimates provided pursuant to
the exceptions in paragraph (a) or (b)(1), (4), or (5) of this section
must be based on the below-listed approach or approaches, except as
otherwise permitted by this paragraph. If a remittance transfer provider
bases an estimate on an approach that is not listed in this paragraph,
the provider is deemed to be in compliance with this paragraph so long
as the designated recipient receives the same, or greater, amount of
funds than the remittance transfer provider disclosed under Sec.
1005.31(b)(1)(vii).
(1) Exchange rate. In disclosing the exchange rate as required under
Sec. 1005.31(b)(1)(iv), an estimate must be based on one of the
following:
(i) For remittance transfers sent via international ACH that qualify
for the exception in paragraph (b)(1)(ii) of this section, the most
recent exchange rate set by the recipient country's central bank or
other governmental authority and reported by a Federal Reserve Bank;
(ii) The most recent publicly available wholesale exchange rate and,
if applicable, any spread that the remittance transfer provider or its
correspondent typically applies to such a wholesale rate for remittance
transfers for that currency; or
(iii) The most recent exchange rate offered or used by the person
making funds available directly to the designated recipient or by the
person setting the exchange rate.
(2) Transfer amount in the currency in which the funds will be
received by the designated recipient. In disclosing the transfer amount
in the currency in which the funds will be received by the designated
recipient, as required under Sec. 1005.31(b)(1)(v), an estimate must be
based on the estimated exchange rate provided in accordance with
paragraph (c)(1) of this section, prior to any rounding of the estimated
exchange rate.
(3) Covered third-party fees--(i) Imposed as percentage of amount
transferred. In disclosing covered third-party fees, as described under
Sec. 1005.31(b)(1)(vi), that are a percentage of the amount transferred
to the designated recipient, an estimated exchange rate must be based on
the estimated exchange rate provided in accordance with paragraph (c)(1)
of this section, prior to any rounding of the estimated exchange rate.
(ii) Imposed by the intermediary or final institution. In disclosing
covered third-party fees pursuant to Sec. 1005.31(b)(1)(vi), an
estimate must be based on one of the following:
(A) The remittance transfer provider's most recent remittance
transfer
[[Page 234]]
to the designated recipient's institution, or
(B) A representative transmittal route identified by the remittance
transfer provider.
(4) Amount of currency that will be received by the designated
recipient. In disclosing the amount of currency that will be received by
the designated recipient as required under Sec. 1005.31(b)(1)(vii), an
estimate must be based on the information provided in accordance with
paragraphs (c)(1) through (3) of this section, as applicable.
(d) Bases for estimates for transfers scheduled before the date of
transfer. Estimates provided pursuant to paragraph (b)(2) of this
section must be based on the exchange rate or, where applicable, the
estimated exchange rate based on an estimation methodology permitted
under paragraph (c) of this section that the provider would have used or
did use that day in providing disclosures to a sender requesting such a
remittance transfer to be made on the same day. If, in accordance with
this paragraph, a remittance transfer provider uses a basis described in
paragraph (c) of this section but not listed in paragraph (c)(1) of this
section, the provider is deemed to be in compliance with this paragraph
regardless of the amount received by the designated recipient, so long
as the estimation methodology is the same that the provider would have
used or did use in providing disclosures to a sender requesting such a
remittance transfer to be made on the same day.
[77 FR 6285, Feb. 7, 2012, as amended at 77 FR 50283, Aug. 20, 2012; 78
FR 30704, May 22, 2013; 79 FR 55991, Sept. 18, 2014; 81 FR 84338, Nov.
22, 2016; 85 FR 34904, June 5, 2020]
Sec. 1005.33 Procedures for resolving errors.
(a) Definition of error--(1) Types of transfers or inquiries
covered. For purposes of this section, the term error means:
(i) An incorrect amount paid by a sender in connection with a
remittance transfer unless the disclosure stated an estimate of the
amount paid by a sender in accordance with Sec. 1005.32(b)(2) and the
difference results from application of the actual exchange rate, fees,
and taxes, rather than any estimated amount;
(ii) A computational or bookkeeping error made by the remittance
transfer provider relating to a remittance transfer;
(iii) The failure to make available to a designated recipient the
amount of currency disclosed pursuant to Sec. 1005.31(b)(1)(vii) and
stated in the disclosure provided to the sender under Sec.
1005.31(b)(2) or (3) for the remittance transfer, unless:
(A) The disclosure stated an estimate of the amount to be received
in accordance with Sec. 1005.32(a) or (b)(1), (2), (4), or (5) and the
difference results from application of the actual exchange rate, fees,
and taxes, rather than any estimated amounts; or
(B) The failure resulted from extraordinary circumstances outside
the remittance transfer provider's control that could not have been
reasonably anticipated; or
(C) The difference results from the application of non-covered
third-party fees or taxes collected on the remittance transfer by a
person other than the provider and the provider provided the disclosure
required by Sec. 1005.31(b)(1)(viii).
(iv) The failure to make funds available to a designated recipient
by the date of availability stated in the disclosure provided to the
sender under Sec. 1005.31(b)(2) or (3) for the remittance transfer,
unless the failure to make the funds available resulted from:
(A) Extraordinary circumstances outside the remittance transfer
provider's control that could not have been reasonably anticipated;
(B) Delays related to a necessary investigation or other special
action by the remittance transfer provider or a third party as required
by the provider's fraud screening procedures or in accordance with the
Bank Secrecy Act, 31 U.S.C. 5311 et seq., Office of Foreign Assets
Control requirements, or similar laws or requirements;
(C) The remittance transfer being made with fraudulent intent by the
sender or any person acting in concert with the sender; or
[[Page 235]]
(D) The sender having provided the remittance transfer provider an
incorrect account number or recipient institution identifier for the
designated recipient's account or institution, provided that the
remittance transfer provider meets the conditions set forth in paragraph
(h) of this section;
(v) The sender's request for documentation required by Sec. 1005.31
or for additional information or clarification concerning a remittance
transfer, including a request a sender makes to determine whether an
error exists under paragraphs (a)(1)(i) through (iv) of this section.
(2) Types of transfers or inquiries not covered. The term error does
not include:
(i) An inquiry about the status of a remittance transfer, except
where the funds from the transfer were not made available to a
designated recipient by the disclosed date of availability as described
in paragraph (a)(1)(iv) of this section;
(ii) A request for information for tax or other recordkeeping
purposes;
(iii) A change requested by the designated recipient; or
(iv) A change in the amount or type of currency received by the
designated recipient from the amount or type of currency stated in the
disclosure provided to the sender under Sec. 1005.31(b)(2) or (3) if
the remittance transfer provider relied on information provided by the
sender as permitted under Sec. 1005.31 in making such disclosure.
(b) Notice of error from sender--(1) Timing; contents. A remittance
transfer provider shall comply with the requirements of this section
with respect to any oral or written notice of error from a sender that:
(i) Is received by the remittance transfer provider no later than
180 days after the disclosed date of availability of the remittance
transfer;
(ii) Enables the provider to identify:
(A) The sender's name and telephone number or address;
(B) The recipient's name, and if known, the telephone number or
address of the recipient; and
(C) The remittance transfer to which the notice of error applies;
and
(iii) Indicates why the sender believes an error exists and includes
to the extent possible the type, date, and amount of the error, except
for requests for documentation, additional information, or clarification
described in paragraph (a)(1)(v) of this section.
(2) Request for documentation or clarification. When a notice of
error is based on documentation, additional information, or
clarification that the sender previously requested under paragraph
(a)(1)(v) of this section, the sender's notice of error is timely if
received by the remittance transfer provider the later of 180 days after
the disclosed date of availability of the remittance transfer or 60 days
after the provider sent the 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
[[Page 236]]
an error under paragraph (a)(1)(iv) of this section
(A) As applicable, either:
(1) Refunding to the sender the amount of funds provided by the
sender in connection with a remittance transfer which was not properly
transmitted, or the amount appropriate to resolve the error; or
(2) Making available to the designated recipient the amount
appropriate to resolve the error. Such amount must be made available to
the designated recipient without additional cost to the sender or to the
designated recipient; and
(B) Refunding to the sender any fees imposed and, to the extent not
prohibited by law, taxes collected on the remittance transfer;
(iii) In the case of an error under paragraph (a)(1)(iv) of this
section that occurred because the sender provided incorrect or
insufficient information in connection with the remittance transfer, the
remittance transfer provider shall provide the remedies required by
paragraphs (c)(2)(ii)(A)(1) and (c)(2)(ii)(B) of this section within
three business days of providing the report required by paragraph (c)(1)
or (d)(1) of this section except that the provider may agree to the
sender's request, upon receiving the results of the error investigation,
that the funds be applied towards a new remittance transfer, rather than
be refunded, if the provider has not yet processed a refund. The
provider may deduct from the amount refunded or applied towards a new
transfer any fees actually imposed on or, to the extent not prohibited
by law, taxes actually collected on the remittance transfer as part of
the first unsuccessful remittance transfer attempt except that the
provider shall not deduct its own fee.
(iv) In the case of a request under paragraph (a)(1)(v) of this
section, providing the requested documentation, information, or
clarification.
(d) Procedures if remittance transfer provider determines no error
or different error occurred. In addition to following the procedures
specified in paragraph (c) of this section, the remittance transfer
provider shall follow the procedures set forth in this paragraph (d) if
it determines that no error occurred or that an error occurred in a
manner or amount different from that described by the sender.
(1) Explanation of results of investigation. The remittance transfer
provider's report of the results of the investigation shall include a
written explanation of the provider's findings and shall note the
sender's right to request the documents on which the provider relied in
making its determination. The explanation shall also address the
specific complaint of the sender.
(2) Copies of documentation. Upon the sender's request, the
remittance transfer provider shall promptly provide copies of the
documents on which the provider relied in making its error
determination.
(e) Reassertion of error. A remittance transfer provider that has
fully complied with the error resolution requirements of this section
has no further responsibilities under this section should the sender
later reassert the same error, except in the case of an error asserted
by the sender following receipt of information provided under paragraph
(a)(1)(v) of this section.
(f) Relation to other laws--(1) Relation to Regulation E Sec.
1005.11 for incorrect EFTs from a sender's account. If an alleged error
involves an incorrect electronic fund transfer from a sender's account
in connection with a remittance transfer, and the sender provides a
notice of error to the account-holding institution, the account-holding
institution shall comply with the requirements of Sec. 1005.11
governing error resolution rather than the requirements of this section,
provided that the account-holding institution is not also the remittance
transfer provider. If the remittance transfer provider is also the
financial institution that holds the consumer's account, then the error-
resolution provisions of this section apply when the sender provides
such notice of error.
(2) Relation to Truth in Lending Act and Regulation Z. If an alleged
error involves an incorrect extension of credit in connection with a
remittance transfer, an incorrect amount received by the designated
recipient under paragraph (a)(1)(iii) of this section that is an
extension of credit for property or services not delivered as agreed, or
the
[[Page 237]]
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 with a
remittance transfer, the provisions of Regulation Z, 12 CFR 1026.12(b),
if applicable, and Sec. 1026.13, apply with respect to the creditor.
(g) Error resolution standards and recordkeeping requirements--(1)
Compliance program. A remittance transfer provider shall develop and
maintain written policies and procedures that are designed to ensure
compliance with the error resolution requirements applicable to
remittance transfers under this section.
(2) Retention of error-related documentation. The remittance
transfer provider's policies and procedures required under paragraph
(g)(1) of this section shall include policies and procedures regarding
the retention of documentation related to error investigations. Such
policies and procedures must ensure, at a minimum, the retention of any
notices of error submitted by a sender, documentation provided by the
sender to the provider with respect to the alleged error, and the
findings of the remittance transfer provider regarding the investigation
of the alleged error. Remittance transfer providers are subject to the
record retention requirements under Sec. 1005.13.
(h) Incorrect account number or recipient institution identifier
provided by the sender. The exception in paragraph (a)(1)(iv)(D) of this
section applies if:
(1) The remittance transfer provider can demonstrate that the sender
provided an incorrect account number or recipient institution identifier
to the provider in connection with the remittance transfer;
(2) For any instance in which the sender provided the incorrect
recipient institution identifier, prior to or when sending the transfer,
the provider used reasonably available means to verify that the
recipient institution identifier provided by the sender corresponded to
the recipient institution name provided by the sender;
(3) The provider provided notice to the sender before the sender
made payment for the remittance transfer that, in the event the sender
provided an incorrect account number or recipient institution
identifier, the sender could lose the transfer amount. For purposes of
providing this disclosure, Sec. 1005.31(a)(2) applies to this notice
unless the notice is given at the same time as other disclosures
required by this subpart for which information is permitted to be
disclosed orally or via mobile application or text message, in which
case this disclosure may be given in the same medium as those other
disclosures;
(4) The incorrect account number or recipient institution identifier
resulted in the deposit of the remittance transfer into a customer's
account that is not the designated recipient's account; and
(5) The provider promptly used reasonable efforts to recover the
amount that was to be received by the designated recipient.
[77 FR 6285, Feb. 7, 2012, as amended at 77 FR 50284, Aug. 20, 2012; 78
FR 30704, May 22, 2013; 78 FR 49366, Aug. 14, 2013; 79 FR 55991, Sept.
18, 2014; 85 FR 34904, June 5, 2020]
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
[[Page 238]]
comply with the requirements of this section with respect to any oral or
written request to cancel a remittance transfer from the sender that is
received by the provider no later than 30 minutes after the sender makes
payment in connection with the remittance transfer if:
(1) The request to cancel enables the provider to identify the
sender's name and address or telephone number and the particular
transfer to be cancelled; and
(2) The transferred funds have not been picked up by the designated
recipient or deposited into an account of the designated recipient.
(b) Time limits and refund requirements. A remittance transfer
provider shall refund, at no additional cost to the sender, the total
amount of funds provided by the sender in connection with a remittance
transfer, including any fees and, to the extent not prohibited by law,
taxes imposed in connection with the remittance transfer, within three
business days of receiving a sender's request to cancel the remittance
transfer.
Sec. 1005.35 Acts of agents.
A remittance transfer provider is liable for any violation of this
subpart by an agent when such agent acts for the provider.
Sec. 1005.36 Transfers scheduled before the date of transfer.
(a) Timing. (1) For a one-time transfer scheduled five or more
business days before the date of transfer or for the first in a series
of preauthorized remittance transfers, the remittance transfer provider
must:
(i) Provide either the pre-payment disclosure described in Sec.
1005.31(b)(1) and the receipt described in Sec. 1005.31(b)(2) or the
combined disclosure described in Sec. 1005.31(b)(3), in accordance with
the timing requirements set forth in Sec. 1005.31(e); and
(ii) If any of the disclosures provided pursuant to paragraph
(a)(1)(i) of this section contain estimates as permitted by Sec.
1005.32(b)(2), mail or deliver to the sender an additional receipt
meeting the requirements described in Sec. 1005.31(b)(2) no later than
one business day after the date of the transfer. If the transfer
involves the transfer of funds from the sender's account held by the
provider, the receipt required by this paragraph may be provided on or
with the next periodic statement for that account, or within 30 days
after the date of the transfer if a periodic statement is not provided.
(2) For each subsequent preauthorized remittance transfer:
(i) If any of the information on the most recent receipt provided
pursuant to paragraph (a)(1)(i) of this section, or by this paragraph
(a)(2)(i), other than the temporal disclosures required by Sec.
1005.31(b)(2)(ii) and (b)(2)(vii), is no longer accurate with respect to
a subsequent preauthorized remittance transfer for reasons other than as
permitted by Sec. 1005.32, then the remittance transfer provider must
provide an updated receipt meeting the requirements described in Sec.
1005.31(b)(2) to the sender. The provider must mail or deliver this
receipt to the sender within a reasonable time prior to the scheduled
date of the next subsequent preauthorized remittance transfer. Such
receipt must clearly and conspicuously indicate that it contains updated
disclosures.
(ii) Unless a receipt was provided in accordance with paragraph
(a)(2)(i) of this section that contained no estimates pursuant to Sec.
1005.32, the remittance transfer provider must mail or deliver to the
sender a receipt meeting the requirements described in Sec.
1005.31(b)(2) no later than one business day after the date of the
transfer. If the remittance transfer involves the transfer of funds from
the sender's account held by the provider, the receipt required by this
paragraph may be provided on or with the next periodic statement for
that account, or within 30 days after the date of the transfer if a
periodic statement is not provided.
(iii) A remittance transfer provider must provide the disclosures
required by paragraph (d) of this section in accordance with the timing
requirements of that section.
(b) Accuracy. (1) For a one-time transfer scheduled five or more
business days in advance or for the first in a series of preauthorized
remittance transfers, disclosures provided pursuant to paragraph
(a)(1)(i) of this section
[[Page 239]]
must comply with Sec. 1005.31(f) by being accurate when a sender makes
payment except to the extent estimates are permitted by Sec. 1005.32.
(2) For each subsequent preauthorized remittance transfer, the most
recent receipt provided pursuant to paragraph (a)(1)(i) or (a)(2)(i) of
this section must be accurate as of when such transfer is made, except:
(i) The temporal elements required by Sec. 1005.31(b)(2)(ii) and
(b)(2)(vii) must be accurate only if the transfer is the first transfer
to occur after the disclosure was provided; and
(ii) To the extent estimates are permitted by Sec. 1005.32.
(3) Disclosures provided pursuant to paragraph (a)(1)(ii) or
(a)(2)(ii) of this section must be accurate as of when the remittance
transfer to which it pertains is made, except to the extent estimates
are permitted by Sec. 1005.32(a) or (b)(1), (4), or (5).
(c) Cancellation. For any remittance transfer scheduled by the
sender at least three business days before the date of the transfer, a
remittance transfer provider shall comply with any oral or written
request to cancel the remittance transfer from the sender if the request
to cancel:
(1) Enables the provider to identify the sender's name and address
or telephone number and the particular transfer to be cancelled; and
(2) Is received by the provider at least three business days before
the scheduled date of the remittance transfer.
(d) Additional requirements for subsequent preauthorized remittance
transfers--(1) Disclosure requirement. (i) For any subsequent transfer
in a series of preauthorized remittance transfers, the remittance
transfer provider must disclose to the sender:
(A) The date the provider will make the subsequent transfer, using
the term ``Future Transfer Date,'' or a substantially similar term;
(B) A statement about the rights of the sender regarding
cancellation as described in Sec. 1005.31(b)(2)(iv); and
(C) The name, telephone number(s), and Web site of the remittance
transfer provider.
(ii) If the future date or dates of transfer are described as
occurring in regular periodic intervals, e.g., the 15th of every month,
rather than as a specific calendar date or dates, the remittance
transfer provider must disclose any future date or dates of transfer
that do not conform to the described interval.
(2) Notice requirements. (i) Except as described in paragraph
(d)(2)(ii) of this section, the disclosures required by paragraph (d)(1)
of this section must be received by the sender no more than 12 months,
and no less than five business days prior to the date of any subsequent
transfer to which it pertains. The disclosures required by paragraph
(d)(1) of this section may be provided in a separate disclosure or may
be provided on one or more disclosures required by this subpart related
to the same series of preauthorized transfers, so long as the consumer
receives the required information for each subsequent preauthorized
remittance transfer in accordance with the timing requirements of this
paragraph (d)(2)(i).
(ii) For any subsequent preauthorized remittance transfer for which
the date of transfer is four or fewer business days after the date
payment is made for that transfer, the information required by paragraph
(d)(1) of this section must be provided on or with the receipt described
in Sec. 1005.31(b)(2), or disclosed as permitted by Sec. 1005.31(a)(3)
or (a)(5), for the initial transfer in that series in accordance with
paragraph (a)(1)(i) of this section.
(3) Specific format requirement. The information required by
paragraph (d)(1)(i)(A) of this section generally must be disclosed in
close proximity to the other information required by paragraph
(d)(1)(i)(B) of this section.
(4) Accuracy. Any disclosure required by paragraph (d)(1) of this
section must be accurate as of the date the preauthorized remittance
transfer to which it pertains is made.
[76 FR 81023, Dec. 27, 2011, as amended at 77 FR 50284, Aug. 20, 2012;
85 FR 34904, June 5, 2020]
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))
[[Page 240]]
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 Clauses for Government Agencies (Sec. 1005.15(e)(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 Prepaid Accounts
(Sec. 1005.18(d) and (e)(3))
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(a)--Model Form for Short Form Disclosures for Government Benefit
Accounts (Sec. Sec. 1005.15(c) and 1005.18(b)(2), (3), (6),
and (7))
A-10(b)--Model Form for Short Form Disclosures for Payroll Card Accounts
(Sec. 1005.18(b)(2), (3), (6), and (7))
A-10(c)--Model Form for Short Form Disclosures for Prepaid Accounts,
Example 1 (Sec. 1005.18(b)(2), (3), (6), and (7))
A-10(d)--Model Form for Short Form Disclosures for Prepaid Accounts,
Example 2 (Sec. 1005.18(b)(2), (3), (6), and (7))
A-10(e)--Model Form for Short Form Disclosures for Prepaid Accounts with
Multiple Service Plans (Sec. 1005.18(b)(2), (3), (6), and
(7))
A-10(f)--Sample Form for Long Form Disclosures for Prepaid Accounts
(Sec. 1005.18(b)(4), (6), and (7))
A-11 through A-30 [Reserved]
A-30(a)--Model Form for Pre-Payment Disclosures for Remittance Transfers
Exchanged into Local Currency including a disclaimer where
non-covered third-party fees and foreign taxes may apply
(Sec. 1005.31(b)(1))
A-30(b) --Model Form for Pre-Payment Disclosures for Remittance
Transfers Exchanged into Local Currency including a disclaimer
with estimate for non-covered third-party fees (Sec.
1005.31(b)(1) and Sec. 1005.32(b)(3))
A-30(c)--Model Form for Pre-Payment Disclosures for Remittance Transfers
Exchanged into Local Currency including a disclaimer with
estimate for foreign taxes (Sec. 1005.31(b)(1) and Sec.
1005.32(b)(3))
A-30(d)--Model Form for Pre-Payment Disclosures for Remittance Transfers
Exchanged into Local Currency, including a disclaimer with
estimates for non-covered third-party fees and foreign taxes
(Sec. 1005.31(b)(1) and Sec. 1005.32(b)(3))
A-31--Model Form for Receipts for Remittance Transfers Exchanged into
Local Currency (Sec. 1005.31(b)(2))
A-32--Model Form for Combined Disclosures for Remittance Transfers
Exchanged into Local Currency (Sec. 1005.31(b)(3))
A-34--Model Form for Receipts for Dollar-to-Dollar Remittance Transfers
(Sec. 1005.31(b)(2))
A-35--Model Form for Combined Disclosures for Dollar-to-Dollar
Remittance Transfers (Sec. 1005.31(b)(3))
A-36--Model Form for Error Resolution and Cancellation Disclosures
(Long) (Sec. 1005.31(b)(4))
A-37--Model Form for Error Resolution and Cancellation Disclosures
(Short) (Sec. 1005.31(b)(2)(iv) and (b)(2)(vi))
A-39--Model Form for Receipts for Remittance Transfers Exchanged into
Local Currency--Spanish (Sec. 1005.31(b)(2))
A-40--Model Form for Combined Disclosures for Remittance Transfers
Exchanged into Local Currency--Spanish (Sec. 1005.31(b)(3))
A-41--Model Form for Error Resolution and Cancellation Disclosures
(Long)--Spanish (Sec. 1005.31(b)(4))
A-1--Model Clauses for Unsolicited Issuance (Sec. 1005.5(b)(2))
(a) Accounts using cards. You cannot use the enclosed card to
transfer money into or out of your account until we have validated it.
If you do not want to use the card, please (destroy it at once by
cutting it in half).
[Financial institution may add validation instructions here.]
(b) Accounts using codes. You cannot use the enclosed code to
transfer money into or out of your account until we have validated it.
If you do not want to use the code, please (destroy this notice at
once).
[Financial institution may add validation instructions here.]
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
[[Page 241]]
get back any money you lost after the 60 days if we can prove that we
could have stopped someone from taking the money if you had told us in
time. If a good reason (such as a long trip or a hospital stay) kept you
from telling us, we will extend the time periods.
(b) Contact in event of unauthorized transfer (Sec. 1005.7(b)(2)).
If you believe your [card] [code] has been lost or stolen, call:
[Telephone number] or write: [Name of person or office to be notified]
[Address].
You should also call the number or write to the address listed above
if you believe a transfer has been made using the information from your
check without your permission.
(c) Business days (Sec. 1005.7(b)(3)). For purposes of these
disclosures, our business days are (Monday through Friday) (Monday
through Saturday) (any day including Saturdays and Sundays). Holidays
are (not) included.
(d) Transfer types and limitations (Sec. 1005.7(b)(4)) (1) Account
access. You may use your [card][code] to:
(i) Withdraw cash from your [checking] [or] [savings] account.
(ii) Make deposits to your [checking] [or] [savings] account.
(iii) Transfer funds between your checking and savings accounts
whenever you request.
(iv) Pay for purchases at places that have agreed to accept the
[card] [code].
(v) Pay bills directly [by telephone] from your [checking] [or]
[savings] account in the amounts and on the days you request.
Some of these services may not be available at all terminals.
(2) Electronic check conversion. You may authorize a merchant or
other payee to make a one-time electronic payment from your checking
account using information from your check to:
(i) Pay for purchases.
(ii) Pay bills.
(3) Limitations on frequency of transfers. (i) You may make only
[insert number, e.g., 3] cash withdrawals from our terminals each
[insert time period, e.g., week].
(ii) You can use your telephone bill-payment service to pay [insert
number] bills each [insert time period] [telephone call].
(iii) You can use our point-of-sale transfer service for [insert
number] transactions each [insert time period].
(iv) For security reasons, there are limits on the number of
transfers you can make using our [terminals] [telephone bill-payment
service] [point-of-sale transfer service].
(4) Limitations on dollar amounts of transfers (i) You may withdraw
up to [insert dollar amount] from our terminals each [insert time
period] time you use the [card] [code].
(ii) You may buy up to [insert dollar amount] worth of goods or
services each [insert time period] time you use the [card] [code] in our
point-of-sale transfer service.
(e) Fees (Sec. 1005.7(b)(5)) (1) Per transfer charge. We will
charge you [insert dollar amount] for each transfer you make using our
[automated teller machines] [telephone bill-payment service] [point-of-
sale transfer service].
(2) Fixed charge. We will charge you [insert dollar amount] each
[insert time period] for our [automated teller machine service]
[telephone bill-payment service] [point-of-sale transfer service].
(3) Average or minimum balance charge. We will only charge you for
using our [automated teller machines] [telephone bill-payment service]
[point-of-sale transfer service] if the [average] [minimum] balance in
your [checking account] [savings account] [accounts] falls below [insert
dollar amount]. If it does, we will charge you [insert dollar amount]
each [transfer] [insert time period].
(f) Confidentiality (Sec. 1005.7(b)(9)). We will disclose
information to third parties about your account or the transfers you
make:
(i) Where it is necessary for completing transfers, or
(ii) In order to verify the existence and condition of your account
for a third party, such as a credit bureau or merchant, or
(iii) In order to comply with government agency or court orders, or
(iv) If you give us your written permission.
(g) Documentation (Sec. 1005.7(b)(6)) (1) Terminal transfers. You
can get a receipt at the time you make any transfer to or from your
account using one of our [automated teller machines] [or] [point-of-sale
terminals].
(2) Preauthorized credits. If you have arranged to have direct
deposits made to your account at least once every 60 days from the 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
[[Page 242]]
before the payment is scheduled to be made. If you call, we may also
require you to put your request in writing and get it to us within 14
days after you call. (We will charge you [insert amount] for each stop-
payment order you give.)
(2) Notice of varying amounts. If these regular payments may vary in
amount, [we] [the person you are going to pay] will tell you, 10 days
before each payment, when it will be made and how much it will be. (You
may choose instead to get this notice only when the payment would differ
by more than a certain amount from the previous payment, or when the
amount would fall outside certain limits that you set.)
(3) Liability for failure to stop payment of preauthorized transfer.
If you order us to stop one of these payments 3 business days or more
before the transfer is scheduled, and we do not do so, we will be liable
for your losses or damages.
(i) Financial institution's liability (Sec. 1005.7(b)(8)). If we do
not complete a transfer to or from your account on time or in the
correct amount according to our agreement with you, we will be liable
for your losses or damages. However, there are some exceptions. We will
not be liable, for instance:
(1) If, through no fault of ours, you do not have enough money in
your account to make the transfer.
(2) If the transfer would go over the credit limit on your overdraft
line.
(3) If the automated teller machine where you are making the
transfer does not have enough cash.
(4) If the [terminal] [system] was not working properly and you knew
about the breakdown when you started the transfer.
(5) If circumstances beyond our control (such as fire or flood)
prevent the transfer, despite reasonable precautions that we have taken.
(6) There may be other exceptions stated in our agreement with you.
(j) ATM fees (Sec. 1005.7(b)(11)). When you use an ATM not owned by
us, you may be charged a fee by the ATM operator [or any network used]
(and you may be charged a fee for a balance inquiry even if you do not
complete a fund transfer).
A-3--Model Forms for Error Resolution Notice (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.
[[Page 243]]
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 Clauses for Government Agencies (Sec. 1005.15(e)(1) and (2))
(a) Disclosure by government agencies of information about obtaining
account information for government benefit accounts (Sec.
1005.15(e)(1)(i)).
You may obtain information about the amount of benefits you have
remaining by calling [telephone number]. That information is also
available [on the receipt you get when you make a transfer with your
card at (an ATM) (a POS terminal)] [when you make a balance inquiry at
an ATM] [when you make a balance inquiry at specified locations]. This
information, along with a 12-month history of account transactions, is
also available online at [Internet address].
You also have the right to obtain at least 24 months of written
history of account transactions by calling [telephone number], or by
writing to us at [address]. You will not be charged a fee for this
information unless you request it more than once per month. [Optional:
Or you may request a written history of account transactions by
contacting your caseworker.]
(b) Disclosure of error resolution procedures for government
agencies that do not provide periodic statements (Sec.
1005.15(e)(1)(ii) and (e)(2)).
In Case of Errors or Questions About Your Electronic Transfers
Telephone us at [telephone number] Write us at [address] [or email us at
[email address]] as soon as you can, if you think an error has occurred
in your [agency's name for program] account. We must allow you to report
an error until 60 days after the earlier of the date you electronically
access your account, if the error could be viewed in your electronic
history, or the date we sent the FIRST written history on which the
error appeared. You may request a written history of your transactions
at any time by calling us at [telephone number] or writing us at
[address] [optional: or by contacting your caseworker]. You will need to
tell us:
Your name and [case] [file] number.
Why you believe there is an error, and the dollar
amount involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business days
after we hear from you and will correct any error promptly. If we need
more time, however, we may take up to 45 days to investigate your
complaint or question. If we decide to do this, we will credit your
account within 10 business days for the amount you think is in error, so
that you will have the use of the money during the time it takes us to
complete our investigation. If we ask you to put your complaint or
question in writing and we do not receive it within 10 business days, we
may not credit your account.
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate your
complaint or question. For new accounts, we may take up to 20 business
days to credit your account for the amount you think is in error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error, we
will send you a written explanation.
You may ask for copies of the documents that we used in our
investigation.
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
[[Page 244]]
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 Prepaid Accounts
(Sec. 1005.18(d) and (e)(3))
(a) Disclosure by financial institutions of information about
obtaining account information for prepaid accounts (Sec.
1005.18(d)(1)(i)).
You may obtain information about the amount of money you have
remaining in your prepaid account by calling [telephone number]. This
information, along with a 12-month history of account transactions, is
also available online at [internet address].
[For accounts that are or can be registered:] [If your account is
registered with us,] You also have the right to obtain at least 24
months of written history of account transactions by calling [telephone
number], or by writing us at [address]. You will not be charged a fee
for this information unless you request it more than once per month.
(b) Disclosure of error-resolution procedures for financial
institutions that do not provide periodic statements (Sec.
1005.18(d)(1)(ii) and (d)(2)).
In Case of Errors or Questions About Your Prepaid Account Telephone
us at [telephone number] or Write us at [address] [or email us at [email
address]] as soon as you can, if you think an error has occurred in your
prepaid account. We must allow you to report an error until 60 days
after the earlier of the date you electronically access your account, if
the error could be viewed in your electronic history, or the date we
sent the FIRST written history on which the error appeared. You may
request a written history of your transactions at any time by calling us
at [telephone number] or writing us at [address]. You will need to tell
us:
Your name and [prepaid account] number.
Why you believe there is an error, and the dollar amount involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business days
after we hear from you and will correct any error promptly. If we need
more time, however, we may take up to 45 days to investigate your
complaint or question. If we decide to do this, [and your account is
registered with us,] we will credit your account within 10 business days
for the amount you think is in error, so that you will have the money
during the time it takes us to complete our investigation. If we ask you
to put your complaint or question in writing and we do not receive it
within 10 business days, we may not credit your account. [Keep reading
to learn more about how to register your card.]
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate your
complaint or question. For new accounts, we may take up to 20 business
days to credit your account for the amount you think is in error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error, we
will send you a written explanation.
You may ask for copies of the documents that we used in our
investigation.
If you need more information about our error-resolution procedures,
call us at [telephone number] [the telephone number shown above] [or
visit [internet address]].
(c) Warning regarding unverified prepaid accounts (Sec.
1005.18(e)(3)).
It is important to register your prepaid account as soon as
possible. Until you register your account and we verify your identity,
we are not required to research or resolve any errors regarding your
account. To register your account, go to [internet address] or call us
at [telephone number]. We will ask you for identifying information about
yourself (including your full name, address, date of birth, and [Social
Security Number] [government-issued identification number]), so that we
can verify your identity.
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
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[GRAPHIC] [TIFF OMITTED] TR22NO16.005
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[GRAPHIC] [TIFF OMITTED] TR22NO16.006
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[GRAPHIC] [TIFF OMITTED] TR22NO16.007
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A-11 through A-29 [Reserved]
[[Page 251]]
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 252]]
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 253]]
A-31--Model Form for Receipts for Remittance Transfers Exchanged into
Local Currency (Sec. 1005.31(b)(2))
[GRAPHIC] [TIFF OMITTED] TR18SE14.015
[[Page 254]]
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 255]]
[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 256]]
A-34--Model Form for Receipts for Dollar-to-Dollar Remittance Transfers
(Sec. 1005.31(b)(2))
[GRAPHIC] [TIFF OMITTED] TR22MY13.250
[[Page 257]]
A-35--Model Form for Combined Disclosures for Dollar-to-Dollar
Remittance Transfers (Sec. 1005.31(b)(3))
[GRAPHIC] [TIFF OMITTED] TR22MY13.251
[[Page 258]]
A-36--Model Form for Error Resolution and Cancellation Disclosures
(Long) (Sec. 1005.31(b)(4))
[GRAPHIC] [TIFF OMITTED] TR22MY13.252
A-37--Model Form for Error Resolution and Cancellation Disclosures
(Short)
(Sec. 1005.31(b)(2)(iv) and (b)(2)(vi))
You have a right to dispute errors in your transaction. If you think
there is an error, contact us within 180 days at [insert telephone
number] or [insert website]. You can also contact us for a written
explanation of your rights.
You can cancel for a full refund within 30 minutes of payment,
unless the funds have been picked up or deposited.
For questions or complaints about [insert name of remittance
transfer provider], contact:
State Regulatory Agency, 800-111-2222, www.stateregulatoryagency.gov
Consumer Financial Protection Bureau, 855-411-2372, 855-729-2372 (TTY/
TDD), www.consumerfinance.gov
[[Page 259]]
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 260]]
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 261]]
[GRAPHIC] [TIFF OMITTED] TR22MY13.256
[[Page 262]]
A-40--Model Form for Combined Disclosures for Remittance Transfers
Exchanged into Local Currency--Spanish (Sec. 1005.31(b)(3))
[GRAPHIC] [TIFF OMITTED] TR18SE14.016
[[Page 263]]
A-41--Model Form for Error Resolution and Cancellation Disclosures
(Long)--Spanish (Sec. 1005.31(b)(4))
[GRAPHIC] [TIFF OMITTED] TR22MY13.258
[76 FR 81023, Dec. 27, 2011, as amended at 77 FR 6290, Feb. 7, 2012; 77
FR 40459, July 10, 2012; 78 FR 30705, May 22, 2013; 79 FR 55991, Sept.
18, 2014; 81 FR 70320, Oct. 12, 2016; 81 FR 84338, Nov. 22, 2016; 83 FR
6419, Feb. 13, 2018]
[[Page 264]]
Sec. Appendix B to Part 1005 [Reserved]
Sec. Appendix C to Part 1005--Issuance of Official Interpretations
Official Interpretations
Interpretations of this part issued by duly authorized officials of
the Bureau provide the protection afforded under section 916(d) of the
Act. Except in unusual circumstances, such interpretations will not be
issued separately but will be incorporated in an official commentary to
this part, which will be amended periodically.
Requests for Issuance of Official Interpretations
A request for an official interpretation shall be in writing and
addressed to the Bureau of Consumer Financial Protection, 1700 G Street
NW, Washington, DC 20552. 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.
[88 FR 16538, Mar. 20, 2023]
Sec. Supplement I to Part 1005--Official Interpretations
Section 1005.2 Definitions
2(a) Access Device
1. Examples. The term ``access device'' includes debit cards,
personal identification numbers (PINs), telephone transfer and telephone
bill payment codes, and other means that may be used by a consumer to
initiate an electronic fund transfer (EFT) to or from a consumer
account. The term does not include magnetic tape or other devices used
internally by a financial institution to initiate electronic transfers.
2. Checks used to capture information. The term ``access device''
does not include a check or draft used to capture the Magnetic Ink
Character Recognition (MICR) encoding to initiate a one-time automated
clearinghouse (ACH) debit. For example, if a consumer authorizes a one-
time ACH debit from the consumer's account using a blank, partially
completed, or fully completed and signed check for the merchant to
capture the routing, account, and serial numbers to initiate the debit,
the check is not an access device. (Although the check is not an access
device under Regulation E, the transaction is nonetheless covered by the
regulation. See comment 3(b)(1)-1.v.)
2(b) Account
1. Consumer asset account. The term ``consumer asset account''
includes:
i. Club accounts, such as vacation clubs. In many cases, however,
these accounts are exempt from the regulation under Sec. 1005.3(c)(5)
because all electronic transfers to or from the account have been
preauthorized by the consumer and involve another account of the
consumer at the same institution.
ii. A retail repurchase agreement (repo), which is a loan made to a
financial institution by a consumer that is collateralized by government
or government-insured securities.
2. Examples of accounts not covered by Regulation E (12 CFR part
1005) include:
i. Profit-sharing and pension accounts established under a trust
agreement, which are exempt under Sec. 1005.2(b)(2).
ii. Escrow accounts, such as those established to ensure payment of
items such as real estate taxes, insurance premiums, or completion of
repairs or improvements.
iii. Accounts for accumulating funds to purchase U.S. savings bonds.
Paragraph 2(b)(2)
1. Bona fide trust agreements. The term ``bona fide trust
agreement'' is not defined by the Act or regulation; therefore,
financial 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.
Paragraph 2(b)(3)
Paragraph 2(b)(3)(i)
1. Debit card includes prepaid card. For purposes of subpart A of
Regulation E, unless otherwise specified, the term debit card also
includes a prepaid card.
2. Certain employment-related cards not covered as payroll card
accounts. The term ``payroll card account'' does not include an account
used solely to disburse incentive-based payments (other than commissions
which can represent the primary means through which a consumer is paid),
such as bonuses, which are unlikely to be a consumer's primary source of
salary or other compensation. The term also does not include an account
used solely to make disbursements unrelated to compensation, such as
petty cash reimbursements or travel per diem payments. Similarly, a
payroll card account does not include an account that is used in
isolated instances to which an employer typically does not make
recurring payments, such as when providing final payments or in
emergency situations when other payment
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methods are unavailable. While such accounts would not be payroll card
accounts, such accounts could constitute prepaid accounts generally,
provided the other conditions of the definition of that term in Sec.
1005.2(b)(3) are satisfied. In addition, all transactions involving the
transfer of funds to or from a payroll card account or prepaid account
are covered by the regulation, even if a particular transaction involves
payment of a bonus, other incentive-based payment, or reimbursement, or
the transaction does not represent a transfer of wages, salary, or other
employee compensation.
3. Marketed or labeled as ``prepaid.'' The term ``marketed or
labeled as `prepaid' '' means promoting or advertising an account using
the term ``prepaid.'' For example, an account is marketed or labeled as
prepaid if the term ``prepaid'' appears on the access device associated
with the account or the access device's packaging materials, or on a
display, advertisement, or other publication to promote purchase or use
of the account. An account may be marketed or labeled as prepaid if the
financial institution, its service provider, including a program
manager, or the payment network on which an access device for the
account is used, promotes or advertises, or contracts with another party
to promote or advertise, the account using the label ``prepaid.'' A
product or service that is marketed or labeled as prepaid is not a
``prepaid account'' pursuant to Sec. 1005.2(b)(3)(i)(C) if it does not
otherwise meet the definition of account under Sec. 1005.2(b)(1).
4. Issued on a prepaid basis. To be issued on a prepaid basis, a
prepaid account must be loaded with funds when it is first provided to
the consumer for use. For example, if a consumer purchases a prepaid
account and provides funds that are loaded onto a card at the time of
purchase, the prepaid account is issued on a prepaid basis.
5. Capable of being loaded with funds. A prepaid account that is not
issued on a prepaid basis but is capable of being loaded with funds
thereafter includes a prepaid card issued to a consumer with a zero
balance to which funds may be loaded by the consumer or a third party
subsequent to issuance.
6. Product acting as a pass-through vehicle for funds. To satisfy
Sec. 1005.2(b)(3)(i)(D), a prepaid account must be issued on a prepaid
basis or be capable of being loaded with funds. This means that the
prepaid account must be capable of holding funds, rather than merely
acting as a pass-through vehicle. For example, if a product, such as a
digital wallet, is only capable of storing a consumer's payment
credentials for other accounts but is incapable of having funds stored
on it, such a product is not a prepaid account. However, if a product
allows a consumer to transfer funds, which can be stored before the
consumer designates a destination for the funds, the product satisfies
Sec. 1005.2(b)(3)(i)(D).
7. Not required to be reloadable. Prepaid accounts need not be
reloadable by the consumer or a third party.
8. Primary function. To satisfy Sec. 1005.2(b)(3)(i)(D), an
account's primary function must be to provide consumers with general
transaction capability, which includes the general ability to use loaded
funds to conduct transactions with multiple, unaffiliated merchants for
goods or services, or at automated teller machines, or to conduct
person-to-person transfers. This definition excludes accounts that
provide such capability only incidentally. For example, the primary
function of a brokerage account is to hold funds so that the consumer
can conduct transactions through a licensed broker or firm, not to
conduct transactions with multiple, unaffiliated merchants for good or
services, or at automated teller machines, or to conduct person-to-
person transfers. Similarly, the primary function of a savings account
is to accrue interest on funds held in the account; such accounts
restrict the extent to which the consumer can conduct general
transactions and withdrawals. Accordingly, brokerage accounts and
savings accounts do not satisfy Sec. 1005.2(b)(3)(i)(D), and thus are
not prepaid accounts as defined by Sec. 1005.2(b)(3). The following
examples provide additional guidance:
i. An account's primary function is to enable a consumer to conduct
transactions with multiple, unaffiliated merchants for goods or
services, at automated teller machines, or to conduct person-to-person
transfers, even if the account also enables a third party to disburse
funds to a consumer. For example, a prepaid account that conveys tax
refunds or insurance proceeds to a consumer meets the primary function
test if the account can be used, e.g., to purchase goods or services at
multiple, unaffiliated merchants.
ii. Whether an account satisfies Sec. 1005.2(b)(3)(i)(D) is
determined by reference to the account, not the access device associated
with the account. An account satisfies Sec. 1005.2(b)(3)(i)(D) even if
the account's access device can be used for other purposes, for example,
as a form of identification. Such accounts may include, for example, a
prepaid account used to disburse student loan proceeds via a card device
that can be used at unaffiliated merchants or to withdraw cash from an
automated teller machine, even if that access device also acts as a
student identification card.
iii. Where multiple accounts are associated with the same access
device, the primary function of each account is determined separately.
One or more accounts can satisfy Sec. 1005.2(b)(3)(i)(D) even if other
accounts associated with the same access device do not. For example, a
student identification card may act as an access device associated with
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two separate accounts: An account used to conduct transactions with
multiple, unaffiliated merchants for goods or services, and an account
used to conduct closed-loop transactions on campus. The account used to
conduct transactions with multiple, unaffiliated merchants for goods or
services satisfies Sec. 1005.2(b)(3)(i)(D), even though the account
used to conduct closed-loop transactions does not (and as such the
latter is not a prepaid account as defined by Sec. 1005.2(b)(3)).
iv. An account satisfies Sec. 1005.2(b)(3)(i)(D) if its primary
function is to provide general transaction capability, even if an
individual consumer does not in fact use it to conduct multiple
transactions. For example, the fact that a consumer may choose to
withdraw the entire account balance at an automated teller machine or
transfer it to another account held by the consumer does not change the
fact that the account's primary function is to provide general
transaction capability.
v. An account whose primary function is other than to conduct
transactions with multiple, unaffiliated merchants for goods or
services, or at automated teller machines, or to conduct person-to-
person transfers, does not satisfy Sec. 1005.2(b)(3)(i)(D). Such
accounts may include, for example, a product whose only function is to
make a one-time transfer of funds into a separate prepaid account.
9. Redeemable upon presentation at multiple, unaffiliated merchants.
For guidance, see comments 20(a)(3)-1 and -2.
10. Person-to-person transfers. A prepaid account whose primary
function is to conduct person-to-person transfers is an account that
allows a consumer to send funds by electronic fund transfer to another
consumer or business. An account may qualify as a prepaid account if its
primary function is person-to-person transfers even if it is neither
redeemable upon presentation at multiple, unaffiliated merchants for
goods or services, nor usable at automated teller machines. A
transaction involving a store gift card would not be a person-to-person
transfer if it could only be used to make payments to the merchant or
affiliated group of merchants on whose behalf the card was issued.
Paragraph 2(b)(3)(ii)
1. Excluded health care and employee benefit related prepaid
products. For purposes of Sec. 1005.2(b)(3)(ii)(A), ``health savings
account'' means a health savings account as defined in 26 U.S.C. 223(d);
``flexible spending arrangement'' means a health benefits or a health
flexible spending arrangement pursuant to 26 U.S.C. 125; ``medical
savings account'' means an Archer MSA as defined in 26 U.S.C. 220(d);
``health reimbursement arrangement'' means a health reimbursement
arrangement which is treated as employer-provided coverage under an
accident or health plan for purposes of 26 U.S.C. 106; ``dependent care
assistance program'' means a dependent care assistance program pursuant
to 26 U.S.C. 129; and ``transit or parking reimbursement arrangement''
means a qualified transportation fringe benefit provided by an employer
pursuant to 26 U.S.C. 132.
2. Excluded disaster relief funds. For purposes of Sec.
1005.2(b)(3)(ii)(B), ``qualified disaster relief funds'' means funds
made available through a qualified disaster relief program as defined in
26 U.S.C. 139(b).
3. Marketed and labeled as a gift card or gift certificate. Section
1005.2(b)(3)(ii)(D) excludes, among other things, reloadable general-use
prepaid cards that are both marketed and labeled as gift cards or gift
certificates, whereas Sec. 1005.20(b)(2) excludes such products that
are marketed or labeled as gift cards or gift certificates. Comment
20(b)(2)-2 describes, in part, a network-branded GPR card that is
principally advertised as a less-costly alternative to a bank account
but is promoted in a television, radio, newspaper, or internet
advertisement, or on signage as ``the perfect gift'' during the holiday
season. For purposes of Sec. 1005.20, such a product would be
considered marketed as a gift card or gift certificate because of this
occasional holiday marketing activity. For purposes of Sec.
1005.2(b)(3)(ii)(D), however, such a product would not be considered to
be both marketed and labeled as a gift card or gift certificate and thus
would be covered by the definition of prepaid account.
4. Loyalty, award, or promotional gift cards. Section
1005.2(b)(3)(ii)(D)(3) excludes loyalty, award, or promotional gift
cards as defined in Sec. 1005.20(a)(4); those cards are excluded from
coverage under Sec. 1005.20 pursuant to Sec. 1005.20(b)(3). Section
1005.2(b)(3)(ii)(D)(3) also excludes cards that satisfy the criteria in
Sec. 1005.20(a)(4)(i) and (ii) and are excluded from coverage under
Sec. 1005.20 pursuant to Sec. 1005.20(b)(4) because they are not
marketed to the general public; such products are not required to set
forth the disclosures enumerated in Sec. 1005.20(a)(4)(iii) in order to
be excluded pursuant to Sec. 1005.2(b)(3)(ii)(D)(3).
2(d) Business Day
1. Duration. A business day includes the entire 24-hour period
ending at midnight, and a notice required by the regulation is effective
even if given outside normal business hours. The regulation does not
require, however, that a financial institution make telephone lines
available on a 24-hour basis.
2. Substantially all business functions. Substantially all business
functions include both the public and the back-office operations of the
institution. For example, if the offices of an institution are open on
Saturdays for handling some consumer transactions (such as deposits,
withdrawals, and other teller transactions), but not for performing
internal functions (such as investigating account errors), then Saturday
is not a business day for that institution. In this case, Saturday
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does not count toward the business-day standard set by the regulation
for reporting lost or stolen access devices, resolving errors, etc.
3. Short hours. A financial institution may determine, at its
election, whether an abbreviated day is a business day. For example, if
an institution engages in substantially all business functions until
noon on Saturdays instead of its usual 3 p.m. closing, it may consider
Saturday a business day.
4. Telephone line. If a financial institution makes a telephone line
available on Sundays for reporting the loss or theft of an access
device, but performs no other business functions, Sunday is not a
business day under the substantially all business functions standard.
2(h) Electronic Terminal
1. Point-of-sale (POS) payments initiated by telephone. Because the
term ``electronic terminal'' excludes a telephone operated by a
consumer, a financial institution need not provide a terminal receipt
when:
i. A consumer uses a debit card at a public telephone to pay for the
call.
ii. A consumer initiates a transfer by a means analogous in function
to a telephone, such as by home banking equipment or a facsimile
machine.
2. POS terminals. A POS terminal that captures data electronically,
for debiting or crediting to a consumer's asset account, is an
electronic terminal for purposes of Regulation E even if no access
device is used to initiate the transaction. See Sec. 1005.9 for receipt
requirements.
3. Teller-operated terminals. A terminal or other computer equipment
operated by an employee of a financial institution is not an electronic
terminal for purposes of the regulation. However, transfers initiated at
such terminals by means of a consumer's access device (using the
consumer's PIN, for example) are EFTs and are subject to other
requirements of the regulation. If an access device is used only for
identification purposes or for determining the account balance, the
transfers are not EFTs for purposes of the regulation.
2(k) Preauthorized Electronic Fund Transfer
1. Advance authorization. A preauthorized electronic fund transfer
under Regulation E is one authorized by the consumer in advance of a
transfer that will take place on a recurring basis, at substantially
regular intervals, and will require no further action by the consumer to
initiate the transfer. In a bill-payment system, for example, if the
consumer authorizes a financial institution to make monthly payments to
a payee by means of EFTs, and the payments take place without further
action by the consumer, the payments are preauthorized EFTs. In
contrast, if the consumer must take action each month to initiate a
payment (such as by entering instructions on a touch-tone telephone or
home computer), the payments are not preauthorized EFTs.
2(m) Unauthorized Electronic Fund Transfer
1. Transfer by institution's employee. A consumer has no liability
for erroneous or fraudulent transfers initiated by an employee of a
financial institution.
2. Authority. If a consumer furnishes an access device and grants
authority to make transfers to a person (such as a family member or co-
worker) who exceeds the authority given, the consumer is fully liable
for the transfers unless the consumer has notified the financial
institution that transfers by that person are no longer authorized.
3. Access device obtained through robbery or fraud. An unauthorized
EFT includes a transfer initiated by a person who obtained the access
device from the consumer through fraud or robbery.
4. Forced initiation. An EFT at an ATM is an unauthorized transfer
if the consumer has been induced by force to initiate the transfer.
5. Reversal of direct deposits. The reversal of a direct deposit
made in error is not an unauthorized EFT when it involves:
i. A credit made to the wrong consumer's account;
ii. A duplicate credit made to a consumer's account; or
iii. A credit in the wrong amount (for example, when the amount
credited to the consumer's account differs from the amount in the
transmittal instructions).
Section 1005.3 Coverage
3(a) General
1. Accounts covered. The requirements of the regulation apply only
to an account for which an agreement for EFT services to or from the
account has been entered into between:
i. The consumer and the financial institution (including an account
for which an access device has been issued to the consumer, for
example);
ii. The consumer and a third party (for preauthorized debits or
credits, for example), when the account-holding institution has received
notice of the agreement and the fund transfers have begun.
2. Automated clearing house (ACH) membership. The fact that
membership in an ACH requires a financial institution to accept EFTs to
accounts at the institution does not make every account of that
institution subject to the regulation.
3. Foreign applicability. Regulation E applies to all persons
(including branches and other offices of foreign banks located in the
United States) that offer EFT services to
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residents of any state, including resident aliens. It covers any account
located in the United States through which EFTs are offered to a
resident of a state. This is the case whether or not a particular
transfer takes place in the United States and whether or not the
financial institution is chartered in the United States or a foreign
country. The regulation does not apply to a foreign branch of a U.S.
bank unless the EFT services are offered in connection with an account
in a state as defined in Sec. 1005.2(l).
3(b) Electronic Fund Transfer
3(b)(1) Definition
1. Fund transfers covered. The term ``electronic fund transfer''
includes:
i. A deposit made at an ATM or other electronic terminal (including
a deposit in cash or by check) provided a specific agreement exists
between the financial institution and the consumer for EFTs to or from
the account to which the deposit is made.
ii. A transfer sent via ACH. For example, social security benefits
under the U.S. Treasury's direct-deposit program are covered, even if
the listing of payees and payment amounts reaches the account-holding
institution by means of a computer printout from a correspondent bank.
iii. A preauthorized transfer credited or debited to an account in
accordance with instructions contained on magnetic tape, even if the
financial institution holding the account sends or receives a composite
check.
iv. A transfer from the consumer's account resulting from a debit-
card transaction at a merchant location, even if no electronic terminal
is involved at the time of the transaction, if the consumer's asset
account is subsequently debited for the amount of the transfer.
v. A transfer via ACH where a consumer has provided a check to
enable the merchant or other payee to capture the routing, account, and
serial numbers to initiate the transfer, whether the check is blank,
partially completed, or fully completed and signed; whether the check is
presented at POS or is mailed to a merchant or other payee or lockbox
and later converted to an EFT; or whether the check is retained by the
consumer, the merchant or other payee, or the payee's financial
institution.
vi. A payment made by a bill payer under a bill-payment service
available to a consumer via computer or other electronic means, unless
the terms of the bill-payment service explicitly state that all
payments, or all payments to a particular payee or payees, will be
solely by check, draft, or similar paper instrument drawn on the
consumer's account, and the payee or payees that will be paid in this
manner are identified to the consumer.
2. Fund transfers not covered. The term ``electronic fund transfer''
does not include:
i. A payment that does not debit or credit a consumer asset account,
such as a payroll allotment to a creditor to repay a credit extension
(which is deducted from salary).
ii. A payment made in currency by a consumer to another person at an
electronic terminal.
iii. A preauthorized check drawn by the financial institution on the
consumer's account (such as an interest or other recurring payment to
the consumer or another party), even if the check is computer-generated.
iv. Transactions arising from the electronic collection,
presentment, or return of checks through the check collection system,
such as through transmission of electronic check images.
3(b)(2) Electronic Fund Transfer Using Information From a Check
1. Notice at POS not furnished due to inadvertent error. If the copy
of the notice under section 1005.3(b)(2)(ii) for electronic check
conversion (ECK) transactions is not provided to the consumer at POS
because of a bona fide unintentional error, such as when a terminal
printing mechanism jams, no violation results if the payee maintains
procedures reasonably adapted to avoid such occurrences.
2. Authorization to process a transaction as an EFT or as a check.
In order to process a transaction as an EFT, or alternatively as a
check, the payee must obtain the consumer's authorization to do so. A
payee may, at its option, specify the circumstances under which a check
may not be converted to an EFT. See model clauses in appendix A-6.
3. Notice for each transfer. Generally, a notice to authorize an
electronic check conversion transaction must be provided for each
transaction. For example, a consumer must receive a notice that the
transaction will be processed as an EFT for each transaction at POS or
each time a consumer mails a check in an accounts receivable (ARC)
transaction to pay a bill, such as a utility bill, if the payee intends
to convert a check received as payment. Similarly, the consumer must
receive notice if the payee intends to collect a service fee for
insufficient or uncollected funds via an EFT for each transaction
whether at POS or if the consumer mails a check to pay a bill. The
notice about when funds may be debited from a consumer's account and the
non-return of consumer checks by the consumer's financial institution
must also be provided for each transaction. However, if in an ARC
transaction, a payee provides a coupon book to a consumer, for example,
for mortgage loan payments, and the payment dates and amounts are set
out in the coupon book, the payee may provide a single notice on the
coupon book stating all of the required disclosures under
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paragraph (b)(2) of this section in order to obtain authorization for
each conversion of a check and any debits via EFT to the consumer's
account to collect any service fees imposed by the payee for
insufficient or uncollected funds in the consumer's account. The notice
must be placed on a conspicuous location of the coupon book that a
consumer can retain--for example, on the first page, or inside the front
cover.
4. Multiple payments/multiple consumers. If a merchant or other
payee will use information from a consumer's check to initiate an EFT
from the consumer's account, notice to a consumer listed on the billing
account that a check provided as payment during a single billing cycle
or after receiving an invoice or statement will be processed as a one-
time EFT or as a check transaction constitutes notice for all checks
provided in payment for the billing cycle or the invoice for which
notice has been provided, whether the check(s) is submitted by the
consumer or someone else. The notice applies to all checks provided in
payment for the billing cycle or invoice until the provision of notice
on or with the next invoice or statement. Thus, if a merchant or other
payee receives a check as payment for the consumer listed on the billing
account after providing notice that the check will be processed as a
one-time EFT, the authorization from that consumer constitutes
authorization to convert any other checks provided for that invoice or
statement. Other notices required under this paragraph (b)(2) (for
example, to collect a service fee for insufficient or uncollected funds
via an EFT) provided to the consumer listed on the billing account also
constitutes notice to any other consumer who may provide a check for the
billing cycle or invoice.
5. Additional disclosures about ECK transactions at POS. When a
payee initiates an EFT at POS using information from the consumer's
check, and returns the check to the consumer at POS, the payee need not
provide a notice to the consumer that the check will not be returned by
the consumer's financial institution.
3(b)(3) Collection of Returned Item Fees via Electronic Fund Transfer
1. Fees imposed by account-holding institution. The requirement to
obtain a consumer's authorization to collect a fee via EFT for the
return of an EFT or check unpaid applies only to the person that intends
to initiate an EFT to collect the returned item fee from the consumer's
account. The authorization requirement does not apply to any fees
assessed by the consumer's account-holding financial institution when it
returns the unpaid underlying EFT or check or pays the amount of an
overdraft.
2. Accounts receivable transactions. In an ARC transaction where a
consumer sends in a payment for amounts owed (or makes an in-person
payment at a biller's physical location, such as when a consumer makes a
loan payment at a bank branch or places a payment in a drop box), a
person seeking to electronically collect a fee for items returned unpaid
must obtain the consumer's authorization to collect the fee in this
manner. A consumer authorizes a person to electronically collect a
returned item fee when the consumer receives notice, typically on an
invoice or statement, that the person may collect the fee through an EFT
to the consumer's account, and the consumer goes forward with the
underlying transaction by providing payment. The notice must also state
the dollar amount of the fee. However, an explanation of how that fee
will be determined may be provided in place of the dollar amount of the
fee if the fee may vary due to the amount of the transaction or due to
other factors, such as the number of days the underlying transaction is
left outstanding. For example, if a state law permits a maximum fee of
$30 or 10% of the underlying transaction, whichever is greater, the
person collecting the fee may explain how the fee is determined, rather
than state a specific dollar amount for the fee.
3. Disclosure of dollar amount of fee for POS transactions. The
notice provided to the consumer in connection with a POS transaction
under Sec. 1005.3(b)(3)(ii) must state the amount of the fee for a
returned item if the dollar amount of the fee can be calculated at the
time the notice is provided or mailed. For example, if notice is
provided to the consumer at the time of the transaction, if the
applicable state law sets a maximum fee that may be collected for a
returned item based on the amount of the underlying transaction (such as
where the amount of the fee is expressed as a percentage of the
underlying transaction), the person collecting the fee must state the
actual dollar amount of the fee on the notice provided to the consumer.
Alternatively, if the amount of the fee to be collected cannot be
calculated at the time of the transaction (for example, where the amount
of the fee will depend on the number of days a debt continues to be
owed), the person collecting the fee may provide a description of how
the fee will be determined on both the posted notice as well as on the
notice provided at the time of the transaction. However, if the person
collecting the fee elects to send the consumer notice after the person
has initiated an EFT to collect the fee, that notice must state the
amount of the fee to be collected.
4. Third party providing notice. The person initiating an EFT to a
consumer's account to electronically collect a fee for an item returned
unpaid may obtain the authorization and provide the notices required
under Sec. 1005.3(b)(3) through third parties, such as merchants.
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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.
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
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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. The disclosures required by this part must be in a clear
and readily understandable written form that the consumer may retain.
Additionally, except as otherwise set forth in Sec. Sec. 1005.18(b)(7)
and 1005.31(c), no particular rules govern type size, number of pages,
or the relative conspicuousness of various terms. Numbers or codes are
considered readily understandable if explained elsewhere on the
disclosure form.
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 with Sec.
1005.5(b). See comment 5(b)-5. If the replacement device or the
additional device permits either fewer or additional types of electronic
fund transfer services, a change-in-terms notice or new disclosures are
required.
2. Renewal or substitution by a successor institution. A successor
institution is an entity that replaces the original financial
institution (for example, following a corporate merger or acquisition)
or that acquires accounts or assumes the operation of an EFT system.
5(b) Unsolicited Issuance
1. Compliance. A financial institution may issue an unsolicited
access device (such as the combination of a debit card and PIN) if the
institution's ATM system has been programmed not to accept the access
device until after the consumer requests and the institution validates
the device. Merely instructing a consumer not to use an unsolicited
debit card and PIN until after the institution verifies the consumer's
identity does not comply with the regulation.
2. PINs. A financial institution may impose no liability on a
consumer for unauthorized transfers involving an unsolicited access
device until the device becomes an ``accepted access device'' under the
regulation. A card and PIN combination may be treated as an
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accepted access device once the consumer has used it to make a transfer.
3. Functions of PIN. If an institution issues a PIN at the
consumer's request, the issuance may constitute both a way of validating
the debit card and the means to identify the consumer (required as a
condition of imposing liability for unauthorized transfers).
4. Verification of identity. To verify the consumer's identity, a
financial institution may use any reasonable means, such as a
photograph, fingerprint, personal visit, signature comparison, or
personal information about the consumer. However, even if reasonable
means were used, if an institution fails to verify correctly the
consumer's identity and an imposter succeeds in having the device
validated, the consumer is not liable for any unauthorized transfers
from the account.
5. Additional access devices in a renewal or substitution. A
financial institution may issue more than one access device in
connection with the renewal or substitution of a previously issued
accepted access device, provided that any additional access device
(beyond the device replacing the accepted access device) is not
validated at the time it is issued, and the institution complies with
the other requirements of Sec. 1005.5(b). The institution may, if it
chooses, set up the validation procedure such that both the device
replacing the previously issued device and the additional device are not
validated at the time they are issued, and validation will apply to both
devices. If the institution sets up the validation procedure in this
way, the institution should provide a clear and readily understandable
disclosure to the consumer that both devices are unvalidated and that
validation will apply to both devices.
Section 1005.6 Liability of Consumer for Unauthorized Transfers
6(a) Conditions for Liability
1. Means of identification. A financial institution may use various
means for identifying the consumer to whom the access device is issued,
including but not limited to:
i. Electronic or mechanical confirmation (such as a PIN).
ii. Comparison of the consumer's signature, fingerprint, or
photograph.
2. Multiple users. When more than one access device is issued for an
account, the financial institution may, but need not, provide a separate
means to identify each user of the account.
6(b) Limitations on Amount of Liability
1. Application of liability provisions. There are three possible
tiers of consumer liability for unauthorized EFTs depending on the
situation. A consumer may be liable for: (1) up to $50; (2) up to $500;
or (3) an unlimited amount depending on when the unauthorized EFT
occurs. More than one tier may apply to a given situation because each
corresponds to a different (sometimes overlapping) time period or set of
conditions.
2. Consumer negligence. Negligence by the consumer cannot be used as
the basis for imposing greater liability than is permissible under
Regulation E. Thus, consumer behavior that may constitute negligence
under state law, such as writing the PIN on a debit card or on a piece
of paper kept with the card, does not affect the consumer's liability
for unauthorized transfers. (However, refer to comment 2(m)-2 regarding
termination of the authority of given by the consumer to another
person.)
3. Limits on liability. The extent of the consumer's liability is
determined solely by the consumer's promptness in reporting the loss or
theft of an access device. Similarly, no agreement between the consumer
and an institution may impose greater liability on the consumer for an
unauthorized transfer than the limits provided in Regulation E.
6(b)(1) Timely Notice Given
1. $50 limit applies. The basic liability limit is $50. For example,
the consumer's card is lost or stolen on Monday and the consumer learns
of the loss or theft on Wednesday. If the consumer notifies the
financial institution within two business days of learning of the loss
or theft (by midnight Friday), the consumer's liability is limited to
$50 or the amount of the unauthorized transfers that occurred before
notification, whichever is less.
2. Knowledge of loss or theft of access device. The fact that a
consumer has received a periodic statement that reflects unauthorized
transfers may be a factor in determining whether the consumer had
knowledge of the loss or theft, but cannot be deemed to represent
conclusive evidence that the consumer had such knowledge.
3. Two business day rule. The two business day period does not
include the day the consumer learns of the loss or theft or any day that
is not a business day. The rule is calculated based on two 24-hour
periods, without regard to the financial institution's business hours or
the time of day that the consumer learns of the loss or theft. For
example, a consumer learns of the loss or theft at 6 p.m. on Friday.
Assuming that Saturday is a business day and Sunday is not, the two
business day period begins on Saturday and expires at 11:59 p.m. on
Monday, not at the end of the financial institution's business day on
Monday.
6(b)(2) Timely Notice Not Given
1. $500 limit applies. The second tier of liability is $500. For
example, the consumer's card is stolen on Monday and the consumer
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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.
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
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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; 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.
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7(b)(5) Fees
1. Disclosure of EFT fees. An institution is required to disclose
all fees for EFTs or the right to make them. Others fees (for example,
minimum-balance fees, stop-payment fees, or account overdrafts) may, but
need not, be disclosed. But see Regulation DD, 12 CFR part 1030. An
institution is not required to disclose fees for inquiries made at an
ATM since no transfer of funds is involved.
2. Fees also applicable to non-EFT. A per-item fee for EFTs must be
disclosed even if the same fee is imposed on non-electronic transfers.
If a per-item fee is imposed only under certain conditions, such as when
the transactions in the cycle exceed a certain number, those conditions
must be disclosed. Itemization of the various fees may be provided on
the disclosure statement or on an accompanying document that is
referenced in the statement.
3. Interchange system fees. Fees paid by the account-holding
institution to the operator of a shared or interchange ATM system need
not be disclosed, unless they are imposed on the consumer by the
account-holding institution. Fees for use of an ATM that are debited
directly from the consumer's account by an institution other than the
account-holding institution (for example, fees included in the transfer
amount) need not be disclosed. See Sec. 1005.7(b)(11) for the general
notice requirement regarding fees that may be imposed by ATM operators
and by a network used to complete the transfer.
7(b)(9) Confidentiality
1. Information provided to third parties. An institution must
describe the circumstances under which any information relating to an
account to or from which EFTs are permitted will be made available to
third parties, not just information concerning those EFTs. The term
``third parties'' includes affiliates such as other subsidiaries of the
same holding company.
7(b)(10) Error Resolution
1. Substantially similar. The error resolution notice must be
substantially similar to the model form in appendix A of part 1005. An
institution may use different wording so long as the substance of the
notice remains the same, may delete inapplicable provisions (for
example, the requirement for written confirmation of an oral
notification), and may substitute substantive state law requirements
affording greater consumer protection than Regulation E.
2. Extended time-period for certain transactions. To take advantage
of the longer time periods for resolving errors under Sec.
1005.11(c)(3) (for new accounts as defined in Regulation CC of the Board
of Governors of the Federal Reserve System (12 CFR part 229), transfers
initiated outside the United States, or transfers resulting from POS
debit-card transactions), a financial institution must have disclosed
these longer time periods. Similarly, an institution that relies on the
exception from provisional crediting in Sec. 1005.11(c)(2) for accounts
subject to Regulation T of the Board of Governors of the Federal Reserve
System (12 CFR part 220) must have disclosed accordingly.
7(c) Addition of Electronic Fund Transfer Services
1. Addition of electronic check conversion services. One-time EFTs
initiated using information from a consumer's check are a new type of
transfer requiring new disclosures, as applicable. See appendix A-2.
Section 1005.8 Change-in-Terms Notice; Error Resolution Notice
8(a) Change-in-Terms Notice
1. Form of notice. No specific form or wording is required for a
change-in-terms notice. The notice may appear on a periodic statement,
or may be given by sending a copy of a revised disclosure statement,
provided attention is directed to the change (for example, in a cover
letter referencing the changed term).
2. Changes not requiring notice. The following changes do not
require disclosure:
i. Closing some of an institution's ATMs;
ii. Cancellation of an access device.
3. Limitations on transfers. When the initial disclosures omit
details about limitations because secrecy is essential to the security
of the account or system, a subsequent increase in those limitations
need not be disclosed if secrecy is still essential. If, however, an
institution had no limits in place when the initial disclosures were
given and now wishes to impose limits for the first time, it must
disclose at least the fact that limits have been adopted. See also Sec.
1005.7(b)(4) and the related commentary.
4. Change in telephone number or address. When a financial
institution changes the telephone number or address used for reporting
possible unauthorized transfers, a change-in-terms notice is required
only if the institution will impose liability on the consumer for
unauthorized transfers under Sec. 1005.6. See also Sec. 1005.6(a) and
the related commentary.
8(b) Error Resolution Notice
1. Change between annual and periodic notice. If an institution
switches from an annual to a periodic notice, or vice versa, the first
notice under the new method must be sent no later than 12 months after
the last notice sent under the old method.
2. Exception for new accounts. For new accounts, disclosure of the
longer error resolution time periods under Sec. 1005.11(c)(3) is not
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required in the annual error resolution notice or in the notice that may
be provided with each periodic statement as an alternative to the annual
notice.
Section 1005.9 Receipts at Electronic Terminals; Periodic Statements
9(a) Receipts at Electronic Terminals
1. Receipts furnished only on request. The regulation requires that
a receipt be ``made available.'' A financial institution may program its
electronic terminals to provide a receipt only to consumers who elect to
receive one.
2. Third party providing receipt. An account-holding institution may
make terminal receipts available through third parties such as merchants
or other financial institutions.
3. Inclusion of promotional material. A financial institution may
include promotional material on receipts if the required information is
set forth clearly (for example, by separating it from the promotional
material). In addition, a consumer may not be required to surrender the
receipt or that portion containing the required disclosures in order to
take advantage of a promotion.
4. Transfer not completed. The receipt requirement does not apply to
a transfer that is initiated but not completed (for example, if the ATM
is out of currency or the consumer decides not to complete the
transfer).
5. Receipts not furnished due to inadvertent error. If a receipt is
not provided to the consumer because of a bona fide unintentional error,
such as when a terminal runs out of paper or the mechanism jams, no
violation results if the financial institution maintains procedures
reasonably adapted to avoid such occurrences.
6. Multiple transfers. If the consumer makes multiple transfers at
the same time, the financial institution may document them on a single
or on separate receipts.
9(a)(1) Amount
1. Disclosure of transaction fee. The required display of a fee
amount on or at the terminal may be accomplished by displaying the fee
on a sign at the terminal or on the terminal screen for a reasonable
duration. Displaying the fee on a screen provides adequate notice, as
long as a consumer is given the option to cancel the transaction after
receiving notice of a fee. See Sec. 1005.16 for the notice requirements
applicable to ATM operators that impose a fee for providing EFT
services.
2. Relationship between Sec. 1005.9(a)(1) and Sec. 1005.16. The
requirements of 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 under Sec.
1005.9(a)(1) cannot be used to comply with the alternative paper
disclosure procedure under Sec. 1005.16, if the receipt is provided at
the completion of the transaction because, pursuant to the statute, the
paper notice must be provided before the consumer is committed to paying
the fee.
iii. Section 1005.9(a)(1) applies to any type of electronic terminal
as defined in Regulation E (for example, to POS terminals as well as to
ATMs), while Sec. 1005.16 applies only to ATMs.
9(a)(2) Date
1. Calendar date. The receipt must disclose the calendar date on
which the consumer uses the electronic terminal. An accounting or
business date may be disclosed in addition if the dates are clearly
distinguished.
9(a)(3) Type
1. Identifying transfer and account. Examples identifying the type
of transfer and the type of the consumer's account include ``withdrawal
from checking,'' ``transfer from savings to checking,'' or ``payment
from savings.''
2. Exception. Identification of an account is not required when the
consumer can access only one asset account at a particular time or
terminal, even if the access device can normally be used to access more
than one account. For example, the consumer may be able to access only
one particular account at terminals not operated by the account-holding
institution, or may be able to access only one particular account when
the terminal is off-line. The exception is available even if, in
addition to accessing one asset account, the consumer also can access a
credit line.
3. Access to multiple accounts. If the consumer can use an access
device to make transfers to or from different accounts of the same type,
the terminal receipt must specify which account was accessed, such as
``withdrawal from checking I'' or ``withdrawal from checking II.'' If
only one account besides the primary checking account can be debited,
the receipt can identify the account as ``withdrawal from other
account.''
4. Generic descriptions. Generic descriptions may be used for
accounts that are similar in function, such as share draft or NOW
accounts and checking accounts. In a shared system, for example, when a
credit union member initiates transfers to or from a share draft account
at a terminal owned or operated by a bank, the receipt may identify a
withdrawal from the account as a ``withdrawal from checking.''
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5. Point-of-sale transactions. There is no prescribed terminology
for identifying a transfer at a merchant's POS terminal. A transfer may
be identified, for example, as a purchase, a sale of goods or services,
or a payment to a third party. When a consumer obtains cash from a POS
terminal in addition to purchasing goods, or obtains cash only, the
documentation need not differentiate the transaction from one involving
the purchase of goods.
9(a)(5) Terminal Location
1. Options for identifying terminal. The institution may provide
either:
i. The city, state or foreign country, and the information in Sec.
1005.9(a)(5) (i), (ii), or (iii), or
ii. A number or a code identifying the terminal. If the institution
chooses the second option, the code or terminal number identifying the
terminal where the transfer is initiated may be given as part of a
transaction code.
2. Omission of city name. The city may be omitted if the generally
accepted name (such as a branch name) contains the city name.
3. Omission of a state. A state may be omitted from the location
information on the receipt if:
i. All the terminals owned or operated by the financial institution
providing the statement (or by the system in which it participates) are
located in that state, or
ii. All transfers occur at terminals located within 50 miles of the
financial institution's main office.
4. Omission of a city and state. A city and state may be omitted if
all the terminals owned or operated by the financial institution
providing the statement (or by the system in which it participates) are
located in the same city.
Paragraph 9(a)(5)(i)
1. Street address. The address should include number and street (or
intersection); the number (or intersecting street) may be omitted if the
street alone uniquely identifies the terminal location.
Paragraph 9(a)(5)(ii)
1. Generally accepted name. Examples of a generally accepted name
for a specific location include a branch of the financial institution, a
shopping center, or an airport.
Paragraph 9(a)(5)(iii)
1. Name of owner or operator of terminal. Examples of an owner or
operator of a terminal are a financial institution or a retail merchant.
9(a)(6) Third Party Transfer
1. Omission of third-party name. The receipt need not disclose the
third-party name if the name is provided by the consumer in a form that
is not machine readable (for example, if the consumer indicates the
payee by depositing a payment stub into the ATM). If, on the other hand,
the consumer keys in the identity of the payee, the receipt must
identify the payee by name or by using a code that is explained
elsewhere on the receipt.
2. Receipt as proof of payment. Documentation required under the
regulation constitutes prima facie proof of a payment to another person,
except in the case of a terminal receipt documenting a deposit.
9(b) Periodic Statements
1. Periodic cycles. Periodic statements may be sent on a cycle that
is shorter than monthly. The statements must correspond to periodic
cycles that are reasonably equal, that is, do not vary by more than four
days from the regular cycle. The requirement of reasonably equal cycles
does not apply when an institution changes cycles for operational or
other reasons, such as to establish a new statement day or date.
2. Interim statements. Generally, a financial institution must
provide periodic statements for each monthly cycle in which an EFT
occurs, and at least quarterly if a transfer has not occurred. Where
EFTs occur between regularly-scheduled cycles, interim statements must
be provided. For example, if an institution issues quarterly statements
at the end of March, June, September and December, and the consumer
initiates an EFT in February, an interim statement for February must be
provided. If an interim statement contains interest or rate information,
the institution must comply with Regulation DD, 12 CFR 1030.6.
3. Inactive accounts. A financial institution need not send
statements to consumers whose accounts are inactive as defined by the
institution.
4. Statement pickup. A financial institution may permit, but may not
require, consumers to pick up their periodic statements at the financial
institution.
5. Periodic statements limited to EFT activity. A financial
institution that uses a passbook as the primary means for displaying
account activity, but also allows the account to be debited
electronically, may provide a periodic statement requirement that
reflects only the EFTs and other required disclosures (such as charges,
account balances, and address and telephone number for inquiries). See
Sec. 1005.9(c)(1)(i) for the exception applicable to preauthorized
transfers for passbook accounts.
6. Codes and accompanying documents. To meet the documentation
requirements for periodic statements, a financial institution may:
i. Include copies of terminal receipts to reflect transfers
initiated by the consumer at electronic terminals;
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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 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).
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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 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.
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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.
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.
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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. General rule for loan payments. Creditors may not require
repayment of loans by electronic means on a preauthorized, recurring
basis.
2. Overdraft credit plans not accessible by hybrid prepaid-credit
cards. i. Section 1005.10(e)(1) provides an exception from the general
rule for an overdraft credit plan other than for a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined in
Regulation Z, 12 CFR 1026.61. A financial institution may therefore
require the automatic repayment of an overdraft credit plan, other than
a covered separate credit feature accessible by a hybrid prepaid-credit
card, even if the overdraft extension is charged to an open-end account
that may be accessed by the consumer in ways other than by overdrafts.
ii. Credit extended through a negative balance on the asset feature
of a prepaid account that meets the conditions of Regulation Z, 12 CFR
1026.61(a)(4), is considered credit extended pursuant to an overdraft
credit plan for purposes of Sec. 1005.10(e)(1). Thus, the exception for
overdraft credit plans in Sec. 1005.10(e)(1) applies to this credit.
3. Applicability to covered separate credit features accessible by
hybrid prepaid-credit cards. i. Under Sec. 1005.10(e)(1), creditors may
not require by electronic means on a preauthorized, recurring basis
repayment of credit extended under a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Regulation Z,
12 CFR 1026.61. The prohibition in Sec. 1005.10(e)(1) applies to any
credit extended under such a credit feature, including preauthorized
checks. See Regulation Z, 12 CFR 1026.61, and comment 61(a)(1)-3.
ii. Under Regulation Z, 12 CFR 1026.12(d)(1), a card issuer may not
take any action, either before or after termination of credit card
privileges, to offset a cardholder's indebtedness arising from a
consumer credit transaction under the relevant credit card plan against
funds of the cardholder held on deposit with the card issuer. Under
Regulation Z, 12 CFR 1026.12(d)(3), with respect to covered separate
credit features accessible by hybrid prepaid-credit cards as defined in
12 CFR 1026.61, a card issuer generally is not prohibited from
periodically deducting all or part of the cardholder's credit card debt
from a deposit account (such as a prepaid account) held with the card
issuer under a plan that is authorized in writing by the cardholder, so
long as the card issuer does not make such deductions to the plan more
frequently than once per calendar month. A card issuer is prohibited
under Regulation Z, 12 CFR 1026.12(d), from automatically deducting all
or part of the cardholder's credit card debt under a covered separate
credit feature from a deposit account (such as a prepaid account) held
with the card issuer on a daily or weekly basis, or whenever deposits
are made to the deposit account. Section 1005.10(e)(1) further restricts
the card issuer from requiring payment from a deposit account (such as a
prepaid account) of credit card balances of a covered separate credit
feature accessible by a hybrid prepaid-credit card by electronic means
on a preauthorized, recurring basis.
4. Incentives. A creditor may offer a program with a reduced annual
percentage rate or other cost-related incentive for an automatic
repayment feature, provided the program with the automatic payment
feature is not the only loan program offered by the creditor for the
type of credit involved. Examples include:
i. Mortgages with graduated payments in which a pledged savings
account is automatically debited during an initial period to supplement
the monthly payments made by the borrower.
ii. Mortgage plans calling for preauthorized biweekly payments that
are debited electronically to the consumer's account and produce a lower
total finance charge.
10(e)(2) Employment or Government Benefit
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.
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2. Government benefit. A government agency may not require consumers
to receive government benefits by direct deposit to any particular
institution. A government agency may require direct deposit of benefits
by electronic means if recipients are allowed to choose the institution
that will receive the direct deposit. Alternatively, a government agency
may give recipients the choice of having their benefits deposited at a
particular institution (designated by the government agency) or
receiving their benefits by another means.
Section 1005.11 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 with Sec. 1005.9(e) is not an error for
purposes of Sec. 1005.11(a)(1)(vi) or (vii).
11(b) Notice of Error From Consumer
11(b)(1) Timing; Contents
1. Content of error notice. The notice of error is effective even if
it does not contain the consumer's account number, so long as the
financial institution is able to identify the account in question. For
example, the consumer could provide a Social Security number or other
unique means of identification.
2. Investigation pending receipt of information. While a financial
institution may request a written, signed statement from the consumer
relating to a notice of error, it may not delay initiating or completing
an investigation pending receipt of the statement.
3. Statement held for consumer. When a consumer has arranged for
periodic statements to be held until picked up, the statement for a
particular cycle is deemed to have been transmitted on the date the
financial institution first makes the statement available to the
consumer.
4. Failure to provide statement. When a financial institution fails
to provide the consumer with a periodic statement, a request for a copy
is governed by this section if the consumer gives notice within 60 days
from the date on which the statement should have been transmitted.
5. Discovery of error by institution. The error resolution
procedures of this section apply when a notice of error is received from
the consumer, and not when the financial institution itself discovers
and corrects an error.
6. Notice at particular phone number or address. A financial
institution may require the consumer to give notice only at the
telephone number or address disclosed by the institution, provided the
institution maintains reasonable procedures to refer the consumer to the
specified telephone number or address if the consumer attempts to give
notice to the institution in a different manner.
7. Effect of late notice. An institution is not required to comply
with the requirements of this section for any notice of error from the
consumer that is received by the institution later than 60 days from the
date on which the periodic statement first reflecting the error is sent.
Where the consumer's assertion of error involves an unauthorized EFT,
however, the institution must comply with Sec. 1005.6 before it may
impose any liability on the consumer.
11(b)(2) Written Confirmation
1. Written confirmation-of-error notice. If the consumer sends a
written confirmation of error to the wrong address, the financial
institution must process the confirmation through normal procedures. But
the institution need not provisionally credit the consumer's account if
the written confirmation is delayed beyond 10 business days in getting
to the right place because it was sent to the wrong address.
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11(c) Time Limits and Extent of Investigation
1. Notice to consumer. Unless otherwise indicated in this section,
the financial institution may provide the required notices to the
consumer either orally or in writing.
2. Written confirmation of oral notice. A financial institution must
begin its investigation promptly upon receipt of an oral notice. It may
not delay until it has received a written confirmation.
3. Charges for error resolution. If a billing error occurred,
whether as alleged or in a different amount or manner, the financial
institution may not impose a charge related to any aspect of the error-
resolution process (including charges for documentation or
investigation). Since the Act grants the consumer error-resolution
rights, the institution should avoid any chilling effect on the good-
faith assertion of errors that might result if charges are assessed when
no billing error has occurred.
4. Correction without investigation. A financial institution may
make, without investigation, a final correction to a consumer's account
in the amount or manner alleged by the consumer to be in error, but must
comply with all other applicable requirements of Sec. 1005.11.
5. Correction notice. A financial institution may include the notice
of correction on a periodic statement that is mailed or delivered within
the 10-business-day or 45-calendar-day time limits and that clearly
identifies the correction to the consumer's account. The institution
must determine whether such a mailing will be prompt enough to satisfy
the requirements of this section, taking into account the specific facts
involved.
6. Correction of an error. If the financial institution determines
an error occurred, within either the 10-day or 45-day period, it must
correct the error (subject to the liability provisions of 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 in Sec. 1005.11(a)(1)(vii)
by transmitting the requested information, clarification, or
documentation within the time limits set forth in Sec. 1005.11(c). If
the institution has provisionally credited the consumer's account in
accordance with Sec. 1005.11(c)(2), it may debit the amount upon
transmitting the requested information, clarification, or documentation.
Paragraph 11(c)(2)(i)
1. Compliance with all requirements. Financial institutions exempted
from provisionally crediting a consumer's account under Sec. Sec.
1005.11(c)(2)(i)(A) and (B) must still comply with all other
requirements of Sec. 1005.11.
11(c)(3) Extension of Time Periods
1. POS debit card transactions. The extended deadlines for
investigating errors resulting from POS debit card transactions apply to
all debit card transactions, including those for cash only, at
merchants' POS terminals, and also including mail and telephone orders.
The deadlines do not apply to transactions at an ATM, however, even
though the ATM may be in a merchant location.
11(c)(4) Investigation
1. Third parties. When information or documentation requested by the
consumer is in the possession of a third party with whom the financial
institution does not have an agreement, the institution satisfies the
error resolution requirement by so advising the consumer within the
specified time period.
2. Scope of investigation. When an alleged error involves a payment
to a third party under the financial institution's telephone bill-
payment plan, a review of the institution's own records is sufficient,
assuming no agreement exists between the institution and the third party
concerning the bill-payment service.
3. POS transfers. When a consumer alleges an error involving a
transfer to a merchant via a POS terminal, the institution must verify
the information previously transmitted when executing the transfer. For
example, the financial institution may request a copy of the sales
receipt to verify that the amount of the transfer correctly corresponds
to the amount of the consumer's purchase.
4. Agreement. An agreement that a third party will honor an access
device is an agreement for purposes of this paragraph. A financial
institution does not have an agreement for purposes of Sec.
1005.11(c)(4)(ii) solely because it participates in transactions that
occur under the Federal recurring payments programs, or that are cleared
through an ACH or similar arrangement for the clearing and settlement of
fund transfers generally, or because the institution agrees to be bound
by the rules of such an arrangement.
5. No EFT agreement. When there is no agreement between the
institution and the third party for the type of EFT involved, the
financial institution must review any relevant information within the
institution's own records for the particular account to resolve the
consumer's claim. The extent of the investigation required may vary
depending on the facts and circumstances. However,
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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 under Sec. 1005.11. It may,
however, impose any normal transaction or item fee that is unrelated to
an overdraft resulting from the debiting. If the account is still
overdrawn after five business days, the institution may impose the fees
or finance charges to which it is entitled, if any, under an overdraft
credit plan.
11(e) Reassertion of Error
1. Withdrawal of error; right to reassert. The financial institution
has no further error resolution responsibilities if the consumer
voluntarily withdraws the notice alleging an error. A consumer who has
withdrawn an allegation of error has the right to reassert the
allegation unless the financial institution had already complied with
all of the error resolution requirements before the allegation was
withdrawn. The consumer must do so, however, within the original 60-day
period.
Section 1005.12 Relation to Other Laws
12(a) Relation to Truth in Lending
1. Issuance rules for access devices other than access devices for
prepaid accounts. For access devices that also constitute credit cards
(other than access devices for prepaid accounts), the issuance rules of
Regulation E apply if the only credit feature is a preexisting credit
line attached to the asset account to cover overdrafts (or to maintain a
specified minimum balance) or an overdraft service, as defined in Sec.
1005.17(a). Regulation Z (12 CFR part 1026) rules apply if there is
another type of credit feature; for example, one permitting direct
extensions of credit that do not involve the asset account.
2. Overdraft services. The addition of an overdraft service, as that
term is defined in Sec. 1005.17(a), to an accepted access device does
not constitute the addition of a credit feature subject to Regulation Z.
Instead, the provisions of Regulation E apply, including the liability
limitations (Sec. 1005.6) and the requirement to obtain consumer
consent to the service before any fees or charges for paying an
overdraft may be assessed on the account (Sec. 1005.17).
3. Issuance of prepaid access devices that can access a covered
separate credit feature subject to Regulation Z. An access device for a
prepaid account cannot access a covered separate credit feature as
defined in Regulation Z, 12 CFR 1026.61, when the access device is
issued if the access device is issued prior to the expiration of the 30-
day period set forth in 12 CFR 1026.61(c). Regulation Z, 12 CFR
1026.61(c), provides that with respect to a covered separate credit
feature that could be accessible by a hybrid prepaid-credit card at any
point, a card issuer must not do any of the following until 30 days
after the prepaid account has been registered: (1) Open a covered
separate credit feature accessible by the hybrid prepaid-credit card;
(2) make a solicitation or provide an application to open a covered
separate credit feature accessible by the hybrid prepaid-credit card; or
(3) allow
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an existing credit feature that was opened prior to the consumer to
become a covered separate credit feature accessible by the hybrid
prepaid-credit card. An access device for a prepaid account that is not
a hybrid prepaid-credit card as that term is defined in Regulation Z, 12
CFR 1026.61, is subject to the issuance rules in Regulation E.
4. Addition of a covered separate credit feature to an existing
access device for a prepaid account. Regulation Z governs the addition
of a covered separate credit feature as that term is defined in
Regulation Z, 12 CFR 1026.61, to an existing access device for a prepaid
account. In this case, the access device would become a hybrid prepaid-
credit card under Regulation Z (12 CFR part 1026). A covered separate
credit feature may be added to a previously issued access device for a
prepaid account only upon the consumer's application or specific request
as described in Regulation Z, 12 CFR 1026.12(a)(1), and only in
compliance with 12 CFR 1026.61(c).
5. Determining applicable regulation related to liability and error
resolution. i. Under Sec. 1005.12(a)(1)(iv)(B), with respect to a
transaction that involves a covered separate credit feature and an asset
feature on a prepaid account that are both accessible by a hybrid
prepaid-credit card as those terms are defined in Regulation Z, 12 CFR
1026.61, where credit is extended under a covered separate credit
feature accessible by a hybrid prepaid-credit card that is incident to
an electronic fund transfer when the hybrid prepaid-credit card accesses
both funds in the asset feature of a prepaid account and credit
extensions from the credit feature with respect to a particular
transaction, Regulation E's liability limitations and error resolution
provisions apply to the transaction, in addition to Regulation Z, 12 CFR
1026.13(d) and (g) (which apply because of the extension of credit
associated with the covered separate credit feature). Section
1005.12(a)(1)(iv)(C) provides that with respect to transactions that
involves credit extended through a negative balance to the asset feature
of a prepaid account that meets the conditions set forth in Regulation
Z, 12 CFR 1026.61(a)(4), these transactions are governed solely by the
liability limitations and error resolution procedures in Regulation E,
and Regulation Z does not apply. Section 1005.12(a)(1)(iv)(D) and
(a)(2)(iii), taken together, provide that with respect to transactions
involving a prepaid account and a non-covered separate credit feature as
defined in Regulation Z, 12 CFR 1026.61, a financial institution must
comply with Regulation E's liability limitations and error resolution
procedures with respect to transactions that access the prepaid account
as applicable, and the creditor must comply with Regulation Z's
liability limitations and error resolution procedures with respect to
transactions that access the non-covered separate credit feature, as
applicable.
ii. Under Sec. 1005.12(a)(1)(iv)(A), with respect to an account
(other than a prepaid account) where credit is extended incident to an
electronic fund transfer under an agreement to extend overdraft credit
between the consumer and the financial institution, Regulation E's
liability limitations and error resolution provisions apply to the
transaction, in addition to Regulation Z, 12 CFR 1026.13(d) and (g)
(which apply because of the extension of credit associated with the
overdraft feature on the asset account).
iii. For transactions involving access devices that also function as
credit cards under Regulation Z (12 CFR part 1026), whether Regulation E
or Regulation Z applies depends on the nature of the transaction. For
example, if the transaction solely involves an extension of credit, and
does not access funds in a consumer asset account, such as a checking
account or prepaid account, the liability limitations and error
resolution requirements of Regulation Z apply. If the transaction
accesses funds in an asset account only (with no credit extended), the
provisions of Regulation E apply. If the transaction access funds in an
asset account but also involves an extension of credit under the
overdraft credit feature subject to Regulation Z attached to the
account, Regulation E's liability limitations and error resolution
provisions apply, in addition to Regulation Z, 12 CFR 1026.13(d) and (g)
(which apply because of the extension of credit associated with the
overdraft feature on the asset account). If a consumer's access device
is also a credit card and the device is used to make unauthorized
withdrawals from an asset account, but also is used to obtain
unauthorized cash advances directly from a credit feature that is
subject to Regulation Z that is separate from the asset account, both
Regulation E and Regulation Z apply.
iv. The following examples illustrate these principles:
A. A consumer has a card that can be used either as a credit card or
an access device that draws on the consumer's checking account. When
used as a credit card, the card does not first access any funds in the
checking account but draws only on a separate credit feature subject to
Regulation Z. If the card is stolen and used as a credit card to make
purchases or to get cash advances at an ATM from the line of credit, the
liability limits and error resolution provisions of Regulation Z apply;
Regulation E does not apply.
B. In the same situation, if the card is stolen and is used as an
access device to make purchases or to get cash withdrawals at an ATM
from the checking account, the liability limits and error resolution
provisions of Regulation E apply; Regulation Z does not apply.
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C. In the same situation, assume the card is stolen and used both as
an access device for the checking account and as a credit card; for
example, the thief makes some purchases using the card to access funds
in the checking account and other purchases using the card as a credit
card. Here, the liability limits and error resolution provisions of
Regulation E apply to the unauthorized transactions in which the card
was used as an access device for the checking account, and the
corresponding provisions of Regulation Z apply to the unauthorized
transactions in which the card was used as a credit card.
D. Assume a somewhat different type of card, one that draws on the
consumer's checking account and can also draw on an overdraft credit
feature subject to Regulation Z attached to the checking account. The
overdraft credit feature associated with the card is accessed only when
the consumer uses the card to make a purchase (or other transaction) for
which there are insufficient or unavailable funds in the checking
account. In this situation, if the card is stolen and used to make
purchases funded entirely by available funds in the checking account,
the liability limits and the error resolution provisions of Regulation E
apply. If the use of the card results in an extension of credit that is
incident to an electronic fund transfer where the transaction is funded
partially by funds in the consumer's asset account and partially by
credit extended under the overdraft credit feature, the error resolution
provisions of Regulation Z, 12 CFR 1026.13(d) and (g), apply in addition
to the Regulation E provisions, but the other liability limit and error
resolution provisions of Regulation Z do not. Relatedly, if the use of
the card is funded entirely by credit extended under the overdraft
credit feature, the transaction is governed solely by the liability
limitations and error resolution requirements of Regulation Z. See
Regulation Z, 12 CFR 1026.13(i).
E. The same principles in comment 12(a)-5.iv.A, B, C, and D apply to
an access device for a prepaid account that also is a hybrid prepaid-
credit card with respect to a covered separate credit feature under
Regulation Z, 12 CFR 1026.61. See also Regulation Z, 12 CFR
1026.13(i)(2) and comment 13(i)-4.
12(b) Preemption of Inconsistent State Laws
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 in Sec. 1005.12(b) provides a financial
institution with immunity for violations of state law if the institution
chooses not to make state disclosures and the Bureau later determines
that the state law is not preempted.
2. Preemption determinations generally. The Bureau recognizes state
law preemption determinations made by the Board of Governors of the
Federal Reserve System prior to July 21, 2011, until and unless the
Bureau makes and publishes any contrary determination.
3. Preemption determination--Michigan. The Board of Governors of the
Federal Reserve System determined that certain provisions in the state
law of Michigan are preempted by the Federal law, effective March 30,
1981:
i. Definition of unauthorized use. Section 488.5(4) of the state law
of Michigan, governing electronic fund transfers, is preempted to the
extent that it relates to the section of state law governing consumer
liability for unauthorized use of an access device.
ii. Consumer liability for unauthorized use of an account. Section
488.14 of the state law of Michigan, governing electronic fund
transfers, is preempted because it is inconsistent with Sec. 1005.6 and
is less protective of the consumer than the Federal law. The state law
places liability on the consumer for the unauthorized use of an account
in cases involving the consumer's negligence. Under the Federal law, a
consumer's liability for unauthorized use is not related to the
consumer's negligence and depends instead on the consumer's promptness
in reporting the loss or theft of the access device.
iii. Error resolution. Section 488.15 of the state law of Michigan,
governing electronic fund transfers, is preempted because it is
inconsistent with Sec. 1005.11 and is less protective of the consumer
than the Federal law. The state law allows financial institutions up to
70 days to resolve errors, whereas the Federal law generally requires
errors to be resolved within 45 days.
iv. Receipts and periodic statements. Sections 488.17 and 488.18 of
the state law of Michigan, governing electronic fund transfers, are
preempted because they are inconsistent with Sec. 1005.9, other than
for transfers of $15 or less pursuant to Sec. 1005.9(e). The state
provisions require a different disclosure of information than does the
Federal law. The receipt provision is also preempted because it allows
the consumer to be charged for receiving a receipt if a machine cannot
furnish one at the time of a transfer.
4. Preemption determination--Tennessee. The Bureau determined that
the following provision in the state law of Tennessee is preempted by
the Federal law, effective April 25, 2013:
i. Gift certificates, store gift cards, and general-use prepaid
cards. Section 66-29-116 of
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Tennessee's Uniform Disposition of Unclaimed (Personal) Property Act is
preempted to the extent that it permits gift certificates, store gift
cards, and general-use prepaid cards, as defined in Sec. 1005.20(a), to
be declined at the point-of-sale sooner than the gift certificates,
store gift cards, or general-use prepaid cards and their underlying
funds are permitted to expire under Sec. 1005.20(e).
Section 1005.13 Administrative Enforcement; Record Retention
13(b) Record Retention
1. Requirements. A financial institution need not retain records
that it has given disclosures and documentation to each consumer; it
need only retain evidence demonstrating that its procedures reasonably
ensure the consumers' receipt of required disclosures and documentation.
Section 1005.14 Electronic Fund Transfer Service Provider Not Holding
Consumer's Account
14(a) Electronic Fund Transfer Service Providers Subject to Regulation
1. Applicability. This section applies only when a service provider
issues an access device to a consumer for initiating transfers to or
from the consumer's account at a financial institution and the two
entities have no agreement regarding this EFT service. If the service
provider does not issue an access device to the consumer for accessing
an account held by another institution, it does not qualify for the
treatment accorded by Sec. 1005.14. For example, this section does not
apply to an institution that initiates preauthorized payroll deposits to
consumer accounts on behalf of an employer. By contrast, Sec. 1005.14
can apply to an institution that issues a code for initiating telephone
transfers to be carried out through the ACH from a consumer's account at
another institution. This is the case even if the consumer has accounts
at both institutions.
2. ACH agreements. The ACH rules generally do not constitute an
agreement for purposes of this section. However, an ACH agreement under
which members specifically agree to honor each other's debit cards is an
``agreement,'' and thus this section does not apply.
14(b) Compliance by Electronic Fund Transfer Service Provider
1. Liability. The service provider is liable for unauthorized EFTs
that exceed limits on the consumer's liability under Sec. 1005.6.
14(b)(1) Disclosures and Documentation
1. Periodic statements from electronic fund transfer service
provider. A service provider that meets the conditions set forth in this
paragraph does not have to issue periodic statements. A service provider
that does not meet the conditions need only include on periodic
statements information about transfers initiated with the access device
it has issued.
14(b)(2) Error Resolution
1. Error resolution. When a consumer notifies the service provider
of an error, the EFT service provider must investigate and resolve the
error in compliance with Sec. 1005.11 as modified by Sec.
1005.14(b)(2). If an error occurred, any fees or charges imposed as a
result of the error, either by the service provider or by the account-
holding institution (for example, overdraft or dishonor fees) must be
reimbursed to the consumer by the service provider.
14(c) Compliance by Account-Holding Institution
14(c)(1) Documentation
1. Periodic statements from account-holding institution. The
periodic statement provided by the account-holding institution need only
contain the information required by Sec. 1005.9(b)(1).
Section 1005.15--Electronic Fund Transfer of Government Benefits
15(c) Pre-Acquisition Disclosure Requirements
1. Disclosing the short and long form before acquisition. Section
1005.15(c)(1) requires that, before a consumer acquires an account
governed by Sec. 1005.15, a government agency must comply with the pre-
acquisition disclosure requirements applicable to prepaid accounts as
set forth in Sec. 1005.18(b). Section 1005.18(b)(1)(i) generally
requires delivery of both the short form disclosure required by Sec.
1005.18(b)(2), accompanied by the information in Sec. 1005.18(b)(5),
and the long form disclosure required by Sec. 1005.18(b)(4) before a
consumer acquires a prepaid account. For purposes of Sec. 1005.15(c), a
consumer is deemed to have received the disclosures required by Sec.
1005.18(b) prior to acquisition when the consumer receives the
disclosures before choosing to receive benefits via the government
benefit account. The following example illustrates when a consumer
receives disclosures before acquisition of an account for purposes of
Sec. 1005.15(c):
i. A government agency informs a consumer that she can receive
distribution of benefits via a government benefit account in the form of
a prepaid card. The consumer receives the prepaid card and the
disclosures required by Sec. 1005.18(b) to review at the time the
consumer receives benefits eligibility information from the agency.
After receiving the disclosures, the consumer chooses to receive
benefits via the government benefit account. These disclosures were
provided to
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the consumer pre-acquisition, and the agency has complied with Sec.
1005.15(c). By contrast, if the consumer does not receive the
disclosures required by Sec. 1005.18(b) to review until the time at
which the consumer received the first benefit payment deposited into the
government benefit account, these disclosures were provided to the
consumer post-acquisition, and were not provided in compliance with
Sec. 1005.15(c).
2. Acquisition and disclosures given during the same appointment.
The disclosures and notice required by Sec. 1005.15(c) may be given in
the same process or appointment during which the consumer receives a
government benefit card. When a consumer receives benefits eligibility
information and enrolls to receive benefits during the same process or
appointment, a government agency that gives the disclosures and notice
required by Sec. 1005.15(c) before the consumer chooses to receive the
first benefit payment on the card complies with the timing requirements
of Sec. 1005.15(c).
3. Form and formatting requirements for government benefit account
disclosures. The form and formatting requirements for government benefit
accounts in Sec. 1005.15(c) correspond to those for payroll card
accounts set forth in Sec. 1005.18(b). See comments 18(b)(2)(xiv)(A)-1
and 18(b)(2)(xiv)(B)-1 for additional guidance regarding the
requirements set forth in Sec. 1005.15(c)(2)(i) and (ii), respectively.
4. Disclosure requirements outside the short form disclosure.
Section 1005.18(b)(5) requires that the name of the financial
institution be disclosed outside the short form disclosure. For
government benefit accounts, the financial institution that must be
disclosed pursuant to Sec. 1005.18(b)(5) is the financial institution
that directly holds the account or issues the account's access device.
The disclosure provided outside the short form disclosure may, but is
not required to, also include the name of the government agency that
established the government benefit account.
15(d) Access to Account Information
1. Access to account information. For guidance, see comments 18(c)-1
through -3 and 18(c)-5 through -9.
15(e) Modified Disclosure, Limitations on Liability, and Error
Resolution Requirements
1. Modified limitations on liability and error resolution
requirements. For guidance, see comments 18(e)-1 through -3.
15(f) Disclosure of Fees and Other Information
1. Disclosures on prepaid account access devices. Pursuant to Sec.
1005.18(f)(3), the name of the financial institution and the Web site
URL and a telephone number a consumer can use to contact the financial
institution about the prepaid account must be disclosed on the prepaid
account access device. For government benefit accounts, the financial
institution whose name and contact information must be disclosed
pursuant to Sec. 1005.18(f)(3) is the financial institution that
directly holds the account or issues the account's access device.
Section 1005.17 Requirements for Overdraft Services
17(a) Definition
1. Exempt securities- and commodities-related lines of credit. The
definition of ``overdraft service'' does not include the payment of
transactions in a securities or commodities account pursuant to which
credit is extended by a broker-dealer registered with the Securities and
Exchange Commission or the Commodity Futures Trading Commission.
17(b) Opt-In Requirement
1. Scope. i. Account-holding institutions. Section 1005.17(b)
applies to ATM and one-time debit card transactions made with a debit
card issued by or on behalf of the account-holding institution. Section
1005.17(b) does not apply to ATM and one-time debit card transactions
made with a debit card issued by or through a third party unless the
debit card is issued on behalf of the account-holding institution.
ii. Coding of transactions. A financial institution complies with
the rule if it adapts its systems to identify debit card transactions as
either one-time or recurring. If it does so, the financial institution
may rely on the transaction's coding by merchants, other institutions,
and other third parties as a one-time or a preauthorized or recurring
debit card transaction.
iii. One-time debit card transactions. The opt-in applies to any
one-time debit card transaction, whether the card is used, for example,
at a point-of-sale, in an online transaction, or in a telephone
transaction.
iv. Application of fee prohibition. The prohibition on assessing
overdraft fees under Sec. 1005.17(b)(1) applies to all institutions.
For example, the prohibition applies to an institution that has a policy
and practice of declining to authorize and pay any ATM or one-time debit
card transactions when the institution has a reasonable belief at the
time of the authorization request that the consumer does not have
sufficient funds available to cover the transaction. However, the
institution is not required to comply with 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
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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, the institution could require the consumer to choose
between an account that does not permit the payment of ATM or one-time
debit card transactions pursuant to the institution's overdraft service
and an account that permits the payment of such overdrafts, provided
that the accounts comply with Sec. 1005.17(b)(2) and Sec.
1005.17(b)(3).
6. Affirmative consent required. A consumer's affirmative consent,
or opt-in, to a financial institution's overdraft service must be
obtained separately from other consents or acknowledgements obtained by
the institution, including a consent to receive disclosures
electronically. An institution may obtain a consumer's affirmative
consent by providing a blank signature line or check box that the
consumer could sign or select to affirmatively consent, provided that
the signature line or check box is used solely for purposes of
evidencing the consumer's choice whether or not to opt into the
overdraft service and not for other purposes. An institution does not
obtain a consumer's affirmative consent by including preprinted language
about the overdraft service in an account disclosure provided with a
signature card or contract that the consumer must sign to open the
account and that acknowledges the consumer's acceptance of the account
terms. Nor does an institution obtain a consumer's affirmative consent
by providing a signature card that contains a pre-selected check box
indicating that the consumer is requesting the service.
7. Confirmation. A financial institution may comply with the
requirement in Sec. 1005.17(b)(1)(iv) to provide confirmation of the
consumer's affirmative consent by mailing or delivering to the consumer
a copy of the consumer's completed opt-in notice, or by mailing or
delivering a letter or notice to the consumer acknowledging that the
consumer has elected to opt into the institution's service. The
confirmation, which must be provided in writing, or electronically if
the consumer agrees, must include a statement informing the consumer of
the right to revoke the opt-in at any time. See Sec. 1005.17(d)(6),
which permits institutions to include the revocation statement on the
initial opt-in notice. An institution complies with the confirmation
requirement if it has adopted reasonable procedures designed to ensure
that overdraft fees are assessed only in connection with transactions
paid after the confirmation has been mailed or delivered to the
consumer.
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8. Outstanding Negative Balance. If a fee or charge is based on the
amount of the outstanding negative balance, an institution is prohibited
from assessing any such fee if the negative balance is solely
attributable to an ATM or one-time debit card transaction, unless the
consumer has opted into the institution's overdraft service for ATM or
one-time debit card transactions. However, the rule does not prohibit an
institution from assessing such a fee if the negative balance is
attributable in whole or in part to a check, ACH, or other type of
transaction not subject to the prohibition on assessing overdraft fees
in Sec. 1005.17(b)(1).
9. Daily or Sustained Overdraft, Negative Balance, or Similar Fee or
Charge i. Daily or sustained overdraft, negative balance, or similar
fees or charges. If a consumer has not opted into the institution's
overdraft service for ATM or one-time debit card transactions, the fee
prohibition in Sec. 1005.17(b)(1) applies to all overdraft fees or
charges for paying those transactions, including but not limited to
daily or sustained overdraft, negative balance, or similar fees or
charges. Thus, where a consumer's negative balance is solely
attributable to an ATM or one-time debit card transaction, the rule
prohibits the assessment of such fees unless the consumer has opted in.
However, the rule does not prohibit an institution from assessing daily
or sustained overdraft, negative balance, or similar fees or charges if
a negative balance is attributable in whole or in part to a check, ACH,
or other type of transaction not subject to the fee prohibition. When
the negative balance is attributable in part to an ATM or one-time debit
card transaction, and in part to a check, ACH, or other type of
transaction not subject to the fee prohibition, the date on which such a
fee may be assessed is based on the date on which the check, ACH, or
other type of transaction is paid into overdraft.
ii. Examples. The following examples illustrate how an institution
complies with the fee prohibition. For each example, assume the
following: (a) The consumer has not opted into the payment of ATM or
one-time debit card overdrafts; (b) these transactions are paid into
overdraft because the amount of the transaction at settlement exceeded
the amount authorized or the amount was not submitted for authorization;
(c) under the account agreement, the institution may charge a per-item
fee of $20 for each overdraft, and a one-time sustained overdraft fee of
$20 on the fifth consecutive day the consumer's account remains
overdrawn; (d) the institution posts ATM and debit card transactions
before other transactions; and (e) the institution allocates deposits to
account debits in the same order in which it posts debits.
A. Assume that a consumer has a $50 account balance on March 1. That
day, the institution posts a one-time debit card transaction of $60 and
a check transaction of $40. The institution charges an overdraft fee of
$20 for the check overdraft but cannot assess an overdraft fee for the
debit card transaction. At the end of the day, the consumer has an
account balance of negative $70. The consumer does not make any deposits
to the account, and no other transactions occur between March 2 and
March 6. Because the consumer's negative balance is attributable in part
to the $40 check (and associated overdraft fee), the institution may
charge a sustained overdraft fee on March 6 in connection with the
check.
B. Same facts as in A., except that on March 3, the consumer
deposits $40 in the account. The institution allocates the $40 to the
debit card transaction first, consistent with its posting order policy.
At the end of the day on March 3, the consumer has an account balance of
negative $30, which is attributable to the check transaction (and
associated overdraft fee). The consumer does not make any further
deposits to the account, and no other transactions occur between March 4
and March 6. Because the remaining negative balance is attributable to
the March 1 check transaction, the institution may charge a sustained
overdraft fee on March 6 in connection with the check.
C. Assume that a consumer has a $50 account balance on March 1. That
day, the institution posts a one-time debit card transaction of $60. At
the end of that day, the consumer has an account balance of negative
$10. The institution may not assess an overdraft fee for the debit card
transaction. On March 3, the institution pays a check transaction of
$100 and charges an overdraft fee of $20. At the end of that day, the
consumer has an account balance of negative $130. The consumer does not
make any deposits to the account, and no other transactions occur
between March 4 and March 8. Because the consumer's negative balance is
attributable in part to the check, the institution may assess a $20
sustained overdraft fee. However, because the check was paid on March 3,
the institution must use March 3 as the start date for determining the
date on which the sustained overdraft fee may be assessed. Thus, the
institution may charge a $20 sustained overdraft fee on March 8.
iii. Alternative approach. For a consumer who does not opt into the
institution's overdraft service for ATM and one-time debit card
transactions, an institution may also comply with the fee prohibition in
Sec. 1005.17(b)(1) by not assessing daily or sustained overdraft,
negative balance, or similar fees or charges unless a consumer's
negative balance is attributable solely to check, ACH or other types of
transactions not subject to the fee prohibition while that negative
balance remains outstanding. In such
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case, the institution would not have to determine how to allocate
subsequent deposits that reduce but do not eliminate the negative
balance. For example, if a consumer has a negative balance of $30, of
which $10 is attributable to a one-time debit card transaction, an
institution complies with the fee prohibition if it does not assess a
sustained overdraft fee while that negative balance remains outstanding.
17(b)(2) Conditioning Payment of Other Overdrafts on Consumer's
Affirmative Consent
1. Application of the same criteria. The prohibitions on
conditioning in Sec. 1005.17(b)(2) generally require an institution to
apply the same criteria for deciding when to pay overdrafts for checks,
ACH transactions, and other types of transactions, whether or not the
consumer has affirmatively consented to the institution's overdraft
service with respect to ATM and one-time debit card overdrafts. For
example, if an institution's internal criteria would lead the
institution to pay a check overdraft if the consumer had affirmatively
consented to the institution's overdraft service for ATM and one-time
debit card transactions, it must also apply the same criteria in a
consistent manner in determining whether to pay the check overdraft if
the consumer has not opted in.
2. No requirement to pay overdrafts on checks, ACH transactions, or
other types of transactions. The prohibition on conditioning in Sec.
1005.17(b)(2) does not require an institution to pay overdrafts on
checks, ACH transactions, or other types of transactions in all
circumstances. Rather, the rule simply prohibits institutions from
considering the consumer's decision not to opt in when deciding whether
to pay overdrafts for checks, ACH transactions, or other types of
transactions.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, 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
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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
Prepaid Accounts
18(a) Coverage
1. Issuance of access device. Consistent with Sec. 1005.5(a) and
except as provided, as applicable, in Sec. 1005.5(b), a financial
institution may issue an access device only in response to an oral or
written request for the device, or as a renewal or substitute for an
accepted access device. A consumer is deemed to request an access device
for a payroll card account when the consumer chooses to receive salary
or other compensation through a payroll card account. A consumer is
deemed to request an access device for a prepaid account when, for
example, the consumer acquires a prepaid account offered for sale at a
retail location or applies for a prepaid account by telephone or online.
If an access device for a prepaid account is provided on an unsolicited
basis where the prepaid account is used for disbursing funds to a
consumer, and the financial institution or third party making the
disbursement does not offer any alternative means for the consumer to
receive those funds in lieu of accepting the prepaid account, in order
to satisfy Sec. 1005.5(b)(2), the financial institution must inform the
consumer that the consumer has no other means by which to initially
receive the funds in the prepaid account other than by accepting the
access device, as well as the consequences of disposing of the access
device.
2. Application to employers and service providers. Typically,
employers and third-party service providers do not meet the definition
of a ``financial institution'' subject to the regulation because they
neither hold prepaid accounts (including payroll card accounts) nor
issue prepaid cards and agree with consumers to provide EFT services in
connection with prepaid accounts. However, to the extent an employer or
a service provider undertakes either of these functions, it would be
deemed a financial institution under the regulation.
18(b) Pre-Acquisition Disclosure Requirements
1. Written and electronic pre-acquisition disclosures. Section
1005.4(a)(1) generally requires that disclosures be made in writing;
written disclosures may be provided in electronic form in accordance
with the Electronic Signatures in Global and National Commerce Act (E-
Sign Act) (15 U.S.C. 7001 et seq.). Because Sec. 1005.18(b)(6)(i)(B)
provides that electronic disclosures required by Sec. 1005.18(b) need
not meet the consumer consent or other applicable provisions of the E-
Sign Act, Sec. 1005.18(b) addresses certain requirements for written
and electronic pre-acquisition disclosures separately. Section
1005.18(b) also addresses specific requirements for pre-acquisition
disclosures provided orally.
2. Currency. Fee amounts required to be disclosed by Sec.
1005.18(b) may be disclosed in a foreign currency for a prepaid account
denominated in that foreign currency, other than the fee for the
purchase price required by Sec. 1005.18(b)(5). For example, a prepaid
account sold in a U.S. airport intended for use in England may disclose
in pound sterling ([pound])
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the fees required to be disclosed in the short form and long form
disclosures and outside the short form disclosure, except for the
purchase price.
18(b)(1)(i) General
1. Disclosing the short form and long form before acquisition.
Section 1005.18(b)(1)(i) generally requires delivery of a short form
disclosure as described in Sec. 1005.18(b)(2), accompanied by the
information required to be disclosed by Sec. 1005.18(b)(5), and a long
form disclosure as described in Sec. 1005.18(b)(4) before a consumer
acquires a prepaid account.
i. For purposes of Sec. 1005.18(b)(1)(i), a consumer acquires a
prepaid account by purchasing, opening or choosing to be paid via a
prepaid account, as illustrated by the following examples:
A. A consumer inquires about obtaining a prepaid account at a branch
location of a bank. A consumer then receives the disclosures required by
Sec. 1005.18(b). After receiving the disclosures, a consumer then opens
a prepaid account with the bank. This consumer received the short form
and long form pre-acquisition in accordance with Sec. 1005.18(b)(1)(i).
B. A consumer learns that he or she can receive wages via a payroll
card account, at which time the consumer is provided with a payroll card
and the disclosures required by Sec. 1005.18(b) to review. The consumer
then chooses to receive wages via a payroll card account. These
disclosures were provided pre-acquisition in compliance with Sec.
1005.18(b)(1)(i). By contrast, if a consumer receives the disclosures
required by Sec. 1005.18(b) to review at the end of the first pay
period, after the consumer received the first payroll payment on the
payroll card, these disclosures were provided to a consumer post-
acquisition, and thus not provided in compliance with Sec.
1005.18(b)(1)(i).
ii. Section 1005.18(b)(1)(i) permits delivery of the disclosures
required by Sec. 1005.18(b) at the time the consumer receives the
prepaid account, rather than prior to acquisition, for prepaid accounts
that are used for disbursing funds to consumers when the financial
institution or third party making the disbursement does not offer any
alternative means for the consumer to receive those funds in lieu of
accepting the prepaid account. For example, a utility company refunds
consumers' initial deposits for its utility services via prepaid
accounts delivered to consumers by mail. Neither the utility company nor
the financial institution that issues the prepaid accounts offer another
means for a consumer to receive that refund other than by accepting the
prepaid account. In this case, the financial institution may provide the
disclosures required by Sec. 1005.18(b) together with the prepaid
account (e.g., in the same envelope as the prepaid account); it is not
required to deliver the disclosures separately prior to delivery of the
prepaid account.
2. Disclosures provided electronically. Disclosures required by
Sec. 1005.18(b) may be provided before or after a consumer has
initiated the process of acquiring a prepaid account electronically.
When the disclosures required by Sec. 1005.18(b) are presented after a
consumer has initiated the process for acquiring a prepaid account
online or via a mobile device, but before a consumer chooses to accept
the prepaid account, such disclosures are also made pre-acquisition in
accordance with Sec. 1005.18(b)(1)(i). The disclosures required by
Sec. 1005.18(b) that are provided electronically when a consumer
acquires a prepaid account electronically are not considered to be given
pre-acquisition unless a consumer must view the web page containing the
disclosures before choosing to accept the prepaid account. The following
examples illustrate several methods by which a financial institution may
present Sec. 1005.18(b) disclosures before a consumer acquires a
prepaid account electronically in compliance with Sec.
1005.18(b)(1)(i):
i. A financial institution presents the short form disclosure
required by Sec. 1005.18(b)(2), together with the information required
by Sec. 1005.18(b)(5), and the long form disclosure required by Sec.
1005.18(b)(4) on the same web page. A consumer must view the web page
before choosing to accept the prepaid account.
ii. A financial institution presents the short form disclosure
required by Sec. 1005.18(b)(2), together with the information required
by Sec. 1005.18(b)(5), on a web page. The financial institution
includes, after the short form disclosure or as part of the statement
required by Sec. 1005.18(b)(2)(xiii), a link that directs the consumer
to a separate web page containing the long form disclosure required by
Sec. 1005.18(b)(4). The consumer must view the web page containing the
long form disclosure before choosing to accept the prepaid account.
iii. A financial institution presents on a web page the short form
disclosure required by Sec. 1005.18(b)(2), together with the
information required by Sec. 1005.18(b)(5), followed by the initial
disclosures required by Sec. 1005.7(b), which contains the long form
disclosure required by Sec. 1005.18(b)(4), in accordance with Sec.
1005.18(f)(1). The financial institution includes, after the short form
disclosure or as part of the statement required by Sec.
1005.18(b)(2)(xiii), a link that directs the consumer to the section of
the initial disclosures containing the long form disclosure pursuant to
Sec. 1005.18(b)(4). A consumer must view this web page before choosing
to accept the prepaid account.
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18(b)(1)(ii) Disclosures for Prepaid Accounts Acquired in Retail
Locations
1. Retail locations. Section 1005.18(b)(1)(ii) sets forth an
alternative timing regime for pre-acquisition disclosures for prepaid
accounts acquired in person at retail locations. For purposes of Sec.
1005.18(b)(1)(ii), a retail location is a store or other physical site
where a consumer can purchase a prepaid account in person and that is
operated by an entity other than the financial institution that issues
the prepaid account. A branch of a financial institution that offers its
own prepaid accounts is not a retail location with respect to those
accounts and, thus, both the short form and the long form disclosure
must be provided pre-acquisition pursuant to the timing requirement set
forth in Sec. 1005.18(b)(1)(i).
2. Disclosures provided inside prepaid account access device
packaging material. Except when providing the long form disclosure post-
acquisition in accordance with the retail location exception set forth
in Sec. 1005.18(b)(1)(ii), the disclosures required by Sec.
1005.18(b)(2), (4), and (5) must be provided to a consumer pre-
acquisition in compliance with Sec. 1005.18(b)(1)(i). A short form
disclosure is not considered to have been provided pre-acquisition if,
for example, it is inside the packaging material accompanying a prepaid
account access device such that the consumer cannot see or access the
disclosure before acquiring the prepaid account.
3. Consumers working in retail locations. A payroll card account
offered to consumers working in retail locations is not eligible for the
retail location exception in Sec. 1005.18(b)(1)(ii); thus, a consumer
employee must receive both the short form and long form disclosures for
the payroll card account pre-acquisition pursuant to the timing
requirement set forth in Sec. 1005.18(b)(1)(i).
4. Providing the long form disclosure by telephone and website
pursuant to the retail location exception. Pursuant to Sec.
1005.18(b)(1)(ii), a financial institution may provide the long form
disclosure described in Sec. 1005.18(b)(4) after a consumer acquires a
prepaid account in a retail location, if the conditions set forth in
Sec. 1005.18(b)(1)(ii)(A) through (D) are met. Pursuant to Sec.
1005.18(b)(1)(ii)(C), a financial institution must make the long form
disclosure accessible to consumers by telephone and via a website when
not providing a written version of the long form disclosure pre-
acquisition. A financial institution may, for example, provide the long
form disclosure by telephone using an interactive voice response or
similar system or by using a customer service agent. A financial
institution that has not obtained the consumer's contact information is
not required to comply with the requirements set forth in Sec.
1005.18(b)(1)(ii)(D). A financial institution is able to contact the
consumer when, for example, it has the consumer's mailing address or
email address.
18(b)(1)(iii) Disclosures for Prepaid Accounts Acquired Orally by
Telephone
1. Prepaid accounts acquired by telephone. Section
1005.18(b)(1)(iii) sets forth requirements for prepaid accounts acquired
orally by telephone. For purposes of Sec. 1005.18(b)(1)(iii), a prepaid
account is considered to have been acquired orally by telephone when a
consumer speaks to a customer service agent or communicates with an
automated system, such as an interactive voice response system, to
provide personally identifiable information to acquire a prepaid
account. Prepaid accounts acquired using a mobile device without
speaking to a customer service agent or communicating with an automated
system are not considered to have been acquired orally by telephone.
18(b)(2) Short Form Disclosure Content
1. Disclosures that are not applicable or are free. The short form
disclosures required by Sec. 1005.18(b)(2) must always be provided
prior to prepaid account acquisition, even when a particular feature is
free or is not applicable to a specific prepaid account product. For
example, if a financial institution does not charge a fee to a consumer
for withdrawing money at an automated teller machine in the financial
institution's network or an affiliated network, which is required to be
disclosed pursuant to Sec. 1005.18(b)(2)(iii), the financial
institution would list ``ATM withdrawal in-network'' on the short form
disclosure and list ``$0'' as the fee. If, however, the financial
institution does not have its own network or an affiliated network from
which a consumer can withdraw money via automated teller machine, the
financial institution would list ``ATM withdrawal in-network'' on the
short form disclosure but instead of disclosing a fee amount, state ``N/
A.'' (The financial institution must still disclose any fee it charges
for out-of-network ATM withdrawals.)
2. Prohibition on disclosure of finance charges. Pursuant to Sec.
1005.18(b)(3)(vi), a financial institution may not include in the short
form disclosure finance charges as described in Regulation Z, 12 CFR
1026.4(b)(11), imposed in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in Sec.
1026.61. See also comment 18(b)(3)(vi)-1.
18(b)(2)(i) Periodic Fee
1. Periodic fee variation. If the amount of a fee disclosed on the
short form could vary, the financial institution must disclose in the
short form the information required by Sec. 1005.18(b)(3)(i). If the
amount of the periodic fee could vary, the financial institution may opt
instead to use an alternative disclosure
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pursuant to Sec. 1005.18(b)(3)(ii). See comments 18(b)(3)(i)-1 and
18(b)(3)(ii)-1.
18(b)(2)(iii) ATM Withdrawal Fees
1. International ATM withdrawal fees. Pursuant to Sec.
1005.18(b)(2)(iii), a financial institution must disclose the fees
imposed when a consumer uses an automated teller machine to initiate a
withdrawal of cash in the United States from the prepaid account, both
within and outside of the financial institution's network or a network
affiliated with the financial institution. A financial institution may
not disclose its fee (if any) for using an automated teller machine to
initiate a withdrawal of cash in a foreign country in the disclosure
required by Sec. 1005.18(b)(2)(iii), although it may be required to
disclose that fee as an additional fee type pursuant to Sec.
1005.18(b)(2)(ix).
18(b)(2)(iv) Cash Reload Fee
1. Total of all charges. Pursuant to Sec. 1005.18(b)(2)(iv), a
financial institution must disclose the total of all charges imposed
when a consumer reloads cash into a prepaid account, including charges
imposed by the financial institution as well as any charges that may be
imposed by third parties for the cash reload. The cash reload fee
includes the cost of adding cash to the prepaid account at a point-of-
sale terminal, the cost of purchasing an additional card or other device
on which cash is loaded and then transferred into the prepaid account,
or any other method a consumer may use to reload cash into the prepaid
account. For example, a financial institution does not have its own
proprietary cash reload network and instead contracts with a third-party
reload network for this service. The financial institution itself does
not charge any fee related to cash reloads but the third-party reload
network charges a fee of $3.95 per cash reload. The financial
institution must disclose the cash reload fee as $3.95. If the financial
institution offers more than one method to reload cash into the prepaid
account, Sec. 1005.18(b)(3)(i) requires disclosure of the highest cash
reload fee. For example, a financial institution contracts with two
third-party cash reload networks; one third party charges $3.95 for a
point-of-sale reload and the other third party charges $2.95 for
purchase of a reload pack. In addition to the third-party cash reload
charge, the financial institution charges a $1 fee for every cash
reload. The financial institution must disclose the cash reload fee on
the short form as $4.95, that is, the highest third-party fee plus the
financial institution's $1 fee. See comment 18(b)(3)(v)-1 for additional
guidance regarding third-party fees for cash reloads.
2. Cash deposit fee. If a financial institution does not permit cash
reloads via a third-party reload network but instead permits cash
deposits, for example, in a bank branch, the term ``cash deposit'' may
be substituted for ``cash reload.''
18(b)(2)(v) ATM Balance Inquiry Fees
1. International ATM balance inquiry fees. Pursuant to Sec.
1005.18(b)(2)(v), a financial institution must disclose the fees imposed
when a consumer uses an automated teller machine to check the balance of
the prepaid account in the United States, both within and outside of the
financial institution's network or a network affiliated with the
financial institution. A financial institution may not disclose its fee
(if any) for using an automated teller machine to check the balance of
the prepaid account in a foreign country in the disclosure required by
Sec. 1005.18(b)(2)(v), although it may be required to disclose that fee
as an additional fee type pursuant to Sec. 1005.18(b)(2)(ix).
18(b)(2)(vii) Inactivity Fee
1. Inactivity fee conditions. Section 1005.18(b)(2)(vii) requires
disclosure of any fee for non-use, dormancy, or inactivity of the
prepaid account as well as the conditions that trigger the financial
institution to impose that fee. For example, a financial institution
that imposes an inactivity fee of $1 per month after 12 months without
any transactions on the prepaid account would disclose on the short form
``Inactivity (after 12 months with no transactions)'' and ``$1.00 per
month.''
18(b)(2)(viii) Statements Regarding Additional Fee Types
18(b)(2)(viii)(A) Statement Regarding Number of Additional Fee Types
Charged
1. Fee types counted in total number of additional fee types.
Section 1005.18(b)(2)(viii)(A) requires a statement disclosing the
number of additional fee types the financial institution may charge
consumers with respect to the prepaid account, using the following
clause or a substantially similar clause: ``We charge [x] other types of
fees.'' The number of additional fee types disclosed must reflect the
total number of fee types under which the financial institution may
charge fees, excluding fees required to be disclosed pursuant to Sec.
1005.18(b)(2)(i) through (vii) and (b)(5) and any finance charges as
described in Regulation Z, 12 CFR 1026.4(b)(11), imposed in connection
with a covered separate credit feature accessible by a hybrid prepaid-
credit card as defined in 12 CFR 1026.61. The following clarify which
fee types to include in the total number of additional fee types:
i. Fee types excluded from the number of additional fee types. The
number of additional fee types required to be disclosed pursuant to
Sec. 1005.18(b)(2)(viii)(A) does not include the fees otherwise
required to be disclosed in the
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short form pursuant to Sec. 1005.18(b)(2)(i) through (vii), nor any
purchase fee or activation fee required to be disclosed outside the
short form pursuant to Sec. 1005.18(b)(5). It also does not include any
finance charges as described in Regulation Z, 12 CFR 1026.4(b)(11),
imposed in connection with a credit feature defined in 12 CFR 1026.61.
The number of additional fee types includes only fee types under which
the financial institution may charge fees; accordingly, third-party fees
are not included unless they are imposed for services performed on
behalf of the financial institution. In addition, the number of
additional fee types includes only fee types the financial institution
may charge consumers with respect to the prepaid account; accordingly,
additional fee types does not include other revenue sources such as
interchange fees or fees paid by employers for payroll card programs,
government agencies for government benefit programs, or other entities
sponsoring prepaid account programs for financial disbursements.
ii. Fee types counted in the number of additional fee types. Fee
types that bear a relationship to, but are separate from, the static fee
types disclosed in the short form must be counted as additional fees for
purposes of Sec. 1005.18(b)(2)(viii). For example, the ATM withdrawal
and ATM balance inquiry fee types required to be disclosed respectively
by Sec. 1005.18(b)(2)(iii) and (v) that are excluded from the number of
additional fee types pursuant to Sec. 1005.18(b)(2)(viii) do not
include such services outside of the United States. Thus, any
international ATM fees charged by the financial institution for ATM
withdrawal or balance inquiries must each be counted in the total number
of additional fee types. Similarly, any fees for reloading funds into a
prepaid account in a form other than cash (such as electronic reload and
check reload, as described in comment 18(b)(2)(viii)(A)-2) must be
counted in the total number of additional fee types because Sec.
1005.18(b)(2)(iv) is limited to cash reloads. Also, additional fee types
disclosed in the short form pursuant to Sec. 1005.18(b)(2)(ix) must be
counted in the total number of additional fee types.
2. Examples of fee types and fee variations. The term fee type, as
used in Sec. 1005.18(b)(2)(viii) and (ix), is a general category under
which a financial institution charges fees to consumers. A financial
institution may charge only one fee within a particular fee type, or may
charge two or more variations of fees within the same fee type. The
following is a list of examples of fee types a financial institution may
use when determining both the number of additional fee types charged
pursuant to Sec. 1005.18(b)(2)(viii)(A) and any additional fee types to
disclose pursuant to Sec. 1005.18(b)(2)(ix). A financial institution
may create an appropriate name for other additional fee types.
i. Fee types related to reloads of funds. Fee types for reloading
funds into a prepaid account. Fees for cash reloads are required to be
disclosed in the short form pursuant to Sec. 1005.18(b)(2)(iv) and that
such fees are not counted in the total number of additional fee types or
disclosed as an additional fee type pursuant to Sec. 1005.18(b)(2)(ix).
Fee types for other methods to reload funds, such as Electronic reload
or Check reload, would be counted in the total number of additional fee
types and may be required to be disclosed as additional fee types
pursuant to Sec. 1005.18(b)(2)(ix).
A. Electronic reload. Fees for reloading a prepaid account through
electronic methods. Fee variations within this fee type may include fees
for transferring funds from a consumer's bank account via ACH, reloads
conducted using a debit card or credit card, and for incoming wire
transfers.
B. Check reload. Fees for reloading a prepaid account using checks.
Fee variations within this fee type may include fees for depositing
checks at an ATM, depositing checks with a teller at the financial
institution's branch location, mailing checks to the financial
institution for deposit, and depositing checks using remote deposit
capture.
ii. Fee types related to withdrawals of funds. Fee types for
withdrawing funds from a prepaid account. Per purchase fees and ATM
withdrawal fees within the United States are fee types required to be
disclosed in the short form respectively pursuant to Sec.
1005.18(b)(2)(ii) and (iii) and thus such fees are not counted in the
total number of additional fee types or disclosed as an additional fee
type pursuant to Sec. 1005.18(b)(2)(ix). Fee types for other methods to
withdraw funds, such as Electronic withdrawal, Teller withdrawal, Cash
back at point of sale (POS), and Account closure would be counted in the
total of additional fee types and may be required to be disclosed as
additional fee types pursuant to Sec. 1005.18(b)(2)(ix).
A. Electronic withdrawal. Fees for withdrawing funds from a prepaid
account through electronic methods other than an ATM. Fee variations
within this fee type may include fees for transferring funds from the
prepaid account to a consumer's bank account or other destination.
B. Teller withdrawal. Fees for withdrawing funds from a prepaid
account in person with a teller at a bank or credit union. Fee
variations within this fee type may include fees for withdrawing funds,
whether at the financial institution's own branch locations or at
another bank or credit union.
C. Cash back at POS. Fees for withdrawing cash from a prepaid
account via cash back at a merchant's point-of-sale terminal.
D. Account closure. Fees for closing out a prepaid account, such as
for a check refund.
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Fee variations within this fee type may include fees for regular and
expedited delivery of close-out funds.
iii. Fee types related to international transactions. Fee types for
international transactions and ATM activity.
A. International ATM withdrawal. Fees for withdrawing funds at an
ATM outside the United States. This fee type does not include fees for
ATM withdrawals in the United States, as such fees are required to be
disclosed in the short form pursuant to Sec. 1005.18(b)(2)(iii).
B. International ATM balance inquiry. Fees for balance inquiries at
an ATM outside the United States. This fee type does not include fees
for ATM balance inquiries in the United States, as such fees are
required to be disclosed in the short form pursuant to Sec.
1005.18(b)(2)(v).
C. International transaction (excluding ATM withdrawal and balance
inquiry). Fees for transactions outside the United States. Fee
variations within this fee type may include fees for currency
conversion, foreign exchange processing, and other charges for
transactions outside of the United States.
iv. Bill payment. Fees for bill payment services. Fee variations
within this fee type may include fees for ACH bill payment, paper check
bill payment, check cancellation, and expedited delivery of paper check.
v. Person-to-person or card-to-card transfer of funds. Fees for
transferring funds from one prepaid account to another prepaid account.
Fee variations within this fee type may include fees for transferring
funds to another prepaid account within or outside of a specified
prepaid account program, transferring funds to another cardholder within
the United States or outside the United States, and expedited transfer
of funds.
vi. Paper checks. Fees for providing paper checks that draw on the
prepaid account. Fee variations within this fee type may include fees
for providing checks and associated shipping costs. This does not
include checks issued as part of a bill pay service, which are addressed
in comment 18(b)(2)(viii)(A)-2.iv above.
vii. Stop payment. Fees for stopping payment of a preauthorized
transfer of funds.
viii. Fee types related to card services. Fee types for card
services.
A. Card replacement. Fees for replacing or reissuing a prepaid card
that has been lost, stolen, damaged, or that has expired. Fee variations
within this fee types may include fees for replacing the card, regular
or expedited delivery of the replacement card, and international card
replacement.
B. Secondary card. Fees for issuing an additional access device
assigned to a particular prepaid account.
C. Personalized card. Fees for customizing or personalizing a
prepaid card.
ix. Legal. Fees for legal process. Fee variations within this fee
type may include fees for garnishments, attachments, levies, and other
court or administrative orders against a prepaid account.
3. Multiple service plans. Pursuant to Sec. 1005.18(b)(2)(vi), a
financial institution using the multiple service plan short form
disclosure pursuant to Sec. 1005.18(b)(6)(iii)(B)(2) must disclose only
the fee for calling customer service via a live agent. Thus, pursuant to
Sec. 1005.18(b)(2)(viii), any charge for calling customer service via
an interactive voice response system must be counted in the total number
of additional fee types.
4. Consistency in additional fee type categorization. A financial
institution must use the same categorization of fee types in the number
of additional fee types disclosed pursuant to Sec. 1005.18(b)(2)(viii)
and in its determination of which additional fee types to disclose
pursuant to Sec. 1005.18(b)(2)(ix).
18(b)(2)(viii)(B) Statement Directing Consumers to Disclosure of
Additional Fee Types
1. Statement clauses. Section 1005.18(b)(2)(viii)(B) requires, if a
financial institution makes a disclosure of additional fee types
pursuant to Sec. 1005.18(b)(2)(ix), it must include in the short form a
statement directing consumers to that disclosure, located after but on
the same line of text as the statement regarding the number of
additional fee types required by Sec. 1005.18(b)(2)(viii)(A), using the
following clause or a substantially similar clause: ``Here are some of
them:''. A financial institution that makes no disclosure pursuant to
Sec. 1005.18(b)(2)(ix) may not include a disclosure pursuant to Sec.
1005.18(b)(2)(viii)(B). The following examples provide guidance
regarding substantially similar clauses a financial institution may use
in certain circumstances to make its disclosures under Sec.
1005.18(b)(2)(viii)(A) and (B):
i. A financial institution that has one additional fee type and
discloses that additional fee type pursuant to Sec. 1005.18(b)(2)(ix)
might provide the statements required by Sec. 1005.18(b)(2)(viii)(A)
and (B) together as: ``We charge 1 other type of fee. It is:''.
ii. A financial institution that has five additional fee types and
discloses one of those additional fee types pursuant to Sec.
1005.18(b)(2)(ix) might provide the statements required by Sec.
1005.18(b)(2)(viii)(A) and (B) together as: ``We charge 5 other types of
fees. Here is 1 of them:''.
iii. A financial institution that has two additional fee types and
discloses both of those fee types pursuant to Sec. 1005.18(b)(2)(ix)
might provide the statement required by Sec. 1005.18(b)(2)(viii)(A) and
(B) together as: ``We charge 2 other types of fees. They are:''.
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18(b)(2)(ix) Disclosure of Additional Fee Types
18(b)(2)(ix)(A) Determination of Which Additional Fee Types To Disclose
1. Number of fee types to disclose. Section 1005.18(b)(2)(ix)(A)
requires disclosure of the two fee types that generate the highest
revenue from consumers for the prepaid account program or across prepaid
account programs that share the same fee schedule during the time period
provided in Sec. 1005.18(b)(2)(ix)(D) and (E), excluding the categories
set forth in Sec. 1005.18(b)(2)(ix)(A)(1) through (3). See comment
18(b)(2)(viii)(A)-2 for guidance on and examples of fee types. If a
prepaid account program has two fee types that satisfy the criteria in
Sec. 1005.18(b)(2)(ix)(A), it must disclose both fees. If a prepaid
account program has three or more fee types that potentially satisfy the
criteria in Sec. 1005.18(b)(2)(ix)(A), the financial institution must
disclose only the two fee types that generate the highest revenue from
consumers. See comment 18(b)(2)(ix)(B)-1 for guidance regarding the
disclosure of additional fee types for a prepaid account with fewer than
two fee types that satisfy the criteria in Sec. 1005.18(b)(2)(ix)(A).
2. Abbreviations. Commonly accepted or readily understandable
abbreviations may be used as needed for additional fee types and fee
variations disclosed pursuant to Sec. 1005.18(b)(2)(ix). For example,
to accommodate on one line in the short form disclosure the additional
fee types ``international ATM balance inquiry'' or ``person-to-person
transfer of funds,'' with or without fee variations, a financial
institution may choose to abbreviate the fee type name as ``Int'l ATM
inquiry'' or ``P2P transfer.''
3. Revenue from consumers. The revenue calculation for the
disclosure of additional fee types pursuant to Sec.
1005.18(b)(2)(ix)(A) is based on fee types that the financial
institution may charge consumers with respect to the prepaid account.
The calculation excludes other revenue sources such as revenue generated
from interchange fees and fees paid by employers for payroll card
programs, government agencies for government benefit programs, and other
entities sponsoring prepaid account programs for financial
disbursements. It also excludes third-party fees, unless they are
imposed for services performed on behalf of the financial institution.
4. Assessing revenue within and across prepaid account programs to
determine disclosure of additional fee types. Pursuant to Sec.
1005.18(b)(2)(ix)(A), the disclosure of the two fee types that generate
the highest revenue from consumers must be determined for each prepaid
account program or across prepaid account programs that share the same
fee schedule. Thus, if a financial institution offers more than one
prepaid account program, unless the programs share the same fee
schedule, the financial institution must consider the fee revenue data
separately for each prepaid account program and not consolidate the fee
revenue data across prepaid account programs. Prepaid account programs
are deemed to have the same fee schedules if they charge the same fee
amounts, including offering the same fee waivers and fee reductions for
the same features. The following examples illustrate how to assess
revenue within and across prepaid account programs to determine the
disclosure of additional fee types:
i. Prepaid account programs with different fee schedules. A
financial institution offers multiple prepaid account programs and each
program has a different fee schedule. The financial institution must
consider the revenue from consumers for each program separately; it may
not consider the revenue from all of its prepaid account programs
together in determining the disclosure of additional fee types for its
programs.
ii. Prepaid account programs with identical fee schedules. A
financial institution offers multiple prepaid account programs and they
all share the same fee schedule. The financial institution may consider
the revenue across all of its prepaid account programs together in
determining the disclosure of additional fee types for its programs.
iii. Prepaid account programs with both different fee schedules and
identical fee schedules. A financial institution offers multiple prepaid
account programs, some of which share the same fee schedule. The
financial institution may consider the revenue across all prepaid
account programs with identical fee schedules in determining the
disclosure of additional fee types for those programs. The financial
institution must separately consider the revenue from each of the
prepaid account programs with unique fee schedules.
iv. Multiple service plan prepaid account programs. A financial
institution that discloses multiple service plans on a short form
disclosure as permitted by Sec. 1005.18(b)(6)(iii)(B)(2) must consider
revenue across all of those plans in determining the disclosure of
additional fee types for that program. If, however, the financial
institution instead is disclosing the default service plan pursuant to
Sec. 1005.18(b)(6)(iii)(B)(1), the financial institution must consider
the revenue generated from consumers for the default service plan only.
See Sec. 1005.18(b)(6)(iii)(B)(2) and comment 18(b)(6)(iii)(B)(2)-1 for
guidance on what constitutes multiple service plans.
5. Exclusions. Once the financial institution has calculated the fee
revenue data for the prepaid account program or across prepaid account
programs that share the same fee schedule during the appropriate time
period, it must remove from consideration the categories excluded
pursuant to
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Sec. 1005.18(b)(2)(ix)(A)(1) through (3) before determining the fee
types, if any, that generated the highest revenue.
i. Exclusion for fee types required to be disclosed elsewhere. Fee
types otherwise required to be disclosed in or outside the short form
are excluded from the additional fee types required to be disclosed
pursuant to Sec. 1005.18(b)(2)(ix)(A)(1). Thus, the following fee types
are excluded: Periodic fee, per purchase fee, ATM withdrawal fees (for
ATM withdrawals in the United States), cash reload fee, ATM balance
inquiry fees (for ATM balance inquiries in the United States), customer
service fees, and inactivity fee. However, while the cash reload fee
type is excluded, other reload fee types, such as electronic reload and
check reload, are not excluded under Sec. 1005.18(b)(2)(ix)(A)(1) and
thus may be disclosed as additional fee types pursuant to Sec.
1005.18(b)(2)(ix). Similarly, while the fee types ATM withdrawal and ATM
balance inquiry in the United States are excluded, international ATM
withdrawal and international ATM balance inquiry fees are not excluded
under Sec. 1005.18(b)(2)(ix)(A)(1) and thus may be disclosed as
additional fee types pursuant to Sec. 1005.18(b)(2)(ix). Also pursuant
to Sec. 1005.18(b)(2)(ix)(A)(1), the purchase price and activation fee,
if any, required to be disclosed outside the short form disclosure
pursuant to Sec. 1005.18(b)(5), are excluded from the additional fee
types required to be disclosed pursuant to Sec. 1005.18(b)(2)(ix).
ii. De minimis exclusion. Any fee types that generated less than 5
percent of the total revenue from consumers for the prepaid account
program or across prepaid account programs that share the same fee
schedule during the time period provided in Sec. 1005.18(b)(2)(ix)(D)
and (E) are excluded from the additional fee types required to be
disclosed pursuant to Sec. 1005.18(b)(2)(ix)(A)(2). For example, for a
particular prepaid account program over the appropriate time period,
bill payment, check reload, and card replacement are the only fee types
that generated 5 percent or more of the total revenue from consumers at,
respectively, 15 percent, 10 percent, and 7 percent. Two other fee
types, legal fee and personalized card, generated revenue below 1
percent of the total revenue from consumers. The financial institution
must disclose bill payment and check reload as the additional fee types
for that particular prepaid account program because those two fee types
generated the highest revenue from consumers from among the categories
not excluded from disclosure as additional fee types. For a different
prepaid account program over the appropriate time period, bill payment
is the only fee type that generated 5 percent or more of the total
revenue from consumers. Two other fee types, check reload and card
replacement, each generated revenue below 5 percent of the total revenue
from consumers. The financial institution must disclose bill payment as
an additional fee type for that particular prepaid account program
because it is the only fee type that satisfies the criteria of Sec.
1005.18(b)(2)(ix)(A). The financial institution may, but is not required
to, disclose either check reload or card replacement on the short form
as well, pursuant to Sec. 1005.18(b)(2)(ix)(B). See comment
18(b)(2)(ix)(B)-1.
iii. Exclusion for credit-related fees. Any finance charges as
described in Regulation Z, 12 CFR 1026.4(b)(11), imposed in connection
with a covered separate credit feature accessible by a hybrid prepaid-
credit card as defined in 12 CFR 1026.61, are excluded from the
additional fee types required to be disclosed pursuant to Sec.
1005.18(b)(2)(ix)(A)(3). Pursuant to Sec. 1005.18(b)(2)(viii)(A)(2),
such finance charges are also excluded from the number of additional fee
types disclosed.
18(b)(2)(ix)(B) Disclosure of Fewer Than Two Additional Fee Types
1. Disclosure of one or no additional fee types. The following
examples provide guidance on the additional fee types disclosure
pursuant to Sec. 1005.18(b)(2)(ix)(B) for a prepaid account with fewer
than two fee types that satisfy the criteria in Sec.
1005.18(b)(2)(ix)(A):
i. A financial institution has a prepaid account program with only
one fee type that satisfies the criteria in Sec. 1005.18(b)(2)(ix)(A)
and thus, pursuant to Sec. 1005.18(b)(2)(ix)(A), the financial
institution must disclose that one fee type. The prepaid account program
has three other fee types that generate revenue from consumers, but they
do not exceed the de minimis threshold or otherwise satisfy the criteria
in Sec. 1005.18(b)(2)(ix)(B). Pursuant to Sec. 1005.18(b)(2)(ix)(B),
the financial institution is not required to make any additional
disclosure, but it may choose to disclose one of the three fee types
that do not meet the criteria in Sec. 1005.18(b)(2)(ix)(A).
ii. A financial institution has a prepaid account program with four
fee types that generate revenue from consumers, but none exceeds the de
minimis threshold or otherwise satisfy the criteria in Sec.
1005.18(b)(2)(ix)(A). Pursuant to Sec. 1005.18(b)(2)(ix)(B), the
financial institution is not required to make any disclosure, but it may
choose to disclose one or two of the fee types that do not meet the
criteria in Sec. 1005.18(b)(2)(ix)(A).
2. No disclosure of finance charges as an additional fee type.
Pursuant to Sec. 1005.18(b)(3)(vi), a financial institution may not
disclose any finance charges as a voluntary additional fee disclosure
under Sec. 1005.18(b)(2)(ix)(B).
18(b)(2)(ix)(C) Fee Variations in Additional Fee Types
1. Two or more fee variations. Section 1005.18(b)(2)(ix)(C)
specifies how to disclose additional fee types with two fee variations,
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more than two fee variations, and for multiple service plans pursuant to
Sec. 1005.18(b)(6)(iii)(B)(2). See comment 18(b)(2)(viii)(A)-2 for
guidance on and examples of fee types and fee variations within those
fee types. The following examples illustrate how to disclose two-tier
fees and other fee variations in additional fee types:
i. Two fee variations with different fee amounts. A financial
institution charges a fee of $1 for providing a card replacement using
standard mail service and charges a fee of $5 for providing a card
replacement using expedited delivery. The financial institution must
calculate the total revenue generated from consumers for all card
replacements, both via standard mail service and expedited delivery,
during the required time period to determine whether it is required to
disclose card replacement as an additional fee type pursuant to Sec.
1005.18(b)(2)(ix). Because there are only two fee variations for the fee
type ``card replacement,'' if card replacement is required to be
disclosed as an additional fee type pursuant to Sec.
1005.18(b)(2)(ix)(A), the financial institution must disclose both fee
variations pursuant to Sec. 1005.18(b)(2)(ix)(C). Thus, the financial
institution would disclose on the short form the fee type and two
variations as ``Card replacement (regular or expedited delivery)'' and
the fee amount as ``$1.00 or $5.00''.
ii. More than two fee variations. A financial institution offers two
methods of bill payment--via ACH and paper check--and offers two modes
of delivery for bill payments made by paper check--regular standard mail
service and expedited delivery. The financial institution charges $0.25
for bill pay via ACH, $0.50 for bill pay via paper check sent by regular
standard mail service, and $3 for bill pay via paper check sent via
expedited delivery. The financial institution must calculate the total
revenue generated from consumers for all methods of bill pay and all
modes of delivery during the required time period to determine whether
it must disclose bill payment as an additional fee type pursuant to
Sec. 1005.18(b)(2)(ix). Because there are more than two fee variations
for the fee type ``bill payment,'' if bill payment is required to be
disclosed as an additional fee type pursuant to Sec.
1005.18(b)(2)(ix)(A), the financial institution has two options for the
disclosure. The financial institution may disclose the highest fee, $3,
followed by a symbol, such as an asterisk, linked to a statement
explaining that the fee could be lower depending on how and where the
prepaid account is used, pursuant to Sec. 1005.18(b)(3)(i). Thus, the
financial institution would disclose on the short form the fee type as
``Bill payment'' and the fee amount as ``$3.00*''. Alternatively, the
financial institution may consolidate the fee variations into two
categories, such as regular delivery and expedited delivery. In this
case, the financial institution would make this disclosure on the short
form as: ``Bill payment (regular or expedited delivery)'' and the fee
amount as ``$0.50* or $3.00''.
iii. Two fee variations with like fee amounts. A financial
institution offers two methods of check reload for which it charges a
fee--depositing checks at an ATM and depositing checks with a teller at
the financial institution's branch locations. There is a fee of $0.50
for both methods of check deposit. The financial institution must
calculate the total revenue generated from both of these check reload
methods during the required time period to determine whether it must
disclose this fee type as an additional fee type pursuant to Sec.
1005.18(b)(2)(ix). Because the fee amounts are the same for the two
methods of check deposit, if the fee type is required to be disclosed as
an additional fee type, the financial institution's options for
disclosing this fee type in accordance with Sec. 1005.18(b)(2)(ix)(C)
and (b)(3)(iii) include: ``Check reload (ATM or teller check dep)'' and
the fee amount as ``$0.50'' or ``Check reload'' and the fee amount as
``$0.50''.
iv. Multiple service plans. A financial institution provides a short
form disclosure for multiple service plans pursuant to Sec.
1005.18(b)(6)(iii)(B)(2). Notwithstanding that an additional fee type
has only two fee variations, a financial institution must disclose the
highest fee in accordance with Sec. 1005.18(b)(3)(i).
2. One fee variation under a particular fee type. Section
1005.18(b)(2)(ix)(C) provides in part that, if a financial institution
only charges one fee under a particular fee type, the financial
institution must disclose the name of the additional fee type and the
fee amount; it may, but is not required to, disclose also the name of
the one fee variation, if any, for which the fee amount is charged, in a
format substantially similar to that used to disclose the two-tier fees
required by Sec. 1005.18(b)(2)(v) and (vi), except that the financial
institution must disclose only the one fee variation name and fee amount
instead of two. For example, a financial institution offers one method
of electronic reload for which it charges a fee--electronic reload
conducted using a debit card. The financial institution must calculate
the total revenue generated from consumers for the fee type electronic
reload (i.e., in this case, electronic reloads conducted using a debit
card) during the required time period to determine whether it must
disclose electronic reload as an additional fee type pursuant to Sec.
1005.18(b)(2)(ix). Because the financial institution only charges one
fee variation under the fee type electronic reload, if this fee type is
required to be disclosed as an additional fee type, the financial
institution has two options for disclosing this fee type in accordance
with Sec. 1005.18(b)(2)(ix)(C): ``Electronic reload (debit card)'' and
the fee amount as
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``$1.00'' or ``Electronic reload'' and the fee amount as ``$1.00''.
18(b)(2)(ix)(D) Timing of Initial Assessment of Additional Fee Types
Disclosure
18(b)(2)(ix)(D)(1) Existing Prepaid Account Programs as of April 1, 2019
1. 24 month period with available data. Section
1005.18(b)(2)(ix)(D)(1) requires for a prepaid account program in effect
as of April 1, 2019 the financial institution must disclose additional
fee types based on revenue for a 24-month period that begins no earlier
than October 1, 2014. Thus, a prepaid account program that was in
existence as of April 1, 2019 must assess its additional fee types
disclosure from data collected during a consecutive 24-month period that
took place between October 1, 2014 and April 1, 2019. For example, an
existing prepaid account program was first offered to consumers on
January 1, 2012 and provides its first short form disclosure on April 1,
2019. The earliest 24-month period from which that financial institution
could calculate its first additional fee types disclosure would be from
October 1, 2014 to September 30, 2016.
18(b)(2)(ix)(D)(2) Existing Prepaid Account Programs as of April 1, 2019
With Unavailable Data
1. 24 month period without available data. Section
1005.18(b)(2)(ix)(D)(2) requires that if a financial institution does
not have 24 months of fee revenue data for a particular prepaid account
program from which to calculate the additional fee types disclosure in
advance of April 1, 2019, the financial institution must disclose the
additional fee types based on revenue it reasonably anticipates the
prepaid account program will generate over the 24-month period that
begins on April 1, 2019. For example, a financial institution begins
offering to consumers a prepaid account program six months before April
1, 2019. Because the prepaid account program will not have 24 months of
fee revenue data prior to April 1, 2019, pursuant to Sec.
1005.18(b)(2)(ix)(D)(2) the financial institution must disclose the
additional fee types it reasonably anticipates the prepaid account
program will generate over the 24-month period that begins on April 1,
2019. The financial institution would take into account the data it had
accumulated at the time of its calculation to arrive at the reasonably
anticipated additional fee types for the prepaid account program.
18(b)(2)(ix)(E) Timing of Periodic Reassessment and Update of Additional
Fee Types Disclosure
18(b)(2)(ix)(E)(2) Periodic Reassessment
1. Periodic reassessment and, if applicable, update of additional
fee types disclosure. Pursuant to Sec. 1005.18(b)(2)(ix)(E)(2), a
financial institution must reassess whether its previously disclosed
additional fee types continue to comply with the requirements of Sec.
1005.18(b)(2)(ix) every 24 months based on revenue for the previous 24-
month period. The financial institution must complete this reassessment
and update its disclosure, if applicable, within three months of the end
of the 24-month period, except as provided in the update printing
exception in Sec. 1005.18(b)(2)(ix)(E)(4). The following examples
provide guidance on the periodic assessment and, if applicable, update
of the disclosure of additional fee types pursuant to Sec.
1005.18(b)(2)(ix)(E)(2):
i. Reassessment with no change in the additional fee types
disclosed. A financial institution disclosed two additional fee types
(bill payment and card replacement) for a particular prepaid account
program on April 1, 2019. Starting on April 1, 2021, the financial
institution assessed the fee revenue data it collected over the previous
24 months, and the two additional fee types previously disclosed
continue to qualify as additional fee types pursuant to Sec.
1005.18(b)(2)(ix). The financial institution is not required to take any
action with regard to the disclosure of additional fee types for that
prepaid account program.
ii. Reassessment with a change in the additional fee types
disclosed. A financial institution disclosed two additional fee types
(bill payment and card replacement) for a particular prepaid account
program on April 1, 2019. Starting on April 1, 2021, the financial
institution assessed the fee revenue data it collected over the previous
24 months, and bill payment continued to qualify as an additional fee
type pursuant to Sec. 1005.18(b)(2)(ix) but check reload qualified as
the second additional fee type instead of card replacement. The
financial institution must update the additional fee types disclosure in
its short form disclosures provided electronically, orally, and in
writing (other than for printed materials that qualify for the update
printing exception in Sec. 1005.18(b)(2)(ix)(E)(4)) no later than July
1, 2021, which is three months after the end of the 24-month period.
iii. Reassessment with the addition of an additional fee type
already voluntarily disclosed. A financial institution disclosed one
additional fee type (bill payment) and voluntarily disclosed one other
additional fee type (card replacement, both for regular and expedited
delivery) for a particular prepaid account program on April 1, 2019.
Starting on
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April 1, 2021, the financial institution assessed the fee revenue data
it collected over the previous 24 months, and bill payment continued to
qualify as an additional fee type pursuant to Sec. 1005.18(b)(2)(ix)
and card replacement now qualified as the second additional fee type.
Because the financial institution already had disclosed its card
replacement fees in the format required for an additional fee type
disclosure, the financial institution is not required to take any action
with regard to the additional fee types disclosure in the short form for
that prepaid account program.
2. Reassessment more frequently than every 24 months. Pursuant to
Sec. 1005.18(b)(2)(ix)(E)(2), a financial institution may, but is not
required to, carry out the reassessment and update, if applicable, more
frequently than every 24 months, at which time a new 24-month period
commences. A financial institution may choose to do this, for example,
to sync its reassessment process for additional fee types with its
financial reporting schedule or other financial analysis it performs
regarding the particular prepaid account program. If a financial
institution chooses to reassess its additional fee types disclosure more
frequently than every 24 months, it is still required to use 24 months
of fee revenue data to conduct the reassessment. For example, a
financial institution first offered a particular prepaid account program
on April 1, 2018 and thus was required to estimate its initial
additional fee types disclosure pursuant to Sec.
1005.18(b)(2)(ix)(D)(2). If the financial institution chooses to begin
its reassessment of its fee revenue data on April 1, 2020, it would use
the data it collected over the previous 24 months (April 1, 2018 to
March 31, 2020) and complete its reassessment and its update, if
applicable, by July 1, 2020.
18(b)(2)(ix)(E)(3) Fee Schedule Change
1. Revised prepaid account programs. Section 1005.18(b)(2)(ix)(E)(3)
requires that if a financial institution revises the fee schedule for a
prepaid account program, it must determine whether it reasonably
anticipates that the previously disclosed additional fee types will
continue to comply with the requirements of Sec. 1005.18(b)(2)(ix) for
the 24 months following implementation of the fee schedule change. A fee
schedule change resets the 24-month period for assessment; a financial
institution must comply with the requirements of Sec.
1005.18(b)(2)(ix)(E)(2) at the end of the 24-month period following
implementation of the fee schedule change. If the financial institution
reasonably anticipates that the previously disclosed additional fee
types will not comply with the requirements of Sec. 1005.18(b)(2)(ix),
it must update the disclosure based on its reasonable anticipation of
what those additional fee types will be at the time the fee schedule
change goes into effect, except as provided in the update printing
exception in Sec. 1005.18(b)(2)(ix)(E)(4). For example, if a financial
institution lowers its card replacement fee from $4 to $3 on June 1,
2019 after having first assessed its additional fee types disclosure as
of April 1, 2019, the financial institution would assess whether it
reasonably anticipates that the existing additional fee types disclosure
will continue to reflect the additional fee types that generate the
highest revenue from consumers for that prepaid account program for the
next 24 months (until June 1, 2021). If the financial institution
reasonably anticipates that its additional fee types will remain
unchanged over the next 24 months, the financial institution is not
required to take any action with regard to the additional fee types
disclosure for that prepaid account program. In the same example, if the
financial institution reasonably anticipates that the previously
disclosed additional fee types will not comply with the requirements of
Sec. 1005.18(b)(2)(ix) for the 24 months following implementation of
the fee schedule change, the financial institution must update the
listing of additional fee types at the time the fee schedule change goes
into effect, except as provided in the update printing exception
pursuant to Sec. 1005.18(b)(2)(ix)(E)(4).
18(b)(2)(ix)(E)(4) Update Printing Exception
1. Application of the update printing exception to prepaid accounts
sold in retail locations. Pursuant to Sec. 1005.18(b)(2)(ix)(E)(4),
notwithstanding the requirements to update the additional fee types
disclosure in Sec. 1005.18(b)(2)(ix)(E), a financial institution is not
required to update the listing of additional fee types that are provided
on, in, or with prepaid account packaging materials that were
manufactured, printed, or otherwise produced prior to a periodic
reassessment and update pursuant to Sec. 1005.18(b)(2)(ix)(E)(2) or
prior to a fee schedule change pursuant to Sec.
1005.18(b)(2)(ix)(E)(3). For prepaid accounts sold in retail locations,
for example, Sec. 1005.18(b)(2)(ix)(E)(4) permits a financial
institution to implement any necessary updates to the listing of the
additional fee types on the short form disclosure that appear on its
physical prepaid account packaging materials at the time the financial
institution prints new materials. Section 1005.18(b)(2)(ix)(E)(4) does
not require financial institutions to destroy existing inventory in
retail locations or elsewhere in the distribution channel, to the extent
the disclosures on such packaging materials are otherwise accurate, to
comply with this requirement. For example, a financial institution
determines that an additional fee type listed on a short form disclosure
in a retail location no longer qualifies as an additional
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fee type pursuant to Sec. 1005.18(b)(2)(ix). The financial institution
must update any electronic and oral short form disclosures pursuant to
the timing requirements set forth in Sec. 1005.18(b)(2)(ix)(E).
Pursuant to Sec. 1005.18(b)(2)(ix)(E)(4), the financial institution may
continue selling any previously printed prepaid account packages that
contain the prior listing of additional fee types; prepaid account
packages printed after that time must contain the updated listing of
additional fee types.
18(b)(2)(x) Statement Regarding Overdraft Credit Features
1. Short form disclosure when overdraft credit feature may be
offered. Section 1005.18(b)(2)(x) requires disclosure of a statement if
a covered separate credit feature accessible by a hybrid prepaid-credit
card as defined in Regulation Z, 12 CFR 1026.61, may be offered at any
point to a consumer in connection with the prepaid account. This
statement must be provided on the short form disclosures for all prepaid
accounts that may offer such a feature, regardless of whether some
consumers may never be solicited or qualify to enroll in such a feature.
18(b)(2)(xi) Statement Regarding Registration and FDIC or NCUA Insurance
1. Disclosure of FDIC or NCUA insurance. Section 1005.18(b)(2)(xi)
requires a statement regarding the prepaid account program's eligibility
for FDIC deposit insurance or NCUA share insurance, as appropriate, and
directing the consumer to register the prepaid account for insurance and
other account protections, where applicable. If the consumer's prepaid
account funds are held at a credit union, the disclosure must indicate
NCUA insurance eligibility. If the consumer's prepaid account funds are
held at a financial institution other than a credit union, the
disclosure must indicate FDIC insurance eligibility.
2. Consumer identification and verification processes. For
additional guidance on the timing of consumer identification and
verification processes, and on prepaid account programs for which there
is no consumer identification and verification process for any prepaid
accounts within the prepaid account program, see Sec. 1005.18(e)(3) and
comments 18(e)-4 through 6.
18(b)(2)(xiii) Statement Regarding Information on All Fees and Services
1. Financial institution's telephone number. For a financial
institution offering prepaid accounts at a retail location pursuant to
the retail location exception in Sec. 1005.18(b)(1)(ii), the statement
required by Sec. 1005.18(b)(2)(xiii) must also include a telephone
number (and the website URL) that a consumer may use to directly access
an oral version of the long form disclosure. To provide the long form
disclosure by telephone, a financial institution could use a live
customer service agent or an interactive voice response system. The
financial institution could use a telephone number specifically
dedicated to providing the long form disclosure or a more general
customer service telephone number for the prepaid account program. For
example, a financial institution would be deemed to provide direct
access pursuant to Sec. 1005.18(b)(2)(xiii) if a consumer navigates one
or two prompts to reach the oral long form disclosure via a live
customer service agent or an interactive voice response system using
either a specifically dedicated telephone number of a more general
customer service telephone number.
2. Financial institution's website. For a financial institution
offering prepaid accounts at a retail location pursuant to the retail
location exception in Sec. 1005.18(b)(1)(ii), the statement required by
Sec. 1005.18(b)(2)(xiii) must also include a website URL (and a
telephone number) that a consumer may use to directly access an
electronic version of the long form disclosure. For example, a financial
institution that requires a consumer to navigate various other web pages
before viewing the long form disclosure would not be deemed to provide
direct access pursuant to Sec. 1005.18(b)(2)(xiii). Trademark and
product names and their commonly accepted or readily understandable
abbreviations comply with the requirement in Sec. 1005.18(b)(2)(xiii)
that the URL be meaningfully named. For example, ABC or ABCard would be
readily understandable abbreviations for a prepaid account program named
the Alpha Beta Card.
18(b)(2)(xiv) Additional Content for Payroll Card Accounts
18(b)(2)(xiv)(A) Statement Regarding Wage or Salary Payment Options
1. Statement options for payroll card accounts. Section
1005.18(b)(2)(xiv)(A) requires a financial institution to include at the
top of the short form disclosure for payroll card accounts, above the
information required by Sec. 1005.18(b)(2)(i) through (iv), one of two
statements regarding wage payment options. Financial institutions
offering payroll card accounts may choose which of the two statements
required by Sec. 1005.18(b)(2)(xiv)(A) to use in the short form
disclosure. The list of other options required in the second statement
might include the following, as applicable: Direct deposit to the
consumer's bank account, direct deposit to the consumer's own prepaid
account, paper check, or cash. A financial institution may, but is not
required to, provide more specificity as to whom consumers must ask or
inform of their choice of wage payment method, such as specifying
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the employer's Human Resources Department.
2. Statement options for government benefit accounts. See Sec.
1005.15(c)(2)(i) for statement options for government benefit accounts.
3. Statement permitted for other prepaid accounts. A financial
institution offering a prepaid account other than a payroll card account
or government benefit account may, but is not required to, include a
statement in the short form disclosure regarding payment options that is
similar to either of the statements required for payroll card accounts
pursuant to Sec. 1005.18(b)(2)(xiv)(A) or government benefit accounts
pursuant to Sec. 1005.15(c)(2)(i). For example, a financial institution
issuing a prepaid account to disburse student financial aid proceeds may
disclose a statement such as the following: ``You have several options
to receive your financial aid payments: Direct deposit to your bank
account, direct deposit to your own prepaid card, paper check, or this
prepaid card. Tell your school which option you choose.''
18(b)(2)(xiv)(B) Statement Regarding State-Required Information or Other
Fee Discounts and Waivers
1. Statement options for state-required information or other fee
discounts or waivers. Section 1005.18(b)(2)(xiv)(B) permits, but does
not require, a financial institution to include in the short form
disclosure for payroll card accounts one additional line of text
directing the consumer to a particular location outside the short form
disclosure for information on ways the consumer may access payroll card
account funds and balance information for free or for a reduced fee. For
example, a financial institution might include the following line of
text in the short form disclosure: ``See below for free ways to access
your funds and balance information'' and then list below, but on the
same page as, the short form disclosure several ways consumers can
access their prepaid account funds and balance information for free.
Alternatively, the financial institution might direct the consumer to
another location for that information, such as by stating ``See the
cardholder agreement for free ways to access your funds and balance
information.'' A similar statement is permitted for government benefit
accounts pursuant to Sec. 1005.15(c)(2)(ii).
18(b)(3) Short Form Disclosure of Variable Fees and Third-Party Fees and
Prohibition on Disclosure of Finance Charges
18(b)(3)(i) General Disclosure of Variable Fees
1. Short form disclosure of variable fees. Section 1005.18(b)(3)(i)
requires disclosure in the short form of the highest fee when a fee can
vary, followed by a symbol, such as an asterisk, linked to a statement
explaining that the fee could be lower depending on how and where the
prepaid account is used. For example, a financial institution provides
interactive voice response (IVR) customer service for free and provides
the first three live agent customer service calls per month for free,
after which it charges $0.50 for each additional live agent customer
service call during that month. Pursuant to Sec. 1005.18(b)(2)(vi), the
financial institution must disclose both its IVR and live agent customer
service fees on the short form disclosure. The financial institution
would disclose the IVR fee as $0 and the live agent customer service fee
as $0.50, followed by an asterisk (or other symbol) linked to a
statement explaining that the fee can be lower depending on how and
where the prepaid account is used. Except as described in Sec.
1005.18(b)(3)(ii), Sec. 1005.18(b)(3)(i) does not permit a financial
institution to describe in the short form disclosure the specific
conditions under which a fee may be reduced or waived, but the financial
institution could use, for example, any other part of the prepaid
account's packaging or other printed materials to disclose that
information. The conditions under which a fee may be lower are required
to be disclosed in the long form disclosure pursuant to Sec.
1005.18(b)(4)(ii).
18(b)(3)(ii) Disclosure of Variable Periodic Fee
1. Periodic fee variation alternative. If the amount of the periodic
fee disclosed in the short form pursuant to Sec. 1005.18(b)(2)(i) could
vary, a financial institution has two alternatives for disclosing the
variation, as set forth in Sec. 1005.18(b)(3)(i) and (ii). For example,
a financial institution charges a monthly fee of $4.95, but waives this
fee if a consumer receives direct deposit into the prepaid account or
conducts 30 or more transactions during that month. Pursuant to Sec.
1005.18(b)(3)(ii), the financial institution could list its monthly fee
of $4.95 on the short form disclosure followed by a dagger symbol that
links to a statement that states, for example, ``No monthly fee with
direct deposit or 30 transactions per month.'' This statement may take
up no more than one line of text in the short form disclosure and must
be located directly above or in place of the linked statement required
by Sec. 1005.18(b)(3)(i). Alternatively, pursuant to Sec.
1005.18(b)(3)(i), the financial institution could list its monthly fee
of $4.95 on the short form disclosure followed by an asterisk that links
to a statement that states, ``This fee can be lower depending on how and
where this card is used.''
18(b)(3)(iii) Single Disclosure for Like Fees
1. Alternative for two-tier fees in the short form disclosure.
Pursuant to Sec. 1005.18(b)(3)(iii),
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a financial institution may opt to disclose one fee instead of the two
fees required by Sec. 1005.18(b)(2)(iii), (v), and (vi) and any two-
tier fee required by Sec. 1005.18(b)(2)(ix), when the amount is the
same for both fees. The following examples illustrate how to provide a
single disclosure for like fees on both the short form disclosure and
the multiple service plan short form disclosure:
i. A financial institution charges $1 for both in-network and out-
of-network automated teller machine withdrawals in the United States.
The financial institution may list the $1 fee once under the general
heading ``ATM withdrawal'' required by Sec. 1005.18(b)(2)(iii); in that
case, it need not disclose the terms ``in-network'' or ``out-of-
network.''
ii. A financial institution using the multiple service plan short
form disclosure pursuant to Sec. 1005.18(b)(6)(iii)(B)(2) charges $1
under each of its service plans for both in-network and out-of-network
automated teller machine withdrawals in the United States. The financial
institution may disclose the ATM withdrawal fee on one line, instead of
two, using the general heading ``ATM withdrawal'' required by Sec.
1005.18(b)(2)(iii); in that case, it need not disclose the terms ``in-
network'' or ``out-of-network.''
18(b)(3)(iv) Third-Party Fees in General
1. General prohibition on disclosure of third-party fees in the
short form. Section 1005.18(b)(3)(iv) states that a financial
institution may not include any third-party fees in a disclosure made
pursuant to Sec. 1005.18(b)(2), except for, as provided by Sec.
1005.18(b)(3)(v), the cash reload fee required to be disclosed by Sec.
1005.18(b)(2)(iv). Fees imposed by another party, such as a program
manager, for services performed on behalf of the financial institution
are not third-party fees and therefore must be disclosed pursuant to
Sec. 1005.18(b)(3)(iv). For example, if a program manager performs
customer service functions for a financial institution's prepaid account
program, and charges a fee for live agent customer service, that fee
must be disclosed pursuant to Sec. 1005.18(b)(2)(iv).
18(b)(3)(v) Third-Party Cash Reload Fees
1. Updating third-party fees. Section 1005.18(b)(3)(v) provides that
a financial institution is not required to revise its short form
disclosure to reflect a cash reload fee change by a third party until
such time that the financial institution manufactures, prints, or
otherwise produces new prepaid account packaging materials or otherwise
updates the short form disclosure. For example, at the time a financial
institution first prints packaging material for its prepaid account
program, it discloses on the short form the $3.99 fee charged by the
third-party reload network with which it contracts to provide cash
reloads. Ten months later, the third-party reload network raises its
cash reload fee to $4.25. The financial institution is not required to
update its on-package disclosures to reflect the change in the cash
reload fee until the financial institution next prints packaging
materials for that prepaid account program. With respect to that
financial institution's electronic and oral disclosures for that prepaid
account program, the financial institution may, but is not required to,
update its short form disclosure immediately upon learning of the third-
party reload network's change to its cash reload fee. Alternatively, the
financial institution may wait to update its electronic and oral short
form disclosures to reflect the change in the cash reload fee until it
otherwise updates those disclosures.
18(b)(3)(vi) Prohibition on Disclosure of Finance Charges
1. No disclosure of finance charges in the short form. Section
1005.18(b)(3)(vi) provides that a financial institution may not include
in a disclosure made pursuant to Sec. 1005.18(b)(2)(i) through (ix) any
finance charges as described in Regulation Z, 12 CFR 1026.4(b)(11),
imposed in connection with a covered separate credit feature accessible
by a hybrid prepaid-credit card as defined in 12 CFR 1026.61. If a
financial institution imposes a higher fee or charge on the asset
feature of a prepaid account with a covered separate credit feature
accessible by a hybrid prepaid-credit card than the amount of a
comparable fee or charge it imposes on any prepaid account in the same
prepaid account program that does not have such a credit feature, it
must disclose on the short form for purposes of Sec. 1005.18(b)(2)(i)
through (vii) and (ix) the amount of the comparable fee rather than the
higher fee. See, e.g., Sec. 1005.18(g)(2) and related commentary.
18(b)(4) Long Form Disclosure Content
18(b)(4)(ii) Fees
1. Disclosure of all fees. Section 1005.18(b)(4)(ii) requires a
financial institution to disclose in the long form all fees that may be
imposed in connection with a prepaid account, not just fees for
electronic fund transfers or the right to make transfers. The
requirement to disclose all fees in the long form includes any finance
charges imposed on the prepaid account as described in Regulation Z, 12
CFR 1026.4(b)(11)(ii), in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in 12 CFR
1026.61 but does not include finance charges imposed on the covered
separate credit feature as described in 12 CFR 1026.4(b)(11)(i). See
comment 18(b)(7)(i)(B)-2 for guidance on disclosure of finance charges
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as part of the Sec. 1005.18(b)(4)(ii) fee disclosure in the long form.
A financial institution may also be required to include finance charges
in the Regulation Z disclosures required pursuant to Sec.
1005.18(b)(4)(vii).
2. Disclosure of conditions. Section 1005.18(b)(4)(ii) requires a
financial institution to disclose the amount of each fee and the
conditions, if any, under which the fee may be imposed, waived, or
reduced. For example, if a financial institution charges a cash reload
fee, the financial institution must list the amount of the cash reload
fee and also specify any circumstances under which a consumer can
qualify for a lower fee. Similarly, if a financial institution discloses
both a periodic fee and an inactivity fee, it must indicate whether the
inactivity fee will be charged in addition to, or instead of, the
periodic fee. A financial institution may, but is not required to, also
include on the long form disclosure additional information or
limitations related to the service or feature for which a fee is
charged, such as, for cash reloads, any limit on the amount of cash a
consumer may load into the prepaid account in a single transaction or
during a particular time period. The general requirement in Sec.
1005.18(b)(4)(ii) does not apply to individual fee waivers or reductions
granted to a particular consumer or group of consumers on a
discretionary or case-by-case basis.
3. Disclosure of a service or feature without a charge. Pursuant to
Sec. 1005.18(b)(4)(ii), a financial institution may, but is not
required to, list in the long form disclosure any service or feature it
provides or offers at no charge to the consumer. For example, a
financial institution may list ``online bill pay'' in its long form
disclosure and indicate a fee amount of ``$0'' when the financial
institution does not charge consumers a fee for that feature. By
contrast, where a fee is waived or reduced under certain circumstances
or where a service or feature is available for an introductory period
without a fee, the financial institution may not list the fee amount as
``$0''. Rather, the financial institution must list the highest fee,
accompanied by an explanation of the waived or reduced fee amount and
any conditions for the waiver or discount. For example, if a financial
institution waives its monthly fee for any consumer who receives direct
deposit payments into the prepaid account or conducts 30 or more
transactions in a given month, the long form disclosure must list the
regular monthly fee amount along with an explanation that the monthly
fee is waived if the consumer receives direct deposit or conducts 30 or
more transactions each month. Similarly, for an introductory fee, the
financial institution would list the highest fee, and explain the
introductory fee amount, the duration of the introductory period, and
any conditions that apply during the introductory period.
4. Third-party fees. Section 1005.18(b)(4)(ii) requires disclosure
in the long form of any third-party fee amounts known to the financial
institution that may apply. Fees imposed by another party, such as a
program manager, for services performed on behalf of the financial
institution are not third-party fees and therefore must be disclosed on
the long form pursuant to Sec. 1005.18(b)(4)(ii). Also pursuant to
Sec. 1005.18(b)(4)(ii), for any third-party fee disclosed, a financial
institution may, but is not required to, include either or both a
statement that the fee is accurate as of or through a specific date or
that the third-party fee is subject to change. For example, a financial
institution that contracts with a third-party remote deposit capture
service must include in the long form disclosure the amount of the fee
known to the financial institution that is charged by the third party
for remote deposit capture services. The financial institution may, but
is not required to, also state that the third-party remote deposit
capture fee is accurate as of or through a specific date, such as the
date the financial institution prints the long form disclosure. The
financial institution may also state that the fee is subject to change.
Section 1005.18(b)(4)(ii) also provides that, if a third-party fee may
apply but the amount of the fee is not known by the financial
institution, it must include a statement indicating that a third-party
fee may apply without specifying the fee amount. For example, a
financial institution that permits out-of-network ATM withdrawals would
disclose that, for ATM withdrawals that occur outside the financial
institution's network, the ATM operator may charge the consumer a fee
for the withdrawal, but the financial institution is not required to
disclose the out-of-network ATM operator's fee amount if it does not
know the amount of the fee.
18(b)(4)(iii) Statement Regarding Registration and FDIC or NCUA
Insurance
1. Statement regarding registration and FDIC or NCUA insurance,
including implications thereof. Section 1005.18(b)(4)(iii) requires that
the long form disclosure include the same statement regarding prepaid
account registration and FDIC or NCUA insurance eligibility required by
Sec. 1005.18(b)(2)(xi) in the short form disclosure, together with an
explanation of FDIC or NCUA insurance coverage and the benefit of such
coverage or the consequence of the lack of such coverage, as applicable.
i. Bank disclosure of FDIC insurance. For example, XYZ Bank offers a
prepaid account program for sale at retail locations that is set up to
be eligible for FDIC deposit insurance, but does not conduct consumer
identification and verification before consumers purchase the prepaid
account. XYZ Bank may disclose the required statements as
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``Register your card for FDIC insurance eligibility and other
protections. Your funds will be held at or transferred to XYZ Bank, an
FDIC-insured institution. Once there, your funds are insured up to
$250,000 by the FDIC in the event XYZ Bank fails, if specific deposit
insurance requirements are met and your card is registered. See
fdic.gov/deposit/deposits/prepaid.html for details.'' Conversely, if XYZ
Bank offers another prepaid account program for sale at retail locations
for which it conducts consumer identification and verification after
purchase of the prepaid account, but the program is not set up to be
eligible for FDIC insurance, XYZ Bank may disclose the required
statements as ``Not FDIC insured. Your funds will be held at or
transferred to XYZ Bank. If XYZ Bank fails, you are not protected by
FDIC deposit insurance and could lose some or all of your money.
Register your card for other protections.''
ii. Credit union disclosure of NCUA insurance. For example, ABC
Credit Union offers a prepaid account program for sale at its own
branches that is set up to be eligible for NCUA share insurance, but
does not conduct consumer identification and verification before
consumers purchase the prepaid account. ABC Credit Union may disclose
the requirement statements as ``Register your card for NCUA insurance,
if eligible, and other protections. Your funds will be held at or
transferred to ABC Credit Union, an NCUA-insured institution. Once
there, if specific share insurance requirements are met and your card is
registered, your funds are insured up to $250,000 by the NCUA in the
event ABC Credit Union fails.'' See comment 18(b)(2)(xi)-1 for guidance
as to when NCUA insurance coverage should be disclosed instead of FDIC
insurance coverage.
18(b)(4)(vii) Regulation Z Disclosures for Overdraft Credit Features
1. Long form Regulation Z disclosure of overdraft credit features.
Section 1005.18(b)(4)(vii) requires that the long form include the
disclosures described in Regulation Z, 12 CFR 1026.60(e)(1), in
accordance with the requirements for such disclosures in 12 CFR 1026.60,
if, at any point, a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61,
may be offered to a consumer in connection with the prepaid account. If
the financial institution includes the disclosures described in
Regulation Z, 12 CFR 1026.60(e)(1), pursuant to Sec.
1005.18(b)(7)(i)(B), such disclosures must appear below the statements
required by Sec. 1005.18(b)(4)(vi). If the disclosures provided
pursuant to Regulation Z, 12 CFR 1026.60(e)(1), are provided in writing,
these disclosures must be provided in the form required by 12 CFR
1026.60(a)(2), and to the extent possible, on the same page as the other
disclosures required by Sec. 1005.18(b)(4).
2. Updates to the long form for changes to the Regulation Z
disclosures. Pursuant to Sec. 1005.18(b)(4)(vii), a financial
institution is not required to revise the disclosure required by that
paragraph to reflect a change in the fees or other terms disclosed
therein until such time as the financial institution manufactures,
prints, or otherwise produces new prepaid account packaging materials or
otherwise updates the long form disclosure. This exception does not
extend to any finance charges imposed on the prepaid account as
described in Regulation Z, 12 CFR 1026.4(b)(11)(ii), in connection with
a covered separate credit feature accessible by a hybrid prepaid-credit
card as defined in 12 CFR 1026.61 that are required to be disclosed on
the long form pursuant to Sec. 1005.18(b)(4)(ii). See comment
18(b)(4)(ii)-1.
18(b)(5) Disclosure Requirements Outside the Short Form Disclosure
1. Content of disclosure. Section 1005.18(b)(5) requires that the
name of the financial institution, the name of the prepaid account
program, and any purchase price or activation fee for the prepaid
account be disclosed outside the short form disclosure. A financial
institution may, but is not required to, also disclose the name of the
program manager or other service provider involved in the prepaid
account program.
2. Location of disclosure. In addition to setting forth the required
content for disclosures outside the short form disclosure, Sec.
1005.18(b)(5) requires that, in a setting other than a retail location,
the information required by Sec. 1005.18(b)(5) must be disclosed in
close proximity to the short form. For example, if the financial
institution provides the short form disclosure online, the information
required by Sec. 1005.18(b)(5) is deemed disclosed in close proximity
to the short form if it appears on the same web page as the short form
disclosure. If the financial institution offers the prepaid account in
its own branch locations and provides the short form disclosure on the
exterior of its preprinted packaging materials, the information required
by Sec. 1005.18(b)(5) is deemed disclosed in close proximity to the
short form disclosure if it appears on the exterior of the packaging. If
the financial institution provides a written short form disclosure in a
manner other than on preprinted packaging materials, such as on paper,
the information required by Sec. 1005.18(b)(5) is deemed disclosed in
close proximity if it appears on the same piece of paper as the short
form disclosure. If the financial institution provides the short form
disclosure orally, the information required by Sec. 1005.18(b)(5) is
deemed disclosed in close proximity to the short form disclosure if it
is
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provided immediately before or after disclosing the fees and information
required pursuant to Sec. 1005.18(b)(2). For prepaid accounts sold in a
retail location pursuant to the retail location exception in Sec.
1005.18(b)(1)(ii), Sec. 1005.18(b)(5) requires the information other
than purchase price be disclosed on the exterior of the access device's
packaging material. If the purchase price, if any, is not also disclosed
on the exterior of the packaging, disclosure of the purchase price on or
near the sales rack or display for the packaging material is deemed in
close proximity to the access device's packaging material.
18(b)(6) Form of Pre-Acquisition Disclosures
18(b)(6)(i) General
1. Written pre-acquisition disclosures. If a financial institution
provides the disclosures required by Sec. 1005.18(b) in written form
prior to acquisition pursuant to Sec. 1005.18(b)(1)(i), they need not
also be provided electronically or orally. For example, an employer
distributes to new employees printed copies of the disclosures required
by Sec. 1005.18(b) for a payroll card account, together with
instructions to complete the payroll card account acquisition process
online if the employee wishes to be paid via a payroll card account. The
financial institution is not required to provide the Sec. 1005.18(b)
disclosures electronically via the website because the consumer has
already received the disclosures pre-acquisition in written form.
18(b)(6)(i)(B) Electronic Disclosures
1. Providing pre-acquisition disclosures electronically. Unless
provided in written form prior to acquisition pursuant to Sec.
1005.18(b)(1)(i), Sec. 1005.18(b)(6)(i)(B) requires electronic delivery
of the disclosures required by Sec. 1005.18(b) when a consumer acquires
a prepaid account through electronic means, including via a website or
mobile application, and, among other things, in a manner which is
reasonably expected to be accessible in light of how a consumer is
acquiring the prepaid account. For example, if a consumer is acquiring a
prepaid account via a website or mobile application, it would be
reasonable to expect that a consumer would be able to access the
disclosures required by Sec. 1005.18(b) on the first page or via a
direct link from the first page of the website or mobile application or
on the first page that discloses the details about the specific prepaid
account program. See comment 18(b)(1)(i)-2 for additional guidance on
placement of the short form and long form disclosures on a web page.
2. Disclosures responsive to smaller screens. In accordance with the
requirement in Sec. 1005.18(b)(6)(i)(B) that electronic disclosures be
provided in a responsive form, electronic disclosures provided pursuant
to Sec. 1005.18(b) must be provided in a way that responds to different
screen sizes, for example, by stacking elements of the disclosures in a
manner that accommodates consumer viewing on smaller screens, while
still meeting the other formatting requirements set forth in Sec.
1005.18(b)(7). For example, the disclosures permitted by Sec.
1005.18(b)(2)(xiv)(B) or (b)(3)(ii) must take up no more than one
additional line of text in the short form disclosure. If a consumer is
acquiring a prepaid account using a mobile device with a screen too
small to accommodate these disclosures on one line of text in accordance
with the size requirements set forth in Sec. 1005.18(b)(7)(ii)(B), a
financial institution is permitted to display the disclosures permitted
by Sec. 1005.18(b)(2)(xiv)(B) and (b)(3)(ii), for example, by stacking
those disclosures in a way that responds to smaller screen sizes, while
still meeting the other formatting requirements in Sec. 1005.18(b)(7).
3. Machine-readable text. Section 1005.18(b)(6)(i)(B) requires that
electronic disclosures must be provided using machine-readable text that
is accessible via both Web browsers (or mobile applications, as
applicable) and screen readers. A disclosure would not be deemed to
comply with this requirement if it was not provided in a form that can
be read automatically by internet search engines or other computer
systems.
18(b)(6)(i)(C) Oral Disclosures
1. Disclosures for prepaid accounts acquired by telephone. Unless it
provides disclosures in written form prior to acquisition pursuant to
Sec. 1005.18(b)(1)(i), a financial institution must disclose the
information required by Sec. 1005.18(b)(2) and (5) orally before a
consumer acquires a prepaid account orally by telephone pursuant to the
exception in Sec. 1005.18(b)(1)(iii). A financial institution may, for
example, provide these disclosures by using an interactive voice
response or similar system or by using a customer service agent, after
the consumer has initiated the purchase of a prepaid account by
telephone, but before the consumer acquires the prepaid account. In
addition, a financial institution must provide the initial disclosures
required by Sec. 1005.7, as modified by Sec. 1005.18(f)(1), before the
first electronic fund transfer is made involving the prepaid account.
18(b)(6)(ii) Retainable Form
1. Retainable disclosures. Section 1005.18(b)(6)(ii) requires that,
except for disclosures provided orally pursuant to Sec.
1005.18(b)(1)(ii) or (iii), long form disclosures provided via SMS as
permitted by Sec. 1005.18(b)(2)(xiii) for a prepaid account sold
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at retail locations pursuant to the retail location exception in Sec.
1005.18(b)(1)(ii), and the disclosure of a purchase price pursuant to
Sec. 1005.18(b)(5) that is not disclosed on the exterior of the
packaging material for a prepaid account sold at a retail location
pursuant to the retail location exception in Sec. 1005.18(b)(1)(ii),
disclosures provided pursuant to Sec. 1005.18(b) must be made in a form
that a consumer may keep. For example, a short form disclosure with a
tear strip running though it would not be deemed retainable because use
of the tear strip to gain access to the prepaid account access device
inside the packaging would destroy part of the short form disclosure.
Electronic disclosures are deemed retainable if the consumer is able to
print, save, and email the disclosures from the Web site or mobile
application on which they are displayed.
18(b)(6)(iii) Tabular Format
18(b)(6)(iii)(B) Multiple Service Plans
18(b)(6)(iii)(B)(1) Short Form Disclosure for Default Service Plan
1. Disclosure of default service plan excludes short-term or
promotional service plans. Section 1005.18(b)(6)(iii)(B)(1) provides
that when a financial institution offers multiple service plans within a
particular prepaid account program and each plan has a different fee
schedule, the information required by final Sec. 1005.18(b)(2)(i)
through (ix) may be provided in the tabular format described in final
Sec. 1005.18(b)(6)(iii)(A) for the service plan in which a consumer is
initially enrolled by default upon acquiring a prepaid account. Pursuant
to the requirement in Sec. 1005.18(b)(3)(i) to disclose the highest
amount a financial institution may impose for a fee disclosed pursuant
to Sec. 1005.18(b)(2)(i) through (vii) and (ix), a financial
institution would not be permitted to disclose any short-term or
promotional service plans as a default service plan.
18(b)(6)(iii)(B)(2) Short Form Disclosure for Multiple Service Plans
1. Disclosure of multiple service plans. The multiple service plan
disclosure requirements in Sec. 1005.18(b)(6)(iii)(B)(2) apply when a
financial institution offers more than one service plan within a
particular prepaid account program, each plan has a different fee
schedule, and the financial institution opts not to disclose the default
service plan pursuant to Sec. 1005.18(b)(6)(iii)(B)(1). See Model Form
A-10(e). For example, a financial institution that offers a prepaid
account program with one service plan for which a consumer pays no
periodic fee but instead pays a fee for each transaction, and another
plan that includes a monthly fee but no per transaction fee may use the
short form disclosure for multiple service plans pursuant to Sec.
1005.18(b)(6)(iii)(B)(2). Similarly, a financial institution that offers
a prepaid account program with preferred rates or fees for the prepaid
accounts of consumers who also use another non-prepaid service (e.g., a
mobile phone service), often referred to as ``loyalty plans,'' may also
use the short form disclosure for multiple service plans pursuant to
Sec. 1005.18(b)(6)(iii)(B)(2). Pricing variations based on whether a
consumer elects to use a specific feature of a prepaid account, such as
waiver of the monthly fee for consumers electing to receive direct
deposit, does not constitute multiple service plans or a loyalty plan.
See comment 18(b)(3)(iii)-1.ii for guidance on providing a single
disclosure for like fees for multiple service plan short form
disclosures.
18(b)(7) Specific Formatting Requirements for Pre-Acquisition
Disclosures
18(b)(7)(i) Grouping
18(b)(7)(i)(B) Long Form Disclosure
1. Conditions must be in close proximity to fee amount. Pursuant to
Sec. 1005.18(b)(4)(ii), the long form disclosure generally must
disclose all fees that may be imposed in connection with a prepaid
account, including the amount of the fee and any conditions under which
the fee may be imposed, waived, or reduced. Pursuant to Sec.
1005.18(b)(7)(i)(B), text describing the conditions under which a fee
may be imposed must appear in the table in the long form disclosure in
close proximity to the fee amount disclosed pursuant to Sec.
1005.18(b)(4)(ii). For example, a financial institution is deemed to
comply with this requirement if the text describing the conditions is
located directly to the right of the fee amount in the long form
disclosure, as illustrated in Sample Form A-10(f). See comment
18(b)(6)(i)(B)-2 regarding stacking of electronic disclosures for
display on smaller screen sizes.
2. Category of function for finance charges. Section
1005.18(b)(7)(i)(B) requires that the information required by Sec.
1005.18(b)(4)(ii) must be generally grouped together and organized under
subheadings by the categories of function for which a financial
institution may impose the fee. If any finance charges may be imposed on
the prepaid account as described in Regulation Z, 12 CFR
1026.4(b)(11)(ii), in connection with a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in 12 CFR 1026.61,
the financial institution may, but is not required to, group all finance
charges together under a single subheading. This includes situations
where the financial institution imposes a higher fee or charge on the
asset feature of a prepaid account with a covered separate credit
feature accessible by a hybrid prepaid-credit card than the
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amount of a comparable fee or charge it imposes on any prepaid account
in the same prepaid account program that does not have such a credit
feature. For example, if a financial institution charges on the prepaid
account a $0.50 per transaction fee for each transaction that accesses
funds in the asset feature of a prepaid account and a $1.25 per
transaction fee for each transaction where the hybrid prepaid-credit
card accesses credit from the covered separate credit feature in the
course of the transaction, the financial institution is permitted to
disclose the $0.50 per transaction fee under a general transactional
subheading and disclose the additional $0.75 per transaction fee under a
separate subheading together with any other finance charges that may be
imposed on the prepaid account.
18(b)(7)(ii) Prominence and Size
1. Minimum type size. Section 1005.18(b)(7)(ii) sets forth minimum
point/pixel size requirements for each element of the disclosures
required by Sec. 1005.18(b)(2), (b)(3)(i) and (ii), and (b)(4). A
financial institution may provide disclosures in a type size larger than
the required minimum to enhance consumer comprehension in any
acquisition scenario, as long as the financial institution complies with
the point/pixel size hierarchy set forth in Sec. 1005.18(b)(7)(ii).
2. ``Point'' refers to printed disclosures and ``pixel'' refers to
electronic disclosures. References in Sec. 1005.18(b)(7)(ii) to
``point'' size correspond to printed disclosures and references to
``pixel'' size correspond to disclosures provided via electronic means.
18(b)(7)(ii)(A) General
1. Contrast required between type color and background of
disclosures. Section Sec. 1005.18(b)(7)(ii)(A) requires that all text
used to disclose information in the short form or in the long form
disclosure pursuant to Sec. 1005.18(b)(2), (b)(3)(i) and (ii), and
(b)(4) must be in a single, easy-to-read type that is all black or one
color and printed on a background that provides a clear contrast. A
financial institution complies with the color requirements if, for
example, it provides the disclosures required by Sec. 1005.18(b)(2),
(b)(3)(i) and (ii), and (b)(4) printed in black type on a white
background or white type on a black background. Also, pursuant to Sec.
1005.18(b)(7)(ii)(A), the type and color may differ between the short
form disclosure and the long form disclosure provided for a particular
prepaid account program. For example, a financial institution may use
one font/type style for the short form disclosure for a particular
prepaid account program and use a different font/type style for the long
form disclosure for that same prepaid account program. Similarly, a
financial institution may use black type for the short form disclosure
for a particular prepaid account program and use blue type for the long
form disclosure for that same prepaid account program.
18(b)(7)(iii) Segregation
1. Permitted information outside the short form and long form
disclosures. Section 1005.18(b)(7)(iii) requires that the short form and
long form disclosures required by Sec. 1005.18(b)(2) and (4) be
segregated from other information and contain only information that is
required or permitted for those disclosures by Sec. 1005.18(b). This
segregation requirement does not prohibit the financial institution from
providing information elsewhere on the same page as the short form
disclosure, such as the information required by Sec. 1005.18(b)(5),
additional disclosures required by state law for payroll card accounts,
or any other information the financial institution wishes to provide
about the prepaid account. Similarly, the segregation requirement does
not prohibit a financial institution from providing the long form
disclosure on the same page as other disclosures or information, or as
part of a larger document, such as the prepaid account agreement. See
also Sec. 1005.18(b)(1) and (f)(1).
18(b)(8) Terminology of Pre-Acquisition Disclosures
1. Consistent terminology. Section 1005.18(b)(8) requires that fee
names and other terms be used consistently within and across the
disclosures required by Sec. 1005.18(b). For example, a financial
institution may not name the fee required to be disclosed by Sec.
1005.18(b)(2)(vii) an ``inactivity fee'' in the short form disclosure
and a ``dormancy fee'' in the long form disclosure. However, a financial
institution may substitute the term prepaid ``account'' for the term
prepaid ``card,'' as appropriate, wherever it is used in Sec.
1005.18(b).
18(b)(9) Prepaid Accounts Acquired in Foreign Languages
1. Prepaid accounts acquired in foreign languages. Section
1005.18(b)(9)(i) requires a financial institution to provide the pre-
acquisition disclosures required by Sec. 1005.18(b) in a foreign
language in certain circumstances.
i. Examples of situations in which foreign language disclosures are
required. The following examples illustrate situations in which a
financial institution must provide the pre-acquisition disclosures in a
foreign language in connection with the acquisition of that prepaid
account:
A. The financial institution principally uses a foreign language on
the packaging material of a prepaid account sold in a retail location or
distributed at a bank or credit union branch, even though a few words
appear in English on the packaging.
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B. The financial institution principally uses a foreign language in
a television advertisement for a prepaid account. That advertisement
includes a telephone number a consumer can call to acquire the prepaid
account, whether by speaking to a customer service representative or
interacting with an interactive voice response (IVR) system.
C. The financial institution principally uses a foreign language in
an online advertisement for a prepaid account. That advertisement
includes a website URL through which a consumer can acquire the prepaid
account.
D. The financial institution principally uses a foreign language on
a printed advertisement for a prepaid account. That advertisement
includes a telephone number or a website URL a consumer can call or
visit to acquire the prepaid account. The pre-acquisition disclosures
must be provided to the consumer in that same foreign language prior to
the consumer acquiring the prepaid account.
E. The financial institution does not principally use a foreign
language on prepaid account packaging material nor does it principally
use a foreign language to advertise, solicit, or market a prepaid
account. A consumer calls the financial institution and has the option
to proceed with the prepaid account acquisition process in a foreign
language, whether by speaking to a customer service representative or
interacting with an IVR system. (But see Sec. 1005.18(b)(9)(i)(C),
which limits the obligation to provide foreign language disclosures for
payroll card accounts and government benefit accounts acquired orally by
telephone in certain circumstances.)
F. The financial institution does not principally use a foreign
language on prepaid account packaging material nor does it principally
use a foreign language to advertise, solicit, or market a prepaid
account. A consumer visits the financial institution's website. On that
website, the consumer has the option to proceed with the prepaid account
acquisition process in a foreign language.
ii. Examples of situations in which foreign language disclosures are
not required. The following examples illustrate situations in which a
financial institution is not required to provide the pre-acquisition
disclosures in a foreign language:
A. A consumer visits the financial institution's branch location in
person and speaks to an employee in a foreign language about acquiring a
prepaid account. The consumer proceeds with the acquisition process in
that foreign language.
B. The financial institution does not principally use a foreign
language on prepaid account packaging material nor does it principally
use a foreign language to advertise, solicit, or market a prepaid
account. A consumer calls the financial institution's customer service
line and speaks to a customer service representative in a foreign
language. However, if the customer service representative proceeds with
the prepaid account acquisition process over the telephone, the
financial institution would be required to provide the pre-acquisition
disclosures in that foreign language. (But see Sec.
1005.18(b)(9)(i)(C), which limits the obligation to provide foreign
language disclosures for payroll card accounts and government benefit
accounts acquired orally by telephone in certain circumstances.)
C. The financial institution principally uses a foreign language in
an advertisement for a prepaid account. That advertisement includes a
telephone number a consumer can call to acquire the prepaid account. The
consumer calls the telephone number provided on the advertisement and
has the option to proceed with the prepaid account acquisition process
in English or in a foreign language. The consumer chooses to proceed
with the acquisition process in English.
D. A consumer calls a government agency to enroll in a government
benefits program. The government agency does not offer through its
telephone system an option for consumers to proceed in a foreign
language. An employee of the government agency assists the consumer with
the enrollment process, including helping the consumer acquire a
government benefits account. The employee also happens to speak the
foreign language in which the consumer is most comfortable
communicating, and chooses to communicate with the consumer in that
language to facilitate the enrollment process. In this case, the
employee offered language interpretation assistance on an informal or ad
hoc basis to accommodate the prospective government benefits account
holder.
2. Principally used. All relevant facts and circumstances determine
whether a foreign language is principally used by the financial
institution to advertise, solicit, or market under Sec. 1005.18(b)(9).
Whether a foreign language is principally used is determined at the
packaging material, advertisement, solicitation, or marketing
communication level, not at the prepaid account program level or across
the financial institution's activities as a whole. A financial
institution that advertises a prepaid account program in multiple
languages would evaluate its use of foreign language in each
advertisement to determine whether it has principally used a foreign
language therein.
3. Advertise, solicit, or market a prepaid account. Any commercial
message, appearing in any medium, that promotes directly or indirectly
the availability of prepaid accounts constitutes advertising,
soliciting, or marketing for purposes of Sec. 1005.18(b)(9). Examples
illustrating advertising, soliciting, or marketing include, but are not
limited to:
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i. Messages in a leaflet, promotional flyer, newspaper, or magazine.
ii. Electronic messages, such as on a website or mobile application.
iii. Telephone solicitations.
iv. Solicitations sent to the consumer by mail or email.
v. Television or radio commercials.
4. Information in the long form disclosure in English. Section
1005.18(b)(9)(ii) states that a financial institution required to
provide pre-acquisition disclosures in a foreign language pursuant to
Sec. 1005.18(b)(9)(i) must also provide the information required to be
disclosed in its pre-acquisition long form disclosure pursuant to Sec.
1005.18(b)(4) in English upon a consumer's request and on any part of
the website where it discloses this information in a foreign language. A
financial institution may, but is not required to, provide the English
version of the information required by Sec. 1005.18(b)(4) in accordance
with the formatting, grouping, size and other requirements set forth in
Sec. 1005.18(b) for the long form disclosure.
18(c) Access to Prepaid Account Information
1. Posted transactions. The electronic and written history of the
consumer's account transactions provided under Sec. 1005.18(c)(1)(ii)
and (iii), respectively, shall reflect transfers once they have been
posted to the account. Thus, a financial institution does not need to
include transactions that have been authorized but that have not yet
posted to the account.
2. Electronic history. The electronic history required under Sec.
1005.18(c)(1)(ii) must be made available in a form that the consumer may
keep, as required under Sec. 1005.4(a)(1). Financial institutions may
satisfy this requirement if they make the electronic history available
in a format that is capable of being retained. For example, a financial
institution satisfies the requirement if it provides electronic history
on a website in a format that is capable of being printed or stored
electronically using a web browser.
3. Written history. Requests that exceed the requirements of Sec.
1005.18(c)(1)(iii) for providing written account transaction history,
and which therefore a financial institution may charge a fee, include
the following:
i. A financial institution may assess a fee or charge to a consumer
for responding to subsequent requests for written account transaction
history made in a single calendar month. For example, if a consumer
requests written account transaction history on June 1 and makes another
request on August 5, the financial institution may not assess a fee or
charge to the consumer for responding to either request. However, if the
consumer requests written account transaction history on June 1 and then
makes another request on June 15, the financial institution may assess a
fee or charge to the consumer for responding to the request made on June
15, as this is the second response in the same month.
ii. If a financial institution maintains more than 24 months of
written account transaction history, it may assess a fee or charge to
the consumer for providing a written history for transactions occurring
more than 24 months preceding the date the financial institution
receives the consumer's request, provided the consumer specifically
requests the written account transaction history for that time period.
iii. If a financial institution offers a consumer the ability to
request automatic mailings of written account transaction history on a
monthly or other periodic basis, it may assess a fee or charge for such
automatic mailings but not for the written account transaction history
requested pursuant to Sec. 1005.18(c)(1)(iii). See comment 18(c)-6.
4. 12 months of electronic account transaction history. Section
1005.18(c)(1)(ii) requires a financial institution to make available at
least 12 months of account transaction history electronically. If a
prepaid account has been opened for fewer than 12 months, the financial
institution need only provide electronic account transaction history
pursuant to Sec. 1005.18(c)(1)(ii) since the time of account opening.
If a prepaid account is closed or becomes inactive, as defined by the
financial institution, the financial institution need not make available
electronic account transaction history. See comment 9(b)-3. If an
inactive account becomes active, the financial institution must again
make available 12 months of electronic account transaction history.
5. 24 months of written account transaction history. Section
1005.18(c)(1)(iii) requires a financial institution to provide at least
24 months of account transaction history in writing upon the consumer's
request. A financial institution may provide fewer than 24 months of
written account transaction history if the consumer requests a shorter
period of time. If a prepaid account has been opened for fewer than 24
months, the financial institution need only provide written account
transaction history pursuant to Sec. 1005.18(c)(1)(iii) since the time
of account opening. Even if a prepaid account is closed or becomes
inactive, the financial institution must continue to provide upon
request at least 24 months of written account transaction history
preceding the date the request is received. When a prepaid account has
been closed or inactive for 24 months or longer, the financial
institution is no longer required to provide any written account
transaction history pursuant to Sec. 1005.18(c)(1)(iii).
6. Periodic statement alternative for unverified prepaid accounts.
For prepaid accounts that are not payroll card accounts or government
benefit accounts, a financial institution is not required to provide a
written
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history of the consumer's account transactions for any prepaid account
for which the financial institution has not completed its consumer
identification and verification process as described in Sec.
1005.18(e)(3)(ii)(A) through (C). If a prepaid account is verified, a
financial institution must provide written account transaction history
upon the consumer's request that includes the period during which the
account was not verified, provided that the period is within the 24-
month time frame specified in Sec. 1005.18(c)(1)(iii).
7. Inclusion of all fees charged. A financial institution that
furnishes a periodic statement pursuant to Sec. 1005.9(b) for a prepaid
account must disclose the amount of any fees assessed against the
account, whether for electronic fund transfers or otherwise, on the
periodic statement as well as on any electronic or written account
transaction history the financial institution makes available or
provides to the consumer. For example, if a financial institution sends
periodic statements and also makes available the consumer's electronic
account transaction history on its website, the financial institution
must disclose the amount of any fees assessed against the account,
whether for electronic fund transfers or otherwise, on the periodic
statement and on the consumer's electronic account transaction history
made available on its website. Likewise, a financial institution that
follows the periodic statement alternative in Sec. 1005.18(c)(1) must
disclose the amount of any fees assessed against the account, whether
for electronic fund transfers or otherwise, on the electronic history of
the consumer's account transactions made available pursuant to Sec.
1005.18(c)(1)(ii) and any written history of the consumer's account
transactions provided pursuant to Sec. 1005.18(c)(1)(iii).
8. Summary totals of fees. Section 1005.18(c)(5) requires a
financial institution to disclose a summary total of the amount of all
fees assessed by the financial institution against a prepaid account for
the prior calendar month and for the calendar year to date.
i. Generally. A financial institution that furnishes a periodic
statement pursuant to Sec. 1005.9(b) for a prepaid account must display
the monthly and annual fee totals on the periodic statement as well as
on any electronic or written account transaction history the financial
institution makes available or provides to the consumer. For example, if
a financial institution sends periodic statements and also makes
available the consumer's electronic account transaction history on its
website, the financial institution must display the monthly and annual
fee totals on the periodic statement and on the consumer's electronic
account transaction history made available on its website. Likewise, a
financial institution that follows the periodic statement alternative in
Sec. 1005.18(c)(1) must display the monthly and annual fee totals on
the electronic history of the consumer's account transactions made
available pursuant to Sec. 1005.18(c)(1)(ii) and any written history of
the consumer's account transactions provided pursuant to Sec.
1005.18(c)(1)(iii). If a financial institution provides periodic
statements pursuant to Sec. 1005.9(b), fee totals may be disclosed for
each statement period rather than each calendar month, if different. The
summary totals of fees should be net of any fee reversals.
ii. Third-party fees. A financial institution may, but is not
required to, include third-party fees in its summary totals of fees
provided pursuant to Sec. 1005.18(c)(5). For example, a financial
institution must include in the summary totals of fees the fee it
charges a consumer for using an out-of-network ATM, but it need not
include any fee charged by an ATM operator, with whom the financial
institution has no relationship, for the consumer's use of that
operator's ATM. Similarly, a financial institution need not include in
the summary totals of fees the fee charged by a third-party reload
network for the service of adding cash to a prepaid account at a point-
of-sale terminal. A financial institution may, but is not required to,
inform consumers of third-party fees such as by providing a disclaimer
to indicate that the summary totals do not include certain third-party
fees or to explain when third-party fees may occur or through some other
method.
9. Display of summary totals of fees. A financial institution may,
but is not required to, also include sub-totals of the types of fees
that make up the summary totals of fees as required by Sec.
1005.18(c)(5). For example, if a financial institution distinguishes
optional fees (e.g., custom card design fees) from fees to use the
account, in displaying the summary totals of fees, the financial
institution may include sub-totals of those fees, provided the financial
institution also presents the combined totals of all fees.
18(e) Modified Limitations on Liability and Error Resolution
Requirements
1. Error resolution safe harbor provision. Institutions that choose
to investigate notices of error provided up to 120 days from the date a
transaction has posted to a consumer's account may still disclose the
error resolution time period required by the regulation (as set forth in
the model clause in paragraph (b) of appendix A-7 of this part).
Specifically, an institution may disclose to prepaid account holders
that the institution will investigate any notice of error provided
within 60 days of the consumer electronically accessing an account or
receiving a written history upon request that reflects
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the error, even if, for some or all transactions, the institution
investigates any notice of error provided up to 120 days from the date
that the transaction alleged to be in error has posted to the consumer's
account. Similarly, an institution's summary of the consumer's liability
(as required under Sec. 1005.7(b)(1)) may disclose that liability is
based on the consumer providing notice of error within 60 days of the
consumer electronically accessing an account or receiving a written
history reflecting the error, even if, for some or all transactions, the
institution allows a consumer to assert a notice of error up to 120 days
from the date of posting of the alleged error.
2. Electronic access. A consumer is deemed to have accessed a
prepaid account electronically when the consumer enters a user
identification code or password or otherwise complies with a security
procedure used by an institution to verify the consumer's identity and
to provide access to a website or mobile application through which
account information can be viewed. An institution is not required to
determine whether a consumer has in fact accessed information about
specific transactions to trigger the beginning of the 60-day periods for
liability limits and error resolution under Sec. Sec. 1005.6 and
1005.11. A consumer is not deemed to have accessed a prepaid account
electronically when the consumer receives an automated text message or
other automated account alert, or checks the account balance by
telephone.
3. Untimely notice of error. An institution that provides a
transaction history under Sec. 1005.18(c)(1) is not required to comply
with the requirements of Sec. 1005.11 for any notice of error from the
consumer received more than 60 days after the earlier of the date the
consumer electronically accesses the account transaction history or the
date the financial institution sends a written account transaction
history upon the consumer's request. (Alternatively, as provided in
Sec. 1005.18(e)(2)(ii), an institution need not comply with the
requirements of Sec. 1005.11 with respect to any notice of error
received from the consumer more than 120 days after the date of posting
of the transfer allegedly in error.) Where the consumer's assertion of
error involves an unauthorized EFT, however, the institution must comply
with Sec. 1005.6 (including the extension of time limits in Sec.
1005.6(b)(4)) before it may impose any liability on the consumer.
4. Verification of accounts. Section 1005.18(e)(3)(i) provides that
for prepaid accounts that are not payroll card accounts or government
benefit accounts, a financial institution is not required to comply with
the liability limits and error resolution requirements in Sec. Sec.
1005.6 and 1005.11 for any prepaid account for which it has not
successfully completed its consumer identification and verification
process. Consumer identifying information may include the consumer's
full name, address, date of birth, and Social Security number or other
government-issued identification number. Section 1005.18(e)(3)(iii)
provides that once a financial institution successfully completes its
consumer identification and verification process with respect to a
prepaid account, the financial institution must limit the consumer's
liability for unauthorized transfers and resolve errors that occur
following verification in accordance with Sec. 1005.6 or Sec. 1005.11,
or the modified timing requirements in Sec. 1005.18(e), as applicable.
A financial institution is not required to limit a consumer's liability
for unauthorized transfers or resolve errors that occur prior to the
financial institution's successful completion of its consumer
identification and verification process with respect to a prepaid
account.
5. Financial institution has not successfully completed
verification. Section 1005.18(e)(3)(ii)(A) states that, provided it
discloses to the consumer the risks of not registering and verifying a
prepaid account, a financial institution has not successfully completed
its consumer identification and verification process where it has not
concluded the process with respect to a particular prepaid account. For
example, a financial institution initiates its consumer identification
and verification process by collecting identifying information about a
consumer, and attempts to verify the consumer's identity. The financial
institution is unable to conclude the process because of conflicting
information about the consumer's current address. The financial
institution informs the consumer about the nature of the information at
issue and requests additional documentation, but the consumer does not
provide the requested documentation. As long as the information needed
to complete the verification process remains outstanding, the financial
institution has not concluded its consumer identification and
verification process with respect to that consumer. A financial
institution may not delay completing its consumer identification and
verification process or refuse to verify a consumer's identity based on
the consumer's assertion of an error.
6. Account verification prior to acquisition. A financial
institution that collects and verifies consumer identifying information,
or that obtains such information after it has been collected and
verified by a third party, prior to or as part of the account
acquisition process, is deemed to have successfully completed its
consumer identification and verification process with respect to that
account. For example, a university contracts with a financial
institution to disburse financial aid to students via the financial
institution's prepaid accounts. To facilitate
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the accurate disbursal of aid awards, the university provides the
financial institution with identifying information about the
university's students, whose identities the university had previously
verified. The financial institution is deemed to have successfully
completed its consumer identification and verification process with
respect to those accounts.
18(f) Disclosure of Fees and Other Information
1. Initial disclosure of fees and other information. Section
1005.18(f)(1) requires a financial institution to include, as part of
the initial disclosures given pursuant to Sec. 1005.7, all of the
information required to be disclosed in its pre-acquisition long form
disclosure pursuant to Sec. 1005.18(b)(4). Section 1005.18(b)(4)(ii)
requires a financial institution to disclose in its pre-acquisition long
form disclosure all fees imposed in connection with a prepaid account.
Section 1005.18(b)(4) also contains several specific statements that
must be provided as part of the long form disclosure. A financial
institution may, but is not required to, disclose the information
required by Sec. 1005.18(b)(4) in accordance with the formatting,
grouping, size and other requirements set forth in Sec. 1005.18(b) for
the long form disclosure as part of its initial disclosures provided
pursuant to Sec. 1005.7; a financial institution may choose to do so,
however, in order to satisfy other requirements in Sec. 1005.18. See,
e.g., Sec. 1005.18(b)(1)(ii) regarding the retail location exception.
2. Changes to the Regulation Z disclosures for overdraft credit
features. Pursuant to Sec. 1005.18(f)(2), if a financial institution
provides pursuant Sec. 1005.18(f)(1) the Regulation Z disclosures
required by Sec. 1005.18(b)(4)(vii) for an overdraft credit feature,
the financial institution is not required to provide a change-in-terms
notice solely to reflect a change in the fees or other terms disclosed
therein. This exception does not extend to any finance charges imposed
on the prepaid account as described in Regulation Z, 12 CFR
1026.4(b)(11)(ii), in connection with a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in 12 CFR 1026.61
that are required to be disclosed pursuant to Sec. 1005.18(b)(4)(ii).
See comment 18(b)(4)(ii)-1.
3. Web site and telephone number on a prepaid account access device.
Section 1005.18(f)(3) requires that the name of a financial institution
and the Web site URL and a telephone number that a consumer can use to
contact the financial institution about the prepaid account must be
disclosed on the prepaid account access device. A disclosure made on an
accompanying document, such as a terms and conditions document, on
packaging material surrounding an access device, or on a sticker or
other label affixed to an access device does not constitute a disclosure
on the access device. The financial institution must provide this
information to allow consumers to, for example, contact the financial
institution to learn about the terms and conditions of the prepaid
account, obtain prepaid account balance information, request a copy of
transaction history pursuant to Sec. 1005.18(c)(1)(iii) if the
financial institution does not provide periodic statements pursuant to
Sec. 1005.9(b), or to notify the financial institution when the
consumer believes that an unauthorized electronic fund transfer has
occurred as required by Sec. Sec. 1005.7(b)(2) and 1005.18(d)(1)(ii).
18(g) Prepaid Accounts Accessible by Hybrid Prepaid-Credit Cards
1. Covered separate credit feature accessible by a hybrid prepaid-
credit card. Regulation Z, 12 CFR 1026.61, defines the term covered
separate credit feature accessible by a hybrid prepaid-credit card.
2. Asset feature. i. Regulation Z, 12 CFR 1026.61(a)(5)(ii), defines
the term asset feature.
ii. Section 1005.18(g) applies to account terms, conditions, and
features that apply to the asset feature of the prepaid account. Section
1005.18(g) does not apply to the account terms, conditions, or features
that apply to the covered separate credit feature, regardless of whether
it is structured as a separate credit account or as a credit subaccount
of the prepaid account that is separate from the asset feature of the
prepaid account.
3. Scope of Sec. 1005.18(g). Under Sec. 1005.18(g), a financial
institution may offer different terms on different prepaid account
programs. For example, the terms may differ between a prepaid account
program where a covered separate credit feature accessible by a hybrid
prepaid-credit card is not offered in connection with any prepaid
accounts within the prepaid account program, and a prepaid account
program where a covered separate credit feature accessible by a hybrid
prepaid-credit card may be offered to some consumers in connection with
their prepaid accounts.
4. Variation in account terms, conditions, or features. i. Account
terms, conditions, and features subject to Sec. 1005.18(g) include, but
are not limited to:
A. Interest paid on funds deposited into the asset feature of the
prepaid account, if any;
B. Fees or charges imposed on the asset feature of the prepaid
account. See comment 18(g)-5 for additional guidance on how Sec.
1005.18(g) applies to fees or charges imposed on the asset feature of
the prepaid account.
C. The type of access device provided to the consumer. For instance,
an institution may not provide a PIN-only card on prepaid accounts
without a covered separate credit
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feature that is accessible by a hybrid prepaid-credit card, while
providing a prepaid card with both PIN and signature-debit functionality
for prepaid accounts in the same prepaid account program with such a
credit feature;
D. Minimum balance requirements on the asset feature of the prepaid
account; or
E. Account features offered in connection with the asset feature of
the prepaid account, such as online bill payment services.
5. Fees. i. With respect to a prepaid account program where
consumers may be offered a covered separate credit feature accessible by
a hybrid prepaid-credit card as defined by Regulation Z, 12 CFR 1026.61,
Sec. 1005.18(g) only permits a financial institution to charge the same
or higher fees on the asset feature of a prepaid account with a covered
separate credit feature than the amount of a comparable fee it charges
on prepaid accounts in the same prepaid account program that do not have
a such a credit feature. Section 1005.18(g) prohibits a financial
institution from imposing a lower fee or charge on prepaid accounts with
a covered separate credit feature than the amount of a comparable fee or
charge it charges on prepaid accounts in the same prepaid account
program without such a credit feature. With regard to a covered separate
credit feature and an asset feature of a prepaid account that are both
accessible by a hybrid prepaid-credit card as defined in Regulation Z,
12 CFR 1026.61, a fee or charge imposed on the asset feature of the
prepaid account generally is a finance charge under Regulation Z (12 CFR
part 1026) to the extent that the amount of the fee or charge exceeds
the amount of a comparable fee or charge imposed on prepaid accounts in
the same prepaid account program that do not have such a credit feature.
See Regulation Z, 12 CFR 1026.4(b)(11)(ii). With regard to a covered
separate credit feature and an asset feature of a prepaid account that
are both accessible by a hybrid prepaid-credit card as defined in
Regulation Z, 12 CFR 1026.61, this comment below provides illustrations
of how Sec. 1005.18(g) applies to fees or charges imposed on the asset
feature of a prepaid account. The term ``non-covered separate credit
feature'' refers to a separate credit feature that is not accessible by
a hybrid prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61.
ii. The following examples illustrate how Sec. 1005.18(g) applies
to per transaction fees for each transaction to access funds available
in the asset feature of the prepaid account.
A. Assume that a consumer has selected a prepaid account program
where a covered separate credit feature accessible by a hybrid prepaid-
credit card may be offered. For prepaid accounts without such a credit
feature, the financial institution charges $0.50 for each transaction
conducted that accesses funds available in the prepaid account. For
prepaid accounts with a credit feature, the financial institution also
charges $0.50 on the asset feature for each transaction conducted that
accesses funds available in the asset feature of the prepaid account. In
this case, for purposes of Sec. 1005.18(g), the financial institution
is imposing the same fee for each transaction that accesses funds in the
asset feature of the prepaid account, regardless of whether the prepaid
account has a covered separate credit feature accessible by a hybrid
prepaid-credit card. Also, with regard to a covered separate credit
feature and an asset feature of a prepaid account that are both
accessible by a hybrid prepaid-credit card as those terms are defined in
Regulation Z, 12 CFR 1026.61, the $0.50 per transaction fee imposed on
the asset feature for each transaction that accesses funds available in
the asset feature of the prepaid account is not a finance charge under
12 CFR 1026.4(b)(11)(ii). See Regulation Z, 12 CFR 1026.4(b)(11)(ii) and
comment 4(b)(11)(ii)-1, for a discussion of the definition of finance
charge with respect to fees or charges imposed on the asset feature of a
prepaid account with regard to a covered separate credit feature and an
asset feature of a prepaid account that are both accessible by a hybrid
prepaid-credit card as defined in 12 CFR 1026.61.
B. Same facts as in paragraph A, except that for prepaid accounts
with a covered separate credit feature, the financial institution
imposes a $1.25 fee for each transaction conducted that accesses funds
available in the asset feature of the prepaid account. In this case, the
financial institution is permitted to charge a higher fee under Sec.
1005.18(g)(2) on prepaid accounts with a covered separate credit feature
than it charges on prepaid accounts without such a credit feature. The
$0.75 excess is a finance charge under Regulation Z, 12 CFR
1026.4(b)(11)(ii).
C. Same facts as in paragraph A, except that for prepaid accounts
with a covered separate credit feature, the financial institution
imposes a $0.25 fee for each transaction conducted that accesses funds
available in the asset feature of the prepaid account. In this case, the
financial institution is in violation of Sec. 1005.18(g) because it is
imposing a lower fee on the asset feature of a prepaid account with a
covered separate credit feature than it imposes on prepaid accounts in
the same program without such a credit feature.
iii. Where the hybrid prepaid-credit card accesses credit from a
covered separate credit feature in the course of authorizing, settling,
or otherwise completing a transaction conducted with the card to obtain
goods or services, obtain cash, or conduct person-to-person transfers,
any per transaction fees imposed on the asset feature of prepaid
accounts, including load and transfer fees, with such a credit feature
are comparable only to per transaction fees for each transaction to
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access funds in the asset feature of a prepaid account that are imposed
on prepaid accounts in the same prepaid account program that does not
have such a credit feature. Per transaction fees for a transaction that
is conducted to load or draw funds into a prepaid account from a source
other than the funds in the asset feature are not comparable for
purposes of Sec. 1005.18(g). To illustrate:
A. Assume a financial institution charges $0.50 on prepaid accounts
for each transaction that accesses funds in the asset feature of the
prepaid accounts without a covered separate credit feature. Also, assume
that the financial institution charges $0.50 per transaction on the
asset feature of prepaid accounts in the same prepaid program where the
hybrid prepaid-credit card accesses credit from a covered separate
credit feature in the course of a transaction. In this case, for
purposes of Sec. 1005.18(g), the financial institution is imposing the
same fee for each transaction it pays, regardless of whether the
transaction accesses funds available in the asset feature of the prepaid
accounts without a covered separate credit feature, or is paid from
credit from a covered separate credit feature in the course of
authorizing, settling, or otherwise completing a transaction conducted
with the card to obtain goods or services, obtain cash, or conduct
person-to-person transfers. Also, for purposes of Regulation Z, 12 CFR
1026.4(b)(11)(ii), the $0.50 per transaction fee imposed on the asset
feature of the prepaid account with a covered separate credit feature is
not a finance charge.
B. Assume same facts as in paragraph A above, except that assume the
financial institution charges $1.25 on the asset feature of a prepaid
account for each transaction where the hybrid prepaid-credit card
accesses credit from the covered separate credit feature in the course
of the transaction. The financial institution is permitted to charge the
higher fee under Sec. 1005.18(g) for transactions that access the
covered separate credit feature in the course of the transaction than
the amount of the comparable fee it charges for each transaction that
accesses funds available in the asset feature of the prepaid accounts
without such a credit feature. The $0.75 excess is a finance charge
under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
C. Same facts as in paragraph A, except that the financial
institution imposes $0.25 on the asset feature of the prepaid account
for each transaction conducted where the hybrid prepaid-credit card
accesses credit from the covered separate credit feature in the course
of the transaction. In this case, the financial institution is in
violation of Sec. 1005.18(g) because it is imposing a lower fee on the
asset feature of a prepaid account with a covered separate credit
feature than the amount of the comparable fee it imposes on prepaid
accounts in the same program without such a credit feature.
D. Assume a financial institution charges $0.50 on prepaid accounts
for each transaction that accesses funds in the asset feature of the
prepaid accounts without a covered separate credit feature. Assume also
that the financial institution charges both a $0.50 per transaction fee
and a $1.25 transfer fee on the asset feature of prepaid accounts in the
same prepaid program where the hybrid prepaid-credit card accesses
credit from a covered separate credit feature in the course of a
transaction. In this case, both fees charged on a per-transaction basis
for the credit transaction (i.e., a combined fee of $1.75 per
transaction) must be compared to the $0.50 per transaction fee to access
funds in the asset feature of the prepaid account without a covered
separate credit feature. The financial institution is permitted to
charge a higher fee under Sec. 1005.18(g) for transactions that access
the covered separate credit feature in the course of the transaction
than the amount of the comparable fee it charges for each transaction
that accesses funds available in the asset feature of the prepaid
accounts without such a credit feature. The $1.25 excess is a finance
charge under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
E. Assume same facts as in paragraph D above, except that assume the
financial institution also charges a load fee of $1.25 whenever funds
are transferred or loaded from a separate asset account, such as from a
deposit account via a debit card, in the course of a transaction on
prepaid accounts without a covered separate credit feature, in addition
to charging a $0.50 per transaction fee. In this case, both fees charged
on a per-transaction basis for the credit transaction (i.e., a combined
fee of $1.75 per transaction) must be compared to the per transaction
fee (i.e., the fee of $0.50) to access funds available in the asset
feature of the prepaid accounts on a prepaid account without a covered
separate credit feature. Per transaction fees for a transaction that is
conducted by drawing funds into a prepaid account from some other source
(i.e., the fee of $1.25) are not comparable for purposes of Sec.
1005.18(g). The financial institution is permitted to charge a higher
fee under Sec. 1005.18(g) for transactions that access the covered
separate credit feature in the course of the transaction than the amount
of the comparable fee it charges for each transaction to access funds
available in the asset feature of the prepaid accounts without such a
credit feature. The $1.25 excess is a finance charge under Regulation Z,
12 CFR 1026.4(b)(11)(ii).
iv. A consumer may choose in a particular circumstance to draw or
transfer credit from the covered separate credit feature outside the
course of a transaction conducted with the card to obtain goods or
service, obtain cash, or conduct person-to-person transfers.
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For example, a consumer may use the prepaid card at the financial
institution's Web site to load funds from the covered separate credit
feature outside the course of a transaction conducted with the card to
obtain goods or services, obtain cash, or conduct person-to-person
transfers. See Regulation Z, 12 CFR 1026.61(a)(2)(i)(B) and comment
61(a)(2)-4.ii. In these situations, load or transfer fees imposed for
draws or transfers of credit from the covered separate credit feature
outside the course of a transaction are compared only with fees, if any,
to load funds as a direct deposit of salary from an employer or a direct
deposit of government benefits that are charged on prepaid accounts
without a covered separate credit feature. Fees imposed on prepaid
accounts without a covered separate credit feature for a one-time load
or transfer of funds from a separate asset account or from a non-covered
separate credit feature are not comparable for purposes of Sec.
1005.18(g). To illustrate:
A. Assume a financial institution charges a $1.25 load fee to
transfer funds from a non-covered separate credit feature, such as a
non-covered separate credit card account, into prepaid accounts that do
not have a covered separate credit feature and does not charge a fee for
a direct deposit of salary from an employer or a direct deposit of
government benefits on those prepaid accounts. Assume the financial
institution charges $1.25 on the asset feature of a prepaid account with
a covered separate credit feature to load funds from the covered
separate credit feature outside the course of a transaction. In this
case, the load or transfer fees imposed for draws or transfers of credit
from the covered separate credit feature outside the course of a
transaction (i.e., the fee of $1.25) is compared with the fees to load
funds as a direct deposit of salary from an employer or a direct deposit
of government benefits that are charged on prepaid accounts without a
covered separate credit feature (i.e., the fee of $0). Fees imposed on
prepaid accounts without a covered separate credit feature for a one-
time load or transfer of funds from a separate asset account (i.e., the
fee of $1.25) is not comparable for purposes of Sec. 1005.18(g). In
this case, the financial institution is permitted to charge a higher fee
under Sec. 1005.18(g) for transactions that access the covered separate
credit feature on prepaid accounts with a credit feature than the amount
of the comparable fee it charges on prepaid accounts in the same program
without such a credit feature. The $1.25 fee imposed on the asset
feature of the prepaid account with a separate credit feature is a
finance charge under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
B. Assume that a financial institution charges a $1.25 load fee for
a one-time transfer of funds from a separate asset account, such as from
a deposit account via a debit card, to a prepaid account without a
covered separate credit feature and does not charge a fee for a direct
deposit of salary from an employer or a direct deposit of government
benefits on those prepaid accounts. Assume the financial institution
charges $1.25 on the asset feature of a prepaid account with a covered
separate credit feature to load funds from the covered separate credit
feature outside the course of a transaction. In this case, the load or
transfer fees imposed for draws or transfers of credit from the covered
separate credit feature outside the course of a transaction (i.e., the
fee of $1.25) is compared with the fees to load funds as a direct
deposit of salary from an employer or a direct deposit of government
benefits that are charged on prepaid accounts without a covered separate
credit feature (i.e., the fee of $0). Fees imposed on prepaid accounts
without a covered separate credit feature for a one-time load or
transfer of funds from a separate asset account (i.e., the fee of $1.25)
is not comparable for purposes of Sec. 1005.18(g). In this case, the
financial institution is permitted to charge a higher fee under Sec.
1005.18(g) for transactions that access the covered separate credit
feature on prepaid accounts with a credit feature than the amount of the
comparable fee it charges on prepaid accounts in the same program
without such a credit feature. The $1.25 fee imposed on the asset
feature of the prepaid account with a covered separate credit feature is
a finance charge under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
18(h) Effective Date and Special Transition Rules for Disclosure
Provisions
1. Disclosures not on prepaid account access devices and prepaid
account packaging materials. Section 1005.18(h)(1) provides that, except
as provided in Sec. 1005.18(h)(2) and (3), the disclosure requirements
of subpart A, as modified by Sec. 1005.18, apply to prepaid accounts as
defined in Sec. 1005.2(b)(3), including government benefit accounts
subject to Sec. 1005.15, beginning April 1, 2019. This effective date
applies to disclosures made available or provided to consumers
electronically, orally by telephone, or in a form other than on pre-
printed materials, such as disclosures printed on paper by a financial
institution upon a consumer's request.
2. Disclosures on prepaid account access devices and prepaid account
packaging materials. Section 1005.18(h)(2)(i) provides that the
disclosure requirements of subpart A, as modified by Sec. 1005.18, do
not apply to any disclosures that are provided, or that would otherwise
be required to be provided, on prepaid account access devices, or on,
in, or with prepaid account packaging materials that were manufactured,
printed, or otherwise produced in the normal course of business prior to
April 1, 2019. This includes, for example, disclosures contained on or
in packages for
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prepaid accounts sold at retail, or disclosures for payroll card
accounts or government benefit accounts that are distributed to
employees or benefits recipients in packages or envelopes. Disclosures
on, in, or with access devices or packaging materials that are
manufactured, printed, or otherwise produced on or after April 1, 2019
must comply with all the requirements of subpart A.
3. Form of notice to consumers. A financial institution that is
required to notify consumers of a change in terms and conditions
pursuant to Sec. 1005.18(h)(2)(ii) or (iii), or that otherwise provides
updated initial disclosures as a result of Sec. 1005.18(h)(1) taking
effect, may provide the notice or disclosures either as a separate
document or included in another notice or mailing that the consumer
receives regarding the prepaid account to the extent permitted by other
laws and regulations.
4. Ability to contact the consumer. A financial institution that has
not obtained the consumer's contact information is not required to
comply with the requirements set forth in Sec. 1005.18(h)(2)(ii) or
(iii). A financial institution is able to contact the consumer when, for
example, it has the consumer's mailing address or email address.
5. Closed and inactive prepaid accounts. The requirements of Sec.
1005.18(h)(2)(iii) do not apply to prepaid accounts that are closed or
inactive, as defined by the financial institution. However, if an
inactive account becomes active, the financial institution must comply
with the requirements of Sec. 1005.18(h)(2)(ii) within 30 days of the
account becoming active again in order to avail itself of the timing
requirements and accommodations set forth in Sec. 1005.18(h)(2)(iii)
and (iv).
6. Account information not available on April 1, 2019. i. Electronic
and written account transaction history. A financial institution
following the periodic statement alternative in Sec. 1005.18(c) must
make available 12 months of electronic account transaction history
pursuant to Sec. 1005.18(c)(1)(ii) and must provide 24 months of
written account transaction history upon request pursuant to Sec.
1005.18(c)(1)(iii) beginning April 1, 2019. If, on April 1, 2019, the
financial institution does not have readily accessible the data
necessary to make available or provide the account histories for the
required time periods, the financial institution may make available or
provide such histories using the data for the time period it has until
the financial institution has accumulated the data necessary to comply
in full with the requirements set forth in Sec. 1005.18(c)(1)(ii) and
(iii). For example, a financial institution that had been retaining only
60 days of account history before April 1, 2019 would provide 60 days of
written account transaction history upon a consumer's request on April
1, 2019. If, on May 1, 2019, the consumer made another request for
written account transaction history, the financial institution would be
required to provide three months of account history. The financial
institution must continue to provide as much account history as it has
accumulated at the time of a consumer's request until it has accumulated
24 months of account history. Thus, all financial institutions must
fully comply with the electronic account transaction history requirement
set forth in Sec. 1005.18(c)(1)(ii) no later than April 1, 2020 and
must fully comply with the written account transaction history
requirement set forth in Sec. 1005.18(c)(1)(iii) no later than April 1,
2021.
ii. Summary totals of fees. A financial institution must display a
summary total of the amount of all fees assessed by the financial
institution on the consumer's prepaid account for the prior calendar
month and for the calendar year to date pursuant to Sec. 1005.18(c)(5)
beginning April 1, 2019. If, on April 1, 2019, the financial institution
does not have readily accessible the data necessary to calculate the
summary totals of fees for the prior calendar month or the calendar year
to date, the financial institution may provide the summary totals using
the data it has until the financial institution has accumulated the data
necessary to display the summary totals as required by Sec.
1005.18(c)(5). That is, the financial institution would first display
the monthly fee total beginning on May 1, 2019 for the month of April,
and the year-to-date fee total beginning on April 1, 2019, provided the
financial institution discloses that it is displaying the year-to-date
total beginning on April 1, 2019 rather than for the entire calendar
year 2019. On January 1, 2020, financial institutions must begin
displaying year-to-date fee totals for calendar year 2020.
Section 1005.19 Internet Posting of Prepaid Account Agreements
19(a) Definitions
19(a)(1) Agreement
1. Provisions contained in separate documents included. Section
1005.19(a)(1) defines a prepaid account agreement, for purposes of Sec.
1005.19, as the written document or documents evidencing the terms of
the legal obligation, or the prospective legal obligation, between a
prepaid account issuer and a consumer for a prepaid account. An
agreement may consist of several documents that, taken together, define
the legal obligation between the issuer and consumer.
19(a)(2) Amends
1. Substantive changes. A change to an agreement is substantive, and
therefore is deemed an amendment of the agreement, if it alters the
rights or obligations of the parties. Section 1005.19(a)(2) provides
that any
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change in the fee information, as defined in Sec. 1005.19(a)(3), is
deemed to be substantive. Examples of other changes that generally would
be considered substantive include:
i. Addition or deletion of a provision giving the issuer or consumer
a right under the agreement, such as a clause that allows an issuer to
unilaterally change the terms of an agreement.
ii. Addition or deletion of a provision giving the issuer or
consumer an obligation under the agreement, such as a clause requiring
the consumer to pay an additional fee.
iii. Changes that may affect the cost of the prepaid account to the
consumer, such as changes in a provision describing how the prepaid
account's monthly fee will be calculated.
iv. Changes that may affect how the terms of the agreement are
construed or applied, such as changes to a choice of law provision.
v. Changes that may affect the parties to whom the agreement may
apply, such as changes to provisions regarding authorized users or
assignment of the agreement.
vi. Changes to the corporate name of the issuer or program manager,
or to the issuer's address or identifying number, such as its RSSD ID
number or tax identification number.
vii. Changes to the list of names of other relevant parties, such as
the employer for a payroll card program or the agency for a government
benefit program. But see Sec. 1005.19(b)(2)(ii) regarding the timing of
submitting such changes to the Bureau.
viii. Changes to the name of the prepaid account program to which
the agreement applies.
2. Non-substantive changes. Changes that generally would not be
considered substantive include, for example:
i. Correction of typographical errors that do not affect the meaning
of any terms of the agreement.
ii. Changes to the issuer's corporate logo or tagline.
iii. Changes to the format of the agreement, such as conversion to a
booklet from a full-sheet format, changes in font, or changes in
margins.
iv. Reordering sections of the agreement without affecting the
meaning of any terms of the agreement.
v. Adding, removing, or modifying a table of contents or index.
vi. Changes to titles, headings, section numbers, or captions.
19(a)(4) Issuer
1. Issuer. Section 1005.19(a)(4) provides that, for purposes of
Sec. 1005.19, issuer or prepaid account issuer means the entity to
which a consumer is legally obligated, or would be legally obligated,
under the terms of a prepaid account agreement. For example, Bank X and
Bank Y work together to issue prepaid accounts. A consumer that obtains
a prepaid account issued pursuant to this arrangement between Bank X and
Bank Y is subject to an agreement that states ``This is an agreement
between you, the consumer, and Bank X that governs the terms of your
Bank Y Prepaid Account.'' The prepaid account issuer in this example is
Bank X, because the agreement creates a legally enforceable obligation
between the consumer and Bank X. Bank X is the issuer even if the
consumer applied for the prepaid account through a link on Bank Y's
website and the cards prominently feature the Bank Y logo on the front
of the card.
2. Use of third-party service providers. An issuer has a legal
obligation to comply with the requirements of Sec. 1005.19. However, an
issuer generally may use a third-party service provider to satisfy its
obligations under Sec. 1005.19, provided that the issuer acts in
accordance with regulatory guidance regarding use of third-party service
providers and other applicable regulatory guidance. In some cases, an
issuer may wish to arrange for the entity with which it partners to
issue prepaid accounts to fulfill the requirements of Sec. 1005.19 on
the issuer's behalf. For example, Program Manager and Bank work together
to issue prepaid accounts. Under the Sec. 1005.19(a)(4) definition of
issuer, Bank is the issuer of these prepaid accounts for purposes of
Sec. 1005.19. However, Program Manager services the prepaid accounts,
including mailing to consumers account opening materials and making
available to consumers their electronic account transaction history,
pursuant to Sec. 1005.18(c)(1)(ii). While Bank is responsible for
ensuring compliance with Sec. 1005.19, Bank may arrange for Program
Manager (or another appropriate third-party service provider) to make
submissions of prepaid account agreements to the Bureau under Sec.
1005.19 on Bank's behalf. Bank must comply with regulatory guidance
regarding use of third-party service providers and other applicable
regulatory guidance.
3. Third-party websites. As explained in comment 19(c)-2, if an
issuer provides consumers with access to specific information about
their individual accounts, such as making available to consumers their
electronic account transaction history, pursuant to Sec.
1005.18(c)(1)(ii), through a third-party website, the issuer is deemed
to maintain that website for purposes of Sec. 1005.19. Such a website
is deemed to be maintained by the issuer for purposes of Sec. 1005.19
even where, for example, an unaffiliated entity designs the website and
owns and maintains the information technology infrastructure that
supports the website, consumers with prepaid accounts from multiple
issuers can access individual account information through the same
website, and the website is not labeled, branded, or otherwise held out
to the public
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as belonging to the issuer. A partner institution's website is an
example of a third-party website that may be deemed to be maintained by
the issuer for purposes of Sec. 1005.19. For example, Program Manager
and Bank work together to issue prepaid accounts. Under the Sec.
1005.19(a)(4) definition of issuer, Bank is the issuer of these prepaid
accounts for purposes of Sec. 1005.19. Bank does not maintain a website
specifically related to prepaid accounts. However, consumers can access
information about their individual accounts, such as an electronic
account transaction history, through a website maintained by Program
Manager. Program Manager designs the website and owns and maintains the
information technology infrastructure that supports the website. The
website is branded and held out to the public as belonging to Program
Manager. Because consumers can access information about their individual
accounts through this website, the website is deemed to be maintained by
Bank for purposes of Sec. 1005.19. Bank therefore may comply with Sec.
1005.19(c) or (d)(1) by ensuring that agreements offered by Bank are
posted on Program Manager's website in accordance with Sec. 1005.19(c)
or (d)(1), respectively. Bank need not create and maintain a website
branded and held out to the public as belonging to Bank in order to
comply with Sec. 1005.19(c) and (d) as long as Bank ensures that
Program Manager's website complies with these sections.
19(a)(6) Offers to the General Public
1. Prepaid accounts offered to limited groups. An issuer is deemed
to offer a prepaid account agreement to the general public even if the
issuer markets, solicits applications for, or otherwise makes available
prepaid accounts only to a limited group of persons. For example, an
issuer may solicit only residents of a specific geographic location for
a particular prepaid account; in this case, the agreement would be
considered to be offered to the general public. Similarly, agreements
for prepaid accounts issued by a credit union are considered to be
offered to the general public even though such prepaid accounts are
available only to credit union members.
2. Prepaid account agreements not offered to the general public. A
prepaid account agreement is not offered to the general public when a
consumer is offered the agreement only by virtue of the consumer's
relationship with a third party. Examples of agreements not offered to
the general public include agreements for payroll card accounts,
government benefit accounts, or for prepaid accounts used to distribute
student financial aid disbursements, or property and casualty insurance
payouts, and other similar programs.
19(a)(7) Open Account
1. Open account. A prepaid account is an open account if (i) there
is an outstanding balance in the account; (ii) the consumer can load
more funds to the account even if the account does not currently hold a
balance; or (iii) the consumer can access credit from a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined in
Regulation Z, 12 CFR 1026.61, in connection with a prepaid account.
Under this definition, an account that meets any of these criteria is
considered to be open even if the account is deemed inactive by the
issuer.
19(a)(8) Prepaid Account
1. Prepaid account. Section 1005.19(a)(7) provides that, for
purposes of Sec. 1005.19, the term prepaid account means a prepaid
account as defined in Sec. 1005.2(b)(3). Therefore, for purposes of
Sec. 1005.19, a prepaid account includes, among other things, a payroll
card account as defined in Sec. 1005.2(b)(3)(iii) and a government
benefit account as defined in Sec. Sec. 1005.2(b)(3)(iii) and
1005.15(a)(2).
19(b) Submission of Agreements to the Bureau
19(b)(1) Submissions on a Rolling Basis
1. Rolling submission requirement. Section 1005.19(b)(1) requires
issuers to send submissions to the Bureau no later than 30 days after
offering, amending, or ceasing to offer any prepaid account agreement,
as described in Sec. 1005.19(b)(1)(ii) through (iv). For example, if on
July 1 an issuer offers a prepaid account agreement that has not been
previously submitted to the Bureau, it must submit that agreement to the
Bureau by July 31 of the same year. Similarly, if on August 1 an issuer
amends a prepaid account agreement previously submitted to the Bureau,
and the change becomes effective on September 15, the issuer must submit
the entire amended agreement as required by Sec. 1005.19(b)(2)(i) by
October 15 of the same year. Furthermore, if on December 31 an issuer
ceases to offer a prepaid account agreement that was previously
submitted to the Bureau, it must submit notification to the Bureau that
it is withdrawing that agreement as required by Sec. 1005.19(b)(3) by
January 30 of the following year.
2. Prepaid accounts offered in conjunction with multiple issuers. If
a program manager offers prepaid account agreements in conjunction with
multiple issuers, each issuer must submit its own agreement to the
Bureau. Alternatively, each issuer may use the program manager to submit
the agreement on its behalf, in accordance with comment 19(a)(4)-2.
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19(b)(2) Amended Agreements
1. Change-in-terms notices not permissible. Section 1005.19(b)(2)(i)
requires that if an agreement previously submitted to the Bureau is
amended, the issuer must submit the entire revised agreement to the
Bureau. An issuer may not fulfill this requirement by submitting a
change-in-terms or similar notice covering only the terms that have
changed. Amendments must be integrated into the text of the agreement
(or the optional addenda described in Sec. 1005.19(b)(6)), not provided
as separate riders.
2. Updates to the list of names of other relevant parties to an
agreement. Section 1005.19(b)(2)(ii) permits an issuer to delay making a
submission to the Bureau regarding a change in the list of other
relevant parties to a particular agreement until the earlier of such
time as the issuer is otherwise submitting an amended agreement or
changes to other identifying information about the issuer and its
submitted agreements pursuant to Sec. 1005.19(b)(1)(i); or May 1 of
each year, for any updates to the list of names of other relevant
parties that occurred between the issuer's last submission of relevant
party information for that agreement and April 1 of that year. Section
1005.19(b)(2)(ii) thus ensures that the Bureau has a list of names of
other relevant parties for all submitted agreements that is up-to-date
as of April 1 of each year. The following examples illustrate these
requirements:
i. An issuer first submits to the Bureau a payroll card agreement,
along with a list of names of the other relevant parties (i.e.,
employers) to that agreement, on May 1, 2019. On July 1, 2020, the
issuer adds four new employers under the agreement. The issuer is not
required to make a submission to the Bureau regarding the addition of
other relevant parties to that agreement at that time.
ii. On January 1, 2020, a change to the payroll card agreement
becomes effective reflecting a new feature and accompanying fee that the
issuer has added to the program. The issuer is required, by January 31,
2020, to submit to the Bureau its entire revised agreement and an
updated list of the names of other relevant parties to that agreement.
iii. If the issuer has not added any other employers to the
agreement by April 1, 2020, the issuer is not required to submit to the
Bureau an updated list of names of other relevant parties to that
agreement, because the list it previously submitted to the Bureau
remains current.
iv. If, however, on March 1, 2020, the issuer adds two new employers
under the agreement but makes no other changes to the agreement, then as
of April 1 there are new relevant parties to the agreement that the
issuer has not submitted to the Bureau. The issuer is required, by May
1, 2020, to submit to the Bureau an updated list of names of other
relevant parties to that agreement reflecting the two employers it added
in March. Because the issuer has not made any other changes to the
agreement since it was submitted in January, the issuer is not required
to re-submit the agreement itself by May 1, 2020.
19(b)(3) Withdrawal of Agreements No Longer Offered
1. No longer offers agreement. Section 1005.19(b)(3) provides that,
if an issuer no longer offers an agreement that was previously submitted
to the Bureau, the issuer must notify the Bureau no later than 30 days
after the issuer ceases to offer the agreement that it is withdrawing
the agreement. An issuer no longer offers an agreement when it no longer
allows a consumer to activate or register a new account in connection
with that agreement.
19(b)(4) De Minimis Exception
1. Relationship to other exceptions. The de minimis exception in
Sec. 1005.19(b)(4) is distinct from the product testing exception under
Sec. 1005.19(b)(5). The de minimis exception provides that an issuer
with fewer than 3,000 open prepaid accounts is not required to submit
any agreements to the Bureau, regardless of whether those agreements
qualify for the product testing exception. In contrast, the product
testing exception provides that an issuer is not required to submit to
the Bureau agreements offered solely in connection with certain types of
prepaid account programs with fewer than 3,000 open accounts, regardless
of the issuer's total number of open accounts.
2. De minimis exception. Under Sec. 1005.19(b)(4), an issuer is not
required to submit any prepaid account agreements to the Bureau under
Sec. 1005.19(b)(1) if the issuer has fewer than 3,000 open prepaid
accounts. For example, an issuer has 2,000 open prepaid accounts. The
issuer is not required to submit any agreements to the Bureau because
the issuer qualifies for the de minimis exception.
3. Date for determining whether issuer qualifies. Whether an issuer
qualifies for the de minimis exception is determined as of the last day
of each calendar quarter. For example, an issuer has 2,500 open prepaid
accounts as of December 31, the last day of the calendar quarter. As of
January 30, the issuer has 3,100 open prepaid accounts. As of March 31,
the last day of the following calendar quarter, the issuer has 2,700
open prepaid accounts. Even though the issuer had 3,100 open prepaid
accounts at one time during the calendar quarter, the issuer qualifies
for the de minimis exception because the number of open prepaid accounts
was less than 3,000 as
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of March 31. The issuer therefore is not required to submit any
agreements to the Bureau under Sec. 1005.19(b)(1).
4. Date for determining whether issuer ceases to qualify. Whether an
issuer ceases to qualify for the de minimis exception under Sec.
1005.19(b)(4) is determined as of the last day of the calendar quarter.
For example, an issuer has 2,500 open prepaid accounts as of June 30,
the last day of the calendar quarter. The issuer is not required to
submit any agreements to the Bureau under Sec. 1005.19(b) by July 30
(the 30th day after June 30) because the issuer qualifies for the de
minimis exception. As of July 15, the issuer has 3,100 open prepaid
accounts. The issuer is not required to take any action at this time,
because whether an issuer qualifies for the de minimis exception under
Sec. 1005.19(b)(4) is determined as of the last day of the calendar
quarter. The issuer still has 3,100 open prepaid accounts as of
September 30. Because the issuer had 3,100 open prepaid accounts as of
September 30, the issuer ceases to qualify for the de minimis exception
and must submit its agreements to the Bureau by October 30, the 30th day
after the last day of the calendar quarter.
5. Option to withdraw agreements. Section 1005.19(b)(4) provides
that if an issuer that did not previously qualify for the de minimis
exception newly qualifies for the de minimis exception, the issuer must
continue to make rolling submissions to the Bureau as required by Sec.
1005.19(b)(1) until the issuer notifies the Bureau that the issuer is
withdrawing all agreements it previously submitted to the Bureau. For
example, an issuer offers three agreements and has 3,001 open accounts
as of December 31. The issuer submitted each of the three agreements to
the Bureau by January 30 as required under Sec. 1005.19(b). As of March
31, the issuer has only 2,999 open accounts. The issuer has two options.
First, the issuer may notify the Bureau that the issuer is withdrawing
each of the three agreements it previously submitted. Once the issuer
has notified the Bureau, the issuer is no longer required to make
rolling submissions to the Bureau under Sec. 1005.19(b) unless it later
ceases to qualify for the de minimis exception. Alternatively, the
issuer may choose not to notify the Bureau that it is withdrawing its
agreements. In this case, the issuer must continue making rolling
submissions to the Bureau as required by Sec. 1005.19(b). The issuer
might choose not to withdraw its agreements if, for example, the issuer
believes it will likely cease to qualify for the de minimis exception
again in the near future.
19(b)(6) Form and Content of Agreements Submitted to the Bureau
1. Agreements currently in effect. Agreements submitted to the
Bureau must contain the provisions of the agreement and fee information
currently in effect. For example, on June 1, an issuer decides to
decrease the out-of-network ATM withdrawal fee associated with one of
the agreements it offers. The change in that fee will become effective
on August 1. The issuer must submit and post the amended agreement with
the decreased out-of-network ATM withdrawal fee to the Bureau by August
31 as required by Sec. 1005.19(b)(2)(i) and (c).
2. Fee information variations do not constitute separate agreements.
Fee information that may vary from one consumer to another depending on
the consumer's state of residence or other factors must be disclosed by
setting forth all the possible variations. For example, an issuer offers
a prepaid account with a monthly fee of $4.95 or $0 if the consumer
regularly receives direct deposit to the prepaid account. The issuer
must submit to the Bureau one agreement with fee information listing the
possible monthly fees of $4.95 or $0 and including the explanation that
the latter fee is dependent upon the consumer regularly receiving direct
deposit.
3. Integrated agreement requirement. Issuers may not submit
provisions of the agreement or fee information in the form of change-in-
terms notices or riders. The only addenda that may be submitted as part
of an agreement are the optional fee information addenda described in
Sec. 1005.19(b)(6)(ii). Changes in provisions or fee information must
be integrated into the body of the agreement or the optional fee
information addenda. For example, it would be impermissible for an
issuer to submit to the Bureau an agreement in the form of a terms and
conditions document on January 1 and subsequently submit a change-in-
terms notice to indicate amendments to the previously submitted
agreement. Instead, the issuer must submit a document that integrates
the changes made by each of the change-in-terms notices into the body of
the original terms and conditions document and the optional addenda
displaying variations in fee information.
19(c) Posting of Agreements Offered to the General Public
1. Requirement applies only to agreements offered to the general
public. An issuer is only required to post and maintain on its publicly
available Web site the prepaid account agreements that the issuer offers
to the general public as defined by Sec. 1005.19(a)(6) and must submit
to the Bureau under Sec. 1005.19(b). For agreements not offered to the
general public, the issuer is not required to post and maintain the
agreements on its publicly available Web site, but is still required to
provide each individual consumer with access to his or her specific
prepaid account agreement under Sec. 1005.19(d). This posting
requirement is distinct from that of Sec. 1005.7, as
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modified by Sec. 1005.18(f)(1), which requires an issuer to provide
certain disclosures at the time a consumer contracts for an electronic
fund transfer service or before the first electronic fund transfer is
made involving the consumer's account, and the change-in-terms notice
required under Sec. 1005.8(a), as modified by Sec. 1005.18(f)(2). This
requirement is also distinct from that of Sec. 1005.18(b)(4), which
requires issuers to make the long form disclosure available to consumers
prior to prepaid account acquisition and which, depending on the methods
an issuer offers prepaid accounts to consumers, may require posting of
the long form disclosure on the issuer's Web site. Additionally, if an
issuer is not required to submit any agreements to the Bureau because
the issuer qualifies for the de minimis exception under Sec.
1005.19(b)(4) or the agreement qualifies for the product testing
exception under Sec. 1005.19(b)(5), the issuer is not required to post
and maintain any agreements on its Web site under Sec. 1005.19(c). The
issuer is still required to provide each individual consumer with access
to his or her specific prepaid account agreement under Sec. 1005.19(d)
by posting and maintaining the agreement on the issuer's Web site or by
providing a copy of the agreement upon the consumer's request.
2. Issuers that do not otherwise maintain Web sites. If an issuer
offers an agreement to the general public as defined by Sec.
1005.19(a)(6), that issuer must post that agreement on a publicly
available Web site it maintains. If an issuer provides consumers with
access to specific information about their individual accounts, such as
balance information or copies of statements, through a third-party Web
site, the issuer is considered to maintain that Web site for purposes of
Sec. 1005.19. Such a third-party Web site is deemed to be maintained by
the issuer for purposes of Sec. 1005.19(c) even where, for example, an
unaffiliated entity designs the Web site and owns and maintains the
information technology infrastructure that supports the Web site,
consumers with prepaid accounts from multiple issuers can access
individual account information through the same Web site, and the Web
site is not labeled, branded, or otherwise held out to the public as
belonging to the issuer. Therefore, issuers that provide consumers with
access to account-specific information through a third-party Web site
can comply with Sec. 1005.19(c) by ensuring that the agreements the
issuer submits to the Bureau are posted on the third-party Web site in
accordance with Sec. 1005.19(c).
19(d) Agreements for All Open Accounts
1. Requirement applies to all open accounts. The requirement to
provide access to prepaid account agreements under Sec. 1005.19(d)
applies to all open prepaid accounts. For example, an issuer that is not
required to post agreements on its Web site because it qualifies for the
de minimis exception under Sec. 1005.19(b)(4) would still be required
to provide consumers with access to their specific agreements under
Sec. 1005.19(d). Similarly, an agreement that is no longer offered
would not be required to be posted on the issuer's Web site, but would
still need to be provided to the consumer to whom it applies under Sec.
1005.19(d). Additionally, an issuer is not required to post on its Web
site agreements not offered to the general public, such as agreements
for payroll card accounts and government benefit accounts, as explained
in comment 19(c)-1, but the issuer must still provide consumers with
access to their specific agreements under Sec. 1005.19(d).
2. Agreements sent to consumers. Section 1005.19(d)(1)(ii) provides,
in part, that if an issuer makes an agreement available upon request,
the issuer must send the consumer a copy of the consumer's prepaid
account agreement no later than five business days after the issuer
receives the consumer's request. If the issuer mails the agreement, the
agreement must be posted in the mail five business days after the issuer
receives the consumer's request. If the issuer hand delivers or provides
the agreement electronically, the agreement must be hand delivered or
provided electronically five business days after the issuer receives the
consumer's request. For example, if the issuer emails the agreement, the
email with the attached agreement must be sent no later than five
business days after the issuer receives the consumer's request.
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
by Sec. 1005.20(b)), even if it is not issued in card form. Section
1005.20 applies, for example, to an account number or bar code that can
be used to access underlying funds. Similarly, Sec. 1005.20 applies to
a device with a chip or other embedded mechanism that links the device
to stored funds, such as a mobile phone or sticker containing a
contactless chip that enables the consumer to access the stored funds. A
card, code, or other device that meets the definition in 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
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store. Thus, for example, if a merchant emails a code that a consumer
may redeem in a specified amount either online or in the merchant's
store, that code is covered under Sec. 1005.20, unless one of the
exclusions in Sec. 1005.20(b) apply.
2. Electronic promise. The term ``electronic promise'' as used in
EFTA sections 915(a)(2)(B), (a)(2)(C), and (a)(2)(D) means a person's
commitment or obligation communicated or stored in electronic form made
to a consumer to provide payment for goods or services for transactions
initiated by the consumer. The electronic promise is itself represented
by a card, code or other device that is issued or honored by the person,
reflecting the person's commitment or obligation to pay. For example, if
a merchant issues a code that can be given as a gift and that entitles
the recipient to redeem the code in an online transaction for goods or
services, that code represents an electronic promise by the merchant and
is a card, code, or other device covered by Sec. 1005.20.
3. Cards, codes, or other devices redeemable for specific goods or
services. Certain cards, codes, or other devices may be redeemable upon
presentation for a specific good or service, or ``experience,'' such as
a spa treatment, hotel stay, or airline flight. In other cases, a card,
code, or other device may entitle the consumer to a certain percentage
off the purchase of a good or service, such as 20% off of any purchase
in a store. Such cards, codes, or other devices generally are not
subject to the requirements of this section because they are not issued
to a consumer ``in a specified amount'' as required under the
definitions of ``gift certificate,'' ``store gift card,'' or ``general-
use prepaid card.'' However, if the card, code, or other device is
issued in a specified or denominated amount that can be applied toward
the purchase of a specific good or service, such as a certificate or
card redeemable for a spa treatment up to $50, the card, code, or other
device is subject to this section, unless one of the exceptions in Sec.
1005.20(b) apply. See, e.g., Sec. 1005.20(b)(3). Similarly, if the
card, code, or other device states a specific monetary value, such as
``a $50 value,'' the card, code, or other device is subject to this
section, unless an exclusion in Sec. 1005.20(b) applies.
4. Issued primarily for personal, family, or household purposes.
Section 1005.20 only applies to cards, codes, or other devices that are
sold or issued to a consumer primarily for personal, family, or
household purposes. A card, code, or other device initially purchased by
a business is subject to this section if the card, code, or other device
is purchased for redistribution or resale to consumers primarily for
personal, family, or household purposes. Moreover, the fact that a card,
code, or other device may be primarily funded by a business, for
example, in the case of certain rewards or incentive cards, does not
mean the card, code, or other device is outside the scope of Sec.
1005.20, if the card, code, or other device will be provided to a
consumer primarily for personal, family, or household purposes. But see
Sec. 1005.20(b)(3). Whether a card, code, or other device is issued to
a consumer primarily for personal, family, or household purposes will
depend on the facts and circumstances. For example, if a program manager
purchases store gift cards directly from an issuing merchant and sells
those cards through the program manager's retail outlets, such gift
cards are subject to the requirements of Sec. 1005.20 because the store
gift cards are sold to consumers primarily for personal, family, or
household purposes. In contrast, a card, code, or other device generally
would not be issued to consumers primarily for personal, family, or
household purposes, and therefore would fall outside the scope of Sec.
1005.20, if the purchaser of the card, code, or device is contractually
prohibited from reselling or redistributing the card, code, or device to
consumers primarily for personal, family, or household purposes, and
reasonable policies and procedures are maintained to avoid such sale or
distribution for such purposes. However, if an entity that has purchased
cards, codes, or other devices for business purposes sells or
distributes such cards, codes, or other devices to consumers primarily
for personal, family, or household purposes, that entity does not comply
with Sec. 1005.20 if it has not otherwise met the substantive and
disclosure requirements of the rule or unless an exclusion in Sec.
1005.20(b) applies.
5. Examples of cards, codes, or other devices issued for business
purposes. Examples of cards, codes, or other devices that are issued and
used for business purposes and therefore excluded from the definitions
of ``gift certificate,'' ``store gift card,'' or ``general-use prepaid
card'' include:
i. Cards, codes, or other devices to reimburse employees for travel
or moving expenses.
ii. Cards, codes, or other devices for employees to use to purchase
office supplies and other business-related items.
20(a)(2) Store Gift Card
1. Relationship between ``gift certificate'' and ``store gift
card.'' The term ``store gift card'' in Sec. 1005.20(a)(2) includes
``gift certificate'' as defined in Sec. 1005.20(a)(1). For example, a
numeric or alphanumeric code representing a specified dollar amount or
value that is electronically sent to a consumer as a gift which can be
redeemed or exchanged by the recipient to obtain goods or services may
be both a ``gift certificate'' and a ``store gift card'' if the
specified amount or value cannot be increased.
2. Affiliated group of merchants. The term ``affiliated group of
merchants'' means two
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or more affiliated merchants or other persons that are related by common
ownership or common corporate control (see, e.g., 12 CFR 227.3(b) and 12
CFR 223.2) and that share the same name, mark, or logo. For example, the
term includes franchisees that are subject to a common set of corporate
policies or practices under the terms of their franchise licenses. The
term also applies to two or more merchants or other persons that agree
among themselves, by contract or otherwise, to redeem cards, codes, or
other devices bearing the same name, mark, or logo (other than the mark,
logo, or brand of a payment network), for the purchase of goods or
services solely at such merchants or persons. For example, assume a
movie theatre chain and a restaurant chain jointly agree to issue cards
that share the same ``Flix and Food'' logo that can be redeemed solely
towards the purchase of movie tickets or concessions at any of the
participating movie theatres, or towards the purchase of food or
beverages at any of the participating restaurants. For purposes of Sec.
1005.20, the movie theatre chain and the restaurant chain would be
considered to be an affiliated group of merchants, and the cards are
considered to be ``store gift cards.'' However, merchants or other
persons are not considered to be affiliated merely because they agree to
accept a card that bears the mark, logo, or brand of a payment network.
3. Mall gift cards. See comment 20(a)(3)-2.
20(a)(3) General-Use Prepaid Card
1. Redeemable upon presentation at multiple, unaffiliated merchants.
A card, code, or other device is redeemable upon presentation at
multiple, unaffiliated merchants if, for example, such merchants agree
to honor the card, code, or device if it bears the mark, logo, or brand
of a payment network, pursuant to the rules of the payment network.
2. Mall gift cards. Mall gift cards that are intended to be used or
redeemed for goods or services at participating retailers within a
shopping mall may be considered store gift cards or general-use prepaid
cards depending on the merchants with which the cards may be redeemed.
For example, if a mall card may only be redeemed at merchants within the
mall itself, the card is more likely to be redeemable at an affiliated
group of merchants and considered a store gift card. However, certain
mall cards also carry the brand of a payment network and can be used at
any retailer that accepts that card brand, including retailers located
outside of the mall. Such cards are considered general-use prepaid
cards.
20(a)(4) Loyalty, Award, or Promotional Gift Card
1. Examples of loyalty, award, or promotional programs. Examples of
loyalty, award, or promotional programs under Sec. 1005.20(a)(4)
include, but are not limited to:
i. Consumer retention programs operated or administered by a
merchant or other person that provide to consumers cards or coupons
redeemable for or towards goods or services or other monetary value as a
reward for purchases made or for visits to the participating merchant.
ii. Sales promotions operated or administered by a merchant or
product manufacturer that provide coupons or discounts redeemable for or
towards goods or services or other monetary value.
iii. Rebate programs operated or administered by a merchant or
product manufacturer that provide cards redeemable for or towards goods
or services or other monetary value to consumers in connection with the
consumer's purchase of a product or service and the consumer's
completion of the rebate submission process.
iv. Sweepstakes or contests that distribute cards redeemable for or
towards goods or services or other monetary value to consumers as an
invitation to enter into the promotion for a chance to win a prize.
v. Referral programs that provide cards redeemable for or towards
goods or services or other monetary value to consumers in exchange for
referring other potential consumers to a merchant.
vi. Incentive programs through which an employer provides cards
redeemable for or towards goods or services or other monetary value to
employees, for example, to recognize job performance, such as increased
sales, or to encourage employee wellness and safety.
vii. Charitable or community relations programs through which a
company provides cards redeemable for or towards goods or services or
other monetary value to a charity or community group for their
fundraising purposes, for example, as a reward for a donation or as a
prize in a charitable event.
2. Issued for loyalty, award, or promotional purposes. To indicate
that a card, code, or other device is issued for loyalty, award, or
promotional purposes as required by Sec. 1005.20(a)(4)(iii), it is
sufficient for the card, code, or other device to state on the front,
for example, ``Reward'' or ``Promotional.''
3. Reference to toll-free number and Web site. If a card, code, or
other device issued in connection with a loyalty, award, or promotional
program does not have any fees, the disclosure under Sec.
1005.20(a)(4)(iii)(D) is not required on the card, code, or other
device.
20(a)(6) Service Fee
1. Service fees. Under Sec. 1005.20(a)(6), a service fee includes a
periodic fee for holding or use of a gift certificate, store gift card,
or general-use prepaid card. A periodic fee includes
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any fee that may be imposed on a gift certificate, store gift card, or
general-use prepaid card from time to time for holding or using the
certificate or card, such as a monthly maintenance fee, a transaction
fee, an ATM fee, a reload fee, a foreign currency transaction fee, or a
balance inquiry fee, whether or not the fee is waived for a certain
period of time or is only imposed after a certain period of time. A
service fee does not include a one-time fee or a fee that is unlikely to
be imposed more than once while the underlying funds are still valid,
such as an initial issuance fee, a cash-out fee, a supplemental card
fee, or a lost or stolen certificate or card replacement fee.
20(a)(7) Activity
1. Activity. Under Sec. 1005.20(a)(7), any action that results in
an increase or decrease of the funds underlying a gift certificate,
store gift card, or general-use prepaid card, other than the imposition
of a fee, or an adjustment due to an error or a reversal of a prior
transaction, constitutes activity for purposes of Sec. 1005.20. For
example, the purchase and activation of a certificate or card, the use
of the certificate or card to purchase a good or service, or the
reloading of funds onto a store gift card or general-use prepaid card
constitutes activity. However, the imposition of a fee, the replacement
of an expired, lost, or stolen certificate or card, and a balance
inquiry do not constitute activity. In addition, if a consumer attempts
to engage in a transaction with a gift certificate, store gift card, or
general-use prepaid card, but the transaction cannot be completed due to
technical or other reasons, such attempt does not constitute activity.
Furthermore, if the funds underlying a gift certificate, store gift
card, or general-use prepaid card are adjusted because there was an
error or the consumer has returned a previously purchased good, the
adjustment also does not constitute activity with respect to the
certificate or card.
20(b) Exclusions
1. Application of exclusion. A card, code, or other device is
excluded from the definition of ``gift certificate,'' ``store gift
card,'' or ``general-use prepaid card'' if it meets any of the
exclusions in Sec. 1005.20(b). An excluded card, code, or other device
generally is not subject to any of the requirements of this section.
See, however, Sec. 1005.20(a)(4)(iii), requiring certain disclosures
for loyalty, award, or promotional gift cards.
2. Eligibility for multiple exclusions. A card, code, or other
device may qualify for one or more exclusions. For example, a
corporation may give its employees a gift card that is marketed solely
to businesses for incentive-related purposes, such as to reward job
performance or promote employee safety. In this case, the card may
qualify for the exclusion for loyalty, award, or promotional gift cards
under Sec. 1005.20(b)(3), or for the exclusion for cards, codes, or
other devices not marketed to the general public under Sec.
1005.20(b)(4). In addition, as long as any one of the exclusions
applies, a card, code, or other device is not covered by Sec. 1005.20,
even if other exclusions do not apply. In the above example, the
corporation may give its employees a type of gift card that can also be
purchased by a consumer directly from a merchant. Under these
circumstances, while the card does not qualify for the exclusion for
cards, codes, or other devices not marketed to the general public under
Sec. 1005.20(b)(4) because the card can also be obtained through retail
channels, it is nevertheless exempt from the substantive requirements of
Sec. 1005.20 because it is a loyalty, award, or promotional gift card.
See, however, Sec. 1005.20(a)(4)(iii), requiring certain disclosures
for loyalty, award, or promotional gift cards. Similarly, a person may
market a reloadable card to teenagers for occasional expenses that
enables parents to monitor spending. Although the card does not qualify
for the exclusion for cards, codes, or other devices not marketed to the
general public under Sec. 1005.20(b)(4), it may nevertheless be exempt
from the requirements of Sec. 1005.20 under Sec. 1005.20(b)(2) if it
is reloadable and not marketed or labeled as a gift card or gift
certificate.
Paragraph 20(b)(1)
1. Examples of excluded products. The exclusion for products usable
solely for telephone services applies to prepaid cards for long-distance
telephone service, prepaid cards for wireless telephone service and
prepaid cards for other services that function similar to telephone
services, such as prepaid cards for voice over Internet protocol (VoIP)
access time.
Paragraph 20(b)(2)
1. Reloadable. A card, code, or other device is ``reloadable'' if
the terms and conditions of the agreement permit funds to be added to
the card, code, or other device after the initial purchase or issuance.
A card, code, or other device is not ``reloadable'' merely because the
issuer or processor is technically able to add functionality that would
otherwise enable the card, code, or other device to be reloaded.
2. Marketed or labeled as a gift card or gift certificate. The term
``marketed or labeled as a gift card or gift certificate'' means
directly or indirectly offering, advertising, or otherwise suggesting
the potential use of a card, code or other device, as a gift for another
person. Whether the exclusion applies generally does not depend on the
type of entity that makes the promotional message. For
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example, a card may be marketed or labeled as a gift card or gift
certificate if anyone (other than the purchaser of the card), including
the issuer, the retailer, the program manager that may distribute the
card, or the payment network on which a card is used, promotes the use
of the card as a gift card or gift certificate. A card, code, or other
device, including a general-purpose reloadable card, is marketed or
labeled as a gift card or gift certificate even if it is only
occasionally marketed as a gift card or gift certificate. For example, a
network-branded general purpose reloadable card would be marketed or
labeled as a gift card or gift certificate if the issuer principally
advertises the card as a less costly alternative to a bank account but
promotes the card in a television, radio, newspaper, or Internet
advertisement, or on signage as ``the perfect gift'' during the holiday
season. However, the mere mention of the availability of gift cards or
gift certificates in an advertisement or on a sign that also indicates
the availability of other excluded prepaid cards does not by itself
cause the excluded prepaid cards to be marketed as a gift card or a gift
certificate. For example, the posting of a sign in a store that refers
to the availability of gift cards does not by itself constitute the
marketing of otherwise excluded prepaid cards that may also be sold in
the store as gift cards or gift certificates, provided that a consumer
acting reasonably under the circumstances would not be led to believe
that the sign applies to all prepaid cards sold in the store. See,
however, comment 20(b)(2)-4.ii.
3. Examples of marketed or labeled as a gift card or gift
certificate. i. Examples of marketed or labeled as a gift card or gift
certificate include:
A. Using the word ``gift'' or ``present'' on a card, certificate, or
accompanying material, including documentation, packaging and
promotional displays.
B. Representing or suggesting that a certificate or card can be
given to another person, for example, as a ``token of appreciation'' or
a ``stocking stuffer,'' or displaying a congratulatory message on the
card, certificate or accompanying material.
C. Incorporating gift-giving or celebratory imagery or motifs, such
as a bow, ribbon, wrapped present, candle, or congratulatory message, on
a card, certificate, accompanying documentation, or promotional
material.
ii. The term does not include:
A. Representing that a card or certificate can be used as a
substitute for a checking, savings, or deposit account.
B. Representing that a card or certificate can be used to pay for a
consumer's health-related expenses--for example, a card tied to a health
savings account.
C. Representing that a card or certificate can be used as a
substitute for traveler's checks or cash.
D. Representing that a card or certificate can be used as a
budgetary tool, for example, by teenagers, or to cover emergency
expenses.
4. Reasonable policies and procedures to avoid marketing as a gift
card. The exclusion for a card, code, or other device that is reloadable
and not marketed or labeled as a gift card or gift certificate in Sec.
1005.20(b)(2) applies if a reloadable card, code, or other device is not
marketed or labeled as a gift card or gift certificate and if persons
subject to the rule, including issuers, program managers, and retailers,
maintain policies and procedures reasonably designed to avoid such
marketing. Such policies and procedures may include contractual
provisions prohibiting a reloadable card, code, or other device from
being marketed or labeled as a gift card or gift certificate,
merchandising guidelines or plans regarding how the product must be
displayed in a retail outlet, and controls to regularly monitor or
otherwise verify that the card, code or other device is not being
marketed as a gift card. Whether a reloadable card, code, or other
device has been marketed as a gift card or gift certificate will depend
on the facts and circumstances, including whether a reasonable consumer
would be led to believe that the card, code, or other device is a gift
card or gift certificate. The following examples illustrate the
application of Sec. 1005.20(b)(2):
i. An issuer or program manager of prepaid cards agrees to sell
general-purpose reloadable cards through a retailer. The contract
between the issuer or program manager and the retailer establishes the
terms and conditions under which the cards may be sold and marketed at
the retailer. The terms and conditions prohibit the general-purpose
reloadable cards from being marketed as a gift card or gift certificate,
and require policies and procedures to regularly monitor or otherwise
verify that the cards are not being marketed as such. The issuer or
program manager sets up one promotional display at the retailer for gift
cards and another physically separated display for excluded products
under Sec. 1005.20(b), including general-purpose reloadable cards and
wireless telephone cards, such that a reasonable consumer would not
believe that the excluded cards are gift cards. The exclusion in Sec.
1005.20(b)(2) applies because policies and procedures reasonably
designed to avoid the marketing of the general-purpose reloadable cards
as gift cards or gift certificates are maintained, even if a retail
clerk inadvertently stocks or a consumer inadvertently places a general-
purpose reloadable card on the gift card display.
ii. Same facts as in i., except that the issuer or program manager
sets up a single
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promotional display at the retailer on which a variety of prepaid cards
are sold, including store gift cards and general-purpose reloadable
cards. A sign stating ``Gift Cards'' appears prominently at the top of
the display. The exclusion in Sec. 1005.20(b)(2) does not apply with
respect to the general-purpose reloadable cards because policies and
procedures reasonably designed to avoid the marketing of excluded cards
as gift cards or gift certificates are not maintained.
iii. Same facts as in i., except that the issuer or program manager
sets up a single promotional multi-sided display at the retailer on
which a variety of prepaid card products, including store gift cards and
general-purpose reloadable cards are sold. Gift cards are segregated
from excluded cards, with gift cards on one side of the display and
excluded cards on a different side of a display. Signs of equal
prominence at the top of each side of the display clearly differentiate
between gift cards and the other types of prepaid cards that are
available for sale. The retailer does not use any more conspicuous
signage suggesting the general availability of gift cards, such as a
large sign stating ``Gift Cards'' at the top of the display or located
near the display. The exclusion in Sec. 1005.20(b)(2) applies because
policies and procedures reasonably designed to avoid the marketing of
the general-purpose reloadable cards as gift cards or gift certificates
are maintained, even if a retail clerk inadvertently stocks or a
consumer inadvertently places a general-purpose reloadable card on the
gift card display.
iv. Same facts as in i., except that the retailer sells a variety of
prepaid card products, including store gift cards and general-purpose
reloadable cards, arranged side-by-side in the same checkout lane. The
retailer does not affirmatively indicate or represent that gift cards
are available, such as by displaying any signage or other indicia at the
checkout lane suggesting the general availability of gift cards. The
exclusion in Sec. 1005.20(b)(2) applies because policies and procedures
reasonably designed to avoid marketing the general-purpose reloadable
cards as gift cards or gift certificates are maintained.
5. Online sales of prepaid cards. Some Web sites may prominently
advertise or promote the availability of gift cards or gift certificates
in a manner that suggests to a consumer that the Web site exclusively
sells gift cards or gift certificates. For example, a Web site may
display a banner advertisement or a graphic on the home page that
prominently states ``Gift Cards,'' ``Gift Giving,'' or similar language
without mention of other available products, or use a web address that
includes only a reference to gift cards or gift certificates in the
address. In such a case, a consumer acting reasonably under the
circumstances could be led to believe that all prepaid products sold on
the Web site are gift cards or gift certificates. Under these facts, the
Web site has marketed all such products, including general-purpose
reloadable cards, as gift cards or gift certificates, and the exclusion
in Sec. 1005.20(b)(2) does not apply.
6. Temporary non-reloadable cards issued in connection with a
general-purpose reloadable card. Certain general-purpose reloadable
cards that are typically marketed as an account substitute initially may
be sold or issued in the form of a temporary non-reloadable card. After
the card is purchased, the cardholder is typically required to call the
issuer to register the card and to provide identifying information in
order to obtain a reloadable replacement card. In most cases, the
temporary non-reloadable card can be used for purchases until the
replacement reloadable card arrives and is activated by the cardholder.
Because the temporary non-reloadable card may only be obtained in
connection with the general-purpose reloadable card, the exclusion in
Sec. 1005.20(b)(2) applies so long as the card is not marketed as a
gift card or gift certificate.
Paragraph 20(b)(4)
1. Marketed to the general public. A card, code, or other device is
marketed to the general public if the potential use of the card, code,
or other device is directly or indirectly offered, advertised, or
otherwise promoted to the general public. A card, code, or other device
may be marketed to the general public through any advertising medium,
including television, radio, newspaper, the Internet, or signage.
However, the posting of a company policy that funds may be disbursed by
prepaid card (such as a sign posted at a cash register or customer
service center stating that store credit will be issued by prepaid card)
does not constitute the marketing of a card, code, or other device to
the general public. In addition, the method of distribution by itself is
not dispositive in determining whether a card, code, or other device is
marketed to the general public. Factors that may be considered in
determining whether the exclusion applies to a particular card, code, or
other device include the means or channel through which the card, code,
or device may be obtained by a consumer, the subset of consumers that
are eligible to obtain the card, code, or device, and whether the
availability of the card, code, or device is advertised or otherwise
promoted in the marketplace.
2. Examples. The following examples illustrate the application of
the exclusion in Sec. 1005.20(b)(4):
i. A merchant sells its gift cards at a discount to a business which
may give them to employees or loyal consumers as incentives or rewards.
In determining whether the gift card falls within the exclusion in Sec.
1005.20(b)(4), the merchant must consider
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whether the card is of a type that is advertised or made available to
consumers generally or can be obtained elsewhere. If the card can also
be purchased through retail channels, the exclusion in Sec.
1005.20(b)(4) does not apply, even if the consumer obtained the card
from the business as an incentive or reward. See, however, Sec.
1005.20(b)(3).
ii. A national retail chain decides to market its gift cards only to
members of its frequent buyer program. Similarly, a bank may decide to
sell gift cards only to its customers. If a member of the general public
may become a member of the program or a customer of the bank, the card
does not fall within the exclusion in Sec. 1005.20(b)(4) because the
general public has the ability to obtain the cards. See, however, Sec.
1005.20(b)(3).
iii. A card issuer advertises a reloadable card to teenagers and
their parents promoting the card for use by teenagers for occasional
expenses, schoolbooks and emergencies and by parents to monitor
spending. Because the card is marketed to and may be sold to any member
of the general public, the exclusion in Sec. 1005.20(b)(4) does not
apply. See, however, Sec. 1005.20(b)(2).
iv. An insurance company settles a policyholder's claim and
distributes the insurance proceeds to the consumer by means of a prepaid
card. Because the prepaid card is simply the means for providing the
insurance proceeds to the consumer and the availability of the card is
not advertised to the general public, the exclusion in Sec.
1005.20(b)(4) applies.
v. A merchant provides store credit to a consumer following a
merchandise return by issuing a prepaid card that clearly indicates that
the card contains funds for store credit. Because the prepaid card is
issued for the stated purpose of providing store credit to the consumer
and the ability to receive refunds by a prepaid card is not advertised
to the general public, the exclusion in Sec. 1005.20(b)(4) applies.
vi. A tax preparation company elects to distribute tax refunds to
its clients by issuing prepaid cards, but does not advertise or
otherwise promote the ability to receive proceeds in this manner.
Because the prepaid card is simply the mechanism for providing the tax
refund to the consumer, and the tax preparer does not advertise the
ability to obtain tax refunds by a prepaid card, the exclusion in Sec.
1005.20(b)(4) applies. However, if the tax preparer promotes the ability
to receive tax refund proceeds through a prepaid card as a way to obtain
``faster'' access to the proceeds, the exclusion in Sec. 1005.20(b)(4)
does not apply.
Paragraph 20(b)(5)
1. Exclusion explained. To qualify for the exclusion in Sec.
1005.20(b)(5), the sole means of issuing the card, code, or other device
must be in a paper form. Thus, the exclusion generally applies to
certificates issued in paper form where solely the paper itself may be
used to purchase goods or services. A card, code or other device is not
issued solely in paper form simply because it may be reproduced or
printed on paper. For example, a bar code, card or certificate number,
or certificate or coupon electronically provided to a consumer and
redeemable for goods and services is not issued in paper form, even if
it may be reproduced or otherwise printed on paper by the consumer. In
this circumstance, although the consumer might hold a paper facsimile of
the card, code, or other device, the exclusion does not apply because
the information necessary to redeem the value was initially issued in
electronic form. A paper certificate is within the exclusion regardless
of whether it may be redeemed electronically. For example, a paper
certificate or receipt that bears a bar code, code, or account number
falls within the exclusion in Sec. 1005.20(b)(5) if the bar code, code,
or account number is not issued in any form other than on the paper. In
addition, the exclusion in Sec. 1005.20(b)(5) continues to apply in
circumstances where an issuer replaces a gift certificate that was
initially issued in paper form with a card or electronic code (for
example, to replace a lost paper certificate).
2. Examples. The following examples illustrate the application of
the exclusion in Sec. 1005.20(b)(5):
i. A merchant issues a paper gift certificate that entitles the
bearer to a specified dollar amount that can be applied towards a future
meal. The merchant fills in the certificate with the name of the
certificate holder and the amount of the certificate. The certificate
falls within the exclusion in Sec. 1005.20(b)(5) because it is issued
in paper form only.
ii. A merchant allows a consumer to prepay for a good or service,
such as a car wash or time at a parking meter, and issues a paper
receipt bearing a numerical or bar code that the consumer may redeem to
obtain the good or service. The exclusion in Sec. 1005.20(b)(5) applies
because the code is issued in paper form only.
iii. A merchant issues a paper certificate or receipt bearing a bar
code or certificate number that can later be scanned or entered into the
merchant's system and redeemed by the certificate or receipt holder
towards the purchase of goods or services. The bar code or certificate
number is not issued by the merchant in any form other than paper. The
exclusion in Sec. 1005.20(b)(5) applies because the bar code or
certificate number is issued in paper form only.
iv. An online merchant electronically provides a bar code, card or
certificate number, or certificate or coupon to a consumer that the
consumer may print on a home printer and later redeem towards the
purchase of goods or services. The exclusion in Sec. 1005.20(b)(5) does
not apply because the bar
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code or card or certificate number was issued to the consumer in
electronic form, even though it can be reproduced or otherwise printed
on paper by the consumer.
Paragraph 20(b)(6)
1. Exclusion explained. The exclusion for cards, codes, or other
devices that are redeemable solely for admission to events or venues at
a particular location or group of affiliated locations generally applies
to cards, codes, or other devices that are not redeemed for a specified
monetary value, but rather solely for admission or entry to an event or
venue. The exclusion also covers a card, code, or other device that is
usable to purchase goods or services in addition to entry into the event
or the venue, either at the event or venue or at an affiliated location
or location in geographic proximity to the event or venue.
2. Examples. The following examples illustrate the application of
the exclusion in Sec. 1005.20(b)(6):
i. A consumer purchases a prepaid card that entitles the holder to a
ticket for entry to an amusement park. The prepaid card may only be used
for entry to the park. The card qualifies for the exclusion in Sec.
1005.20(b)(6) because it is redeemable for admission or entry and for
goods or services in conjunction with that admission. In addition, if
the prepaid card does not have a monetary value, and therefore is not
``issued in a specified amount,'' the card does not meet the definitions
of ``gift certificate,'' ``store gift card,'' or ``general-use prepaid
card'' in Sec. 1005.20(a). See comment 20(a)-3.
ii. Same facts as in i., except that the gift card also entitles the
holder of the gift card to a dollar amount that can be applied towards
the purchase of food and beverages or goods or services at the park or
at nearby affiliated locations. The card qualifies for the exclusion in
Sec. 1005.20(b)(6) because it is redeemable for admission or entry and
for goods or services in conjunction with that admission.
iii. A consumer purchases a $25 gift card that the holder of the
gift card can use to make purchases at a merchant, or, alternatively,
can apply towards the cost of admission to the merchant's affiliated
amusement park. The card is not eligible for the exclusion in Sec.
1005.20(b)(6) because it is not redeemable solely for the admission or
ticket itself (or for goods and services purchased in conjunction with
such admission). The card meets the definition of ``store gift card''
and is therefore subject to Sec. 1005.20, unless a different exclusion
applies.
20(c) Form of Disclosures
20(c)(1) Clear and Conspicuous
1. Clear and conspicuous standard. All disclosures required by this
section must be clear and conspicuous. Disclosures are clear and
conspicuous for purposes of this section if they are readily
understandable and, in the case of written and electronic disclosures,
the location and type size are readily noticeable to consumers.
Disclosures need not be located on the front of the certificate or card,
except where otherwise required, to be considered clear and conspicuous.
Disclosures are clear and conspicuous for the purposes of this section
if they are in a print that contrasts with and is otherwise not
obstructed by the background on which they are printed. For example,
disclosures on a card or computer screen are not likely to be
conspicuous if obscured by a logo printed in the background. Similarly,
disclosures on the back of a card that are printed on top of
indentations from embossed type on the front of the card are not likely
to be conspicuous if the indentations obstruct the readability of the
disclosures. To the extent permitted, oral disclosures meet the standard
when they are given at a volume and speed sufficient for a consumer to
hear and comprehend them.
2. Abbreviations and symbols. Disclosures may contain commonly
accepted or readily understandable abbreviations or symbols, such as
``mo.'' for month or a ``/'' to indicate ``per.'' Under the clear and
conspicuous standard, it is sufficient to state, for example, that a
particular fee is charged ``$2.50/mo. after 12 mos.''
20(c)(2) Format
1. Electronic disclosures. Disclosures provided electronically
pursuant to this section are not subject to compliance with the consumer
consent and other applicable provisions of the Electronic Signatures in
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).
Electronic disclosures must be in a retainable form. For example, a
person may satisfy the requirement if it provides an online disclosure
in a format that is capable of being printed. Electronic disclosures may
not be provided through a hyperlink or in another manner by which the
purchaser can bypass the disclosure. A person is not required to confirm
that the consumer has read the electronic disclosures.
20(c)(3) Disclosure Prior to Purchase
1. Method of purchase. The disclosures required by this paragraph
must be provided before a certificate or card is purchased regardless of
whether the certificate or card is purchased in person, online, by
telephone, or by other means.
2. Electronic disclosures. Section 1005.20(c)(3) provides that the
disclosures required by this section must be provided to the consumer
prior to purchase. For certificates or cards purchased electronically,
disclosures made
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to the consumer after a consumer has initiated an online purchase of a
certificate or card, but prior to completing the purchase of the
certificate or card, would satisfy the prior-to-purchase requirement.
However, electronic disclosures made available on a person's Web site
that may or may not be accessed by the consumer are not provided to the
consumer and therefore would not satisfy the prior-to-purchase
requirement.
3. Non-physical certificates and cards. If no physical certificate
or card is issued, the disclosures must be provided to the consumer
before the certificate or card is purchased. For example, where a gift
certificate or card is a code that is provided by telephone, the
required disclosures may be provided orally prior to purchase. See also
Sec. 1005.20(c)(2).
20(c)(4) Disclosures on the Certificate or Card
1. Non-physical certificates and cards. If no physical certificate
or card is issued, the disclosures required by this paragraph must be
disclosed on the code, confirmation, or other written or electronic
document provided to the consumer. For example, where a gift certificate
or card is a code or confirmation that is provided to a consumer online
or sent to a consumer's email address, the required disclosures may be
provided electronically on the same document as the code or
confirmation.2. No disclosures on a certificate or card. Disclosures
required by Sec. 1005.20(c)(4) need not be made on a certificate or
card if it is accompanied by a certificate or card that complies with
this section. For example, a person may issue or sell a supplemental
gift card that is smaller than a standard size and that does not bear
the applicable disclosures if it is accompanied by a fully compliant
certificate or card. See also comment 20(c)(2)-2.
20(d) Prohibition on Imposition of Fees or Charges
1. One-year period. Section 1005.20(d) provides that a person may
impose a dormancy, inactivity, or service fee only if there has been no
activity with respect to a certificate or card for one year. The
following examples illustrate this rule:
i. A certificate or card is purchased on January 15 of year one. If
there has been no activity on the certificate or card since the
certificate or card was purchased, a dormancy, inactivity, or service
fee may be imposed on the certificate or card on January 15 of year two.
ii. Same facts as i., and a fee was imposed on January 15 of year
two. Because no more than one dormancy, inactivity, or service fee may
be imposed in any given calendar month, the earliest date that another
dormancy, inactivity, or service fee may be imposed, assuming there
continues to be no activity on the certificate or card, is February 1 of
year two. A dormancy, inactivity, or service fee is permitted to be
imposed on February 1 of year two because there has been no activity on
the certificate or card for the preceding year (February 1 of year one
through January 31 of year two), and February is a new calendar month.
The imposition of a fee on January 15 of year two is not activity for
purposes of Sec. 1005.20(d). See comment 20(a)(7)-1.
iii. Same facts as i., and a fee was imposed on January 15 of year
two. On January 31 of year two, the consumer uses the card to make a
purchase. Another dormancy, inactivity, or service fee could not be
imposed until January 31 of year three, assuming there has been no
activity on the certificate or card since January 31 of year two.
2. Relationship between 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 by Sec. 1005.20(d)(2),
are visible to the consumer without having to remove packaging or other
materials sold with the certificate or card, for a purchase made in
person, the disclosures also meet the requirements of Sec.
1005.20(c)(3). Otherwise, a dormancy, inactivity, or service fee may
need to be disclosed multiple times to satisfy the requirements of
Sec. Sec. 1005.20(d)(2) and (c)(3). For example, if the disclosures on
a certificate or card, required by Sec. 1005.20(d)(2), are obstructed
by packaging sold with the certificate or card, for a purchase made in
person, they also must be disclosed on the packaging sold with the
certificate or card to meet the requirements of Sec. 1005.20(c)(3).
3. Relationship between Sec. Sec. 1005.20(d)(2), (e)(3), and
(f)(2). In addition to any disclosures required under Sec.
1005.20(d)(2), any applicable disclosures under 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. Under Sec. 1005.20(d)(3), no more than one
dormancy, inactivity, or service fee may be imposed in any given
calendar month. For example, if a dormancy fee is imposed on January 1,
following a year of inactivity, and a consumer makes a balance inquiry
on January 15, a balance inquiry fee may not be imposed at that time
because a dormancy fee was already imposed earlier that month and a
balance inquiry fee is a
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type of service fee. If, however, the dormancy fee could be imposed on
January 1, following a year of inactivity, and the consumer makes a
balance inquiry on the same date, the person assessing the fees may
choose whether to impose the dormancy fee or the balance inquiry fee on
January 1. The restriction in Sec. 1005.20(d)(3) does not apply to any
fee that is not a dormancy, inactivity, or service fee. For example,
assume a service fee is imposed on a general-use prepaid card on January
1, following a year of inactivity. If a consumer cashes out the
remaining funds by check on January 15, a cash-out fee, to the extent
such cash-out fee is permitted under Sec. 1005.20(e)(4), may be imposed
at that time because a cash-out fee is not a dormancy, inactivity, or
service fee.
5. Accumulation of fees. Section 1005.20(d) prohibits the
accumulation of dormancy, inactivity, or service fees for previous
periods into a single fee because such a practice would circumvent the
limitation in Sec. 1005.20(d)(3) that only one fee may be charged per
month. For example, if a consumer purchases and activates a store gift
card on January 1 but never uses the card, a monthly maintenance fee of
$2.00 a month may not be accumulated such that a fee of $24 is imposed
on January 1 the following year.
20(e) Prohibition on Sale of Gift Certificates or Cards With Expiration
Dates
1. Reasonable opportunity. Under Sec. 1005.20(e)(1), no person may
sell or issue a gift certificate, store gift card, or general-use
prepaid card with an expiration date, unless there are policies and
procedures in place to provide consumers with a reasonable opportunity
to purchase a certificate or card with at least five years remaining
until the certificate or card expiration date. Consumers are deemed to
have a reasonable opportunity to purchase a certificate or card with at
least five years remaining until the certificate or card expiration date
if:
i. There are policies and procedures established to prevent the sale
of a certificate or card unless the certificate or card expiration date
is at least five years after the date the certificate or card was sold
or initially issued to a consumer; or
ii. A certificate or card is available to consumers to purchase five
years and six months before the certificate or card expiration date.
2. Applicability to replacement certificates or cards. Section
1005.20(e)(1) applies solely to the purchase of a certificate or card.
Therefore, Sec. 1005.20(e)(1) does not apply to the replacement of such
certificates or cards. Certificates or cards issued as a replacement may
bear a certificate or card expiration date of less than five years from
the date of issuance of the replacement certificate or card. If the
certificate or card expiration date for a replacement certificate or
card is later than the date set forth in Sec. 1005.20(e)(2)(i), then
pursuant to Sec. 1005.20(e)(2), the expiration date for the underlying
funds at the time the replacement certificate or card is issued must be
no earlier than the expiration date for the replacement certificate or
card. For purposes of Sec. 1005.20(e)(2), funds are not considered to
be loaded to a store gift card or general-use prepaid card solely
because a replacement card has been issued or activated for use.
3. Disclosure of funds expiration--date not required. Section
1005.20(e)(3)(i) does not require disclosure of the precise date the
funds will expire. It is sufficient to disclose, for example, ``Funds
expire 5 years from the date funds last loaded to the card.''; ``Funds
can be used 5 years from the date money was last added to the card.'';
or ``Funds do not expire.''
4. Disclosure not required if no expiration date. If the certificate
or card and underlying funds do not expire, the disclosure required by
Sec. 1005.20(e)(3)(i) need not be stated on the certificate or card. If
the certificate or card and underlying funds expire at the same time,
only one expiration date need be disclosed on the certificate or card.
5. Reference to toll-free telephone number and Web site. If a
certificate or card does not expire, or if the underlying funds are not
available after the certificate or card expires, the disclosure required
by Sec. 1005.20(e)(3)(ii) need not be stated on the certificate or
card. See, however, Sec. 1005.20(f)(2).
6. Relationship to Sec. 226.20(f)(2). The same toll-free telephone
number and Web site may be used to comply with 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
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not be embossed on the certificate or card to be deemed equally
prominent, even if the expiration date is embossed on the certificate or
card. The disclosure may state on the front of the card, for example,
``Funds expire after card. Call for replacement card.'' or ``Funds do
not expire. Call for new card after 09/2016.'' Disclosures made pursuant
to Sec. 1005.20(e)(3)(iii)(A) may also fulfill the requirements of
Sec. 1005.20(e)(3)(i). For example, making a disclosure that ``Funds do
not expire'' to comply with Sec. 1005.20(e)(3)(iii)(A) also fulfills
the requirements of Sec. 1005.20(e)(3)(i).
8. Expiration date safe harbor. A non-reloadable certificate or card
that bears an expiration date that is at least seven years from the date
of manufacture need not state the disclosure required by Sec.
1005.20(e)(3)(iii). However, Sec. 1005.20(e)(1) still prohibits the
sale or issuance of such certificate or card unless there are policies
and procedures in place to provide a consumer with a reasonable
opportunity to purchase the certificate or card with at least five years
remaining until the certificate or card expiration date. In addition,
under Sec. 1005.20(e)(2), the funds may not expire before the
certificate or card expiration date, even if the expiration date of the
certificate or card bears an expiration date that is more than five
years from the date of purchase. For purposes of this safe harbor, the
date of manufacture is the date on which the certificate or card
expiration date is printed on the certificate or card.
9. Relationship between Sec. Sec. 1005.20(d)(2), (e)(3), and
(f)(2). In addition to any disclosures required to be made under Sec.
1005.20(e)(3), any applicable disclosures under 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 of Sec.
1005.20(e)(2)(i), a certificate or card is not issued or loaded with
funds until the certificate or card is activated for use.
13. Application of expiration date provisions after redemption of
certificate or card. The requirement that funds underlying a certificate
or card must not expire for at least five years from the date of
issuance or date of last load ceases to apply once the certificate or
card has been fully redeemed, even if the underlying funds are not used
to contemporaneously purchase a specific good or service. For example,
some certificates or cards can be used to purchase music, media, or
virtual goods. Once redeemed by a consumer, the entire balance on the
certificate or card is debited from the certificate or card and credited
or transferred to another ``account'' established by the merchant of
such goods or services. The consumer can then make purchases of songs,
media, or virtual goods from the merchant using that ``account'' either
at the time the value is transferred from the certificate or card or at
a later time. Under these circumstances, once the card has been fully
redeemed and the ``account'' credited with the amount of the underlying
funds, the five-year minimum expiration term no longer applies to the
underlying funds. However, if the consumer only partially redeems the
value of the certificate or card, the five-year minimum expiration term
requirement continues to apply to the funds remaining on the certificate
or card.
20(f) Additional Disclosure Requirements for Gift Certificates or Cards
1. Reference to toll-free telephone number and Web site. If a
certificate or card does not have any fees, the disclosure under Sec.
1005.20(f)(2) is not required on the certificate or card. See, however,
Sec. 1005.20(e)(3)(ii).
2. Relationship to Sec. 226.20(e)(3)(ii). The same toll-free
telephone number and Web site may be used to comply with 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 to Sec.
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 of Sec. 1005.20(g)(2), the period of eligibility
is the time period during which a consumer must engage in a certain
action or actions to meet the terms of eligibility for a loyalty, award,
or promotional program and obtain the card, code, or other device. Under
Sec. 1005.20(g)(2), a gift card issued pursuant to a loyalty, award, or
promotional program that began prior to August 22, 2010 need not state
the disclosures in Sec. 1005.20(a)(4)(iii) regardless of whether the
consumer became eligible to receive the gift card prior to August 22,
2010, or after that date. For example, a product manufacturer may
provide a $20 rebate card to a consumer
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if the consumer purchases a particular product and submits a fully
completed entry between January 1, 2010 and December 31, 2010.
Similarly, a merchant may provide a $20 gift card to a consumer if the
consumer makes $200 worth of qualifying purchases between June 1, 2010
and October 30, 2010. Under both examples, gift cards provided pursuant
to these loyalty, award, or promotional programs need not state the
disclosures in Sec. 1005.20(a)(4)(iii) to qualify for the exclusion in
Sec. 1005.20(b)(3) for loyalty, award, or promotional gift cards
because the period of eligibility for each program began prior to August
22, 2010.
20(h) Temporary Exemption
20(h)(1) Delayed Effective Date
1. Application to certificates or cards produced prior to April 1,
2010. Certificates or cards produced prior to April 1, 2010 may be sold
to a consumer on or after August 22, 2010 without satisfying the
requirements of 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 by Sec. 1005.20(h)(2) do
not apply to gift cards produced prior to April 1, 2010 that do not have
fees and do not expire, and which otherwise comply with the rule.
2. Expiration of temporary exemption. Certificates or cards produced
prior to April 1, 2010 that do not fully comply with 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 by Sec. 1005.20(h)(2) through a third party, such
as a retailer or merchant. For example, an issuer may have a merchant
install in-store signage with the disclosures required by Sec.
1005.20(h)(2) on the issuer's behalf.
2. General advertising disclosures. Section 1005.20(h)(2) does not
impose an obligation on the issuer to advertise gift certificates, store
gift cards, or general-use prepaid cards.
Section 1005.30--Remittance Transfer Definitions
1. Applicability of definitions in subpart A. Except as modified or
limited by subpart B (which modifications or limitations apply only to
subpart B), the definitions in Sec. 1005.2 apply to all of Regulation
E, including subpart B.
30(b) Business Day
1. General. A business day, as defined in Sec. 1005.30(b), includes
the entire 24-hour period ending at midnight, and a notice given
pursuant to any section of subpart B is effective even if given outside
of normal business hours. A remittance transfer provider is not required
under subpart B to make telephone lines available on a 24-hour basis.
2. Substantially all business functions. ``Substantially all
business functions'' include both the public and the back-office
operations of the provider. For example, if the offices of a provider
are open on Saturdays for customers to request remittance transfers, but
not for performing internal functions (such as investigating errors),
then Saturday is not a business day for that provider. In this case,
Saturday does not count toward the business-day standard set by subpart
B for resolving errors, processing refunds, etc.
3. Short hours. A provider may determine, at its election, whether
an abbreviated day is a business day. For example, if a provider engages
in substantially all business functions until noon on Saturdays instead
of its usual 3 p.m. closing, it may consider Saturday a business day.
4. Telephone line. If a provider makes a telephone line available on
Sundays for cancelling the transfer, but performs no other business
functions, Sunday is not a business day under the ``substantially all
business functions'' standard.
30(c) Designated Recipient
1. Person. A designated recipient can be either a natural person or
an organization, such as a corporation. See Sec. 1005.2(j) (definition
of person). The designated recipient is identified by the name of the
person provided by the sender to the remittance transfer provider and
disclosed by the provider to the sender pursuant to Sec.
1005.31(b)(1)(iii).
2. Location in a foreign country. i. A remittance transfer is
received at a location in a foreign country if funds are to be received
at a location physically outside of any State, as defined in Sec.
1005.2(l). A specific pick-up location need not be designated for funds
to be received at a location in a foreign country. If it is specified
that the funds will be transferred to a foreign country to be picked up
by the designated recipient, the transfer will be received at a location
in a foreign country, even though a specific pick-up location within
that country has not been designated. If it is specified that the funds
will be received at a location on a U.S. military installation that is
physically located in a foreign country, the transfer will be received
in a State.
ii. For transfers to a prepaid account (other than a prepaid account
that is a payroll card account or a government benefit account), where
the funds are to be received in
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a location physically outside of any State depends on whether the
provider at the time the transfer is requested has information
indicating that funds are to be received in a foreign country. See
comments 30(c)-2.iii and 30(e)-3.i.C for illustrations of when a
remittance transfer provider would have such information and when the
provider would not. For transfers to all other accounts, whether funds
are to be received at a location physically outside of any State depends
on where the account is located. If the account is located in a State,
the funds will not be received at a location in a foreign country.
Further, for these accounts, if they are located on a U.S. military
installation that is physically located in a foreign country, then these
accounts are located in a State.
iii. Where the sender does not specify information about a
designated recipient's account, but instead provides information about
the recipient, a remittance transfer provider may make the determination
of whether the funds will be received at a location in a foreign country
on information that is provided by the sender, and other information the
provider may have, at the time the transfer is requested. For example,
if a consumer in a State gives a provider the recipient's email address,
and the provider has no other information about whether the funds will
be received by the recipient at a location in a foreign country, then
the provider may determine that funds are not to be received at a
location in a foreign country. However, if the provider at the time the
transfer is requested has additional information indicating that funds
are to be received in a foreign country, such as if the recipient's
email address is already registered with the provider and associated
with a foreign account, then the provider has sufficient information to
conclude that the remittance transfer will be received at a location in
a foreign country. Similarly, if a consumer in a State purchases a
prepaid card, and the provider mails or delivers the card directly to
the consumer, the provider may conclude that funds are not to be
received in a foreign country, because the provider does not know
whether the consumer will subsequently send the prepaid card to a
recipient in a foreign country. In contrast, the provider has sufficient
information to conclude that the funds are to be received in a foreign
country if the remittance transfer provider sends a prepaid card to a
specified recipient in a foreign country, even if a person located in a
State, including the sender, retains the ability to access funds on the
prepaid card.
3. Sender as designated recipient. A ``sender,'' as defined in Sec.
1005.30(g), may also be a designated recipient if the sender meets the
definition of ``designated recipient'' in Sec. 1005.30(c). For example,
a sender may request that a provider send an electronic transfer of
funds from the sender's checking account in a State to the sender's
checking account located in a foreign country. In this case, the sender
would also be a designated recipient.
30(d) Preauthorized Remittance Transfer
1. Advance authorization. A preauthorized remittance transfer is a
remittance transfer authorized in advance of a transfer that will take
place on a recurring basis, at substantially regular intervals, and will
require no further action by the consumer to initiate the transfer. In a
bill-payment system, for example, if the consumer authorizes a
remittance transfer provider to make monthly payments to a payee by
means of a remittance transfer, and the payments take place without
further action by the consumer, the payments are preauthorized
remittance transfers. In contrast, if the consumer must take action each
month to initiate a transfer (such as by entering instructions on a
telephone or home computer), the payments are not preauthorized
remittance transfers.
30(e) Remittance Transfer
1. Electronic transfer of funds. The definition of ``remittance
transfer'' requires an electronic transfer of funds. The term electronic
has the meaning given in section 106(2) of the Electronic Signatures in
Global and National Commerce Act. There may be an electronic transfer of
funds if a provider makes an electronic book entry between different
settlement accounts to effectuate the transfer. However, where a sender
mails funds directly to a recipient, or provides funds to a courier for
delivery to a foreign country, there is not an electronic transfer of
funds. Similarly, generally, where a provider issues a check, draft, or
other paper instrument to be mailed to a person abroad, there is not an
electronic transfer of funds. Nonetheless, an electronic transfer of
funds occurs for a payment made by a provider under a bill-payment
service available to a consumer via computer or other electronic means,
unless the terms of the bill-payment service explicitly state that all
payments, or all payments to a particular payee or payees, will be
solely by check, draft, or similar paper instrument drawn on the
consumer's account to be mailed abroad, and the payee or payees that
will be paid in this manner are identified to the consumer. With respect
to such a bill-payment service, if a provider provides a check, draft or
similar paper instrument drawn on a consumer's account to be mailed
abroad for a payee that is not identified to the consumer as described
above, this payment by check, draft or similar payment instrument will
be an electronic transfer of funds.
2. Sent by a remittance transfer provider. i. The definition of
``remittance transfer'' requires that a transfer be ``sent by a
remittance transfer provider.'' This means that
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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
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 more frequently than on
an occasional basis, the institution provides remittance transfers in
the normal course of business.
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ii. Safe harbor. On July 21, 2020, the safe harbor threshold in
Sec. 1005.30(f)(2)(i) changed from 100 remittance transfers to 500
remittance transfers. Under Sec. 1005.30(f)(2)(i), beginning on July
21, 2020, a person that provided 500 or fewer remittance transfers in
the previous calendar year and provides 500 or fewer remittance
transfers in the current calendar year is deemed not to be providing
remittance transfers in the normal course of its business. Accordingly,
a person that qualifies for the safe harbor in Sec. 1005.30(f)(2)(i) is
not a ``remittance transfer provider'' and is not subject to the
requirements of subpart B. For purposes of determining whether a person
qualifies for the safe harbor under Sec. 1005.30(f)(2)(i), the number
of remittance transfers provided includes any transfers excluded from
the definition of ``remittance transfer'' due simply to the safe harbor.
In contrast, the number of remittance transfers provided does not
include any transfers that are excluded from the definition of
``remittance transfer'' for reasons other than the safe harbor, such as
small value transactions or securities and commodities transfers that
are excluded from the definition of ``remittance transfer'' by Sec.
1005.30(e)(2).
iii. Transition period. A person may cease to satisfy the
requirements of the safe harbor described in Sec. 1005.30(f)(2)(i) if,
beginning on July 21, 2020, the person provides in excess of 500
remittance transfers in a calendar year. For example, if a person that
provided 500 or fewer remittance transfers in the previous calendar year
provides more than 500 remittance transfers in the current calendar
year, the safe harbor applies to the first 500 remittance transfers that
the person provides in the current calendar year. For any additional
remittance transfers provided in the current calendar year and for any
remittance transfers provided in the subsequent calendar year, whether
the person provides remittance transfers for a consumer in the normal
course of its business, as defined in Sec. 1005.30(f)(1), and is thus a
remittance transfer provider for those additional transfers, depends on
the facts and circumstances. Section 1005.30(f)(2)(ii) provides a
reasonable period of time, not to exceed six months, for such a person
to begin complying with subpart B, if that person is then providing
remittance transfers in the normal course of its business. At the end of
that reasonable period of time, such person would be required to comply
with subpart B unless, based on the facts and circumstances, the person
is not a remittance transfer provider.
iv. Examples. A. Example of safe harbor and transition period for
100-transfer safe harbor threshold effective prior to July 21, 2020.
Assume that a person provided 90 remittance transfers in 2012 and 90
such transfers in 2013. The safe harbor applied to the person's
transfers in 2013, as well as the person's first 100 remittance
transfers in 2014. However, if the person provided a 101st transfer on
September 5, 2014, the facts and circumstances determine whether the
person provided remittance transfers in the normal course of business
and was thus a remittance transfer provider for the 101st and any
subsequent remittance transfers that it provided in 2014. Furthermore,
the person would not have qualified for the safe harbor described in
Sec. 1005.30(f)(2)(i) in 2015 because the person did not provide 100 or
fewer remittance transfers in 2014. However, for the 101st remittance
transfer provided in 2014, as well as additional remittance transfers
provided thereafter in 2014 and 2015, if that person was then providing
remittance transfers for a consumer in the normal course of business,
the person had 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
was 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 was required to comply with subpart B if, based on the facts
and circumstances, the person provided remittance transfers in the
normal course of business and was thus a remittance transfer provider.
B. Example of safe harbor for a person that provided 500 or fewer
transfers in 2019 and provides 500 or fewer transfers in 2020. On July
21, 2020, the safe harbor threshold in Sec. 1005.30(f)(2)(i) changed
from 100 remittance transfers to 500 remittance transfers. Thus,
beginning on July 21, 2020, pursuant to Sec. 1005.30(f)(2)(i), a person
is deemed not to be providing remittance transfers for a consumer in the
normal course of its business if the person provided 500 or fewer
remittance transfers in the previous calendar year and provides 500 or
fewer remittance transfers in the current calendar year. If a person
provided 500 or fewer transfers in 2019 and provides 500 or fewer
remittance transfers in 2020, that person qualifies for the safe harbor
threshold in 2020. For example, assume that a person provided 200
remittance transfers in 2019 and 400 remittance transfers in 2020. The
safe harbor will apply to the person's transfers in 2020 beginning on
July 21, 2020, as well as the person's first 500 transfers in 2021. See
comment 30(f)-2.iv.C for an example regarding the transition period if
the 500-transfer safe harbor is exceeded.
C. Example of safe harbor and transition period for the 500-transfer
safe harbor threshold beginning on July 21, 2020. Assume that a person
provided 490 remittance transfers in 2020 and 490 such transfers in
2021. The safe harbor will apply to the person's transfers in 2021, as
well as the person's first 500 remittance transfers in 2022. However, if
the person provides a 501st transfer on September 5, 2022, the facts and
circumstances determine whether the person provides remittance
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transfers in the normal course of business and is thus a remittance
transfer provider for the 501st and any subsequent remittance transfers
that it provides in 2022. Furthermore, the person would not qualify for
the safe harbor described in Sec. 1005.30(f)(2)(i) in 2023 because the
person did not provide 500 or fewer remittance transfers in 2022.
However, for the 501st remittance transfer provided in 2022, as well as
additional remittance transfers provided thereafter in 2022 and 2023, 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
of Regulation E. 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, 2023 (i.e., six months
after September 5, 2022). After March 5, 2023, 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.
v. Continued compliance for transfers for which payment was made
before a person qualifies for the safe harbor. Section
1005.30(f)(2)(iii) addresses situations where a person who previously
was required to comply with subpart B of Regulation E newly qualifies
for the safe harbor in Sec. 1005.30(f)(2)(i). That section states that
the requirements of EFTA and Regulation E, including those set forth in
Sec. Sec. 1005.33 and 1005.34 (which address procedures for resolving
errors and procedures for cancellation and refund of remittance
transfers, respectively), as well as the requirements set forth in Sec.
1005.13 (which, in part, governs record retention), continue to apply to
transfers for which payment is made prior to the date the person
qualifies for the safe harbor in Sec. 1005.30(f)(2)(i). Qualifying for
the safe harbor in Sec. 1005.30(f)(2)(i) likewise does not excuse
compliance with any other applicable law or regulation. For example, if
a remittance transfer is also an electronic fund transfer, any
requirements in subpart A of Regulation E that apply to the transfer
continue to apply, regardless of whether the person must comply with
subpart B. Relevant requirements in subpart A may include, but are not
limited to, those relating to initial disclosures, change-in-terms
notices, liability of consumers for unauthorized transfers, and
procedures for resolving errors.
3. Multiple remittance transfer providers. If the remittance
transfer involves more than one remittance transfer provider, only one
set of disclosures must be given, and the remittance transfer providers
must agree among themselves which provider must take the actions
necessary to comply with the requirements that subpart B imposes on any
or all of them. Even though the providers must designate one provider to
take the actions necessary to comply with the requirements that subpart
B imposes on any or all of them, all remittance transfer providers
involved in the remittance transfer remain responsible for compliance
with the applicable provisions of the EFTA and Regulation E.
30(g) Sender
1. Determining whether a consumer is located in a State. Under Sec.
1005.30(g), the definition of ``sender'' means a consumer in a State
who, primarily for personal, family, or household purposes, requests a
remittance transfer provider to send a remittance transfer to a
designated recipient. A sender located on a U.S. military installation
that is physically located in a foreign country is located in a State.
For transfers sent from a prepaid account (other than a prepaid account
that is a payroll card account or a government benefit account), whether
the consumer is located in a State depends on the location of the
consumer. If the provider does not know where the consumer is at the
time the consumer requests the transfer from the consumer's prepaid
account (other than a prepaid account that is a payroll card account or
a government benefit account) the provider may make the determination of
whether a consumer is located in a State based on information that is
provided by the consumer and on any records associated with the consumer
that the provider may have, such as an address provided by the consumer.
For transfers from all other accounts belonging to a consumer, whether a
consumer is located in a State depends on where the consumer's account
is located. If the account is located in a State, the consumer will be
located in a State for purposes of the definition of ``sender'' in Sec.
1005.30(g), notwithstanding comment 3(a)-3. For these accounts, if they
are located on a U.S. military installation that is physically located
in a foreign country, then these accounts are located in a State. Where
a transfer is requested electronically or by telephone and the transfer
is not from an account, the provider may make the determination of
whether a consumer is located in a State based on information that is
provided by the consumer and on any records associated with the consumer
that the provider may have, such as an address provided by the consumer.
2. Personal, family, or household purposes. Under Sec. 1005.30(g),
a consumer is a ``sender'' only where he or she requests a transfer
primarily for personal, family, or household purposes. A consumer who
requests a transfer primarily for other purposes, such as business or
commercial purposes, is not a sender under Sec. 1005.30(g). For
transfers from an account that was established primarily for personal,
family, or household purposes,
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a remittance transfer provider may generally deem that the transfer is
requested primarily for personal, family, or household purposes and the
consumer is therefore a ``sender'' under Sec. 1005.30(g). But if the
consumer indicates that he or she is requesting the transfer primarily
for other purposes, such as business or commercial purposes, then the
consumer is not a sender under Sec. 1005.30(g), even if the consumer is
requesting the transfer from an account that is used primarily for
personal, family, or household purposes.
3. Non-consumer accounts. A transfer that is requested to be sent
from an account that was not established primarily for personal, family,
or household purposes, such as an account that was established as a
business or commercial account or an account held by a business entity
such as a corporation, not-for-profit corporation, professional
corporation, limited liability company, partnership, or sole
proprietorship, is not requested primarily for personal, family, or
household purposes. A consumer requesting a transfer from such an
account therefore is not a sender under Sec. 1005.30(g). Additionally,
a transfer that is requested to be sent from an account held by a
financial institution under a bona fide trust agreement pursuant to
Sec. 1005.2(b)(2) is not requested primarily for personal, family, or
household purposes, and a consumer requesting a transfer from such an
account is therefore not a sender under Sec. 1005.30(g).
30(h) Third-Party Fees
1. Fees imposed on the remittance transfer. Fees imposed on the
remittance transfer by a person other than the remittance transfer
provider include only those fees that are charged to the designated
recipient and are specifically related to the remittance transfer. For
example, overdraft fees that are imposed by a recipient's bank or funds
that are garnished from the proceeds of a remittance transfer to satisfy
an unrelated debt are not fees imposed on the remittance transfer
because these charges are not specifically related to the remittance
transfer. Account fees are also not specifically related to a remittance
transfer if such fees are merely assessed based on general account
activity and not for receiving transfers. Where an incoming remittance
transfer results in a balance increase that triggers a monthly
maintenance fee, that fee is not specifically related to a remittance
transfer. Similarly, fees that banks charge one another for handling a
remittance transfer or other fees that do not affect the total amount of
the transaction or the amount that will be received by the designated
recipient are not fees imposed on the remittance transfer. For example,
an interchange fee that is charged to a provider when a sender uses a
credit or debit card to pay for a remittance transfer is not a fee
imposed upon the remittance transfer. Fees that specifically relate to a
remittance transfer may be structured on a flat per-transaction basis,
or may be conditioned on other factors (such as account status or the
quantity of remittance transfers received) in addition to the remittance
transfer itself. For example, where an institution charges an incoming
transfer fee on most customers' accounts, but not on preferred accounts,
such a fee is nonetheless specifically related to a remittance transfer.
Similarly, if the institution assesses a fee for every transfer beyond
the fifth received each month, such a fee would be specifically related
to the remittance transfer regardless of how many remittance transfers
preceded it that month.
2. Covered third-party fees. i. Under Sec. 1005.30(h)(1), a covered
third-party fee means any fee that is imposed on the remittance transfer
by a person other than the remittance transfer provider that is not a
non-covered third-party fee.
ii. Examples of covered third-party fees include:
A. Fees imposed on a remittance transfer by intermediary
institutions in connection with a wire transfer (sometimes referred to
as ``lifting fees'').
B. Fees imposed on a remittance transfer by an agent of the provider
at pick-up for receiving the transfer.
3. Non-covered third-party fees. Under Sec. 1005.30(h)(2), a non-
covered third-party fee means any fee imposed by the designated
recipient's institution for receiving a remittance transfer into an
account except if such institution acts as the agent of the remittance
transfer provider. For example, a fee imposed by the designated
recipient's institution for receiving an incoming transfer into an
account is a non-covered third-party fee, provided such institution is
not acting as the agent of the remittance transfer provider. See also
comment 31(b)(1)(viii)-1. Furthermore, designated recipient's account in
Sec. 1005.30(h)(2) refers to an asset account, regardless of whether it
is a consumer asset account, established for any purpose and held by a
bank, savings association, credit union, or equivalent institution. A
designated recipient's account does not, however, include a credit card,
prepaid card, or a virtual account held by an Internet-based or mobile
telephone company that is not a bank, savings association, credit union
or equivalent institution.
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
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of subpart B if they are readily understandable and, in the case of
written and electronic disclosures, the location and type size are
readily noticeable to senders. Oral disclosures as permitted by Sec.
1005.31(a)(3), (4), and (5) are clear and conspicuous when they are
given at a volume and speed sufficient for a sender to hear and
comprehend them.
2. Abbreviations and symbols. Disclosures may contain commonly
accepted or readily understandable abbreviations or symbols, such as
``USD'' to indicate currency in U.S. dollars or ``MXN'' to indicate
currency in Mexican pesos.
31(a)(2) Written and Electronic Disclosures
1. E-Sign Act requirements. If a sender electronically requests the
remittance transfer provider to send a remittance transfer, the
disclosures required by Sec. 1005.31(b)(1) may be provided to the
sender in electronic form without regard to the consumer consent and
other applicable provisions of the Electronic Signatures in Global and
National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). If a sender
electronically requests the provider to send a remittance transfer, the
disclosures required by Sec. 1005.31(b)(2) may be provided to the
sender in electronic form, subject to compliance with the consumer
consent and other applicable provisions of the E-Sign Act. See Sec.
1005.4(a)(1).
2. Paper size. Written disclosures may be provided on any size
paper, as long as the disclosures are clear and conspicuous. For
example, disclosures may be provided on a register receipt or on an 8.5
inch by 11 inch sheet of paper.
3. Retainable electronic disclosures. A remittance transfer provider
may satisfy the requirement to provide electronic disclosures in a
retainable form if it provides an online disclosure in a format that is
capable of being printed. Electronic disclosures may not be provided
through a hyperlink or in another manner by which the sender can bypass
the disclosure. A provider is not required to confirm that the sender
has read the electronic disclosures.
4. Pre-payment disclosures to a mobile telephone. Disclosures
provided via mobile application or text message, to the extent permitted
by Sec. 1005.31(a)(5), need not be retainable. However, disclosures
provided electronically to a mobile telephone that are not provided via
mobile application or text message must be retainable. For example,
disclosures provided via email must be retainable, even if a sender
accesses them by mobile telephone.
5. Disclosures provided by fax. For purposes of disclosures required
to be provided pursuant to Sec. 1005.31 or Sec. 1005.36, disclosures
provided by facsimile transmission (i.e., fax) are considered to be
provided in writing for purposes of providing disclosures in writing
pursuant to subpart B and are not subject to the requirements for
electronic disclosures set forth in Sec. 1005.31(a)(2).
31(a)(3) Disclosures for Oral Telephone Transactions
1. Transactions conducted partially by telephone. Except as provided
in comment 31(a)(3)-2, for transactions conducted partially by
telephone, providing the information required by Sec. 1005.31(b)(1) to
a sender orally does not fulfill the requirement to provide the
disclosures required by Sec. 1005.31(b)(1). For example, a sender may
begin a remittance transfer at a remittance transfer provider's
dedicated telephone in a retail store, and then provide payment in
person to a store clerk to complete the transaction. In such cases, all
disclosures must be provided in writing. A provider complies with this
requirement, for example, by providing the written pre-payment
disclosure in person prior to the sender's payment for the transaction,
and the written receipt when the sender pays for the transaction.
2. Oral telephone transactions. Section 1005.31(a)(3) applies to
transactions conducted orally and entirely by telephone, such as
transactions conducted orally on a landline or mobile telephone. A
remittance transfer provider may treat a written or electronic
communication as an inquiry when it believes that treating the
communication as a request would be impractical. For example, if a
sender physically located abroad contacts a U.S. branch of the sender's
financial institution and attempts to initiate a remittance transfer by
first sending a mailed letter, further communication with the sender by
letter may be impractical due to the physical distance and likely mail
delays. In such circumstances, a provider may conduct the transaction
orally and entirely by telephone pursuant to Sec. 1005.31(a)(3) when
the provider treats that initial communication as an inquiry and
subsequently responds to the consumer's inquiry by calling the consumer
on a telephone and orally gathering or confirming the information needed
to identify and understand a request for a remittance transfer and
otherwise conducts the transaction orally and entirely by telephone.
31(a)(5) Disclosures for Mobile Application or Text Message Transactions
1. Mobile application and text message transactions. A remittance
transfer provider may provide the required pre-payment disclosures
orally or via mobile application or text message if the transaction is
conducted entirely by telephone via mobile application or text message,
the remittance transfer provider complies with the requirements of Sec.
1005.31(g)(2), and the provider discloses orally or via mobile
application or text message a statement about the rights of the sender
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regarding cancellation required by Sec. 1005.31(b)(2)(iv) pursuant to
the timing requirements in Sec. 1005.31(e)(1). For example, if a sender
conducts a transaction via text message on a mobile telephone, the
remittance transfer provider may call the sender and orally provide the
required pre-payment disclosures. Alternatively, the provider may
provide the required pre-payment disclosures via text message. Section
1005.31(a)(5) applies only to transactions conducted entirely by mobile
telephone via mobile application or text message.
31(b) Disclosure Requirements
1. Disclosures provided as applicable. Disclosures required by Sec.
1005.31(b) need only be provided to the extent applicable. A remittance
transfer provider may choose to omit an item of information required by
Sec. 1005.31(b) if it is inapplicable to a particular transaction.
Alternatively, for disclosures required by Sec. 1005.31(b)(1)(i)
through (vii), a provider may disclose a term and state that an amount
or item is ``not applicable,'' ``N/A,'' or ``None.'' For example, if
fees or taxes are not imposed in connection with a particular
transaction, the provider need not provide the disclosures about fees
and taxes generally required by Sec. 1005.31(b)(1)(ii), the disclosures
about covered third-party fees generally required by Sec.
1005.31(b)(1)(vi), or the disclaimers about non-covered third-party fees
and taxes collected by a person other than the provider generally
required by Sec. 1005.31(b)(1)(viii). Similarly, a Web site need not be
disclosed if the provider does not maintain a Web site. A provider need
not provide the exchange rate disclosure required by Sec.
1005.31(b)(1)(iv) if a recipient receives funds in the currency in which
the remittance transfer is funded, or if funds are delivered into an
account denominated in the currency in which the remittance transfer is
funded. For example, if a sender in the United States sends funds from
an account denominated in Euros to an account in France denominated in
Euros, no exchange rate would need to be provided. Similarly, if a
sender funds a remittance transfer in U.S. dollars and requests that a
remittance transfer be delivered to the recipient in U.S. dollars, a
provider need not disclose an exchange rate.
2. Substantially similar terms, language, and notices. Certain
disclosures required by Sec. 1005.31(b) must be described using the
terms set forth in Sec. 1005.31(b) or substantially similar terms.
Terms may be more specific than those provided. For example, a
remittance transfer provider sending funds may describe fees imposed by
an agent at pick-up as ``Pick-up Fees'' in lieu of describing them as
``Other Fees.'' Foreign language disclosures required under Sec.
1005.31(g) must contain accurate translations of the terms, language,
and notices required by Sec. 1005.31(b) or permitted by Sec.
1005.31(b)(1)(viii) and Sec. 1005.33(h)(3).
31(b)(1) Pre-Payment Disclosures
1. Fees and taxes. i. Taxes collected on the remittance transfer by
the remittance transfer provider include taxes collected on the
remittance transfer by a State or other governmental body. A provider
need only disclose fees imposed or taxes collected on the remittance
transfer by the provider in Sec. 1005.31(b)(1)(ii), as applicable. For
example, if no transfer taxes are imposed on a remittance transfer, a
provider would only disclose applicable transfer fees. See comment
31(b)-1. If both fees and taxes are imposed, the fees and taxes must be
disclosed as separate, itemized disclosures. For example, a provider
would disclose all transfer fees using the term ``Transfer Fees'' or a
substantially similar term and would separately disclose all transfer
taxes using the term ``Transfer Taxes'' or a substantially similar term.
ii. The fees and taxes required to be disclosed by Sec.
1005.31(b)(1)(ii) include all fees imposed and all taxes collected on
the remittance transfer by the provider. For example, a provider must
disclose any service fee, any fees imposed by an agent of the provider
at the time of the transfer, and any State taxes collected on the
remittance transfer at the time of the transfer. Fees imposed on the
remittance transfer by the provider required to be disclosed under Sec.
1005.31(b)(1)(ii) include only those fees that are charged to the sender
and are specifically related to the remittance transfer. See also
comment 30(h)-1. In contrast, the fees required to be disclosed by Sec.
1005.31(b)(1)(vi) are any covered third-party fees as defined in Sec.
1005.30(h)(1).
iii. The term used to describe the fees imposed on the remittance
transfer by the provider in Sec. 1005.31(b)(1)(ii) and the term used to
describe covered third-party fees under Sec. 1005.31(b)(1)(vi) must
differentiate between such fees. For example the terms used to describe
fees disclosed under Sec. 1005.31(b)(1)(ii) and (vi) may not both be
described solely as ``Fees.''
2. Transfer amount. Sections 1005.31(b)(1)(i) and (v) require two
transfer amount disclosures. First, under Sec. 1005.31(b)(1)(i), a
provider must disclose the transfer amount in the currency in which the
remittance transfer is funded to show the calculation of the total
amount of the transaction. Typically, the remittance transfer is funded
in U.S. dollars, so the transfer amount would be expressed in U.S.
dollars. However, if the remittance transfer is funded, for example,
from a Euro-denominated account, the transfer amount would be expressed
in Euros. Second, under Sec. 1005.31(b)(1)(v), a provider must disclose
the transfer amount in the currency in which the funds will be made
available to the designated recipient. For example, if the funds
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will be picked up by the designated recipient in Japanese yen, the
transfer amount would be expressed in Japanese yen. However, this second
transfer amount need not be disclosed if covered third-party fees as
described under Sec. 1005.31(b)(1)(vi) are not imposed on the
remittance transfer. The terms used to describe each transfer amount
should be the same.
3. Exchange rate for calculation. The exchange rate used to
calculate the transfer amount in Sec. 1005.31(b)(1)(v), the covered
third-party fees in Sec. 1005.31(b)(1)(vi), the amount received in
Sec. 1005.31(b)(1)(vii), and the optional disclosures of non-covered
third-party fees and other taxes permitted by Sec. 1005.31(b)(1)(viii)
is the exchange rate in Sec. 1005.31(b)(1)(iv), including an estimated
exchange rate to the extent permitted by Sec. 1005.32, prior to any
rounding of the exchange rate. For example, if one U.S. dollar exchanges
for 11.9483779 Mexican pesos, a provider must calculate these
disclosures using this rate, even though the provider may disclose
pursuant to Sec. 1005.31(b)(1)(iv) that the U.S. dollar exchanges for
11.9484 Mexican pesos. Similarly, if a provider estimates pursuant to
Sec. 1005.32 that one U.S. dollar exchanges for 11.9483 Mexican pesos,
a provider must calculate these disclosures using this rate, even though
the provider may disclose pursuant to Sec. 1005.31(b)(1)(iv) that the
U.S. dollar exchanges for 11.95 Mexican pesos (Estimated). If an
exchange rate need not be rounded, a provider must use that exchange
rate to calculate these disclosures. For example, if one U.S. dollar
exchanges for exactly 11.9 Mexican pesos, a provider must calculate
these disclosures using this exchange rate.
31(b)(1)(iv) Exchange Rate
1. Applicable exchange rate. If the designated recipient will
receive funds in a currency other than the currency in which the
remittance transfer is funded, a remittance transfer provider must
disclose the exchange rate to be used by the provider for the remittance
transfer. An exchange rate that is estimated must be disclosed pursuant
to the requirements of Sec. 1005.32. A remittance transfer provider may
not disclose, for example, that an exchange rate is ``unknown,''
``floating,'' or ``to be determined.'' If a provider does not have
specific knowledge regarding the currency in which the funds will be
received, the provider may rely on a sender's representation as to the
currency in which funds will be received for purposes of determining
whether an exchange rate is applied to the transfer. For example, if a
sender requests that a remittance transfer be deposited into an account
in U.S. dollars, the provider need not disclose an exchange rate, even
if the account is actually denominated in Mexican pesos and the funds
are converted prior to deposit into the account. If a sender does not
know the currency in which funds will be received, the provider may
assume that the currency in which funds will be received is the currency
in which the remittance transfer is funded.
2. Rounding. The exchange rate disclosed by the provider for the
remittance transfer is required to be rounded. The provider may round to
two, three, or four decimal places, at its option. For example, if one
U.S. dollar exchanges for 11.9483779 Mexican pesos, a provider may
disclose that the U.S. dollar exchanges for 11.9484 Mexican pesos. The
provider may alternatively disclose, for example, that the U.S. dollar
exchanges for 11.948 pesos or 11.95 pesos. On the other hand, if one
U.S. dollar exchanges for exactly 11.9 Mexican pesos, the provider may
disclose that ``US$1 = 11.9 MXN'' in lieu of, for example, ``US$1 =
11.90 MXN.'' The exchange rate disclosed for the remittance transfer
must be rounded consistently for each currency. For example, a provider
may not round to two decimal places for some transactions exchanged into
Euros and round to four decimal places for other transactions exchanged
into Euros.
3. Exchange rate used. The exchange rate used by the provider for
the remittance transfer need not be set by that provider. For example,
an exchange rate set by an intermediary institution and applied to the
remittance transfer would be the exchange rate used for the remittance
transfer and must be disclosed by the provider.
31(b)(1)(vi) Disclosure of Covered Third-Party Fees
1. Fees disclosed in the currency in which the funds will be
received. Section 1005.31(b)(1)(vi) requires the disclosure of covered
third-party fees in the currency in which the funds will be received by
the designated recipient. A covered third-party fee described in Sec.
1005.31(b)(1)(vi) may be imposed in one currency, but the funds may be
received by the designated recipient in another currency. In such cases,
the remittance transfer provider must calculate the fee to be disclosed
under Sec. 1005.31(b)(1)(vi) in the currency of receipt using the
exchange rate in Sec. 1005.31(b)(1)(iv), including an estimated
exchange rate to the extent permitted by Sec. 1005.32, prior to any
rounding of the exchange rate. For example, an intermediary institution
involved in sending an international wire transfer funded in U.S.
dollars may impose a fee in U.S. dollars, but funds are ultimately
deposited in the recipient's account in Euros. In this case, the
provider would disclose the covered third-party fee to the sender
expressed in Euros, calculated using the exchange rate disclosed under
Sec. 1005.31(b)(1)(iv), prior to any rounding of the exchange rate. For
purposes of Sec. 1005.31(b)(1)(v), (vi), and (vii), if a provider
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does not have specific knowledge regarding the currency in which the
funds will be received, the provider may rely on a sender's
representation as to the currency in which funds will be received. For
example, if a sender requests that a remittance transfer be deposited
into an account in U.S. dollars, the provider may provide the
disclosures required in Sec. 1005.31(b)(1)(v), (vi), and (vii) in U.S.
dollars, even if the account is actually denominated in Mexican pesos
and the funds are subsequently converted prior to deposit into the
account. If a sender does not know the currency in which funds will be
received, the provider may assume that the currency in which funds will
be received is the currency in which the remittance transfer is funded.
31(b)(1)(vii) Amount Received
1. Amount received. The remittance transfer provider is required to
disclose the amount that will be received by the designated recipient in
the currency in which the funds will be received. The amount received
must reflect the exchange rate, all fees imposed and all taxes collected
on the remittance transfer by the remittance transfer provider, as well
as any covered third-party fees required to be disclosed by Sec.
1005.31(b)(1)(vi). The disclosed amount received must be reduced by the
amount of any fee or tax--except for a non-covered third-party fee or
tax collected on the remittance transfer by a person other than the
provider--that is imposed on the remittance transfer that affects the
amount received even if that amount is imposed or itemized separately
from the transaction amount.
31(b)(1)(viii) Statement When Additional Fees and Taxes May Apply
1. Required disclaimer when non-covered third-party fees and taxes
collected by a person other than the provider may apply. If non-covered
third-party fees or taxes collected by a person other than the provider
apply to a particular remittance transfer or if a provider does not know
if such fees or taxes may apply to a particular remittance transfer,
Sec. 1005.31(b)(1)(viii) requires the provider to include the
disclaimer with respect to such fees and taxes. Required disclosures
under Sec. 1005.31(b)(1)(viii) may only be provided to the extent
applicable. For example, if the designated recipient's institution is an
agent of the provider and thus, non-covered third-party fees cannot
apply to the transfer, the provider must disclose all fees imposed on
the remittance transfer and may not provide the disclaimer regarding
non-covered third-party fees. In this scenario, the provider may only
provide the disclaimer regarding taxes collected on the remittance
transfer by a person other than the provider, as applicable. See Model
Form A-30(c).
2. Optional disclosure of non-covered third-party fees and taxes
collected by a person other than the provider. When a remittance
transfer provider knows the non-covered third-party fees or taxes
collected on the remittance transfer by a person other than the provider
that will apply to a particular transaction, Sec. 1005.31(b)(1)(viii)
permits the provider to disclose the amount of such fees and taxes.
Section 1005.32(b)(3) 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)-1. For example, a
provider may know that the designated recipient's institution imposes an
incoming wire fee for receiving a transfer. Alternatively, a provider
may know that foreign taxes will be collected on the remittance transfer
by a person other than the remittance transfer provider. In these
examples, the provider may choose, at its option, to disclose the
amounts of the relevant recipient institution fee and tax as part of the
information disclosed pursuant to Sec. 1005.31(b)(1)(viii). The
provider must not include that fee or tax in the amount disclosed
pursuant to Sec. 1005.31(b)(1)(vi) or (b)(1)(vii). Fees and taxes
disclosed under Sec. 1005.31(b)(1)(viii) must be disclosed in the
currency in which the funds will be received. See comment 31(b)(1)(vi)-
1. Estimates of any non-covered third-party fees and any taxes collected
on the remittance transfer by a person other than the provider must be
disclosed in accordance with Sec. 1005.32(b)(3).
31(b)(2) Receipt
1. Date funds will be available. A remittance transfer provider does
not comply with the requirements of Sec. 1005.31(b)(2)(ii) if it
provides a range of dates that the remittance transfer may be available
or an estimate of the date on which funds will be available. If a
provider does not know the exact date on which funds will be available,
the provider may disclose the latest date on which the funds will be
available. For example, if funds may be available on January 3, but are
not certain to be available until January 10, then a provider complies
with Sec. 1005.31(b)(2)(ii) if it discloses January 10 as the date
funds will be available. However, a remittance transfer provider may
also disclose that funds ``may be available sooner'' or use a
substantially similar term to inform senders that funds may be available
to the designated recipient on a date earlier than the date disclosed.
For 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
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transfer as applicable. For example, if a financial institution is
solely regulated by a Federal agency, and not licensed or chartered by a
State agency, then the institution need not disclose information about a
State agency. A remittance transfer provider must disclose information
about the Consumer Financial Protection Bureau, whether or not the
Consumer Financial Protection Bureau is the provider's primary Federal
regulator.
3. State agency that licenses or charters a provider. A remittance
transfer provider must only disclose information about one State agency
that licenses or charters the remittance transfer provider with respect
to the remittance transfer, even if other State agencies also regulate
the remittance transfer provider. For example, a provider may disclose
information about the State agency which granted its license. If a
provider is licensed in multiple States, and the State agency that
licenses the provider with respect to the remittance transfer is
determined by a sender's location, a provider may make the determination
as to the State in which the sender is located based on information that
is provided by the sender and on any records associated with the sender.
For example, if the State agency that licenses the provider with respect
to an online remittance transfer is determined by a sender's location, a
provider could rely on the sender's statement regarding the State in
which the sender is located and disclose the State agency that licenses
the provider in that State. A State-chartered bank must disclose
information about the State agency that granted its charter, regardless
of the location of the sender.
4. Web site of the Consumer Financial Protection Bureau. Section
1005.31(b)(2)(vi) requires a remittance transfer provider to disclose
the name, toll-free telephone number(s), and Web site of the Consumer
Financial Protection Bureau. Providers may satisfy this requirement by
disclosing the Web site of the Consumer Financial Protection Bureau's
homepage, www.consumerfinance.gov, as shown on Model Forms A-32, A-34,
A-35, and A-39. Alternatively, providers may, but are not required to,
disclose the Bureau's Web site as the address of a page on the Bureau's
Web site that provides information for consumers about remittance
transfers, currently, consumerfinance.gov/sending-money, as shown on
Model Form A-31. In addition, providers making disclosures in a language
other than English pursuant to Sec. 1005.31(g) may, but are not
required to, disclose the Bureau's Web site as a page on the Bureau's
Web site that provides information for consumers about remittance
transfers in the relevant language, if such Web site exists. For
example, a provider that is making disclosures in Spanish under Sec.
1005.31(g) may, but is not required to, disclose the Bureau's Web site
on Spanish-language disclosures as the page on the Bureau's Web site
that provides information regarding remittance transfers in Spanish,
currently consumerfinance.gov/envios. This optional disclosure is shown
on Model A-40. The Bureau will publish a list of any other foreign
language Web sites that provide information regarding remittance
transfers.
5. Date of transfer on receipt. Where applicable, Sec.
1005.31(b)(2)(vii) requires disclosure of the date of transfer for the
remittance transfer that is the subject of a receipt required by Sec.
1005.31(b)(2), including a receipt that is provided in accordance with
the timing requirements in Sec. 1005.36(a). For any subsequent
preauthorized remittance transfer subject to Sec. 1005.36(d)(2)(ii),
the future date of transfer must be provided on any receipt provided for
the initial transfer in that series of preauthorized remittance
transfers, or where permitted, or disclosed as permitted by Sec.
1005.31(a)(3) and (a)(5), in accordance with Sec. 1005.36(a)(1)(i).
6. Transfer date disclosures. The following example demonstrates how
the information required by Sec. 1005.31(b)(2)(vii) and Sec.
1005.36(d)(1) should be disclosed on receipts: On July 1, a sender
instructs the provider to send a preauthorized remittance transfer of
US$100 each week to a designated recipient. The sender requests that
first transfer in the series be sent on July 15. On the receipt, the
remittance transfer provider discloses an estimated exchange rate to the
sender pursuant to Sec. 1005.32(b)(2). In accordance with Sec.
1005.31(b)(2)(vii), the provider should disclose the date of transfer
for that particular transaction (i.e., July 15) on the receipt provided
when payment is made for the transfer pursuant to the timing
requirements in Sec. 1005.36(a)(1)(i). The second receipt, which Sec.
1005.36(a)(1)(ii) requires to be provided within one business day after
the date of the transfer or, for transfers from the sender's account
held by the provider, on the next regularly scheduled periodic statement
or within 30 days after payment is made if a periodic statement is not
provided, is also required to include the date of transfer. If the
provider discloses on either receipt the cancellation period applicable
to and dates of subsequent preauthorized remittance transfers in
accordance with Sec. 1005.36(d)(2), the disclosure must be phrased and
formatted in such a way that it is clear to the sender which
cancellation period is applicable to any date of transfer on the
receipt.
7. Cancellation disclosure. Remittance transfer providers that offer
remittance transfers scheduled three or more business days before the
date of the transfer, as well as remittance transfers scheduled fewer
than three business days before the date of the transfer, may meet the
cancellation disclosure requirements in Sec. 1005.31(b)(2)(iv) by
describing the three-business-day and 30-minute cancellation periods on
the same disclosure and
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using a checkbox or other method to clearly designate the applicable
cancellation period. The provider may use a number of methods to
indicate which cancellation period applies to the transaction including,
but not limited to, a statement to that effect, use of a checkbox,
highlighting, circling, and the like. For transfers scheduled three
business days before the date of the transfer, the cancellation
disclosures provided pursuant to Sec. 1005.31(b)(2)(iv) should be
phrased and formatted in such a way that it is clear to the sender which
cancellation period is applicable to the date of transfer disclosed on
the receipt.
31(b)(3) Combined Disclosure
1. Proof of payment. If a sender initiating a remittance transfer
receives a combined disclosure provided under Sec. 1005.31(b)(3) and
then completes the transaction, the remittance transfer provider must
provide the sender with proof of payment. The proof of payment must be
clear and conspicuous, provided in writing or electronically, and
provided in a retainable form. The combined disclosure must be provided
to the sender when the sender requests the remittance transfer, but
prior to payment for the transfer, pursuant to Sec. 1005.31(e)(1), and
the proof of payment must be provided when payment is made for the
remittance transfer. The proof of payment for the transaction may be
provided on the same piece of paper as the combined disclosure or on a
separate piece of paper. For example, a provider may feed a combined
disclosure through a computer printer when payment is made to add the
date and time of the transaction, a confirmation code, and an indication
that the transfer was paid in full. A provider may also provide this
additional information to a sender on a separate piece of paper when
payment is made. A remittance transfer provider does not comply with the
requirements of Sec. 1005.31(b)(3) by providing a combined disclosure
with no further indication that payment has been received.
2. Confirmation of scheduling. As discussed in comment 31(e)-2,
payment is considered to be made when payment is authorized for purposes
of various timing requirements in subpart B, including with regard to
the timing requirement for provision of the proof of payment described
in Sec. 1005.31(b)(3)(i). However, where a transfer (whether a one-time
remittance transfer or the first in a series of preauthorized remittance
transfers) is scheduled before the date of transfer and the provider
does not intend to process payment until at or near the date of
transfer, the provider may provide a confirmation of scheduling in lieu
of the proof of payment required by Sec. 1005.31(b)(3)(i). No further
proof of payment is required when payment is later processed.
31(c) Specific Format Requirements
31(c)(1) Grouping
1. Grouping. Information is grouped together for purposes of subpart
B if multiple disclosures are in close proximity to one another and a
sender can reasonably calculate the total amount of the transaction and
the amount that will be received by the designated recipient. Model
Forms A-30(a)-(d) through A-35 in Appendix A illustrate how information
may be grouped to comply with the rule, but a remittance transfer
provider may group the information in another manner. For example, a
provider could provide the grouped information as a horizontal, rather
than a vertical, calculation. A provider could also send multiple text
messages sequentially to provide the full disclosure.
31(c)(4) Segregation
1. Segregation. Disclosures may be segregated from other information
in a variety of ways. For example, the disclosures may appear on a
separate sheet of paper or may appear on the front of a page where other
information appears on the back of that page. The disclosures may be set
off from other information on a notice by outlining them in a box or
series of boxes, with bold print dividing lines or a different color
background, or by using other means.
2. Directly related. For purposes of Sec. 1005.31(c)(4), the
following is directly related information:
i. The date and time of the transaction;
ii. The sender's name and contact information;
iii. The location at which the designated recipient may pick up the
funds;
iv. The confirmation or other identification code;
v. A company name and logo;
vi. An indication that a disclosure is or is not a receipt or other
indicia of proof of payment;
vii. A designated area for signatures or initials;
viii. A statement that funds may be available sooner, as permitted
by Sec. 1005.31(b)(2)(ii);
ix. Instructions regarding the retrieval of funds, such as the
number of days the funds will be available to the recipient before they
are returned to the sender; and
x. A statement that the provider makes money from foreign currency
exchange.
xi. Disclosure of any non-covered third-party fees and any taxes
collected by a person other than the provider pursuant to Sec.
1005.31(b)(1)(viii).
31(d) Estimates
1. Terms. A remittance transfer provider may provide estimates of
the amounts required by Sec. 1005.31(b), to the extent permitted by
Sec. 1005.32. An estimate must be described
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using the term ``Estimated'' or a substantially similar term in close
proximity to the term or terms described. For example, a remittance
transfer provider could describe an estimated disclosure as ``Estimated
Transfer Amount,'' ``Other Estimated Fees and Taxes,'' or ``Total to
Recipient (Est.).''
31(e) Timing
1. Request to send a remittance transfer. Except as provided in
Sec. 1005.36(a), pre-payment and combined disclosures are required to
be provided to the sender when the sender requests the remittance
transfer, but prior to payment for the transfer. Whether a consumer has
requested a remittance transfer depends on the facts and circumstances.
A sender that asks a provider to send a remittance transfer, and
provides transaction-specific information to the provider in order to
send funds to a designated recipient, has requested a remittance
transfer. A sender that has sent an email, fax, mailed letter, or
similar written or electronic communication has not requested a
remittance transfer if the provider believes that it is impractical for
the provider to treat that communication as a request and if the
provider treats the communication as an inquiry and subsequently
responds to that inquiry by calling the consumer on a telephone and
orally gathering or confirming the information needed to process a
request for a remittance transfer. See comment 31(a)(3)-2. Likewise, a
consumer who solely inquires about that day's rates and fees to send to
Mexico has not requested the provider to send a remittance transfer.
Conversely, a sender who asks the provider at an agent location to send
money to a recipient in Mexico and provides the sender and recipient
information to the provider has requested a remittance transfer.
2. When payment is made. Except as provided in Sec. 1005.36(a), a
receipt required by Sec. 1005.31(b)(2) must be provided to the sender
when payment is made for the remittance transfer. For example, a
remittance transfer provider could give the sender the disclosures after
the sender pays for the remittance transfer, but before the sender
leaves the counter. A provider could also give the sender the
disclosures immediately before the sender pays for the transaction. For
purposes of subpart B, payment is made, for example, when a sender
provides cash to the remittance transfer provider or when payment is
authorized.
3. Telephone transfer from an account. A sender may transfer funds
from his or her account, as defined by Sec. 1005.2(b), that is held by
the remittance transfer provider. For example, a financial institution
may send an international wire transfer for a sender using funds from
the sender's account with the institution. Except as provided in Sec.
1005.36(a), if the sender conducts such a transfer entirely by
telephone, the institution may provide a receipt required by Sec.
1005.31(b)(2) on or with the sender's next regularly scheduled periodic
statement for that account or within 30 days after payment is made for
the remittance transfer if a periodic statement is not provided.
4. Mobile application and text message transactions. If a
transaction is conducted entirely by telephone via mobile application or
text message, a receipt required by Sec. 1005.31(b)(2) may be mailed or
delivered to the sender pursuant to the timing requirements in Sec.
1005.31(e)(2). For example, if a sender conducts a transfer entirely by
telephone via mobile application, a remittance transfer provider may
mail or deliver the disclosures to a sender pursuant to the timing
requirements in Sec. 1005.31(e)(2).
5. Statement about cancellation rights. The statement about the
rights of the sender regarding cancellation required by Sec.
1005.31(b)(2)(iv) may, but need not, be disclosed pursuant to the timing
requirements of Sec. 1005.31(e)(2) if a provider discloses this
information pursuant to Sec. 1005.31(a)(3)(iii) or (a)(5)(iii). The
statement about the rights of the sender regarding error resolution
required by Sec. 1005.31(b)(2)(iv), however, must be disclosed pursuant
to the timing requirements of Sec. 1005.31(e)(2).
31(f) Accurate When Payment Is Made
1. No guarantee of disclosures provided before payment. Except as
provided in Sec. 1005.36(b), disclosures required by Sec. 1005.31(b)
or permitted by Sec. 1005.31(b)(1)(viii) must be accurate when a sender
makes payment for the remittance transfer. A remittance transfer
provider is not required to guarantee the terms of the remittance
transfer in the disclosures required or permitted by Sec. 1005.31(b)
for any specific period of time. However, if any of the disclosures
required by Sec. 1005.31(b) or permitted by Sec. 1005.31(b)(1)(viii)
are not accurate when a sender makes payment for the remittance
transfer, a provider must give new disclosures before accepting payment.
31(g) Foreign Language Disclosures
1. Number of foreign languages used in written disclosure. Section
1005.31(g)(1) does not limit the number of languages that may be used on
a single document, but such disclosures must be clear and conspicuous
pursuant to Sec. 1005.31(a)(1). Under Sec. 1005.31(g)(1), a remittance
transfer provider may, but need not, provide the sender with a written
or electronic disclosure that is in English and, if applicable, in each
foreign language that the remittance transfer provider principally 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
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may provide the disclosure solely in English and, if applicable, the
foreign language primarily used by the sender with the remittance
transfer provider to conduct the transaction or assert an error,
provided such language is principally used by the remittance transfer
provider to advertise, solicit, or market either orally, in writing, or
electronically, at the office in which the sender conducts the
transaction or asserts the error, respectively. If the remittance
transfer provider chooses the alternative method, it may provide
disclosures in a single document with both languages or in two separate
documents with one document in English and the other document in the
applicable foreign language. The following examples illustrate this
concept.
i. A remittance transfer provider principally uses only Spanish and
Vietnamese to advertise, solicit, or market remittance transfer services
at a particular office. The remittance transfer provider may provide all
senders with disclosures in English, Spanish, and Vietnamese, regardless
of the language the sender uses with the remittance transfer provider to
conduct the transaction or assert an error.
ii. Same facts as i. If a sender primarily uses Spanish with the
remittance transfer provider to conduct a transaction or assert an
error, the remittance transfer provider may provide a written or
electronic disclosure in English and Spanish, whether in a single
document or two separate documents. If the sender primarily uses English
with the remittance transfer provider to conduct the transaction or
assert an error, the remittance transfer provider may provide a written
or electronic disclosure solely in English. If the sender primarily uses
a foreign language with the remittance transfer provider to conduct the
transaction or assert an error that the remittance transfer provider
does not use to advertise, solicit, or market either orally, in writing,
or electronically, at the office in which the sender conducts the
transaction or asserts the error, respectively, the remittance transfer
provider may provide a written or electronic disclosure solely in
English.
2. Primarily used. The language primarily used by the sender with
the remittance transfer provider to conduct the transaction is the
primary language used by the sender with the remittance transfer
provider to convey the information necessary to complete the
transaction. Similarly, the language primarily used by the sender with
the remittance transfer provider to assert the error is the primary
language used by the sender with the remittance transfer provider to
provide the information required by Sec. 1005.33(b) to assert an error.
For example:
i. A sender initiates a conversation with a remittance transfer
provider with a greeting in English and expresses interest in sending a
remittance transfer to Mexico in English. If the remittance transfer
provider thereafter communicates with the sender in Spanish and the
sender conveys the other information needed to complete the transaction,
including the designated recipient's information and the amount and
funding source of the transfer, in Spanish, then Spanish is the language
primarily used by the sender with the remittance transfer provider to
conduct the transaction.
ii. A sender initiates a conversation with the remittance transfer
provider with a greeting in English and states in English that there was
a problem with a prior remittance transfer to Vietnam. If the remittance
transfer provider thereafter communicates with the sender in Vietnamese
and the sender uses Vietnamese to convey the information required by
Sec. 1005.33(b) to assert an error, then Vietnamese is the language
primarily used by the sender with the remittance transfer provider to
assert the error.
iii. A sender accesses the Web site of a remittance transfer
provider that may be used by senders to conduct remittance transfers or
assert errors. The Web site is offered in English and French. If the
sender uses the French version of the Web site to conduct the remittance
transfer, then French is the language primarily used by the sender with
the remittance transfer provider to conduct the transaction.
31(g)(1) General
1. Principally used. i. All relevant facts and circumstances
determine whether a foreign language is principally used by the
remittance transfer provider to advertise, solicit, or market under
Sec. 1005.31(g)(1). Generally, whether a foreign language is considered
to be principally used by the remittance transfer provider to advertise,
solicit, or market is based on:
A. The frequency with which the foreign language is used in
advertising, soliciting, or marketing of remittance transfer services at
that office;
B. The prominence of the advertising, soliciting, or marketing of
remittance transfer services in that foreign language at that office;
and
C. The specific foreign language terms used in the advertising
soliciting, or marketing of remittance transfer service at that office.
ii. For example, if a remittance transfer provider posts several
prominent advertisements in a foreign language for remittance transfer
services, including rate and fee information, on a consistent basis in
an office, the provider is creating an expectation that 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
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that office based on the frequency and prominence of the advertising. In
contrast, an advertisement for remittance transfer services, including
rate and fee information, that is featured prominently at an office and
is entirely in English, except for a greeting in a foreign language,
does not create an expectation that a consumer could receive information
on remittance transfer services in the foreign language used for such
greeting. The foreign language used in such an advertisement is not
considered to be principally used at that office based on the incidental
specific foreign language term used.
2. Advertise, solicit, or market. i. Any commercial message in a
foreign language, appearing in any medium, that promotes directly or
indirectly the availability of remittance transfer services constitutes
advertising, soliciting, or marketing in such foreign language for
purposes of Sec. 1005.31(g)(1). Examples illustrating when a foreign
language is used to advertise, solicit, or market include:
A. Messages in a foreign language in a leaflet or promotional flyer
at an office.
B. Announcements in a foreign language on a public address system at
an office.
C. On-line messages in a foreign language, such as on the internet.
D. Printed material in a foreign language on any exterior or
interior sign at an office.
E. Point-of-sale displays in a foreign language at an office.
F. Telephone solicitations in a foreign language.
ii. Examples illustrating use of a foreign language for purposes
other than to advertise, solicit, or market include:
A. Communicating in a foreign language (whether by telephone,
electronically, or otherwise) about remittance transfer services in
response to a consumer-initiated inquiry.
B. Making disclosures in a foreign language that are required by
Federal or other applicable law.
3. Office. An office includes any physical location, telephone
number, or Web site of a remittance transfer provider where a sender may
conduct a remittance transfer or assert an error for a remittance
transfer. The location need not exclusively offer remittance transfer
services. For example, if an agent of a remittance transfer provider is
located in a grocery store, the grocery store is considered an office
for purposes of Sec. 1005.31(g)(1). Because a consumer must be located
in a State in order to be considered a ``sender'' under Sec.
1005.30(g), a Web site is not an office for purposes of Sec.
1005.31(g)(1), even if the Web site can be accessed by consumers that
are located in the United States, unless a sender may conduct a
remittance transfer on the Web site or may assert an error for a
remittance transfer on the Web site.
4. At the office. Any advertisement, solicitation, or marketing is
considered to be made at the office in which a sender conducts a
transaction or asserts an error if such advertisement, solicitation, or
marketing is posted, provided, or made: at a physical office of a
remittance transfer provider; on a Web site of a remittance transfer
provider that may be used by senders to conduct remittance transfers or
assert errors; during a telephone call with a remittance transfer
provider that may be used by senders to conduct remittance transfers or
assert errors; or via mobile application or text message by a remittance
transfer provider if the mobile application or text message may be used
by senders to conduct remittance transfers or assert errors. An
advertisement, solicitation, or marketing that is considered to be made
at an office does not include general advertisements, solicitations, or
marketing that are not intended to be made at a particular office. For
example, if an advertisement for remittance transfers in Chinese appears
in a Chinese newspaper that is being distributed at a grocery store in
which the agent of a remittance transfer provider is located, such
advertisement would not be considered to be made at that office. For
disclosures provided pursuant to Sec. 1005.31, the relevant office is
the office in which the sender conducts the transaction. For disclosures
provided pursuant to Sec. 1005.33 for error resolution purposes, the
relevant office is the office in which the sender first asserts the
error, not the office where the transaction was conducted.
Section 1005.32--Estimates
1. Disclosures where estimates can be used. Sections 1005.32(a) and
(b)(1), (b)(4), and (b)(5) 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 in Sec.
1005.32(a) and (b)(1), (b)(4), and (b)(5), estimates may be used in the
pre-payment disclosure described in Sec. 1005.31(b)(1), the receipt
disclosure described in Sec. 1005.31(b)(2), the combined disclosure
described in Sec. 1005.31(b)(3), and the pre-payment disclosures and
receipt disclosures for both first and subsequent preauthorized
remittance transfers described in Sec. 1005.36(a)(1) and (2). Section
1005.32(b)(2) permits estimates to be used for certain information if
the remittance transfer is scheduled by a sender five or more business
days before the date of the transfer, for disclosures described in Sec.
1005.36(a)(1)(i) and (a)(2)(i).
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32(a) Temporary Exception for Insured Institutions
32(a)(1) General
1. Control. For purposes of this section, an insured institution
cannot determine exact amounts ``for reasons beyond its control'' when a
person other than the insured institution or with which the insured
institution has no correspondent relationship sets the exchange rate
required to be disclosed under Sec. 1005.31(b)(1)(iv) or imposes a
covered third-party fee required to be disclosed under Sec.
1005.31(b)(1)(vi). For example, if an insured institution has a
correspondent relationship with an intermediary financial institution in
another country and that intermediary institution sets the exchange rate
or imposes a fee for remittance transfers sent from the insured
institution to the intermediary institution, then the insured
institution must determine exact amounts for the disclosures required
under Sec. 1005.31(b)(1)(iv) or (vi), because the determination of
those amounts are not beyond the insured institution's control.
2. Examples of scenarios that qualify for the temporary exception.
The following examples illustrate when an insured institution cannot
determine an exact amount ``for reasons beyond its control'' and thus
would qualify for the temporary exception.
i. Exchange rate. An insured institution cannot determine the exact
exchange rate to disclose under Sec. 1005.31(b)(1)(iv) for an
international wire transfer if the insured institution does not set the
exchange rate, and the rate is set when the funds are deposited into the
recipient's account by the designated recipient's institution with which
the insured institution does not have a correspondent relationship. The
insured institution will not know the exchange rate that the recipient
institution will apply when the funds are deposited into the recipient's
account.
ii. Covered third-party fees. An insured institution cannot
determine the exact covered third-party fees to disclose under Sec.
1005.31(b)(1)(vi) if an intermediary institution with which the insured
institution does not have a correspondent relationship, imposes a
transfer or conversion fee.
3. Examples of scenarios that do not qualify for the temporary
exception. The following examples illustrate when an insured institution
can determine exact amounts and thus would not qualify for the temporary
exception.
i. Exchange rate. An insured institution can determine the exact
exchange rate required to be disclosed under Sec. 1005.31(b)(1)(iv) if
it converts the funds into the local currency to be received by the
designated recipient using an exchange rate that it sets. The
determination of the exchange rate is in the insured institution's
control even if there is no correspondent relationship with an
intermediary institution in the transmittal route or the designated
recipient's institution.
ii. Covered third-party fees. An insured institution can determine
the exact covered third-party fees required to be disclosed under Sec.
1005.31(b)(1)(vi) if it has agreed upon the specific fees with an
intermediary correspondent institution, and this correspondent
institution is the only institution in the transmittal route to the
designated recipient's institution.
32(b) Permanent Exceptions
32(b)(1) Permanent Exceptions for Transfers to Certain Countries
1. Laws of the recipient country. The laws of the recipient country
do not permit a remittance transfer provider to determine exact amounts
required to be disclosed when a law or regulation of the recipient
country requires the person making funds directly available to the
designated recipient to apply an exchange rate that is:
i. Set by the government of the recipient country after the
remittance transfer provider sends the remittance transfer or
ii. Set when the designated recipient receives the funds.
2. Example illustrating when exact amounts can and cannot be
determined because of the laws of the recipient country.
i. The laws of the recipient country do not permit a remittance
transfer provider to determine the exact exchange rate required to be
disclosed under Sec. 1005.31(b)(1)(iv) when, for example, the
government of the recipient country, on a daily basis, sets the exchange
rate that must, by law, apply to funds received and the funds are made
available to the designated recipient in the local currency the day
after the remittance transfer provider sends the remittance transfer.
ii. In contrast, the laws of the recipient country permit a
remittance transfer provider to determine the exact exchange rate
required to be disclosed under Sec. 1005.31(b)(1)(iv) when, for
example, the government of the recipient country ties the value of its
currency to the U.S. dollar.
3. Method by which transactions are made in the recipient country.
The method by which transactions are made in the recipient country does
not permit a remittance transfer provider to determine exact amounts
required to be disclosed when transactions are sent via international
ACH on terms negotiated between the United States government and the
recipient country's government, under which the exchange rate is a rate
set by the recipient country's central bank or other governmental
authority after the provider sends the remittance transfer.
4. Example illustrating when exact amounts can and cannot be
determined because of the method by which transactions are made in the
recipient country.
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i. The method by which transactions are made in the recipient
country does not permit a remittance transfer provider to determine the
exact exchange rate required to be disclosed under Sec.
1005.31(b)(1)(iv) when the provider sends a remittance transfer via
international ACH on terms negotiated between the United States
government and the recipient country's government, under which the
exchange rate is a rate set by the recipient country's central bank on
the business day after the provider has sent the remittance transfer.
ii. In contrast, a remittance transfer provider would not qualify
for the Sec. 1005.32(b)(1)(i)(B) methods exception if it sends a
remittance transfer via international ACH on terms negotiated between
the United States government and a private-sector entity or entities in
the recipient country, under which the exchange rate is set by the
institution acting as the entry point to the recipient country's
payments system on the next business day. However, a remittance transfer
provider sending a remittance transfer using such a method may qualify
for the Sec. 1005.32(a) temporary exception or the exception set forth
in Sec. 1005.32(b)(4).
iii. A remittance transfer provider would not qualify for the Sec.
1005.32(b)(1)(i)(B) methods exception if, for example, it sends a
remittance transfer via international ACH on terms negotiated between
the United States government and the recipient country's government,
under which the exchange rate is set by the recipient country's central
bank or other governmental authority before the sender requests a
transfer.
5. Safe harbor list. If a country is included on a safe harbor list
published by the Bureau under Sec. 1005.32(b)(1)(ii), a remittance
transfer provider may provide estimates of the amounts to be disclosed
under Sec. 1005.31(b)(1)(iv) through (vii). If a country does not
appear on the Bureau's list, a remittance transfer provider may provide
estimates under Sec. 1005.32(b)(1)(i) if the provider determines that
the recipient country does not legally permit or the method by which
transactions are conducted in that country does not permit the provider
to determine exact disclosure amounts.
6. Reliance on Bureau list of countries. A remittance transfer
provider may rely on the list of countries published by the Bureau to
determine whether the laws of a recipient country do not permit the
remittance transfer provider to determine exact amounts required to be
disclosed under Sec. 1005.31(b)(1)(iv) through (vii). Thus, if a
country is on the Bureau's list, the provider may give estimates under
this section, unless a remittance transfer provider has information that
a country on the Bureau's list legally permits the provider to determine
exact disclosure amounts.
7. Change in laws of recipient country.
i. If the laws of a recipient country change such that a remittance
transfer provider can determine exact amounts, the remittance transfer
provider must begin providing exact amounts for the required disclosures
as soon as reasonably practicable if the provider has information that
the country legally permits the provider to determine exact disclosure
amounts.
ii. If the laws of a recipient country change such that a remittance
transfer provider cannot determine exact disclosure amounts, the
remittance transfer provider may provide estimates under Sec.
1005.32(b)(1)(i), even if that country does not appear on the list
published by the Bureau.
2. Example illustrating when exact amounts can and cannot be
determined because of the laws of the recipient country.
i. The laws of the recipient country do not permit a remittance
transfer provider to determine the exact exchange rate required to be
disclosed under Sec. 1005.31(b)(1)(iv) when, for example, the
government of the recipient country, on a daily basis, sets the exchange
rate that must, by law, apply to funds received and the funds are made
available to the designated recipient in the local currency the day
after the remittance transfer provider sends the remittance transfer.
ii. In contrast, the laws of the recipient country permit a
remittance transfer provider to determine the exact exchange rate
required to be disclosed under Sec. 1005.31(b)(1)(iv) when, for
example, the government of the recipient country ties the value of its
currency to the U.S. dollar.
3. Method by which transactions are made in the recipient country.
The method by which transactions are made in the recipient country does
not permit a remittance transfer provider to determine exact amounts
required to be disclosed when transactions are sent via international
ACH on terms negotiated between the United States government and the
recipient country's government, under which the exchange rate is a rate
set by the recipient country's central bank or other governmental
authority after the provider sends the remittance transfer.
4. Example illustrating when exact amounts can and cannot be
determined because of the method by which transactions are made in the
recipient country.
i. The method by which transactions are made in the recipient
country does not permit a remittance transfer provider to determine the
exact exchange rate required to be disclosed under Sec.
1005.31(b)(1)(iv) when the provider sends a remittance transfer via
international ACH on terms negotiated between the United States
government and the recipient country's government, under which the
exchange rate is a rate set by the recipient country's central bank on
the business day after the provider has sent the remittance transfer.
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ii. In contrast, a remittance transfer provider would not qualify
for the Sec. 1005.32(b)(1)(i)(B) methods exception if it sends a
remittance transfer via international ACH on terms negotiated between
the United States government and a private-sector entity or entities in
the recipient country, under which the exchange rate is set by the
institution acting as the entry point to the recipient country's
payments system on the next business day. However, a remittance transfer
provider sending a remittance transfer using such a method may qualify
for the Sec. 1005.32(a) temporary exception.
iii. A remittance transfer provider would not qualify for the Sec.
1005.32(b)(1)(i)(B) methods exception if, for example, it sends a
remittance transfer via international ACH on terms negotiated between
the United States government and the recipient country's government,
under which the exchange rate is set by the recipient country's central
bank or other governmental authority before the sender requests a
transfer.
5. Safe harbor list. If a country is included on a safe harbor list
published by the Bureau under Sec. 1005.32(b)(1)(ii), a remittance
transfer provider may provide estimates of the amounts to be disclosed
under Sec. 1005.31(b)(1)(iv) through (b)(1)(vii). If a country does not
appear on the Bureau's list, a remittance transfer provider may provide
estimates under Sec. 1005.32(b)(1)(i) if the provider determines that
the recipient country does not legally permit or method by which
transactions are conducted in that country does not permit the provider
to determine exact disclosure amounts.
6. Reliance on Bureau list of countries. A remittance transfer
provider may rely on the list of countries published by the Bureau to
determine whether the laws of a recipient country do not permit the
remittance transfer provider to determine exact amounts required to be
disclosed under Sec. 1005.31(b)(1)(iv) through (vii). Thus, if a
country is on the Bureau's list, the provider may give estimates under
this section, unless a remittance transfer provider has information that
a country on the Bureau's list legally permits the provider to determine
exact disclosure amounts.
7. Change in laws of recipient country. i. If the laws of a
recipient country change such that a remittance transfer provider can
determine exact amounts, the remittance transfer provider must begin
providing exact amounts for the required disclosures as soon as
reasonably practicable if the provider has information that the country
legally permits the provider to determine exact disclosure amounts.
ii. If the laws of a recipient country change such that a remittance
transfer provider cannot determine exact disclosure amounts, the
remittance transfer provider may provide estimates under Sec.
1005.32(b)(1)(i), even if that country does not appear on the list
published by the Bureau.
32(b)(2) Permanent Exceptions for Transfers Scheduled Before the Date of
Transfer
1. Fixed amount of foreign currency. The following is an example of
when and how a remittance transfer provider may disclose estimates for
remittance transfers scheduled five or more business days before the
date of transfer where the provider agrees to the sender's request to
fix the amount to be transferred in a currency in which the transfer
will be received and not the currency in which it was funded. If on
February 1, a sender schedules a 1000 Euro wire transfer to be sent from
the sender's bank account denominated in U.S. dollars to a designated
recipient on February 15, Sec. 1005.32(b)(2) allows the provider to
estimate the amount that will be transferred to the designated recipient
(i.e., the amount described in Sec. 1005.31(b)(1)(i)), any fees imposed
or taxes collected on the remittance transfer by the provider (if based
on the amount transferred) (i.e., the amount described in Sec.
1005.31(b)(1)(ii)), and the total amount of the transaction (i.e., the
amount described in Sec. 1005.31(b)(1)(iii)). The provider may also
estimate any covered third-party fees if the exchange rate is also
estimated and the estimated exchange rate affects the amount of fees (as
allowed by Sec. 1005.32(b)(2)(ii)).
2. Relationship to Sec. 1005.10(d). To the extent Sec. 1005.10(d)
requires, for an electronic fund transfer that is also a remittance
transfer, notice when a preauthorized electronic fund transfer from the
consumer's account will vary in amount from the previous transfer under
the same authorization or from the preauthorized amount, that provision
applies even if subpart B would not otherwise require notice before the
date of transfer. However, insofar as Sec. 1005.10(d) does not specify
the form of such notice, a notice sent pursuant to Sec.
1005.36(a)(2)(i) will satisfy Sec. 1005.10(d) as long as the timing
requirements of Sec. 1005.10(d) are satisfied.
32(b)(3) Permanent Exception for Optional Disclosure of Non-Covered
Third-Party Fees and Taxes Collected on the Remittance Transfer by a
Person Other Than the Provider
1. Reasonable sources of information. Pursuant to Sec.
1005.32(b)(3) a remittance transfer provider may estimate applicable
non-covered third-party fees and taxes collected on the remittance
transfer by a person other than the provider using reasonable sources of
information. Reasonable sources of information may include, for example:
information obtained from recent transfers to the same institution or
the same country or region; fee schedules from the recipient
institution; fee schedules from the recipient institution's competitors;
surveys of recipient institution
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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(b)(4) Permanent Exception for Estimation of the Exchange Rate by an
Insured Institution
1. Determining the exact exchange rate. For purposes of Sec.
1005.32(b)(4)(i)(B), an insured institution cannot determine, at the
time it must provide the applicable disclosures, the exact exchange rate
required to be disclosed under Sec. 1005.31(b)(1)(iv) for a remittance
transfer to a particular country where the designated recipient of the
transfer will receive funds in the country's local currency if a person
other than the insured institution sets the exchange rate for that
transfer, except where that person has a correspondent relationship with
the insured institution, that person is a service provider for the
insured institution, or that person acts as an agent of the insured
institution.
i. Example where an insured institution cannot determine the exact
exchange rate. The following example illustrates when an insured
institution cannot determine an exact exchange rate under Sec.
1005.32(b)(4)(i)(B) for a remittance transfer:
A. An insured institution or its service provider does not set the
exchange rate required to be disclosed under Sec. 1005.31(b)(1)(iv),
and the rate is set when the funds are deposited into the recipient's
account by the designated recipient's institution that does not have a
correspondent relationship with, and does not act as an agent of, the
insured institution.
ii. Examples where an insured institution can determine the exact
exchange rate. The following examples illustrate when an insured
institution can determine an exact exchange rate under Sec.
1005.32(b)(4)(i)(B) for a remittance transfer, and thus the insured
institution may not use the exception in Sec. 1005.32(b)(4) to estimate
the disclosures required under Sec. 1005.31(b)(1)(iv) through (vii) for
the remittance transfer:
A. An insured institution has a correspondent relationship with an
intermediary financial institution (or the intermediary financial
institution acts as an agent of the insured institution) and that
intermediary financial institution sets the exchange rate required to be
disclosed under Sec. 1005.31(b)(1)(iv) for a remittance transfer.
B. An insured institution or its service provider converts the funds
into the local currency to be received by the designated recipient for a
remittance transfer using an exchange rate that the insured institution
or its service provider sets. The insured institution can determine the
exact exchange rate for purposes of Sec. 1005.32(b)(4)(i)(B) for the
remittance transfer even if the insured institution does not have a
correspondent relationship with an intermediary financial institution in
the transmittal route or the designated recipient's institution, and an
intermediary financial institution in the transmittal route or the
designed recipient's institution does not act as an agent of the insured
institution.
2. Threshold. For purposes of determining whether an insured
institution made 1,000 or fewer remittance transfers in the prior
calendar year to a particular country pursuant to Sec.
1005.32(b)(4)(i)(C):
i. The number of remittance transfers provided includes transfers in
the prior calendar year to that country when the designated recipients
of those transfers received funds in the country's local currency
regardless of whether the exchange rate was estimated for those
transfers. For example, an insured institution exceeds the 1,000-
transfer threshold in the prior calendar year if the insured institution
provided 700 remittance transfers to a country in the prior calendar
year when the designated recipients of those transfers received funds in
the country's local currency when the exchange rate was estimated for
those transfers and also sends 400 remittance transfers to the same
country in the prior calendar year when the designated recipients of
those transfers received funds in the country's local currency and the
exchange rate for those transfers was not estimated.
ii. The number of remittance transfers does not include remittance
transfers to a country in the prior calendar year when the designated
recipients of those transfers did not receive the funds in the country's
local currency. For example, an insured institution does not exceed the
1,000-transfer threshold in the prior calendar year if the insured
institution provides 700 remittance transfers to a country in the prior
calendar year when the designated recipients of those transfers received
funds in the country's local currency and also sends 400 remittance
transfers to the same country in the prior calendar year when the
designated recipients of those transfers did not receive funds in the
country's local currency.
3. Transition period. If an insured institution in the prior
calendar year did not exceed the 1,000-transfer threshold to a
particular country pursuant to Sec. 1005.32(b)(4)(i)(C), but does
exceed the 1,000-transfer threshold in the current calendar year, the
insured institution has a reasonable amount of time after exceeding the
1,000-transfer threshold to begin providing exact exchange rates in
disclosures (assuming it cannot rely on another exception in Sec.
1005.32 to estimate the exchange rate). The reasonable amount of time
must not exceed the later of six months after exceeding the 1,000-
transfer threshold in the
[[Page 354]]
current calendar year or January 1 of the next year. For example, assume
an insured institution did not exceed the 1,000-transfer threshold to a
particular country pursuant to Sec. 1005.32(b)(4)(i)(C) in 2020, but
does exceed the 1,000-transfer threshold on December 1, 2021. The
insured institution would have a reasonable amount of time after
December 1, 2021 to begin providing exact exchange rates in disclosures
(assuming it cannot rely on another exception in Sec. 1005.32 to
estimate the exchange rate). In this case, the reasonable amount of time
must not exceed June 1, 2022 (which is six months after the insured
institution exceeds the 1,000-transfer threshold in the previous year).
32(b)(5) Permanent Exception for Estimation of Covered Third-Party Fees
by an Insured Institution
1. Insured institution cannot determine the exact covered third-
party fees. For purposes of Sec. 1005.32(b)(5)(i)(B), an insured
institution cannot determine, at the time it must provide the applicable
disclosures, the exact covered third-party fees required to be disclosed
under Sec. 1005.31(b)(1)(vi) for a remittance transfer to a designated
recipient's institution when all of the following conditions are met:
i. The insured institution does not have a correspondent
relationship with the designated recipient's institution;
ii. The designated recipient's institution does not act as an agent
of the insured institution;
iii. The insured institution does not have an agreement with the
designated recipient's institution with respect to the imposition of
covered third-party fees on the remittance transfer (e.g., an agreement
whereby the designated recipient's institution agrees to charge back any
covered third-party fees to the insured institution rather than impose
the fees on the remittance transfer); and
iv. The insured institution does not know at the time the
disclosures are given that the only intermediary financial institutions
that will impose covered third-party fees on the transfer are those
institutions that have a correspondent relationship with or act as an
agent for the insured institution, or have otherwise agreed upon the
covered third-party fees with the insured institution.
2. Insured institution can determine the exact covered third-party
fees. For purposes of Sec. 1005.32(b)(5)(i)(B), an insured institution
can determine, at the time it must provide the applicable disclosures,
exact covered third-party fees, and thus the insured institution may not
use the exception in Sec. 1005.32(b)(5) to estimate the disclosures
required under Sec. 1005.31(b)(1)(vi) or (vii) for the transfer, if any
of the following conditions are met:
i. An insured institution has a correspondent relationship with the
designated recipient's institution;
ii. The designated recipient's institution acts as an agent of the
insured institution;
iii. An insured institution has an agreement with the designated
recipient's institution with respect to the imposition of covered third-
party fees on the remittance transfer; or
iv. An insured institution knows at the time the disclosures are
given that the only intermediary financial institutions that will impose
covered third-party fees on the transfer are those institutions that
have a correspondent relationship with or act as an agent for the
insured institution, or have otherwise agreed upon the covered third-
party fees with the insured institution.
3. Threshold. For purposes of determining whether an insured
institution made 500 or fewer remittance transfers in the prior calendar
year to a particular designated recipient's institution pursuant to
Sec. 1005.32(b)(5)(i)(C):
i. The number of remittance transfers provided includes remittance
transfers in the prior calendar year to that designated recipient's
institution regardless of whether the covered third-party fees were
estimated for those transfers. For example, an insured institution
exceeds the 500-transfer threshold in the prior calendar year if an
insured institution provides 300 remittance transfers to the designated
recipient's institution in the prior calendar year when the covered
third-party fees were estimated for those transfers and also sends 400
remittance transfers to the designated recipient's institution in the
prior calendar year and the covered third-party fees for those transfers
were not estimated.
ii. The number of remittance transfers includes remittance transfers
provided to the designated recipient's institution in the prior calendar
year regardless of whether the designated recipients received the funds
in the country's local currency or in another currency. For example, an
insured institution exceeds the 500-transfer threshold in the prior
calendar year if the insured institution provides 300 remittance
transfers to the designated recipient's institution in the prior
calendar year when the designated recipients of those transfers received
funds in the country's local currency and also sends 400 remittance
transfers to the same designated recipient's institution in the prior
calendar year when the designated recipients of those transfers did not
receive funds in the country's local currency.
iii. The number of remittance transfers includes remittance
transfers provided to the designated recipient's institution and any of
its branches in the country to which the particular transfer described
in Sec. 1005.32(b)(5) is being sent. For example, if the particular
remittance transfer described in Sec. 1005.32(b)(5) is being sent to
the designated recipient's institution Bank XYZ in Nigeria, the number
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of remittance transfers for purposes of the 500-transfer threshold would
include remittances transfers in the previous calendar year that were
sent to Bank XYZ, or to its branches, in Nigeria. The 500-transfer
threshold would not include remittance transfers that were sent to
branches of Bank XYZ that were located in any country other than
Nigeria.
4. United States Federal statute or regulation. An insured
institution can still use Sec. 1005.32(b)(5) to provide estimates of
covered third-party fees for a remittance transfer sent to a particular
designated recipient's institution even if the insured institution sent
more than 500 transfers to the designated recipient's institution in the
prior calendar year if a United States Federal statute or regulation
prohibits the insured institution from being able to determine the exact
covered third-party fees required to be disclosed under Sec.
1005.31(b)(1)(vi) for the remittance transfer and the insured
institution meets the other conditions set forth in Sec. 1005.32(b)(5).
A United States Federal statute or regulation specifically prohibits the
insured institution from being able to determine the exact covered
third-party fees for the remittance transfer if the United States
Federal statute or regulation:
i. Prohibits the insured institution from disclosing exact covered
third-party fees in disclosures for transfers to a designated
recipient's institution; or
ii. Makes it infeasible for the insured institution to form a
relationship with the designated recipient's institution and that
relationship is necessary for the insured institution to be able to
determine, at the time it must provide the applicable disclosures, exact
covered third-party fees.
5. Transition period. If an insured institution in the prior
calendar year did not exceed the 500-transfer threshold to a particular
designated recipient's institution pursuant to Sec.
1005.32(b)(5)(i)(C), but does exceed the 500-transfer threshold in the
current calendar year, the insured institution has a reasonable amount
of time after exceeding the 500-transfer threshold to begin providing
exact covered third-party fees in disclosures (assuming that a United
States Federal statute or regulation does not prohibit the insured
institution from being able to determine the exact covered third-party
fees, or the insured institution cannot rely on another exception in
Sec. 1005.32 to estimate covered third-party fees). The reasonable
amount of time must not exceed the later of six months after exceeding
the 500-transfer threshold in the current calendar year or January 1 of
the next year. For example, assume an insured institution did not exceed
the 500-transfer threshold to a particular designated recipient's
institution pursuant to Sec. 1005.32(b)(5)(i)(C) in 2020, but does
exceed the 500-transfer threshold on December 1, 2021. The insured
institution would have a reasonable amount of time after December 1,
2021 to begin providing exact covered third-party fees in disclosures
(assuming that a United States Federal statute or regulation does not
prohibit the insured institution from being able to determine the exact
covered third-party fees, or the insured institution cannot rely on
another exception in Sec. 1005.32 to estimate covered third-party
fees). In this case, the reasonable amount of time must not exceed June
1, 2022 (which is six months after the insured institution exceeds the
500-transfer threshold in the previous year).
32(c) Bases for Estimates
32(c)(1) Exchange Rate
1. Most recent exchange rate for qualifying international ACH
transfers. If the exchange rate for a remittance transfer sent via
international ACH that qualifies for the Sec. 1005.32(b)(1)(i)(B)
exception is set the following business day, the most recent exchange
rate available for a transfer is the exchange rate set for the day that
the disclosure is provided, i.e., the current business day's exchange
rate.
2. Publicly available. Examples of publicly available sources of
information containing the most recent wholesale exchange rate for a
currency include U.S. news services, such as Bloomberg, the Wall Street
Journal, and the New York Times; a recipient country's national news
services, and a recipient country's central bank or other government
agency.
3. Spread. An estimate for disclosing the exchange rate based on the
most recent publicly available wholesale exchange rate must also reflect
any spread the remittance transfer provider typically applies to the
wholesale exchange rate for remittance transfers for a particular
currency.
4. Most recent. For the purposes of Sec. 1005.32(c)(1)(ii) and
(iii), if the exchange rate with respect to a particular currency is
published or provided multiple times throughout the day because the
exchange rate fluctuates throughout the day, a remittance transfer
provider may use any exchange rate available on that day to determine
the most recent exchange rate.
32(c)(3) Covered Third-Party Fees
1. Potential transmittal routes. A remittance transfer from the
sender's account at an insured institution to the designated recipient's
institution may take several routes, depending on the correspondent
relationships each institution in the transmittal route has with other
institutions. In providing an estimate of the fees required to be
disclosed under Sec. 1005.31(b)(1)(vi) pursuant to the Sec. 1005.32(a)
temporary exception or the exception under Sec. 1005.32(b)(5), an
insured institution may rely upon the representations
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of the designated recipient's institution and the institutions that act
as intermediaries in any one of the potential transmittal routes that it
reasonably believes a requested remittance transfer may travel.
32(d) Bases for Estimates for Transfers Scheduled Before the Date of
Transfer
1. In general. When providing an estimate pursuant to Sec.
1005.32(b)(2), Sec. 1005.32(d) requires that a remittance transfer
provider's estimated exchange rate must be the exchange rate (or
estimated exchange rate) that the remittance transfer provider would
have used or did use that day in providing disclosures to a sender
requesting such a remittance transfer to be made on the same day. If,
for the same-day remittance transfer, the provider could utilize an
exception permitting the provision of estimates in Sec. 1005.32(a) or
(b)(1), or (4), the provider may provide estimates based on a
methodology permitted under Sec. 1005.32(c). For example, if, on
February 1, the sender schedules a remittance transfer to occur on
February 10, the provider should disclose the exchange rate as if the
sender was requesting the transfer be sent on February 1. However, if at
the time payment is made for the requested transfer, the remittance
transfer provider could not send any remittance transfer until the next
day (for reasons such as the provider's deadline for the batching of
transfers), the remittance transfer provider can use the rate (or
estimated exchange rate) that the remittance transfer provider would
have used or did use in providing disclosures that day with respect to a
remittance transfer requested that day that could not be sent until the
following day.
Section 1005.33--Procedures for Resolving Errors
33(a) Definition of Error
1. Incorrect amount of currency paid by sender. Section
1005.33(a)(1)(i) covers circumstances in which a sender pays an amount
that differs from the total amount of the transaction, including fees
imposed in connection with the transfer, stated in the receipt or
combined disclosure provided under Sec. 1005.31(b)(2) or (3). Such
error may be asserted by a sender regardless of the form or method of
payment provided, including when a debit, credit, or prepaid card is
used to fund the transfer and an excess amount is paid. For example, if
a remittance transfer provider incorrectly charged a sender's credit
card account for US$150, and US$120 was sent, plus a transfer fee of
US$10, the sender could assert an error with the remittance transfer
provider for the incorrect charge under Sec. 1005.33(a)(1)(i).
2. Incorrect amount of currency received--coverage. Section
1005.33(a)(1)(iii) covers circumstances in which the designated
recipient receives an amount of currency that differs from the amount of
currency identified on the disclosures provided to the sender, except
where the disclosure stated an estimate of the amount of currency to be
received in accordance with Sec. 1005.32 and the difference results
from application of the actual exchange rate, fees, and taxes, rather
than any estimated amounts, or the failure was caused by circumstances
outside the remittance transfer provider's control. A designated
recipient may receive an amount of currency that differs from the amount
of currency disclosed, for example, if an exchange rate other than the
disclosed rate is applied to the remittance transfer, or if the provider
fails to account for fees or taxes that may be imposed by the provider
or a third party before the transfer is picked up by the designated
recipient or deposited into the recipient's account in the foreign
country. However, if the provider rounds the exchange rate used to
calculate the amount received consistent with Sec. 1005.31(b)(1)(iv)
and comment 31(b)(1)(iv)-2 for the disclosed rate, there is no error if
the designated recipient receives an amount of currency that results
from applying the exchange rate used, prior to any rounding of the
exchange rate, to calculate fees, taxes, or the amount received rather
than the disclosed rate. Section 1005.33(a)(1)(iii) also covers
circumstances in which the remittance transfer provider transmits an
amount that differs from the amount requested by the sender.
3. Incorrect amount of currency received--examples. For purposes of
the following examples illustrating the error for an incorrect amount of
currency received under Sec. 1005.33(a)(1)(iii), assume that none of
the circumstances permitting an estimate under Sec. 1005.32 apply
(unless otherwise stated).
i. A consumer requests to send funds to a relative in Mexico to be
received in local currency. Upon receiving the sender's payment, the
remittance transfer provider provides a receipt indicating that the
amount of currency that will be received by the designated recipient
will be 1180 Mexican pesos, after fees and taxes are applied. However,
when the relative picks up the transfer in Mexico a day later, he only
receives 1150 Mexican pesos because the exchange rate applied by the
recipient agent in Mexico was lower than the exchange rate used by the
provider, prior to any rounding of the exchange rate, to disclose the
amount of currency to be received by the designated recipient on the
receipt. Because the designated recipient has received less than the
amount of currency disclosed on the receipt, an error has occurred.
ii. A consumer requests to send funds to a relative in Colombia to
be received in local currency. The remittance transfer provider provides
the sender a receipt stating an
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amount of currency that will be received by the designated recipient,
which does not reflect the additional foreign taxes that will be
collected in Colombia on the transfer but does include the statement
required by Sec. 1005.31(b)(1)(viii). If the designated recipient will
receive less than the amount of currency disclosed on the receipt due
solely to the additional foreign taxes that the provider was not
required to disclose, no error has occurred.
iii. Same facts as in ii., except that the receipt provided by the
remittance transfer provider does not reflect additional fees that are
imposed by the receiving agent in Colombia on the transfer. Because the
designated recipient will receive less than the amount of currency
disclosed in the receipt due to the additional covered third-party fees,
an error has occurred.
iv. A consumer requests to send US$250 to a relative in India to a
U.S. dollar-denominated account held by the relative at an Indian bank.
Instead of the US$250 disclosed on the receipt as the amount to be sent,
the remittance transfer provider sends US$200, resulting in a smaller
deposit to the designated recipient's account than was disclosed as the
amount to be received after fees and taxes. Because the designated
recipient received less than the amount of currency that was disclosed,
an error has occurred.
v. A consumer requests to send US$100 to a relative in a foreign
country to be received in local currency. The remittance transfer
provider provides the sender a receipt that discloses an estimated
exchange rate, other taxes, and amount of currency that will be received
due to the law in the foreign country requiring that the exchange rate
be set by the foreign country's central bank. When the relative picks up
the remittance transfer, the relative receives less currency than the
estimated amount disclosed to the sender on the receipt due to
application of the actual exchange rate, fees, and taxes, rather than
any estimated amounts. Because Sec. 1005.32(b) permits the remittance
transfer provider to disclose an estimate of the amount of currency to
be received, no error has occurred unless the estimate was not based on
an approach set forth under Sec. 1005.32(c).
vi. A sender requests that his bank send US$120 to a designated
recipient's account at an institution in a foreign country. The foreign
institution is not an agent of the provider. Only US$100 is deposited
into the designated recipient's account because the recipient
institution imposed a US$20 incoming wire fee and deducted the fee from
the amount transferred. Because this fee is a non-covered third-party
fee that the provider is not required to disclose under Sec.
1005.31(b)(1)(vi), no error has occurred if the provider provided the
disclosure required by Sec. 1005.31(b)(1)(viii).
4. Incorrect amount of currency received--extraordinary
circumstances. Under Sec. 1005.33(a)(1)(iii)(B), a remittance transfer
provider's failure to make available to a designated recipient the
amount of currency disclosed pursuant to Sec. 1005.31(b)(1)(vii) and
stated in the disclosure provided pursuant to Sec. 1005.31(b)(2) or (3)
for the remittance transfer is not an error if such failure was caused
by extraordinary circumstances outside the remittance transfer
provider's control that could not have been reasonably anticipated.
Examples of extraordinary circumstances outside the remittance transfer
provider's control that could not have been reasonably anticipated under
Sec. 1005.33(a)(1)(iii)(B) include circumstances such as war or civil
unrest, natural disaster, garnishment or attachment of some of the funds
after the transfer is sent, and government actions or restrictions that
could not have been reasonably anticipated by the remittance transfer
provider, such as the imposition of foreign currency controls or foreign
taxes unknown at the time the receipt or combined disclosure is provided
under Sec. 1005.31(b)(2) or (3).
5. Failure to make funds available by disclosed date of
availability--coverage. Section 1005.33(a)(1)(iv) generally covers
disputes about the failure to make funds available in connection with a
remittance transfer to a designated recipient by the disclosed date of
availability. If only a portion of the funds were made available by the
disclosed date of availability, then Sec. 1005.33(a)(1)(iv) does not
apply, but Sec. 1005.33(a)(1)(iii) may apply instead. The following are
examples of errors for failure to make funds available by the disclosed
date of availability (assuming that none of the exceptions in Sec.
1005.33(a)(1)(iv)(A), (B), or (C) apply).
i. Late or non-delivery of a remittance transfer;
ii. Delivery of funds to the wrong account;
iii. The fraudulent pick-up of a remittance transfer in a foreign
country by a person other than the designated recipient;
iv. The recipient agent or institution's retention of the remittance
transfer, instead of making the funds available to the designated
recipient.
6. Failure to make funds available by disclosed date of
availability--extraordinary circumstances. Under Sec.
1005.33(a)(1)(iv)(A), a remittance transfer provider's failure to
deliver or transmit a remittance transfer by the disclosed date of
availability is not an error if such failure was caused by extraordinary
circumstances outside the remittance transfer provider's control that
could not have been reasonably anticipated. Examples of extraordinary
circumstances outside the remittance transfer provider's control that
could not have been reasonably anticipated under Sec.
1005.33(a)(1)(iv)(A) include circumstances such as war or civil unrest,
natural disaster, garnishment or attachment of
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funds after the transfer is sent, and government actions or restrictions
that could not have been reasonably anticipated by the remittance
transfer provider, such as the imposition of foreign currency controls.
7. Failure to make funds available by disclosed date of
availability--fraud and other screening procedures. Under Sec.
1005.33(a)(1)(iv)(B), a remittance transfer provider's failure to
deliver funds by the disclosed date of availability is not an error if
such delay is related to the provider's or any third party's
investigation necessary to address potentially suspicious, blocked or
prohibited activity, and the provider did not and could not have
reasonably foreseen the delay so as to enable it to timely disclose an
accurate date of availability when providing the sender with a receipt
or combined disclosure. For example, no error occurs if delivery of
funds is delayed because, after the receipt is provided, the provider's
fraud screening system flags a remittance transfer because the
designated recipient has a name similar to the name of a blocked person
under a sanctions program and further investigation is needed to
determine that the designated recipient is not actually a blocked
person. Similarly, no error occurs where, after disclosing a date of
availability to the sender, a remittance transfer provider receives
specific law enforcement information indicating that the characteristics
of a remittance transfer match a pattern of fraudulent activity, and as
a result, the provider deems it necessary to delay delivery of the funds
to allow for further investigation. However, if a delay could have been
reasonably foreseen, the exception in Sec. 1005.33(a)(1)(iv)(B) would
not apply. For example, if a provider knows in time to make a disclosure
that all remittance transfers to a certain geographic area must undergo
screening procedures that routinely delay such transfers by two days,
the provider's failure to include the additional two days in its
disclosure of the date of availability constitutes an error if delivery
of the funds is indeed delayed beyond the disclosed date of
availability.
8. Sender account number or recipient institution identifier error.
The exception in Sec. 1005.33(a)(1)(iv)(D) applies where a sender gives
the remittance transfer provider an incorrect account number or
recipient institution identifier and all five conditions in Sec.
1005.33(h) are satisfied. The exception does not apply, however, where
the failure to make funds available is the result of a mistake by a
provider or a third party or due to incorrect or insufficient
information provided by the sender other than an incorrect account
number or recipient institution identifier, such as an incorrect name of
the recipient institution.
9. Account number or recipient institution identifier. For purposes
of the exception in Sec. 1005.33(a)(1)(iv)(D), the terms account number
and recipient institution identifier refer to alphanumerical account or
institution identifiers other than names or addresses, such as account
numbers, routing numbers, Canadian transit numbers, International Bank
Account Numbers (IBANs), Business Identifier Codes (BICs) and other
similar account or institution identifiers used to route a transaction.
In addition and for purposes of this exception, the term designated
recipient's account in Sec. 1005.33(a)(1)(iv)(D) refers to an asset
account, regardless of whether it is a consumer asset account,
established for any purpose and held by a bank, savings association,
credit union, or equivalent institution. A designated recipient's
account does not, however, include a credit card, prepaid card, or a
virtual account held by an Internet-based or mobile telephone company
that is not a bank, savings association, credit union or equivalent
institution.
10. Recipient-requested changes. Under Sec. 1005.33(a)(2)(iii), a
change requested by the designated recipient that the remittance
transfer provider or others involved in the remittance transfer decide
to accommodate is not considered an error. The exception under Sec.
1005.33(a)(2)(iii) is available only if the change is made solely
because the designated recipient requested the change. For example, if a
sender requests to send US$100 to a designated recipient at a designated
location, but the designated recipient requests the amount in a
different currency (either at the sender-designated location or another
location requested by the recipient) and the remittance transfer
provider accommodates the recipient's request, the change does not
constitute an error.
11. Change from disclosure made in reliance on sender information.
Under the commentary accompanying Sec. 1005.31, the remittance transfer
provider may rely on the sender's representations in making certain
disclosures. See, e.g., comments 31(b)(1)(iv)-1 and 31(b)(1)(vi)-1. For
example, suppose a sender requests U.S. dollars to be deposited into an
account of the designated recipient and represents that the account is
U.S. dollar-denominated. If the designated recipient's account is
actually denominated in local currency and the recipient account-holding
institution must convert the remittance transfer into local currency in
order to deposit the funds and complete the transfer, the change in
currency does not constitute an error pursuant to Sec.
1005.33(a)(2)(iv).
33(b) Notice of Error From Sender
1. Person asserting or discovering error. The error resolution
procedures of this section apply only when a notice of error is received
from the sender, and not when a notice of error is received from the
designated recipient or when the remittance transfer provider itself
discovers and corrects an error.
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2. Content of error notice. The notice of error is effective so long
as the remittance transfer provider is able to identify the elements in
Sec. 1005.33(b)(1)(ii). For example, the sender could provide the
confirmation number or code that would be used by the designated
recipient to pick up the transfer, or other identification number or
code supplied by the remittance transfer provider in connection with the
transfer, if such number or code is sufficient for the remittance
transfer provider to identify the sender (and contact information),
designated recipient, and the transfer in question. For an account-based
remittance transfer, the notice of error is effective even if it does
not contain the sender's account number, so long as the remittance
transfer provider is able to identify the account and the transfer in
question.
3. Address on notice of error. A remittance transfer provider may
request, or a sender may provide, the sender's or designated recipient's
email address, as applicable, instead of a physical address, on a notice
of error.
4. Effect of late notice. A remittance transfer provider is not
required to comply with the requirements of this section for any notice
of error from a sender that is received by the provider more than 180
days from the disclosed date of availability of the remittance transfer
to which the notice of error applies or, if applicable, more than 60
days after a provider sent documentation, additional information, or
clarification requested by the sender, provided such date is later than
180 days after the disclosed date of availability.
5. Notice of error provided to agent. A notice of error provided by
a sender to an agent of the remittance transfer provider is deemed to be
received by the provider under Sec. 1005.33(b)(1)(i) when received by
the agent.
6. Consumer notice of error resolution rights. Section 1005.31
requires a remittance transfer provider to include an abbreviated notice
of the consumer's error resolution rights on the receipt or combined
notice provided under Sec. 1005.31(b)(2) or (3). In addition, the
remittance transfer provider must make available to a sender upon
request, a notice providing a full description of the sender's error
resolution rights, using language set forth in Appendix A of this part
(Model Form A-36) or substantially similar language.
33(c) Time Limits and Extent of Investigation
1. Notice to sender of finding of error. If the remittance transfer
provider determines during its investigation that an error occurred as
described by the sender, the remittance provider may inform the sender
of its findings either orally or in writing. However, if the provider
determines that no error or a different error occurred, the provider
must provide a written explanation of its findings under Sec.
1005.33(d)(1).
2. Incorrect or insufficient information provided for transfer. The
remedy in Sec. 1005.33(c)(2)(iii) applies if a remittance transfer
provider's failure to make funds in connection with a remittance
transfer available to a designated recipient by the disclosed date of
availability occurred because the sender provided incorrect or
insufficient information in connection with the transfer, such as by
erroneously identifying the designated recipient's address or by
providing insufficient information such that the entity distributing the
funds cannot identify the correct designated recipient. A sender is not
considered to have provided incorrect or insufficient information for
purposes of Sec. 1005.33(c)(2)(iii) if the provider discloses the
incorrect location where the transfer may be picked up, gives the wrong
confirmation number/code for the transfer, or otherwise miscommunicates
information necessary for the designated recipient to pick-up the
transfer. The remedies in Sec. 1005.33(c)(2)(iii) do not apply if the
sender provided an incorrect account number or recipient institution
identifier and the provider has met the requirements of Sec. 1005.33(h)
because under Sec. 1005.33(a)(1)(iv)(D) no error would have occurred.
See Sec. 1005.33(a)(1)(iv)(D) and comment 33(a)-7.
3. Designation of requested remedy. Under Sec. 1005.33(c)(2)(ii),
the sender may generally choose to obtain a refund of funds that were
not properly transmitted or delivered to the designated recipient or,
request redelivery of the amount appropriate to correct the error at no
additional cost unless the error is determined to have occurred because
the sender provided incorrect or insufficient information. Upon
receiving the sender's request, the remittance transfer provider shall
correct the error within one business day, or as soon as reasonably
practicable, applying the same exchange rate, fees, and taxes stated in
the disclosure provided under Sec. 1005.31(b)(2) or (3), if the sender
requests delivery of the amount appropriate to correct the error and the
error did not occur because the sender provided incorrect or
insufficient information. The provider may also request that the sender
indicate the preferred remedy at the time the sender provides notice of
the error although if provider does so, it should indicate that the if
the sender chooses a resend at the time, the remedy may be unavailable
if the error occurred because the sender provided incorrect or
insufficient information. However, if the sender does not indicate the
desired remedy at the time of providing notice of error, the remittance
transfer provider must notify the sender of any available remedies in
the report provided under Sec. 1005.33(c)(1) or (d)(1) if the provider
determines an error occurred.
4. Default remedy. Unless the sender provided incorrect or
insufficient information and Sec. 1005.33(c)(2)(iii) applies, the
remittance
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transfer provider may set a default remedy that the provider will
provide if the sender does not designate a remedy within a reasonable
time after the sender receives the report provided under Sec.
1005.33(c)(1). A provider that permits a sender to designate a remedy
within 10 days after the provider has sent the report provided under
Sec. 1005.33(c)(1) or (d)(1) before imposing the default remedy is
deemed to have provided the sender with a reasonable time to designate a
remedy. In the case a default remedy is provided, the provider must
correct the error within one business day, or as soon as reasonably
practicable, after the reasonable time for the sender to designate the
remedy has passed, consistent with Sec. 1005.33(c)(2).
5. Amount appropriate to resolve the error. For purposes of the
remedies set forth in Sec. 1005.33(c)(2)(i)(A), (c)(2)(i)(B),
(c)(2)(ii)(A)(1), and (c)(2)(i)(A)(2) the amount appropriate to resolve
the error is the specific amount of transferred funds that should have
been received if the remittance transfer had been effected without
error. The amount appropriate to resolve the error does not include
consequential damages. For example, when the amount that was disclosed
pursuant to Sec. 1005.31(b)(1)(vii) was received by the designated
recipient before the provider must determine the appropriate remedy for
an error under Sec. 1005.33(a)(1)(iv), no additional amounts are
required to resolve the error after the remittance transfer provider
refunds the appropriate fees and taxes paid by the sender pursuant to
Sec. 1005.33(c)(2)(ii)(B) or (c)(2)(iii), as applicable.
6. Form of refund. For a refund provided under Sec.
1005.33(c)(2)(i)(A), (c)(2)(ii)(A)(1), (c)(2)(ii)(B), or (c)(2)(iii), a
remittance transfer provider may generally, at its discretion, issue a
refund either in cash or in the same form of payment that was initially
provided by the sender for the remittance transfer. For example, if the
sender originally provided a credit card as payment for the transfer,
the remittance transfer provider may issue a credit to the sender's
credit card account in the appropriate amount. However, if a sender
initially provided cash for the remittance transfer, a provider may
issue a refund by check. For example, if the sender originally provided
cash as payment for the transfer, the provider may mail a check to the
sender in the amount of the payment.
7. Remedies for incorrect amount paid. If an error under Sec.
1005.33(a)(1)(i) occurred, the sender may request the remittance
transfer provider refund the amount necessary to resolve the error under
Sec. 1005.33(c)(2)(i)(A) or that the remittance transfer provider make
the amount necessary to resolve the error available to the designated
recipient at no additional cost under Sec. 1005.33(c)(2)(i)(B).
8. Correction of an error if funds not available by disclosed date.
If the remittance transfer provider determines an error of failure to
make funds available by the disclosed date occurred under Sec.
1005.33(a)(1)(iv), it must correct the error in accordance with Sec.
1005.33(c)(2)(ii)(A), as applicable, and refund any fees imposed for the
transfer (unless the sender provided incorrect or insufficient
information to the remittance transfer provider in connection with the
remittance transfer), whether the fee was imposed by the provider or a
third party involved in sending the transfer, such as an intermediary
bank involved in sending a wire transfer or the institution from which
the funds are picked up in accordance with Sec. 1005.33(c)(2)(ii)(B).
9. Charges for error resolution. If an error occurred, whether as
alleged or in a different amount or manner, the remittance transfer
provider may not impose a charge related to any aspect of the error
resolution process (including charges for documentation or
investigation).
10. Correction without investigation. A remittance transfer provider
may correct an error, without investigation, in the amount or manner
alleged by the sender, or otherwise determined, to be in error, but must
comply with all other applicable requirements of Sec. 1005.33.
11. Procedure for sending a new remittance transfer after a sender
provides incorrect or insufficient information. Section
1005.33(c)(2)(iii) generally requires a remittance transfer provider to
refund the transfer amount to the sender even if the sender's previously
designated remedy was a resend or if the provider's default remedy in
other circumstances is a resend. However, if before the refund is
processed, the sender receives notice pursuant to Sec. 1005.33(c)(1) or
(d)(1) that an error occurred because the sender provided incorrect or
insufficient information and then requests that the provider send the
remittance transfer again, and the provider agrees to that request,
Sec. 1005.33(c)(2)(iii) requires that the request be treated as a new
remittance transfer and the provider must provide new disclosures in
accordance with Sec. 1005.31 and all other applicable provisions of
subpart B. However, Sec. 1005.33(c)(2)(iii) does not obligate the
provider to agree to a sender's request to send a new remittance
transfer.
12. Determining amount of refund. Section 1005.33(c)(2)(iii) permits
the provider to deduct from the amount refunded, or applied towards a
new transfer, any fees or taxes actually deducted from the transfer
amount by a person other than the provider as part of the first
unsuccessful remittance transfer attempt or that were deducted in the
course of returning the transfer amount to the provider following a
failed delivery. However, a provider may not deduct those fees and taxes
that will ultimately be refunded to the provider. When the provider
deducts fees or taxes from the amount refunded pursuant to
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Sec. 1005.33(c)(2)(iii), the provider must inform the sender of the
deduction as part of the notice required by either Sec. 1005.33(c)(1)
or (d)(1) and the reason for the deduction. The following examples
illustrate these concepts.
i. A sender instructs a remittance transfer provider to send US$100
to a designated recipient in local currency, for which the provider
charges a transfer fee of US$10 (and thus the sender pays the provider
$110). The provider's correspondent imposes a fee of US$15 that it
deducts from the amount of the transfer. The sender provides incorrect
or insufficient information that results in non-delivery of the
remittance transfer as requested. Once the provider determines that an
error occurred because the sender provided incorrect or insufficient
information, the provider must provide the report required by Sec.
1005.33(c)(1) or (d)(1) and inform the sender, pursuant to Sec.
1005.33(c)(1) or (d)(1), that it will refund US$95 to the sender within
three business days, unless the sender chooses to apply the US$95
towards a new remittance transfer and the provider agrees. Of the $95
that is refunded to the sender, $10 reflects the refund of the
provider's transfer fee, and $85 reflects the refund of the amount of
funds provided by the sender in connection with the transfer which was
not properly transmitted. The provider is not required to refund the
US$15 fee imposed by the correspondent (unless the $15 will be refunded
to the provider by the correspondent).
ii. A sender instructs a remittance transfer provider to send US$100
to a designated recipient in a foreign country, for which the provider
charges a transfer fee of US$10 (and thus the sender pays the provider
US$110) and an intermediary institution charges a lifting fee of US$5,
such that the designated recipient is expected to receive only US$95, as
indicated in the receipt. If an error occurs because the sender provides
incorrect or insufficient information that results in non-delivery of
the remittance transfer by the date of availability stated in the
disclosure provided to the sender for the remittance transfer under
Sec. 1005.31(b)(2) or (3), the provider is required to refund, or
reapply if requested and the provider agrees, $105 unless the
intermediary institution refunds to the provider the US$5 fee. If the
sender requests to have the transfer amount applied to a new remittance
transfer pursuant to Sec. 1005.33(c)(2)(iii) and provides the corrected
or additional information, and the remittance transfer provider agrees
to a resend remedy, the remittance transfer provider may charge the
sender another transfer fee of US$10 to send the remittance transfer
again with the corrected or additional information necessary to complete
the transfer. Insofar as the resend is an entirely new remittance
transfer, the provider must provide a prepayment disclosure and receipt
or combined disclosure in accordance with, among other provisions, the
timing requirements of Sec. 1005.31(f) and the cancellation provision
of Sec. 1005.34(a).
iii. In connection with a remittance transfer, a provider imposes a
$15 tax that it then remits to a State taxing authority. An error occurs
because the sender provided incorrect or insufficient information that
resulted in non-delivery of the transfer to the designated recipient.
The provider may deduct $15 from the amount it refunds to the sender
pursuant to Sec. 1005.33(c)(2)(iii) unless the relevant tax law will
result in the $15 tax being refunded to the provider by the State taxing
authority because the transfer was not completed.
33(d) Procedures if Remittance Transfer Provider Determines No Error or
Different Error Occurred
1. Error different from that alleged. When a remittance transfer
provider determines that an error occurred in a manner or amount
different from that described by the sender, it must comply with the
requirements of both Sec. 1005.33(c) and (d), as applicable. The
provider may give the notice of correction and the explanation
separately or in a combined form.
33(e) Reassertion of Error
1. Withdrawal of error; right to reassert. The remittance transfer
provider has no further error resolution responsibilities if the sender
voluntarily withdraws the notice alleging an error. A sender who has
withdrawn an allegation of error has the right to reassert the
allegation unless the remittance transfer provider had already complied
with all of the error resolution requirements before the allegation was
withdrawn. The sender must do so, however, within the original 180-day
period from the disclosed date of availability or, if applicable, the
60-day period for a notice of error asserted pursuant to Sec.
1005.33(b)(2).
33(f) Relation to Other Laws
1. Concurrent error obligations. A financial institution that is
also the remittance transfer provider may have error obligations under
both Sec. Sec. 1005.11 and 1005.33. For example, if a sender asserts an
error under Sec. 1005.11 with a remittance transfer provider that holds
the sender's account, and the error is not also an error under Sec.
1005.33 (such as the omission of an EFT on a periodic statement), then
the error-resolution provisions of Sec. 1005.11 exclusively apply to
the error. However, if a sender asserts an error under Sec. 1005.33
with a remittance transfer provider that holds the sender's account, and
the error is also an error under Sec. 1005.11 (such as when the amount
the sender requested to be deducted from the sender's account and sent
for the remittance transfer differs from the
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amount that was actually deducted from the account and sent), then the
error-resolution provisions of Sec. 1005.33 exclusively apply to the
error.
2. Holder in due course. Nothing in this section limits a sender's
rights to assert claims and defenses against a card issuer concerning
property or services purchased with a credit card under Regulation Z, 12
CFR 1026.12(c)(1), as applicable.
3. Assertion of same error with multiple parties. If a sender
receives credit to correct an error of an incorrect amount paid in
connection with a remittance transfer from either the remittance
transfer provider or account-holding institution (or creditor), and
subsequently asserts the same error with another party, that party has
no further responsibilities to investigate the error if the error has
been corrected. For example, assume that a sender initially asserts an
error with a remittance transfer provider with respect to a remittance
transfer alleging that US$130 was debited from his checking account, but
the sender only requested a remittance transfer for US$100, plus a US$10
transfer fee. If the remittance transfer provider refunds US$20 to the
sender to correct the error, and the sender subsequently asserts the
same error with his account-holding institution, the account-holding
institution has no error resolution responsibilities under Regulation E
because the error has been fully corrected. In addition, nothing in this
section prevents an account-holding institution or creditor from
reversing amounts it has previously credited to correct an error if a
sender receives more than one credit to correct the same error. For
example, assume that a sender concurrently asserts an error with his or
her account-holding institution and remittance transfer provider for the
same error, and the sender receives credit from the account-holding
institution for the error within 45 days of the notice of error. If the
remittance transfer provider subsequently provides a credit of the same
amount to the sender for the same error, the account-holding institution
may reverse the amounts it had previously credited to the consumer's
account, even after the 45-day error resolution period under Sec.
1005.11.
33(g) Error Resolution Standards and Recordkeeping Requirements
1. Record retention requirements. As noted in Sec. 1005.33(g)(2),
remittance transfer providers are subject to the record retention
requirements under Sec. 1005.13. Therefore, remittance transfer
providers must retain documentation, including documentation related to
error investigations, for a period of not less than two years from the
date a notice of error was submitted to the provider or action was
required to be taken by the provider. A remittance transfer provider
need not maintain records of individual disclosures that it has provided
to each sender; it need only retain evidence demonstrating that its
procedures reasonably ensure the sender's receipt of required
disclosures and documentation.
33(h) Incorrect Account Number Supplied
1. Reasonable methods of verification. When a sender provides an
incorrect recipient institution identifier, Sec. 1005.33(h)(2) limits
the exception in Sec. 1005.33(a)(1)(iv)(D) to situations where the
provider used reasonably available means to verify that the recipient
institution identifier provided by the sender did correspond to the
recipient institution name provided by the sender. Reasonably available
means may include accessing a directory of Business Identifier Codes and
verifying that the code provided by the sender matches the provided
institution name, and, if possible, the specific branch or location
provided by the sender. Providers may also rely on other commercially
available databases or directories to check other recipient institution
identifiers. If reasonable verification means fail to identify that the
recipient institution identifier is incorrect, the exception in Sec.
1005.33(a)(1)(iv)(D) will apply, assuming that the provider can satisfy
the other conditions in Sec. 1005.33(h). Similarly, if no reasonably
available means exist to verify the accuracy of the recipient
institution identifier, Sec. 1005.33(h)(2) would be satisfied and thus
the exception in Sec. 1005.33(a)(1)(iv)(D) also will apply, again
assuming the provider can satisfy the other conditions in Sec.
1005.33(h). However, where a provider does not employ reasonably
available means to verify a recipient institution identifier, Sec.
1005.33(h)(2) is not satisfied and the exception in Sec.
1005.33(a)(1)(iv)(D) will not apply.
2. Reasonable efforts. Section 1005.33(h)(5) requires a remittance
transfer provider to use reasonable efforts to recover the amount that
was to be received by the designated recipient. Whether a provider has
used reasonable efforts does not depend on whether the provider is
ultimately successful in recovering the amount that was to be received
by the designated recipient. Under Sec. 1005.33(h)(5), if the
remittance transfer provider is requested to provide documentation or
other supporting information in order for the pertinent institution or
authority to obtain the proper authorization for the return of the
incorrectly credited amount, reasonable efforts to recover the amount
include timely providing any such documentation to the extent that it is
available and permissible under law. The following are examples of
reasonable efforts:
i. The remittance transfer provider promptly calls or otherwise
contacts the institution that received the transfer, either
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directly or indirectly through any correspondent(s) or other
intermediaries or service providers used for the particular transfer, to
request that the amount that was to be received by the designated
recipient be returned, and if required by law or contract, by requesting
that the recipient institution obtain a debit authorization from the
holder of the incorrectly credited account.
ii. The remittance transfer provider promptly uses a messaging
service through a funds transfer system to contact institution that
received the transfer, either directly or indirectly through any
correspondent(s) or other intermediaries or service providers used for
the particular transfer, to request that the amount that was to be
received by the designated recipient be returned, in accordance with the
messaging service's rules and protocol, and if required by law or
contract, by requesting that the recipient institution obtain a debit
authorization from the holder of the incorrectly credited account.
3. Promptness of Reasonable Efforts. Section 1005.33(h)(5) requires
that a remittance transfer provider act promptly in using reasonable
efforts to recover the amount that was to be received by the designated
recipient. Whether a provider acts promptly to use reasonable efforts
depends on the facts and circumstances. For example, if, before the date
of availability disclosed pursuant to Sec. 1005.31(b)(2)(ii), the
sender informs the provider that the sender provided a mistaken account
number, the provider will have acted promptly if it attempts to contact
the recipient's institution before the date of availability.
Section 1005.34--Procedures for Cancellation and Refund of Remittance
Transfers
34(a) Sender Right of Cancellation and Refund
1. Content of cancellation request. A request to cancel a remittance
transfer is valid so long as the remittance transfer provider is able to
identify the remittance transfer in question. For example, the sender
could provide the confirmation number or code that would be used by the
designated recipient to pick up the transfer or other identification
number or code supplied by the remittance transfer provider in
connection with the transfer, if such number or code is sufficient for
the remittance transfer provider to identify the transfer. A remittance
transfer provider may also request, or the sender may provide, the
sender's email address instead of a physical address, so long as the
remittance transfer provider is able to identify the transfer to which
the request to cancel applies.
2. Notice of cancellation right. Section 1005.31 requires a
remittance transfer provider to include an abbreviated notice of the
sender's right to cancel a remittance transfer on the receipt or
combined disclosure given under Sec. 1005.31(b)(2) or (3). In addition,
the remittance transfer provider must make available to a sender upon
request, a notice providing a full description of the right to cancel a
remittance transfer using language that is set forth in Model Form A-36
of Appendix A to this part or substantially similar language.
3. Thirty-minute cancellation right. A remittance transfer provider
must comply with the cancellation and refund requirements of Sec.
1005.34 if the cancellation request is received by the provider no later
than 30 minutes after the sender makes payment. The provider may, at its
option, provide a longer time period for cancellation. A provider must
provide the 30-minute cancellation right regardless of the provider's
normal business hours. For example, if an agent closes less than 30
minutes after the sender makes payment, the provider could opt to take
cancellation requests through the telephone number disclosed on the
receipt. The provider could also set a cutoff time after which the
provider will not accept requests to send a remittance transfer. For
example, a financial institution that closes at 5:00 p.m. could stop
accepting payment for remittance transfers after 4:30 p.m.
4. Cancellation request provided to agent. A cancellation request
provided by a sender to an agent of the remittance transfer provider is
deemed to be received by the provider under Sec. 1005.34(a) when
received by the agent.
5. Payment made. For purposes of subpart B, payment is made, for
example, when a sender provides cash to the remittance transfer provider
or when payment is authorized.
34(b) Time Limits and Refund Requirements
1. Form of refund. At its discretion, a remittance transfer provider
generally may issue a refund either in cash or in the same form of
payment that was initially provided by the sender for the remittance
transfer. For example, if the sender originally provided a credit card
as payment for the transfer, the remittance transfer provider may issue
a credit to the sender's credit card account in the amount of the
payment. However, if a sender initially provided cash for the remittance
transfer, a provider may issue a refund by check. For example, if the
sender originally provided cash as payment for the transfer, the
provider may mail a check to the sender in the amount of the payment.
2. Fees and taxes refunded. If a sender provides a timely request to
cancel a remittance transfer, a remittance transfer provider must refund
all funds provided by the sender in connection with the remittance
transfer, including any fees and, to the extent not prohibited by law,
taxes that have been imposed for the transfer, whether the fee or tax
was assessed by the provider or a
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third party, such as an intermediary institution, the agent or bank in
the recipient country, or a State or other governmental body.
Section 1005.35--Acts of Agents
1. General. Remittance transfer providers must comply with the
requirements of subpart B, including, but not limited to, providing the
disclosures set forth in Sec. 1005.31 and providing any remedies as set
forth in Sec. 1005.33, even if an agent or other person performs
functions for the remittance transfer provider, and regardless of
whether the provider has an agreement with a third party that transfers
or otherwise makes funds available to a designated recipient.
Section 1005.36--Transfers Scheduled Before the Date of Transfer
1. Applicability of subpart B. The requirements set forth in subpart
B apply to remittance transfers subject to Sec. 1005.36, to the extent
that Sec. 1005.36 does not modify those requirements. For example, the
foreign language disclosure requirements in Sec. 1005.31(g) and related
commentary continue to apply to disclosures provided in accordance with
Sec. 1005.36(a)(2).
36(a) Timing
36(a)(2) Subsequent Preauthorized Remittance Transfers
1. Changes in Disclosures. When a sender schedules a series of
preauthorized remittance transfers, the provider is generally not
required to provide a pre-payment disclosure prior to the date of each
subsequent transfer. However, Sec. 1005.36(a)(1)(i) requires the
provider to provide a pre-payment disclosure and receipt for the first
in the series of preauthorized remittance transfers in accordance with
the timing requirements set forth in Sec. 1005.31(e). While certain
information in those disclosures is expressly permitted to be estimated
(see Sec. 1005.32(b)(2)), other information is not permitted to be
estimated, or is limited in how it may be estimated. When any of the
information on the most recent receipt provided pursuant to Sec.
1005.36(a)(1)(i) or (a)(2)(i), other than the temporal disclosures
required by Sec. 1005.31(b)(2)(ii) and (b)(2)(vii), is no longer
accurate with respect to a subsequent preauthorized remittance transfer
for reasons other than as permitted by Sec. 1005.32, the provider must
provide, within a reasonable time prior to the scheduled date of the
next preauthorized remittance transfer, a receipt that complies with
Sec. 1005.31(b)(2) and which discloses, among the other disclosures
required by Sec. 1005.31(b)(2), the changed terms. For example, if the
provider discloses in the pre-payment disclosure for the first in the
series of preauthorized remittance transfers that its fee for each
remittance transfer is $20 and, after six preauthorized remittance
transfers, the provider increases its fee to $30 (to the extent
permitted by contract law), the provider must provide the sender a
receipt that complies with 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 by Sec. 1005.32(b)(2), changes.
2. Clearly and conspicuously. In order to indicate clearly and
conspicuously that the provider's fee has changed as required by Sec.
1005.36(a)(2)(i), the provider could, for example, state on the receipt:
``Transfer Fees (UPDATED) * * * $30.'' To the extent that other figures
on the receipt must be revised because of the new fee, the receipt
should also indicate that those figures are updated.
3. Reasonable time. If a disclosure required by Sec.
1005.36(a)(2)(i) or (d)(1) is mailed, the disclosure would be considered
to be received by the sender five business days after it is posted in
the mail. If hand delivered or provided electronically, the receipt
would be considered to be received by the sender at the time of
delivery. Thus, if the provider mails a disclosure required by Sec.
1005.36(a)(2)(i) or (d)(1) not later than ten business days before the
scheduled date of the transfer, or hand or electronically delivers a
disclosure not later than five business days before the scheduled date
of the transfer, the provider would be deemed to have provided the
disclosure within a reasonable time prior to the scheduled date of the
subsequent preauthorized remittance transfer.
36(b) Accuracy
1. Use of estimates. In providing the disclosures described in Sec.
1005.36(a)(1)(i) or (a)(2)(i), remittance transfer providers may use
estimates to the extent permitted by any of the exceptions in Sec.
1005.32. When estimates are permitted, however, they must be disclosed
in accordance with Sec. 1005.31(d).
2. Subsequent preauthorized remittance transfers. For a subsequent
transfer in a series of preauthorized remittance transfers, the receipt
provided pursuant to Sec. 1005.36(a)(1)(i), except for the temporal
disclosures in that receipt required by Sec. 1005.31(b)(2)(ii) (Date
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Available) and (b)(2)(vii) (Transfer Date), applies to each subsequent
preauthorized remittance transfer unless and until it is superseded by a
receipt provided pursuant to Sec. 1005.36(a)(2)(i). For each subsequent
preauthorized remittance transfer, only the most recent receipt provided
pursuant to Sec. 1005.36(a)(1)(i) or (a)(2)(i) must be accurate as of
the date each subsequent transfer is made.
3. Receipts. A receipt required by Sec. 1005.36(a)(1)(ii) or
(a)(2)(ii) must accurately reflect the details of the transfer to which
it pertains and may not contain estimates pursuant to Sec.
1005.32(b)(2). However, the remittance transfer provider may continue to
disclose estimates to the extent permitted by Sec. 1005.32(a) or
(b)(1), (4), or (5). In providing receipts pursuant to Sec.
1005.36(a)(1)(ii) or (a)(2)(ii), Sec. 1005.36(b)(2) and (3) do not
allow a remittance transfer provider to change figures previously
disclosed on a receipt provided pursuant to Sec. 1005.36(a)(1)(i) or
(a)(2)(i), unless a figure was an estimate or based on an estimate
disclosed pursuant to Sec. 1005.32. Thus, for example, if a provider
disclosed its fee as $10 in a receipt provided pursuant to Sec.
1005.36(a)(1)(i) and that receipt contained an estimate of the exchange
rate pursuant to Sec. 1005.32(b)(2), the second receipt provided
pursuant to Sec. 1005.36(a)(1)(ii) must also disclose the fee as $10.
36(c) Cancellation
1. Scheduled remittance transfer. Section 1005.36(c) applies when a
remittance transfer is scheduled by the sender at least three business
days before the date of the transfer, whether the sender schedules a
preauthorized remittance transfer or a one-time transfer. A remittance
transfer is scheduled if it will require no further action by the sender
to send the transfer after the sender requests the transfer. For
example, a remittance transfer is scheduled at least three business days
before the date of the transfer, and Sec. 1005.36(c) applies, where a
sender on March 1 requests a remittance transfer provider to send a wire
transfer to pay a bill in a foreign country on March 15, if it will
require no further action by the sender to send the transfer after the
sender requests the transfer. A remittance transfer is not scheduled,
and Sec. 1005.36(c) does not apply, where a transfer occurs more than
three days after the date the sender requests the transfer solely due to
the provider's processing time. The following are examples of when a
sender has not scheduled a remittance transfer at least three business
days before the date of the remittance transfer, such that the
cancellation rule in Sec. 1005.34 applies.
i. A sender on March 1 requests a remittance transfer provider to
send a wire transfer to pay a bill in a foreign country on March 3.
ii. A sender on March 1 requests that a remittance transfer provider
send a remittance transfer on March 15, but the provider requires the
sender to confirm the request on March 14 in order to send the transfer.
iii. A sender on March 1 requests that a remittance transfer
provider send an ACH transfer, and that transfer is sent on March 2, but
due to the time required for processing, funds will not be deducted from
the sender's account until March 5.
2. Cancelled preauthorized remittance transfers. For preauthorized
remittance transfers, the provider must assume the request to cancel
applies to all future preauthorized remittance transfers, unless the
sender specifically indicates that it should apply only to the next
scheduled remittance transfer.
3. Concurrent cancellation obligations. A financial institution that
is also a remittance transfer provider may have both stop payment
obligations under Sec. 1005.10 and cancellation obligations under Sec.
1005.36. If a sender cancels a remittance transfer under Sec. 1005.36
with a remittance transfer provider that holds the sender's account, and
the transfer is a preauthorized transfer under Sec. 1005.10, then the
cancellation provisions of Sec. 1005.36 exclusively apply.
36(d) Date of Transfer for Subsequent Preauthorized Remittance Transfers
1. General. Section 1005.36(d)(2)(i) permits remittance transfer
providers some flexibility in determining how and when the disclosures
required by Sec. 1005.36(d)(1) may be provided to senders. The
disclosure described in Sec. 1005.36(d)(1) may be provided as a
separate disclosure, or on or with any other disclosure required by this
subpart B related to the same series of preauthorized remittance
transfers, provided that the disclosure and timing requirements in Sec.
1005.36(d)(2) and other applicable provisions in subpart B are
satisfied. For example, the required disclosures may be made on or with
a receipt provided pursuant to Sec. 1005.36(a)(1)(i); a receipt
provided pursuant to Sec. 1005.36(a)(2); or in a separate disclosure
created by the provider. Thus, for example, a remittance transfer
provider complies with Sec. 1005.36(d)(1) for a period of one year if
it provides in the receipt provided to the sender when payment is made
for the initial preauthorized remittance transfer, a schedule or summary
of the dates of transfer of all the subsequent preauthorized remittance
transfers in the series scheduled to occur over the next 12 months (and
the applicable cancellation requirements and contact information).
2. Delivery of disclosure. Section 1005.36(d)(2)(i) requires that
the sender receive disclosure of the date of transfer, applicable
cancellation requirements, and the provider's contact information no
more than
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12 months, and no less than 5 business days prior to the date of
transfer of the subsequent preauthorized remittance transfer. For
purposes of determining when a disclosure required by Sec.
1005.36(d)(1) is received by the sender, refer to comment 36(a)(2)-3.
3. Disclosure of the date of transfer. The date of transfer of a
subsequent preauthorized remittance transfer may be disclosed as a
specific date (e.g., July 19, 2013) or by using a method that clearly
permits identification of the date of the transfer, such as periodic
intervals (e.g., the third Monday of every month, or the 15th of every
month). If the future dates of transfer are disclosed as occurring
periodically and there is a break in the sequence, or the date of
transfer does not otherwise conform to the described period, e.g., if a
holiday or weekend causes the provider to deviate from the normal
schedule, the remittance transfer provider should disclose the specific
date of transfer for the affected transfer.
4. Accuracy requirements. Section 1005.36(d)(4) sets forth accuracy
requirements for disclosures required for subsequent preauthorized
remittance transfers under Sec. 1005.36(d)(1). If any of the
information provided in these disclosures change, the provider must
provide an updated disclosure with the revised information that is
accurate as of when the transfer is made, pursuant to Sec.
1005.36(d)(2).
Appendix A--Model Disclosure Clauses and Forms
1. Review of forms. The Bureau will not review or approve disclosure
forms or statements for financial institutions. However, the Bureau has
issued model clauses for institutions to use in designing their
disclosures. If an institution uses these clauses accurately to reflect
its service, the institution is protected from liability for failure to
make disclosures in proper form.
2. Use of forms. The appendix contains model disclosure clauses for
optional use by financial institutions and remittance transfer providers
to facilitate compliance with the disclosure requirements of Sec. Sec.
1005.5(b)(2) and (3), 1005.6(a), 1005.7, 1005.8(b), 1005.14(b)(1)(ii),
1005.15(c), 1005.15(e)(1) and (2), 1005.18(b)(2), (3), (6) and (7),
1005.18(d)(1) and (2), 1005.31, 1005.32 and 1005.36. The use of
appropriate clauses in making disclosures will protect a financial
institution and a remittance transfer provider from liability under
sections 916 and 917 of the act provided the clauses accurately reflect
the institution's EFT services and the provider's remittance transfer
services, respectively.
3. Altering the clauses. Unless otherwise expressly addressed in the
rule, the following applies. Financial institutions may use clauses of
their own design in conjunction with the Bureau's model clauses. The
inapplicable words or portions of phrases in parentheses should be
deleted. The catchlines are not part of the clauses and need not be
used. Financial institutions may make alterations, substitutions, or
additions in the clauses to reflect the services offered, such as
technical changes (including the substitution of a trade name for the
word ``card,'' deletion of inapplicable services, or substitution of
lesser liability limits). Several of the model clauses include
references to a telephone number and address. Where two or more of these
clauses are used in a disclosure, the telephone number and address may
be referenced and need not be repeated.
4. Model forms for remittance transfers. The Bureau will not review
or approve disclosure forms for remittance transfer providers. However,
this appendix contains 15 model forms for use in connection with
remittance transfers. These model forms are intended to demonstrate
several formats a remittance transfer provider may use to comply with
the requirements of Sec. 1005.31(b). Model Forms A-30 through A-32
demonstrate how a provider could provide the required disclosures for a
remittance transfer exchanged into local currency. Model Forms A-30(a),
(b), (c), and (d) demonstrate four options regarding model language
related to the required disclaimer, where applicable, of non-covered
third-party fees and taxes on the remittance transfer collected by a
person other than the provider under Sec. 1005.31(b)(1)(viii). Model
forms 30(b) through (d) also include language that may be used if a
provider elects to estimate either these non-covered third-party fees or
taxes collected by a person other than the provider as part of the
disclaimer. Model Forms A-33 through A-35 demonstrate how a provider
could provide the required disclosures for dollar-to-dollar remittance
transfers. These forms also demonstrate disclosure of the required
content, in accordance with the grouping and proximity requirements of
Sec. 1005.31(c)(1) and (2), in both a register receipt format and an
8.5 inch by 11 inch format. Model Form A-36 provides long form model
error resolution and cancellation disclosures required by Sec.
1005.31(b)(4), and Model Form A-37 provides short form model error
resolution and cancellation disclosures required by Sec.
1005.31(b)(2)(iv) and (vi). Model Forms A-38 through A-41 provide
language for Spanish language disclosures.
i. The model forms contain information that is not required by
subpart B, including a confirmation code, the sender's name and contact
information, and the optional disclosure of the estimated amount of
these non-covered third-party fees and taxes collected by a person other
than the provider as part of the disclaimer. Additional information not
required by subpart B may be presented on the model forms as permitted
by Sec. 1005.31(b)(1)(viii) and (c)(4). Any additional information must
be presented consistent
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with a remittance transfer provider's obligation to provide required
disclosures in a clear and conspicuous manner.
ii. Use of the model forms is optional. A remittance transfer
provider may change the forms by rearranging the format or by making
modifications to the language of the forms, in each case without
modifying the substance of the disclosures. Any rearrangement or
modification of the format of the model forms must be consistent with
the form, grouping, proximity, and other requirements of Sec.
1005.31(a) and (c). Providers making revisions that do not comply with
this section will lose the benefit of the safe harbor for appropriate
use of Model Forms A-30 to A-41.
iii. Permissible changes to the language and format of the model
forms include, for example:
A. Substituting the information contained in the model forms that is
intended to demonstrate how to complete the information in the model
forms--such as names, addresses, and Web sites; dates; numbers; and
State-specific contact information--with information applicable to the
remittance transfer. In addition, if the applicable non-covered third-
party fees are imposed by an institution other than a bank, a provider
could modify the disclaimer accordingly.
B. Eliminating disclosures that are not applicable to the transfer,
as described under Sec. 1005.31(b). For example, if only covered third-
party fees are imposed, a provider would not use a disclaimer related to
additional fees that may apply because all applicable fees are covered
and included in the disclosure as required under Sec.
1005.31(b)(1)(vi).
C. Correcting or updating telephone numbers, mailing addresses, or
Web site addresses that may change over time.
D. Providing the disclosures on a paper size that is different from
a register receipt and 8.5 inch by 11 inch formats.
E. Adding a term substantially similar to ``estimated'' in close
proximity to the specified terms in Sec. 1005.31(b)(1) and (2), as
required under Sec. 1005.31(d).
F. Providing the disclosures in a foreign language, or multiple
foreign languages, subject to the requirements of Sec. 1005.31(g).
G. Substituting cancellation language to reflect the right to a
cancellation made pursuant to the requirements of Sec. 1005.36(c).
iv. Changes to the model forms that are not permissible include, for
example, adding information that is not segregated from the required
disclosures, other than as permitted by Sec. 1005.31(c)(4).
[76 FR 81023, Dec. 27, 2011, as amended at 78 FR 18224, Mar. 26, 2013;
77 FR 6297, Feb. 7, 2012; 77 FR 50285; 77 FR 50285, Aug. 20, 2012; 78 FR
30714, May 22, 2013; 78 FR 49366, Aug. 14, 2013; 79 FR 55993, Sept. 18,
2014; 81 FR 70320, Oct. 12, 2016; 81 FR 84345, Nov. 22, 2016; 83 FR
6420, Feb. 13, 2018; 85 FR 34905, June 5, 2020]
PART 1006_DEBT COLLECTION PRACTICES (REGULATION F)--Table of Contents
Subpart A_General
Sec.
1006.1 Authority, purpose, and coverage.
1006.2 Definitions.
Subpart B_Rules for FDCPA Debt Collectors
1006.6 Communications in connection with debt collection.
1006.10 Acquisition of location information.
1006.14 Harassing, oppressive, or abusive conduct.
1006.18 False, deceptive, or misleading representations or means.
1006.22 Unfair or unconscionable means.
1006.26 Collection of time-barred debts.
1006.30 Other prohibited practices.
1006.34 Notice for validation of debts.
1006.38 Disputes and requests for original-creditor information.
1006.42 Sending required disclosures.
Subpart C [Reserved]
Subpart D_Miscellaneous
1006.100 Record retention.
1006.104 Relation to State laws.
1006.108 Exemption for State regulation.
Appendix A to Part 1006--Procedures for State Application for Exemption
From the Provisions of the Act
Appendix B to Part 1006--Model Forms
Appendix C to Part 1006--Issuance of Advisory Opinions
Supplement I to Part 1006--Official Interpretations
Authority: 12 U.S.C. 5512, 5514(b), 5532; 15 U.S.C. 1692l(d), 1692o,
7004.
Source: 85 FR 76887, Nov. 30, 2020, unless otherwise noted.
Subpart A_General
Sec. 1006.1 Authority, purpose, and coverage.
(a) Authority. This part, known as Regulation F, is issued by the
Bureau
[[Page 368]]
of Consumer Financial Protection pursuant to sections 814(d) and 817 of
the Fair Debt Collection Practices Act (FDCPA or Act), 15 U.S.C.
1692l(d), 1692o; title X of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), 12 U.S.C. 5481 et seq.; and
paragraph (b)(1) of section 104 of the Electronic Signatures in Global
and National Commerce Act (E-SIGN Act), 15 U.S.C. 7004.
(b) Purpose. This part carries out the purposes of the FDCPA, which
include eliminating abusive debt collection practices by debt
collectors, ensuring that debt collectors who refrain from using abusive
debt collection practices are not competitively disadvantaged, and
promoting consistent State action to protect consumers against debt
collection abuses. This part also prescribes requirements to ensure that
certain features of debt collection are disclosed fully, accurately, and
effectively to consumers in a manner that permits consumers to
understand the costs, benefits, and risks associated with debt
collection, in light of the facts and circumstances. Finally, this part
imposes record retention requirements to enable the Bureau to administer
and carry out the purposes of the FDCPA, the Dodd-Frank Act, and this
part, as well as to prevent evasions thereof. The record retention
requirements also will facilitate supervision of debt collectors and the
assessment and detection of risks to consumers.
(c) Coverage. (1) Except as provided in Sec. 1006.108 and appendix
A of this part regarding applications for State exemptions from the
FDCPA, this part applies to debt collectors, as defined in Sec.
1006.2(i), other than a person excluded from coverage by section 1029(a)
of the Consumer Financial Protection Act of 2010, title X of the Dodd-
Frank Act (12 U.S.C. 5519(a)).
(2) Section 1006.34(c)(2)(iii) and (c)(3)(iv) applies to debt
collectors only when they are collecting debt related to a consumer
financial product or service as defined in Sec. 1006.2(f).
[85 FR 76887, Nov. 30, 2020, as amended at 86 FR 5853, Jan. 19, 2021]
Sec. 1006.2 Definitions.
For purposes of this part, the following definitions apply:
(a) Act or FDCPA means the Fair Debt Collection Practices Act (15
U.S.C. 1692 et seq.).
(b) Attempt to communicate means any act to initiate a communication
or other contact about a debt with any person through any medium,
including by soliciting a response from such person. An attempt to
communicate includes leaving a limited-content message, as defined in
paragraph (j) of this section.
(c) Bureau means the Bureau of Consumer Financial Protection.
(d) Communicate or communication means the conveying of information
regarding a debt directly or indirectly to any person through any
medium.
(e) Consumer means any natural person, whether living or deceased,
obligated or allegedly obligated to pay any debt. For purposes of Sec.
1006.6, the term consumer includes the persons described in Sec.
1006.6(a).
(f) Consumer financial product or service has the same meaning given
to it in section 1002(5) of the Dodd-Frank Act (12 U.S.C. 5481(5)).
(g) Creditor means any person who offers or extends credit creating
a debt or to whom a debt is owed. The term creditor does not, however,
include any person to the extent that such person receives an assignment
or transfer of a debt in default solely to facilitate collection of the
debt for another.
(h) Debt means any obligation or alleged obligation of a consumer to
pay money arising out of a transaction in which the money, property,
insurance, or services that are the subject of the transaction are
primarily for personal, family, or household purposes, whether or not
the obligation has been reduced to judgment.
(i)(1) Debt collector means any person who uses any instrumentality
of interstate commerce or mail in any business the principal purpose of
which is the collection of debts, or who regularly collects or attempts
to collect, directly or indirectly, debts owed or due, or asserted to be
owed or due, to another. Notwithstanding paragraph (i)(2)(vi) of this
section, the term debt collector includes any creditor that, in the
process of collecting its own debts, uses any name other than its own
that would indicate that a third person is collecting
[[Page 369]]
or attempting to collect such debts. For purposes of Sec. 1006.22(e),
the term also includes any person who uses any instrumentality of
interstate commerce or mail in any business the principal purpose of
which is the enforcement of security interests.
(2) The term debt collector excludes:
(i) Any officer or employee of a creditor while the officer or
employee is collecting debts for the creditor in the creditor's name;
(ii) Any person while acting as a debt collector for another person
if:
(A) The person acting as a debt collector does so only for persons
with whom the person acting as a debt collector is related by common
ownership or affiliated by corporate control; and
(B) The principal business of the person acting as a debt collector
is not the collection of debts;
(iii) Any officer or employee of the United States or any State to
the extent that collecting or attempting to collect any debt is in the
performance of the officer's or employee's official duties;
(iv) Any person while serving or attempting to serve legal process
on any other person in connection with the judicial enforcement of any
debt;
(v) Any nonprofit organization that, at the request of consumers,
performs bona fide consumer credit counseling and assists consumers in
liquidating their debts by receiving payment from such consumers and
distributing such amounts to creditors;
(vi) Any person collecting or attempting to collect any debt owed or
due, or asserted to be owed or due to another, to the extent such debt
collection activity:
(A) Is incidental to a bona fide fiduciary obligation or a bona fide
escrow arrangement;
(B) Concerns a debt that such person originated;
(C) Concerns a debt that was not in default at the time such person
obtained it; or
(D) Concerns a debt that such person obtained as a secured party in
a commercial credit transaction involving the creditor; and
(vii) A private entity, to the extent such private entity is
operating a bad check enforcement program that complies with section 818
of the Act.
(j) Limited-content message means a voicemail message for a consumer
that includes all of the content described in paragraph (j)(1) of this
section, that may include any of the content described in paragraph
(j)(2) of this section, and that includes no other content.
(1) Required content. A limited-content message is a voicemail
message for a consumer that includes:
(i) A business name for the debt collector that does not indicate
that the debt collector is in the debt collection business;
(ii) A request that the consumer reply to the message;
(iii) The name or names of one or more natural persons whom the
consumer can contact to reply to the debt collector; and
(iv) A telephone number or numbers that the consumer can use to
reply to the debt collector.
(2) Optional content. In addition to the content described in
paragraph (j)(1) of this section, a limited-content message may include
one or more of the following:
(i) A salutation;
(ii) The date and time of the message;
(iii) Suggested dates and times for the consumer to reply to the
message; and
(iv) A statement that if the consumer replies, the consumer may
speak to any of the company's representatives or associates.
(k) Person includes natural persons, corporations, companies,
associations, firms, partnerships, societies, and joint stock companies.
(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 any of the foregoing.
[85 FR 76887, Nov. 30, 2020, as amended at 86 FR 5853, Jan. 19, 2021]
Subpart B_Rules for FDCPA Debt Collectors
Sec. 1006.6 Communications in connection with debt collection.
(a) Definition. For purposes of this section, the term consumer
includes:
[[Page 370]]
(1) The consumer's spouse;
(2) The consumer's parent, if the consumer is a minor;
(3) The consumer's legal guardian;
(4) The executor or administrator of the consumer's estate, if the
consumer is deceased; and
(5) A confirmed successor in interest, as defined in Regulation X,
12 CFR 1024.31, or Regulation Z, 12 CFR 1026.2(a)(27)(ii).
(b) Communications with a consumer--(1) Prohibitions regarding
unusual or inconvenient times or places. Except as provided in paragraph
(b)(4) of this section, a debt collector must not communicate or attempt
to communicate with a consumer in connection with the collection of any
debt:
(i) At any unusual time, or at a time that the debt collector knows
or should know is inconvenient to the consumer. In the absence of the
debt collector's knowledge of circumstances to the contrary, a time
before 8:00 a.m. and after 9:00 p.m. local time at the consumer's
location is inconvenient; or
(ii) At any unusual place, or at a place that the debt collector
knows or should know is inconvenient to the consumer.
(2) Prohibitions regarding consumer represented by an attorney.
Except as provided in paragraph (b)(4) of this section, a debt collector
must not communicate or attempt to communicate with a consumer in
connection with the collection of any debt if the debt collector knows
the consumer is represented by an attorney with respect to such debt and
knows, or can readily ascertain, the attorney's name and address, unless
the attorney:
(i) Fails to respond within a reasonable period of time to a
communication from the debt collector; or
(ii) Consents to the debt collector's direct communication with the
consumer.
(3) Prohibitions regarding consumer's place of employment. Except as
provided in paragraph (b)(4) of this section, a debt collector must not
communicate or attempt to communicate with a consumer in connection with
the collection of any debt at the consumer's place of employment, if the
debt collector knows or has reason to know that the consumer's employer
prohibits the consumer from receiving such communication.
(4) Exceptions. The prohibitions in paragraphs (b)(1) through (3) of
this section do not apply when a debt collector communicates or attempts
to communicate with a consumer in connection with the collection of any
debt with:
(i) The prior consent of the consumer, given directly to the debt
collector during a communication that does not violate paragraphs (b)(1)
through (3) of this section; or
(ii) The express permission of a court of competent jurisdiction.
(c) Communications with a consumer--after refusal to pay or cease
communication notice--(1) Prohibition. Except as provided in paragraph
(c)(2) of this section, if a consumer notifies a debt collector in
writing that the consumer refuses to pay a debt or that the consumer
wants the debt collector to cease further communication with the
consumer, the debt collector must not communicate or attempt to
communicate further with the consumer with respect to such debt.
(2) Exceptions. The prohibition in paragraph (c)(1) of this section
does not apply when a debt collector communicates or attempts to
communicate further with a consumer with respect to such debt:
(i) To advise the consumer that the debt collector's further efforts
are being terminated;
(ii) To notify the consumer that the debt collector or creditor may
invoke specified remedies that the debt collector or creditor ordinarily
invokes; or
(iii) Where applicable, to notify the consumer that the debt
collector or creditor intends to invoke a specified remedy.
(d) Communications with third parties--(1) Prohibitions. Except as
provided in paragraph (d)(2) of this section, a debt collector must not
communicate, in connection with the collection of any debt, with any
person other than:
(i) The consumer;
(ii) The consumer's attorney;
(iii) A consumer reporting agency, if otherwise permitted by law;
(iv) The creditor;
(v) The creditor's attorney; or
[[Page 371]]
(vi) The debt collector's attorney.
(2) Exceptions. The prohibition in paragraph (d)(1) of this section
does not apply when a debt collector communicates, in connection with
the collection of any debt, with a person:
(i) For the purpose of acquiring location information, as provided
in Sec. 1006.10;
(ii) With the prior consent of the consumer given directly to the
debt collector;
(iii) With the express permission of a court of competent
jurisdiction; or
(iv) As reasonably necessary to effectuate a postjudgment judicial
remedy.
(3) Reasonable procedures for email and text message communications.
A debt collector maintains procedures that are reasonably adapted, for
purposes of FDCPA section 813(c), to avoid a bona fide error in sending
an email or text message communication that would result in a violation
of paragraph (d)(1) of this section if those procedures include steps to
reasonably confirm and document that:
(i) The debt collector communicated with the consumer by sending an
email to an email address described in paragraph (d)(4) of this section
or a text message to a telephone number described in paragraph (d)(5) of
this section; and
(ii) The debt collector did not communicate with the consumer by
sending an email to an email address or a text message to a telephone
number that the debt collector knows has led to a disclosure prohibited
by paragraph (d)(1) of this section.
(4) Procedures for email addresses. For purposes of paragraph
(d)(3)(i) of this section, a debt collector may send an email to an
email address if:
(i) Procedures based on communication between the consumer and the
debt collector. (A) The consumer used the email address to communicate
with the debt collector about the debt and the consumer has not since
opted out of communications to that email address; or
(B) The debt collector has received directly from the consumer prior
consent to use the email address to communicate with the consumer about
the debt and the consumer has not withdrawn that consent; or
(ii) Procedures based on communication by the creditor. (A) A
creditor obtained the email address from the consumer;
(B) The creditor used the email address to communicate with the
consumer about the account and the consumer did not ask the creditor to
stop using it;
(C) Before the debt collector used the email address to communicate
with the consumer about the debt, the creditor sent the consumer a
written or electronic notice, to an address the creditor obtained from
the consumer and used to communicate with the consumer about the
account, that clearly and conspicuously disclosed:
(1) That the debt has been or will be transferred to the debt
collector;
(2) The email address and the fact that the debt collector might use
the email address to communicate with the consumer about the debt;
(3) That, if others have access to the email address, then it is
possible they may see the emails;
(4) Instructions for a reasonable and simple method by which the
consumer could opt out of such communications; and
(5) The date by which the debt collector or the creditor must
receive the consumer's request to opt out, which must be at least 35
days after the date the notice is sent;
(D) The opt-out period provided under paragraph (d)(4)(ii)(C)(5) of
this section has expired and the consumer has not opted out; and
(E) The email address has a domain name that is available for use by
the general public, unless the debt collector knows the address is
provided by the consumer's employer.
(iii) Procedures based on communication by the prior debt collector.
(A) Any prior debt collector obtained the email address in accordance
with paragraph (d)(4)(i) or (ii) of this section;
(B) The immediately prior debt collector used the email address to
communicate with the consumer about the debt; and
(C) The consumer did not opt out of such communications.
(5) Procedures for telephone numbers for text messages. For purposes
of paragraph (d)(3)(i) of this section, a debt
[[Page 372]]
collector may send a text message to a telephone number if:
(i) The consumer used the telephone number to communicate with the
debt collector about the debt by text message, the consumer has not
since opted out of text message communications to that telephone number,
and within the past 60 days either:
(A) The consumer sent the text message described in paragraph
(d)(5)(i) of this section or a new text message to the debt collector
from that telephone number; or
(B) The debt collector confirmed, using a complete and accurate
database, that the telephone number has not been reassigned from the
consumer to another user since the date of the consumer's most recent
text message to the debt collector from that telephone number; or
(ii) The debt collector received directly from the consumer prior
consent to use the telephone number to communicate with the consumer
about the debt by text message, the consumer has not since withdrawn
that consent, and within the past 60 days the debt collector either:
(A) Obtained the prior consent described in paragraph (d)(5)(ii) of
this section or renewed consent from the consumer; or
(B) Confirmed, using a complete and accurate database, that the
telephone number has not been reassigned from the consumer to another
user since the date of the consumer's most recent consent to use that
telephone number to communicate about the debt by text message.
(e) Opt-out notice for electronic communications or attempts to
communicate. A debt collector who communicates or attempts to
communicate with a consumer electronically in connection with the
collection of a debt using a specific email address, telephone number
for text messages, or other electronic-medium address must include in
such communication or attempt to communicate a clear and conspicuous
statement describing a reasonable and simple method by which the
consumer can opt out of further electronic communications or attempts to
communicate by the debt collector to that address or telephone number.
The debt collector may not require, directly or indirectly, that the
consumer, in order to opt out, pay any fee to the debt collector or
provide any information other than the consumer's opt-out preferences
and the email address, telephone number for text messages, or other
electronic-medium address subject to the opt-out request.
Sec. 1006.10 Acquisition of location information.
(a) Definition. The term location information means a consumer's:
(1) Place of abode and telephone number at such place; or
(2) Place of employment.
(b) Form and content of location communications. A debt collector
communicating with a person other than the consumer for the purpose of
acquiring location information must:
(1) Identify himself or herself individually by name, state that he
or she is confirming or correcting the consumer's location information,
and, only if expressly requested, identify his or her employer;
(2) Not state that the consumer owes any debt;
(3) Not communicate by postcard;
(4) Not use any language or symbol on any envelope or in the
contents of any communication by mail indicating that the debt collector
is in the debt collection business or that the communication relates to
the collection of a debt; and
(5) After the debt collector knows the consumer is represented by an
attorney with regard to the subject debt and has knowledge of, or can
readily ascertain, such attorney's name and address, not communicate
with any person other than that attorney, unless the attorney fails to
respond to the debt collector's communication within a reasonable period
of time.
(c) Frequency of location communications. In addition to complying
with Sec. 1006.14(b)(1), a debt collector communicating with any person
other than the consumer for the purpose of acquiring location
information about the consumer must not communicate more than once with
such person unless requested to do so by such person, or unless the debt
collector reasonably believes that the earlier response of such
[[Page 373]]
person is erroneous or incomplete and that such person now has correct
or complete location information.
Sec. 1006.14 Harassing, oppressive, or abusive conduct.
(a) In general. A debt collector must not engage in any conduct the
natural consequence of which is to harass, oppress, or abuse any person
in connection with the collection of a debt, including, but not limited
to, the conduct described in paragraphs (b) through (h) of this section.
(b) Repeated or continuous telephone calls or telephone
conversations--(1) In general. In connection with the collection of a
debt, a debt collector must not place telephone calls or engage any
person in telephone conversation repeatedly or continuously with intent
to annoy, abuse, or harass any person at the called number.
(2) Telephone call frequencies; presumptions of compliance and
violation. (i) Subject to the exclusions in paragraph (b)(3) of this
section, a debt collector is presumed to comply with paragraph (b)(1) of
this section and FDCPA section 806(5) (15 U.S.C. 1692d(5)) if the debt
collector places a telephone call to a particular person in connection
with the collection of a particular debt neither:
(A) More than seven times within seven consecutive days; nor
(B) Within a period of seven consecutive days after having had a
telephone conversation with the person in connection with the collection
of such debt. The date of the telephone conversation is the first day of
the seven-consecutive-day period.
(ii) Subject to the exclusions in paragraph (b)(3) of this section,
a debt collector is presumed to violate paragraph (b)(1) of this section
and FDCPA section 806(5) if the debt collector places a telephone call
to a particular person in connection with the collection of a particular
debt in excess of either of the telephone call frequencies described in
paragraph (b)(2)(i) of this section.
(3) Certain telephone calls excluded from the telephone call
frequencies. Telephone calls placed to a person do not count toward the
telephone call frequencies described in paragraph (b)(2)(i) of this
section if they are:
(i) Placed with such person's prior consent given directly to the
debt collector and within a period no longer than seven consecutive days
after receiving the prior consent, with the date the debt collector
receives prior consent counting as the first day of the seven-
consecutive-day period;
(ii) Not connected to the dialed number; or
(iii) Placed to the persons described in Sec. 1006.6(d)(1)(ii)
through (vi).
(4) Definition. For purposes of this paragraph (b), particular debt
means each of a consumer's debts in collection. However, in the case of
student loan debts, the term particular debt means all student loan
debts that a consumer owes or allegedly owes that were serviced under a
single account number at the time the debts were obtained by a debt
collector.
(c) Violence or other criminal means. In connection with the
collection of a debt, a debt collector must not use or threaten to use
violence or other criminal means to harm the physical person,
reputation, or property of any person.
(d) Obscene or profane language. In connection with the collection
of a debt, a debt collector must not use obscene or profane language, or
language the natural consequence of which is to abuse the hearer or
reader.
(e) Debtor's list. In connection with the collection of a debt, a
debt collector must not publish a list of consumers who allegedly refuse
to pay debts, except to a consumer reporting agency or to persons
meeting the requirements of sections 603(f) or 604(a)(3) of the Fair
Credit Reporting Act (15 U.S.C. 1681a(f) or 1681b(a)(3)).
(f) Coercive advertisements. In connection with the collection of a
debt, a debt collector must not advertise for sale any debt to coerce
payment of the debt.
(g) Meaningful disclosure of identity. In connection with the
collection of a debt, a debt collector must not place telephone calls
without meaningfully disclosing the caller's identity, except as
provided in Sec. 1006.10.
(h) Prohibited communication media--(1) In general. In connection
with the collection of any debt, a debt collector must not communicate
or attempt to communicate with a person through a
[[Page 374]]
medium of communication if the person has requested that the debt
collector not use that medium to communicate with the person.
(2) Exceptions. Notwithstanding the prohibition in paragraph (h)(1)
of this section:
(i) If a person opts out of receiving electronic communications from
a debt collector, a debt collector may send an electronic confirmation
of the person's request to opt out, provided that the electronic
confirmation contains no information other than a statement confirming
the person's request and that the debt collector will honor it;
(ii) If a person initiates contact with a debt collector using a
medium of communication that the person previously requested the debt
collector not use, the debt collector may respond once through the same
medium of communication used by the person; or
(iii) If otherwise required by applicable law, a debt collector may
communicate or attempt to communicate with a person in connection with
the collection of any debt through a medium of communication that the
person has requested the debt collector not use to communicate with the
person.
Sec. 1006.18 False, deceptive, or misleading representations or means.
(a) In general. A debt collector must not use any false, deceptive,
or misleading representation or means in connection with the collection
of any debt, including, but not limited to, the conduct described in
paragraphs (b) through (d) of this section.
(b) False, deceptive, or misleading representations. (1) A debt
collector must not falsely represent or imply that:
(i) The debt collector is vouched for, bonded by, or affiliated with
the United States or any State, including through the use of any badge,
uniform, or facsimile thereof.
(ii) The debt collector operates or is employed by a consumer
reporting agency, as defined by section 603(f) of the Fair Credit
Reporting Act (15 U.S.C. 1681a(f)).
(iii) Any individual is an attorney or that any communication is
from an attorney.
(iv) The consumer committed any crime or other conduct in order to
disgrace the consumer.
(v) A sale, referral, or other transfer of any interest in a debt
causes or will cause the consumer to:
(A) Lose any claim or defense to payment of the debt; or
(B) Become subject to any practice prohibited by this part.
(vi) Accounts have been turned over to innocent purchasers for
value.
(vii) Documents are legal process.
(viii) Documents are not legal process forms or do not require
action by the consumer.
(2) A debt collector must not falsely represent:
(i) The character, amount, or legal status of any debt.
(ii) Any services rendered, or compensation that may be lawfully
received, by any debt collector for the collection of a debt.
(3) A debt collector must not represent or imply that nonpayment of
any debt will result in the arrest or imprisonment of any person or the
seizure, garnishment, attachment, or sale of any property or wages of
any person unless such action is lawful and the debt collector or
creditor intends to take such action.
(c) False, deceptive, or misleading collection means. A debt
collector must not:
(1) Threaten to take any action that cannot legally be taken or that
is not intended to be taken.
(2) Communicate or threaten to communicate to any person credit
information that the debt collector knows or should know is false,
including the failure to communicate that a disputed debt is disputed.
(3) Use or distribute any written communication that simulates or
that the debt collector falsely represents to be a document authorized,
issued, or approved by any court, official, or agency of the United
States or any State, or that creates a false impression about its
source, authorization, or approval.
(4) Use any business, company, or organization name other than the
true name of the debt collector's business, company, or organization.
[[Page 375]]
(d) False representations or deceptive means. A debt collector must
not use any false representation or deceptive means to collect or
attempt to collect any debt or to obtain information concerning a
consumer.
(e) Disclosures required--(1) Initial communications. A debt
collector must disclose in its initial communication with a consumer
that the debt collector is attempting to collect a debt and that any
information obtained will be used for that purpose. If the debt
collector's initial communication with the consumer is oral, the debt
collector must make the disclosure required by this paragraph again in
its initial written communication with the consumer.
(2) Subsequent communications. In each communication with the
consumer subsequent to the communications described in paragraph (e)(1)
of this section, the debt collector must disclose that the communication
is from a debt collector.
(3) Exception. Disclosures under paragraphs (e)(1) and (2) of this
section are not required in a formal pleading made in connection with a
legal action.
(4) Translated disclosures. A debt collector must make the
disclosures required by paragraphs (e)(1) and (2) of this section in the
same language or languages used for the rest of the communication in
which the debt collector conveyed the disclosures. Any translation of
the disclosures a debt collector uses must be complete and accurate.
(f) Assumed names. This section does not prohibit a debt collector's
employee from using an assumed name when communicating or attempting to
communicate with a person, provided that the employee uses the assumed
name consistently and that the debt collector can readily identify any
employee using an assumed name.
Sec. 1006.22 Unfair or unconscionable means.
(a) In general. A debt collector must not use unfair or
unconscionable means to collect or attempt to collect any debt,
including, but not limited to, the conduct described in paragraphs (b)
through (f) of this section.
(b) Collection of unauthorized amounts. A debt collector must not
collect any amount unless such amount is expressly authorized by the
agreement creating the debt or permitted by law. For purposes of this
paragraph, the term ``any amount'' includes any interest, fee, charge,
or expense incidental to the principal obligation.
(c) Postdated payment instruments. A debt collector must not:
(1) Accept from any person a check or other payment instrument
postdated by more than five days unless such person is notified in
writing of the debt collector's intent to deposit such check or
instrument not more than ten, nor less than three, days (excluding legal
public holidays identified in 5 U.S.C. 6103(a), Saturdays, and Sundays)
prior to such deposit.
(2) Solicit any postdated check or other postdated payment
instrument for the purpose of threatening or instituting criminal
prosecution.
(3) Deposit or threaten to deposit any postdated check or other
postdated payment instrument prior to the date on such check or
instrument.
(d) Charges resulting from concealment of purpose. A debt collector
must not cause charges to be made to any person for communications by
concealment of the true purpose of the communication. Such charges
include, but are not limited to, collect telephone calls and telegram
fees.
(e) Nonjudicial action regarding property. A debt collector must not
take or threaten to take any nonjudicial action to effect dispossession
or disablement of property if:
(1) There is no present right to possession of the property claimed
as collateral through an enforceable security interest;
(2) There is no present intention to take possession of the
property; or
(3) The property is exempt by law from such dispossession or
disablement.
(f) Restrictions on use of certain media. A debt collector must not:
(1) Communicate with a consumer regarding a debt by postcard.
(2) Use any language or symbol, other than the debt collector's
address, on any envelope when communicating with a consumer by mail,
except that a debt collector may use the debt collector's business name
on an envelope if
[[Page 376]]
such name does not indicate that the debt collector is in the debt
collection business.
(3) Communicate or attempt to communicate with a consumer by sending
an email to an email address that the debt collector knows is provided
to the consumer by the consumer's employer, unless the email address is
one described in Sec. 1006.6(d)(4)(i) or (iii).
(4) Communicate or attempt to communicate with a person in
connection with the collection of a debt through a social media platform
if the communication or attempt to communicate is viewable by the
general public or the person's social media contacts.
(g) Safe harbor for certain emails and text messages relating to the
collection of a debt. A debt collector who communicates with a consumer
by sending an email or text message in accordance with the procedures
described in Sec. 1006.6(d)(3) does not violate paragraph (a) of this
section by revealing in the email or text message the debt collector's
name or other information indicating that the communication relates to
the collection of a debt.
Sec. 1006.26 Collection of time-barred debts.
(a) Definitions. For purposes of this section:
(1) Statute of limitations means the period prescribed by applicable
law for bringing a legal action against the consumer to collect a debt.
(2) Time-barred debt means a debt for which the applicable statute
of limitations has expired.
(b) Legal actions and threats of legal actions prohibited. A debt
collector must not bring or threaten to bring a legal action against a
consumer to collect a time-barred debt. This paragraph (b) does not
apply to proofs of claim filed in connection with a bankruptcy
proceeding.
[86 FR 5854, Jan. 19, 2021]
Sec. 1006.30 Other prohibited practices.
(a) Required actions prior to furnishing information--(1) In
general. Except as provided in paragraph (a)(2) of this section, a debt
collector must not furnish to a consumer reporting agency, as defined in
section 603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)),
information about a debt before the debt collector:
(i) Speaks to the consumer about the debt in person or by telephone;
or
(ii) Places a letter in the mail or sends an electronic message to
the consumer about the debt and waits a reasonable period of time to
receive a notice of undeliverability. During the reasonable period, the
debt collector must permit receipt of, and monitor for, notifications of
undeliverability from communications providers. If the debt collector
receives such a notification during the reasonable period, the debt
collector must not furnish information about the debt to a consumer
reporting agency until the debt collector otherwise satisfies this
paragraph (a)(1).
(2) Special rule--information furnished to certain specialty
consumer reporting agencies. Paragraph (a)(1) of this section does not
apply to a debt collector's furnishing of information about a debt to a
nationwide specialty consumer reporting agency that compiles and
maintains information on a consumer's check writing history, as
described in section 603(x)(3) of the Fair Credit Reporting Act (15
U.S.C. 1681a(x)(3)).
(b) Prohibition on the sale, transfer for consideration, or
placement for collection of certain debts--(1) In general. Except as
provided in paragraph (b)(2) of this section, a debt collector must not
sell, transfer for consideration, or place for collection a debt if the
debt collector knows or should know that the debt has been paid or
settled or discharged in bankruptcy.
(2) Exceptions--(i) In general. A debt collector may transfer for
consideration a debt described in paragraph (b)(1) of this section if
the debt collector:
(A) Transfers the debt to the debt's owner;
(B) Transfers the debt to a previous owner of the debt, if the
transfer is authorized under the terms of the original contract between
the debt collector and the previous owner; or
(C) Transfers the debt as a result of a merger, acquisition,
purchase and assumption transaction, or a transfer of substantially all
of the debt collector's assets.
[[Page 377]]
(ii) Secured claims in bankruptcy. A debt collector may sell,
transfer for consideration, or place for collection a debt that has been
discharged in bankruptcy if the debt is secured by an enforceable lien
and the debt collector notifies the transferee that the consumer's
personal liability for the debt was discharged in bankruptcy.
(iii) Securitizations and pledges of debt. Paragraph (b)(1) of this
section does not prohibit the securitization of a debt or the pledging
of a portfolio of debt as collateral in connection with a borrowing.
(c) Multiple debts. If a consumer makes any single payment to a debt
collector with respect to multiple debts owed by the consumer to the
debt collector, the debt collector:
(1) Must not apply the payment to any debt that is disputed by the
consumer; and
(2) If applicable, must apply the payment in accordance with the
consumer's directions.
(d) Legal actions by debt collectors--(1) Action to enforce interest
in real property. A debt collector who brings a legal action against a
consumer to enforce an interest in real property securing the consumer's
debt must bring the action only in a judicial district or similar legal
entity in which such real property is located.
(2) Other legal actions. A debt collector who brings a legal action
against a consumer other than to enforce an interest in real property
securing the consumer's debt must bring such action only in the judicial
district or similar legal entity in which the consumer:
(i) Signed the contract sued upon; or
(ii) Resides at the commencement of the action.
(3) Authorization of actions. Nothing in this part authorizes debt
collectors to bring legal actions.
(e) Furnishing certain deceptive forms. A debt collector must not
design, compile, and furnish any form that the debt collector knows
would be used to cause a consumer falsely to believe that a person other
than the consumer's creditor is participating in collecting or
attempting to collect a debt that the consumer allegedly owes to the
creditor.
[85 FR 76887, Nov. 30, 2020, as amended at 86 FR 5854, Jan. 19, 2021]
Sec. 1006.34 Notice for validation of debts.
(a) Validation information required--(1) In general. Except as
provided in paragraph (a)(2) of this section, a debt collector must
provide a consumer with the validation information required by paragraph
(c) of this section either:
(i) By sending the consumer a validation notice in the manner
required by Sec. 1006.42:
(A) In the initial communication, as defined in paragraph (b)(2) of
this section; or
(B) Within five days of that initial communication; or
(ii) By providing the validation information orally in the initial
communication.
(2) Exception. A debt collector who otherwise would be required to
send a validation notice pursuant to paragraph (a)(1)(i)(B) of this
section is not required to do so if the consumer has paid the debt prior
to the time that paragraph (a)(1)(i)(B) of this section would require
the validation notice to be sent.
(b) Definitions. For purposes of this section:
(1) Clear and conspicuous means readily understandable. In the case
of written and electronic disclosures, the location and type size also
must be readily noticeable and legible to consumers, although no minimum
type size is mandated. In the case of oral disclosures, the disclosures
also must be given at a volume and speed sufficient for the consumer to
hear and comprehend them.
(2) Initial communication means the first time that, in connection
with the collection of a debt, a debt collector conveys information,
directly or indirectly, regarding the debt to the consumer, other than a
communication in the form of a formal pleading in a civil action, or any
form or notice that does not relate to the collection of the debt and is
expressly required by:
(i) The Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.);
[[Page 378]]
(ii) Title V of the Gramm-Leach-Bliley Act (15 U.S.C. 6801 through
6827); or
(iii) Any provision of Federal or State law or regulation mandating
notice of a data security breach or privacy risk.
(3) Itemization date means any one of the following five reference
dates for which a debt collector can ascertain the amount of the debt:
(i) The last statement date, which is the date of the last periodic
statement or written account statement or invoice provided to the
consumer by a creditor;
(ii) The charge-off date, which is the date the debt was charged
off;
(iii) The last payment date, which is the date the last payment was
applied to the debt;
(iv) The transaction date, which is the date of the transaction that
gave rise to the debt; or
(v) The judgment date, which is the date of a final court judgment
that determines the amount of the debt owed by the consumer.
(4) Validation notice means a written or electronic notice that
provides the validation information required by paragraph (c) of this
section.
(5) Validation period means the period starting on the date that a
debt collector provides the validation information required by paragraph
(c) of this section and ending 30 days after the consumer receives or is
assumed to receive the validation information. For purposes of
determining the end of the validation period, the debt collector may
assume that a consumer receives the validation information on any date
that is at least five days (excluding legal public holidays identified
in 5 U.S.C. 6103(a), Saturdays, and Sundays) after the debt collector
provides it.
(c) Validation information. Pursuant to paragraph (a)(1) of this
section, a debt collector must provide the following validation
information.
(1) Debt collector communication disclosure. The statement required
by Sec. 1006.18(e).
(2) Information about the debt. Except as provided in paragraph
(c)(5) of this section:
(i) The debt collector's name and the mailing address at which the
debt collector accepts disputes and requests for original-creditor
information.
(ii) The consumer's name and mailing address.
(iii) If the debt collector is collecting a debt related to a
consumer financial product or service as defined in Sec. 1006.2(f), the
name of the creditor to whom the debt was owed on the itemization date.
(iv) The account number, if any, associated with the debt on the
itemization date, or a truncated version of that number.
(v) The name of the creditor to whom the debt currently is owed.
(vi) The itemization date.
(vii) The amount of the debt on the itemization date.
(viii) An itemization of the current amount of the debt reflecting
interest, fees, payments, and credits since the itemization date. A debt
collector may disclose the itemization on a separate page provided in
the same communication with a validation notice, if the debt collector
includes on the validation notice, where the itemization would have
appeared, a statement referring to that separate page.
(ix) The current amount of the debt.
(3) Information about consumer protections. (i) The date that the
debt collector will consider the end date of the validation period and a
statement that, if the consumer notifies the debt collector in writing
on or before that date that the debt, or any portion of the debt, is
disputed, the debt collector must cease collection of the debt, or the
disputed portion of the debt, until the debt collector sends the
consumer either verification of the debt or a copy of a judgment.
(ii) The date that the debt collector will consider the end date of
the validation period and a statement that, if the consumer requests in
writing on or before that date the name and address of the original
creditor, the debt collector must cease collection of the debt until the
debt collector sends the consumer the name and address of the original
creditor, if different from the current creditor.
(iii) The date that the debt collector will consider the end date of
the validation period and a statement that, unless the consumer contacts
the debt
[[Page 379]]
collector to dispute the validity of the debt, or any portion of the
debt, on or before that date, the debt collector will assume that the
debt is valid.
(iv) If the debt collector is collecting debt related to a consumer
financial product or service as defined in Sec. 1006.2(f), a statement
that informs the consumer that additional information regarding consumer
protections in debt collection is available on the Bureau's website at
www.cfpb.gov/debt-collection.
(v) If the debt collector sends the validation notice
electronically, a statement explaining how a consumer can, as described
in paragraphs (c)(4)(i) and (ii) of this section, dispute the debt or
request original-creditor information electronically.
(4) Consumer-response information. The following information,
segregated from the validation information required by paragraphs (c)(1)
through (3) of this section and from any optional information included
pursuant to paragraphs (d)(3)(i) and (ii), (d)(3)(iii)(A), (d)(3)(iv)
and (v), (d)(3)(vi)(A), and (d)(3)(vii) and (viii) of this section, and,
if provided on a validation notice, located at the bottom of the notice
under the headings, ``How do you want to respond?'' and ``Check all that
apply:'':
(i) Dispute prompts. The following statements, listed in the
following order, and using the following phrasing or substantially
similar phrasing, each next to a prompt:
(A) ``I want to dispute the debt because I think:'';
(B) ``This is not my debt.'';
(C) ``The amount is wrong.''; and
(D) ``Other (please describe on reverse or attach additional
information).''
(ii) Original-creditor information prompt. The statement, ``I want
you to send me the name and address of the original creditor.'', using
that phrase or a substantially similar phrase, next to a prompt.
(iii) Mailing addresses. Mailing addresses for the consumer and the
debt collector, which are the debt collector's and the consumer's names
and mailing addresses as disclosed pursuant to Sec. 1006.34(c)(2)(i)
and (ii).
(5) Special rule for certain residential mortgage debt. For
residential mortgage debt, if a periodic statement is required under
Regulation Z, 12 CFR 1026.41, at the time a debt collector provides the
validation notice, a debt collector need not provide the validation
information required by paragraphs (c)(2)(vi) through (viii) of this
section if the debt collector:
(i) Provides the consumer, in the same communication with the
validation notice, a copy of the most recent periodic statement provided
to the consumer under Regulation Z, 12 CFR 1026.41(b); and
(ii) Includes on the validation notice, where the validation
information required by paragraphs (c)(2)(vi) through (viii) of this
section would have appeared, a statement referring to that periodic
statement.
(d) Form of validation information--(1) In general. The validation
information required by paragraph (c) of this section must be clear and
conspicuous.
(2) Safe harbor--(i) In general. Model Form B-1 in appendix B to
this part contains the validation information required by paragraph (c)
of this section and certain optional disclosures permitted by paragraph
(d)(3) of this section. A debt collector who uses Model Form B-1
complies with the information and form requirements of paragraphs (c)
and (d)(1) of this section, including if the debt collector:
(A) Omits any or all of the optional disclosures shown on Model Form
B-1; or
(B) Adds any or all of the optional disclosures described in
paragraph (d)(3) of this section that are not shown on Model Form B-1,
provided that any such optional disclosures are no more prominent than
any of the validation information required by paragraph (c) of this
section.
(ii) Certain disclosures on a separate page. A debt collector who
uses Model Form B-1 as described in paragraph (d)(2)(i) of this section
and who, pursuant to paragraph (c)(2)(viii) or (c)(5) of this section,
includes certain disclosures on a separate page in the same
communication with the validation notice and, on the notice, the
required statement referring to those disclosures, receives a safe
harbor for compliance with the information and form requirements of
paragraphs (c) and
[[Page 380]]
(d)(1) of this section except with respect to the disclosures on the
separate page.
(iii) Substantially similar form. A debt collector who uses Model
Form B-1 as described in paragraph (d)(2)(i) or (ii) of this section may
make changes to the form and retain a safe harbor for compliance with
the information and form requirements of paragraphs (c) and (d)(1) of
this section provided that the form remains substantially similar to
Model Form B-1.
(3) Optional disclosures. A debt collector may include any of the
following information when providing the validation information required
by paragraph (c) of this section. A debt collector who includes any of
the following information receives the safe harbor described in
paragraph (d)(2) of this section, provided that the debt collector
otherwise uses Model Form B-1 in appendix B to this part, or a variation
of Model Form B-1, as described in paragraph (d)(2) of this section.
(i) Telephone contact information. The debt collector's telephone
contact information.
(ii) Reference code. A number or code that the debt collector uses
to identify the debt or the consumer.
(iii) Payment disclosures. Either or both of the following phrases:
(A) The statement, ``Contact us about your payment options.'', using
that phrase or a substantially similar phrase; and
(B) Below the consumer-response information required by paragraphs
(c)(4)(i) and (ii) of this section, the statement, ``I enclosed this
amount:'', using that phrase or a substantially similar phrase, payment
instructions after that statement, and a prompt.
(iv) Disclosures under applicable law--(A) Disclosures on the
reverse of the validation notice. On the reverse of the validation
notice, any disclosures that are specifically required by, or that
provide safe harbors under, applicable law and, if any such disclosures
are included, a statement on the front of the validation notice
referring to those disclosures. Any such disclosures must not appear
directly on the reverse of the consumer-response information required by
paragraph (c)(4) of this section.
(B) Disclosures on the front of the validation notice. If a debt
collector is collecting time-barred debt, on the front of the validation
notice below the disclosure required by paragraph (c)(2)(ix) of this
section, any time-barred debt disclosure that is specifically required
by, or that provides a safe harbor under, applicable law, provided that
applicable law specifies the content of the disclosure.
(v) Information about electronic communications. The following
information:
(A) The debt collector's website and email address.
(B) If the validation information is not provided electronically, a
statement explaining how a consumer can, as described in paragraphs
(c)(4)(i) and (ii) of this section, dispute the debt or request
original-creditor information electronically.
(vi) Spanish-language translation disclosures. Either or both of the
following disclosures regarding a consumer's ability to request a
Spanish-language translation of a validation notice:
(A) The statement, ``P[oacute]ngase en contacto con nosotros para
solicitar una copia de este formulario en espa[ntilde]ol'' (which means
``Contact us to request a copy of this form in Spanish''), using that
phrase or a substantially similar phrase in Spanish. If providing this
optional disclosure, a debt collector may include supplemental
information in Spanish that specifies how a consumer may request a
Spanish-language validation notice.
(B) With the consumer-response information required by paragraph
(c)(4) of this section, the statement ``Quiero este formulario en
espa[ntilde]ol'' (which means ``I want this form in Spanish''), using
that phrase or a substantially similar phrase in Spanish, next to a
prompt.
(vii) The merchant brand, affinity brand, or facility name, if any,
associated with the debt.
(viii) If a debt collector is collecting debt other than debt
related to a consumer financial product or service as defined in Sec.
1006.2(f), the information specified in paragraph (c)(2)(iii) or
(c)(3)(iv) of this section.
(4) Validation notices delivered electronically. If a debt collector
delivers a validation notice electronically, a debt
[[Page 381]]
collector may, at its option, format the validation notice as follows:
(i) Prompts. Any prompt required by paragraph (c)(4)(i) or (ii) or
paragraph (d)(3)(iii)(B) or (d)(3)(vi)(B) of this section may be
displayed electronically as a fillable field.
(ii) Hyperlinks. Hyperlinks may be embedded that, when clicked:
(A) Connect a consumer to the debt collector's website;
(B) Connect a consumer to the Bureau's debt collection website as
disclosed pursuant to paragraph (c)(3)(iv) of this section; or
(C) Permit a consumer to respond to the dispute and original-
creditor information prompts required by paragraphs (c)(4)(i) and (ii)
of this section.
(e) Translation into other languages--(1) In general. A debt
collector may send a consumer a validation notice completely and
accurately translated into any language if the debt collector:
(i) Sends the consumer an English-language validation notice in the
same communication as the translated validation notice; or
(ii) Previously provided the consumer an English-language validation
notice, in which case the debt collector need not send the consumer an
English-language validation notice in the same communication as the
translated validation notice.
(2) Spanish-language validation notice--requirement to provide after
optional disclosure. A debt collector who includes in the validation
information either or both of the optional disclosures described in
paragraph (d)(3)(vi) of this section, and who thereafter receives a
request from the consumer for a Spanish-language validation notice, must
provide the consumer a validation notice completely and accurately
translated into Spanish.
[86 FR 5854, Jan. 19, 2021]
Sec. 1006.38 Disputes and requests for original-creditor information.
(a) Definitions. For purposes of this section, the following
definitions apply:
(1) Duplicative dispute means a dispute submitted by the consumer in
writing within the validation period that:
(i) Is substantially the same as a dispute previously submitted by
the consumer in writing within the validation period for which the debt
collector already has satisfied the requirements of paragraph (d)(2)(i)
of this section; and
(ii) Does not include new and material information to support the
dispute.
(2) Validation period has the same meaning given to it in Sec.
1006.34(b)(5).
(b) Overshadowing of rights to dispute or request original-creditor
information--(1) Prohibition. During the validation period, a debt
collector must not engage in any collection activities or communications
that overshadow or are inconsistent with the disclosure of the
consumer's rights to dispute the debt and to request the name and
address of the original creditor.
(2) Safe harbor. A debt collector who uses Model Form B-1 in
appendix B to this part in a manner described in Sec. 1006.34(d)(2) has
not thereby violated paragraph (b)(1) of this section.
(c) Requests for original-creditor information. Upon receipt of a
request for the name and address of the original creditor submitted by
the consumer in writing within the validation period, a debt collector
must cease collection of the debt until the debt collector:
(1) In general. Sends the name and address of the original creditor
to the consumer in writing or electronically in the manner required by
Sec. 1006.42; or
(2) Special rule if the current creditor and the original creditor
are the same. In lieu of taking the actions described in paragraph
(c)(1) of this section, reasonably determines that the original creditor
is the same as the current creditor, notifies the consumer of that fact
in writing or electronically in the manner required by Sec. 1006.42,
and refers the consumer to the validation information previously
provided pursuant to Sec. 1006.34(a)(1).
(d) Disputes--(1) Failure to dispute. The failure of a consumer to
dispute the validity of a debt does not constitute a legal admission of
liability by the consumer.
(2) Response to disputes. Upon receipt of a dispute submitted by the
consumer in writing within the validation period, a debt collector must
cease collection of the debt, or any disputed portion of the debt, until
the debt collector:
[[Page 382]]
(i) Sends a copy either of verification of the debt or of a judgment
to the consumer in writing or electronically in the manner required by
Sec. 1006.42; or
(ii) In the case of a dispute that the debt collector reasonably
determines is a duplicative dispute, either:
(A) Notifies the consumer in writing or electronically in the manner
required by Sec. 1006.42(a)(1) that the dispute is duplicative,
provides a brief statement of the reasons for the determination, and
refers the consumer to the debt collector's response to the earlier
dispute; or
(B) Satisfies paragraph (d)(2)(i) of this section.
[85 FR 76887, Nov. 30, 2020, as amended at 86 FR 5856, Jan. 19, 2021]
Sec. 1006.42 Sending required disclosures.
(a) Sending required disclosures--(1) In general. A debt collector
who sends disclosures required by the Act and this part in writing or
electronically must do so in a manner that is reasonably expected to
provide actual notice, and in a form that the consumer may keep and
access later.
(2) Exceptions. A debt collector need not comply with paragraph
(a)(1) of this section when sending the disclosure required by Sec.
1006.6(e) or Sec. 1006.18(e) in writing or electronically, unless the
disclosure is included on a notice required by Sec. 1006.34(a)(1)(i) or
Sec. 1006.38(c) or (d)(2).
(b) Requirements for certain disclosures sent electronically. To
comply with paragraph (a) of this section, a debt collector who sends
the notice required by Sec. 1006.34(a)(1)(i)(B), or the disclosures
described in Sec. 1006.38(c) or (d)(2)(i), electronically must do so in
accordance with section 101(c) of the Electronic Signatures in Global
and National Commerce Act (E-SIGN Act) (15 U.S.C. 7001(c)).
[85 FR 76887, Nov. 30, 2020, as amended at 86 FR 5856, Jan. 19, 2021]
Subpart C [Reserved]
Subpart D_Miscellaneous
Sec. 1006.100 Record retention.
(a) In general. Except as provided in paragraph (b) of this section,
a debt collector must retain records that are evidence of compliance or
noncompliance with the FDCPA and this part starting on the date that the
debt collector begins collection activity on a debt until three years
after the debt collector's last collection activity on the debt.
(b) Special rule for telephone call recordings. If a debt collector
records telephone calls made in connection with the collection of a
debt, the debt collector must retain the recording of each such
telephone call for three years after the date of the call.
Sec. 1006.104 Relation to State laws.
Neither the Act nor the corresponding provisions of this part annul,
alter, affect, or exempt any person subject to the provisions of the Act
or the corresponding provisions of this part from complying with the
laws of any State with respect to debt collection practices, except to
the extent that those laws are inconsistent with any provision of the
Act or the corresponding provisions of this part, and then only to the
extent of the inconsistency. For purposes of this section, a State law
is not inconsistent with the Act or the corresponding provisions of this
part if the protection such law affords any consumer is greater than the
protection provided by the Act or the corresponding provisions of this
part.
Sec. 1006.108 Exemption for State regulation.
(a) Exemption for State regulation. Any State may apply to the
Bureau 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 those imposed under
sections 803 through 812 of the Act (15 U.S.C. 1692a through 1692j) and
the corresponding provisions of this part, and that there is adequate
provision for State enforcement of such requirements.
(b) Procedures and criteria. The 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 Act and the corresponding provisions of this part as provided in
[[Page 383]]
section 817 of the Act (15 U.S.C. 1692o) are set forth in appendix A of
this part.
Sec. Appendix A to Part 1006--Procedures for State Application for
Exemption From the Provisions of the Act
I. Purpose and Definitions
(a) This appendix 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 Act and
the corresponding provisions of this part as provided in section 817 of
the Act (15 U.S.C. 1692o).
(b) For purposes of this appendix:
(1) Applicant State law means the State law that, for a class of
debt collection practices within that State, is claimed to contain
requirements that are substantially similar to the requirements that
relevant Federal law imposes on that class of debt collection practices,
and that contains adequate provision for State enforcement.
(2) Class of debt collection practices includes one or more such
classes of debt collection practices referred to in paragraph I(b)(1) of
this appendix.
(3) Relevant Federal law means sections 803 through 812 of the Act
(15 U.S.C. 1692a through 1692j) and the corresponding provisions of this
part.
(4) State law includes State statutes, any regulations that
implement State statutes, and formal interpretations of State statutes
or regulations by a court of competent jurisdiction or duly authorized
State agency.
II. Application
Any State may apply to the Bureau pursuant to the terms of this
appendix for a determination that the applicant State law contains
requirements that, for a class of debt collection practices within that
State, are substantially similar to the requirements that relevant
Federal law imposes on that class of debt collection practices, and that
the applicant State law contains adequate provision for State
enforcement. The application must be in writing, addressed to the
Assistant Director, Office of Regulations, Division of Research,
Monitoring, and Regulations, Bureau of Consumer Financial Protection,
1700 G Street NW, Washington, DC 20552, signed by the Governor, Attorney
General, or State official having primary enforcement responsibility
under the State law that applies to the class of debt collection
practices, and must be supported by the documents specified in this
appendix.
III. Supporting Documents
The application must be accompanied by the following, which may be
submitted in paper or electronic form:
(a) A copy of the applicant State law.
(b) A comparison of each provision of relevant Federal law with the
corresponding provisions of the applicant State law, together with
reasons supporting the claim that the corresponding provisions of the
applicant State law are substantially similar to the provisions of
relevant Federal law, and an explanation as to why any differences
between the State statute or regulation and Federal law are not
inconsistent with the provisions of relevant Federal law 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 comparison of the provisions of the State law that provide for
enforcement with the provisions of section 814 of the Act (15 U.S.C.
1692l), together with reasons supporting the claim that the applicant
State law provides for adequate administrative enforcement.
(d) A statement identifying the office designated or to be
designated to enforce the applicant State law. The statement must show
how the office provides for adequate enforcement of the applicant State
law, including by showing that the office has necessary facilities,
personnel, and funding. The statement must include, for example,
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 the applicant State law is to be enforced by the State.
IV. Criteria for Determination
The Bureau will consider the criteria set forth below, and any other
relevant information, in determining whether the applicant State law is
substantially similar to relevant Federal law and whether there is
adequate provision for enforcement of the applicant State law. In making
that determination, the Bureau primarily will consider each provision of
the applicant State law in comparison with each corresponding provision
in relevant Federal law, and not the State law as a whole in comparison
with the Act as a whole.
(a)(1) In order for the applicant State law to be substantially
similar to relevant Federal law, the applicant State law at least must
provide that:
[[Page 384]]
(i) Definitions and rules of construction, as applicable, import a
meaning and have an application that are substantially similar to those
prescribed by relevant Federal law.
(ii) Debt collectors provide all of the applicable notices required
by relevant Federal law, with the content and in the terminology, form,
and time periods prescribed pursuant to relevant Federal law. The Bureau
may determine whether additional notice requirements under the applicant
State law affect a determination that the applicant State law is
substantially similar to relevant Federal law.
(iii) Debt collectors take all affirmative actions and abide by
obligations substantially similar to those prescribed by relevant
Federal law under substantially similar conditions and within
substantially similar time periods as are prescribed under relevant
Federal law;
(iv) Debt collectors abide by prohibitions that are substantially
similar to those prescribed by relevant Federal law;
(v) Consumers' obligations or responsibilities are no more costly,
lengthy, or burdensome than consumers' corresponding obligations or
responsibilities under relevant Federal law; and
(vi) Consumers' rights and protections are substantially similar to
those provided by relevant Federal law under conditions or within time
periods that are substantially similar to those prescribed by relevant
Federal law.
(2) In applying the criteria set forth in paragraph IV(a)(1) of this
appendix, the Bureau will not consider adversely any additional
requirements of State law that are not inconsistent with the purpose of
the Act or the requirements imposed under relevant Federal law.
(b) In determining whether provisions for enforcement of the
applicant State law are adequate, consideration will be given to the
extent to which, under the applicant State law, provision is made for
administrative enforcement, including necessary facilities, personnel,
and funding.
V. Public Comment
In connection with any application that has been filed in accordance
with the requirements of parts II and III of this appendix and following
initial review of the application, a proposed rule concerning the
application for exemption will be published by the Bureau in the Federal
Register, and a copy of such application will be made available for
examination by interested persons during business hours at the Bureau of
Consumer Financial Protection, 1700 G Street NW, Washington, DC 20552. A
comment period will be allowed from the date of such publication for
interested parties to submit written comments to the Bureau regarding
that application.
VI. Exemption From Requirements
If the Bureau determines on the basis of the information before it
that, under the applicant State law, a class of debt collection
practices is subject to requirements substantially similar to those
imposed under relevant Federal law 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 relevant
Federal law and section 814 of the Act in the following manner and
subject to the following conditions:
(a) A final rule granting the exemption will be published in the
Federal Register, and the Bureau will furnish a copy of such rule to the
State official who made application for such exemption, to each Federal
authority responsible for administrative enforcement of the requirements
of relevant Federal law, and to the Attorney General of the United
States. Any exemption granted will be effective 90 days after the date
of publication of such rule in the Federal Register.
(b) Any State that receives an exemption must, through its
appropriate official, take the following steps:
(i) Inform the Assistant Director, Office of Regulations, Division
of Research, Monitoring, and Regulations, Bureau of Consumer Financial
Protection, 1700 G Street NW, Washington, DC 20552 in writing within 30
days of any change in the applicant State law. The report of any such
change must contain copies of the full text of that change, together
with statements setting forth the information and opinions regarding
that change that are specified in paragraph III.
(ii) Provide, not later than two years after the date the exemption
is granted, and every two years thereafter, a report to the Bureau in
writing concerning the manner in which the State has enforced the
applicant State law in the preceding two years and an update of the
information required under paragraph III(d) of this appendix.
(c) The Bureau will inform any State that receives such an
exemption, through its appropriate official, of any subsequent
amendments of the Act or this part that might necessitate the amendment
of State law for the exemption to continue.
(d) After an exemption is granted, the requirements of the
applicable State law constitute the requirements of relevant Federal
law, except to the extent such State law imposes requirements not
imposed by the Act or this part.
VII. Adverse Determination
(a) If, after publication of a proposed rule in the Federal Register
as provided under part V of this appendix, 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
[[Page 385]]
will notify the appropriate State official of the facts upon which such
findings are based and will afford that State authority a reasonable
opportunity to submit additional materials that demonstrate the basis
for granting an exemption.
(b) If, after having afforded the State authority such opportunity
to demonstrate the basis for granting an exemption, 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
will publish in the Federal Register a final rule containing its
determination regarding the application and will furnish a copy of such
rule to the State official who made application for such exemption.
VIII. Revocation of Exemption
(a) The Bureau reserves the right to revoke any exemption granted
under the provisions of the Act or this part, if at any time it
determines that the State law does not, in fact, impose requirements
that are substantially similar to relevant Federal law or that there is
not, in fact, adequate provision for State enforcement.
(b) Before revoking any such exemption, the Bureau will notify the
State of the facts or conduct that, in the Bureau's opinion, warrant
such revocation, and will afford that State such opportunity as the
Bureau deems appropriate in the circumstances to demonstrate continued
eligibility for an exemption.
(c) If, after having been afforded the opportunity to demonstrate or
achieve compliance, the Bureau determines that the State has not done
so, a proposed rule to revoke such exemption will be published in the
Federal Register. A comment period will 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, a final rule revoking the
exemption will be published by the Bureau in the Federal Register, and a
copy of such rule will be furnished to the State, to the Federal
authorities responsible for enforcement of the requirements of the Act,
and to the Attorney General of the United States. The revocation becomes
effective, and the class of debt collection practices affected within
that State become subject to the requirements of sections 803 through
812 of the Act and the corresponding provisions of this part, 90 days
after the date of publication of the final rule in the Federal Register.
[85 FR 76887, Nov. 30, 2020, as amended at 88 FR 16538, Mar. 20, 2023]
[[Page 386]]
Sec. Appendix B to Part 1006--Model Forms
B-1 Model Form for Validation Notice
[GRAPHIC] [TIFF OMITTED] TR19JA21.028
[86 FR 5856, Jan. 19, 2021]
Sec. Appendix C to Part 1006--Issuance of Advisory Opinions
1. Advisory opinions. Any act done or omitted in good faith in
conformity with any advisory opinion issued by the Bureau, including
advisory opinions referenced in this appendix, provides the protection
afforded under section 813(e) of the Act. The Bureau will amend this
appendix periodically to incorporate references to advisory opinions
that the Bureau issues.
2. Requests for issuance of advisory opinions. A request for an
advisory opinion may be submitted in accordance with the instructions
regarding submission and content of
[[Page 387]]
requests applicable to any relevant advisory opinion program that the
Bureau offers. Requests for advisory opinions will be reviewed
consistent with the process outlined in any such program, and any
resulting advisory opinions will be published in the Federal Register
and on consumerfinance.gov.
3. Bureau-issued advisory opinions. The Bureau has issued the
following advisory opinions:
a. Safe Harbors from Liability under the Fair Debt Collection
Practices Act for Certain Actions Taken in Compliance with Mortgage
Servicing Rules under the Real Estate Settlement Procedures Act
(Regulation X) and the Truth in Lending Act (Regulation Z), 81 FR 71977
(Oct. 19, 2016).
Sec. Supplement I to Part 1006--Official Interpretations
Introduction
1. Official status. This commentary is the vehicle by which the
Bureau of Consumer Financial Protection supplements Regulation F, 12 CFR
part 1006. The provisions of the commentary are issued under the same
authorities as the corresponding provisions of Regulation F and have
been adopted in accordance with the notice-and-comment procedures of the
Administrative Procedure Act (5 U.S.C. 553). Unless specified otherwise,
references in this commentary are to sections of Regulation F or the
Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq. No commentary
is expected to be issued other than by means of this Supplement I.
2. Procedure for requesting interpretations. Anyone may request that
an official interpretation of the regulation be added to this
commentary. A request for such an official interpretation must be in
writing and addressed to the Assistant Director, Office of Regulations,
Division of Research, Monitoring, and Regulations, Bureau of Consumer
Financial Protection, 1700 G Street NW, Washington, DC 20552. The
request must contain a complete statement of all relevant facts
concerning the issue, including copies of all pertinent documents.
Revisions to this commentary that are adopted in accordance with the
rulemaking procedures of section 553 of the Administrative Procedure Act
(5 U.S.C. 553) will be incorporated in the commentary following
publication in the Federal Register.
3. Comment designations. Each comment in the commentary is
identified by a number and the regulatory section or paragraph that it
interprets. The comments are designated with as much specificity as
possible according to the particular regulatory provision addressed. For
example, comments to Sec. 1006.6(d)(4) are further divided by
subparagraph, such as comment 6(d)(4)(i)-1 and comment 6(d)(4)(ii)-1.
Comments that have more general application are designated, for example,
as comments 38-1 and 38-2. This introduction may be cited as comments I-
1, I-2, and I-3.
Subpart A--General
Section 1006.2--Definitions
2(b) Attempt To Communicate
1. Examples. Section 1006.2(b) defines an attempt to communicate as
any act to initiate a communication or other contact about a debt with
any person through any medium, including by soliciting a response from
such person. An act to initiate a communication or other contact about a
debt is an attempt to communicate regardless of whether the attempt, if
successful, would be a communication that conveys information regarding
a debt directly or indirectly to any person. For example:
i. Assume that a debt collector places a telephone call to a person
about a debt. Regardless of whether the debt collector reaches the
person, the debt collector has attempted to communicate with the person.
ii. Assume that a debt collector places a telephone call to a person
about a debt and leaves a voicemail message. Regardless of whether the
voicemail message consists solely of a limited-content message or
includes content that conveys, directly or indirectly, information about
a debt, the debt collector has attempted to communicate with the person.
2(d) Communicate or Communication
1. Any medium. Section 1006.2(d) provides, in relevant part, that a
communication can occur through any medium. ``Any medium'' includes any
oral, written, electronic, or other medium. For example, a communication
may occur in person or by telephone, audio recording, paper document,
mail, email, text message, social media, or other electronic media.
2. Information regarding a debt. Section 1006.2(d) provides, in
relevant part, that a communication means conveying information
regarding a debt. A debt collector does not convey information regarding
a debt directly or indirectly to any person if the debt collector leaves
only a limited-content message, as defined in Sec. 1006.2(j). A debt
collector who provides marketing or advertising that does not contain
information about a specific debt or debts has not communicated under
Sec. 1006.2(d), even if the debt collector transmits the marketing or
advertising message to a consumer, because the debt collector has not
conveyed information regarding a debt.
2(h) Debt
1. Consumer. Section 1006.2(h) defines debt to mean, in part, any
obligation or alleged
[[Page 388]]
obligation of a consumer to pay money arising out of a transaction.
Section 1006.2(e), in turn, defines consumer to mean any natural person
obligated or allegedly obligated to pay any debt. Only natural persons,
therefore, can incur debts as defined in Sec. 1006.2(h).
2(i) Debt Collector
1. In general. Section 1006.2(i) provides, in part, that a debt
collector is any person who uses any instrumentality of interstate
commerce or mail in any business the principal purpose of which is the
collection of debts, or who regularly collects or attempts to collect,
directly or indirectly, debts owed or due, or asserted to be owed or
due, to another. A person who collects or attempts to collect defaulted
debts that the person has purchased, but who does not collect or attempt
to collect, directly or indirectly, debts owed or due, or asserted to be
owed or due, to another, and who does not have a business the principal
purpose of which is the collection of debts, is not a debt collector as
defined in Sec. 1006.2(i).
2(j) Limited-Content Message
1. In general. Section 1006.2(j) provides that a limited-content
message is a voicemail message for a consumer that includes all of the
content described in Sec. 1006.2(j)(1), that may include any of the
content described in Sec. 1006.2(j)(2), and that includes no other
content. Any other message is not a limited-content message. If a
voicemail message includes content other than the specific items
described in Sec. 1006.2(j)(1) and (2), and such other content directly
or indirectly conveys any information about a debt, the message is a
communication, as defined in Sec. 1006.2(d). For example, a voicemail
message that includes a statement that the message is from a debt
collector and a request to speak to a particular consumer is not a
limited-content message because it includes more than the required or
permitted content.
2. Message for a consumer. Section 1006.2(j) provides, in part, that
a limited-content message is a voicemail message for a consumer. A
message knowingly left for a third party is not a limited-content
message because it is not for a consumer. For example, assume that a
debt collector has a telephone number that the debt collector knows
belongs to the consumer's friend. A voicemail message left after calling
that number is not a limited-content message, even if the message
includes no more than the content described in Sec. 1006.2(j)(1) and
(2) because the debt collector knowingly left the message for someone
other than the consumer. Other provisions of this part may, in certain
circumstances, restrict a debt collector from leaving a limited-content
message or otherwise attempting to communicate with a consumer. See
Sec. Sec. 1006.6(b) and (c) and 1006.22(f) and their related commentary
for further guidance regarding when a debt collector is prohibited from
attempting to communicate with a consumer.
3. Meaningful disclosure of identity. A debt collector who leaves
only a limited-content message for a consumer does not violate Sec.
1006.14(g)'s requirement to meaningfully disclose the caller's identity
with respect to that voicemail message.
2(j)(1) Required Content
1. Example. The following example illustrates a limited-content
message that includes only the content described in Sec. 1006.2(j)(1):
``This is Robin Smith calling from ABC Inc. Please contact me or Jim
Johnson at 1-800-555-1212.''
2(j)(2) Optional Content
1. In general. Section 1006.2(j)(2)(iv) provides that a limited-
content message may include a statement that, if the consumer replies,
the consumer may speak to any of the company's representatives or
associates. A message that includes a more detailed description of the
representative or associate group is not a limited-content message. For
example, a reference to an agent with the ``credit card receivables
group'' is not a limited-content message because it includes more than a
statement that the consumer's reply may be answered by a representative
or associate.
2. Example. The following example illustrates a limited-content
message that includes the content described in both Sec. 1006.2(j)(1)
and (2): ``Hi, this is Robin Smith calling from ABC Inc. It is 4:15 p.m.
on Wednesday, September 1. Please contact me or any of our
representatives at 1-800-555-1212 today until 6:00 p.m. Eastern time, or
any weekday from 8:00 a.m. to 6:00 p.m. Eastern time.''
Subpart B--Rules for FDCPA Debt Collectors
Section 1006.6--Communications in Connection With Debt Collection
6(a) Consumer
Paragraph 6(a)(1)
1. Spouse. Section 1006.6(a)(1) provides that, for purposes of Sec.
1006.6, the term consumer includes a consumer's spouse. The surviving
spouse of a deceased consumer is a spouse as that term is used in Sec.
1006.6(a)(1).
Paragraph 6(a)(2)
1. Parent. Section 1006.6(a)(2) provides that, for purposes of Sec.
1006.6, the term consumer includes a consumer's parent, if the consumer
is a minor. A parent of a deceased minor consumer is a parent as that
term is used in Sec. 1006.6(a)(2).
[[Page 389]]
Paragraph 6(a)(4)
1. Personal representative. Section 1006.6(a)(4) provides that, for
purposes of Sec. 1006.6, the term consumer includes the executor or
administrator of the consumer's estate, if the consumer is deceased. The
terms executor or administrator include the personal representative of
the consumer's estate. A personal representative is any person who is
authorized to act on behalf of the deceased consumer's estate. Persons
with such authority may include personal representatives under the
informal probate and summary administration procedures of many States,
persons appointed as universal successors, persons who sign declarations
or affidavits to effectuate the transfer of estate assets, and persons
who dispose of the deceased consumer's financial assets or other assets
of monetary value extrajudicially.
6(b) Communications With a Consumer
6(b)(1) Prohibitions Regarding Unusual or Inconvenient Times or Places
1. Designation of inconvenience. Section 1006.6(b)(1) prohibits a
debt collector from, among other things, communicating or attempting to
communicate with a consumer in connection with the collection of any
debt at a time or place that the debt collector knows or should know is
inconvenient to the consumer, unless an exception in Sec. 1006.6(b)(4)
applies. For example, a debt collector knows or should know that a time
or place is inconvenient to a consumer if the consumer uses the word
``inconvenient'' to notify the debt collector. In addition, depending on
the facts and circumstances, the debt collector knows or should know
that a time or place is inconvenient even if the consumer does not
specifically state to the debt collector that a time or place is
``inconvenient.'' The debt collector may ask follow-up questions
regarding whether a time or place is convenient to clarify statements by
the consumer. For example:
i. Assume that a creditor places a debt for collection with a debt
collector. To facilitate collection of the debt, the creditor provides
the debt collector a file that includes recent notes stating that the
consumer cannot be disturbed on Tuesdays and Thursdays through the end
of the calendar year. Based on these facts, the debt collector knows or
should know that Tuesdays and Thursdays through the end of the calendar
year are inconvenient to the consumer. Unless the consumer informs the
debt collector that those times are no longer inconvenient, Sec.
1006.6(b)(1)(i) prohibits the debt collector from communicating or
attempting to communicate with the consumer on those days through the
end of the calendar year.
ii. Assume that a debt collector calls a consumer. The consumer
answers the call but states ``I am busy'' or ``I cannot talk now.'' The
debt collector asks the consumer when would be a convenient time. The
consumer responds, ``on weekdays, except from 3:00 p.m. to 5:00 p.m.''
The debt collector asks the consumer whether there would be a convenient
time on weekends. The consumer responds ``no.'' Based on these facts,
the debt collector knows or should know that the time period between
3:00 p.m. and 5:00 p.m. on weekdays, and all times on weekends, are
inconvenient to the consumer. Thereafter, unless the consumer informs
the debt collector that those times are no longer inconvenient, Sec.
1006.6(b)(1)(i) prohibits the debt collector from communicating or
attempting to communicate with the consumer at those times.
iii. Assume that a consumer tells a debt collector not to
communicate with the consumer at a particular place, such as the
consumer's home. The debt collector asks whether the consumer intends to
prohibit the debt collector from communicating with the consumer through
all media associated with the consumer's home, including, for example,
mail. Absent such additional information, the debt collector knows or
should know that communications to the consumer at home, including mail
to the consumer's home address and calls to the consumer's home landline
telephone number, are inconvenient. Thereafter, unless the consumer
informs the debt collector that the place is no longer inconvenient,
Sec. 1006.6(b)(1)(ii) prohibits the debt collector from communicating
or attempting to communicate with the consumer at the consumer's home.
See comment 6(b)(1)(ii)-1 for additional guidance regarding
communications or attempts to communicate at an inconvenient place.
2. Consumer-initiated communication. If a consumer initiates a
communication with a debt collector at a time or from a place that the
consumer previously designated as inconvenient, the debt collector may
respond once at that time or place through the same medium of
communication used by the consumer. (For more on medium of
communication, see Sec. 1006.14(h) and its associated commentary.)
After that response, Sec. 1006.6(b)(1) prohibits the debt collector
from communicating or attempting to communicate further with the
consumer at that time or place until the consumer conveys that the time
or place is no longer inconvenient, unless an exception in Sec.
1006.6(b)(4) applies. For example:
i. Assume the same facts as in comment 6(b)(1)-1.ii, except that,
after the consumer tells the debt collector that weekdays from 3:00 p.m.
to 5:00 p.m. and weekends are inconvenient, the consumer sends an email
message to the debt collector at 3:30 p.m. on Wednesday. Based on these
facts, Sec. 1006.6(b)(1)(i) does not prohibit the debt collector from
responding once by email message before 5:00 p.m. on that day. Unless
the
[[Page 390]]
consumer informs the debt collector that those times are no longer
inconvenient, Sec. 1006.6(b)(1)(i) prohibits the debt collector from
future communications or attempts to communicate with the consumer on
weekdays between 3:00 p.m. and 5:00 p.m. and on weekends. Additionally,
if the consumer responds to the debt collector's email message, the debt
collector may continue to respond once to each consumer-initiated email
message before 5:00 p.m. on that day.
ii. Assume the same facts as in comment 6(b)(1)-1.iii, except that,
after the consumer tells the debt collector not to communicate with the
consumer at home, the consumer calls the debt collector from the
consumer's home landline telephone number. Based on these facts, Sec.
1006.6(b)(1)(ii) does not prohibit the debt collector from responding
once by communicating with the consumer on that telephone call. Unless
the consumer informs the debt collector that the place is no longer
inconvenient, Sec. 1006.6(b)(1)(ii) prohibits the debt collector from
future communications or attempts to communicate with the consumer at
home.
iii. Assume that a consumer tells a debt collector that all
communications to the consumer on Friday every week are inconvenient to
the consumer. On a Friday, the consumer visits the debt collector's
website and uses the debt collector's mobile application. Based on these
facts, while the consumer navigates the website or uses the mobile
application, Sec. 1006.6(b)(1)(i) does not prohibit the debt collector
from conveying information to the consumer about the debt through the
website or mobile application. Once the consumer stops navigating the
website or using the mobile application, however, Sec. 1006.6(b)(1)(i)
prohibits the debt collector from further communications or attempts to
communicate on that day. And unless the consumer informs the debt
collector that those times are no longer inconvenient, Sec.
1006.6(b)(1)(i) prohibits the debt collector from future communications
or attempts to communicate with the consumer on Fridays.
iv. Assume the same facts as in comment 6(b)(1)-2.iii, except that
after the consumer visits the debt collector's website and uses the debt
collector's mobile application, the consumer sends an email message to
the debt collector at 8:30 p.m. on Friday. Based on these facts, Sec.
1006.6(b)(1)(i) does not prohibit the debt collector from responding
once, such as by sending an automated email message reply generated in
response to the consumer's email message. Unless the consumer informs
the debt collector that those times are no longer inconvenient, Sec.
1006.6(b)(1)(i) prohibits the debt collector from future communications
or attempts to communicate with the consumer on Fridays.
Paragraph 6(b)(1)(i)
1. Time of electronic communication. Section 1006.6(b)(1)(i)
prohibits a debt collector from communicating or attempting to
communicate, including through electronic communication media, at any
unusual time, or at a time that the debt collector knows or should know
is inconvenient to the consumer. For purposes of determining the time of
an electronic communication, such as an email or text message, under
Sec. 1006.6(b)(1)(i), an electronic communication occurs when the debt
collector sends it, not, for example, when the consumer receives or
views it.
2. Consumer's location. Under Sec. 1006.6(b)(1)(i), in the absence
of a debt collector's knowledge of circumstances to the contrary, an
inconvenient time for communicating with a consumer is before 8:00 a.m.
and after 9:00 p.m. local time at the consumer's location. If a debt
collector has conflicting or ambiguous information regarding a
consumer's location, then, in the absence of knowledge of circumstances
to the contrary, the debt collector complies with Sec. 1006.6(b)(1)(i)
if the debt collector communicates or attempts to communicate with the
consumer at a time that would be convenient in all of the locations at
which the debt collector's information indicates the consumer might be
located. The following examples, which assume that the debt collector
has no information about times the consumer considers inconvenient or
other information about the consumer's location, illustrate the rule.
i. Assume that a debt collector's information indicates that a
consumer has a mobile telephone number with an area code associated with
the Eastern time zone and a residential address in the Pacific time
zone. The convenient times to communicate with the consumer are after
11:00 a.m. Eastern time (8:00 a.m. Pacific time) and before 9:00 p.m.
Eastern time (6:00 p.m. Pacific time).
ii. Assume that a debt collector's information indicates that a
consumer has a mobile telephone number with an area code associated with
the Eastern time zone and a landline telephone number with an area code
associated with the Mountain time zone. The convenient times to
communicate with the consumer are after 10:00 a.m. Eastern time (8:00
a.m. Mountain time) and before 9:00 p.m. Eastern time (7:00 p.m.
Mountain time).
Paragraph 6(b)(1)(ii)
1. Communications or attempts to communicate at unusual or
inconvenient places. Section 1006.6(b)(1)(ii) prohibits a debt collector
from communicating or attempting to communicate with a consumer in
connection with the collection of any debt at any unusual place, or at a
place that the debt collector knows or should know is inconvenient to
the consumer. Some communication media, such as mailing addresses and
[[Page 391]]
landline telephone numbers, are associated with a place. Pursuant to
Sec. 1006.6(b)(1)(ii), a debt collector must not communicate or attempt
to communicate with a consumer through media associated with an unusual
place, or with a place that the debt collector knows or should know is
inconvenient to the consumer. Other communication media, such as email
addresses and mobile telephone numbers, are not associated with a place.
Section 1006.6(b)(1)(ii) does not prohibit a debt collector from
communicating or attempting to communicate with a consumer through such
media unless the debt collector knows that the consumer is at an unusual
place, or at a place that the debt collector knows or should know is
inconvenient to the consumer. For example:
i. Assume the same facts as in comment 6(b)(1)-1.iii. Unless the
debt collector knows that the consumer is at home, a telephone call to
the consumer's mobile telephone number or an electronic communication,
including, for example, an email message or a text message to the
consumer's mobile telephone, does not violate Sec. 1006.6(b)(1)(ii)
even if the consumer receives or views the communication while at home.
6(b)(2) Prohibitions Regarding Consumer Represented by an Attorney
1. Consumer-initiated communications. A consumer-initiated
communication from a consumer represented by an attorney constitutes the
consumer's prior consent to that communication under Sec.
1006.6(b)(4)(i); therefore, a debt collector may respond to that
consumer-initiated communication. However, the consumer's act of
initiating the communication does not negate the debt collector's
knowledge that the consumer is represented by an attorney and does not
revoke the protections afforded the consumer under Sec. 1006.6(b)(2).
After the debt collector's response, the debt collector must not
communicate or attempt to communicate further with the consumer unless
the debt collector knows the consumer is not represented by an attorney
with respect to the debt, either based on information from the consumer
or the consumer's attorney, or unless an exception under Sec.
1006.6(b)(2)(i) or (ii) or Sec. 1006.6(b)(4) applies.
6(b)(3) Prohibitions Regarding Consumer's Place of Employment
1. Communications at consumer's place of employment. Section
1006.6(b)(3) prohibits a debt collector from communicating or attempting
to communicate with a consumer in connection with the collection of any
debt at the consumer's place of employment, if the debt collector knows
or has reason to know that the consumer's employer prohibits the
consumer from receiving such communication. A debt collector knows or
has reason to know that a consumer's employer prohibits the consumer
from receiving such communication if, for example, the consumer tells
the debt collector that the consumer cannot take personal calls at work.
The debt collector may ask follow-up questions regarding the employer's
prohibitions or limitations on contacting the consumer at the place of
employment to clarify statements by the consumer.
2. Employer-provided email. For special rules regarding employer-
provided email addresses, see Sec. 1006.22(f)(3) and its associated
commentary.
6(b)(4) Exceptions
Paragraph 6(b)(4)(i)
1. Prior consent--in general. Section 1006.6(b)(4)(i) provides, in
part, that the prohibitions in Sec. 1006.6(b)(1) through (3) on a debt
collector communicating or attempting to communicate with a consumer in
connection with the collection of any debt do not apply if the debt
collector communicates or attempts to communicate with the prior consent
of the consumer. If the debt collector learns during a communication
that the debt collector is communicating with the consumer at an
inconvenient time or place, for example, the debt collector may ask the
consumer during that communication what time or place would be
convenient. However, Sec. 1006.6(b)(4)(i) prohibits the debt collector
from asking the consumer to consent to the continuation of that
inconvenient communication.
2. Directly to the debt collector. Section 1006.6(b)(4)(i) requires
the prior consent of the consumer to be given directly to the debt
collector. For example, a debt collector cannot rely on the prior
consent of the consumer given to a creditor or to a previous debt
collector.
6(c) Communications With a Consumer--After Refusal To Pay or Cease
Communication Notice
6(c)(1) Prohibitions
1. Notification complete upon receipt. If, pursuant to Sec.
1006.6(c)(1), a consumer notifies a debt collector in writing or
electronically using a medium of electronic communication through which
a debt collector accepts electronic communications from consumers that
the consumer either refuses to pay a debt or wants the debt collector to
cease further communication with the consumer, notification is complete
upon the debt collector's receipt of that information. The following
example illustrates the rule.
i. Assume that on August 3, a consumer places in the mail a written
notification to a debt collector that the consumer either refuses to pay
a debt or wants the debt collector to cease further communication with
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the consumer pursuant to Sec. 1006.6(c)(1). On August 4, the debt
collector sends the consumer an email message. The debt collector
receives the consumer's written notification on August 6. Because the
consumer's notification is complete upon the debt collector's receipt of
that information on August 6, the debt collector's email message
communication on August 4 does not violate Sec. 1006.6(c)(1).
2. Interpretation of the E-SIGN Act. Comment 6(c)(1)-1 constitutes
the Bureau's interpretation of section 101 of the E-SIGN Act as applied
to FDCPA section 805(c). Under this interpretation, section 101(a) of
the E-SIGN Act enables a consumer to satisfy the requirement in FDCPA
section 805(c) that the consumer's notification of the debt collector be
``in writing'' through an electronic request. Further, because the
consumer may only satisfy the writing requirement using a medium of
electronic communication through which a debt collector accepts
electronic communications from consumers, section 101(b) of the E-SIGN
Act is not contravened.
6(c)(2) Exceptions
1. Written early intervention notice for mortgage servicers. The
Bureau has interpreted the written early intervention notice required by
12 CFR 1024.39(d)(3) to fall within the exceptions to the cease
communication provision in FDCPA section 805(c)(2) and (3). See 12 CFR
1024.39(d)(3), its commentary, and the Bureau's 2016 FDCPA Interpretive
Rule (81 FR 71977 (Oct. 19, 2016)).
2. Other mortgage servicing rule provisions. Notwithstanding a
consumer's cease communication request pursuant to Sec. 1006.6(c)(1), a
mortgage servicer who is subject to the FDCPA with respect to a mortgage
loan is not liable under the FDCPA for complying with certain servicing
rule provisions, including requirements to provide a consumer with
disclosures regarding the forced placement of hazard insurance as
required by 12 CFR 1024.37, a disclosure regarding an adjustable-rate
mortgage's initial interest rate adjustment as required by 12 CFR
1026.20(d), and a periodic statement for each billing cycle as required
by 12 CFR 1026.41. See CFPB Bulletin 2013-12 (Oct. 15, 2013) providing
implementation guidance for certain mortgage servicing rules.
6(d) Communications With Third Parties
6(d)(2) Exceptions
1. Prior consent. See the commentary to Sec. 1006.6(b)(4)(i) for
guidance concerning a consumer giving prior consent directly to a debt
collector.
6(d)(3) Reasonable Procedures for Email and Text Message Communications
Paragraph 6(d)(3)(ii)
1. Knowledge of prohibited disclosure. For purposes of Sec.
1006.6(d)(3)(ii), a debt collector knows that sending an email to an
email address or a text message to a telephone number has led to a
disclosure prohibited by Sec. 1006.6(d)(1) if any person has informed
the debt collector of that fact.
6(d)(4) Procedures for Email Addresses
6(d)(4)(i) Procedures Based on Communication Between the Consumer and
the Debt Collector
Paragraph 6(d)(4)(i)(B)
1. Prior consent--in general. Section 1006.6(d)(4)(i)(B) provides
that, for purposes of Sec. 1006.6(d)(3)(i), a debt collector may send
an email to an email address if, among other things, the debt collector
has received directly from the consumer prior consent to use the email
address to communicate with the consumer about the debt. For purposes of
Sec. 1006.6(d)(4)(i)(B), a consumer may provide consent directly to a
debt collector through any medium of communication, such as in writing,
electronically, or orally.
2. Prior consent--consumer-provided email address. If a consumer
provides an email address to a debt collector (including on the debt
collector's website or online portal), the debt collector may treat the
consumer as having consented directly to the debt collector's use of the
email address to communicate with the consumer about the debt for
purposes of Sec. 1006.6(d)(4)(i)(B) if the debt collector discloses
clearly and conspicuously that the debt collector may use the email
address to communicate with the consumer about the debt.
6(d)(4)(ii) Procedures Based on Communication by the Creditor
Paragraph 6(d)(4)(ii)(B)
1. Communications about the account. Section 1006.6(d)(4)(ii)(B)
provides that, for purposes of Sec. 1006.6(d)(3)(i), a debt collector
may send an email to an email address if, among other things, the
creditor used the email address to communicate with the consumer about
the account giving rise to the debt. For purposes of Sec.
1006.6(d)(4)(ii)(B), communications about the account include, for
example, required disclosures, bills, invoices, periodic statements,
payment reminders, and payment confirmations. Communications about the
account do not include, for example, marketing or advertising materials
unrelated to the consumer's account.
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Paragraph 6(d)(4)(ii)(C)
1. Clear and conspicuous. Clear and conspicuous means readily
understandable. In the case of written and electronic disclosures, the
location and type size also must be readily noticeable and legible to
consumers, although no minimum type size is mandated.
2. Sample language. Section 1006.6(d)(4)(ii)(C) provides that, for
purposes of Sec. 1006.6(d)(3)(i), a debt collector may send an email to
an email address if, among other things, the creditor sent the consumer
a written or electronic notice that clearly and conspicuously disclosed
that the debt would be transferred to the debt collector; that the debt
collector might use the email address to communicate with the consumer
about the debt; that, if others have access to this email address, then
it is possible they may see the emails; instructions for a reasonable
and simple method by which the consumer could opt out of such
communications; and the date by which the debt collector or creditor
must receive the consumer's request to opt out.
i. When a creditor sends the notice in writing, the creditor may
use, but is not required to use, the following language to satisfy Sec.
1006.6(d)(4)(ii)(C): ``We are transferring your account to ABC debt
collector, and we are providing ABC debt collector with the following
email address for you: [email address]. ABC debt collector may use this
email address to communicate with you about the debt. If others have
access to this email address, then it is possible they may see the
emails. If you would like to opt out of communications by ABC debt
collector to [email address], please fill out the enclosed form and
return it in the enclosed envelope so that we receive it by [date].''
ii. When a creditor sends the notice electronically, the creditor
may use, but is not required to use, the following language to satisfy
Sec. 1006.6(d)(4)(ii)(C): ``We are transferring your account to ABC
debt collector, and we are providing ABC debt collector with the
following email address for you: [email address]. ABC debt collector may
use this email address to communicate with you about the debt. If others
have access to this email address, then it is possible they may see the
emails. If you would like to opt out of communications by ABC debt
collector to [email address], please click here by [date].''
3. Combined notice. A notice provided by the creditor under Sec.
1006.6(d)(4)(ii)(C) may be contained in a larger communication that
conveys other information, as long as the notice is clear and
conspicuous.
Paragraph 6(d)(4)(ii)(C)(1)
1. Identification of the debt collector. Under Sec.
1006.6(d)(4)(ii)(C)(1), the notice must clearly and conspicuously
disclose, among other things, that the debt has been or will be
transferred to the debt collector. To satisfy this requirement, the
notice must identify the name of the specific debt collector to which
the debt has been or will be transferred.
Paragraph 6(d)(4)(ii)(C)(4)
1. Reasonable and simple method to opt out. Under Sec.
1006.6(d)(4)(ii)(C)(4), the notice must clearly and conspicuously
disclose instructions for a reasonable and simple method by which the
consumer can opt out of the debt collector's use of the email address to
communicate about the debt. The following examples illustrate the rule.
i. When the creditor sends the notice in writing, reasonable and
simple methods for opting out include providing a reply form and a pre-
addressed envelope together with the opt-out notice. Requiring a
consumer to call or write to obtain a form for opting out, rather than
including the form with the opt-out notice, does not meet the
requirement to provide a reasonable and simple method for opting out.
ii. When the creditor sends the notice electronically, reasonable
and simple methods for opting out include providing an electronic means
to opt out, such as a hyperlink, or allowing the consumer to opt out by
replying to the communication with the word ``stop.'' Requiring a
consumer who receives the opt-out notice electronically to opt out by
postal mail, telephone, or visiting a website without providing a link
does not meet the requirement to provide a reasonable and simple method
for opting out.
Paragraph 6(d)(4)(ii)(C)(5)
1. Recipient of opt-out request. Under Sec. 1006.6(d)(4)(ii)(C)(5),
the notice must clearly and conspicuously disclose the date by which a
debt collector or creditor must receive a consumer's request to opt out,
which must be at least 35 days after the date the notice is sent. The
notice may instruct the consumer to respond to the debt collector or to
the creditor but not to both.
Paragraph 6(d)(4)(ii)(D)
1. Effect of opt-out request after expiration of opt-out period. If
a consumer requests after the expiration of the opt-out period that the
debt collector not communicate using the email address identified in the
opt-out notice, such as by returning the notice or opting out under
Sec. 1006.6(e), Sec. 1006.14(h)(1) prohibits the debt collector from
communicating or attempting to communicate with the consumer using that
email address. If the consumer requests after the expiration of the opt-
out period that the debt collector not communicate with the consumer by
email, Sec. 1006.14(h)(1) prohibits the debt collector from
communicating or attempting to communicate with the consumer by email,
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including by using the specific email address identified in the notice.
For more on prohibited communication media and certain exceptions, see
Sec. 1006.14(h) and its associated commentary. If after the expiration
of the opt-out period the consumer notifies the debt collector in
writing or electronically using a medium of electronic communication
through which a debt collector accepts electronic communications from
consumers that the consumer refuses to pay the debt or wants the debt
collector to cease further communication with the consumer, Sec.
1006.6(c)(1) prohibits the debt collector from communicating or
attempting to communicate with the consumer with respect to the debt,
subject to the exceptions in Sec. 1006.6(c)(2). For more on
communications with a consumer after refusal to pay or a cease
communication notice, see Sec. 1006.6(c) and its associated commentary.
2. Scope of opt-out request. In the absence of evidence that the
consumer refuses to pay the debt or wants the debt collector to cease
all communication with the consumer, a consumer's request under Sec.
1006.6(d)(4)(ii)(D) to opt out of a debt collector's use of a particular
email address to communicate with the consumer by email does not
constitute a notification to cease further communication with respect to
the debt under Sec. 1006.6(c)(1).
Paragraph 6(d)(4)(ii)(E)
1. Domain name available for use by the general public. Under Sec.
1006.6(d)(4)(ii)(E), the domain name of an email address is available
for use by the general public when multiple members of the general
public are permitted to use the same domain name, whether for free or
through a paid subscription. Such a name does not include one that is
reserved for use by specific registrants, such as a domain name branded
for use by a particular commercial entity (e.g.,
[email protected]) or reserved for particular types of
institutions (e.g., [email protected], [email protected], or
[email protected]).
2. Knowledge of employer-provided email address. For purposes of
Sec. 1006.6(d)(4)(ii)(E), a debt collector knows that an email address
is provided by the consumer's employer if any person has informed the
debt collector that the address is employer provided. However, Sec.
1006.6(d)(4)(ii)(E) does not require a debt collector to conduct a
manual review of consumer accounts to determine whether an email address
might be employer provided.
6(d)(4)(iii) Procedures Based on Communication by the Prior Debt
Collector
1. Immediately prior debt collector. Section 1006.6(d)(4)(iii)
provides that, for purposes of Sec. 1006.6(d)(3)(i), a debt collector
may send an email to an email address if, among other things, the
immediately prior debt collector used the email address to communicate
with the consumer about the debt. For purposes of Sec.
1006.6(d)(4)(iii), the immediately prior debt collector is the debt
collector immediately preceding the current debt collector. For example,
if ABC debt collector returns a debt to the creditor and the creditor
places the debt with XYZ debt collector, ABC debt collector is the
immediately prior debt collector for purposes of Sec.
1006.6(d)(4)(iii).
2. Examples. The following examples illustrate the rule.
i. After obtaining a consumer's email address in accordance with the
procedures in Sec. 1006.6(d)(4)(i) or (ii), ABC debt collector
communicates with the consumer about the debt using that email address
and the consumer does not opt out. ABC debt collector returns the debt
to the creditor, who places it with XYZ debt collector. XYZ debt
collector communicates with the consumer about the debt using the email
address obtained by ABC debt collector. Assuming that the requirements
of Sec. 1006.6(d)(3)(ii) are satisfied, XYZ debt collector may have a
bona fide error defense to civil liability for any unintentional third-
party disclosure that occurs during that communication because a prior
debt collector (i.e., ABC debt collector) obtained the email address in
accordance with the procedures in Sec. 1006.6(d)(4)(i) or (ii), the
immediately prior debt collector (i.e., ABC debt collector) used the
email address to communicate with the consumer about the debt, and the
consumer did not opt out of such communications by ABC debt collector.
ii. After obtaining a consumer's email address in accordance with
the procedures in Sec. 1006.6(d)(4)(i) or (ii), ABC debt collector
communicates with the consumer about the debt using that email address
and the consumer does not opt out. ABC debt collector returns the debt
to the creditor, who places it with EFG debt collector. EFG debt
collector communicates with the consumer about the debt using the email
address obtained by ABC debt collector, and the consumer does not opt
out. EFG debt collector returns the debt to the creditor, who places it
with XYZ debt collector. XYZ debt collector communicates with the
consumer about the debt using the email address obtained by ABC debt
collector and used by EFG debt collector. Assuming that the requirements
of Sec. 1006.6(d)(3)(ii) are satisfied, XYZ debt collector may have a
bona fide error defense to civil liability for any unintentional third-
party disclosure that occurs during that communication because a prior
debt collector (i.e., ABC debt collector) obtained the email address in
accordance with the procedures in Sec. 1006.6(d)(4)(i) or (ii), the
immediately prior debt collector (i.e., EFG debt collector) used the
email address to communicate with the consumer about the debt, and the
consumer did not opt out of such communications by EFG debt collector.
[[Page 395]]
iii. After obtaining a consumer's email address in accordance with
the procedures in Sec. 1006.6(d)(4)(i) or (ii), ABC debt collector
communicates with the consumer about the debt using that email address
and the consumer does not opt out. ABC debt collector returns the debt
to the creditor, who places it with EFG debt collector, who chooses not
to communicate with the consumer by email. EFG debt collector returns
the debt to the creditor, who places it with XYZ debt collector. XYZ
debt collector communicates with the consumer about the debt using the
email address obtained by ABC debt collector. Section 1006.6(d)(4)(iii)
does not provide XYZ debt collector with a bona fide error defense to
civil liability for any unintentional third-party disclosure that occurs
during that communication because the immediately prior debt collector
(i.e., EFG debt collector) did not use the email address to communicate
with the consumer about the debt.
6(d)(5) Procedures for Telephone Numbers for Text Messages
1. Complete and accurate database. Section 1006.6(d)(5)(i) and (ii)
provides that, for purposes of Sec. 1006.6(d)(3)(i), a debt collector
may send a text message to a telephone number if, among other things,
the debt collector confirms, using a complete and accurate database,
that the telephone number has not been reassigned from the consumer to
another user. For purposes of Sec. 1006.6(d)(5)(i) and (ii), the
database established by the FCC in In re Advanced Methods to Target &
Eliminate Unlawful Robocalls (33 FCC Rcd. 12024 (Dec. 12, 2018))
qualifies as a complete and accurate database, as does any commercially
available database that is substantially similar in terms of
completeness and accuracy to the FCC's database.
Paragraph 6(d)(5)(i)
1. Response to telephone call by consumer. Section 1006.6(d)(5)(i)
provides that, for purposes of Sec. 1006.6(d)(3)(i), a debt collector
may send a text message to a telephone number if, among other things,
the consumer used the telephone number to communicate by text message
with the debt collector about the debt. Section 1006.6(d)(5)(i) does not
apply if the consumer used the telephone number to communicate only by
telephone call with the debt collector about the debt.
Paragraph 6(d)(5)(ii)
1. Prior consent. See comment 6(d)(4)(i)(B)-1 for guidance
concerning how a consumer may provide prior consent directly to a debt
collector. See comment 6(d)(4)(i)(B)-2 for guidance concerning when a
debt collector may treat a consumer who provides a telephone number for
text messages as having consented directly to the debt collector.
6(e) Opt-Out Notice for Electronic Communications or Attempts To
Communicate
1. In general. Section 1006.6(e) requires a debt collector who
communicates or attempts to communicate with a consumer electronically
in connection with the collection of a debt using a specific email
address, telephone number for text messages, or other electronic-medium
address to include in such communication or attempt to communicate a
clear and conspicuous statement describing a reasonable and simple
method by which the consumer can opt out of further electronic
communications or attempts to communicate by the debt collector to that
address or telephone number. See comment 6(d)(4)(ii)(C)-1 for guidance
on the meaning of clear and conspicuous. See comment 6(d)(4)(ii)(C)(4)-1
for guidance on the meaning of reasonable and simple. The following
examples illustrate the rule.
i. Assume that a debt collector sends a text message to a consumer's
mobile telephone number. The text message includes the following
instruction: ``Reply STOP to stop texts to this telephone number.''
Assuming that it is readily noticeable and legible to consumers, this
instruction constitutes a clear and conspicuous statement describing a
reasonable and simple method to opt out of receiving further text
messages from the debt collector to that telephone number consistent
with Sec. 1006.6(e). No minimum type size is mandated.
ii. Assume that a debt collector sends the consumer an email that
includes a hyperlink labeled: ``Click here to opt out of further emails
to this email address.'' Assuming that it is readily noticeable and
legible to consumers, this instruction constitutes a clear and
conspicuous statement describing a reasonable and simple method to opt
out of receiving further emails from the debt collector to that email
address consistent with Sec. 1006.6(e). No minimum type size is
mandated.
iii. Assume that a debt collector sends the consumer an email that
includes instructions in a textual format explaining that the consumer
may opt out of receiving further email communications from the debt
collector to that email address by replying with the word ``stop'' in
the subject line. Assuming that it is readily noticeable and legible to
consumers, this instruction constitutes a clear and conspicuous
statement describing a reasonable and simple method to opt out of
receiving further emails from the debt collector to that email address
consistent with Sec. 1006.6(e). No minimum type size is mandated.
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Section 1006.10--Acquisition of Location Information
10(a) Definition
1. Location information about deceased consumers. If a consumer
obligated or allegedly obligated to pay any debt is deceased, location
information includes the information described in Sec. 1006.10(a) for a
person who is authorized to act on behalf of the deceased consumer's
estate, as described in Sec. 1006.6(a)(4) and its associated
commentary.
10(b) Form and Content of Location Communications
Paragraph 10(b)(2)
1. Executors, administrators, or personal representatives of a
deceased consumer's estate. Section 1006.10(b)(2) prohibits a debt
collector who is communicating with any person other than the consumer
for the purpose of acquiring location information about the consumer
from stating that the consumer owes any debt. If the consumer obligated
or allegedly obligated to pay the debt is deceased, and the debt
collector is attempting to locate the person who is authorized to act on
behalf of the deceased consumer's estate, the debt collector does not
violate Sec. 1006.10(b)(2) by stating that the debt collector is
seeking to identify and locate the person who is authorized to act on
behalf of the deceased consumer's estate. The debt collector may also
state that the debt collector is seeking to identify and locate the
person handling the financial affairs of the deceased consumer. For more
on executors, administrators, and personal representatives, see Sec.
1006.6(a)(4) and its associated commentary.
Section 1006.14--Harassing, Oppressive, or Abusive Conduct
14(a) In General
1. General prohibition. Section 1006.14(a), which implements FDCPA
section 806 (15 U.S.C. 1692d), sets forth a general standard that
prohibits a debt collector from engaging in any conduct the natural
consequence of which is to harass, oppress, or abuse any person in
connection with the collection of a debt. The general prohibition covers
the specific conduct described in Sec. 1006.14(b) through (h), as well
as any conduct by the debt collector that is not specifically prohibited
by Sec. 1006.14(b) through (h) but the natural consequence of which is
to harass, oppress, or abuse any person in connection with the
collection of a debt. Such conduct can occur regardless of the
communication media the debt collector uses, including in-person
interactions, telephone calls, audio recordings, paper documents, mail,
email, text messages, social media, or other electronic media, even if
not specifically addressed by Sec. 1006.14(b) through (h). The
following example illustrates the rule.
i. Assume that, in connection with the collection of a debt, a debt
collector sends a consumer numerous, unsolicited text messages per day
for several consecutive days. The consumer does not respond. Assume
further that the debt collector does not communicate or attempt to
communicate with the consumer using any other communication medium and
that, by sending the text messages, the debt collector has not violated
Sec. 1006.14(b) through (h). Even though the debt collector's conduct
does not violate any specific prohibition under Sec. 1006.14(b) through
(h), it is likely that the natural consequence of the debt collector's
text messages is to harass, oppress, or abuse the person receiving the
text messages; when such natural consequence occurs, the debt collector
has violated Sec. 1006.14(a) and FDCPA section 806.
2. Cumulative effect of conduct. Whether a debt collector's conduct
violates the general standard in Sec. 1006.14(a) may depend on the
cumulative effect of the debt collector's conduct through any
communication medium the debt collector uses, including in-person
interactions, telephone calls, audio recordings, paper documents, mail,
email, text messages, social media, or other electronic media. Depending
on the facts and circumstances, conduct that on its own would violate
neither the general prohibition in Sec. 1006.14(a), nor any specific
prohibition in Sec. 1006.14(b) through (h), nonetheless may violate
Sec. 1006.14(a) when such conduct is evaluated cumulatively with other
conduct. The following example illustrates the rule as applied to a debt
collector who uses multiple communication media to communicate or
attempt to communicate with a person.
i. Assume that a debt collector places seven unanswered telephone
calls within seven consecutive days to a consumer in connection with the
collection of a debt. During this same period, the debt collector also
sends multiple additional unsolicited emails about the debt to the
consumer. The consumer does not respond. The frequency of the debt
collector's telephone calls during the seven-day period does not exceed
the telephone call frequencies described in Sec. 1006.14(b)(2)(i), so
the debt collector is presumed to comply with Sec. 1006.14(b)(1).
Assume further that no evidence is offered to rebut the presumption of
compliance, such that the debt collector complies with Sec.
1006.14(b)(1). Also assume that, for purposes of this illustrative
example only, the frequency of the debt collector's emails alone does
not violate Sec. 1006.14(a). It nevertheless is likely that the
cumulative effect of the debt collector's telephone calls and emails is
harassment; when such natural consequence occurs, the debt collector has
violated Sec. 1006.14(a) and FDCPA section 806.
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14(b) Repeated or Continuous Telephone Calls or Telephone Conversations
1. Placing telephone calls repeatedly or continuously. Section
1006.14(b) prohibits a debt collector from, in connection with the
collection of a debt, placing telephone calls or engaging any person in
telephone conversation repeatedly or continuously with intent to annoy,
abuse, or harass any person at the called number, and it describes when
a debt collector is presumed to have complied with or violated that
prohibition. For purposes of Sec. 1006.14(b)(1) through (4), ``placing
a telephone call'' includes conveying a ringless voicemail but does not
include sending an electronic message (e.g., a text message or an email)
that may be received on a mobile telephone.
14(b)(1) In General
1. Effect of compliance. A debt collector who complies with Sec.
1006.14(b)(1) and FDCPA section 806(5) (15 U.S.C. 1692d(5)) complies
with Sec. 1006.14(a) and FDCPA section 806 (15 U.S.C. 1692d) solely
with respect to the frequency of its telephone calls. The debt collector
nevertheless could violate Sec. 1006.14(a) and FDCPA section 806 if the
natural consequence of another aspect of the debt collector's telephone
calls, unrelated to frequency, is to harass, oppress, or abuse any
person in connection with the collection of a debt. See also comment
14(a)-2 regarding the cumulative effect of the debt collector's conduct.
2. Example. Assume that a debt collector communicates or attempts to
communicate with a consumer about a particular debt only by telephone.
The debt collector does not exceed either of the telephone call
frequencies described in Sec. 1006.14(b)(2)(i). Under Sec.
1006.14(b)(2)(i), the debt collector is presumed to comply with Sec.
1006.14(b)(1). Assume, further, that no evidence is offered to rebut
that presumption of compliance. Pursuant to Sec. 1006.14(b)(1), the
debt collector complies with Sec. 1006.14(a) and FDCPA section 806, but
only with respect to the frequency of its telephone calls. Assume,
however, that one of the debt collector's telephone calls results in the
debt collector leaving a voicemail that contains obscene language. Even
though the debt collector does not violate Sec. 1006.14(a) and FDCPA
section 806 based solely on the frequency of the telephone calls, the
debt collector's obscene voicemail would violate Sec. 1006.14(a) and
(d) and FDCPA section 806 and 806(2) (15 U.S.C. 1692, 1692d(2)).
14(b)(2) Telephone Call Frequencies; Presumptions of Compliance and
Violation
Paragraph 14(b)(2)(i)
1. Presumption of compliance; examples. Section 1006.14(b)(2)(i)
provides that a debt collector is presumed to comply with Sec.
1006.14(b)(1) and FDCPA section 806(5) (15 U.S.C. 1692d(5)) if the debt
collector places a telephone call to a particular person in connection
with the collection of a particular debt neither: More than seven times
within seven consecutive days (Sec. 1006.14(b)(2)(i)(A)); nor within a
period of seven consecutive days after having had a telephone
conversation with the person in connection with the collection of such
debt (Sec. 1006.14(b)(2)(i)(B)). For the presumption of compliance to
apply, the debt collector's telephone call frequencies must not exceed
either prong of Sec. 1006.14(b)(2)(i). The telephone call frequencies
are subject to the exclusions in Sec. 1006.14(b)(3). In addition, for
purposes of Sec. 1006.14(b)(2)(i)(B), the date of the telephone
conversation is the first day of the seven-consecutive-day period. The
following examples illustrate the rule.
i. On Wednesday, April 1, a debt collector first attempts to
communicate with a consumer in connection with the collection of a
credit card debt by placing a telephone call and leaving a limited-
content message. Between Thursday, April 2, and Tuesday, April 7, the
debt collector places six more telephone calls to the consumer about the
debt, all of which go unanswered. As of Tuesday, April 7, the debt
collector has placed seven telephone calls to the consumer in connection
with the collection of the credit card debt within the period of seven
consecutive days that started on Wednesday, April 1. Assume the debt
collector does not place any additional telephone calls about the debt
until Wednesday, April 8. Under Sec. 1006.14(b)(2)(i), the debt
collector is presumed to comply with Sec. 1006.14(b)(1) and FDCPA
section 806(5).
ii. On Thursday, August 13, a consumer places a telephone call to,
and initiates a telephone conversation with, a debt collector regarding
a particular debt. Assume that the debt collector does not place a
telephone call to the consumer in connection with the collection of that
debt again prior to Thursday, August 20. The debt collector is presumed
to comply with Sec. 1006.14(b)(1) and FDCPA section 806(5).
iii. On Tuesday, October 6, a debt collector first attempts to
communicate with a particular third party for the purpose of acquiring
location information about a consumer by placing a telephone call to
that third party. The call is unanswered. The debt collector places up
to six more unanswered telephone calls to that third party for the
purpose of acquiring location information about the consumer through
Monday, October 12. The debt collector is presumed to comply with Sec.
1006.14(b)(1) and FDCPA section 806(5). See Sec. 1006.10(c) for further
guidance concerning when a debt collector is prohibited from
communicating with a person other than the consumer for the purpose of
acquiring location information.
[[Page 398]]
2. Factors to rebut the presumption of compliance. To rebut the
presumption of compliance, it must be proven that a debt collector who
did not place a telephone call in excess of either of the telephone call
frequencies described in Sec. 1006.14(b)(2)(i) nevertheless placed a
telephone call or engaged a person in telephone conversation repeatedly
or continuously with intent to annoy, abuse, or harass any person at the
called number. For purposes of determining whether the presumption of
compliance has been rebutted, it is assumed that debt collectors intend
the natural consequence of their actions. Comments 14(b)(2)(i)-2.i
through .iv provide a non-exhaustive list of factors that may rebut the
presumption of compliance. The factors may be considered either
individually or in combination with one another (or other non-specified
factors). The factors may be viewed in light of any other relevant facts
and circumstances and therefore may apply to varying degrees. Factors
that may rebut the presumption of compliance include:
i. The frequency and pattern of telephone calls the debt collector
places to a person, including the intervals between them. The
considerations relevant to this factor include whether the debt
collector placed telephone calls to a person in rapid succession (e.g.,
two unanswered telephone calls to the same telephone number within five
minutes) or in a highly concentrated manner (e.g., seven telephone calls
to the same telephone number within one day). For example, assume the
same facts as in comment 14(b)(2)(i)-1.i, except assume that, after the
debt collector placed the first telephone call to the consumer about the
credit card debt on Wednesday, April 1, the debt collector placed six
additional telephone calls to the consumer about that debt on Friday,
April 3. Under Sec. 1006.14(b)(2)(i), the debt collector is presumed to
comply with Sec. 1006.14(b)(1) and FDCPA section 806(5), but the high
concentration of telephone calls on Friday, April 3, is a factor that
may rebut the presumption of compliance.
ii. The frequency and pattern of any voicemails that the debt
collector leaves for a person, including the intervals between them. The
considerations relevant to this factor include whether the debt
collector left voicemails for a person in rapid succession (e.g., two
voicemails within five minutes left at the same telephone number) or in
a highly concentrated manner (e.g., seven voicemails left at the same
telephone number within one day).
iii. The content of a person's prior communications with the debt
collector. Among the considerations relevant to this factor are whether
the person previously informed the debt collector, for example, that the
person did not wish to be contacted again about the particular debt,
that the person was refusing to pay the particular debt, or that the
person did not owe the particular debt. This factor also includes a
consumer's cease communication notification described in Sec. 1006.6(c)
and a consumer's request under Sec. 1006.14(h) that the debt collector
not use telephone calls to communicate or attempt to communicate with
the consumer. The amount of time elapsed since any such prior
communications also may be relevant to this factor.
iv. The debt collector's conduct in prior communications or attempts
to communicate with the person. Among the considerations relevant to
this factor are whether, during a prior communication or attempt to
communicate with a person, the debt collector, for example, used
obscene, profane, or otherwise abusive language (see Sec. 1006.14(d)),
used or threatened to use violence or other criminal means to harm the
person (see Sec. 1006.14(c)), or called at an inconvenient time or
place (see Sec. 1006.6(b)(1)). The amount of time elapsed since any
such prior communications or attempts to communicate also may be
relevant to this factor.
3. Misdirected telephone calls. Section 1006.14(b)(2)(i) provides
that a debt collector is presumed to comply with Sec. 1006.14(b)(1) and
FDCPA section 806(5) (15 U.S.C. 1692d(5)) if the debt collector's
telephone call frequencies do not exceed the telephone call frequencies
described in Sec. 1006.14(b)(2)(i). If, within a period of seven
consecutive days, a debt collector attempts to communicate with a
particular person by placing telephone calls to a particular telephone
number, and the debt collector then learns that the telephone number is
not that person's number, the telephone calls that the debt collector
made to that number are not considered to have been telephone calls
placed to that person during that seven-consecutive-day period for
purposes of Sec. 1006.14(b)(2)(i). For example:
i. Assume that a debt collector first attempts to communicate with a
consumer on Monday, and again on Wednesday, by placing one unanswered
telephone call to a particular telephone number on each of those days.
On Thursday, the debt collector learns that the telephone number belongs
to someone else and that the consumer does not answer telephone calls to
that number. For purposes of Sec. 1006.14(b)(2)(i), the debt collector
has not yet placed any telephone calls to that consumer during that
seven-consecutive-day period.
Paragraph 14(b)(2)(ii)
1. Presumption of a violation; examples. Section 1006.14(b)(2)(ii)
provides that a debt collector is presumed to violate Sec.
1006.14(b)(1) and FDCPA section 806(5) (15 U.S.C. 1692d(5)) if the debt
collector places a telephone call to a particular person in connection
with the collection of a particular debt in excess of either of the
telephone call frequencies described in Sec. 1006.14(b)(2)(i). The
telephone call
[[Page 399]]
frequencies are subject to the exclusions in Sec. 1006.14(b)(3). The
following examples illustrate the rule.
i. On Wednesday, April 1, a debt collector first attempts to
communicate with a consumer in connection with the collection of a
mortgage debt by placing a telephone call and leaving a limited-content
message. On each of the next three business days (i.e., on Thursday,
April 2, Friday, April 3, and Monday, April 6), the debt collector
places two additional telephone calls to the consumer about the debt,
all of which go unanswered. On Tuesday, April 7, the debt collector
places an additional telephone call to the consumer about the debt. The
debt collector has placed a total of eight telephone calls to the
consumer about the debt during the seven-day period starting Wednesday,
April 1. None of the calls was subject to the exclusions in Sec.
1006.14(b)(3). The debt collector is presumed to violate Sec.
1006.14(b)(1) and FDCPA section 806(5).
ii. On Tuesday, August 11, a debt collector first attempts to
communicate with a consumer in connection with the collection of a
credit card debt by placing a telephone call to the consumer that the
consumer does not answer. On Friday, August 14, the debt collector again
places a telephone call to the consumer and has a telephone conversation
with the consumer in connection with the collection of the debt. Subject
to the exclusions in Sec. 1006.14(b)(3), the debt collector is presumed
to violate Sec. 1006.14(b)(1) and FDCPA section 806(5) if the debt
collector places a telephone call to the consumer in connection with the
collection of that debt again prior to Friday, August 21.
2. Factors to rebut the presumption of a violation. To rebut the
presumption of a violation, it must be proven that a debt collector who
placed telephone calls in excess of either of the frequencies described
in Sec. 1006.14(b)(2)(i) nevertheless did not place a telephone call or
engage any person in telephone conversation repeatedly or continuously
with intent to annoy, abuse, or harass any person at the called number.
For purposes of determining whether the presumption of a violation has
been rebutted, it is assumed that debt collectors intend the natural
consequence of their actions. Comments 14(b)(2)(ii)-2.i through .iv
provide a non-exhaustive list of factors that may rebut the presumption
of a violation. The factors may be considered either individually or in
combination with one another (or other non-specified factors). The
factors may be viewed in light of any other relevant facts and
circumstances and therefore may apply to varying degrees. Factors that
may rebut the presumption of a violation include:
i. Whether a debt collector placed a telephone call to comply with,
or as required by, applicable law. For example, assume the same facts as
in comment 14(b)(2)(ii)-1.i, except assume that the debt collector
placed the final telephone call of the seven-consecutive-day period to
inform the consumer of available loss mitigation options in compliance
with the Bureau's mortgage servicing rules under Regulation X, 12 CFR
1024.39(a). The debt collector's compliance with applicable law is a
factor that may rebut the presumption of a violation.
ii. Whether a debt collector placed a telephone call that was
directly related to active litigation involving the collection of a
particular debt. For example, assume the same facts as in comment
14(b)(2)(ii)-1.ii, except assume that, after the debt collector and the
consumer had a telephone conversation about the credit card debt on
Friday, August 14, the debt collector placed another telephone call to
the consumer before Friday, August 21, to complete a court-ordered
communication with the consumer about the debt, or as part of
negotiations to settle active debt collection litigation regarding the
debt. The direct relationship between the additional telephone call and
the active debt collection litigation is a factor that may rebut the
presumption of a violation.
iii. Whether a debt collector placed a telephone call in response to
a consumer's request for additional information when the exclusion in
Sec. 1006.14(b)(3)(i) for telephone calls made with the consumer's
prior consent given directly to the debt collector did not apply. For
example, assume the same facts as in comment 14(b)(2)(ii)-1.ii, except
assume that, during the telephone conversation about the credit card
debt on Friday, August 14, the consumer told the debt collector that the
consumer would like more information about the amount of the debt but
that the consumer could not talk at that moment. The consumer ended the
telephone call before the debt collector could seek prior consent under
Sec. 1006.14(b)(3)(i) to call back with the requested information. The
debt collector placed another telephone call to the consumer prior to
Friday, August 21, to provide the requested information. The fact that
the debt collector placed the additional telephone call in response to
the consumer's request is a factor that may rebut the presumption of a
violation.
iv. Whether a debt collector placed a telephone call to convey
information to the consumer that, as shown through evidence, would
provide the consumer with an opportunity to avoid a demonstrably
negative effect relating to the collection of the particular debt, where
the negative effect was not in the debt collector's control, and where
time was of the essence. For example, in each of the following three
scenarios, assume the same facts as in comment 14(b)(2)(ii)-1.ii, and
also assume that:
A. During the telephone conversation about the credit card debt on
Friday, August 14, the debt collector and the consumer engaged in a
lengthy conversation regarding
[[Page 400]]
settlement terms, and, toward the end of the conversation, the telephone
call dropped. The debt collector immediately placed an additional
telephone call to the consumer to complete the conversation. The fact
that the debt collector placed the telephone call to permit the debt
collector and the consumer to complete the conversation about settlement
terms, which provided the consumer an opportunity to avoid a
demonstrably negative effect that was not in the debt collector's
control (i.e., having to repeat a substantive conversation with a
potentially different representative of the debt collector) and where
time was of the essence (i.e., to prevent the delay of settlement
negotiations by seven days) is a factor that may rebut the presumption
of a violation.
B. The consumer previously entered into a payment plan with the debt
collector regarding the credit card debt. The conditions for the payment
plan were set by the creditor, and among those conditions is that only
the creditor, in its sole discretion, may approve waivers of late fees.
On Monday, August 17, the debt collector learned that the consumer's
payment failed to process, and the applicable grace period was set to
expire on Tuesday, August 18. The debt collector placed a telephone call
to the consumer on Monday to remind the consumer that a late fee would
be applied by the creditor for non-payment unless the consumer made the
payment by the next day. The fact that the debt collector placed the
telephone call to alert the consumer to the pending penalty, giving the
consumer an opportunity to avoid a demonstrably negative effect that was
not in the debt collector's control and where time was of the essence,
is a factor that may rebut the presumption of a violation.
C. On Monday, August 17, the debt collector placed a telephone call
to the consumer to offer the consumer a ``one-time only'' discount on
the payment of the credit card debt. The debt collector stated that the
offer would expire the next day when, in fact, the debt collector could
have offered the same or a similar discount through the end of August.
Because the negative effect on the consumer was in the debt collector's
control, the discount offer is not a factor that may rebut the
presumption of a violation.
14(b)(3) Certain Telephone Calls Excluded From Telephone Call
Frequencies
Paragraph 14(b)(3)(i)
1. Prior consent. Section 1006.14(b)(3)(i) excludes from the
telephone call frequencies described in Sec. 1006.14(b)(2) certain
telephone calls placed to a person who gives prior consent. See Sec.
1006.6(b)(4)(i) and its associated commentary for guidance about giving
prior consent directly to a debt collector. Nothing in Sec.
1006.14(b)(3)(i) regarding prior consent for telephone call frequencies
permits a debt collector to communicate, or attempt to communicate, with
a consumer as prohibited by Sec. Sec. 1006.6(b) and 1006.14(h).
2. Duration of prior consent. For purposes of Sec.
1006.14(b)(3)(i), if a person gives prior consent for additional
telephone calls about a particular debt directly to a debt collector,
any telephone calls that the debt collector thereafter places to the
person about that particular debt do not count toward the telephone call
frequencies described in Sec. 1006.14(b)(2) for a period of up to seven
consecutive days. A person's prior consent may expire before the
conclusion of the seven-consecutive-day period. A person's prior consent
expires when any of the following occurs: (1) The person consented to
the additional telephone calls for a shorter time period and such time
period has ended; (2) the person revokes such prior consent; or (3) the
debt collector has a telephone conversation with the person regarding
the particular debt.
3. Examples. The following examples illustrate how Sec.
1006.14(b)(3)(i) applies:
i. On Friday, April 3, a debt collector places a telephone call to a
consumer. During the ensuing telephone conversation in connection with
the collection of a debt, the consumer tells the debt collector to
``call back on Monday.'' Absent an exception, under Sec.
1006.14(b)(2)(ii), the debt collector would be presumed to violate Sec.
1006.14(b)(1) and FDCPA section 806(5) (15 U.S.C. 1692d(5)) if the debt
collector called the consumer on Monday, April 6, because the additional
telephone call would exceed the frequency described in Sec.
1006.14(b)(2)(i)(B). Under Sec. 1006.14(b)(3)(i), however, in the
scenario described (and absent any other facts), the debt collector
could, pursuant to the consumer's prior consent, place telephone calls
to the consumer on Monday, April 6, and not lose a presumption of
compliance with Sec. 1006.14(b)(1) and FDCPA section 806(5).
ii. Assume the same facts as in the preceding example, except that
the consumer does not specify a particular day the debt collector may
call back. Assume further that, on Monday, April 6, the debt collector
calls the consumer back and has a telephone conversation with the
consumer. The exception in Sec. 1006.14(b)(3)(i) does not apply to
subsequent telephone calls placed by the debt collector to the consumer,
absent additional prior consent from the consumer. For example, if the
debt collector, without additional prior consent, placed a telephone
call to the consumer on Wednesday, April 8, that telephone call would
count toward the telephone call frequencies described in Sec.
1006.14(b)(2), and, pursuant to Sec. 1006.14(b)(2)(ii), the debt
collector would be presumed to violate Sec. 1006.14(b)(1) and FDCPA
section 806(5).
iii. Between Monday, June 1, and Wednesday, June 3, a debt collector
places three unanswered telephone calls to a consumer in
[[Page 401]]
connection with the collection of a debt. Also on Wednesday, June 3, the
debt collector sends the consumer an email message in connection with
the collection of the debt. The consumer responds by email on Thursday,
June 4, requesting additional information about available repayment
options related to the debt and writes, ``You can call me at 123-456-
7891 to discuss the repayment options.'' The debt collector receives the
consumer's prior consent by email on Thursday, June 4, and thereafter
places eight unanswered telephone calls to the consumer between Monday,
June 8, and Wednesday, June 10. Because the consumer provided prior
consent directly to the debt collector, the exclusion in Sec.
1006.14(b)(3)(i) applies to the eight telephone calls placed by the debt
collector during the seven-consecutive-day period that began with
receipt of the consumer's consent on Thursday, June 4. Those telephone
calls therefore do not count toward the telephone call frequencies
described in Sec. 1006.14(b)(2)(i). However, any telephone calls placed
by the debt collector after the end of the seven-day period (i.e., on or
after Thursday, June 11) would count toward the telephone call
frequencies described in Sec. 1006.14(b)(2)(i), unless the consumer
again gives prior consent directly to the debt collector.
Paragraph 14(b)(3)(ii)
1. Unconnected telephone calls. Section 1006.14(b)(3)(ii) provides
that telephone calls placed to a person do not count toward the
telephone call frequencies described in Sec. 1006.14(b)(2)(i) if they
do not connect to the dialed number. A debt collector's telephone call
does not connect to the dialed number if, for example, the debt
collector receives a busy signal or an indication that the dialed number
is not in service. Conversely, a telephone call placed to a person
counts toward the telephone call frequencies described in Sec.
1006.14(b)(2)(i) if it connects to the dialed number, unless an
exclusion in Sec. 1006.14(b)(3) applies. A debt collector's telephone
call connects to the dialed number if, for example, the telephone call
is answered, even if it subsequently drops; if the telephone call causes
a telephone to ring at the dialed number but no one answers it; or if
the telephone call is connected to a voicemail or other recorded
message, even if it does not cause a telephone to ring and even if the
debt collector is unable to leave a voicemail.
14(b)(4) Definition
1. Particular debt. Section 1006.14(b)(2) establishes presumptions
of compliance and violation with respect to Sec. 1006.14(b)(1) and
FDCPA section 806(5) (15 U.S.C. 1692d(5)) based on the frequency with
which a debt collector places telephone calls to, or engages in
telephone conversation with, a person in connection with the collection
of a particular debt. Section 1006.14(b)(4) provides that, except in the
case of student loan debt, the term particular debt means each of a
consumer's debts in collection. For student loan debt, Sec.
1006.14(b)(4) provides that the term particular debt means all student
loan debts that a consumer owes or allegedly owes that were serviced
under a single account number at the time the debts were obtained by a
debt collector.
i. Placing a telephone call in connection with the collection of a
particular debt. Under Sec. 1006.14(b)(2)(i)(A), if a debt collector
places a telephone call to a person and initiates a conversation or
leaves a voicemail about one particular debt, the debt collector counts
the telephone call as a telephone call in connection with the collection
of the particular debt, subject to the exclusions in Sec.
1006.14(b)(3). If a debt collector places a telephone call to a person
and initiates a conversation or leaves a voicemail about more than one
particular debt, the debt collector counts the telephone call as a
telephone call in connection with the collection of each such particular
debt, subject to the exclusions in Sec. 1006.14(b)(3). If a debt
collector places a telephone call to a person but neither initiates a
conversation about a particular debt nor leaves a voicemail that refers
to a particular debt, or if the debt collector's telephone call is
unanswered, the debt collector counts the telephone call as a telephone
call in connection with the collection of at least one particular debt,
unless an exclusion in Sec. 1006.14(b)(3) applies.
ii. Engaging in a telephone conversation in connection with the
collection of a particular debt. Under Sec. 1006.14(b)(2)(i)(B), if a
debt collector and a person discuss one particular debt during a
telephone conversation, the debt collector has engaged in a telephone
conversation in connection with the collection of the particular debt,
regardless of which party initiated the discussion about the particular
debt, subject to the exclusions in Sec. 1006.14(b)(3). If a debt
collector and a person discuss more than one particular debt during a
telephone conversation, the debt collector has engaged in a telephone
conversation in connection with the collection of each such particular
debt, regardless of which party initiated the discussion about the
particular debts, subject to the exclusions in Sec. 1006.14(b)(3). If
no particular debt is discussed during a telephone conversation between
a debt collector and a person, the debt collector counts the
conversation as a telephone conversation in connection with the
collection of at least one particular debt, unless an exclusion in Sec.
1006.14(b)(3) applies.
2. Examples. The following examples illustrate the rule.
i. A debt collector is attempting to collect a medical debt and two
credit card debts (denominated A and B for this example) from the same
consumer. Under
[[Page 402]]
Sec. 1006.14(b)(2)(i)(A), a debt collector may count an unanswered
telephone call as one telephone call placed toward any one particular
debt, even if the debt collector intended to discuss more than one
particular debt had the telephone call resulted in a telephone
conversation. Therefore, if the debt collector, within a period of seven
consecutive days, places a total of 21 unanswered telephone calls, seven
of which the debt collector counted as unanswered telephone calls to the
consumer in connection with the collection of the medical debt, seven of
which the debt collector counted as unanswered telephone calls to the
consumer in connection with the collection of credit card debt A, and
seven of which the debt collector counted as unanswered telephone calls
to the consumer in connection with the collection of credit card debt B,
the debt collector is presumed to comply with Sec. 1006.14(b)(1) and
FDCPA section 806(5), even if, for example, the debt collector intended
to discuss both credit card debt A and credit card debt B had any of the
telephone calls with respect to the credit card debts resulted in a
telephone conversation.
ii. A debt collector is attempting to collect a medical debt and a
credit card debt from the same consumer. The debt collector places a
telephone call to the consumer, intending to discuss both particular
debts, but the consumer does not answer, and the telephone call goes to
voicemail. The debt collector leaves a limited-content message, as
defined in Sec. 1006.2(j). Because the limited-content message does not
specifically refer to any particular debt, under Sec.
1006.14(b)(2)(i)(A), a debt collector may count the voicemail as one
telephone call placed toward either of the particular debts, even though
the debt collector intended to discuss both particular debts if the
telephone call had resulted in a telephone conversation.
iii. A debt collector is attempting to collect a medical debt and a
credit card debt from the same consumer. On Monday, November 9, the debt
collector places a telephone call to, and engages in a telephone
conversation with, the consumer solely in connection with the collection
of the medical debt. The debt collector does not place any telephone
calls to the consumer in connection with the collection of the credit
card debt. Regarding the medical debt, under Sec. 1006.14(b)(2)(i)(A)
and (B) respectively, the debt collector has placed a telephone call to,
and has and engaged in a telephone conversation with, the consumer in
connection with the collection of the particular debt, unless an
exclusion in Sec. 1006.14(b)(3) applies. Regarding the credit card
debt, under Sec. 1006.14(b)(2)(i)(A) and (B) respectively, the debt
collector has neither placed a telephone call to, nor engaged in a
telephone conversation with, the consumer in connection with the
collection of the particular debt.
iv. Assume the same facts as in the preceding example, except that
on Monday, November 9, the debt collector engages in a telephone
conversation with the consumer in connection with the collection of both
the medical debt and the credit card debt. Under Sec.
1006.14(b)(2)(i)(A) and (B) respectively, the debt collector has placed
a telephone call to, and has engaged in a telephone conversation with,
the consumer in connection with the collection of both the medical debt
and the credit card debt, unless an exclusion in Sec. 1006.14(b)(3)
applies.
v. A debt collector is attempting to collect a medical debt and a
credit card debt from the same consumer. Beginning on Monday, November
9, and through Wednesday, November 11, the debt collector places two
unanswered telephone calls to the consumer which the debt collector
counts as telephone calls in connection with the collection of the
medical debt, and four unanswered telephone calls to the consumer which
the debt collector counts as telephone calls in connection with the
collection of the credit card debt. On Thursday, November 12, the debt
collector places a telephone call to, and engages in a general telephone
conversation with, the consumer, but the debt collector and the consumer
do not discuss either particular debt. Under Sec. 1006.14(b)(2)(i)(A)
and (B) respectively, the debt collector may count the November 12
telephone call and ensuing conversation toward either the medical debt
or the credit card debt. For example, if the debt collector counts the
November 12 telephone call and ensuing conversation toward the
collection of only the medical debt, then, during this time period, the
debt collector has placed three telephone calls and has had one
conversation in connection with the collection of the medical debt, and
has placed four telephone calls and has had no conversations in
connection with the collection of the credit card debt.
vi. A debt collector is attempting to collect a medical debt and a
credit card debt from the same consumer. On Monday, November 9, the debt
collector places a telephone call to, and initiates a telephone
conversation with, the consumer about the collection of the medical
debt. The consumer states that the consumer does not want to discuss the
medical debt, and instead initiates a discussion about the credit card
debt. Under Sec. 1006.14(b)(2)(i)(A) and (B) respectively, the debt
collector has both placed a telephone call to, and engaged in a
telephone conversation with, the consumer in connection with the
collection of the medical debt, even though the consumer was unwilling
to engage in the discussion initiated by the debt collector regarding
the medical debt. Under Sec. 1006.14(b)(2)(i)(A) and (B) respectively,
the debt collector has not placed a
[[Page 403]]
telephone call to the consumer in connection with the credit card debt,
but the debt collector has engaged in a telephone conversation in
connection with the collection of the credit card debt, even though the
consumer, not the debt collector, initiated the discussion about the
credit card debt.
vii. A debt collector is attempting to collect three student loan
debts that were serviced under a single account number at the time that
they were obtained by a debt collector and that are owed or allegedly
owed by the same consumer. All three debts are treated as a single debt
for purposes of Sec. 1006.14(b)(2). The debt collector is presumed to
comply with Sec. 1006.14(b)(1) and FDCPA section 806(5) if the debt
collector places seven or fewer telephone calls within seven consecutive
days to the consumer in connection with the collection of the three
student loan debts, and the debt collector does not place a telephone
call within a period of seven consecutive days after having had a
telephone conversation with the consumer in connection with the
collection of any one of the three student loan debts, unless an
exclusion in Sec. 1006.14(b)(3) applies.
14(h) Prohibited Communication Media
14(h)(1) In General
1. Communication media designations. Section 1006.14(h)(1) prohibits
a debt collector from communicating or attempting to communicate with a
person in connection with the collection of any debt through a medium of
communication if the person has requested that the debt collector not
use that medium to communicate with the person. The debt collector may
ask follow-up questions regarding preferred communication media to
clarify statements by the person. For examples of communication media,
see comment 2(d)-1.
2. Specific address or telephone number. Within a medium of
communication, a person may request that a debt collector not use a
specific address or telephone number. For example, if a person has two
mobile telephone numbers, the person may request that the debt collector
not use one or both mobile telephone numbers.
3. Examples. The following examples illustrate the prohibition in
Sec. 1006.14(h)(1).
i. Assume that a person tells a debt collector to ``stop calling''
the person. Based on these facts, the person has requested that the debt
collector not use telephone calls to communicate with the person and,
thereafter, Sec. 1006.14(h)(1) prohibits the debt collector from
communicating or attempting to communicate with the person through
telephone calls.
ii. Assume that, in response to receipt of either the opt-out
procedures described in Sec. 1006.6(d)(4)(ii) or the opt-out notice in
Sec. 1006.6(e), a consumer requests to opt out of receiving electronic
communications from a debt collector at a particular email address or
telephone number. Based on these facts, the consumer has requested that
the debt collector not use that email address or telephone number to
electronically communicate with the consumer for any debt and,
thereafter, Sec. 1006.14(h)(1) prohibits the debt collector from
electronically communicating or attempting to communicate with the
consumer through that email address or telephone number.
14(h)(2) Exceptions
1. Legally required communication media. Under Sec.
1006.14(h)(2)(iii), if otherwise required by applicable law, a debt
collector may communicate or attempt to communicate with a person in
connection with the collection of any debt through a medium of
communication that the person has requested the debt collector not use
to communicate with the person. For example, assume that a debt
collector who is also a mortgage servicer subject to the periodic
statement requirement for residential mortgage loans under Regulation Z,
12 CFR 1026.41, is engaging in debt collection communications with a
person about the person's residential mortgage loan. The person tells
the debt collector to stop mailing letters to the person, and the person
has not consented to receive statements electronically in accordance
with 12 CFR 1026.41(c). Although the person has requested that the debt
collector not use mail to communicate with the person, Sec.
1006.14(h)(2)(iii) permits the debt collector to mail the person
periodic statements, because the periodic statements are required by
applicable law.
Section 1006.18--False, Deceptive, or Misleading Representations or
Means
18(d) False Representations or Deceptive Means
1. Social media. Under Sec. 1006.18(d), a debt collector may not
use any false representation or deceptive means to collect any debt or
to obtain information concerning a consumer. In the social media
context, the following examples illustrate the rule:
i. Assume that a debt collector sends a private message, in
connection with the collection of a debt, requesting to be added as one
of the consumer's contacts on a social media platform marketed for
social or professional networking purposes. A debt collector makes a
false representation or implication if the debt collector does not
disclose his or her identity as a debt collector in the request.
ii. Assume that a debt collector communicates privately with a
friend or coworker of a consumer on a social media platform, for the
purpose of acquiring location information about the consumer. Pursuant
to
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Sec. 1006.10(b)(1), the debt collector must identify himself or herself
individually by name when communicating for the purpose of acquiring
location information. To avoid violating Sec. 1006.18(d), the debt
collector must communicate using a profile that accurately identifies
the debt collector's individual name. (But see Sec. 1006.18(f) and its
associated commentary regarding use of assumed names.) The debt
collector also must comply with the other applicable requirements for
obtaining location information in Sec. 1006.10 (e.g., with respect to
stating that the debt collector is confirming or correcting location
information concerning the consumer and, only if expressly requested,
identifying the name of the debt collector's employer), for
communicating with third parties in Sec. 1006.6(d)(1), and for
communicating through social media in Sec. 1006.22(f)(4).
18(e) Disclosures Required
1. Communication. A limited-content message, as defined in Sec.
1006.2(j), is not a communication, as that term is defined in Sec.
1006.2(d). Thus, a debt collector who leaves only a limited-content
message for a consumer need not make the disclosures required by Sec.
1006.18(e)(1) and (2). However, if a debt collector leaves a voicemail
message for a consumer that includes content in addition to the content
described in Sec. 1006.2(j)(1) and (2) and that directly or indirectly
conveys any information regarding a debt, the voicemail message is a
communication, and the debt collector is required to make the Sec.
1006.18(e) disclosures. See the commentary to Sec. 1006.2(d) and (j)
for additional clarification regarding the definitions of communication
and limited-content message.
18(e)(1) Initial Communications
1. Example. A debt collector must make the disclosure required by
Sec. 1006.18(e)(1) in the debt collector's initial communication with a
consumer, regardless of the medium of communication and regardless of
whether the debt collector or the consumer initiated the communication.
For example, assume that a debt collector who has not previously
communicated with a consumer attempts to communicate with the consumer
by leaving a limited-content message, as defined in Sec. 1006.2(j).
After listening to the debt collector's limited-content message, the
consumer initiates a telephone call to, and communicates with, the debt
collector. Pursuant to Sec. 1006.18(e)(1), because the consumer-
initiated call is the initial communication between the debt collector
and the consumer, the debt collector must disclose to the consumer
during that telephone call that the debt collector is attempting to
collect a debt and that any information obtained will be used for that
purpose.
18(e)(4) Translated Disclosures
1. Example. Section 1006.18(e)(4) provides that a debt collector
must make the disclosures required by Sec. 1006.18(e)(1) and (2) in the
same language or languages used for the rest of the communication in
which the disclosures are conveyed. The following example illustrates
the rule:
i. ABC debt collector is collecting a debt. ABC debt collector's
initial communication with the consumer takes place in Spanish. Section
1006.18(e)(4) requires ABC debt collector to provide in Spanish the
disclosure required by Sec. 1006.18(e)(1). Thereafter, ABC debt
collector has a communication with the consumer that takes place partly
in English and partly in Spanish. During this communication, the debt
collector must provide the disclosure required by Sec. 1006.18(e)(2) in
both English and Spanish.
18(f) Assumed Names
1. Readily identifiable by the employer. Section 1006.18(f)
provides, in part, that Sec. 1006.18 does not prohibit a debt
collector's employee from using an assumed name when communicating or
attempting to communicate with a person, provided that the debt
collector can readily identify any employee using an assumed name. A
debt collector may use any method of managing assumed names that enables
the debt collector to determine the true identity of any employee using
an assumed name. For example, a debt collector may require an employee
to use the same assumed name when communicating or attempting to
communicate with any person and may prohibit any other employee from
using the same assumed name.
Section 1006.22--Unfair or Unconscionable Means
22(f) Restrictions on Use of Certain Media
Paragraph 22(f)(2)
1. Language or symbol. Section 1006.22(f)(2) provides, in relevant
part, that a debt collector must not use any language or symbol, other
than the debt collector's address, on any envelope when communicating
with a consumer by mail. For purposes of Sec. 1006.22(f)(2), the phrase
``language or symbol'' does not include language and symbols that
facilitate communications by mail, such as: The debtor's name and
address; postage; language such as ``forwarding and address correction
requested''; and the United States Postal Service's Intelligent Mail
barcode.
Paragraph 22(f)(3)
1. Email addresses described in Sec. 1006.6(d)(4). Section
1006.22(f)(3) generally prohibits a debt collector from communicating or
attempting to communicate with a consumer
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by sending an email to an email address that the debt collector knows is
provided to the consumer by the consumer's employer. The prohibition
does not apply if the debt collector sends the email to an email address
described in Sec. 1006.6(d)(4)(i) or (iii), which specifically
contemplate debt collectors sending emails to any email address--
including an email address that a debt collector knows is employer
provided--if the consumer has used the email address to communicate with
the debt collector about a debt (Sec. 1006.6(d)(4)(i)(A)), has provided
prior consent directly to the debt collector to use the email address
(Sec. 1006.6(d)(4)(i)(B)), or has obtained the email address from a
prior debt collector who satisfied either Sec. 1006.6(d)(4)(i) or (ii).
A debt collector who sends an email to an email address described in
Sec. 1006.6(d)(4)(ii) complies with the prohibition in Sec.
1006.22(f)(3) because the procedures in Sec. 1006.6(d)(4)(ii) do not
permit debt collectors to send emails to email addresses that the debt
collector knows are employer provided.
Paragraph 22(f)(4)
1. Social media. Section 1006.22(f)(4) prohibits a debt collector
from communicating or attempting to communicate with a person in
connection with the collection of a debt through a social media platform
if the communication or attempt to communicate is viewable by the
general public or the person's social media contacts. For example, Sec.
1006.22(f)(4) prohibits a debt collector from posting, in connection
with the collection of a debt, any message for a person on a social
media web page if that web page is viewable by the general public or the
person's social media contacts. Section 1006.22(f)(4) does not prohibit
a debt collector from sending a message to a person if the message is
not viewable by the general public or the person's social media
contacts. Section 1006.6(b) or Sec. 1006.14(h) nonetheless may prohibit
the debt collector from sending such a message, and a debt collector who
communicates by sending such a message about the debt to the wrong
person violates Sec. 1006.6(d)(1). See also comment 18(d)-1 with
respect to communications and attempts to communicate with consumers and
third parties on social media platforms.
Section 1006.30--Other Prohibited Practices
30(a) Required actions prior to furnishing information.
30(a)(1) In general
1. About the debt. Section 1006.30(a)(1) provides, in relevant part,
that a debt collector must not furnish to a consumer reporting agency,
as defined in section 603(f) of the Fair Credit Reporting Act (15 U.S.C.
1681a(f)), information about a debt before taking one of the actions
described in Sec. 1006.30(a)(1)(i) or (ii). Each of the actions
includes conveying information ``about the debt'' to the consumer. The
validation information required by Sec. 1006.34(c), including such
information if provided in a validation notice, is information ``about
the debt.''
2. Reasonable period of time. Section 1006.30(a)(1)(ii) provides, in
relevant part, that a debt collector who places a letter about a debt in
the mail, or who sends an electronic message about a debt to the
consumer, must wait a reasonable period of time to receive a notice of
undeliverability before furnishing information about the debt to a
consumer reporting agency. The reasonable period of time begins on the
date that the debt collector places the letter in the mail or sends the
electronic message. A period of 14 consecutive days after the date that
the debt collector places a letter in the mail or sends an electronic
message is a reasonable period of time.
3. Notices of undeliverability. Section 1006.30(a)(1)(ii) provides,
in relevant part, that, if a debt collector who places a letter about a
debt in the mail, or who sends an electronic message about a debt to the
consumer, receives a notice of undeliverability during the reasonable
period of time, the debt collector must not furnish information about
the debt to a consumer reporting agency until the debt collector
otherwise satisfies Sec. 1006.30(a)(1). A debt collector who does not
receive a notice of undeliverability during the reasonable period and
who thereafter furnishes information about the debt to a consumer
reporting agency does not violate Sec. 1006.30(a)(1) even if the debt
collector subsequently receives a notice of undeliverability. The
following examples illustrate the rule:
i. Assume that, on May 1, a debt collector mails the consumer a
validation notice as described in Sec. 1006.34(a)(1)(i)(A). On May 10,
the debt collector receives a notice of undeliverability and, without
taking any additional action described in Sec. 1006.30(a)(1),
subsequently furnishes information about the debt to a consumer
reporting agency. The debt collector has violated Sec. 1006.30(a)(1).
ii. Assume that, on May 1, a debt collector mails the consumer a
validation notice as described in Sec. 1006.34(a)(1)(i)(A). On May 10,
the debt collector receives a notice of undeliverability. On May 11, the
debt collector mails the consumer another validation notice as described
in Sec. 1006.34(a)(1)(i)(A). From May 11 to May 24, the debt collector
permits receipt of, monitors for, and does not receive, a notice of
undeliverability and thereafter furnishes information about the debt to
a consumer reporting agency. The debt collector has not violated Sec.
1006.30(a)(1).
iii. Assume that, on May 1, a debt collector mails the consumer a
validation notice as described in Sec. 1006.34(a)(1)(i)(A). From May 1
to May 14, the debt collector permits receipt
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of, monitors for, and does not receive, a notice of undeliverability and
thereafter furnishes information about the debt to a consumer reporting
agency. After furnishing the information, the debt collector receives a
notice of undeliverability. The debt collector has not violated Sec.
1006.30(a)(1) and, without taking any further action, may furnish
additional information about the debt to a consumer reporting agency.
30(b) Prohibition on the Sale, Transfer for Consideration, or Placement
for Collection of Certain Debts
30(b)(1) In General
1. Transfer for consideration. Section 1006.30(b)(1) prohibits,
among other things, a debt collector from transferring for consideration
a debt that has been paid or settled or discharged in bankruptcy. A debt
collector transfers a debt for consideration when the debt collector
receives or expects to receive compensation for the transfer of the
debt. A debt collector does not transfer a debt for consideration when
the debt collector sends information about the debt, as opposed to the
debt itself, to another party. For example, a debt collector does not
transfer a debt for consideration when the debt collector sends a file
with data about the debt to another person for analytics, ``scrubbing,''
or archiving. A debt collector also does not transfer a debt for
consideration when the debt collector reports to a credit reporting
agency information that a debt has been paid or settled or discharged in
bankruptcy.
2. Debt that resulted from identity theft. Section 615(f)(1) of the
Fair Credit Reporting Act (15 U.S.C. 1681m(f)(1)) states that no person
shall sell, transfer for consideration, or place for collection a debt
if such person has been notified under section 605B of the Fair Credit
Reporting Act (15 U.S.C. 1681c-2) that the debt has resulted from
identity theft. Nothing in Sec. 1006.30(b)(1) alters a debt collector's
obligation to comply with the prohibition set forth in section 615(f)(1)
of the Fair Credit Reporting Act.
30(b)(2) Exceptions
30(b)(2)(i) In General
Paragraph 30(b)(2)(i)(A)
1. In general. Under Sec. 1006.30(b)(2)(i)(A), a debt collector who
is collecting a debt described in Sec. 1006.30(b)(1) may transfer the
debt to the debt's owner. However, unless another exception under Sec.
1006.30(b)(2) applies, the debt collector may not transfer the debt or
the right to collect the debt to another entity on behalf of the debt
owner.
Section 1006.34--Notice for Validation of Debts
34(a) Validation information required.
34(a)(1) In general.
1. Deceased consumers. Section 1006.34(a)(1) generally requires a
debt collector to provide the validation information required by Sec.
1006.34(c) either by sending the consumer a validation notice in the
manner required by Sec. 1006.42, or by providing the information orally
in the debt collector's initial communication. If the debt collector
knows or should know that the consumer is deceased, and if the debt
collector has not previously provided the validation information to the
deceased consumer, a person who is authorized to act on behalf of the
deceased consumer's estate operates as the consumer for purposes of
Sec. 1006.34(a)(1). In such circumstances, to comply with Sec.
1006.34(a)(1), a debt collector must provide the validation information
to an individual that the debt collector identifies by name who is
authorized to act on behalf of the deceased consumer's estate.
34(b) Definitions.
34(b)(2) Initial communication.
1. Bankruptcy proofs of claim. Section 1006.34(b)(2) defines initial
communication and states that the term does not include a communication
in the form of a formal pleading in a civil action. A proof of claim
that a debt collector files in a bankruptcy proceeding in accordance
with the requirements of the United States Bankruptcy Code (Title 11 of
the U.S. Code) is a communication in the form of a formal pleading in a
civil action and therefore is not an initial communication for purposes
of Sec. 1006.34.
34(b)(3) Itemization date.
1. In general. Section 1006.34(b)(3) defines itemization date for
purposes of Sec. 1006.34. Section 1006.34(b)(3) states that the
itemization date is any one of five reference dates for which a debt
collector can ascertain the amount of the debt. The reference dates are
the last statement date, the charge-off date, the last payment date, the
transaction date, and the judgment date. A debt collector may select any
of these dates as the itemization date to comply with Sec. 1006.34.
Once a debt collector uses a reference date for a debt in a
communication with a consumer, the debt collector must use that
reference date for that debt consistently when providing the information
required by Sec. 1006.34(c) to that consumer. For example, if a debt
collector uses the last statement date to determine and disclose the
account number associated with the debt
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pursuant to Sec. 1006.34(c)(2)(iv), the debt collector may not use the
charge-off date to determine and disclose the amount of the debt
pursuant to Sec. 1006.34(c)(2)(vii).
2. Subsequent debt collectors. When selecting an itemization date
pursuant to Sec. 1006.34(b)(3), a debt collector may use a different
reference date than a prior debt collector who attempted to collect the
debt.
Paragraph 34(b)(3)(i).
1. Last statement date. Under Sec. 1006.34(b)(3)(i), the last
statement date is the date of the last periodic statement or written
account statement or invoice provided to the consumer by a creditor. For
purposes of Sec. 1006.34(b)(3)(i), the last statement may be provided
by a creditor or a third party acting on the creditor's behalf,
including a creditor's service provider. However, a statement or invoice
provided by a debt collector is not a last statement for purposes of
Sec. 1006.34(b)(3)(i), unless the debt collector is also a creditor.
Paragraph 34(b)(3)(iii).
1. Last payment date. Under Sec. 1006.34(b)(3)(iii), the last
payment date is the date the last payment was applied to the debt. A
third-party payment applied to the debt, such as a payment from an auto
repossession agent or an insurance company, can be a last payment for
purposes of Sec. 1006.34(b)(3)(iii).
Paragraph 34(b)(3)(iv).
1. Transaction date. Section 1006.34(b)(3)(iv) provides that the
itemization date may be the date of the transaction that gave rise to
the debt. The transaction date is the date that the good or service that
gave rise to the debt was provided or made available to the consumer.
For example, the transaction date for a debt arising from a medical
procedure may be the date the medical procedure was performed, and the
transaction date for a consumer's gym membership may be the date the
membership contract was executed. In some cases, a debt may have more
than one transaction date. This could occur, for example, if a contract
for a service is executed on one date and the service is performed on
another date. If a debt has more than one transaction date, a debt
collector may use any such date as the transaction date for purposes of
Sec. 1006.34(b)(3)(iv), but the debt collector must use whichever
transaction date is selected consistently, as described in comment
34(b)(3)-1.
34(b)(5) Validation period.
1. Assumed receipt of validation information. Section 1006.34(b)(5)
defines the validation period as the period starting on the date that a
debt collector provides the validation information required by Sec.
1006.34(c) and ending 30 days after the consumer receives or is assumed
to receive it. Section 1006.34(c)(3)(i) through (iii) requires
statements that specify the end date of the validation period. If a debt
collector provides the validation information in writing or
electronically, then, at the time that the debt collector calculates the
validation period end date, the debt collector will know only the date
on which the consumer is assumed to receive the validation information.
In such cases, the debt collector may use that date to calculate the
validation period end date even if the debt collector later learns that
the consumer received the validation information on a different date.
2. Updated validation period. If a debt collector sends a subsequent
validation notice to a consumer because the consumer did not receive the
original validation notice and the consumer has not otherwise received
the validation information required by Sec. 1006.34(c), the debt
collector must calculate the end date of the validation period specified
in the Sec. 1006.34(c)(3) disclosures based on the date the consumer
receives or is assumed to receive the subsequent validation notice. For
example, assume a debt collector sends a consumer a validation notice on
January 1, and that notice is returned as undeliverable. After obtaining
accurate location information, the debt collector sends the consumer a
subsequent validation notice on January 15. Pursuant to Sec.
1006.34(b)(5), the end date of the validation period specified in the
Sec. 1006.34(c)(3) disclosures is based on the date the consumer
receives or is assumed to receive the validation notice sent on January
15.
34(c) Validation information.
34(c)(1) Debt collector communication disclosure.
1. Statement required by Sec. 1006.18(e). Section 1006.34(c)(1)
provides that validation information includes the statement required by
Sec. 1006.18(e). Section 1006.18(e)(1) requires a debt collector to
disclose in its initial communication that the debt collector is
attempting to collect a debt and that any information obtained will be
used for that purpose. Section 1006.18(e)(2) requires a debt collector
to disclose in each subsequent communication that the communication is
from a debt collector. A debt collector who provides a validation notice
as described in Sec. 1006.34(a)(1)(i)(A) complies with Sec.
1006.34(c)(1) by providing on the validation notice the disclosure
required by Sec. 1006.18(e)(1). A debt collector who provides a
validation notice as described in Sec. 1006.34(a)(1)(i)(B) complies
with Sec. 1006.34(c)(1) by providing either the disclosure required by
Sec. 1006.18(e)(1) or the disclosure required by Sec. 1006.18(e)(2).
The following example illustrates the rule:
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i. ABC debt collector has an initial communication with the consumer
by telephone. Within five days of that initial communication, ABC debt
collector sends the consumer a validation notice using Model Form B-1 in
appendix B to this part. ABC debt collector has complied with Sec.
1006.34(c)(1) even though Model Form B-1 includes the disclosure
described in Sec. 1006.18(e)(1) rather than the disclosure described in
Sec. 1006.18(e)(2).
34(c)(2) Information about the debt.
Paragraph 34(c)(2)(i).
1. Debt collector's name. Section 1006.34(c)(2)(i) provides, in
part, that validation information includes the debt collector's name. A
debt collector may disclose its trade or doing-business-as name, instead
of its legal name.
2. Debt collector's mailing address. Section 1006.34(c)(2)(i)
provides, in part, that validation information includes the mailing
address at which the debt collector accepts disputes and requests for
original-creditor information. A debt collector may disclose a vendor's
mailing address, if that is an address at which the debt collector
accepts disputes and requests for original-creditor information.
Paragraph 34(c)(2)(ii).
1. Consumer's name. Section 1006.34(c)(2)(ii) provides, in part,
that validation information includes the consumer's name. To satisfy the
requirement to provide this validation information, a debt collector
must disclose the version of the consumer's name that the debt collector
reasonably determines is the most complete and accurate version of the
name about which the debt collector has knowledge. A debt collector does
not disclose the most complete and accurate version of the consumer's
name if the debt collector omits known name information in a manner that
creates a false, misleading, or confusing impression about the
consumer's identity. For example, assume the creditor provides the
consumer's first name, middle name, last name, and name suffix to the
debt collector. In this scenario, the debt collector would reasonably
determine that the most complete and accurate version of the consumer's
name about which the debt collector has knowledge includes the first
name, middle name, last name, and name suffix. If the debt collector
omits any of this information, the debt collector has not satisfied the
requirement to provide the consumer's name pursuant to Sec.
1006.34(c)(2)(ii).
Paragraph 34(c)(2)(iii).
1. Creditor's name. Section 1006.34(c)(2)(iii) provides that, if a
debt collector is collecting debt related to a consumer financial
product or service as defined in Sec. 1006.2(f), validation information
includes the name of the creditor to whom the debt was owed on the
itemization date. Pursuant to Sec. 1006.34(c)(2)(iii), a debt collector
may disclose this creditor's trade or doing-business-as name, instead of
its legal name.
Paragraph 34(c)(2)(iv).
1. Account number truncation. Section 1006.34(c)(2)(iv) provides
that validation information includes the account number, if any,
associated with the debt on the itemization date, or a truncated version
of that number. If a debt collector uses a truncated account number, the
account number must remain recognizable. For example, a debt collector
may truncate a credit card account number so that only the last four
digits are provided.
Paragraph 34(c)(2)(v).
1. Creditor's name. Section 1006.34(c)(2)(v) provides that
validation information includes the name of the creditor to whom the
debt currently is owed. A debt collector may disclose this creditor's
trade or doing-business-as name, instead of its legal name.
Paragraph 34(c)(2)(vii).
1. Amount of the debt on the itemization date. Section
1006.34(c)(2)(vii) provides that validation information includes the
amount of the debt on the itemization date. The amount of the debt on
the itemization date includes any fees, interest, or other charges owed
as of that date.
Paragraph 34(c)(2)(viii).
1. Itemization of the debt. Section 1006.34(c)(2)(viii) provides
that validation information includes an itemization of the current
amount of the debt reflecting interest, fees, payments, and credits
since the itemization date. If providing a validation notice, a debt
collector must include fields in the notice for all of these items even
if none of the items have been assessed or applied to the debt since the
itemization date. A debt collector may indicate that the value of a
required field is ``0,'' ``none,'' or may state that no interest, fees,
payments, or credits have been assessed or applied to the debt; a debt
collector may not leave a required field blank.
2. Itemization required by other applicable law. If a debt collector
is required by other applicable law to provide an itemization of the
current amount of the debt with the validation information, the debt
collector may comply with Sec. 1006.34(c)(2)(viii) by disclosing the
itemization required by other applicable law in lieu of the itemization
described in Sec. 1006.34(c)(2)(viii), if the itemization required
[[Page 409]]
by other applicable law is substantially similar to the itemization that
appears on Model Form B-1 in appendix B to this part.
3. Itemization on a separate page. Section 1006.34(c)(2)(viii)
provides that a debt collector may disclose the itemization of the
current amount of the debt on a separate page provided in the same
communication with a validation notice if the debt collector includes on
the validation notice, where the itemization would have appeared, a
statement referring to that separate page. A debt collector may comply
with the requirement to refer to the separate page by, for example,
including on the validation notice the statement, ``See the enclosed
separate page for an itemization of the debt,'' situated next to the
information about the current amount of the debt required by Sec.
1006.34(c)(2)(ix).
4. Debt collectors collecting multiple debts. A debt collector who
combines multiple debts on a single validation notice complies with
Sec. 1006.34(c)(2)(viii) by disclosing either a single, cumulative
itemization on the validation notice or a separate itemization of each
debt on a separate page or pages provided in the same communication as
the validation notice.
Paragraph 34(c)(2)(ix).
1. Current amount of the debt. Section 1006.34(c)(2)(ix) provides
that validation information includes the current amount of the debt
(i.e., the amount as of when the validation information is provided).
For residential mortgage debt subject to Regulation Z, 12 CFR 1026.41, a
debt collector may comply with the requirement to provide the current
amount of the debt by providing the consumer the total balance of the
outstanding mortgage, including principal, interest, fees, and other
charges.
2. Debt collectors collecting multiple debts. A debt collector who
combines multiple debts on a single validation notice complies with
Sec. 1006.34(c)(2)(ix) by disclosing on the validation notice a single
cumulative figure that is the sum of the current amount of all the
debts.
34(c)(3) Information about consumer protections.
Paragraph 34(c)(3)(v).
1. Electronic communication media. Section 1006.34(c)(3)(v) provides
that, if the debt collector provides the validation notice
electronically, validation information includes a statement explaining
how a consumer can, as described in paragraphs (c)(4)(i) and (ii) of
this section, dispute the debt or request original-creditor information
electronically. A debt collector may provide the information required by
Sec. 1006.34(c)(3)(v) by including the statements, ``We accept disputes
electronically at,'' using that phrase or a substantially similar
phrase, followed by an email address or website portal that a consumer
can use to take the action described in Sec. 1006.34(c)(4)(i), and ``We
accept original creditor information requests electronically,'' using
that phrase or a substantially similar phrase, followed by an email
address or website portal that a consumer can use to take the action
described in Sec. 1006.34(c)(4)(ii). If a debt collector accepts
electronic communications from consumers through more than one medium,
such as by email and through a website portal, the debt collector is
required to provide information regarding only one of these media but
may provide information on any additional media.
34(c)(4) Consumer-response information.
1. Prompts. If the validation information is provided in writing or
electronically, a prompt required by Sec. 1006.34(c)(4) may be
formatted as a checkbox as in Model Form B-1 in appendix B to this part.
34(c)(5) Special rule for certain residential mortgage debt.
1. In general. Section 1006.34(c)(5) provides that, for residential
mortgage debt, if a periodic statement is required under Regulation Z,
12 CFR 1026.41, at the time a debt collector provides the validation
notice, a debt collector need not provide the validation information
required by Sec. 1006.34(c)(2)(vi) through (viii) if the debt collector
provides the consumer, in the same communication with the validation
notice, a copy of the most recent periodic statement provided to the
consumer under 12 CFR 1026.41(b), and the debt collector includes on the
validation notice, where the validation information required by
paragraphs (c)(2)(vi) through (viii) of this section would have
appeared, a statement referring to that periodic statement. A debt
collector may comply with the requirement to refer to the periodic
statement in the validation notice by, for example, including on the
validation notice the statement, ``See the enclosed periodic statement
for an itemization of the debt.''
34(d) Form of validation information.
34(d)(2) Safe harbor.
1. In general. A debt collector who provides a validation notice
that is neither a notice described in Sec. 1006.34(d)(2)(i) or (ii),
nor a substantially similar notice as described in Sec.
1006.34(d)(2)(iii), does not receive a safe harbor for compliance with
the information and form requirements of Sec. 1006.34(c) and (d)(1).
34(d)(2)(i) In general.
1. Disclosure required by Sec. 1006.18(e). Section 1006.18(e)(1)
requires a debt collector to disclose in its initial communication that
the debt collector is attempting to collect a debt and that any
information obtained will be
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used for that purpose. Section 1006.18(e)(2) requires a debt collector
to disclose in each subsequent communication that the communication is
from a debt collector. Model Form B-1 in appendix B to this part
includes the disclosure required by Sec. 1006.18(e)(1). A debt
collector who uses Model Form B-1 to provide a validation notice as
described in Sec. 1006.34(a)(1)(i)(B) may replace the disclosure
required by Sec. 1006.18(e)(1) with the disclosure required by Sec.
1006.18(e)(2) without losing the safe harbor described in Sec.
1006.34(d)(2). See comment 34(c)(1)-1 for further guidance related to
providing the disclosure required by Sec. 1006.18(e) on a validation
notice.
34(d)(2)(iii) Substantially similar form.
1. Substantially similar form. Pursuant to Sec. 1006.34(d)(2)(iii),
a debt collector who uses Model Form B-1 as described in Sec.
1006.34(d)(2)(i) may make changes to the form and retain the safe harbor
for compliance with the information and form requirements of Sec.
1006.34(c) and (d)(1) provided that the form remains substantially
similar in substance, clarity, and meaningful sequence to Model Form B-
1. Permissible changes include, for example:
i. Modifications to remove language that could suggest liability for
the debt if such language is not applicable. For example, if a debt
collector sends a validation notice to a person who is authorized to act
on behalf of the deceased consumer's estate (see comment 34(a)(1)-1),
and that person is not liable for the debt, the debt collector may use
the name of the deceased consumer instead of ``you'';
ii. Relocating the consumer-response information required by Sec.
1006.34(c)(4) to facilitate mailing;
iii. Adding barcodes or QR codes, as long as the inclusion of such
items does not violate Sec. 1006.38(b);
iv. Adding the date the form is generated; and
v. Embedding hyperlinks, if delivering the form electronically.
34(d)(3) Optional disclosures.
34(d)(3)(i) Telephone contact information.
1. In general. Section 1006.34(d)(3)(i) permits a debt collector to
include telephone contact information. Telephone contact information may
include, for example, a telephone number as well as the times that the
debt collector accepts consumer telephone calls.
34(d)(3)(iv) Disclosures under applicable law.
34(d)(3)(iv)(A) Disclosures on the reverse of the validation notice.
1. In general. Section 1006.34(d)(3)(iv)(A) permits, in relevant
part, a debt collector to include on the reverse of the validation
notice any disclosures that are specifically required by, or that
provide safe harbors under, applicable law. If a debt collector provides
a validation notice in the body of an email, the debt collector may, in
lieu of including the disclosures permitted by Sec.
1006.34(d)(3)(iv)(A) on the reverse of the validation notice, include
them in the same communication below the content of the validation
notice. Disclosures permitted by Sec. 1006.34(d)(3)(iv)(A) include, for
example, specific disclosures required by Federal, State, or municipal
statutes or regulations, and specific disclosures required by judicial
or administrative decisions or orders, including administrative consent
orders. Such disclosures could include, for example, time-barred debt
disclosures and disclosures that the current amount of the debt may
increase or vary due to interest, fees, or other charges, provided that
such disclosures are specifically required by applicable law.
2. Statement referring to disclosures. If a debt collector includes
disclosures pursuant to Sec. 1006.34(d)(3)(iv)(A), the debt collector
must include a statement on the front of the validation notice referring
to those disclosures. A debt collector may comply with the requirement
to refer to the disclosures by including on the front of the validation
notice the statement, ``Notice: See reverse side for important
information,'' or a substantially similar statement. If, as permitted by
comment 34(d)(3)(iv)(A)-1, a debt collector places the disclosures below
the content of the validation notice, the debt collector may comply with
the requirement to refer to the disclosures by stating, ``Notice: See
below for important information,'' or a substantially similar statement.
34(d)(3)(iv)(B) Disclosures on the front of the validation notice.
1. In general. Section 1006.34(d)(3)(iv)(B) provides, in relevant
part that, if a debt collector is collecting time-barred debt, the debt
collector may include on the front of the validation notice any time-
barred debt disclosure that is specifically required by, or that
provides a safe harbor under, applicable law, provided that applicable
law specifies the content of the disclosure. For example, if applicable
State law requires a debt collector who is collecting time-barred debt
to disclose to the consumer that the law limits how long a consumer can
be sued on a debt and that the debt collector cannot or will not sue the
consumer to collect it, the debt collector may include that disclosure
on the front of the validation notice. See Sec. 1006.26(a)(2) for the
definition of time-barred debt. For purposes of Sec.
1006.34(d)(3)(iv)(B), time-barred debt disclosures may include
disclosures about revival of debt collectors' right to bring a legal
action to enforce the debt.
[[Page 411]]
34(d)(3)(vi) Spanish-language translation disclosures.
Paragraph 34(d)(3)(vi)(A).
1. Supplemental information in Spanish. Section 1006.34(d)(3)(vi)(A)
permits a debt collector to include supplemental information in Spanish
that specifies how a consumer may request a Spanish-language validation
notice. For example, a debt collector may include a statement in Spanish
that a consumer can request a Spanish-language validation notice by
telephone or email, if the debt collector accepts consumer requests
through those communication media.
Paragraph 34(d)(3)(vii).
1. Merchant brand. Section 1006.34(d)(3)(vii) permits a debt
collector to include the merchant brand, if any, associated with debt.
For example, assume that a debt collector is attempting to collect a
consumer's credit card debt. The credit card was issued by ABC Bank and
was co-branded XYZ Store. ``XYZ Store'' is the merchant brand.
2. Affinity brand. Section 1006.34(d)(3)(vii) permits a debt
collector to include the affinity brand, if any, associated with the
debt. For example, assume that a debt collector is attempting to collect
a consumer's credit card debt. The credit card was issued by ABC Bank,
and the logo for the College of Columbia appears on the credit card.
``College of Columbia'' is the affinity brand.
3. Facility name. Section 1006.34(d)(3)(vii) permits a debt
collector to include the facility name, if any, associated with the
debt. For example, assume that a debt collector is attempting to collect
a consumer's medical debt. The medical debt relates to a treatment that
the consumer received at ABC Hospital. ``ABC Hospital'' is the facility
name.
34(e) Translation into other languages.
1. Safe harbor for complete and accurate translation. Section
1006.34(e) provides, among other things, that, if a debt collector sends
a consumer a validation notice translated into a language other than
English, the translation must be complete and accurate. The language of
a validation notice that a debt collector obtains from the Bureau's
website is considered a complete and accurate translation. Debt
collectors are permitted to use other validation notice translations if
they are complete and accurate.
Section 1006.38--Disputes and Requests for Original-Creditor Information
1. In writing. Section 1006.38 contains requirements related to a
dispute or request for the name and address of the original creditor
timely submitted in writing by the consumer. A consumer has disputed the
debt or requested the name and address of the original creditor in
writing for purposes of Sec. 1006.38(c) or (d)(2) if the consumer, for
example:
i. Mails the written dispute or request to the debt collector;
ii. Returns to the debt collector the consumer-response form that
Sec. 1006.34(c)(4) requires to appear on the validation notice and
indicates on the form the dispute or request;
iii. Provides the dispute or request to the debt collector using a
medium of electronic communication through which the debt collector
accepts electronic communications from consumers, such as an email
address or a website portal; or
iv. Delivers the written dispute or request in person or by courier
to the debt collector.
2. Interpretation of the E-SIGN Act. Comment 38-1.iii constitutes
the Bureau's interpretation of section 101 of the E-SIGN Act as applied
to section 809(b) of the FDCPA. Under this interpretation, section
101(a) of the E-SIGN Act enables a consumer to satisfy through an
electronic request the requirement in section 809(b) of the FDCPA that
the consumer's notification of the debt collector be ``in writing.''
Further, because the consumer may only use a medium of electronic
communication through which a debt collector accepts electronic
communications from consumers, section 101(b) of the E-SIGN Act is not
contravened.
3. Deceased consumers. If the debt collector knows or should know
that the consumer is deceased, and if the consumer has not previously
disputed the debt or requested the name and address of the original
creditor, a person who is authorized to act on behalf of the deceased
consumer's estate operates as the consumer for purposes of Sec.
1006.38. In such circumstances, to comply with Sec. 1006.38(c) or
(d)(2), respectively, a debt collector must respond to a request for the
name and address of the original creditor or to a dispute timely
submitted in writing by a person who is authorized to act on behalf of
the deceased consumer's estate.
38(a) Definitions
38(a)(1) Duplicative Dispute
1. Substantially the same. Section 1006.38(a)(1) provides that a
dispute is a duplicative dispute if, among other things, the dispute is
substantially the same as a dispute previously submitted by the consumer
in writing within the validation period for which the debt collector has
already satisfied the requirements of Sec. 1006.38(d)(2)(i). A later
dispute can be substantially the same as an earlier dispute even if the
later dispute does not repeat verbatim the language of the earlier
dispute.
2. New and material information. Section 1006.38(a)(1) provides that
a dispute that is
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substantially the same as a dispute previously submitted by the consumer
in writing within the validation period for which the debt collector has
already satisfied the requirements of Sec. 1006.38(d)(2)(i) is not a
duplicative dispute if the consumer provides new and material
information to support the dispute. Information is new if the consumer
did not provide the information when submitting an earlier dispute.
Information is material if it is reasonably likely to change the
verification the debt collector provided or would have provided in
response to the earlier dispute. The following example illustrates the
rule:
i. ABC debt collector is collecting a debt from a consumer and sends
the consumer a validation notice. In response, the consumer submits a
written dispute to ABC debt collector within the validation period
asserting that the consumer does not owe the debt. The consumer does not
include any information in support of the dispute. Pursuant to Sec.
1006.38(d)(2)(i), ABC debt collector provides the consumer a copy of
verification of the debt. The consumer then sends a cancelled check
showing the consumer paid the debt. The cancelled check is new and
material information.
38(d) Disputes
38(d)(2) Response to Disputes
Paragraph 38(d)(2)(ii)
1. Duplicative dispute notice. Section 1006.38(d)(2)(ii) provides
that, in the case of a dispute that a debt collector reasonably
determines is a duplicative dispute, the debt collector must cease
collection of the debt, or any disputed portion of the debt, until the
debt collector either notifies the consumer that the dispute is
duplicative (Sec. 1006.38(d)(2)(ii)(A)) or provides a copy either of
verification of the debt or of a judgment to the consumer (Sec.
1006.38(d)(2)(ii)(B)). If the debt collector notifies the consumer that
the dispute is duplicative, Sec. 1006.38(d)(2)(ii)(A) requires that the
notice provide a brief statement of the reasons for the debt collector's
determination that the dispute is duplicative and refer the consumer to
the debt collector's response to the earlier dispute. A debt collector
complies with the requirement to provide a brief statement of the
reasons for its determination if the notice states that the dispute is
substantially the same as an earlier dispute submitted by the consumer
and the consumer has not included any new and material information in
support of the earlier dispute. A debt collector complies with the
requirement to refer the consumer to the debt collector's response to
the earlier dispute if the notice states that the debt collector
responded to the earlier dispute and provides the date of that response.
Section 1006.42--Sending Required Disclosures
42(a) Sending Required Disclosures
42(a)(1) In General
1. Relevant factors. Section 1006.42(a)(1) provides, in part, that a
debt collector who sends disclosures required by the Act or this part in
writing or electronically must, among other things, do so in a manner
that is reasonably expected to provide actual notice. In determining
whether a debt collector has complied with this requirement, relevant
factors include whether the debt collector:
i. Identified the purpose of the communication by including, in the
subject line of an electronic communication transmitting the disclosure,
the name of the creditor to whom the debt currently is owed or allegedly
is owed and one additional piece of information identifying the debt,
other than the amount, such as a truncated account number; the name of
the original creditor; the name of any store brand associated with the
debt; the date of sale of a product or service giving rise to the debt;
the physical address of service; and the billing or mailing address on
the account;
ii. Permitted receipt of notifications of undeliverability from
communications providers, monitored for any such notifications, and
treated any such notifications as precluding a reasonable expectation of
actual notice for that delivery attempt; and
iii. Identified itself as the sender of the communication by
including a business name that the consumer would be likely to
recognize, such as the name included in the notice described in Sec.
1006.6(d)(4)(ii)(C), or the name that the debt collector has used in a
prior limited-content message left for the consumer or in an email
message sent to the consumer.
2. Notice of undeliverability. A debt collector who sends a required
disclosure in writing or electronically and who receives a notice that
the disclosure was not delivered has not sent the disclosure in a manner
that is reasonably expected to provide actual notice under Sec.
1006.42(a)(1).
3. Safe harbor for notices sent by mail. Subject to comment
42(a)(1)-2, a debt collector satisfies Sec. 1006.42(a)(1) if the debt
collector mails a printed copy of a disclosure to the consumer's last
known address, unless the debt collector, at the time of mailing, knows
or should know that the consumer does not currently reside at, or
receive mail at, that location.
4. Effect of consumer opt out. If a consumer has opted out of debt
collection communications to a particular email address or telephone
number by, for example, following the instructions provided pursuant to
Sec. 1006.6(e), then a debt collector cannot use that email
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address or telephone number to send required disclosures.
Subpart C--[Reserved]
Subpart D--Miscellaneous
Section 1006.100--Record Retention
1. Three-year retention period. Section 1006.100 requires a debt
collector to maintain records that are evidence of compliance or
noncompliance with the FDCPA and this part starting on the date that the
debt collector begins collection activity on a debt until three years
after the debt collector's last collection activity on the debt or, in
the case of telephone call recordings, until three years after the dates
of the telephone calls. Nothing in Sec. 1006.100 prohibits a debt
collector from retaining records that are evidence of compliance or
noncompliance with the FDCPA and this part for more than three years
after the applicable date.
100(a) In general.
1. Records that evidence compliance. Section 1006.100(a) provides,
in part, that a debt collector must retain records that are evidence of
compliance or noncompliance with the FDCPA and this part. Thus, under
Sec. 1006.100(a), a debt collector must retain records that evidence
that the debt collector performed the actions and made the disclosures
required by the FDCPA and this part, as well as records that evidence
that the debt collector refrained from conduct prohibited by the FDCPA
and this part. If a record is of a type that could evidence compliance
or noncompliance depending on the conduct of the debt collector that is
revealed within the record, then the record is one that is evidence of
compliance or noncompliance, and the debt collector must retain it. Such
records include, but are not limited to, records that evidence that the
debt collector's communications and attempts to communicate in
connection with the collection of a debt complied (or did not comply)
with the FDCPA and this part. For example, a debt collector must retain:
i. Telephone call logs as evidence of compliance or noncompliance
with the prohibition against harassing telephone calls in Sec.
1006.14(b)(1); and
ii. Copies of documents provided to consumers as evidence that the
debt collector provided the information required by Sec. Sec. 1006.34
and 1006.38 and met the delivery requirements of Sec. 1006.42.
100(b) Special Rule for Telephone Call Recordings
1. Recorded telephone calls. Nothing in Sec. 1006.100 requires a
debt collector to record telephone calls. However, if a debt collector
records telephone calls, the recordings are evidence of compliance or
noncompliance with the FDCPA and this part, and, under Sec.
1006.100(b), the debt collector must retain the recording of each such
telephone call for three years after the date of the call.
Section 1006.104--Relation to State Laws
1. State law disclosure requirements. The Act and the corresponding
provisions of Regulation F do not annul, alter, or affect, or exempt any
person subject to these requirements from complying with a disclosure
requirement under applicable State law that describes additional
protections under State law that are not inconsistent with the Act and
Regulation F. A disclosure required by State law is not inconsistent
with the FDCPA or Regulation F if the disclosure describes a protection
that such law affords any consumer that is greater than the protection
provided by the FDCPA or Regulation F.
[85 FR 76887, Nov. 30, 2020, as amended at 86 FR 5857, Jan. 19, 2021; 87
FR 65669, Nov. 1, 2022; 88 FR 16538, Mar. 20, 2023]
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.
[[Page 414]]
(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 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
[[Page 415]]
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 in Sec. 1007.101(c)(1). Covered financial institution also
includes a non-federally insured credit union that registers subject to
the conditions of Sec. 1007.101(c)(3).
Mortgage loan originator means
(1) An individual who:
(i) Takes a residential mortgage loan application; and
(ii) Offers or negotiates terms of a residential mortgage loan for
compensation or gain.
(2)(i) The term mortgage loan originator does not include:
(A) An individual who performs purely administrative or clerical
tasks on behalf of an individual who is described as a mortgage loan
originator in this section;
(B) An individual who only performs real estate brokerage activities
(as defined in 12 U.S.C. 5102(4)(D)) and is licensed or registered as a
real estate broker in accordance with applicable state law, unless the
individual is compensated by a lender, a mortgage broker, or other
mortgage loan originator or by any agent of such lender, mortgage
broker, or other mortgage loan originator, and meets the definition of
mortgage loan originator in this section; or
(C) An individual or entity solely involved in extensions of credit
related to timeshare plans, as that term is defined in 11 U.S.C.
101(53D).
(ii) Examples of activities that would, and would not, result in an
employee meeting the definition of mortgage loan originator are provided
in appendix A to this part.
Nationwide Mortgage Licensing System and Registry or Registry means
the system developed and maintained by the Conference of State Bank
Supervisors and the American Association of Residential Mortgage
Regulators for the state licensing and registration of state-licensed
mortgage loan originators and the registration of mortgage loan
originators pursuant to 12 U.S.C. 5107.
Registered mortgage loan originator or registrant means any
individual who:
(1) Meets the definition of mortgage loan originator and is an
employee of a covered financial institution; and
(2) Is registered pursuant to this part with, and maintains a unique
identifier through, the Registry.
Residential mortgage loan means any loan primarily for personal,
family, or household use that is secured by a mortgage, deed of trust,
or other equivalent consensual security interest on a dwelling (as
defined in section 103(v) of the Truth in Lending Act, 15 U.S.C.
1602(v)) or residential real estate upon which is constructed or
intended to be constructed a dwelling, and includes refinancings,
reverse mortgages, home equity lines of credit and other first and
additional lien loans that meet the
[[Page 416]]
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;
(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
[[Page 417]]
(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;
(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
[[Page 418]]
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 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
[[Page 419]]
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 in Sec. 1007.105;
(d) Establish reasonable procedures for confirming the adequacy and
accuracy of employee registrations, including updates and renewals, by
comparisons with its own records;
(e) Establish reasonable procedures and tracking systems for
monitoring compliance with registration and renewal requirements and
procedures;
(f) Provide for independent testing for compliance with this part to
be conducted at least annually by covered financial institution
personnel or by an outside party;
(g) Provide for appropriate action in the case of any employee who
fails to comply with the registration requirements of the S.A.F.E. Act,
this part, or the covered financial institution's related policies and
procedures, including prohibiting such employees from acting as mortgage
loan originators or other appropriate disciplinary actions;
(h) Establish a process for reviewing employee criminal history
background reports received pursuant to this part, taking appropriate
action consistent with applicable Federal law, including section 19 of
the Federal Deposit Insurance Act (12 U.S.C. 1829), section 206 of the
Federal Credit Union Act (12 U.S.C. 1786(i)), and section 5.65(d) of the
Farm Credit Act of 1971, as amended (12 U.S.C. 2277a-14(d)), and
implementing regulations with respect to these reports, and maintaining
records of these reports and actions taken with respect to applicable
employees; and
(i) Establish procedures designed to ensure that any third party
with which the covered financial institution has arrangements related to
mortgage loan origination has policies and procedures to comply with the
S.A.F.E. Act, including appropriate licensing and/or registration of
individuals acting as mortgage loan originators.
Sec. 1007.105 Use of unique identifier.
(a) The covered financial institution shall make the unique
identifier(s) of
[[Page 420]]
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:
(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
[[Page 421]]
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.
Subpart D_Minimum Requirements for Administration of the NMLSR
1008.301 Scope of this subpart.
1008.303 Financial reporting.
1008.305 Data security.
1008.307 Fees.
1008.309 Absence of liability for good-faith administration.
Subpart E_Enforcement of Bureau Licensing System
1008.401 Bureau's authority to examine loan originator records.
1008.403-1008.405 [Reserved]
Appendix A to Part 1008--Examples of Mortgage Loan Originator Activities
Appendix B to Part 1008--Engaging in the Business of a Loan Originator:
Commercial Context and Habitualness
Appendix C to Part 1008--Independent Contractors and Loan Processor and
Underwriter Activities That Require a State Mortgage Loan
Originator License
Appendix D to Part 1008--Attorneys: Circumstances that Require a State
Mortgage Loan Originator License
Authority: 12 U.S.C. 5101-5116; Pub. L. 111-203, 124 Stat. 1376.
Source: 76 FR 78487, Dec. 19, 2011, unless otherwise noted.
Sec. 1008.1 Purpose.
(a) Authority. This part, known as Regulation H, is issued by the
Bureau of Consumer Financial Protection to implement the Secure and Fair
Enforcement for Mortgage Licensing Act
[[Page 422]]
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 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
[[Page 423]]
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
right of control of, or are controlled by, a person, and
(2) Whose compensation for Federal income tax purposes is reported,
or required to be reported, on a W-2 form issued by the controlling
person.
Farm Credit Administration means the independent Federal agency,
authorized by the Farm Credit Act of 1971, that examines and regulates
the Farm Credit System.
For compensation or gain. See Sec. 1008.103(c)(2)(ii).
Independent contractor means an individual who performs his or her
duties other than at the direction of and subject to the supervision and
instruction of an individual who is licensed and registered in
accordance with Sec. 1008.103(a), or is not required to be licensed, in
accordance with Sec. 1008.103(e)(5), (6), or (7).
Loan originator. See Sec. 1008.103.
Loan processor or underwriter, for purposes of this part, means an
individual who, with respect to the origination of a residential
mortgage loan, performs clerical or support duties at the direction of
and subject to the supervision and instruction of:
(1) A state-licensed loan originator; or
(2) A registered loan originator.
Nationwide Mortgage Licensing System and Registry or NMLSR means the
mortgage licensing system developed and maintained by the Conference of
State Bank Supervisors and the American Association of Residential
Mortgage
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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.
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:
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(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:
(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
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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 the criteria under paragraph (e)(7)(ii) of this
section;
(iv) For residential mortgage loans to have terms that are favorable
to the borrower, a state must determine that the terms are consistent
with loan origination in a public or charitable context, rather than a
commercial context.
(f) A state must require an individual licensed in accordance with
paragraphs (a) or (d) of this section to renew the loan originator
license no less often than annually.
Sec. 1008.105 Minimum loan originator license requirements.
For an individual to be eligible for a loan originator license
required under Sec. 1008.103(a) and (d), a state must require and find,
at a minimum, that an individual:
(a) Has never had a loan originator license revoked in any
governmental jurisdiction, except that a formally vacated revocation
shall not be deemed a revocation;
(b)(1) Has never been convicted of, or pled guilty or nolo
contendere to, a felony in a domestic, foreign, or military court:
(i) During the 7-year period preceding the date of the application
for licensing; or
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(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 under Sec. 1008.103(f), a state must require the
individual:
(1) To continue to meet the minimum standards for license issuance
provided in Sec. 1008.105; and
(2) To satisfy annual continuing education requirements, which must
include at least 8 hours of education approved by the NMLSR. The 8 hours
of annual continuing education must include at least:
(i) 3 hours of Federal law and regulations;
(ii) 2 hours of ethics (including instruction on fraud, consumer
protection, and fair lending issues); and
(iii) 2 hours of training related to lending standards for the
nontraditional mortgage product marketplace.
(b) A state must provide that a state-licensed loan originator may
only receive credit for a continuing education course in the year in
which the course is taken, and that a state-licensed loan originator may
not apply credits for education courses taken in one year to meet the
continuing education requirements of subsequent years. A state must
provide that an individual may not meet the annual requirements for
continuing education by taking an approved course more than one time in
the same year or in successive years.
(c) An individual who is an instructor of an approved continuing
education
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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 in Sec. 1008.113.
(b) Authorities. A supervisory authority must have the legal
authority and mechanisms:
(1) To examine any books, papers, records, or other data of any loan
originator operating in the state;
(2) To summon any loan originator operating in the state, or any
person having possession, custody, or care of the reports and records
relating to such a loan originator, to appear before the supervisory
authority at a time and place named in the summons and to produce such
books, papers, records, or other data, and to give testimony, under
oath, as may be relevant or material to an investigation of such loan
originator for compliance with the requirements of the S.A.F.E. Act;
(3) To administer oaths and affirmations and examine and take and
preserve testimony under oath as to any matter in respect to the affairs
of any such loan originator;
(4) To enter an order requiring any individual or person that is,
was, or would be a cause of a violation of the S.A.F.E. Act as
implemented by the state, due to an act or omission the person knew or
should have known would contribute to such violation, to cease and
desist from committing or causing such violation and any future
violation of the same requirement;
(5) To suspend, terminate, and refuse renewal of a loan originator
license for violation of state or Federal law; and
(6) To impose civil money penalties for individuals acting as loan
originators, or representing themselves to the public as loan
originators, in the state without a valid license or registration.
(c) A supervisory authority must have established processes in place
to verify that individuals subject to the requirement described in Sec.
1008.103(a)(1) and (d)(1) are registered with the NMLSR.
(d) The supervisory authority must be required under state law to
regularly report violations of such law, as well as enforcement actions
and other relevant information, to the NMLSR.
(e) The supervisory authority must have a process in place for
challenging information contained in the NMLSR.
(f) The supervisory authority must require a loan originator to
ensure that all residential mortgage loans that close as a result of the
loan originator engaging in activities described in Sec. 1008.103(b)(1)
are included in reports of
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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.
(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
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date of the Bureau's subsequent final determination with respect to the
state following the expiration of the period of time granted pursuant to
paragraph (d) of this section.
Subpart C_The Bureau's Loan Originator Licensing System and Nationwide
Mortgage Licensing and Registry System
Sec. 1008.201 Scope of this subpart.
The S.A.F.E. Act provides the Bureau with ``backup authority'' to
establish a loan originator licensing system for any state that is
determined by the Bureau not to be in compliance with the minimum
standards of the S.A.F.E. Act. The provisions of this subpart become
applicable to individuals in a state as provided in Sec. 1008.115(e).
The S.A.F.E. Act also authorizes the Bureau to establish and maintain a
nationwide mortgage licensing system and registry if the Bureau
determines that the NMLSR is failing to meet the purposes and
requirements of the S.A.F.E. Act for a comprehensive licensing,
supervisory, and tracking system for loan originators.
Sec. 1008.203 The Bureau's establishment of loan originator licensing
system.
If the Bureau determines, in accordance with Sec. 1008.115(e), that
a state has not established a licensing and registration system in
compliance with the minimum standards of the S.A.F.E. Act, the Bureau
shall apply to individuals in that state the minimum standards of the
S.A.F.E. Act, as specified in subpart B, which provides the minimum
requirements that a state must meet to be in compliance with the
S.A.F.E. Act, and as may be further specified in this part.
Sec. 1008.205 The Bureau's establishment of nationwide mortgage licensing
system and registry.
If the Bureau determines that the NMLSR established by CSBS and
AARMR does not meet the minimum requirements of subpart D of this part,
the Bureau will establish and maintain a nationwide mortgage licensing
system and registry.
Subpart D_Minimum Requirements for Administration of the NMLSR
Sec. 1008.301 Scope of this subpart.
This subpart establishes minimum requirements that apply to
administration of the NMLSR by the Conference of State Bank Supervisors
or by the Bureau. The NMLSR must accomplish the following objectives:
(a) Provide uniform license applications and reporting requirements
for state-licensed loan originators.
(b) Provide a comprehensive licensing and supervisory database.
(c) Aggregate and improve the flow of information to and between
regulators.
(d) Provide increased accountability and tracking of loan
originators.
(e) Streamline the licensing process and reduce the regulatory
burden.
(f) Enhance consumer protections and support anti-fraud measures.
(g) Provide consumers with easily accessible information, offered at
no charge, utilizing electronic media, including the Internet, regarding
the employment history of, and publicly adjudicated disciplinary and
enforcement actions against, loan originators.
(h) Establish a means by which residential mortgage loan originators
would, to the greatest extent possible, be required to act in the best
interests of the consumer.
(i) Facilitate responsible behavior in the mortgage marketplace and
provide comprehensive training and examination requirements related to
mortgage lending.
(j) Facilitate the collection and disbursement of consumer
complaints on behalf of state and Federal mortgage regulators.
Sec. 1008.303 Financial reporting.
To the extent that CSBS maintains the NMLSR, CSBS must annually
provide to the Bureau, and the Bureau will annually collect and make
available to the public, NMLSR financial statements, audited in
accordance with Generally Accepted Accounting Principles (GAAP)
promulgated by the Federal Accounting Standards Advisory Board, and
other data. These financial statements and other data shall include, but
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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.
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
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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. Sec. 1008.403-1008.405 [Reserved]
Sec. Appendix A to Part 1008--Examples of Mortgage Loan Originator
Activities
This appendix provides examples to aid in the understanding of
activities that would cause an individual to fall within or outside the
definition of a mortgage loan originator under part 1008. The examples
in this appendix are not all-inclusive. They illustrate only the issue
described and do not illustrate any other issues that may arise. For
purposes of the examples below, the term ``loan'' refers to a
residential mortgage loan as defined in Sec. 1008.23 of this part.
(a) Taking a Loan Application. Taking a residential mortgage loan
application within the meaning of Sec. 1008.103(c)(1) means receipt by
an individual, for the purpose of facilitating a decision whether to
extend an offer of loan terms to a borrower or prospective borrower, of
an application as defined in Sec. 1008.23 (a request in any form for an
offer, or a response to a solicitation of an offer, of residential
mortgage loan terms, and the information about the borrower or
prospective borrower that is customary or necessary in a decision
whether to make such an offer).
(1) The following are examples to illustrate when an individual
takes, or does not take, a loan application:
(i) An individual ``takes a residential mortgage loan application''
even if the individual:
(A) Has received the borrower or prospective borrower's request or
information indirectly. Section 1008.103(c)(1) provides that an
individual takes an application, whether he or she receives it
``directly or indirectly'' from the borrower or prospective borrower.
This means that an individual who offers or negotiates residential
mortgage loan terms for compensation or gain cannot avoid licensing
requirements simply by having another person physically receive the
application from the prospective borrower and then pass the application
to the individual;
(B) Is not responsible for verifying information. The fact that an
individual who takes application information from a borrower or
prospective borrower is not responsible for verifying that information--
for example, the individual is a mortgage broker who collects and sends
that information to a lender--does not mean that the individual is not
taking an application;
(C) Only inputs the information into an online application or other
automated system; or
(D) Is not involved in approval of the loan, including determining
whether the consumer qualifies for the loan. Similar to an individual
who is not responsible for verification, an individual can still ``take
a residential mortgage loan application'' even if he or she is not
ultimately responsible for approving the loan. A mortgage broker, for
example, can take a residential mortgage loan application even though it
is passed on to a lender for a decision on whether the borrower
qualifies for the loan and for the ultimate loan approval.
(ii) An individual does not take a loan application merely because
the individual performs any of the following actions:
(A) Receives a loan application through the mail and forwards it,
without review, to loan approval personnel. The Bureau interprets the
term ``takes a residential mortgage loan application'' to exclude an
individual
[[Page 433]]
whose only role with respect to the application is physically handling a
completed application form or transmitting a completed form to a lender
on behalf of a borrower or prospective borrower. This interpretation is
consistent with the definition of ``loan originator'' in section 1503(3)
of the S.A.F.E. Act.
(B) Assists a borrower or prospective borrower who is filling out an
application by explaining the contents of the application and where
particular borrower information is to be provided on the application;
(C) Generally describes for a borrower or prospective borrower the
loan application process without a discussion of particular loan
products; or
(D) In response to an inquiry regarding a prequalified offer that a
borrower or prospective borrower has received from a lender, collects
only basic identifying information about the borrower or prospective
borrower on behalf of that lender.
(b) Offering or Negotiating Terms of a Loan. The following examples
are designed to illustrate when an individual offers or negotiates terms
of a loan within the meaning of Sec. 1008.103(c)(2) and, conversely,
what does not constitute offering or negotiating terms of a loan:
(1) Offering or negotiating the terms of a loan includes:
(i) Presenting for consideration by a borrower or prospective
borrower particular loan terms, whether verbally, in writing, or
otherwise, even if:
(A) Further verification of information is necessary;
(B) The offer is conditional;
(C) Other individuals must complete the loan process;
(D) The individual lacks authority to negotiate the interest rate or
other loan terms; or
(E) The individual lacks authority to bind the person that is the
source of the prospective financing.
(ii) Communicating directly or indirectly with a borrower or
prospective borrower for the purpose of reaching a mutual understanding
about prospective residential mortgage loan terms, including responding
to a borrower or prospective borrower's request for a different rate or
different fees on a pending loan application by presenting to the
borrower or prospective borrower a revised loan offer, even if a mutual
understanding is not subsequently achieved.
(2) Offering or negotiating terms of a loan does not include any of
the following activities:
(i) Providing general explanations or descriptions in response to
consumer queries, such as explaining loan terminology (e.g., debt-to-
income ratio) or lending policies (e.g., the loan-to-value ratio policy
of the lender), or describing product-related services;
(ii) Arranging the loan closing or other aspects of the loan
process, including by communicating with a borrower or prospective
borrower about those arrangements, provided that any communication that
includes a discussion about loan terms only verifies terms already
agreed to by the borrower or prospective borrower;
(iii) Providing a borrower or prospective borrower with information
unrelated to loan terms, such as the best days of the month for
scheduling loan closings at the bank;
(iv) Making an underwriting decision about whether the borrower or
prospective borrower qualifies for a loan;
(v) Explaining or describing the steps that a borrower or
prospective borrower would need to take in order to obtain a loan offer,
including providing general guidance about qualifications or criteria
that would need to be met that is not specific to that borrower or
prospective borrower's circumstances;
(vi) Communicating on behalf of a mortgage loan originator that a
written offer has been sent to a borrower or prospective borrower
without providing any details of that offer; or
(vii) Offering or negotiating loan terms solely through a third-
party licensed loan originator, so long as the nonlicensed individual
does not represent to the public that he or she can or will perform
covered activities and does not communicate with the borrower or
potential borrower. For example:
(A) A seller who provides financing to a purchaser of a dwelling
owned by that seller in which the offer and negotiation of loan terms
with the borrower or prospective borrower is conducted exclusively by a
third-party licensed loan originator;
(B) An individual who works solely for a lender, when the individual
offers loan terms exclusively to third-party licensed loan originators
and not to borrowers or potential borrowers.
(c) For Compensation or Gain. (1) An individual acts ``for
compensation or gain'' within the meaning of Sec. 1008.103(c)(2)(ii) if
the individual receives or expects to receive in connection with the
individual's activities anything of value, including, but not limited
to, payment of a salary, bonus, or commission. The concept ``anything of
value'' is interpreted broadly and is not limited only to payments that
are contingent upon the closing of a loan.
(2) An individual does not act ``for compensation or gain'' if the
individual acts as a volunteer without receiving or expecting to receive
anything of value in connection with the individual's activities.
[[Page 434]]
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 in Sec. 1008.23 of this part.
(a) Not Engaged in the Business of a Mortgage Loan Originator. The
following examples illustrate when an individual generally does not
``engage in the business of a loan originator'':
(1) An individual who acts as a loan originator in providing
financing for the sale of that individual's own residence, provided that
the individual does not act as a loan originator or provide financing
for such sales so frequently and under such circumstances that it
constitutes a habitual and commercial activity.
(2) An individual who acts as a loan originator in providing
financing for the sale of a property owned by that individual, provided
that such individual does not engage in such activity with habitualness.
(3) A parent who acts as a loan originator in providing loan
financing to his or her child.
(4) An employee of a government entity who acts as a loan originator
only pursuant to his or her official duties as an employee of that
government entity, if all applicable conditions in Sec. 1008.103(e)(6)
of this part are met.
(5) If all applicable conditions in Sec. 1008.103(e)(7) of this
part are met, an employee of a nonprofit organization that has been
determined to be a bona fide nonprofit organization by the state
supervisory authority, when the employee acts as a loan originator
pursuant to his or her duties as an employee of that organization.
(6) An individual who does not act as a loan originator habitually
or repeatedly, provided that the source of prospective financing does
not provide mortgage financing or perform other loan origination
activities habitually or repeatedly.
Sec. Appendix C to Part 1008--Independent Contractors and Loan Processor
and Underwriter Activities That Require a State Mortgage Loan Originator
License
The examples below are designed to aid in the understanding of loan
processing or underwriting activities for which an individual is
required to obtain a S.A.F.E. Act-compliant mortgage loan originator
license. The examples in this appendix are not all-inclusive. They
illustrate only the issue described and do not illustrate any other
issues that may arise under part 1008. For purposes of the examples
below, the term ``loan'' refers to a residential mortgage loan as
defined in Sec. 1008.23 of this part.
(a) An individual who is a loan processor or underwriter who must
obtain and maintain a state loan originator license includes:
(1) Any individual who engages in the business of a loan originator,
as defined in Sec. 1008.103 of this part;
(2) Any individual who performs clerical or support duties and who
is an independent contractor, as those terms are defined in Sec.
1008.23;
(3) Any individual who collects, receives, distributes, or analyzes
information in connection with the making of a credit decision and who
is an independent contractor, as that term is defined in Sec. 1008.23;
and
(4) Any individual who communicates with a consumer to obtain
information necessary for making a credit decision and who is an
independent contractor, as that term is defined in Sec. 1008.23.
(b) A state is not required to impose S.A.F.E. Act licensing
requirements on any individual loan processor or underwriter who, for
example:
(1) Performs only clerical or support duties (i.e., the loan
processor's or underwriter's activities do not include, e.g., offering
or negotiating loan rates or terms, or counseling borrowers or
prospective borrowers about loan rates or terms), and who performs those
clerical or support duties at the direction of and subject to the
supervision and instruction of an individual who either: Is licensed and
registered in accordance with
[[Page 435]]
Sec. 1008.103(a) (state licensing of loan originators); or is not
required to be licensed because he or she is excluded from the licensing
requirement pursuant to Sec. 1008.103(e)(2) (time-share exclusion),
(e)(5)(federally registered loan originator), (e)(6) (government
employees exclusion), or (e)(7) (nonprofit exclusion).
(2) Performs only clerical or support duties as an employee of a
mortgage lender or mortgage brokerage firm, and who performs those
duties at the direction of and subject to the supervision and
instruction of an individual who is employed by the same employer and
who is licensed in accordance with Sec. 1008.103(a) (state licensing of
loan originators).
(3) Is an employee of a loan processing or underwriting company that
provides loan processing or underwriting services to one or more
mortgage lenders or mortgage brokerage firms under a contract between
the loan processing or underwriting company and the mortgage lenders or
mortgage brokerage firms, provided the employee performs only clerical
or support duties and performs those duties only at the direction of and
subject to the supervision and instruction of a licensed loan originator
employee of the same loan processing and underwriting company.
(4) Is an individual who does not otherwise perform the activities
of a loan originator and is not involved in the receipt, collection,
distribution, or analysis of information common for the processing or
underwriting of a residential mortgage loan, nor is in communication
with the consumer to obtain such information.
(c) In order to conclude that an individual who performs clerical or
support duties is doing so at the direction of and subject to the
supervision and instruction of a loan originator who is licensed or
registered in accordance with Sec. 1008.103 (or, as applicable, an
individual who is excluded from the licensing and registration
requirements under Sec. 1008.103(e)(2), (e)(6), or (e)(7)), there must
be an actual nexus between the licensed or registered loan originator's
(or excluded individual's) direction, supervision, and instruction and
the loan processor or underwriter's activities. This actual nexus must
be more than a nominal relationship on an organizational chart. For
example, there is an actual nexus when:
(1) The supervisory licensed or registered loan originator assigns,
authorizes, and monitors the loan processor or underwriter employee's
performance of clerical and support duties.
(2) The supervisory licensed or registered loan originator exercises
traditional supervisory responsibilities, including, but not limited to,
the training, mentoring, and evaluation of the loan processor or
underwriter employee.
Sec. Appendix D to Part 1008--Attorneys: Circumstances That Require a
State Mortgage Loan Originator License
This appendix D clarifies the circumstances in which the S.A.F.E.
Act requires a licensed attorney who engages in loan origination
activities to obtain a state loan originator license and registration.
This special category recognizes limited, heavily regulated activities
that meet strict criteria that are different from the criteria for
specific exemptions from the S.A.F.E. Act requirements and the
exclusions set forth in the regulations and illustrated in other
appendices of part 1008.
(a) S.A.F.E. Act-compliant licensing required. An individual who is
a licensed attorney is required to be licensed if the individual is
engaged in the business of a loan originator as defined in Sec.
1008.103 and such loan origination activities are not all of the
following:
(1) Considered by the state's court of last resort (or other state
governing body responsible for regulating the practice of law) to be
part of the authorized practice of law within the state;
(2) Carried out within an attorney-client relationship; and
(3) Accomplished by the attorney in compliance with all applicable
laws, rules, ethics, and standards.
(b) S.A.F.E. Act-compliant licensing not required. A licensed
attorney performing activities that come within the definition of a loan
originator is not required to be licensed, provided that such activities
are:
(1) Considered by the state's court of last resort (or other state
governing body responsible for regulating the practice of law) to be
part of the authorized practice of law within the state;
(2) Carried out within an attorney-client relationship; and
(3) Accomplished by the attorney in compliance with all applicable
laws, rules, ethics, and standards.
PART 1009_DISCLOSURE REQUIREMENTS FOR DEPOSITORY INSTITUTIONS LACKING
FEDERAL DEPOSIT INSURANCE (REGULATION I)--Table of Contents
Sec.
1009.1 Scope.
1009.2 Definitions.
1009.3 Disclosures in periodic statements and account records.
1009.4 Disclosures in advertising and on the premises.
1009.5 Disclosure acknowledgment.
[[Page 436]]
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)).
Sec. 1009.3 Disclosures in periodic statements and account records.
Depository institutions lacking Federal deposit insurance must
include a notice disclosing clearly and conspicuously that the
institution is not federally insured, and that if the institution fails,
the Federal Government does not guarantee that depositors will get back
their money, in all periodic statements of account, on each signature
card, and on each passbook, certificate of deposit, or share
certificate. For example, a notice would comply with the requirement if
it conspicuously stated: ``[Institution's name] is not federally
insured. If it fails, the Federal Government does not guarantee that you
will get your money back.'' The disclosures required by this section
must be clear and conspicuous and presented in a simple and easy to
understand format, type size, and manner.
Sec. 1009.4 Disclosures in advertising and on the premises.
(a) Required disclosures. Each depository institution lacking
Federal deposit insurance must include a clear and conspicuous notice
disclosing that the institution is not federally insured:
(1) At each station or window where deposits are normally received,
its principal place of business and all its branches where it accepts
deposits or opens accounts (excluding automated teller machines or point
of sale terminals), and on its main internet page; and
(2) In all advertisements except as provided in paragraph (c) of
this section.
(b) Format and type size. The disclosures required by this section
must be clear and conspicuous and presented in a simple and easy to
understand format, type size, and manner.
(c) Exceptions. The following need not include a notice that the
institution is not federally insured:
(1) Any sign, document, or other item that contains the name of the
depository institution, its logo, or its contact information, but only
if the sign, document, or item does not include any information about
the institution's products or services or information otherwise
promoting the institution; and
(2) Small utilitarian items that do not mention deposit products or
insurance, if inclusion of the notice would be impractical.
Sec. 1009.5 Disclosure acknowledgment.
(a) New depositors obtained other than through a conversion or
merger. With respect to any depositor who was not a depositor at the
depository institution
[[Page 437]]
on or before October 13, 2006, and who is not a depositor as described
in paragraph (b) of this section, a depository institution lacking
Federal deposit insurance may receive a deposit for the account of such
depositor only if the institution has obtained the depositor's signed
written acknowledgement that:
(1) The institution is not federally insured; and
(2) If the institution fails, the Federal Government does not
guarantee that the depositor will get back the depositor's money.
(b) New depositors obtained through a conversion or merger. With
respect to a depositor at a federally insured depository institution
that converts to, or merges into, a depository institution lacking
Federal insurance after October 13, 2006, a depository institution
lacking Federal deposit insurance may receive a deposit for the account
of such depositor only if:
(1) The institution has obtained the depositor's signed written
acknowledgement described in paragraph (a) of this section; or
(2) The institution makes an attempt, sent by mail no later than 45
days after the effective date of the conversion or merger, to obtain the
acknowledgment. In making such an attempt, the institution must transmit
to each depositor who has not signed and returned a written
acknowledgement described in paragraph (a) of this section:
(i) A conspicuous card containing the information described in
paragraphs (a)(1) and (2) of this section, and a line for the signature
of the depositor; and
(ii) Accompanying materials requesting the depositor to sign the
card, and return the signed card to the institution.
(c) Depositors obtained on or before October 13, 2006. (1) Any
depository institution lacking Federal deposit insurance may receive any
deposit after October 13, 2006, for the account of a depositor who was a
depositor on or before that date only if:
(i) The depositor has signed a written acknowledgement described in
paragraph (a) of this section; or
(ii) The institution has transmitted to the depositor:
(A) A conspicuous card containing the information described in
paragraphs (a)(1) and (2) of this section, and a line for the signature
of the depositor; and
(B) Accompanying materials requesting that the depositor sign the
card, and return the signed card to the institution.
(2) An institution described in paragraph (c)(1) of this section
must have made the transmission described in paragraph (c)(1)(ii) of
this section via mail not later than three months after October 13,
2006. The institution must have made a second identical transmission via
mail not less than 30 days, and not more than three months, after the
first transmission to the depositor in accordance with paragraph
(c)(1)(ii) of this section, if the institution has not, by the date of
such mailing, received from the depositor a card referred to in
paragraph (c)(1)(i) of this section which has been signed by the
depositor.
(d) Format and type size. The disclosures required by this section
must be clear and conspicuous and presented in a simple and easy to
understand format, type size, and manner.
Sec. 1009.6 Exception for certain depository institutions.
The requirements of this part do not apply to any depository
institution lacking Federal deposit insurance and located within the
United States that does not receive initial deposits of less than an
amount equal to the standard maximum deposit insurance amount from
individuals who are citizens or residents of the United States, other
than money received in connection with any draft or similar instrument
issued to transmit money.
Sec. 1009.7 Enforcement.
Compliance with the requirements of this part shall be enforced
under the Consumer Financial Protection Act of 2010, Public Law 111-203,
title X, 124 Stat. 1955, by the Bureau of Consumer Financial Protection,
subject to subtitle B of the Consumer Financial Protection Act of 2010,
and under the Federal Trade Commission Act, 15 U.S.C. 41 et seq, by the
Federal Trade Commission.
[[Page 438]]
PART 1010_LAND REGISTRATION (REGULATION J)--Table of Contents
Subpart A_General Requirements
Sec.
1010.1 Definitions.
1010.2 [Reserved]
1010.3 General applicability.
1010.4 Exemptions--general.
1010.5 Statutory exemptions.
1010.6 One hundred lot exemption.
1010.7 Twelve lot exemption.
1010.8 Scattered site subdivisions.
1010.9 Twenty acre lots.
1010.10 Single-family residence exemption.
1010.11 Manufactured home exemption.
1010.12 Intrastate exemption.
1010.13 Metropolitan Statistical Area (MSA) exemption.
1010.14 Regulatory exemptions.
1010.15 Regulatory exemption--multiple site subdivision--determination
required.
1010.16 Regulatory exemption--determination required.
1010.17 Advisory opinion.
1010.18 No action letter.
1010.19 [Reserved]
1010.20 Requirements for registering a subdivision--Statement of
Record--filing and form.
1010.21 Effective dates.
1010.22 Statement of record--initial or consolidated.
1010.23 Amendment--filing and form.
1010.24-1010.28 [Reserved]
1010.29 Use of property report--misstatements, omissions or
representation of Bureau approval prohibited.
1010.35 Payment of fees.
1010.45 Suspensions.
Subpart B_Reporting Requirements
1010.100 Statement of Record--format.
1010.101 [Reserved]
1010.102 General instructions for completing the Statement of Record.
1010.103 Developer obligated improvements.
1010.104 [Reserved]
1010.105 Cover page.
1010.106 Table of contents.
1010.107 Risks of buying land.
1010.108 General information.
1010.109 Title to the property and land use.
1010.110 Roads.
1010.111 Utilities.
1010.112 Financial information.
1010.113 Local services.
1010.114 Recreational facilities.
1010.115 Subdivision characteristics and climate.
1010.116 Additional information.
1010.117 Cost sheet, signature of Senior Executive Officer
1010.118 Receipt, agent certification and cancellation page.
1010.200 Instructions for Statement of Record, Additional Information
and Documentation.
1010.201-1010.207 [Reserved]
1010.208 General information.
1010.209 Title and land use.
1010.210 Roads.
1010.211 Utilities.
1010.212 Financial information.
1010.214 Recreational facilities.
1010.215 Subdivision characteristics and climate.
1010.216 Additional information.
1010.219 Affirmation.
1010.310 Annual report of activity.
Subpart C_Certification of Substantially Equivalent State Law
1010.500 General.
1010.503 Notice of certification.
1010.504 Cooperation among certified states and between certified states
and the Director.
1010.505 Withdrawal of state certification.
1010.506 State/Federal filing requirements.
1010.507 Effect of suspension or withdrawal of certification granted
under 15 U.S.C. 1708(a)(1): Full disclosure requirement.
1010.508 Effect of suspension of certification granted under 15 U.S.C.
1708(a)(2): Sufficient protection requirement.
1010.552 Previously accepted state filings.
1010.556 Previously accepted state filings--amendments and
consolidations.
1010.558 Previously accepted state filings--notice of revocation rights
on property report cover page.
1010.559 Previously accepted state filings--notice of revocation rights
in contracts and agreements.
Appendix A to Part 1010--Standard and Model Forms and Clauses
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1718.
Source: 76 FR 79489, Dec. 21, 2011, unless otherwise noted.
Subpart A_General Requirements
Sec. 1010.1 Definitions.
(a) Statutory terms. All terms are used in accordance with their
statutory meaning in 15 U.S.C. 1701, unless otherwise defined in
paragraph (b) of this section or elsewhere in this part.
(b) Other terms. As used in this part:
Act means the Interstate Land Sales Full Disclosure Act, 15 U.S.C.
1701.
Advisory opinion means the formal written opinion of the Director as
to jurisdiction in a particular case or the applicability of an
exemption under
[[Page 439]]
Sec. Sec. 1010.5 through 1010.15, based on facts submitted to the
Director.
Available for use means that in addition to being constructed, the
subject facility is fully operative and supplied with any materials and
staff necessary for its intended purpose.
Beneficial property restrictions means restrictions that are
enforceable by the lot owners and are designed to control the use of the
lot and to preserve or enhance the environment and the aesthetic and
economic value of the subdivision.
Date of filing means the date a Statement of Record, amendment, or
consolidation, accompanied by the applicable fee, is received by the
Director.
Good faith estimate means an estimate based on documentary evidence.
In the case of cost estimates, the documentation may be obtained from
the suppliers of the services. In the case of estimates of completion
dates, the documentation may be actual contracts let, engineering
schedules, or other evidence of commitments to complete the amenities.
ILSRP means the Interstate Land Sales Registration Program.
Lot means any portion, piece, division, unit, or undivided interest
in land located in any state or foreign country, if the interest
includes the right to the exclusive use of a specific portion of the
land.
Owner means the person or entity who holds the fee title to the land
and has the power to convey that title to others.
Parent corporation means that entity which ultimately controls the
subsidiary, even though the control may arise through any series or
chain of other subsidiaries or entities.
Principal means any person or entity holding at least a 10 percent
financial or ownership interest in the developer or owner, directly or
through any series or chain of subsidiaries or other entities.
Rules means all rules adopted pursuant to the Act, including the
general requirements published in this part.
Sale means any obligation or arrangement for consideration to
purchase or lease a lot directly or indirectly. The terms ``sale'' or
``seller'' include in their meanings the terms ``lease'' and ``lessor''.
Senior Executive Officer means the individual of highest rank
responsible for the day-to-day operations of the developer and who has
the authority to bind or commit the developing entity to contractual
obligations.
Site means a group of contiguous lots, whether such lots are
actually divided or proposed to be divided. Lots are considered to be
contiguous even though contiguity may be interrupted by a road, park,
small body of water, recreational facility, or any similar object.
Start of construction means breaking ground for building a facility,
followed by diligent action to complete the facility.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29115, May 11, 2016]
Sec. 1010.2 [Reserved]
Sec. 1010.3 General applicability.
Except in the case of an exempt transaction, a developer may not
sell or lease lots in a subdivision, making use of any means or
instruments of transportation or communication in interstate commerce,
or of the mails, unless a Statement of Record is in effect in accordance
with the provisions of this part. In non-exempt transactions, the
developer must give each purchaser a printed Property Report, meeting
the requirements of this part, in advance of the purchaser's signing of
any contract or agreement for sale or lease. Information collection
requirements contained in this part have been approved by the Office of
Management and Budget under the provisions of 44 U.S.C. 3501 et seq. and
have been assigned OMB Control No. 3170-0012.
Sec. 1010.4 Exemptions--general.
(a) The exemptions available under Sec. Sec. 1010.5 through 1010.16
are not applicable when the method of sale, lease or other disposition
of land or an interest in land is adopted for the purpose of evasion of
the Act.
(b) With the exception of the sales or leases which are exempt under
Sec. 1010.5, the anti-fraud provisions of the Act (15 U.S.C.
1703(a)(2)) apply to exempt transactions. The anti-fraud provisions
[[Page 440]]
make it unlawful for a developer or agent to employ any device, scheme,
or artifice to:
(1) Defraud;
(2) To obtain money or property by means of any untrue statement of
a material fact, or
(3) To omit to state a material fact necessary in order to make the
statements made not misleading, with respect to any information
pertinent to the lot or subdivision; or
(4) To engage in any transaction, practice, or course of business
which operates or would operate as a fraud or deceit upon a purchaser.
(c) The anti-fraud provisions of the Act require that certain
representations be included in the contract in transactions which are
not exempt under Sec. 1010.5. Specifically, the Act requires that if a
developer or agent represents that roads, sewers, water, gas or electric
service or recreational amenities will be provided or completed by the
developer, the contract must stipulate that the services or amenities
will be provided or completed.
(d) Eligibility for exemptions available under Sec. Sec. 1010.5
through 1010.14 is self-determining. With the exception of the
exemptions available under Sec. Sec. 1010.15 and 1010.16, a developer
is not required to file notice with or obtain the approval of the
Director in order to take advantage of an exemption. If a developer
elects to take advantage of an exemption, the developer is responsible
for maintaining records to demonstrate that the requirements of the
exemption have been met.
(e) A developer may present evidence, or otherwise discuss, in an
informal hearing before the Office of Supervision Examinations, the
Bureau's position on the jurisdiction or non-exempt status of a
particular subdivision.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29115, May 11, 2016]
Sec. 1010.5 Statutory exemptions.
A listing of the statutory exemptions is contained in 15 U.S.C.
1702. In accordance with 15 U.S.C. 1702(a)(2), if the sale involves a
condominium or multi-unit construction, a presale clause conditioning
the sale of a unit on a certain percentage of sales of other units is
permissible if it is legally binding on the parties and is for a period
not to exceed 180 days. However, the 180-day provision cannot extend the
2-year period for performance. The permissible 180 days is calculated
from the date the first purchaser signs a sales contract in the project
or, if a phased project, from the date the first purchaser signs the
first sales contract in each phase.
[81 FR 29116, May 11, 2016]
Sec. 1010.6 One hundred lot exemption.
The sale of lots in a subdivision is exempt from the registration
requirements of the Act if, since April 28, 1969, the subdivision has
contained fewer than 100 lots, exclusive of lots which are exempt from
jurisdiction under Sec. 1010.5. In the sale of lots in the subdivision
that are not exempt under Sec. 1010.5, the developer must comply with
the Act's anti-fraud provisions, set forth in Sec. 1010.4(b) and (c).
Sec. 1010.7 Twelve lot exemption.
(a) The sale of lots is exempt from the registration requirements of
the Act if, beginning with the first sale after June 20, 1980, no more
than twelve lots in the subdivision are sold in the subsequent twelve-
month period. Thereafter, the sale of the first twelve lots is exempt
from the registration requirements if no more than twelve lots were sold
in each previous twelve month period which began with the anniversary
date of the first sale after June 20, 1980.
(b) A developer may apply to the Director to establish a different
twelve month period for use in determining eligibility for the exemption
and the Director may allow the change if it is for good cause and
consistent with the purpose of this section.
(c) In determining eligibility for this exemption, all lots sold or
leased in the subdivision after June 20, 1980, are counted, whether or
not the transactions are otherwise exempt. Sales or leases made prior to
June 21, 1980, are not considered in determining eligibility for the
exemption.
(d) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
[[Page 441]]
Sec. 1010.8 Scattered site subdivisions.
(a) The sale of lots in a subdivision consisting of noncontiguous
parts is exempt from the registration requirements of the Act if:
(1) Each noncontiguous part of the subdivision contains twenty or
fewer lots; and
(2) Each purchaser or purchaser's spouse makes a personal, on-the-
lot inspection of the lot purchased prior to signing a contract.
(b) For purposes of this exemption, interruptions such as roads,
parks, small bodies of water or recreational facilities do not serve to
break the contiguity of parts of a subdivision.
(c) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.9 Twenty acre lots.
(a) The sale of lots in a subdivision is exempt from the
registration requirements of the Act if, since April 28, 1969, each lot
in the subdivision has contained at least twenty acres. In determining
eligibility for the exemption, easements for ingress and egress or
public utilities are considered part of the total acreage of the lot if
the purchaser retains ownership of the property affected by the
easement.
(b) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.10 Single-family residence exemption.
(a) General. The sale of a lot which meets the requirements
specified under paragraphs (b) and (c) of this section is exempt from
the registration requirements of the Act.
(b) Subdivision requirements. (1) The subdivision must meet all
local codes and standards.
(2) In the promotion of the subdivision there must be no offers, by
direct mail or telephone solicitation, of gifts, trips, dinners or use
of similar promotional techniques to induce prospective purchasers to
visit the subdivision or to purchase a lot.
(c) Lot requirements. (1) The lot must be located within a
municipality or county where a unit of local government or the state
specifies minimum standards in the following areas for the development
of subdivision lots taking place within its boundaries:
(i) Lot dimensions.
(ii) Plat approval and recordation.
(iii) Roads and access.
(iv) Drainage.
(v) Flooding.
(vi) Water supply.
(vii) Sewage disposal.
(2) Each lot sold under the exemption must be either zoned for
single-family residences or, in the absence of a zoning ordinance,
limited exclusively by enforceable covenants or restrictions to single-
family residences. Manufactured homes, townhouses, and residences for
one-to-four family use are considered single-family residences for
purposes of this exemption provision.
(3) The lot must be situated on a paved street or highway which has
been built to standards established by the state or the unit of local
government in which the subdivision is located. If the roads are to be
public roads they must be acceptable to the unit of local government
that will be responsible for maintenance. If the street or highway is
not complete, the developer must post a bond or other surety acceptable
to the municipality or county in the full amount of the cost of
completing the street or highway to assure completion to local
standards. For purposes of this exemption, paved means concrete or
pavement with a bituminous surface that is impervious to water, protects
the base and is durable under the traffic load and maintenance
contemplated.
(4) The unit of local government or a homeowners association must
have accepted or be obligated to accept the responsibility for
maintaining the street or highway upon which the lot is situated. In any
case in which a homeowners association has accepted or is obligated to
accept maintenance responsibility, the developer must, prior to signing
of a contract or agreement to purchase, provide the purchaser with a
good faith written estimate of the cost of carrying out the
responsibility over the first ten years of ownership.
(5) At the time of closing, potable water, sanitary sewage disposal,
and electricity must be extended to the lot or the unit of local
government must
[[Page 442]]
be obligated to install the facilities within 180 days following
closing. For subdivisions which will not have a central water or sewage
disposal system, there must be assurances that an adequate potable water
supply is available year-round and that the lot is approved for the
installation of a septic tank.
(6) The contract of sale must require delivery within 180 days after
the signing of the sales contract of a warranty deed, which at the time
of delivery is free from monetary liens and encumbrances. If a warranty
deed is not commonly used in the jurisdiction where the lot is located,
a deed or grant which warrants that the seller has not conveyed the lot
to another person may be delivered in lieu of a warranty deed. The deed
or grant used must warrant that the lot is free from encumbrances made
by the seller or any other person claiming by, through, or under the
seller.
(7) At the time of closing, a title insurance binder or title
opinion reflecting the condition of title must be in existence and
issued or presented to the purchaser showing that, subject only to
exceptions which are approved in writing by the purchaser at the time of
closing, marketable title to the lot is vested in the seller.
(8) The purchaser or purchaser's spouse must make a personal, on-
the-lot inspection of the lot purchased prior to signing a contract or
agreement to purchase.
(d) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.11 Manufactured home exemption.
(a) The sale of a lot is exempt from the registration requirements
of the Act when the following eligibility requirements are met:
(1) The lot is sold as a homesite by one party and a manufactured
home is sold by another party and the contracts of sale:
(i) Obligate the sellers to perform, contingent upon the other
seller carrying out its obligations so that a completed manufactured
home will be erected on a completed homesite within two years after the
date the purchaser signed the contract to purchase the lot;
(ii) Provide that all funds received by the sellers are to be
deposited in escrow accounts independent of the sellers until the
transactions are completed;
(iii) Provide that funds received by the sellers will be released to
the buyer upon demand if the lot on which the manufactured home has been
erected is not conveyed within two years; and
(iv) Contain no provisions which restrict the purchaser's remedy of
bringing suit for specific performance.
(2) The homesite is developed in conformance with all local codes
and standards, if any, for manufactured home subdivisions.
(3) At the time of closing:
(i) Potable water and sanitary sewage disposal are available to the
homesite and electricity has been extended to the lot line;
(ii) The homesite is accessible by roads;
(iii) The purchaser receives marketable title to the lot; and
(iv) Other common facilities represented in any manner by the
developer or agent to be provided are completed or there are letters of
credit, cash escrows or surety bonds in the form acceptable to the local
government in an amount equal to 100 percent of the estimated cost of
completion. Corporate bonds are not acceptable for purposes of the
exemption.
(4) For purposes of this section, a manufactured home is a unit
receiving a label in conformance with U.S. Department of Housing and
Urban Development (HUD) regulations implementing the National
Manufactured Housing Construction and Safety Standards Act of 1974 (42
U.S.C. 5401).
(b) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.12 Intrastate exemption.
(a) Eligibility requirements. The sale of a lot is exempt from the
registration requirements of the Act if the following requirements are
met:
(1) The sale of lots in the subdivision after December 20, 1979, is
restricted solely to residents of the state in which the subdivision is
located unless the
[[Page 443]]
sale is exempt under Sec. 1010.5, Sec. 1010.11, or Sec. 1010.13.
(2) The purchaser or purchaser's spouse makes a personal on-the-lot
inspection of the lot to be purchased before signing a contract.
(3) Each contract:
(i) Specifies the developer's and purchaser's responsibilities for
providing and maintaining roads, water and sewer facilities and any
existing or promised amenities;
(ii) Contains a good faith estimate of the year in which the roads,
water and sewer facilities and promised amenities will be completed; and
(iii) Contains a non-waivable provision giving the purchaser the
opportunity to revoke the contract until at least midnight of the
seventh calendar day following the date the purchaser signed the
contract. If the purchaser is entitled to a longer revocation period by
operation of state law, that period becomes the Federal revocation
period and the contract must reflect the requirements of the longer
period.
(4) The lot being sold is free and clear of all liens, encumbrances
and adverse claims except the following:
(i) Mortgages or deeds of trust which contain release provisions for
the individual lot purchased if:
(A) The contract of sale obligates the developer to deliver, within
180 days, a warranty deed (or its equivalent under local law), which at
the time of delivery is free from any monetary liens or encumbrances;
and
(B) The purchaser's payments are deposited in an escrow account
independent of the developer until a deed is delivered.
(ii) Liens which are subordinate to the leasehold interest and do
not affect the lessee's right to use or enjoy the lot.
(iii) Property reservations which are for the purpose of bringing
public services to the land being developed, such as easements for water
and sewer lines.
(iv) Taxes or assessments which constitute liens before they are due
and payable if imposed by a state or other public body having authority
to assess and tax property or by a property owners' association.
(v) Beneficial property restrictions that are mutually enforceable
by the lot owners in the subdivision. Restrictions, whether separately
recorded or incorporated into individual deeds, must be applied
uniformly to every lot or group of lots. To be considered beneficial and
enforceable, any restriction or covenant that imposes an assessment on
lot owners must apply to the developer on the same basis as other lot
owners. Developers who maintain control of a subdivision through a
Property Owners' Association, Architectural Control Committee,
restrictive covenant or otherwise, shall transfer such control to the
lot owners no later than when the developer ceases to own a majority of
total lots in, or planned for, the subdivision. Relinquishment of
developer control shall require affirmative action, usually in the form
of an election based upon one vote per lot.
(vi) Reservations contained in United States land patents and
similar Federal grants or reservations.
(5) Prior to the sale the developer discloses in a written statement
to the purchaser all qualifying liens, reservations, taxes, assessments
and restrictions applicable to the lot purchased. The developer must
obtain a written receipt from the purchaser acknowledging that the
statement required by this subparagraph was delivered to the purchaser.
(6) Prior to the sale the developer provides in a written statement
good faith estimates of the cost to the purchaser of providing electric,
water, sewer, gas and telephone service to the lot. The estimates for
unsold lots must be updated every two years or more frequently if the
developer has reason to believe that significant cost increases have
occurred. The dates on which the estimates were made must be included in
the statement. The developer must obtain a written receipt from the
purchaser acknowledging that the statement required by this subparagraph
was delivered to the purchaser.
(b) Intrastate Exemption Statement. To satisfy the requirements of
paragraphs (a)(5) and (6) of this section, an Intrastate Exemption
Statement containing the information prescribed in each such paragraph
shall be given to each purchaser. A State-approved disclosure
[[Page 444]]
document may be used to satisfy this requirement if all the information
required by paragraphs (a)(5) and (6) of this section is included in
this disclosure. In such a case, the developer must obtain a written
receipt from the purchaser and comply with all other requirements of the
exemption. To be acceptable for purposes of the exemption, the
statement(s) given to purchasers must contain neither advertising nor
promotion on behalf of the developer or subdivision nor references to
the Bureau of Consumer Financial Protection or the Consumer Financial
Protection Bureau. A sample Intrastate Exemption Statement is included
in the exemption guidelines.
(c) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.13 Metropolitan Statistical Area (MSA) exemption.
(a) Eligibility requirements. The sale of a lot which meets the
following requirements is exempt from registration requirements of the
Act:
(1) The lot is in a subdivision which contains fewer than 300 lots
and has contained fewer than 300 lots since April 28, 1969.
(2) The lot is located within a Metropolitan Statistical Area (MSA)
as defined by the Office of Management and Budget and characterized in
paragraph (b) of this section.
(3) The principal residence of the purchaser is within the same MSA
as the subdivision.
(4) The purchaser or purchaser's spouse makes a personal on-the-lot
inspection of the lot to be purchased prior to signing a contract or
agreement.
(5) Each contract:
(i) Specifies the developer's and purchaser's responsibilities for
providing and maintaining roads, water and sewer facilities and any
existing or promised amenities;
(ii) Contains a good faith estimate of the year in which the roads,
water and sewer facilities and promised amenities will be completed;
(iii) Contains a nonwaivable provision giving the purchaser the
opportunity to revoke the contract until at least midnight of the
seventh calendar day following the date the purchaser signed the
contract, or, if the purchaser is entitled to a longer revocation period
by operation of state law, that period becomes the Federal revocation
period and the contract must reflect the requirements of the longer
period.
(6) The lot being sold must be free and clear of liens such as
mortgages, deeds of trust, tax liens, mechanics' liens, or judgments.
For purposes of this exemption, the term liens does not include the
following:
(i) Mortgages or deeds of trust which contain release provisions for
the individual lot purchased if:
(A) The contract of sale obligates the developer to deliver, within
180 days, a warranty deed (or its equivalent under local law), which at
the time of delivery is free from any monetary liens or encumbrances;
and
(B) The purchaser's payments are deposited in an escrow account
independent of the developer until a deed is delivered.
(ii) Liens which are subordinate to the leasehold interest and do
not affect the lessee's right to use or enjoy the lot.
(iii) Property reservations which are for the purpose of bringing
public services to the land being developed, such as easements for water
and sewer lines.
(iv) Taxes or assessments which constitute liens before they are due
and payable if imposed by a state or other public body having authority
to assess and tax property or by a property owners' association.
(v) Beneficial property restrictions that are mutually enforceable
by the lot owners in the subdivision. Restrictions, whether separately
recorded or incorporated into individual deeds, must be applied
uniformly to every lot or group of lots. To be considered beneficial and
enforceable, any restriction or covenant that imposes an assessment on
lot owners must apply to the developer on the same basis as other lot
owners. Developers who maintain control of a subdivision through a
Property Owners' Association, Architectural Control Committee,
restrictive covenants, or otherwise, shall transfer such control to the
lot owners no later than when the developer
[[Page 445]]
ceases to own a majority of total lots in, or planned for, the
subdivision. Relinquishment of developer control shall require
affirmative action, usually in the form of an election based upon one
vote per lot.
(vi) Reservations contained in United States land patents and
similar Federal grants or reservations.
(7) Before the sale the developer gives a written MSA Exemption
Statement to the purchaser and obtains a written receipt acknowledging
that the statement was received. A sample MSA Exemption Statement is
included in the exemption guidelines. A State-approved disclosure
document may be used to satisfy this requirement if all of the
information required by this section is included. The statement(s) given
to purchasers must contain neither advertising nor promotion on behalf
of the developer or the subdivision nor references to the Bureau of
Consumer Financial Protection or the Consumer Financial Protection
Bureau. In descriptive and concise terms, the statement that the
developer must give the purchaser shall disclose the following:
(i) All liens, reservations, taxes, assessments, beneficial property
restrictions which are enforceable by other lot owners in the
subdivision, and adverse claims which are applicable to the lot to be
purchased.
(ii) Good faith estimates of the cost to the purchaser of providing
electric, water, sewer, gas and telephone service to the lot. The
estimates for unsold lots must be updated every two years, or more
frequently if the developer has reason to believe that significant cost
increases have occurred. The dates on which the estimates were made must
be included in the statement.
(8) The developer executes and gives to the purchaser a written
instrument designating a person within the state of residence of the
purchaser as the developer's agent for service of process. The developer
must also acknowledge in writing that it submits to the legal
jurisdiction of the state in which the purchaser or lessee resides.
(9) The developer executes a written affirmation for each sale made
under this exemption. By January 31 of each year, the developer submits
to the Director a copy of the executed affirmation for each sale made
during the preceding calendar year or a master affirmation in which are
listed all purchasers' names and addresses and the identity of the lots
purchased. Individual affirmations must be available for the Director's
review at all times during the year. The affirmation must be in the form
provided in section I of the appendix to this part: Form for Developer's
Affirmation for Land Sale.
(b) Metropolitan Statistical Area. Metropolitan Statistical Areas
are defined by the Office of Management and Budget generally on the
basis of population statistics reported in a census. To determine
whether a subdivision is located within an MSA and the boundaries of an
MSA, contact the Office of Information and Regulatory Affairs, Office of
Management and Budget, 726 Jackson Place NW., Washington, DC 20503.
(c) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c).
Sec. 1010.14 Regulatory exemptions.
(a) Eligibility requirements. The following transactions are exempt
from the registration requirements of the Act unless the Director has
terminated the exemption in accordance with paragraph (b) of this
section.
(1) The sale of lots, each of which will be sold for less than $100,
including closing costs, if the purchaser will not be required to
purchase more than one lot.
(2) The lease of lots for a term not to exceed five years if the
terms of the lease do not obligate the lessee to renew.
(3) The sale of lots to a person who is engaged in a bona fide land
sales business.
(4) The sale of a lot to a person who owns the contiguous lot which
has a residential, commercial or industrial building on it.
(5) The sale of real estate to a government or government agency.
(6) The sale of a lot to a person who has leased and resided
primarily on the lot for at least the year preceding the sale.
[[Page 446]]
(b) Termination. If the Director has reasonable grounds to believe
that exemption from the registration requirements in a particular case
is not in the public interest, the Director may, after issuing a notice
and giving the respondent an opportunity to request a hearing within
fifteen days of receipt of the notice, terminate eligibility for
exemption. The basis for issuing a notice may be the conduct of the
developer or agent, such as unlawful conduct or insolvency, or adverse
information about the lots or real estate that should be disclosed to
the purchasers. Proceedings will be governed by Sec. 1012.238.
(c) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
Sec. 1010.15 Regulatory exemption--multiple site subdivision--
determination required.
(a) General. (1) The sale of lots contained in multiple sites of
fewer than 100 lots each, offered pursuant to a single common
promotional plan, is exempt from the registration requirements.
(2) For purposes of this exemption, the sale of lots in an
individual site that exceeds 99 lots is not exempt from registration.
Likewise, the sale of lots in a site containing fewer than 100 lots,
where the developer either owns contiguous land or holds an option or
other evidence of intent to acquire contiguous land which, when taken
cumulatively, would or could result in one site of 100 or more lots, is
not exempt from registration. Furthermore, the sale of lots that are
within a subdivision established by a separate developer is not exempt
from registration by this provision.
(b) Eligibility requirements. The sale of each lot must meet the
following requirements to be eligible for this exemption.
(1) The lot is sold ``as is'' with all advertised improvements and
amenities completed and in the condition advertised.
(2) The lot is in conformance with all local codes and standards.
(3) The lot is accessible, both legally and physically. For lots
which are advertised or otherwise represented as ``residential,'' either
primary or secondary, with any inference that a permanent or temporary
dwelling unit of any description (excluding collapsible tents) can be
built or installed, physical access must be available by automobile,
pick-up truck or equivalent ``on-road'' vehicle.
(4) At the time of closing, a title insurance binder or title
opinion reflecting the condition of title must be issued to the
purchaser showing that, subject only to exceptions approved in writing
by the purchaser at the time of closing, marketable title is vested in
the seller.
(5) Each contract or agreement and any promissory notes:
(i) Contain the non-waivable provision found in section II of the
appendix to this part: Language Notifying Buyer of Option to Cancel
Contract in bold face type (which must be distinguished from the type
used for the rest of the document) on the face or signature page above
all signatures. If the purchaser is entitled to a longer revocation
period by operation of state or local law, that period becomes the
Federal revocation period and the contract must reflect the requirement
of the longer period rather than the seven days. The revocation
provisions may not be limited or qualified in the contract or other
document by requiring a specific type of notice or by requiring that
notice be given at a specified place.
(ii) Obligate the developer to deliver, within 180 days, a warranty
deed (or its equivalent under local law) for the lot which at the time
of delivery is free from any monetary liens or encumbrances.
(6) The purchaser or purchaser's spouse makes a personal on-the-lot
inspection of the lot to be purchased before signing a contract.
(7) The purchaser's payments are deposited in an escrow account
independent of the developer until a deed is delivered.
(8) Prior to the purchaser signing a contract or agreement of sale,
the developer discloses in a written Lot Information Statement all
liens, reservations, taxes, assessments, easements and restrictions
applicable to the lot
[[Page 447]]
purchased (see paragraph (b)(11) of this section).
(9) Prior to the purchaser signing a contract or agreement of sale,
the developer discloses in a written Lot Information Statement the name,
address and telephone number of the local governmental agency or
agencies from which information on permits or other requirements for
water, sewer and electrical installations can be obtained. This
Statement will also contain the name, address and telephone number of
the suppliers which would or could provide the foregoing services.
(10) The lot sale must comply with the anti-fraud provisions of 12
CFR 1010.4(b) and (c) and the sales practices and standards in
Sec. Sec. 1011.10 through 1011.28.
(11) A written Lot Information Statement must be delivered to, and
acknowledged by, each purchaser prior to his or her signing a contract
or agreement of sale, and must contain the information shown in the
format below. The Statement must be typed or printed in at least 10
point font. A copy of the acknowledgement will be maintained by the
developer for three years and will be made available to ILSRP upon
request. If the Statement is not delivered as required, the contract or
agreement of sale may be revoked and a full refund paid, at the option
of the purchaser, within two years of the signing date and the contract
or agreement of sale will clearly provide this right. A sample format
for the Statement is provided in section III of the appendix to this
part: Sample Lot Information Statement and Sample Receipt.
(c) Request for Multiple Site Subdivision Exemption. (1) The
developer must file a request for the Multiple Site Subdivision
Exemption. The request must be accompanied by a filing fee of $500
(prepared in accordance with Sec. 1010.35(a)) and a sample Lot
Information Statement, substantially in the form set forth in section IV
of the appendix to this part: Request for Multiple Site Subdivision
Exemption.
(2) This exemption will become effective upon issuance of an
Exemption Order by the Director.
(d) Annual Report. (1) By January 31 of each year the developer will
send a report to the Director listing each site and its location
available for a sale pursuant to the exemption during the preceding year
and indicate the number of lot sales made in each site. The report will
describe any changes in the information provided in the Request for the
Multiple Site Subdivision Exemption or contain a statement that there
are no changes.
(2) The Annual Report must be accompanied by a filing fee of $100.
(3) The Annual Report must be signed and dated by the developer,
attesting to its completeness and accuracy.
(4) Failure to submit the Annual Report within ten days after the
receipt of notice from the Director will automatically terminate
eligibility for the exemption as of the Report due date.
(e) Termination. If, subsequent to the issuance of an Exemption
Order, the Director has reasonable grounds to believe that exemption
from the registration requirements in the particular case is not in the
public interest, the Director may, after issuing a notice and giving the
respondent an opportunity to request a hearing within fifteen days of
receipt of the notice, terminate the exemption order. The basis for
issuing a notice may be apparent omissions or misrepresentations in the
documents submitted to the Director, the conduct of the developer or
agent, such as unlawful conduct or insolvency, or adverse information
about the real estate that should be disclosed to purchasers.
Proceedings will be governed by Sec. 1012.238.
Sec. 1010.16 Regulatory exemption--determination required.
(a) General. The Director may exempt from the registration
requirements of the Act any subdivision or lots in a subdivision by
issuing an order in writing if it is determined that registration is not
necessary in the public interest and for the protection of purchasers on
the basis of the small amount or limited character of the offering and
the requirements contained in paragraph (b) of this section.
(b) Eligibility requirements. An exemption order may be issued at
the discretion of the Director on the basis of the small amount or
limited character of
[[Page 448]]
the offering if the following requirements are met:
(1) The subdivision or sales substantially meet the requirements of
one of the exemptions available under this chapter.
(2) Each contract:
(i) Specifies the developer's and purchaser's responsibilities for
providing and maintaining roads, water and sewer facilities and any
existing or promised amenities;
(ii) Contains a good faith estimate of the year in which the roads,
water and sewer facilities and promised amenities will be completed;
(iii) Contains a non-waivable provision giving the purchaser the
opportunity to revoke the contract until at least midnight of the
seventh calendar day following the date the purchaser signed the
contract. If the purchaser is entitled to a longer revocation period by
operation of state law, that period becomes the Federal revocation
period and the contract must reflect the requirements of the longer
period.
(iv) Contains a provision that obligates the developer to deliver to
the purchaser within 180 days of the date the purchaser signed the sales
contract, a warranty deed, or its equivalent under local law, which at
the time of delivery is free from any monetary liens or encumbrances.
(3) The purchaser or purchaser's spouse makes a personal on-the-lot
inspection of the lot to be purchased before signing a contract.
(4) The developer files a request for an exemption order and
supporting documentation in accordance with paragraphs (c) and (d) of
this section and submits a filing fee of $500.00 in accordance with
Sec. 1010.35(a) of this part. This fee is not refundable.
(c) Request. The request for an Exemption Order must be
substantially in the format set forth in section V of the appendix to
this part: Request for Regulatory Exemption Order.
(d) Supporting documentation. A request for an exemption order must
be accompanied by the following documentation:
(1) A plat of the entire subdivision with the lots subject to the
exemption request delineated thereon.
(2) A copy of the contract to be used.
(3) A clear and specific statement detailing how the proposed sales
of lots subject to the exemption request substantially complies with one
of the available exemption provisions.
(4) A description of the method by which the lots have been and will
be promoted and to which population centers the promotion has been and
will be directed.
(e) The sale must also comply with the anti-fraud provisions of
Sec. 1010.4(b) and (c) of this part.
(f) Termination. If, subsequent to the issuance of an exemption
order, the Director has reasonable grounds to believe that exemption
from the registration requirements in the particular case is not in the
public interest, the Director may, after issuing a notice and giving the
respondent an opportunity to request a hearing within fifteen days of
receipt of the notice, terminate the exemption order. The basis for
issuing a notice may be apparent omissions or misrepresentations in the
documents submitted to the Director, the conduct of the developer or
agent, such as unlawful conduct or insolvency, or adverse information
about the real estate that should be disclosed to purchasers.
Proceedings will be governed by Sec. 1012.238.
Sec. 1010.17 Advisory opinion.
(a) General. A developer may request an opinion from the Director as
to whether an offering qualifies for an exemption or is subject to the
jurisdiction of the Act.
(b) Requirements. All requests for Advisory Opinions must be
accompanied by the following:
(1) A $500.00 filing fee submitted in accordance with Sec.
1010.35(a). This fee is not refundable.
(2) A comprehensive description of the conditions and operations of
the offering. There is no prescribed format for submitting this
information, but the developer should at least cite the applicable
statutory or regulatory basis for the exemption or lack of jurisdiction
and thoroughly explain how the offering either satisfies the
requirements for exemption or falls outside the purview of the Act.
(3) An affirmation as set forth in section VI of the appendix to
this part:
[[Page 449]]
Developer's Affirmation for Advisory Opinion.
Sec. 1010.18 No Action Letter.
(a) If the sale of lots is subject to the registration requirements
of the Act but the circumstances of the sale are such that no
affirmative action to enforce the registration requirements is needed to
protect the public interest or prospective purchasers, the Director may
issue a No Action Letter.
(b) To obtain a No Action Letter a developer must submit a request
which includes a thorough description of the proposed transaction, the
property involved, and the circumstances surrounding the sale.
(c) The issuance of a No Action Letter will not affect any right
which a purchaser has under the Act, and it will not limit future action
by the Director if there is evidence to show that affirmative action is
necessary to protect the public interest or prospective purchasers. In
no event will a No Action Letter be issued after the sale has occurred.
Sec. 1010.19 [Reserved]
Sec. 1010.20 Requirements for registering a subdivision--Statement of
Record--filing and form.
(a) Filing. (1) In order to register a subdivision and receive an
effective date, the developer or owner of the subdivision must file a
Statement of Record with the Director by either:
(i) U.S. Mail, to the following official address: Consumer Financial
Protection Bureau, Interstate Land Sales Registration Program, 1700 G
Street NW., Washington, DC 20552; or
(ii) Electronic means designated on the ILSA program page on the
Bureau's Web site at www.consumerfinance.gov/.
(2) When the Statement of Record is filed, a fee in the amount set
out in Sec. 1010.35(b) must be paid in accordance with Sec.
1010.35(a).
(b) Form. (1) The Statement of Record shall be in the format
specified in Sec. 1010.100 and shall be completed in accordance with
the instructions in Sec. Sec. 1010.102, 1010.105 through 1010.118,
1010.200, 1010.208 through 1010.216, and 1010.219. It shall be supported
by the documents required by Sec. Sec. 1010.208 through 1010.216 and
1010.219. It shall include any other information or documents which the
Director may require as being necessary or appropriate for the
protection of purchasers.
(2) The requirements relating to paper type, tabs, folding, and
ordering for filings with the Bureau in Sec. 1010.102(a), (g), and (h)
do not apply if a Statement of Record is filed with the Bureau via
electronic means designated on the Bureau's Web site pursuant to Sec.
1010.20(a).
(c) State filings. A Statement of Record submitted under the
provisions of 12 CFR part 1010, subpart C--Certification of
Substantially Equivalent State Law, shall consist of the materials
designated by the Certification Agreement between the Director and the
certified state in which the subdivision is located.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29116, May 11, 2016]
Sec. 1010.21 Effective dates.
(a) General. The effective date of an initial, consolidated or
amended Statement of Record is the 30th day after the filing of the
latest amendatory material unless the Director notifies the developer in
writing prior to such 30th day that:
(1) The effective date has been suspended in accordance with Sec.
1010.45(a), or
(2) An earlier effective date has been determined.
(b) Suspension of effective date by developer. (1) A developer, or
owner, may request that the effective date of its Statement of Record be
suspended, provided there are no administrative proceedings pending
against either of them at the time the request is submitted. The request
must include any consolidations or amendments which have been made to
the initial Statement of Record and may be submitted via the electronic
means of submission described in Sec. 1010.20(a). Forms for this
purpose will be furnished by the Director upon request.
(2) Upon acceptance by the Director, the effectiveness of the
Statement of Record shall be suspended as of the date the request was
executed by the developer or owner.
[[Page 450]]
(3) The suspension shall continue until the developer, or owner,
submits all amendments necessary to bring the registration into full
compliance with the Regulations which are in effect on the date of the
amendments and the Director allows those amendments to become effective.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29116, May 11, 2016]
Sec. 1010.22 Statement of record--initial or consolidated.
(a) Initial Statement of Record. (1) Except in the case of exempt
transactions, an initial Statement of Record shall be filed, and an
effective date issued, prior to selling or leasing any lot in a
subdivision.
(2) If a developer buys from another developer 100 or more lots from
an existing registration, the new developer, or owner, may have to
submit a new initial Statement of Record and receive an effective date
covering the acquired lots prior to selling or leasing any of those
lots.
(3) Changes in principals due to a sale of stock in a corporation or
changes in partners or joint venturers which are accomplished in
accordance with the partnership or joint venture agreement but which do
not cause a change in the title to the land in the subdivision may be
submitted as an amendment.
(4) Any initial Statement of Record must be accompanied by a fee, as
specified in Sec. 1010.35(b), based upon the number of lots sought to
be registered.
(b) Consolidated Statement of Record. (1) If the developer intends
to sell or lease additional lots as part of the same common promotional
plan with lots already registered, a consolidated Statement of Record
may be submitted for the additional lots. A fee, as specified in Sec.
1010.35(b) and based on the number of additional lots, must accompany
the submission. The additional lots may not be sold or leased until a
new effective date is issued.
(2) If the additional lots are simply the result of a replatting of
lots previously registered and enumerated in the Property Report and do
not include any additional land, the change may be made by an amendment.
However, the amendment must be accompanied by a fee, as specified in
Sec. 1010.35(b), based on the number of additional lots.
(c) Consolidated Statement of Record--Form. A consolidated Statement
of Record shall contain the elements listed in paragraphs (c)(1) through
(4) of this section. Pages having no changes and documents in previous
submissions which apply equally to the additional lots may be included
by reference. However, the developer may, at its option, submit the
entire format for an initial filing, including copies of previously
submitted documents, to expedite the examination process.
(1) Those pages of the Property Report portion and Additional
Information and Documentation portion which contain changes which have
occurred since the last effective submission, and
(2) A recapitulation or listing of each of the section headings, and
subheadings if necessary, of the Additional Information and
Documentation portion. Each item of the listing shall contain a
statement as to whether or not any change is made in the section;
whether any new or additional information is being submitted and, if
documentation is added by cross reference, the previous submission in
which that documentation may be found, and
(3) Documentation to support the additional lots (e.g., plat maps,
topographic maps and general plan to reflect new lots, title
information, permits for additional facilities, financial assurances of
completion of additional facilities, financial statements) or updated or
expanded documents in support of previous submissions, and
(4) The affirmation required by Sec. 1010.219.
(d) Consolidated Statement of Record amends prior Statement of
Record. A Consolidated Statement of Record shall contain all applicable
information for all registered lots in the subdivision except those
deleted pursuant to other provisions in these regulations. The resulting
Property Report shall be used for all sales in the subdivision, except
for those transactions which are exempt from the provisions of the Act
or which have been granted an exempt status by the Director, unless the
Director has specifically authorized the use of multiple Property
Reports.
[[Page 451]]
(e) Initial Statement of Record--when prior approval to submit is
required. In those subdivisions where there is a disparity between the
lots already registered and those sought to be registered because of
location, terrain, proposed use of the lots or the amenities to be
furnished or available, the developer may present a resume of the
differences and request the Director's permission to file a separate
initial Statement of Record for the additional lots. Upon consideration
of the facts submitted, the Director may allow such a procedure.
(f) Lots which have been deleted from registration. Should the
developer, for any reason, delete by amendment any registered lots from
an effective Statement of Record, those lots must be reregistered by a
consolidation and a new effective date issued, before they can be sold
or leased. An appropriate fee must accompany the submission.
(g) Lots sold to individual purchasers. It is not necessary to
delete from the registration those lots which have been sold to
individual purchasers for their own use.
Sec. 1010.23 Amendment--filing and form.
(a) Filing. If any change occurs in any representation of material
fact required to be stated in an effective Statement of Record, an
amendment shall be filed. The amendment shall be filed within 15 days of
the date on which the developer knows, or should have known, that there
has been a change in material fact. The amendment may be filed via the
electronic means of submission described in Sec. 1010.20(a).
(b) Form. An amendment shall include by reference the prior
Statement of Record except for any changes in material fact. A change in
material fact shall be specifically described and supported by the same
documentation which would be required for an initial submission. Any
amendment shall be accompanied by:
(1) A letter from the developer giving a clear and concise
description of the purpose and significance of the amendment and
referring to the section and page of the Statement of Record which is
being amended, and
(2) All pages of the Statement of Record, which have been amended,
retyped in the required format to reflect the changes. The ILSRP number
of the Statement of Record shall appear at the top of each page of the
material submitted.
(c) Amendments to suspended filings. Developers wishing to
reactivate a suspended filing shall file the following:
(1) Any amendments necessary to bring the filing into compliance,
submitted in accordance with paragraphs (a) and (b) of this section;
(2) An activity report in the form prescribed by Sec. 1010.310; and
(3) An amendment fee, if required under Sec. 1010.35(d)(2).
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29116, May 11, 2016]
Sec. Sec. 1010.24-1010.28 [Reserved]
Sec. 1010.29 Use of property report--misstatements, omissions, or
representation of Bureau approval prohibited.
Nothing in these regulations shall be construed to authorize or
approve the use of a property report containing any untrue statement of
a material fact or omitting to state a material fact required to be
stated therein. Nor shall anything in these regulations be construed to
authorize or permit any representation that the Property Report is
prepared or approved by the Director, ILSRP or the Bureau of Consumer
Financial Protection.
Sec. 1010.35 Payment of fees.
(a) Method of payment. (1) Each fee must be paid by:
(i) Certified check, cashier's check, or postal money order made
payable to the Treasurer of the United States, with the registration
number, when known, and the name, of the subdivision on the face of the
check, and mailed to an address specified by the Director; or
(ii) Electronic payment in a manner specified by the Director.
(2) Information regarding the current mailing address or electronic
payment procedures is available from: Consumer Financial Protection
Bureau, Interstate Land Sales Registration Program, 1700 G Street NW.,
Washington,
[[Page 452]]
DC 20552, or on the Bureau's Web site at www.consumerfinance.gov.
(b) Fees for registration. The fee for each initial and consolidated
registration is set forth in section VII of the appendix to this part:
Initial and Consolidated Registration Fee Schedule.
(c) Fee for Exemption Order or Advisory Opinion. The filing fee for
an Exemption Order or an Advisory Opinion (Sec. 1010.16 or Sec.
1010.17) is $500. This fee is not refundable.
(d) Amendment fee. (1) A fee of $800 is charged when an Annual
Activity Report reflects an annual ending inventory of 101 or more
unsold registered lots.
(2) A fee of $800 is charged for an amendment to reactivate a
Statement of Record subsequent to its suspension, unless the developer
has 100 or fewer unsold lots included in the Statement of Record.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29116, May 11, 2016]
Sec. 1010.45 Suspensions.
(a) Suspension notice--prior to effective date. (1) If it appears to
the Director that a Statement of Record or an amendment is on its face
incomplete or inaccurate in any material respect, the Director shall so
advise the developer, by issuing a suspension notice, within a
reasonable time after the filing of such materials but prior to the time
the materials would otherwise be effective.
(2) A suspension notice issued pursuant to this subsection shall
suspend the effective date of the Statement of Record or the amendment.
It shall continue in effect until 30 days, or such earlier date as the
Director may determine, after the necessary amendments are submitted
which correct all deficiencies cited in the notice.
(3) Upon receipt of a suspension notice, the developer has 15 days
in which to request a hearing. If a hearing is requested, it shall be
held within 20 days of the receipt of the request by the Director.
(b) Suspension orders--subsequent to effective date. (1) A notice of
proceedings to suspend an effective Statement of Record may be issued to
a developer if the Director has reasonable grounds to believe that an
effective Statement of Record includes an untrue statement of a material
fact, or omits a material fact required by the Act or rules and
regulations, or omits a material fact which is necessary to make the
statements therein not misleading. The Director may, after notice, and
after opportunity for a hearing requested pursuant to Sec. 1012.220
within 15 days of receipt of such notice, issue an order suspending the
Statement of Record. In the event that a suspension order is issued,
such order shall remain in effect until the developer has amended the
Statement of Record or otherwise complied with the requirements of the
order. When the developer has complied with the requirements of the
order, the Director shall so declare and thereupon the suspension order
shall cease to be effective.
(2) If the Director undertakes an examination of a developer or its
records to determine whether a suspension order should be issued, and
the developer fails to cooperate with the Director or obstructs, or
refuses to permit the Director to make such examination, the Director
may issue an order suspending the Statement of Record. Such order shall
remain in effect until the developer has complied with the requirements
of the order. When the developer has complied with the requirements of
the order, the Director shall so declare and thereupon the suspension
order shall cease to be effective. In accordance with the procedure
described in Sec. 1012.235, a hearing may be requested.
(3) Upon receipt of an amendment to an effective Statement of
Record, the Director may issue an order suspending the Statement of
Record until the amendment becomes effective if the Director has
reasonable grounds to believe that such action is necessary or
appropriate in the public interest or for the protection of purchasers.
In accordance with the procedure described in Sec. 1012.235, a hearing
may be requested.
(4) Suspension orders issued pursuant to this subsection shall
operate to suspend the Statement of Record as of the date the order is
either served on the developer or its registered agent or is delivered
by certified or registered mail to the address of the developer or its
authorized agent.
[[Page 453]]
Subpart B_Reporting Requirements
Sec. 1010.100 Statement of Record--format.
(a) The Statement of Record consists of two portions; the Property
Report portion and the Additional Information and Documentation portion.
(b) General format. The Statement of Record shall be prepared in
accordance with the format set forth in section VIII of the appendix to
this part: Property Report:
Sec. 1010.101 [Reserved]
Sec. 1010.102 General instructions for completing the Statement of
Record.
(a) Paper and type. The Statement of Record shall be on good
quality, unglazed white or pastel paper. Letter size paper,
approximately 8\1/2\ x 11 inches in size, will be used for the Property
Report portion, and either letter size paper, approximately 8\1/2\ x 11
inches in size, or legal size paper, approximately 8\1/2\ x 14 inches in
size, will be used for the Additional Information and Documentation
portion. Side margins shall be no less than 1 inch and no greater than
1\1/2\ inches. Top and bottom margins shall be no less than 1 inch. In
the preparation of the charts to be included in the Property Report, the
developer may vary from the above margin requirements or print the
charts lengthwise on the required size paper if such measures are
necessary to make the charts readable. The Statement of Record shall be
prepared in an easily readable, uniform font.
(b) Numbering and dating. Each page of the Statement of Record as
submitted to ILSRP shall be numbered and shall include the date of
typing or preparation in the lower right hand corner, except in the
final printed version of the Property Report portion.
(c) Signing. The Statement of Record shall be signed by the senior
executive officer of the developer or a designated agent.
(d) Printing. The Statement of Record and, insofar as practical, all
papers and documents filed as a part thereof, shall be printed,
lithographed, photocopied, typewritten or prepared by any similar
process which, in the opinion of the Director, produces copies suitable
for a permanent record. Irrespective of the process used, all copies of
any such materials shall be clear and easily readable.
(e) Headings, subheadings, captions, introductory paragraphs,
warnings. Property Report subject ``headings'' are those descriptive
introductory words which appear immediately after section numbers
1010.106 through 1010.116 (e.g. Sec. 1010.108 has ``General
Information'' and Sec. 1010.111 has ``Utilities''). Each such heading
shall be printed in the Property Report in underlined capital letters
and centered at the top of a new page. Section numbers shall not be
printed in the Property Report. Property Report subheadings are those
descriptive introductory words which appear in italics in the
regulations at the beginning of paragraphs designated by paragraph
letters (a), (b), (c) etc. An example of a subheading is ``water'' found
immediately after the paragraph letter (a) in Sec. 1010.111. These
subheadings will be printed in the Property Report only if they are
relevant to the subject subdivision. If printed these subheadings shall
be capitalized and shall begin at the left hand margin of the page.
Property Report ``captions'' are those descriptive introductory words
which appear in italics in the Regulations at the beginning of
paragraphs designated by numbers (1), (2), (3), etc. An example of such
captions is ``Sales Contract and Delivery of Deed'' found immediately
after the paragraph number ``(1)'' in Sec. 1010.109(b). These captions
are to be printed in the Property Report only if they are applicable to
the subject subdivision. If printed, these captions shall be centered on
the page from the side margins, and shall have only the first letter of
each word capitalized. Headings and subheadings will be used in the
Property Report in accordance with the sample page appearing in section
IX of the appendix to this part. Introductory paragraphs will follow
headings if they are applicable and necessary for a readable entry into
the subject matters, but note, the introductory paragraphs for ``Title
to the Property and Land Use'' are to be used in every case as provided
in
[[Page 454]]
Sec. 1010.109(a)(1). Subheadings and captions which do not apply to the
subdivision should be omitted from the Property Report portion and
answered ``not applicable'' in the Additional Information and
Documentation portion, unless specifically required to be included
elsewhere in these instructions. Warnings shall be printed substantially
as they appear in the instructions in Sec. Sec. 1010.105 through
1010.118. They shall be printed in capital letters and may be enclosed
in a box. The paragraphs in the Property Report portion need not be
numbered. A sample page is set forth in section IX of the appendix to
this part: Sample Page for Statement of Record.
(f) Language style. All information given in the Property Report
portion shall be stated in narrative form using plain, concise, everyday
language which can be readily understood by purchasers who are
unfamiliar with real estate transactions. Excessively long paragraphs
should be avoided. Keep them as brief as possible. Use separate
paragraphs for different points discussed. Disclose all pertinent facts.
Potential consequences to a purchaser must be made clear even though not
specifically asked for in the format and the instructions. In the
Property Report the pronouns ``you'' and ``your'' shall generally be
used in referring to the prospective purchaser and the pronouns ``we,''
``us,'' and ``our'' shall generally be used in referring to the
developer. The Director specifically reserves the right to require
modification of the text when the narrative does not meet the standards
of this section.
(g) Format of the Additional Information and Documentation portion
of the Statement of Record. The supporting information and documentation
required by these regulations shall be identified by affixing a tab on
the right side of the cover sheet of the required information or
documentation and by identifying on the tab the section number of the
Statement of Record instructions to which the information or
documentation corresponds. This information or documentation shall then
be placed immediately after the page(s) on which the section number and
answers for that section appear. If the data in a document is applicable
to more than one section of instructions, the developer may substitute
as a document in the second case a statement incorporating the earlier
document. Deeds, title policies, subdivision plats or maps and other
documentary information required to be contained in the Additional
Information and Documentation portion of the Statement of Record need
not be on the same size paper as the Statement of Record but, if larger,
shall be folded to a size no larger than 8\1/2\ x 14 inches. Supporting
documents shall be inserted into the binding in such a manner as to
permit them to be examined without the necessity of removing them from
the binding. This may be accomplished by proper folding or through the
use of envelopes.
(h) Ordering. The Statement of Record shall be filed with the
Property Report portion on top, including any documents which may be
required to be attached when delivered to the purchaser, followed by the
Additional Information and Documentation portion.
(i) Advertising and promotional material. No advertising, or
promotional material or statements which are self-serving on behalf of
the developer or owner may be included in the Statement of Record or
resulting Property Report.
(j) Additional information. (1) In addition to the information
expressly required to be stated in the Statement of Record, there shall
be added, and the Director may require, such further material
information, documentation and certification as may be necessary in the
public interest and for the protection of purchasers or necessary in
order to make the statements not misleading in the light of
circumstances under which they are made.
(2) The instructions are not all inclusive. The developer shall
include any other facts which would have a bearing upon the use by the
purchaser of any of the facilities, services or amenities; which would
cause or result in additional expenses to the purchaser; which would
have an effect upon the use and enjoyment of the lot by the purchaser
for the purpose for which it is sold or which would adversely affect the
value of the lot.
[[Page 455]]
(k) Modification of format or content. The Director may require or
permit modification to the content and format of the Property Report to
include additional information, to modify or omit required information,
or to change the sequence or position of information when such changes
are deemed to be in the public interest or for the protection of
purchasers.
(l) Required documentation. Where the documentation required by the
Statement of Record cannot be obtained, the Director may permit the best
available alternative documentation to be substituted.
(m) Final version of Property Report. On the date that a Statement
of Record becomes effective, the Property Report portion shall become
the Property Report for the subject subdivision. The version of the
Property Report delivered to prospective lot purchasers shall be
verbatim to that found effective by the Director and shall have no
covers, pictures, emblems, logograms or identifying insignia other than
as required by these regulations. It shall meet the same standards as to
grade of paper, type size, margins, style and color of print as those
set herein for the Statement of Record, except where required otherwise
by these regulations. However, the date of typing or preparation of the
pages and the ILSRP number shall not appear in the final version. If the
final version of the Property Report is commercially printed, or
photocopied by a process which results in a commercial printing quality,
and is bound on the left side, both sides of the pages may be used for
printed material. If it is typed or photocopied by a process which does
not result in a clear and legible product on both sides of the page or
is bound at the top, printing shall be done on only one side of the
page. If a Statement of Record is filed with the Bureau via electronic
means pursuant to Sec. 1010.20(a), the version of the Property Report
delivered to prospective lot purchasers shall meet the same standards
that apply under these regulations to a Statement of Record not filed
with the Bureau via electronic means. One copy of the final version of
the Property Report, in the exact form in which it is delivered to
prospective lot purchasers, shall be sent to ILSRP Office within 20 days
of the date on which the Statement of Record, amendment, or
consolidation is allowed to become effective by the Director. If a
Property Report in a foreign language is used as required by Sec.
1011.25(g), a copy of that Property Report together with a copy of the
translated documents shall be furnished the Director within 20 days of
the date on which the advertising is first used. A Property Report
prepared pursuant to these regulations shall not be distributed to
potential lot purchasers until after the Statement of Record of which it
is a part or any amendment to that Statement of Record has been made
effective by the Director.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29116, May 11, 2016]
Sec. 1010.103 Developer obligated improvements.
(a) If the developer represents either orally or in writing that it
will provide or complete roads or facilities for water, sewer, gas,
electricity or recreational amenities, it must be contractually
obligated to do so, and the obligation shall be clearly stated in the
Property Report. While the developer may disclose relevant facts about
completion, the obligation to complete cannot be conditioned, other than
as permitted by 15 U.S.C. 1703(a)(2), and an estimated completion date
(month and year) must be stated in the Property Report. However, a
developer that has only tentative plans to complete may so state in the
Property Report, provided that the statement clearly identifies
conditions to which the completion of the facilities are subject and
states that there are no guarantees the facilities will be completed.
(b) If a party other than the developer is responsible for providing
or completing roads or facilities for water, sewer, gas, electricity or
recreational amenities, that entity shall be clearly identified in the
Property Report under the categories described in Sec. 1010.110, Sec.
1010.111 or Sec. 1010.114, as applicable. A statement shall be included
in the proper section of the Property Report that the developer is not
responsible for providing or completing the facility or amenity and can
give no
[[Page 456]]
assurance that it will be completed or available for use.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29117, May 11, 2016]
Sec. 1010.104 [Reserved]
Sec. 1010.105 Cover page.
The cover page of the Property Report shall be prepared in
accordance with the following directions:
(a) The margins shall be at least 1 inch.
(b) The next 3 inches shall contain a warning, centered, in \1/2\
inch capital letters in red type with \1/4\ inch space between the lines
which reads as follows: ``READ THIS PROPERTY REPORT BEFORE SIGNING
ANYTHING''.
(c) The remainder of the page shall contain the language set forth
in section X of the appendix to this part: Language for Warning on Cover
Page of Property Report beginning \1/4\-inch below the last line of the
warning.
(d)(1) If the purchaser is entitled to a longer revocation period by
operation of state law, that period becomes the Federal revocation
period and the Cover Page must reflect the requirements of the longer
period, rather than the seven days.
(2)(i) If a deed is not delivered within 180 days of the signing of
the contract or agreement of sale or unless certain provisions are
included in the contract or agreement, the purchaser is entitled to
cancel the contract within two years from the date of signing the
contract or agreement.
(ii) The deed must be a warranty deed, or where such a deed is not
commonly used, a similar deed legally acceptable in the jurisdiction
where the lot is located. The deed must be free and clear of liens and
encumbrances.
(iii) The contract provisions are:
(A) A legally sufficient and recordable lot description; and
(B) A provision that the seller will give the purchaser written
notification of purchaser's default or breach of contract and the
opportunity to have at least 20 days from the receipt of notice to
correct the default or breach; and
(C) A provision that, if the purchaser loses rights and interest in
the lot because of the purchaser's default or breach of contract after
15% of the purchase price, exclusive of interest, has been paid, the
seller shall refund to the purchaser any amount which remains from the
payments made after subtracting 15% of the purchase price, exclusive of
interest, or the amount of the seller's actual damages, whichever is the
greater.
(iv) If a deed is not delivered within 180 days of the signing of
the contract or if the necessary provisions are not included in the
contract, the following statement shall be used in place of any other
rescission language: ``Under Federal law you may cancel your contract or
agreement of sale any time within two years from the date of signing.''
(e) At the time of submission, the developer may indicate its
intention to comply with the red printing by an illustration or by a
statement to that effect.
(f) The ``Date of This Report'' shall be the date on which the
Director allows the Statement of Record to become effective and shall
not be entered until the submission has become effective.
Sec. 1010.106 Table of contents.
(a) The second page(s) shall consist of a Table of Contents which
lists the headings in the Property Report, the major subheadings, if
any, and the page on which they appear. An example is set forth in
section XI of the appendix to this part: Sample Entry in Table of
Contents for Statement of Record.
(b) Use of ``You'' and ``We.'' At the end of the Table of Contents
insert the following remark: ``In this Property Report, the words
``you'' and ``your'' refer to the buyer. The words ``we,'' ``us'' and
``our'' refer to the developer.''
Sec. 1010.107 Risks of buying land.
(a) The next page shall be headed ``Risks of Buying Land'' and shall
contain the paragraphs listed in section XII of the appendix to this
part: Required Paragraphs for Risks of Buying Land.
(b) Warnings. If the instructions of the Director require any
warnings to be included in the Property Report portion, the following
statement shall be added beneath the ``Risks of Buying Land'' under a
heading ``Warnings'':
[[Page 457]]
``Throughout this Property Report there are specific warnings concerning
the developer, the subdivision or individual lots. Be sure to read all
warnings carefully before signing any contract or agreement.'' Both the
heading, ``Warnings,'' and the statement shall be printed in capital
letters and enclosed in a box.
Sec. 1010.108 General information.
Insert and complete the format set forth in section XIII of the
appendix to this part: Format for General Information.
Sec. 1010.109 Title to the property and land use.
(a) General instructions. (1) Below the heading ``Title to the
Property and Land Use'' insert the introductory paragraphs set forth in
section XIV of the appendix to this part: Paragraphs to be included in
the General Report--Title to the Property and Land Use.
(2) Information to be provided. After the above introductory
paragraphs provide the information required by the following
instructions and questions. Follow a general form identical to the
sample page set forth in section IX of the appendix to this part: Sample
Page for Statement of Record.
(b) Method of sale:
(1) Sales contract and delivery of deed. (i) Will the buyer sign a
purchase money or installment contract or similar instrument in
connection with the purchase of the lot? When will a deed be delivered?
(ii) If an installment contract is used, include the following, or
substantially the same, language in the disclosure narrative under
``Method of Sale'': ``If you fail to make your payments required by the
contract, you may lose your lot and all monies paid.''
(iii) If, at the time of a credit sale, the developer gives the
buyer a deed to the lot, what type of security must the buyer give the
seller?
(iv) If the lots are to be sold on the basis of an installment
contract, can the developer or the owner of the subdivision or their
creditors encumber the lots under contract? If so, include the following
warning in the disclosure narrative under the caption ``Sales contract
and delivery of deed'': ``The (indicate subdivision developer, owner, or
their creditors) can place a mortgage on or encumber the lots in this
subdivision after they are under contract. This may cause you to lose
your lot and any monies paid on it.''
(2) Type of deed. What type of deed will be used to convey title to
lots in the subdivision?
(3) Quitclaim deeds. If a quitclaim deed is to be given to lot
purchasers insert the below warning, or a warning which is substantially
the same, in the disclosure narrative below the caption ``Quitclaim
Deeds.'' This particular warning may be deleted at the direction of the
Director if an acceptable attorney's opinion is submitted with the
Statement of Record which indicates that a quitclaim deed has a meaning
in the jurisdiction where the subdivision is located which is
substantially contrary to the effect of this warning. This warning shall
be phrased substantially as follows: ``The Quitclaim deed used to
transfer title to lots in this subdivision gives you no assurance of
ownership of your lot.''
(4) Oil, gas, and mineral rights. If oil, gas or mineral rights have
been reserved, insert the following statement or one substantially the
same in the narrative answer under the caption ``oil, gas, and mineral
rights'': ``The (indicate oil, gas, or mineral rights) to (state which
lots) in this subdivision will not belong to the purchaser of those
lots. The exercise of these rights could affect the use, enjoyment and
value of your lot.''
(c) Encumbrances, mortgages and liens--(1) In general. State whether
any of the lots or common facilities which serve the subdivision, other
than recreation facilities, are subject to a blanket encumbrance,
mortgage or lien. If yes, identify the type of encumbrance (e.g., deed
of trust, mortgage, mechanics liens), the holder of the lien, and the
lots covered by the lien. If any blanket encumbrance, mortgage, or lien
is not current in accordance with its terms, so indicate.
(2) Release provisions. (i) Explain the effect of any release
provisions of any blanket encumbrance, mortgage or lien and include the
one of the following statements that pertains.
[[Page 458]]
(A) If the release clauses are not included in a recorded
instrument, insert the statement set forth in section XV of the appendix
to this part: Statement on Release Provisions, or one substantially the
same in the disclosure narrative below under the caption ``Release
Provisions.''
(B) If the developer or subdivision owner states that the release
provisions are recorded and that the lot purchaser may pay the release
price of the mortgage, the statement shall be supported by documentation
supplied in Sec. 1010.209. If the purchaser may pay the release fee,
state the amount of the release fee and inform the purchaser that the
amount may be in addition to the contract payments unless there is a
bona fide trust or escrow arrangement in which the purchaser's payments
are set aside to pay the release price before any payments are made to
the developer.
(C)(1) If there are no provisions in the blanket encumbrance for
release of an individual purchaser's lot from a blanket encumbrance,
include the warning set forth in section XVI of the appendix to this
part: Warning for Release Provisions or a warning substantially the
same, in the disclosure narrative under the ``Release Provisions''
caption.
(2) If the provisions for release of individual lots from the
blanket encumbrance may be exercised only by the developer insert the
following statement, or one substantially the same, in the disclosure
narrative under the ``Release Provisions'' caption: ``The release
provisions in the (state the type of encumbrance) on (indicate all or
particular lots) in this subdivision may be exercised only by us.
Therefore, if we default on the (state type of encumbrance) before
obtaining a release of your lot, you may lose your lot and any money you
have paid for it.''
(d) Recording the contract and deed--(1) Method or purpose of
recording. (i) State what protection, if any, recording of deeds and
contracts gives a lot purchaser in your jurisdiction.
(ii) If the sales contract or deed may be recorded, so state. Also
state whose responsibility it is to record the contract or deed.
(iii) If the developer or subdivision owner will not have the sales
contract officially acknowledged or if the applicable jurisdiction will
not record sales contracts, state that sales contracts will not be
recorded and why they will not be recorded.
(iv) If at, or immediately after, the signing of a contract, the
contract or a deed transfer to the buyer is not recorded by the
developer or owner or if title to the lot is not otherwise transferred
of record to a trust, or if other sufficient notice of transfer or sale
is not placed of record, then the developer shall include the warning
set forth in section XVII of the appendix to this part: Method and
Purpose of Recording Warning, or substantially the same warning in the
disclosure narrative under the caption ``Method and Purpose of
Recording.'' The reference to contracts shall be deleted from the above
warning if the answer to paragraph (d)(1)(i) of this section indicates
that recording of a contract in the subject jurisdiction does not
protect the purchaser from claims of later purchasers or creditors of
anyone having an interest in the land.
(2) Title insurance. If the developer does not deliver a title
insurance policy to the buyer, state that the purchaser should obtain an
attorney's opinion of title or a title insurance policy which will
describe the rights of ownership which are being acquired in the lot.
Recommend that an appropriate professional should interpret the opinion
or policy.
(e) Payments--(1) Escrow. If purchasers' deposits, down payments, or
installment payments are to be placed in a third party controlled escrow
or similar account, describe the arrangement including the name and
address of the escrow holder or similar person. If there is no such
arrangement, insert the statement set forth in section XVIII of the
appendix to this part: Escrow Statement. The questions regarding an
escrow agreement or similar protection may be answered affirmatively
only if the money is under the control of an independent third party,
allowing a purchaser to receive a return of all money paid in the event
of the developer's failure to convey title or the developer's default on
any obligation which would otherwise result in the purchaser's loss of
that money.
[[Page 459]]
(2) Prepayments. Explain any prepayment penalties or privileges in
everyday language.
(3) Default. What are the developer's or subdivision owners'
remedies against a defaulted purchaser?
(f) Restrictions on the use of your lot--(1) Restrictive covenants.
(i) Have any restrictive covenants been recorded against the land in the
subdivision? If so, do they contain items which require the purchaser to
secure permissions, approvals or take any other action prior to using or
disposing of his lot (e.g., architectural control, developer's right of
first refusal, building deadlines, etc.)? If any of these or similar
items are included, explain their meaning and effect upon the purchaser.
(ii) If any restrictive covenants are to be used and if they have
not been recorded, how will they be imposed? Include a statement to the
effect that the restrictive covenants have not been recorded; that there
is no assurance they will be applied uniformly; that they may be changed
and that they may be difficult to enforce. If no restrictive covenants
will be imposed, include a statement to the effect that, since there are
no restrictive covenants on the use of the lots, they may be used for
purposes which could adversely affect the use and enjoyment of
surrounding lots.
(iii) If there are restrictive covenants, whether recorded or
unrecorded, the following statement shall be made: ``A complete copy of
these restrictions is available upon request.''
(2) Easements. (i) Are there easements which may have an effect on
the purchaser's building or lot use plans (e.g., large drainage
easements along lot lines, high voltage electric transmission lines,
pipe lines or drainage easements which encroach upon the building area
of the lot or inhibit its use)?
(ii) Is the subdivision subject to any type of flood control or
flowage easements?
(iii) If the answer to either (2)(i) or (2)(ii) is in the
affirmative, identify the affected lots and state the effect upon the
use of the lots.
(g) Plats, zoning, surveying, permits and environment--(1) Plats.
(i) Have the subdivision plans and plats of specific units been approved
by the regulatory authorities? If the approvals have not been obtained,
include a warning to the effect that regulatory authorities have not
approved the proposed plats; that they may require significant
alterations before they will approve them and they may not allow the
land to be used for the purpose for which it is being sold.
(ii) Have plats covering the lots in this Report been recorded? If
so, where are they recorded? If they have not been recorded, is the
description of the lots given in this Report legally adequate for the
conveyance of land in the jurisdiction where the subdivision is located?
If it is not, include a statement to the effect that the description of
the lots is not legally adequate for the conveyance of the lots and that
it will not be until the plat is recorded.
(2) Zoning. For what purpose may the lots be used (e.g., single
family homes, camping, commercial)? Does this use conform to local
zoning requirements and the restrictive covenants?
(3) Surveying. Has each lot been surveyed and is each lot marked for
identification? If not, and the purchaser is responsible for the
expense, state the estimated cost.
(4) Permits. Must the purchaser obtain a building permit before
beginning construction on his lot? Where is the permit obtained? Are any
other permits necessary to use the lot for the purpose for which it is
sold or for construction in connection with its use?
(5) Environment. Has there been any environmental impact study
prepared which considers the effect of the subdivision on the
environment? If a study has been prepared, summarize any adverse
conclusions and refer the lot buyer to the proper State Clearinghouse
for complete information. If a study has not been prepared, include a
statement that ``No determination has been made as to the possible
adverse effects the subdivision may have upon the environment and
surrounding area.'' If the developer does not know whether an
environmental impact study has been prepared, or the name and location
of the Office where any study made can be found, inquiry should be made
to the State or Area Clearinghouse established under the
[[Page 460]]
authority of title IV of the Intergovernmental Cooperation Act of 1968.
Sec. 1010.110 Roads.
(a) Access to the subdivision. (1) Is access to the subdivision
provided by public or private roads? What type of surface do they have?
How many lanes? What is the width of the wearing surface?
(2) Who is responsible for their maintenance? What is the cost to
the purchaser, if any? Are any improvements contemplated? If so, when
will they begin and when will they be completed? At whose expense?
(b) Access within the subdivision. (1) How have legal and physical
access by conventional automobile been or will they be, provided to the
lots (e.g., road on recorded easement; right of way dedicated to the
public; right of way dedicated to use of lot owners)?
(2) Who is responsible for the road construction? Is there any
construction cost to the purchaser? Is there any financial assurance of
completion? If there is no financial assurance of completion, enter a
warning to the effect that no funds have been set aside in an escrow or
trust account and there are no other financial arrangements to assure
completion of the roads.
(3) How many lanes do the interior roads have? What is the estimated
starting date of construction (month and year); the present percentage
of construction now complete; the present surface; the estimated
completion date (month and year) and what is the final surface to be? If
there are separate units or sections in the subdivision which will have
different completion dates or different surfaces, the chart in section
XIX of the appendix to this part: Road Chart shall be used rather than a
narrative paragraph.
(4) Who is responsible for road maintenance? If the roads are to be
maintained by a public authority, a property owners' association or some
other entity at some time in the future, who is responsible for their
maintenance during the interim period? What is the cost to the purchaser
during the interim period and after acceptance for permanent
maintenance? Will they be maintained so as to provide access to the lots
on a year round basis? If not, include a warning which informs the
purchaser that access may not be available year round. Identify the
months when access may not be available to lots. If there are no
arrangements for maintenance, include a warning to the effect that
purchasers are responsible for maintaining the roads and that, if
maintenance is not performed, the roads may soon deteriorate and access
may become difficult or impossible.
(5) If estimated completion dates given in prior Statements of
Record have not been met, state that previous dates have not been met
and give the previous dates. Underline the answer. If the roads are 100
percent completed, no dates are needed.
(6) Complete the chart in section XX of the appendix to this part:
Nearby Communities Chart by listing the county seat (identify) and at
least two nearby communities. Include at least one community of
significant size which offers general services.
(7) If the purchasers will be individually responsible for providing
access to their lots and for maintaining that access, what is the
estimated cost of construction and maintenance?
Sec. 1010.111 Utilities.
(a) Water. (1) How is water to be supplied to the individual lots
(e.g., central system or individual wells)? Of the following items only
those which apply to the subdivision need be included.
(i) Individual system. (A) If water is to be supplied by an
individual private well, cistern or other individual system, what are
the total estimated costs of the system, including but not limited to,
the costs of installation, storage, any treatment facilities and other
necessary equipment?
(B) If individual cisterns or similar storage tanks are to be used,
state where water to fill them can be secured; the cost of the water,
and its delivery costs for a supply sufficient to serve the monthly
needs of a family of four living in a house on a year-round basis.
Include a statement to the effect that water stored for extended periods
tends to become stale and may acquire an unpleasant taste or odor.
(C) If individual wells are to be used and if the sales contract
contains no
[[Page 461]]
provisions for refund or exchange in the event a productive well cannot
be installed, include a statement to the effect that there is no
assurance a productive well can be installed and, if it cannot, no
refund of the purchase price of the lot will be made.
(D) If individual wells or individual cisterns are to be used,
include a brief statement to the effect that the purity and chemical
content of the water cannot be determined until each individual well or
source of water is completed and tested.
(E) If there have been no hydrological surveys in connection with
the use of individual wells or sources of hauled water for cisterns,
include a warning to the effect that there is no assurance of a
sufficient supply of water for the anticipated population.
(F) Is a permit required to install the individual system to be
used? If so, from whom and where is the permit secured? State the cost
of a permit.
(ii) Central system. (A) If water is to be provided by a central
system, who is the supplier? What is the supplier's address?
(B) Will the water mains be extended in front of, or adjacent to,
each lot? When will construction begin? What is the present percentage
of completion of the water mains and central supply plant? When will
service be available to the individual lots? If the central system is
not complete and there are separate units or sections of the subdivision
included in the Statement of Record which have different completion
dates, then the starting date for construction (month and year), the
percentage of construction now complete and the estimated service
availability date (month and year) shall be set forth in the chart in
section XXI of the appendix to this part: Water Chart Form rather than
in a narrative paragraph.
(C) What is the present capacity of the central plant (i.e., how
many connections can be supplied)? If the capacity is not sufficient to
serve all lots in the Statement of Record and is to be expanded in
phases, what is the time-table for each phase to be in service and what
will trigger the beginning of the expansion for each phase? If an entity
other than the developer or an affiliate or subsidiary of the developer
will supply the water for the central system; if the operation of that
entity is supervised by a governmental agency and if that entity states
it can supply the anticipated population of the development, then
information as to the capacity of the plant and a hydrological survey is
not necessary. If the entity does not indicate it can supply enough
water for the anticipated population or if the capacity of any central
system is not sufficient to serve all lots in the Statement of Record,
include a warning which describes the limitations and sets forth the
number of lots which can now be served.
(D) Have there been any hydrological surveys to determine that a
sufficient source of water is available to serve the anticipated
population of the subdivision? Has the water in the central system been
tested for purity and chemical content? If so, did the results show that
the water meets all standards for a public water supply? If there have
been no hydrological surveys showing a sufficient supply of water or no
tests for purity and chemical content for the central system, include a
warning to the effect that there is no assurance of a sufficient supply
or that the water is drinkable.
(E) Is there any financial assurance of completion of the central
system and any future expansion? If not, include a warning to the effect
that no funds have been set aside in an escrow or trust account nor have
any other financial arrangements been made to assure completion of the
water system.
(F) If the developer or an affiliate or subsidiary of the developer
operates the central system, have all permits been obtained from the
proper agencies for the construction, use and operation of the central
system? If not, include a warning to the effect that the required
permits, approvals or licenses for construction, operation or use of the
water system have not been obtained, therefore there is no assurance the
system can be constructed or used.
(G) If previous completion dates given in prior Statements of Record
have not been met, state that previous completion dates have not been
met and give the previous dates. Underline
[[Page 462]]
the answer. If the central water system is 100 percent completed, no
dates are needed.
(H) Is the purchaser to pay any construction costs, one-time
connection fees, availability fees, special assessments or deposits for
the central system? If so, what are the amounts? If not, state that
there are no charges other than use fees. If the purchaser will be
responsible for construction costs of the water mains, state the cost to
install the mains to the most remote lot covered by this report.
(I) If a purchaser wishes to use a lot prior to the date central
water is available to it, may the purchaser install an individual
system? If so, include the information required for individual systems
in Sec. 1010.111(a)(1)(i). Will the purchaser be required to
discontinue use of any individual system and connect to the central
system when service is available to the lot? If the purchaser is not
required to connect to the central system, must any construction costs,
connection fees, availability fees, special assessments or deposits in
connection with the central system still be paid? If an individual
system may not be installed, so state and indicate water will not be
available until the central system is extended to the lot.
(J) If connection to the system is voluntary and not all purchasers
elect to use the system, will the cost to those who do use the system be
increased? If so, include a statement to the effect that connection to
the central system is voluntary and those who use the system may have to
pay a disproportionate share of the cost of the system and its
operation.
(K) If the developer is to construct the system and will later turn
it over to a property owners' association for operation and maintenance,
state the estimated date and conditions of the conveyance and if it will
be conveyed free and clear of any encumbrance. If there is a charge or
if the association must assume an encumbrance, state the estimated
amount of either and the terms for retirement of either obligation.
(L) If the supplier of water is other than a governmental agency or
an entity which is regulated and supervised by a governmental agency,
state that neither the operation of the water system nor the rates are
regulated by a public authority.
(M) The warning ``We do not own or operate the central water system
so we cannot assure its continued availability for your use'' shall be
included unless:
(1) The central water system is owned and operated by the developer,
or an affiliate or subsidiary of the developer, or
(2) The central water system is owned and operated by a governmental
agency or by an entity which is regulated and supervised by a
governmental agency.
(b) Sewer. (1) What methods of sewage disposal are to be used (e.g.,
central system, comfort stations or individual on-site systems such as
septic tanks, holding tanks, etc.) in the subdivision? Of the following
items, only those which apply to the subdivision need be included.
(i) Individual systems. (A) If individual systems are to be used,
have the local authorities given general approval to the use of these
systems in the subdivision or have they given specific approval for each
lot? Are permits necessary? From whom and where are they obtained? Must
testing of the lot be done prior to the issuance of a permit? State the
cost of a permit and the estimated costs of the system and any necessary
tests.
(B) If holding tanks are to be used, state whether pumping and
hauling service is available and the estimated monthly costs of that
service for a family of four living in a house on a year-round basis.
(C) If each and every lot has not been approved for the use of an
individual on-site system, include a warning to the effect that there is
no assurance permits can be obtained for the installation and use of
individual on-site systems. If the sales contract contains no provisions
for refund or exchange in the event a permit cannot be obtained, include
a statement to the effect that there is no assurance an individual on-
site system can be installed and, if it cannot, no refund of the
purchase price of the lot will be made.
(D) If no permit is required for the installation and use of
individual on-site
[[Page 463]]
systems, explain whether this may have an effect upon the purchaser or
the availability of construction or permanent financing.
(E) If the developer has knowledge that permits for the installation
of individual on-site systems have been denied; that there have been
unsatisfactory percolation tests or that systems have not operated
satisfactory in the subdivision, state the number of these rejections,
unsatisfactory tests or operations.
(ii) Comfort stations. (A) If comfort stations are to be used, how
many lots will be served by each station? When will construction be
started? When will the station or stations be completed and ready for
use? Have the necessary permits been obtained for the construction and
use of comfort stations? If the necessary permits have not been
obtained, include a warning that the necessary permits, approvals or
licenses have not been obtained for the construction and use of the
comfort stations; therefore there is no assurance they can be
constructed or used. If there are comfort stations located in different
units and having different completion dates, the chart found in section
XXII of the appendix to this part: Comfort Station Chart shall be used
to show the estimated construction starting date (month and year), the
present percentage of completion and the date on which they will be used
rather than a narrative paragraph.
(B) Who is to construct the comfort stations? Is there any financial
assurance of their completion? If not, include a warning to the effect
that no funds have been set aside in an escrow or trust account nor have
any other financial arrangements been made to assure completion of the
comfort stations and there is no assurance the facilities will be
completed.
(C) Who will be responsible for maintenance of the comfort stations?
Is there any cost to the purchaser for construction, use or maintenance?
(iii) Central system. (A) If a central sewage treatment and
collection system is being installed, who is responsible for
construction of the system? Will the sewer mains be installed in front
of, or adjacent to, each lot? When will construction be started (month
and year)? When will service be available (month and year)? Who will own
and operate the system? Give the name and address of the entity.
(B) What is the present percentage of completion and the present
capacity of the system (i.e., number of connections which can be
served)? If the present capacity is not sufficient to serve all lots in
the Statement of Record and it is to be expanded in phases, what is the
time-table for expansion and what will trigger that expansion? If the
central system is not complete and there are separate units or sections
of the subdivision which have different service availability dates, the
chart found in section XXIII of the appendix to this part: Sewer Chart
shall be used to show the construction starting date (month and year);
the percentage of completion and service availability date (month and
year) in each unit or section rather than a narrative paragraph. If
sewage treatment facilities are to be supplied by an entity which is
regulated by a governmental agency and which is not the developer or an
affiliate or subsidiary of the developer and the entity has stated it
can serve the anticipated population of the development, then
information on capacity need not appear.
(C) If the developer or an affiliate or subsidiary of the developer
operates the central system, have all necessary permits been obtained
for the construction, operation and use of the central system? Do these
permits limit the number of connections or homes which the system may
serve? If the permits have not been obtained, enter a warning to the
effect that the necessary permits, approvals or licenses have not been
obtained for the central sewage system; therefore there is no assurance
that the system can be completed, operated or used.
(D) If the system cannot now serve all lots included in the
Statement of Record, either because the supplier of the service has not
stated it can and will serve all lots or if construction has not reached
a stage where all lots can be served or permits to serve all lots have
not been obtained, include a warning which states that all lots cannot
now be served; the number which
[[Page 464]]
can be served and the reason for the lack of capacity.
(E) Will the purchaser pay any construction costs, special
assessments, one time connection fees or availability fees? What are the
amounts of these charges? If the purchaser is to pay construction costs
of the sewer mains, state the cost of installation of the mains to the
most remote lot in this Report.
(F) If the purchaser wishes to use the lot prior to the date central
sewer service is available, may the purchaser install an individual
system? If so, include the information on individual systems required by
Sec. 1010.111(b)(1)(i). Will the purchaser be required to discontinue
use of the individual system and connect to the central system when
service is available? If the purchaser is not required to connect to the
central system, must the purchaser still pay any construction costs,
connection fees, availability fees, or special assessments? If the
purchaser may not install an individual system, so state and indicate
service will not be available until the central system reaches the lot.
(G) If connection to the system is voluntary and not all purchasers
elect to use the system, will the cost to those who do use the system be
increased? If so, include a statement to the effect that connection to
the central system is voluntary and those who use the system may have to
pay a disproportionate share of the cost of the system and its
operation.
(H) Is there any financial assurance of completion of the central
system and any future expansion? If not, include a warning that no funds
have been set aside in an escrow or trust account nor have any other
financial arrangements been made to assure the completion of the central
system; therefore there is no assurance that it will be completed.
(I) If previous completion dates given in prior Statements of Record
have not been met, state that previous dates have not been met and give
the previous dates. Underline the answer. If the central sewage
treatment and collection system are 100 percent completed, no dates are
needed.
(J) If the developer is to construct the system and will later turn
it over to a property owners' association for operation and maintenance,
state the date of the transfer and whether there will be any charge for
the conveyance and if it will be conveyed free and clear of any
encumbrance. If there is a charge or if the association must assume an
encumbrance, state the estimated amount of either and the terms for
retirement of either obligation.
(K) If the owner or operator of the central sewer system is other
than a governmental agency or an entity which is regulated and
supervised by a governmental agency, state that neither the operation of
the sewer system nor the rates are regulated by a public authority.
(L) The warning ``We do not own or operate the central sewer system
so we cannot assure its continued availability for your use.'' shall be
included unless:
(1) The central sewer system is owned and operated by the developer,
or an affiliate or subsidiary of the developer, or
(2) The central sewer system is owned and operated by a governmental
agency or by an entity which is regulated and supervised by a
governmental agency.
(c) Electricity. (1) Who will provide electrical services to the
subdivision?
(2) Have primary electrical service lines been extended in front of,
or adjacent to, all of the lots? If not, when (month and year) or under
what conditions will construction begin and when will service be
available? If they have not been installed, who is responsible for their
construction? If electrical service lines have not been extended in
front of, or adjacent to, all lots and there are separate units or
sections having different service availability dates, the chart found in
section XXIV of the appendix to this part: Electric Service Chart shall
be used rather than a narrative paragraph.
(3) If construction of the lines or service to the ultimate consumer
is provided by an entity other than a publicly regulated utility, who
provides, or will provide, the service? Who will be responsible for
maintenance? What is the assurance of completion? If service
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is not provided by a publicly regulated utility, what charges or
assessments will the purchaser pay?
(4) If the primary service lines have not been extended in front of,
or adjacent to each lot, will the purchaser be responsible for any
construction costs? If so, what is the utility company's policy and
charges for extension of primary lines? Based on that policy, what would
be the cost to the purchaser for extending primary service to the most
remote lot in this Report?
(5) If electrical service will not be provided, what is an alternate
source (e.g., generators, etc.) and what are the estimated costs?
(6) If the lines are to be installed by some entity other than a
publicly regulated utility and if there is no financial assurance of
completion, include a warning to the effect that no funds have been set
aside in an escrow or trust account nor have any other financial
arrangements been made to assure construction of the electric lines.
(d) Telephone. (1) Is telephone service now, or will it be,
available? Who will furnish the service?
(2) Have the service lines been extended in front of, or adjacent
to, each of the lots? If not, when, and under what conditions, will
construction be started and when will service be available (month and
year)?
(3) If the service lines have not been extended in front of, or
adjacent to, each lot, will the purchaser be responsible for any
construction costs? If so, what is the utility company's policy and
charges for extension of service lines? Based on that policy, what would
be the cost to the purchaser of extending service lines to the most
remote lot in this Report?
(e) Fuel or other energy source. (1) What fuel, or other energy
source, will be available for heating, cooking, etc. in the subdivision?
If other than electricity is to be used, describe the availability of
the fuel or other energy source. Give the name and address of the
supplier. If the fuel is natural gas, when will the mains be installed
to the lots? What is the cost to the purchaser for installation fees and
connection fees? If oil or propane gas will be used, include the cost of
a storage tank.
(2) [Reserved]
Sec. 1010.112 Financial information.
(a) The information required by paragraphs (b) and (c) of this
section need appear only if the answer to the question is an affirmative
one.
(b) Has the developer had a deficit in retained earnings or
experienced an operating loss during the last fiscal year or, if less
than a year old, since its formation? If so, include a statement to the
effect that this may affect the developer's ability to complete promised
facilities and to discharge financial obligations. This statement may be
omitted if:
(1) All facilities, utilities and amenities proposed to be completed
by the developer in the Property Report and sales contract have been
completed so that the lots included in the Statement of Record are
immediately usable for the purpose for which they are sold, or if:
(2) The developer is contractually obligated to the purchaser to
complete all facilities, utilities and amenities promised by it in the
Statement of Record, and:
(i) The developer has made financial arrangements, such as the
posting of surety bonds (corporate or individual notes or bonds are not
acceptable), irrevocable letters of credit, escrow or trust accounts, to
assure that the facilities, utilities and amenities will be completed by
the dates set out in the Property Report or contract;
(ii) The sales contract provides for delivery of a deed within 180
days of the signing of the contract which conveys title free of any
mortgage or lien, or the developer has filed an assurance of title
agreement with ILSRP as outlined in Sec. 1010.212(e); and
(iii) Any down payments or deposits are held in an escrow or trust
account.
(c) If the developer's financial statements have been audited, did
the accountant qualify the opinion or decline to give an opinion? If so,
why was the opinion qualified or declined?
(d) The following statement shall appear: ``A copy of our financial
statements for the period ending __________________ is available from us
upon request.''
(e) The information furnished in Sec. 1010.212(b) may necessitate a
warning
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as to costs and/or feasibility of the completion of the subdivision.
Sec. 1010.113 Local services.
(a) Fire protection. Describe the availability of fire protection
and indicate whether it is available year round.
(b) Police protection. Describe the availability of police
protection.
(c) Schools. State whether elementary, junior high and senior high
schools are available to residents of the subdivision. Is school bus
transportation available from within the subdivision?
(d) Hospital. Give the name and location of the nearest hospital and
state whether ambulance service is available.
(e) Physicians and dentists. State the location of the nearest
physicians' and dentists' offices.
(f) Shopping facilities. State the location of the nearest shopping
facilities.
(g) Mail service. If there is no mail service to the subdivision,
describe the arrangements the purchasers must make to receive mail
service.
(h) Public transportation. Is there public transportation available
in the subdivision or to nearby towns? If not, give the location of the
nearest public transportation and the distance from the subdivision.
Sec. 1010.114 Recreational facilities.
(a) Recreational facilities to be covered. Unless otherwise
indicated, all information required by paragraphs (b) and (c) of this
section shall be provided for only those recreational facilities which
(1) The developer is contractually responsible to provide or
complete and which are:
(i) Within, adjacent or contiguous to the subdivision, and
(ii) Maintained substantially for the use of lot owners; or
(2) For which a third party is responsible and which are:
(i) Within, adjacent or contiguous to the subdivision, and
(ii) Maintained substantially for the use of lot owners.
(b) Recreational facility chart. Complete the chart found in section
XXV of the appendix to this part: Recreational Facility Chart in
accordance with the instructions which follow it. This chart shall
immediately follow the Sec. 1010.114 heading. Limit the chart to
facilities provided essentially for use of lot buyers.
(1) Facility. Identify each recreational facility. Identify closely
related facilities (e.g., swimming pool and bathhouse) separately only
if their availability dates differ. If any recreational facility is not
owned by the developer, insert a warning below the chart phrased
substantially as follows: ``We do not own the (name of facility or
facilities) so we can not assure its (their) continued availability.''
(2) Percent complete. State the present percentage of completion of
construction for each recreational facility.
(3) Estimated date of start of construction. Insert the estimated
date of the start of construction for the facility (month and year).
(4) Estimated date available for use. If the construction of the
facility is not complete or if it is not available to lot owners for its
intended use, indicate the estimated date (month and year) that the
facility will be available for use. If the ``estimated date available
for use'' for any facility has been amended to delay it to a later date,
indicate such delay in a statement immediately below the chart.
Underline the response. This statement shall include the name of the
facility and the prior estimated availability date, and it shall be
referenced to the appropriate facility listed on the chart by use of an
asterisk or other appropriate symbol. If a facility is 100 percent
completed and in use, no date is needed.
(5) Financial assurance of completion. If the construction of the
facility is not complete, state whether there is any financial assurance
of completion. If none, state ``none.'' If such exists, state the type
of assurance (i.e., bond, escrow, or trust). If no documentation for
such assurance has been provided in Sec. 1010.214 of the Statement of
Record, then do not indicate such assurance on the chart, but in place
of such assurance on the chart state ``none.''
(6) Buyer's annual cost or assessments. State the lot buyer's annual
cost or assessments for using the facility. These costs should include
any applicable property owners' association assessment, and the
developer's maintenance
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assessment. If the cost information is lengthy, you may use an asterisk
or other appropriate symbol and include the cost information in a
paragraph below the chart.
(c) Information to be provided below the recreational facility chart
and related warnings.
(1) Constructing the facilities. If the facilities are not complete,
indicate who is responsible for the construction of the facilities.
Indicate whether the purchaser will be required to pay any of the cost
of construction of these facilities (estimate and disclose such cost, if
any).
(2) Maintaining the facilities. Indicate who is responsible for the
operation and maintenance of these facilities.
(3) Facilities which will be leased to lot purchasers. If no
facilities covered here will be leased to a Property Owners' Association
or other lot owners in the subject subdivision, omit this caption and
any information requested under it from the Property Report. If such
leases exist or are anticipated, state which facilities are or will be
leased and indicate the term of the lease. Also, state whether the lot
owners will have an opportunity to terminate or ratify the lease after
control of the Property Owners' Association is turned over to them.
Indicate whether the owner of a recreational facility leased to the
Property Owners' Association or other lot owners may encumber it and
whether the holders of such encumbrances may acquire the leased
facilities and not honor the lease. Indicate whether the lease payments
may be increased on an escalating or other basis and what costs or
expenses, if any, will be borne by the owner. State whether the lease
can be assigned or sublet. State how the lease can be terminated.
(4) Transfer of the facilities. If there are presently any liens or
mortgages on any of these recreational facilities, describe such liens
or mortgages. If the developer, or owner of the subdivision, their
principals, or subsidiaries, intend to transfer the title of a listed
recreational facility in the future, explain at what time, by what type
of conveyance, and to whom such transfer will be made. Disclose any
adverse effects on, or cost to, lot purchasers which may be caused by
such transfer. If any facility is to be transferred to lot owners as a
Property Owners' Association or otherwise, state whether the facility
will be transferred free and clear of all liens and encumbrances. If
not, state the amount of the encumbrance to be assumed and disclose any
contractual conditions on such transfer which relate to lot purchasers.
(5) Permits. If the necessary permits have not been obtained for the
construction and/or use of the facilities, identify the facilities for
which such permits have not been obtained and include the following
statement, or one substantially the same, in the narrative under the
caption ``Permits'': ``The (identify the permit or license) has not been
obtained and therefore there is no assurance that the lot owners will be
able to use the (identify the facility).''
(6) Who may use the facilities. Indicate who will be permitted to
use the recreational facilities (e.g., lot owners, their guests,
employees of developer, general public). If the general public will be
permitted to use the facilities include the following statement in the
narrative under the caption ``Who may use the facilities'': ``The
(identify the facility) is open to use by the general public and their
use of the facility may limit use of it by lot owners.''
Sec. 1010.115 Subdivision characteristics and climate.
(a) General topography. What is the general topography and the major
physical characteristics of the land in the subdivision? State the
percentage of the subdivision which is to remain as natural open space
and as developed parkland. Are there any steep slopes, rock
outcroppings, unstable or expansive soil conditions, etc., which will
necessitate the use of special construction techniques to build on, or
use, any lot in the subdivision? If so, identify the lots affected, and
describe the techniques recommended. If any lots in the subdivision have
a slope of 20%, or more, include a warning that ``Some lots in this
subdivision have a slope of 20%, or more. This may affect the type and
cost of construction.''
(b) Water coverage. Are any lots, or portions of any lots, covered
by water at any time? What lots are affected?
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When are they covered by water? How does this affect their use for the
purpose for which they are sold? Can the condition be corrected? At what
cost to the purchaser?
(c) Drainage and fill. Identify the lots which require draining or
fill prior to being used for the purpose for which they are being sold.
Who will be responsible for any corrective action? If the purchaser is
responsible, what are the estimated costs?
(d) Flood plain. Is the subdivision located within a flood plain or
an area designated by any Federal, state or local agency as being flood
prone? What lots are affected? Is flood insurance available? Is it
required in connection with the financing of any improvements to the
lot? What is the estimated cost of the flood insurance?
(e) Flooding and soil erosion. (1) Does the developer have a program
which provides, or will provide, at least minimum controls for soil
erosion, sedimentation or periodic flooding throughout the subdivision?
(2) If there is a program, describe it. Include in the description
information as to whether the program has been approved by the
appropriate government officials; when it is to start; when it is to be
completed (month and year); whether the developer is obligated to comply
with the program and whether there is any financial assurance of
completion.
(3) If there is no program or if the program has not been approved
by the appropriate officials or if the program does not provide minimum
protection, include a statement to the effect that the measures being
taken may not be sufficient to prevent property damage or health and
safety hazards. A minimum program will usually provide for:
(i) Temporary measures such as mulching and seeding of exposed areas
and silt basins to trap sediments in runoff water, and
(ii) Permanent measures such as sodding and seeding in areas of
heavy grading or cut and fill along with the construction of diversion
channels, ditches, outlet channels, waterway stabilizers and sediment
control basins.
(f) Nuisances. Are there any land uses which may adversely affect
the subdivision (e.g., unusual or unpleasant noises or odors, pollutants
or nuisances such as existing or proposed industrial activity, military
installations, airports, railroads, truck terminals, race tracks, animal
pens, noxious smoke, chemical fumes, stagnant ponds, marshes,
slaughterhouses and sewage treatment facilities)? If any nuisances
exist, describe them. If there are none, state there are no nuisances
which affect the subdivision.
(g) Hazards. (1) Are there any unusual safety factors which affect
the subdivision (e.g., dilapidated buildings, abandoned mines or wells,
air or vehicular traffic hazards, danger from fire or explosion or
radiation hazards)? Is the developer aware of any proposed plans for
construction which may create a nuisance or safety hazard or adversely
affect the subdivision? If there are any existing hazards or if there is
any proposed construction which will create a nuisance or hazard,
describe the hazard or nuisance. If there are no existing or possible
future hazards, state that there are none.
(2) Is the area subject to natural hazards or has it been formally
identified by any Federal, state or local agency as an area subject to
the frequent occurrence of natural hazards (e.g., tornadoes, hurricanes,
earthquakes, mudslides, forest fires, brush fires, avalanches, flash
flooding)? If the jurisdiction in which the subdivision is located has a
rating system for fire hazard, state the rating assigned to the land in
the subdivision and explain its meaning.
(h) Climate. What are the average temperature ranges, summer and
winter, for the area in which the subdivision is located (i.e., high,
low and mean)? What is the average annual rainfall and snowfall?
(i) Occupancy. How many homes are occupied on a full- or part-time
basis as of (date of submission)?
Sec. 1010.116 Additional information.
(a) Property Owners' Association. (1) Will there be a property
owners' association for the subdivision? Has it been formed? What is its
name? Is it operating? If not yet formed, when will it be formed? Who is
responsible for its formation?
[[Page 469]]
(2) Does the developer exercise, or have the right to exercise, any
control over the Association because of voting rights or placement of
officers or directors? For how long will this control last?
(3) Is membership in the association voluntary? Will non-member lot
owners be subject to the payment of dues or assessments? What are the
association dues? Can they be increased? Are members subject to special
assessments? For what purpose? If membership in the association is
voluntary and if the association is responsible for operating or
maintaining facilities which serve all lot owners, include the following
statement: ``Since membership in the association is voluntary, you may
be required to pay a disproportionate share of the association costs or
it may not be able to carry out its responsibilities.''
(4) What are the functions and responsibilities of the association?
Will the association hold architectural control over the subdivision?
(5) Are there any functions or services that the developer now
provides at no charge for which the association may be required to
assume responsibility in the future? If so, will an increase in
assessments or fees be necessary to continue these functions or
services?
(6) Does the current level of assessments, fees, charges or other
income provide the capability for the association to meet its present,
or planned, financial obligations including operating costs, maintenance
and repair costs and reserves for replacement? If not, how will any
deficit be made up?
(b) Taxes. (1) When will the purchaser's obligation to pay taxes
begin? To whom are the taxes paid? What are the annual taxes on an
unimproved lot after the sale to a purchaser? If the taxes are to paid
to the developer, include a statement that ``Should we not forward the
tax funds to the proper authorities, a tax lien may be placed against
your lot.''
(2) If the subdivision is encompassed within a special improvement
district or if a special district is proposed, describe the purpose of
the district and state the amount of assessments. Describe the
purchaser's obligation to retire the debt.
(c) Violations and litigations. This information need appear only if
any of the questions are answered in the affirmative. Unless the
Director gives prior approval for it to be omitted, a brief description
of the action and its present status or disposition shall be given.
(1) With respect to activities relating to or in violation of a
Federal, state or local law concerned with the environment, land sales,
securities sales, construction or sale of homes or home improvements,
consumer fraud or similar activity, has the developer, the owner of the
land or any of their principals, officers, directors, parent
corporation, subsidiaries or an entity in which any of them hold a 10%
or more financial interest, been:
(i) Disciplined, debarred or suspended by any governmental agency,
or is there now pending against them an action which could result in
their being disciplined, debarred or suspended or,
(ii) Convicted by any court, or is there now pending against them
any criminal proceedings in any court? ILSRP suspension notices on pre-
effective Statements of Record and amendments need not be listed.
(2) Has the developer, the owner of the land, any principal, any
person holding a 10% or more financial or ownership interest in either,
or any officer or director of either, filed a petition in bankruptcy?
Has an involuntary petition in bankruptcy been filed against it or them
or have they been an officer or director of a company which became
insolvent or was involved, as a debtor, in any proceedings under the
Bankruptcy Act during the last 13 years?
(3) Is the developer or any of its principals, any parent
corporation or subsidiary, any officer or director a party to any
litigation which may have a material adverse impact upon its financial
condition or its ability to transfer title to a purchaser or to complete
promised facilities? If so, include a warning which describes the
possible effects which the action may have upon the subdivision.
(d) Resale or exchange program. (1) Are there restrictions which
might hinder
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lot owners in the resale of their lots (e.g., a prohibition against
posting signs, limitations on access to the subdivision by outside
brokers or prospective buyers; the developer's right of first refusal;
membership requirements)? If so, briefly explain the restrictions.
(2) Does the developer have an active resale program? If the answer
is ``no,'' include the following statement: ``We have no program to
assist you in the sale of your lot.''
(3) Does the developer have a lot exchange program? If the answer is
``yes,'' describe the program; state any conditions and indicate if the
program reserves a sufficient number of lots to accommodate all those
wishing to participate. If there is no program or if sufficient lots are
not reserved, include one of the following statements as applicable:
``We do not have any provision to allow you to exchange one lot for
another'' or ``We do not have a program which assures that you will be
able to exchange your lot for another.''
(e) Unusual situations. This topic need appear only if one or more
of the following cases apply to the subdivision, then only the
applicable subject, or subjects, will appear.
(1) Leases. What is the term of the lease? Is it renewable? Is it
recordable? Can creditors of the developer, or owner, acquire title to
the property without any obligation to honor the terms of the lease? Are
the lease payments a flat sum or are they graduated? Can the lessee
mortgage or otherwise encumber the leasehold? Will the lessee be
permitted to remove any improvements which have been installed when the
lease expires or is terminated?
(2) Foreign subdivision. (i) Is the owner or developer of the
subdivision a foreign country corporation? If legal action is necessary
to enforce the contract, must it be taken in the courts of the country
where the subdivision is located?(ii) Does the country in which the
subdivision is located have any laws which restrict, in any way, the
ownership of land by aliens? If so, what are the restrictions?
(iii) Must an alien obtain a permit or license to own land, build a
home, live, work or do business in the country where the subdivision is
located? If so, where is such permit or license secured; for how long is
it valid and what is its cost?
(3) Time sharing. (i) How is title to be conveyed? How many shares
will be sold in each lot? How is use time allocated? How are taxes,
maintenance and utility expenses divided and billed? How are voting
rights in any Association apportioned? Are there management fees? If so,
what are their amounts and how are they apportioned?
(ii) Is conveyance of any portion of the lot contingent upon the
sale of the remaining portions? Is the initial buyer responsible for any
greater portion of the expense than his normal share until the remaining
interests are sold? If the purchase of any of the portions is financed,
will the default of one owner have any effect upon the remaining owners?
(4) Memberships. (i) Does the purchaser receive any interest in
title to the land? What is the term of the membership? Is it renewable?
What disposition is made of the membership in the event of the death of
the member? Are the lots individually surveyed and the corners marked?
If not, how does the member identify the area which the member is
entitled to use? What is the approximate square footage the member is
entitled to use? Are there different classes of membership? How are the
different classes identified and what are the differences between them?
(ii) If the member does not receive any interest in the title to the
land, include a warning to the effect that ``you receive no interest in
the title to the land but only the right to use it for a certain period
of time.''
(f) Equal opportunity in lot sales. State whether or not the
developer is in compliance with title VIII of the Civil Rights Act of
1968 by not directly or indirectly discriminating on the basis of race,
color, religion, sex, national origin, familial status, and handicap in
any of the following general areas: Lot marketing and advertising,
rendering of lot services, and in requiring terms and conditions on lot
sales and leases. An affirmative answer cannot be given if the
developer, directly or indirectly,
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because of race, color, religion, sex, national origin, familial status,
or handicap is:
(1) Refusing to sell or lease lots after the making of a bona fide
offer or to negotiate for the sale or lease of lots or is otherwise
making unavailable or denying a lot to any person, or
(2) Discriminating against any person in the terms, conditions or
privileges in the sale or leasing of lots or in providing services or
facilities in connection therewith, or
(3) Making, printing, publishing or causing to be made, printed or
published any notice, statement or advertisement with respect to the
sale or leasing of lots that indicates any preference, limitation or
discrimination against any person, or
(4) Representing to any person that any lot is not available for
inspection, sale or lease when such lot is in fact available, or
(5) For profit, inducing or attempting to induce any person to sell
or lease any lot by representations regarding the entry or non-entry
into the neighborhood of a person or persons of a particular race,
color, religion, sex, national origin, familial status, or handicap.
(g) Listing of lots. Provide a listing of lots which shall consist
of a description of the lots included in the Statement of Record by the
names or number of the section or unit, if any; the block number, if
any; and the lot numbers. The lots shall be listed in the most efficient
and concise manner. If the filing is a consolidation, the listing shall
include all lots registered to date in the subdivision, except any which
have been deleted by amendment.
Sec. 1010.117 Cost sheet, signature of Senior Executive Officer.
(a) Cost sheet--Format. (1) The cost sheet shall be prepared in
accordance with the format found in section XXVI of the appendix to this
part: Cost Sheet Format and paragraph (a)(2) of this section.
(2) Cost sheet instructions. (i) All amounts for cost sheet items
will be entered before the purchaser signs the receipt. However, any
costs that are identical for all lots may be pre-printed.
(ii) If a central water or sewer system will be used in all or part
of the subdivision and a private system in all or other parts, then the
portion that does not apply to the purchaser's lot shall be crossed out.
(iii) If individual private systems may be used prior to the
availability of service from any central system and the purchaser is not
required to connect to any central system, both figures may be entered
or only the highest cost figures may be used with a parenthetical
explanation or footnote. If the purchaser is required to connect to any
central system and discontinue the use of his private system when
central service is available, both cost figures shall be given, together
with an explanation or footnote.
(iv) If there is a one time, lump sum ``availability fee'' which is
assessed to the purchaser in connection with a central utility, include
under ``other'' and identify.
(v) Dues and assessments need be included only if they are
involuntary regardless of use.
(vi) At the discretion of the Director, where there is extreme
diversity in the figures for different areas of the subdivision,
variations may be permitted as to whether the figures will be printed,
entered manually, or a range of costs used or any combination of these
features.
(vii) The estimated annual taxes shall be based upon the projected
valuation of the lot after sale to a purchaser.
(b) Signature of the Senior Executive Officer. The Senior Executive
Officer or a duly authorized agent shall sign the property report.
Facsimile signatures may be used for purposes of reproduction of the
property report.
Sec. 1010.118 Receipt, agent certification, and cancellation page.
(a) Format. The receipt, agent certification and cancellation page
shall be prepared in accordance with the sample found in section XXVII
of the appendix to this part: Sample Receipt, Agent Certification and
Cancellation Page.
(b) The original and one copy of this executed page shall be
attached to the Property Report delivered to prospective purchasers.
After the purchaser
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has signed the receipt and the salesman has signed the certification,
the copies can be retained by the developer for a period of three years
from the date of execution or the term of the contract, whichever is the
longer. Upon demand by the Director, the developer shall, without delay,
make the copies of these receipts and certifications available for
inspection by the Director or the developer shall forward to the
Director any of the receipts and certifications, or copies thereof, as
the Director may specify.
(c) If the transaction takes place through the mails, the cost
figures shall be entered and the person most active in dealing with the
prospective purchaser shall sign the certification prior to mailing the
Property Report to the purchaser. Otherwise, the certification shall be
executed in the presence of the purchaser.
(d) The date of Report appearing on the receipt shall be the same as
that appearing on the cover sheet of the Property Report.
(e) Notification of cancellation by mail shall be considered given
at the time post-marked.
Sec. 1010.200 Instructions for Statement of Record, Additional
Information and Documentation.
The Additional Information and Documentation portion of the
Statement of Record shall contain the statements and documents required
in Sec. Sec. 1010.208 through 1010.219. Each section number and its
associated heading and each paragraph letter or number and their
associated subheadings or captions must appear in this portion.
Following each heading, subheading, or caption printed in this portion,
the registrant shall insert an appropriate response. If a heading,
subheading, or caption does not apply to the subdivision, it shall be
followed by the words ``not applicable''. Immediately after the page(s)
on which the section number and answers for that section appear, insert
the information or documents which support that section. In addition to
the statements and documentation expressly required there shall be added
any further material, information, documentation and certifications as
may be necessary in the public interest and for the protection of
purchasers or to cause the statements made to be not misleading in the
light of the circumstances under which they are made.
Sec. Sec. 1010.201-1010.207 [Reserved]
Sec. 1010.208 General information.
(a) Administrative information. (1) State whether the material
represents an initial Statement of Record or a consolidated Statement of
Record. If it is a consolidated Statement of Record, identify the
original ILSRP number assigned to the initial Statement of Record. State
whether subsequent Statements of Record will be submitted for additional
lots in the subdivision.
(2) Has the developer submitted a request for an exemption for the
subdivision?
(3) List the states in which registration has been made by the
developer for the sale of lots in the subdivision.
(4) If any state listed in paragraph (a)(3) of this section has not
permitted a registration to become effective or has suspended the
registration or prohibited sales, name the state involved and give the
reasons cited by the state for their action.
(5) State whether the developer has made, or intends to make, a
filing with the U.S. Securities and Exchange Commission (SEC) which is
related in any way to the subdivision. If a filing has been made with
the SEC, give the SEC identification number; identify the prospectus by
name; date of filing and state the page number of the prospectus upon
which specific reference to the subdivision is made. Any disciplinary
action taken against the developer by the SEC should be disclosed in
Sec. Sec. 1010.116 and 1010.216.
(b) Subdivision information. (1) If this is a consolidated Statement
of Record, state the number of lots being added, the number of lots in
prior Statements of Record and the new total number of lots. The
Director must be able to reconcile the numbers stated here with the
title evidence; the plat maps and the disclosure in Sec. 1010.108.
(2) State the number of acres represented by the lots in this
Statement of Record. If this is a consolidated Statement of Record,
state the number
[[Page 473]]
of acres being added, the number of acres in prior Statements of Record
and the new total number of acres. State the total acreage owned in the
subdivision, the number of acres under option or similar arrangement for
acquisition of title to the land and the total acreage to be offered
pursuant to the same common promotional plan.
(3) State whether any lots have been sold in this subdivision since
April 28, 1969, and prior to registration with ILSRP. If they were sold
pursuant to an exemption, identify the exemption provision and state
whether an advisory opinion, exemption order or exemption determination
was obtained with respect to those lots sales. Give the ILSRP number
assigned to the exemption, if any.
(c) Developer information. (1) State the name, address, Internal
Revenue Service number and telephone number of the owner of the land. If
the owner is other than an individual, name the type of legal entity and
list the interest, and extent thereof, of each principal. Identify the
officers and directors.
(2) If the developer is not the owner of the land, state the
developer's name, address, Internal Revenue Service number and telephone
number. If the developer is other than an individual, name the type of
legal entity and list the interest, and the extent thereof, of each
principal. Identify the officers and directors.
(3) If you wish to appoint an authorized agent, state the agent's
name, address and telephone number and scope of responsibility. This
shall be the party designated by the developer to receive
correspondence, service of process and notice of any action taken by
ILSRP. In all Statements of Record, including those for foreign
subdivisions, the authorized agent shall be a resident of the United
States. A change of the authorized agent will require an appropriate
amendment.
(4) State whether the owner of the land, the developer, its parent,
subsidiaries or any of the principals, officers or directors of any of
them are directly or indirectly involved in any other subdivision
containing 100 or more lots. If so, identify the subdivision by name,
location, and ILSRP number, if any.
(5) State whether the owner or developer is a subsidiary
corporation. If either the owner or developer is a subsidiary
corporation or if any of the principals of the owner or developer are
corporate entities, name the parent and/or corporate entity and state
the principals of each to the ultimate parent entity.
(d) Documentation. (1) Submit a copy of the property report,
subdivision report, offering statement or similar document filed with
the state or states with which the subdivision has been registered.
(2) Submit a copy of a general plan of the subdivision. This general
plan must consist of a map, prepared to scale, and it must identify the
various proposed sections or blocks within the subdivision, the existing
or proposed roads or streets, and the location of the existing or
proposed recreational and/or common facilities. In an initial filing,
this map must at least show the area included in the Statement of
Record. In a consolidated Statement of Record, show areas being added,
as well as the areas previously registered. If a map of the entire
subdivision is submitted with the initial Statement of Record, and if no
substantial changes are made when material for a consolidated Statement
of Record is submitted, the original map may be included by reference.
(3)(i) If the developer is a corporation, submit a copy of the
articles of incorporation, with all amendments; a copy of the
certificate of incorporation or a certificate of a corporation in good
standing and, if the subdivision is located in a state other than the
one in which the original certificate of corporation was issued, a
certificate of registration as a foreign corporation with the state
where the subdivision is located.
(ii) If the developer is a partnership, unincorporated association,
joint stock company, joint venture or other form of organization, submit
a copy of the articles of partnership or association and all other
documents relating to its organization.
(iii) If the developer is not the owner of the land, submit copies
of the above documents for the owner.
[[Page 474]]
Sec. 1010.209 Title and land use.
(a) General information. (1) State whether the developer has
reserved the right to exchange or withdraw lots after a purchaser has
signed a sales contract (e.g., for prior sales, failure to pass credit
check). If yes, indicate this authority and make reference to the
applicable paragraph in the sales contract or other document.
(2) State whether there is a provision giving purchasers an option
to exchange lots. If yes, indicate this and make reference to the
applicable paragraph in the sales contract or other document.
(3) State whether the developer knows of any instruments not of
record which, if recorded, would affect title to the subdivision. If
yes, copies of these instruments shall be submitted, except that copies
of unrecorded contracts for sales of lots in the subdivision need not be
submitted.
(4)(i) Identify the Federal, State, and local agencies or similar
organizations which have the authority to regulate or issue permits,
approvals or licenses which may have a material effect on the
developer's plans with respect to the proposed division of the land, and
any existing or proposed facilities, common areas or improvements to the
subdivision.
(ii) Describe or identify the land or facilities affected; the
permit, approval or license required; and indicate whether the permit,
approval or license has been obtained by the developer.
(iii) If no agency regulates the division of the land or issues any
permits, approvals or licenses with respect to improvements, so state.
(iv) Answers must specifically cover the areas of environmental
protection; environmental impact statements; and construction, dredging,
bulkheading, etc. that affect bodies of water within or around the
subdivision. Also include licenses or permits required by water
resources boards, pollution control boards, river basin commissions,
conservation agencies or similar organizations.
(5) State whether it is unlawful to sell lots prior to the final
approval and recording of a plat map in the jurisdiction where the
subdivision is located.
(b) Title evidence. (1) Submit title evidence that specifically
states the status of the legal and equitable title to the land
comprising the lots covered by the Statement of Record and any common
areas or facilities disclosed in the Property Report. Title evidence
need not be submitted for those common areas and facilities which are
not owned by the developer.
(2) Acceptable title evidence shall be dated no earlier than 20
business days preceding the date of the filing of the Statement of
Record with the Director. Previously issued title evidence may be
updated to the date referred to in the preceding sentence by
endorsements or attorneys' opinions of title.
(3) The developer shall amend the title evidence to reflect the
change in status of title of any previously registered, reacquired lots
unless their status is at least as marketable as they were when first
offered for sale by the developer as registered lots.
(c) Forms of acceptable title evidence. (1) An original or a copy of
a signed owner's or mortgagee's policy of title insurance, title
commitment, certificate of title or similar instrument issued by a title
company authorized by law to issue such instruments in the state in
which the subdivision is located. Title evidence that limits insurance
or negligence liability to amounts less than the market value of the
subject land at the time of its acquisition by the subdivision owner is
not acceptable;
(2) A legal opinion stating the condition of title, prepared and
signed by an attorney at law experienced in the examination of titles
and a member of the Bar in the state in which the property is located.
The title opinion may be based on a Torrens land registration system
certificate of title, or similar instrument, provided it meets all
general title evidence requirements of this section and a copy of the
registration certificate of title is submitted. Title opinions that
limit negligence liability to amounts less than the market value of the
subject land at the time of its acquisition by the subdivision owner are
not acceptable.
(d) Title searches. The required evidence of the status of title
shall be based on a search of all public records
[[Page 475]]
which may contain documents affecting title to the land or the
developer's ability to deliver marketable title. The search must cover a
period which is required or generally considered adequate for insuring
marketability of title in the jurisdiction in which the subdivision is
located. Such search shall include an examination of at least the
documents listed in paragraphs (d)(1) through (5) of this section. This
search may be accomplished through the use of a title insurance company
title plant, the information in which is based on current searches of
the appropriate and necessary documents, including as a minimum those
listed immediately above. For any attorney's title opinion based on
Torrens certificates of title, the title search need only go beyond the
original time of registration of the certificate of title for those
types of encumbrances which were not conclusively settled by the
proceedings at the time of such registration. In such cases, the
required statement shall clearly reflect the documents and periods
searched.
(1) The records of the recorder of deeds or similar authority;
(2) U.S. Internal Revenue Liens;
(3) The records of the circuit, probate, or other courts including
Federal courts and bankruptcy or reorganization proceedings which have
jurisdiction to affect the title to the land;
(4) The tax records;
(5) Financing statements filed pursuant to the Uniform Commercial
Code or similar law. If it is held that the financing statements do not
affect the title of the land, include a statement of the legal authority
for that opinion.
(e) Items to be included in the title evidence. The acceptable title
evidence must include the following information, instruments and
statements and need not be repeated or duplicated elsewhere in the
Statement of Record.
(1) A legal description of the land on which the lots, common areas,
and facilities covered by the title evidence are located. This legal
description shall be adequate for conveying land in the jurisdiction in
which the subdivision is located. If this legal description is based on
a recorded plat, the lot numbers, recording place, book name, book
number, and page number shall be stated in the description. If this
legal description is given by metes and bounds, the title evidence shall
include or be accompanied by a certified statement of the preparer of
the title evidence, a licensed attorney, or an engineer or surveyor,
indicating that all subject lots, common areas, and common facilities
are encompassed within the metes and bounds description in the evidence.
If at any time after the submission of the legal description required
above, the description of the subject land is changed or found to be in
error, a correcting amendment shall be made to the Statement of Record.
(2) The name of the person(s) or other legal entity(ies) holding fee
title to the property described.
(3) The name of any person(s) or other legal entity(ies) holding a
leasehold estate or other interest of record in the property described.
(4) A listing of any and all exceptions or objections to the title,
estate or interest of the person(s) or legal entity(ies) referred to in
paragraph (e)(2) or (3) of this section, including any encumbrances,
easements, covenants, conditions, reservations, limitations or
restrictions of record. Any reference to exceptions or objections to
title shall include specific references to the instruments in the public
records upon which they are based. When an objection or exception to
title affects less than all of the property covered by this Statement of
Record, the title evidence shall specifically note what portion of the
property is so affected.
(5) Copies of all instruments in the public records specifically
referred to in paragraph (e)(4) of this section. Abstracts of such
instruments are acceptable if prepared by an attorney or professional or
official abstractor qualified and authorized by law to prepare and
certify such abstracts and if the abstracts contain a material portion
of the recorded instruments sufficient to determine the nature and
effect of such instruments. Also include copies of any release
provisions, relating to encumbrances on the property described, which
are not included in the documents otherwise required by this section.
[[Page 476]]
(6) If an attorney's title opinion has been submitted pursuant to
this section which has been based on a Torrens land registration
certificate of title, submit a copy of such certificate.
(f) Supplemental title information. (1) If there is a holder of an
ownership interest in the land other than the developer, submit a copy
of any documentation which evidences the developers' authorization to
develop and/or sell the land.
(2) Submit copies of any trust deeds, deeds in trust, escrow
agreements or other instruments which purport to protect the purchaser
in the event of default or bankruptcy by the developer on any instrument
or instruments which create a blanket encumbrance upon the property
unless they have been previously provided as part of ``title evidence''
submitted pursuant to paragraph (e) of this section.
(3)(i) Submit copies of all forms of contracts or agreements and
notes to be used in selling or leasing lots. The contracts or
agreements, including promissory notes, must contain the following
language in boldface type (which must be distinguished from the type
used for the rest of the contract) on the face or signature page above
all signatures: ``You have the option to cancel your contract or
agreement of sale by notice to the seller until midnight of the seventh
day following the signing of the contract or agreement. If you did not
receive a Property Report prepared pursuant to the rules and regulations
of the Bureau of Consumer Financial Protection, in advance of your
signing the contract or agreement, the contract or agreement of sale may
be cancelled at your option for two years from the date of signing.''
(ii) If the purchaser is entitled to a longer revocation period by
operation of state law or the Act, that period becomes the Federal
revocation period and the contract or agreement must reflect the
requirements of the longer period, rather than the seven days. This
language shall be consistent with that shown on the cover page (see
Sec. 1010.105).
(iii) The revocation provisions may not be limited or qualified in
the contract or other document by requiring a specific type of notice or
by requiring that notice be given at a specified place.
(iv) If it is represented that the developer will provide or
complete roads or facilities for waters, sewer, gas, electric service or
recreational amenities, the contract must contain a provision that the
developer is obligated to provide or complete such roads, facilities and
amenities.
(4) Submit copies of deeds and leases by which the developer will
lease or convey title to the lots to purchasers or lessees.
(g) Plat maps, environmental studies and restrictions--(1) Plat
maps. (i) In those jurisdictions where it is unlawful to sell lots prior
to final approval and recording of the plat, and in those cases where a
plat has been recorded, submit a copy of the recorded plat. This plat
should be an exact copy of the recorded document. It should reflect the
signatures of the approving authorities and bear a stamp or notation by
the recorder of deeds, or similarly constituted officer, as to the
recording data.
(ii) If the plat has not been approved by the local authorities nor
recorded, and if it is not unlawful to sell lots prior to final approval
and recording, submit a map which has been prepared to scale and which
shows the proposed division of the land, the lot dimensions and their
relation to proposed or existing streets and roads. The map shall
contain sufficient engineering data to enable a surveyor to locate the
lots.
(iii) Whether recorded or unrecorded, the plat or map should show:
(A) The dimensions of each lot, stated in the standard unit of
measure acceptable for such purposes in the political subdivision where
the land is located.
(B) A clear delineation of each of the lots and any common areas or
facilities.
(C) Any encroachments or rights-of-way on, over, or under the land,
or a notation of these items together with the identity of the lots
affected.
(D) The courses, distances and monuments, natural or otherwise, of
the land's boundaries; contiguous boundaries and identification or
ownership of adjoining land and names of abutting streets, ways, etc.
[[Page 477]]
(E) The location of the section or unit encompassing the lots in
relationship to the larger tract, or tracts, in the subdivision.
(F) The delineation of any flood plains or flood control easements
affecting any of the lots.
(iv) The plat, or map shall be prepared by a licensed surveyor or
engineer.
(v) If all lots on each page of the plat are not included in the
Statement of Record with which the plat or map is submitted, then the
lots which are to be included in the Statement of Record shall be
identified on the plat or map; a legend describing the method of
identification shall be entered on the face of the plat or map and the
number of lots so identified entered in the lower right hand corner of
the plat map. The Director must be able to reconcile the totals of these
numbers with the information given in Sec. Sec. 1010.108 and 1010.208
of the Statement of Record and the title evidence.
(2) Environmental impact study. If the developer is aware of any
environmental impact study which considers the effect of the subdivision
on the environment, submit a summary of that study.
(3) Restrictions or covenants. Submit a copy of any recorded or
proposed restrictions or covenants for the subdivision if not submitted
elsewhere in this Statement of Record. A copy of these restrictions or
covenants shall be delivered to a prospective purchaser upon request. A
supply shall be maintained at whatever place or places as will be
necessary to allow immediate delivery upon request.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29117, May 11, 2016]
Sec. 1010.210 Roads.
(a) State the estimated cost to the developer of the proposed road
system.
(b) If the developer is to complete any roads providing access to
the subdivision, submit copies of any bonds or escrow agreements which
have been posted to guarantee completion thereof.
(c) Submit copies of any bonds or escrow agreements which have been
posted to assure completion of the roads within the subdivision.
(d) If the interior roads are to be maintained by a public
authority, submit a copy of a letter from that authority which states
that the roads have been, or the conditions upon which they will be,
accepted for maintenance and when.
Sec. 1010.211 Utilities.
(a) Water. (1) State the estimated cost to the developer of the
central water system.
(2) If water is to be supplied by a central system, furnish a letter
from the supplier that it will supply the water. If the system is
operated by a governmental division or by an entity whose operations are
regulated by a governmental agency but which is not affiliated with or
under the control of the developer, the letter shall include a statement
that the supply of water will be sufficient to serve the anticipated
population of the subdivision or how many homes or connections it can
and will serve and that the water is tested at regular intervals and has
been found to meet all standards for a public water supply.
(3) If the water is to be supplied by individual wells, by an entity
which is not regulated by a governmental agency, by the developer or by
an entity which is affiliated with or controlled by the developer,
submit a copy of any engineers' reports or hydrological surveys which
indicate there is a sufficient supply of water to serve the anticipated
population of the subdivision.
(4) If the supplier of water is not in one of the categories in
paragraph (a)(2) of this section, submit a copy of a letter or report
from a cognizant health officer, or from a private laboratory licensed
by the state to perform tests and issue reports on water, to the effect
that the water was found to meet all drinking water standards required
by the state for a public water system.
(5) If any bond, escrow agreement or other financial assurance of
the completion of the central system, including any phases which are to
be constructed in the future, has been posted by the developer or an
entity not regulated by a government agency, furnish a copy of the
document.
[[Page 478]]
(6) Furnish a copy of any permits which have been obtained by the
developer or any entity affiliated with or under the control of the
developer in connection with the construction and operation of the
central system. If a permit is required to install individual wells,
submit a letter from the proper authority which states the requirements
for obtaining the permit and that there is no objection to the use of
individual wells in the subdivision.
(7) Furnish a copy of any membership agreement or contract which
allows or requires lot owners to use the central water system. If this
document is furnished elsewhere in the Statement of Record, reference to
it may be made here.
(b) Sewer. (1) State the estimated cost to the developer of the
central sewer system.
(2) If sewage disposal is to be by individual on-site systems,
furnish a letter from the local health authorities giving general
approval to the use of these systems in the subdivision or giving
specific approval for each and every lot.
(3) If sewage disposal is to be through a central system which is
owned and operated by a governmental division, or by an entity whose
operations are regulated by a governmental agency but which is not
affiliated with, or under the control of, the developer, furnish a
letter from the entity that it will provide this service and that its
treatment facilities have the capacity to serve the anticipated
population of the subdivision or how many homes or connections it can
and will serve.
(4) Furnish a copy of any permits obtained by the developer or any
entity affiliated with or under the control of the developer, for the
construction and operation of the central sewer system or construction
and use of any other method of sewage disposal contemplated for the
subdivision except those to be obtained by individual lot owners at a
later date.
(5) If any bond, escrow agreement or other financial assurance of
the completion of the central system or other system for which the
developer is responsible, and any future expansion, has been posted,
furnish a copy of the document.
(6) Furnish a copy of any membership agreement of contract which
allows, or requires, the lot owners to use the central system. If this
document is furnished elsewhere in the Statement of Record, it may be
included here by reference.
(c) Electricity. Give an estimate of the total construction cost to
be expended by the developer and submit any instrument providing
financial assurance of completion of the facilities which has been
posted by the developer.
(d) Telephone. Give an estimate of the total construction cost to be
expended by the developer and submit a copy of any instrument providing
financial assurance of the completion of the facilities which has been
posted by the developer.
Sec. 1010.212 Financial information.
(a) Financing of improvements. Describe the financing plan that is
to be used in financing on-site or off-site improvements proposed in the
Statement of Record.
(b) Complete the following format (If the subdivision or common
promotional plan contains, or will contain, 1000 or more lots, furnish
this information in its entirety. If the subdivision or common
promotional plan contains, or will contain, less than 1,000 lots, only
paragraphs (b)(3)(iii) and (iv) of this section need be completed.)
(1) Estimated date for full completion of amenities
(2) Projected date for complete sell out of subdivision
(3) Cost and expense recap for lots included in this Statement of
Record:
(i) Land acquisition cost or current fair market value of land.
(ii) Development and improvement costs (include the estimated cost
of such items as roads, utilities, and amenities which the developer
will incur).
(iii) Estimated marketing and advertising costs.
(iv) Estimated sales commission.
(v) Interest (include cost in financing the land purchase,
improvements, or other borrowings).
(vi) Estimated other expenses (include general costs, administrative
costs, profit, etc.).
[[Page 479]]
(vii) Total.
(4) Total land sales revenue:
(i) Estimated total land sales income.
(ii) Estimated other income.
(iii) Total income.
(c) Financial statements. (1) Submit a copy of the developer's
financial statements for the last full fiscal year. These statements
shall be prepared in accordance with generally accepted accounting
principles as prescribed by the Financial Accounting Standards Board and
generally accepted auditing standards as prescribed by the American
Institute of Certified Public Accountants, and shall be audited by an
independent licensed public accountant. They shall include a balance
sheet, a statement of profit and loss, a statement of changes in
financial condition and a certified opinion by the accountant. The
statements shall be no more than six months old on the date the
Statement of Record is submitted.
(2) If the audited statements are more than six months old at the
date of submission of the Statement of Record, or if the last full
fiscal year has ended within the last 90 days and audited Statements are
not yet available, the developer may submit a copy of the audited
statements for the previous full fiscal year and supplement them with
unaudited, interim statements so that the financial information is no
more than six months old on the date that the Statement of Record is
submitted. The interim statements may be prepared by company personnel
but must contain a balance sheet, a statement of profit and loss and a
statement of changes in financial condition and be prepared in
accordance with generally accepted accounting principles.
(d) Annual report. (1) Each year after the initial effective date,
the developer shall submit a copy of its latest financial statements.
These statements must meet the standards set out in Sec.
1010.212(c)(1), unless the developer has qualified for an exception
under Sec. 1010.212(e), and must be submitted within 120 days after the
close of the developer's fiscal year.
(2) If a developer has submitted its latest statements with a
consolidated filing since the close of its fiscal year and prior to the
end of the 120 day period, a second submission of the statements to
comply with this section is not necessary.
(3) If the developer no longer has an active sales program on the
date this report is due, the information set forth in Sec.
1010.310(c)(7)(iii) may be furnished in lieu of this report.
(e) Exceptions. (1) If the developer does not have audited financial
statements and the criteria in one of the following exceptions are met,
statements need not be audited and certified but must meet all of the
other requirements set forth in paragraphs (c)(1) and (2) of this
section.
(2) The term ``conveys title free of any mortgage or lien'' in these
exceptions is not intended to prohibit the taking of an instrument as
security for the lot purchase price after title is conveyed. For the
purposes of these exceptions, these definitions shall apply:
(i) Deed shall mean a warranty deed, or its equivalent, which
conveys title free and clear of liens and encumbrances.
(ii) Assurance of Title Agreement shall mean a legal arrangement
whereby the purchaser is guaranteed a deed upon payment of no more than
the full purchase price of the lot (e.g. subdivision trust). In addition
to a copy of any Assurance of Title Agreement, the Director may require
additional documentation such as an attorney's opinion letter to assure
that the purchaser's title is fully protected.
(iii) Date of contract shall mean the date on which the contract or
agreement is signed by the purchaser.
(iv) Escrow or trust account as to down payments and deposits shall
mean an account, established in accordance with local real estate laws
or regulations, which assures the return to the purchaser of any monies
paid in the event title is not delivered to the purchaser in accordance
with the terms of the contract.
(3) The exceptions are:
(i) The aggregate sales price of all lots offered pursuant to a
common promotional plan equals $500,000.00 or less; or
(ii) Each of the following conditions of paragraphs (e)(3)(ii)(A)
and (B) of
[[Page 480]]
this section are met, plus the conditions of one of paragraphs
(e)(3)(ii)(C), (D), or (E) of this section:
(A) Down payments and deposits are held in an escrow or trust
account.
(B) The contract provides for delivery of a deed which conveys title
free of any mortgage or lien within 180 days of the signing of the
contract. (In lieu of delivery of a deed, the developer may submit to
ILSRP an Assurance of Title Agreement.)
(C) The aggregate sales prices of all lots offered pursuant to a
common promotional plan is at least $500,000 but less than $1,500,000.
(D) All facilities, utilities and amenities proposed by the
developer in the Property Report or sales contract have been completed
so that the lots in the Statement of Record are immediately usable for
the purpose for which they are sold.
(E) (1) The developer is contractually obligated to the purchaser to
complete all facilities, utilities and amenities proposed by the
developer in the Property Report and sales contract so that all lots
included in the Statement of Record will be usable for the purpose for
which they are sold by the dates set out in the Property Report, and;
(2) The developer has made financial arrangements, such as the
posting of surety bonds (corporate bonds or individual notes or bonds
are not acceptable), irrevocable letters of credit or the establishment
of escrow or trust accounts, which assure completion of all facilities,
utilities and amenities proposed by the developer in the Property Report
or contract.
(f) Newly-formed entity. If the developer is newly formed or has not
had any significant operating experience, an audited or unaudited
balance sheet and statements of receipts and disbursements of funds may
be submitted.
(g) Use of parent company statements. (1) If the developer is a
subsidiary company and does not have audited financial statements, the
Director may permit the use of the audited and certified statements of
the parent company: Provided, That those statements are accompanied by
an unconditional guaranty that the parent shall perform and fulfill the
obligations of the subsidiary. If this procedure is adopted, the
developer shall submit the following:
(i) The audited and certified financial statements of the parent
company, together with interim statements if necessary, which comply
with Sec. 1010.212(c).
(ii) A properly executed guaranty in a form acceptable to the
Director.
(2) In cases described in paragraph (g)(1) of this section, the
disclosure information required in Sec. 1010.112 shall be appropriately
amended to reference the parent company and not the developer and must
include a statement to the effect that the developer's parent company
(insert name) has entered into an unconditional guaranty to perform and
fulfill the obligations of the developer.
(h) Opinions. If the accountant qualifies or disclaims his opinion,
the Director may accept the statements and require such additional
disclosure as the Director deems necessary in the public interest or for
the protection of purchasers.
(i) Copies for prospective purchasers. Copies of the financial
statements filed with the Statement of Record shall be made available to
prospective purchasers upon request. A supply of the latest submitted
statements shall be maintained at whatever place, or places, as is
necessary to allow immediate delivery upon request by a prospective
purchaser. These statements shall contain financial information only and
shall not include any promotional material such as that usually set
forth in annual reports.
(j) Change from audited to unaudited statements. (1) Developers who
file audited statements must continue with audited statements throughout
the duration of the registration unless, at a later date, the developer
submits amendments which demonstrate to the satisfaction of the Director
that it then qualifies for an exception from audited statements under
paragraph (e)(3)(ii) of this section. For purposes of paragraph
(e)(3)(ii)(C) of this section, the Director will consider the aggregate
sales prices of only the lots yet to be sold, and may consider whether
any additions to the subdivisions or reacquisitions of lots already sold
would be likely to cause the dollar limits to be exceeded.
[[Page 481]]
(i) The aggregate sales prices of the lots yet to be sold in the
subdivision has been reduced to less than $1,500,000.00, and that it
will not exceed this amount through further additions to the
subdivision, or through the reacquisition of lots already sold, and;
(ii) The sales contract provides for delivery of a deed within 120
days of the date of the contract which conveys title free and clear of
any mortgage or lien or the developer files an Assurance of Title
Agreement with ILSRP, and;
(iii) Any down payments or deposits are held in an escrow or trust
account, or;
(iv) The developer then qualifies for exception (e)(3)(iii) or (iv)
of this section.
(2) The Director may allow a developer, who has made sales prior to
registration, to submit unaudited statements under the provisions of
paragraph (j)(1)(i) of this section. The developer must demonstrate to
the satisfaction of the Director that the acceptance of unaudited
statements would not be a detriment to the public interest or to the
protection of purchasers.
Sec. 1010.214 Recreational facilities.
(a) Submit a synopsis of the proposed plans and estimated cost of
any proposed or partially constructed recreational facility disclosed in
Sec. 1010.114. This item should include the general dimensions and a
brief description of the facility but it should not include blueprints
or similar technical materials.
(b) Submit a copy of any bond or escrow arrangements to assure
completion of the recreational facilities disclosed in Sec. 1010.114
which are not structurally complete.
(c) Submit a copy of the lease for any leased recreational facility.
Sec. 1010.215 Subdivision characteristics and climate.
(a) Submit a copy of a current geological survey topographic map, or
maps, of the largest scale available from the U.S. Geological Survey
with an outline of the entire subdivision and the area included in this
Statement of Record clearly indicated. Do not shade the areas on the
maps which have been outlined.
(b) If drainage facilities are proposed but not yet completed,
submit a synopsis of the developer's proposed plans that includes a
description of the system of collecting surface waters; a description of
the steps to be taken to control erosion and sedimentation and the
estimated cost of the drainage facilities.
(c) Submit copies of any bonds, escrow or trust accounts or other
financial assurance of completion of the drainage facilities.
(d) State whether the jurisdiction in which the subdivision is
located has a system for rating the land for fire hazards.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29117, May 11, 2016]
Sec. 1010.216 Additional information.
(a) Property Owners' Association. (1) If the association has been
formed as a legal entity, submit a copy of the articles of association,
bylaws or similar documents, and a copy of the charter or certificate of
incorporation.
(2) If the developer exercises any control over the association,
state whether any contracts have been executed between the association
and the developer or any affiliate or principal of the developer. If
there have been, briefly summarize the terms of the contracts, their
purpose, their duration and the method and rate of payment required by
the contract. State whether the association may modify or terminate the
contracts after the owners assume control of the association.
(3) State whether there is any agreement which would require the
association to reimburse the developer, its affiliates or successors for
any attorney's fees or costs arising from an action brought against them
by the association or individual property owners regardless of the
outcome of the action.
(4) If the answer to paragraph (a)(2) or (a)(3) of this section is
in the affirmative, disclosure may be required in Sec. 1010.116(a) at
the discretion of the Director.
(5) Submit a copy of any membership agreement or similar document.
(b) Price range, type of sales and marketing. (1) State the price
range of lots in the subdivision.
[[Page 482]]
(2) State the type of sales to be made, i.e., contract for deed,
cash, deed with security instrument, etc.
(3) Describe the methods of advertising and marketing to be used for
the subdivision. The description should include, but need not be limited
to, information on such matters as to:
(i) Whether the developer will employ his own sales force or will
contract with an outside group;
(ii) Whether wide area telephone solicitation will be employed;
(iii) Whether presentations will be made away from the immediate
vicinity of the subdivision and/or if prospective purchasers will be
furnished transportation from distant cities to the subdivision;
(iv) Whether mass mailing techniques will be used and gifts offered
to those who respond.
(4) For any subdivision that meets any of the criteria in paragraphs
(b)(4)(i) through (iii) of this section, submit a copy of any
advertising or promotional material that is, or has been, used for the
subdivision. Amendments to reflect changes in advertising or promotional
material need be filed only when there is a material change related to
one of the above factors. Depending upon the content of the material
submitted, the Director may require additional warnings in the Property
Report portion. This requirement applies to any subdivision that:
(i) Mentions or refers to recreational facilities which are not
disclosed in Sec. 1010.114, or;
(ii) Promotes the sale of lots based on the investment potential or
expected profits, or;
(iii) Contains information which is in conflict with that disclosed
in this Statement of Record.
(c) Violations and litigation. (1) Submit a copy of the
complaint(s), the answer(s) and the decision(s) for any litigation
listed in Sec. 1010.116(c).
(2) If it is indicated in Sec. 1010.116(c) that the developer or
any of the parties involved in the subdivision are, or have been, the
subject of any bankruptcy proceedings, furnish a copy of the schedules
of liabilities and assets (or a recap of those schedules); the petition
number; the date of the filing of the petition; names and addresses of
the petitioners, trustee and counsel; the name and location of the court
where the proceedings took place and the status or disposition of the
petition. Explain, briefly, the cause of the action.
(3) Furnish a copy of any orders issued in connection with any
violations listed in Sec. 1010.116(c).
(d) Resale or exchange program. (1) If it is stated in Sec.
1010.116(d)(3) that there is an exchange program which provides
sufficient lots to satisfy all requests for exchange, describe the
method used to determine the number of lots required; state whether
these lots have been reserved or set aside; whether additional lots will
be provided if the lots available for exchange are exhausted and the
source of any additional lots.
(e) Unusual situations--(1) Foreign subdivisions. If the subdivision
is located outside the several States, the District of Columbia, the
Commonwealth of Puerto Rico or the territories or possession of the
United States, the Statement of Record shall be submitted in the English
language and all supporting documents, including copies of any laws
which restrict the ownership of land by aliens, shall be submitted in
their original language and shall be accompanied by a translation into
English.
Sec. 1010.219 Affirmation.
The affirmation set forth in section XXVIII of the appendix to this
part: Affirmation of Senior Executive Officer shall be executed by the
senior executive officer or a duly authorized agent:
Sec. 1010.310 Annual report of activity.
(a) As an integral part of the Statement of Record, the developer
shall file with the Director an Annual Report of Activity on any initial
or consolidated registration not under suspension. For this purpose,
only one Annual Report of Activity will be expected for subdivisions on
which developers have filed consolidations. For registrations certified
by a state as provided for in Sec. 1010.500, a developer need file only
one Annual Report of Activity for any registration for which the ILSRP
number is the same (alphabetic designators indicate that the
registration has been treated as a consolidation).
[[Page 483]]
(b) The report shall be submitted within 30 days of the annual
anniversary of the effective date of the initial Statement of Record.
The report may be submitted via the electronic means described in Sec.
1010.20(a).
(c) The report shall contain the following information:
(1) Subdivision name and address.
(2) Developer's name, address and telephone number.
(3) Agent's name, address and telephone number.
(4) Interstate Land Sales Registration number.
(5) The date on which the initial filing first became effective.
(6) The number of registered lots, parcels or units which are unsold
as of the date on which the report is due.
(7) One of the following:
(i) A statement that the developer is still engaged in land sales
activity at the subject subdivision and that there have been no changes
in material fact since the last effective date was issued which would
require an amendment to the Statement of Record; or
(ii) A statement that the developer is still engaged in land sales
activity at the subject subdivision, that material changes have occurred
since the last effective date, and that corrected pages to the Property
Report portion or Additional Information and Documentation portion of
the Statement accompany the report; or
(iii) A statement that the developer is no longer engaged in land
sales activity at the subject subdivision, together with the reason the
developer is no longer selling (e.g., all lots sold to the public or the
remaining lots sold to another developer, along with the date of sale
and the new developer's name, address and telephone number). A request
may be made that the Statement of Record be voluntarily suspended. The
request should be submitted in duplicate and will become effective upon
the counter-signature of the Director (or an authorized Designee) with
the duplicate being returned to the developer.
(8) The report shall be dated and shall be signed by the senior
executive officer of the developer on a signature line above his typed
name and title. The senior executive officer's acknowledgement shall be
attested to or certified by a notary public or similar public official
authorized to attest or certify acknowledgements in the jurisdiction in
which the report is executed.
(d) If the report indicates that there are 101 or more registered
lots, parcels or units remaining for sale, the report shall be
accompanied by an amendment fee in the amount and form prescribed in
Sec. 1010.35.
(e) Failure to submit the report when due shall be grounds for an
action to suspend the effective Statement of Record.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29117, May 11, 2016]
Subpart C_Certification of Substantially Equivalent State Law
Sec. 1010.500 General.
(a) This subpart establishes procedures and criteria for certifying
state land sale or lease disclosure programs and state land development
standards programs. The purpose of State Certification is to lessen the
administrative burden on the individual developer, arising where there
are duplicative state and Federal registration and disclosure
requirements, without affecting the level of protection given to the
individual purchaser or lessee. If the Director determines that a state
has adopted and is effectively administering a program that gives
purchasers and lessees the same level of protection given to them by the
Interstate Land Sales Registration Program, then the Director shall
certify that state. Developers who accomplish an effective registration
with a state in which the land is located after the Director has
certified the state may satisfy the registration requirements of the
Director by filing with the Director materials designated by agreement
with certified states in lieu of the Federal Statement of Record and
Property Report.
(b) A state that is certified by the Director shall be known as the
situs certified state for all land located within its borders.
(c) After a developer is effectively registered with the Director
through a certified state, the Director has the
[[Page 484]]
same authority over that developer as the Director has over developers
who file directly with the Director. This includes the authority to
subpoena information and to examine, evaluate and suspend a developer's
registration under sections 1407(d) and (e) of the Act and Sec.
1010.45(b)(1) and (b)(2) of these regulations.
(d) The prohibitions against the use of the Property Report
contained in Sec. 1010.29 apply to state disclosure materials and
substantive development standards. In addition, for purposes of this
paragraph, references made to the Director, ILSRP and the Bureau in
Sec. 1010.29 will include a reference to the equivalent state officer
or agency.
(e) The Purchaser's Revocation Rights, Sales Practices and Standards
rules contained in part 1011 of these regulations apply to developers
who register with the Director through certified States. All of the
rules in part 1011 apply, excepting the disclaimer statement in Sec.
1011.50(a) which is modified to read as follows: ``Obtain the Property
Report or its equivalent, required by Federal and State law and read it
before signing anything. No Federal or State agency has judged the
merits or value, if any, of this property.''
(f) Developers are obliged to pay filing fees as set forth in Sec.
1010.35 of this part.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29117, May 11, 2016]
Sec. 1010.503 Notice of certification.
(a) If the Director determines that a state qualifies for
certification under this subpart, the Director shall so notify the state
in writing. The state will be effectively certified under the section
and as of the date specified in the notice.
(b) If the Director determines that a state does not meet the
standards for certification, the Director shall so notify the state in
writing. The notice will specify particular changes in state law,
regulations or administration that are needed to obtain certification.
The Director shall not be bound in advance to certify a state that makes
the suggested changes if other deficiencies become apparent at a later
time.
(c) The Director's final determination to accept or reject a State's
Application for Certification of Land Sales Program shall be published
in the Federal Register.
(d) A state's certification will remain in effect until it is
voluntarily suspended by the state or withdrawn by the Director. A state
can voluntarily suspend its certification by notifying the Director in
writing. The suspension will take effect as of the date and time
specified in the notice to the Director, or upon receipt by the Director
if no date is specified. The Director may withdraw certification as
provided in Sec. 1010.505.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29118, May 11, 2016]
Sec. 1010.504 Cooperation among certified states and between
certified states and the Director.
(a) By filing an Application for Certification of State Land Sales
Program pursuant to this subpart, a state agrees that, if it is
certified by the Director, it will:
(1) Accept for filing and allow to be distributed as the sole
disclosure document, a disclosure document currently in effect in the
situs certified state. Only those documents filed with the situs state
after certification by the Director must automatically be accepted by
other certified states;
(2) Certify copies of all disclosure documents, amendments and
consolidations filed with it by developers of land located within its
borders for and as needed by developers required to submit certified
copies to the Director and all other certified states. The certification
shall indicate whether the documents are currently in effect. The
certification should be in the format set forth in section XXIX of the
appendix to this part: Form for Certification for Disclosure Documents.
(3) Assist and cooperate with the Director and other certified
states by requiring that developers of land within its borders amend
disclosure documents if any change occurs in any representation of
material fact required to be stated in the disclosure documents,
including a change resulting from the
[[Page 485]]
developer's compliance with the requirements of the law in another
certified state. The state shall require developers to send certified
copies of the amended documents to the Director and requesting certified
states. All amendments to such materials, which reflect changes in
material facts regarding the subdivision, shall be submitted to the
situs certified state authorities within 15 days of the date on which
the developer knows, or should have known, of such change. Certified
copies of the disclosure documents shall be submitted by the developer
to the Director and the other certified states within 15 days after it
becomes effective under the situs certified state laws.
(4) Continue to effectively operate its Land Sales Program as that
Program is described in the Application for Certification and as it was
certified by the Director.
(5) Assist and cooperate with the Director by monitoring the sales
practices of developers registered with it directly or through another
certified state, and by reporting to the Director any violations of the
Act, including but not limited to the required contract provisions,
revocation rights and anti-fraud provisions of 15 U.S.C. 1703, or the
regulations.
(b) A state required to accept the disclosure documents of another
situs certified state pursuant to paragraph (a)(1) of this section, may,
in its discretion, require the developer to furnish it with copies
certified pursuant to paragraph (a)(2) of this section.
(c) No state shall be prevented from establishing substantive or
disclosure requirements which exceed the Federal standard provided that
such requirements are not in conflict with the Act or these regulations.
For example, a certified state may impose additional disclosure
requirements on developers of land located within its borders but may
not impose additional disclosure requirements on developers whose
disclosure documents it is required to accept pursuant to paragraph
(a)(1) of this section. However, a certified state may impose additional
nondisclosure requirements on out of state developers even though the
developer is registered in the certified state in which the land is
located.
(d) After a developer is effectively registered with a certified
state through a situs certified state, either or both certified states
may exercise full enforcement authorities and powers over that developer
according to applicable law and regulations.
(e) The Director shall cooperate with the certified states by
offering a forum for nonbinding arbitration of disputes between two or
more certified States arising out of the State Certification Program.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29118, May 11, 2016]
Sec. 1010.505 Withdrawal of state certification.
(a) The Director shall periodically review the laws, regulations and
administration thereof, of a certified state. If the Director finds
that, taken as a whole, the laws, regulations or administration thereof,
no longer meet the requirements of subpart C, then the Director may
issue a notice to withdraw the certification of that state.
(b) The notice of proceedings to withdraw a state's certification
will be issued to the state by the Director pursuant to Sec. 1012.236.
The Director may, after notice and after an opportunity for a hearing,
pursuant to Sec. 1012.237, issue an order withdrawing certification. In
the event that a withdrawal order is issued, the order shall remain in
effect until the state has amended its laws, regulations or the
administration thereof or has otherwise complied with the requirements
of the order. When the state has complied with the requirements of the
order, the Director shall so declare and the withdrawal order shall
cease to be effective.
(c) Withdrawal orders issued pursuant to this subsection will be
effective as of the date the order is received by the state. The
withdrawal order shall be published in the Federal Register.
(d) The rules of 12 CFR part 1080, unless otherwise specified in 12
CFR part 1012, subpart D, will generally apply to hearings on withdrawal
of a state's certification.
[[Page 486]]
Sec. 1010.506 State/Federal filing requirements.
(a)(1) If the Director has certified a state under this subpart, the
Director shall accept for filing disclosure materials or other
acceptable documents which have been approved by the certified state
within which the subdivision is located. Only those filings made by the
developer with the state after the state was certified by the Director
shall be automatically accepted by the Director.
(2) Retroactive application of the effectiveness of state's
certification to a specified date may be granted on a state-by-state
basis, where the Director determines that retroactive application will
not result in automatic Federal registration of any state filing that
has not met the requirements of the certified state laws.
(b) For a developer to be registered with the Director, the
developer shall file with the Director a state certified copy of the
Property Report or its equivalent, and any other documentation as
stipulated in the Director's Notice of Certification to the state.
(c) The documents and materials filed under paragraph (b) of this
section will be automatically effective as the Federal Statement of
Record and Property Report after these materials and the proper filing
fee have been received by the Director.
(d) The Director has authority pursuant to Sec. 1010.45(b)(1) and
(b)(2) to suspend individual filings which fail to meet the requirements
of the certified state's law or regulations or the standards in the
certification agreement whether or not the state agency has initiated a
similar action.
(e)(1) State accepted materials filed with the Director pursuant to
this section must be amended to reflect any amendment to such materials
made effective by the state. All amendments to such materials must be
submitted to the Director within 15 days after becoming effective under
the applicable state laws. Amendments are automatically effective upon
their receipt by the Director and the provisions of Sec. 1010.45(b)(1)
and (2) apply to amendments filed under this section.
(2) Amendments shall include or be accompanied by:
(i) A letter from the developer giving a narrative statement fully
explaining the purpose and significance of the amendment and referring
to that section and page of the material which is being amended, and;
(ii) A signed state acceptance certification substantially the same
as that required by Sec. 1010.504(a)(2).
(f) If a certified state suspends the registration of a particular
subdivision for any reason, the subdivision's Federal registration with
the Director shall be automatically suspended as a result of the state
action. No action need be taken by the Director to effect the
suspension.
(g) A state is certified only with regard to land located within the
state borders. The Director is not required to accept filings which have
been accepted by a certified state if the land which is the subject of
the filing is not located within that certified state. For example, if
State A is certified by the Director and State B is not, the Director is
not required to accept filings from State B simply because State A
accepts filings from State B.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29118, May 11, 2016]
Sec. 1010.507 Effect of suspension or withdrawal of certification
granted under 15 U.S.C. 1708(a)(1): Full disclosure requirement.
(a) If a state certified under 15 U.S.C. 1708(a)(1) suspends its own
certification or has its certification withdrawn under Sec. 1010.505,
the Federal disclosure materials accepted and made effective by the
Director, pursuant to Sec. 1010.506, prior to the suspension or
withdrawal shall remain in effect unless otherwise suspended by the
Director.
(b) In the event that there is a change in a material fact with
regard to a subdivision that remains registered under the provisions of
paragraph (a) of this section, the developer shall file a new
registration with the Director meeting the requirements of the then
applicable Federal registration regulations. Modifications of the
Federal format may be used as specified by the Director.
[76 FR 79489, Dec. 21, 2011, as amended at 81 FR 29118, May 11, 2016]
[[Page 487]]