[Federal Register Volume 74, Number 95 (Tuesday, May 19, 2009)]
[Rules and Regulations]
[Pages 23289-23305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-11567]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
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Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Rules
and Regulations
[[Page 23289]]
FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-1340]
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule; official staff commentary.
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SUMMARY: On July 30, 2008, the Board published a final rule amending
Regulation Z, which implements the Truth in Lending Act (TILA) and the
Home Ownership and Equity Protection Act (HOEPA). The July 2008 final
rule requires creditors to give consumers transaction-specific cost
disclosures shortly after application for closed-end loans secured by a
consumer's principal dwelling. The disclosures must be provided before
the consumer pays any fee, other than a fee for obtaining the
consumer's credit history. Also on July 30, 2008, the Congress enacted
the Housing and Economic Recovery Act of 2008, which included
amendments to TILA, known as the Mortgage Disclosure Improvement Act of
2008 (MDIA). On October 3, 2008, the Congress amended the MDIA in
connection with its enactment of the Emergency Economic Stabilization
Act of 2008 (Stabilization Act). The Board is now revising Regulation Z
to implement the provisions of the MDIA, as amended.
The MDIA broadens and adds to the requirements of the Board's July
2008 final rule. Among other things, the MDIA requires early,
transaction-specific disclosures for mortgage loans secured by
dwellings other than the consumer's principal dwelling and requires
waiting periods between the time when disclosures are given and
consummation of the mortgage transaction. Moreover, these requirements
of the MDIA will become effective on July 30, 2009, about two months
earlier than the Board's regulatory amendments adopted in the July 2008
final rule.
Consistent with the MDIA, the final rule amending Regulation Z
requires creditors to make good faith estimates of the required
mortgage disclosures, and deliver or place them in the mail, no later
than three business days after receiving a consumer's application for a
dwelling-secured closed-end loan. Consummation may occur on or after
the seventh business day after the delivery or mailing of these
disclosures. If the annual percentage rate provided in the good faith
estimates changes beyond a specified tolerance for accuracy, creditors
must provide corrected disclosures, which the consumer must receive on
or before the third business day before consummation of the
transaction. The final rule allows consumers to expedite consummation
to meet a bona fide personal financial emergency. The MDIA, as amended
by the Stabilization Act, specifies different requirements for
providing early disclosures for mortgage transactions that are secured
by a consumer's interest in a timeshare plan.
DATES: The amendments to Sec. Sec. 226.2(a)(6), 226.17(b) and (f), and
226.19(a)(1); and amendments 13, 14, 16, and 17 to Supplement I to part
226, published on July 30, 2008 (73 FR 44522), previously to become
effective on October 1, 2009, are now effective on July 30, 2009.
Additionally, this final rule is also effective on July 30, 2009
and includes further amendments to Regulation Z.
FOR FURTHER INFORMATION CONTACT: Paul Mondor, Senior Attorney, or Jamie
Z. Goodson, Attorney; Division of Consumer and Community Affairs, Board
of Governors of the Federal Reserve System, Washington, DC 20551, at
(202) 452-2412 or (202) 452-3667. For users of Telecommunications
Device for the Deaf (TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
One of the purposes of the Truth in Lending Act (TILA), 15 U.S.C.
1601 et seq., is to promote the informed use of consumer credit by
requiring disclosures about its terms and cost. The act requires
creditors to disclose the cost of credit as a dollar amount (the
finance charge) and as an annual percentage rate (APR). Uniformity in
creditors' disclosures is intended to assist consumers in comparison
shopping. TILA requires additional disclosures for loans secured by
consumers' homes and permits consumers to rescind certain transactions
that involve their principal dwelling.
TILA mandates that the Board prescribe regulations to carry out the
purposes of the act. 15 U.S.C. 1604(a). TILA is implemented by the
Board's Regulation Z, 12 CFR part 226. An Official Staff Commentary
interprets the requirements of the regulation and provides guidance to
creditors in applying the rules to specific transactions. See 12 CFR
part 226 (Supp. I).
TILA Section 128, 15 U.S.C. 1638, requires creditors to make
specified disclosures in connection with closed-end consumer credit
transactions before the credit is extended. Before amendment by the
MDIA, for certain mortgage loans TILA required creditors to make good
faith estimates of the disclosures (``early disclosures'') within three
business days after the consumer has submitted an application or before
the credit is extended, whichever is earlier. In implementing TILA
Section 128, Regulation Z requires creditors to give these early
disclosures only for loans that finance the purchase or initial
construction of a consumer's principal dwelling.
On July 30, 2008, the Board published a final rule amending
Regulation Z (the July 2008 final rule) (73 FR 44522). The July 2008
final rule requires, among other things, that a creditor provide the
early disclosures even when the loan is not for the purpose of
financing the purchase or initial construction of the consumer's
principal dwelling. Under the July 2008 final rule, the early
disclosures also must be provided for non-purchase closed-end loans
secured by the consumer's principal dwelling (such as a refinance
loan). The July 2008 final rule also required these disclosures to be
given before the consumer pays any fee, other than a bona fide and
reasonable fee for obtaining the consumer's credit history. As
published, these provisions of the July 2008 final rule were scheduled
to become effective on October 1, 2009 (73 FR at 55494). Consistent
with the MDIA, however, this final rule sets an earlier effective date
of July 30, 2009 for these fee
[[Page 23290]]
collection restrictions, as discussed below.
On the same day that the July 2008 final rule was published,
Congress amended TILA by enacting the Mortgage Disclosure Improvement
Act of 2008 (MDIA).\1\ The MDIA amends TILA and codifies some of the
early disclosure requirements of the July 2008 final rule, but also
expands upon the regulatory provisions.
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\1\ The MDIA is contained in Sections 2501 through 2503 of the
Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-
289, enacted on July 30, 2008. The MDIA was amended by the Emergency
Economic Stabilization Act of 2008, Public Law 110-343, enacted on
October 3, 2008.
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Like the July 2008 final rule, the MDIA requires creditors to make
the early disclosures even when the loan is not for the purpose of
financing the purchase or initial construction of the consumer's
principal dwelling and prohibits the collection of fees before the
consumer receives the disclosures, other than a fee for obtaining a
consumer's credit report. However, the MDIA applies these provisions to
loans secured by a dwelling even when it is not the consumer's
principal dwelling. Moreover, the MDIA imposes additional requirements
not contained in the July 2008 final rule. Under the MDIA, for loans
secured by a consumer's dwelling, creditors must deliver or mail the
early disclosures at least seven business days before consummation. If
the APR contained in the early disclosures becomes inaccurate (for
example, due to a change in the loan terms), creditors must
``redisclose'' and provide corrected disclosures that the consumer must
receive at least three business days before consummation. The
disclosures also must inform consumers that they are not obligated to
complete the transaction simply because disclosures were provided or
because a consumer has applied for a loan. The MDIA imposes different
requirements for early disclosure in closed-end mortgage transactions
that are secured by a consumer's interest in a timeshare plan. These
provisions of the MDIA, including the fee collection restriction, will
become effective on July 30, 2009, which is about two months earlier
than the effective date of the July 2008 final rule.
At this time, the Board is only conforming Regulation Z, as amended
on July 30, 2008, to the MDIA provisions that become effective on July
30, 2009. The MDIA also contains additional disclosure requirements for
variable-rate transactions that are not addressed in this rulemaking.
Those provisions of the MDIA will not become effective until January
30, 2011, or any earlier compliance date ultimately established by the
Board. This final rule does not address those disclosures. The Board
anticipates issuing proposed amendments to Regulation Z to implement
those provisions of the MDIA later during 2009, in connection with the
Board's comprehensive review of closed-end mortgage disclosures that is
currently underway.
As discussed above, the MDIA contains several provisions that
mirror the July 2008 final rule. These provisions are not discussed
below because they are explained in detail in the supplementary
information portion of the July 2008 final rule. (See 73 FR at 44590-
44594; July 30, 2008). To conform to the MDIA, certain regulatory
changes that the Board adopted in July 2008 will become effective on
July 30, 2009 (and not on October 1, 2009 as originally provided in the
July 2008 final rule). These regulatory changes are: the requirement
that early disclosures be given for all dwelling-secured mortgage loans
rather than only for ``residential mortgage transactions'' to finance
the purchase or initial construction of the dwelling (in Sec. Sec.
226.17(f) and 226.19(a)(1)(i) and associated commentary) and that early
disclosures be given before consumers pay any fee except a fee for
obtaining the consumer's credit history (in Sec. 226.19(a)(1)(ii) and
(iii) and associated commentary). The final rule the Board is
publishing today further revises Regulation Z, also effective July 30,
2009. These revisions will apply only if a consumer's application for a
covered transaction is received on or after July 30, 2009.
Minor conforming and technical amendments to Regulation Z also are
made in this final rule.
II. Overview of Comments Received
On December 10, 2008, the Board published a proposed rule that
would amend Regulation Z's rules for the timing and content of
disclosures for dwelling-secured mortgage loans. 73 FR 74989. The Board
received fifty-one public comment letters. Several financial
institutions and financial services trade associations stated that they
support efforts to improve the disclosure of credit terms to consumers
and recognize that the Board's proposal is intended to conform
Regulation Z to TILA, as amended by the MDIA. These commenters
generally stated that the Board should make timing requirements as
flexible as is possible. Several other financial institutions stated
that the costs of the new waiting periods required by the MDIA outweigh
any benefits and that consumers would object to delays in consummating
a mortgage transaction. By contrast, consumer advocacy organizations
generally supported the MDIA's goal of providing accurate disclosure of
credit to consumers terms in a timely manner. Consumer advocates
further stated that the MDIA provisions allowing consumers to waive the
waiting period between disclosure and consummation should be narrowly
circumscribed. Comments are discussed in detail below in part III of
the SUPPLEMENTARY INFORMATION.
III. The Board's Final Rule
A. Coverage of Sec. 226.19(a)
Proposed Rule
TILA Section 128(a), 15 U.S.C. 1638(a), requires creditors to
disclose certain information for closed-end consumer credit
transactions, including, for example, the amount financed and the APR.
TILA Section 128(b)(2), 15 U.S.C. 1638(b)(2), requires creditors to
make good faith estimates of these disclosures within three business
days of receiving the consumer's application, or before consummation if
that occurs earlier. Until the recent enactment of the MDIA, TILA
Section 128(b)(2) applied only to a ``residential mortgage
transaction'' subject to the Real Estate Settlement Procedures Act
(RESPA). See 15 U.S.C. 1602(w). A residential mortgage transaction is
defined in TILA as a loan to finance the purchase or initial
construction of a consumer's dwelling. Regulation Z limits the
definition to transactions secured by the consumer's principal
dwelling. See Sec. 226.2(a)(24).
The MDIA extends the early disclosure requirement in TILA Section
128(b)(2), 15 U.S.C. 1638(b)(2), to additional types of loans. Under
the MDIA, early disclosures are required for ``any extension of credit
secured by the dwelling of a consumer.'' Thus, as amended, the statute
requires early disclosures for home refinance loans and home equity
loans. This is consistent with revisions made by the Board's July 2008
final rule. To implement the MDIA, the Board proposed to also apply the
early disclosure requirements to loans secured by dwellings other than
the consumer's principal dwelling. Accordingly, the Board proposed,
under Sec. 226.19(a)(1)(i), to require creditors to give consumers
early disclosures in connection with a dwelling-secured mortgage loan
(if also subject to RESPA), whether or not the loan is for the purpose
of financing the purchase or initial construction of the consumer's
[[Page 23291]]
principal dwelling. The Board's proposal did not apply to home equity
lines of credit (HELOCs), which are subject to the rules for open-end
credit in Sec. 226.5b. The July 2008 final rule also did not apply to
HELOCs.
TILA Section 128(b)(2), 15 U.S.C. 1638(b)(2), as amended by the
MDIA, applies to dwelling-secured mortgage loans if they also are
subject to RESPA. The U.S. Department of Housing and Urban
Development's (HUD) Regulation X implements RESPA. See 12 U.S.C. 2601
et seq.; 24 CFR 3500.1 et seq. In March 2008, HUD published a proposal
to revise Regulation X. (See 73 FR 14030; Mar. 14, 2008). In November
2008, HUD published final rules amending Regulation X. (See 73 FR
68204; Nov. 17, 2008). The Board believes that Regulation Z's timing
requirements for early disclosures, as amended by this final rule,
remain consistent with timing requirements for the initial good faith
estimates of settlement costs required under Regulation X, as recently
amended by HUD. Consistency between Regulation Z and Regulation X are
discussed in detail below.
Public Comment
The Board received few comments that addressed the coverage of
proposed Sec. 226.19(a). A few financial institutions and financial
services trade associations stated that the early disclosure
requirements should only apply to loans secured by a consumer's
principal dwelling. A financial institution stated that consumers who
own more than one dwelling usually are more sophisticated financially
and will not benefit from the early disclosures. One financial services
trade association supported the extension of coverage to mortgage
transactions that are secured by dwellings that are not a consumer's
principal dwelling. A few commenters stated that the Board should
clarify whether the MDIA's timing requirements apply when the person
obligated on the loan does not occupy the dwelling that secures the
loan.
Final Rule
As proposed, the final rule applies the early disclosure
requirements to loans secured by dwellings other than the consumer's
principal dwelling. Under Sec. 226.19(a)(1)(i), creditors must give
consumers early disclosures in connection with a dwelling-secured
mortgage loan that is subject to RESPA, whether or not the loan is for
the purpose of financing the purchase or initial construction of the
consumer's principal dwelling. The final rule does not revise the
disclosure requirements for home equity lines of credit (HELOCs). The
Board is currently reviewing the disclosure rules for real estate-
secured loans, including HELOCs, and will consider the need for earlier
disclosures in connection with that proposed rulemaking.
A few commenters requested guidance on whether the early disclosure
rules apply to a loan secured by a dwelling that is not occupied by the
person who is obligated on the loan. If the transaction is a dwelling-
secured extension of consumer credit, early disclosures would be
required regardless of who occupies the dwelling. However, TILA and
Regulation Z do not apply to credit extensions that are primarily for
business purposes. 15 U.S.C. 1603(l); 12 CFR 226.3(a)(1). Existing
guidance in comment 3(a)-2 provides that creditors should determine
whether a credit extension is business or consumer credit based on the
factors stated in the comment. Further, comment 3(a)-3 states that
credit extended to acquire, improve, or maintain rental property that
is not owner-occupied (that is, in which the owner does not expect to
live for more than fourteen days during the coming year) is deemed to
be for business purposes. The Board believes this guidance is
sufficient to determine whether a transaction is subject to TILA.
B. Timing of Delivery of Early Disclosures--Sec. 226.19(a)(1)(i)
Proposed Rule
Currently under Regulation Z, creditors must provide the early
disclosures within three business days after receiving the consumer's
written application or before consummation, whichever is earlier. The
MDIA amends TILA to require creditors to deliver or mail the early
disclosures at least seven business days before consummation. The Board
proposed to further amend Sec. 226.19(a)(1)(i), as published in the
July 2008 final rule, to reflect this change. The Board proposed to add
comment 19(a)(1)(i)-6 to clarify that consummation may occur any time
on the seventh business day following delivery or mailing; the proposed
comment provided examples to facilitate compliance. The proposal would
have required creditors to calculate the seven-business-day waiting
period using the general definition of ``business day'' (a calendar day
on which the creditor's offices are open to the public for carrying on
substantially all of its business functions).
Public Comment
Many of the comments the Board received on the requirements for
early disclosures discussed the definition of ``business day'' that
should apply for purposes of those requirements. Those comments are
discussed in detail below, in part III.D of this SUPPLEMENTARY
INFORMATION.
Final Rule
Consistent with the MDIA, the final rule adopts the requirement
that a creditor deliver or mail the early disclosures for all dwelling-
secured mortgage loans no later than three business days after the
creditor receives a consumer's application. Also as proposed, the
general definition of ``business day'' (days on which a creditor's
offices are open to the public for carrying on substantially all of its
business functions) applies for this purpose.
Under the July 2008 final rule, the early disclosures also must be
provided for non-purchase closed-end loans secured by the consumer's
principal dwelling (such as a refinance loan). The July 2008 final rule
also required these disclosures to be given before the consumer pays
any fee, other than a bona fide and reasonable fee for obtaining the
consumer's credit history. This final rule expands these requirements
to apply to mortgage transactions secured by a dwelling other than the
consumer's principal dwelling (such as a second home) and makes them
effective for covered loans for which the creditor receives an
application on or after July 30, 2009, consistent with the MDIA.
The requirement for a creditor to deliver or place in the mail the
early disclosures no later than the seventh business day before
consummation has been moved to Sec. 226.19(a)(2) and modified, as
discussed below in part III.C of the SUPPLEMENTARY INFORMATION. In
addition, under the final rule, the more precise definition of
``business day'' will apply for purposes of calculating the seven-
business-day waiting period, as discussed in detail in part III.D of
the SUPPLEMENTARY INFORMATION. The Board is revising comment
19(a)(1)(i)-4 to clarify that if a consumer withdraws a loan
application within three business days after a creditor receives it,
the creditor need not make the early disclosures. This is consistent
with comment 5b(b)-5, regarding denial or withdrawal of an application
for an open-end home equity plan.
[[Page 23292]]
C. Waiting Periods After Early Disclosures and Corrected Disclosures--
Sec. 226.19(a)(2)
Proposed Rule
Currently, when a creditor provides early TILA disclosures and the
APR subsequently changes beyond the specified tolerance, the creditor
must redisclose the APR and other changed terms no later than
consummation or settlement. The MDIA amends TILA Section 128(b)(2), 15
U.S.C. 1638(b)(2), to require that in such cases creditors make
corrected disclosures so that consumers receive them not later than the
third business day before consummation. The MDIA removes the reference
to ``settlement'' for purposes of this requirement. The Board proposed
to amend Sec. 226.19(a)(2) to reflect these changes to TILA. The Board
also proposed that consummation could occur any time on the third
business day after the consumer receives the corrected disclosure.
In addition, under the proposed rule, if the corrected disclosures
are mailed, the consumer is considered to receive the disclosures three
business days after mailing. This is consistent with the presumption
the Board adopted in the July 2008 final rule in Sec. 226.19(a)(1)(ii)
for determining when fees may be imposed on the consumer. The MDIA
subsequently codified that presumption. In this rulemaking, the Board
proposed to apply the same presumption for purposes of the rule that a
consumer must receive corrected disclosures no later than the third
business day before consummation. The Board also proposed to revise
comment 19(a)(2)-1 to provide examples illustrating the effect of the
three-business-day waiting period and when consummation may occur.
The Board proposed to revise comment 19(a)(2)-3 to clarify that the
three-business-day waiting period before consummation begins when the
disclosures are received by the consumer and not when they are mailed.
This is consistent with the MDIA and is also consistent with the rules
for certain high-cost loans and reverse mortgage transactions, which
also require a creditor to make disclosures at least three business
days before consummation. See Sec. 226.31(c) and comment 31(c)-1.
Public Comment
Several financial institutions and financial services trade
associations stated that the Board's rules should specifically address
the timing requirements for the early disclosures when a creditor
provides electronic disclosures or uses overnight courier or other
delivery methods. Also, many financial institutions and financial
services trade associations stated that a three-business-day waiting
period before consummation is not warranted if corrected disclosures
state an APR that is lower than the APR stated in the early
disclosures, because the change benefits consumers. One financial
institution stated that there should be no three-business-day waiting
period before consummation when corrected disclosures are provided if
the consumer has three business days to rescind the loan after
consummation under Sec. 226.23(a).
A financial services trade association and a financial institution
requested guidance for situations where a creditor makes corrected
disclosures and thereafter the APR becomes inaccurate again. These
commenters stated that, to determine whether the new APR is within the
tolerance specified in Sec. 226.22, creditors should be permitted to
compare what the APR will be at consummation to the APR stated in the
most recent corrected disclosures, not the initial early disclosures.
One financial institution stated that the three-business-day waiting
period should begin on the date the corrected disclosures are delivered
or placed in the mail and not when received.
Final Rule
The Board is adopting Sec. 226.19(a)(2) as proposed; however, the
requirement to deliver or mail the early disclosures to the consumer
not later than the seventh business day before consummation has been
moved to Sec. 226.19(a)(2). (In the proposal, the seven-business-day
waiting period was in Sec. 226.19(a)(1)(i).) Under the final rule,
when creditors provide corrected disclosures under Sec. 226.19(a)(2),
the disclosures must state an accurate APR and all changed terms.
Existing comment 19(a)(2)-2 has been redesignated as comment
19(a)(2)(ii)-2.
The final rule also applies the more precise definition of
``business day'' (all calendar days except Sundays and specified legal
public holidays) to the seven-business-day waiting period. This is a
change from the proposal, which would have applied the general
definition of ``business day'' to this provision. This change has been
made so that the same ``business day'' definition will be used for
purposes of both the seven-business-day waiting period and the three-
business-day waiting period, which will make compliance easier, as
discussed in detail in part III.D of the SUPPLEMENTARY INFORMATION. The
final rule also applies the more precise definition to the three-
business-day waiting period, as proposed. Under the proposal,
commentary on the applicable ``business day'' definition was contained
in proposed comment 19(a)(2)-3; under the final rule, commentary on the
applicable ``business day'' definition appears in comment 19(a)(2)-1.
Further, a new comment 19(a)(2)-2 clarifies that where corrected
disclosures are required consummation may not occur until both the
seven-business-day waiting period and the three-business-day waiting
period have expired.
Seven-business-day waiting period for early disclosures. The final
rule (like the proposal) provides that the seven-business-day waiting
period begins when the creditor delivers or places the early
disclosures in the mail--not when the consumer receives or is deemed to
receive the early disclosures. See comment 19(a)(2)(i)-1. This is
consistent with the statutory language of the MDIA. The final rule
applies the more precise definition of ``business day'' to the seven-
business-day waiting period. Proposed comment 19(a)(1)(i)-6 clarified
that consummation may occur any time on the seventh business day
following delivery or mailing and provided examples to facilitate
compliance. That commentary has been revised to reflect the use of the
more precise definition of ``business day'' and redesignated as new
comment 19(a)(2)(i)-1.
Three-business-day waiting period for corrected disclosures. As
proposed, the final rule provides that consummation may not occur until
three business days after the consumer receives corrected disclosures
required by Sec. 226.19(a)(2)(ii). This is consistent with the MDIA
and is also consistent with the three-business-day waiting period in
Sec. 226.31(c)(1) for high-cost mortgages described in Sec. 226.32(a)
(HOEPA loans). The final rule applies the more precise definition of
``business day'' (all calendar days except Sundays and specified legal
public holidays) to the three-business-day waiting period, as discussed
below in part III.D of the SUPPLEMENTARY INFORMATION.
Also as proposed, the final rule provides that if a creditor places
corrected disclosures in the mail, the consumer is deemed to receive
the corrected disclosures three business days after they are mailed.
Comment 19(a)(2)(ii)-3 clarifies that if the creditor provides the
corrected disclosures by mail, the consumer is considered to have
received them three business days after they are placed in the mail,
for purposes of determining when the
[[Page 23293]]
three-business-day waiting period required under Sec. 226.19(a)(2)(ii)
begins. The comment also clarifies that creditors that use e-mail or a
courier other than the postal service may also follow this approach.
For example, if a creditor provides disclosures through a courier
service, the creditor may presume that the consumer receives the
disclosures three business days after they are deposited with the
courier service, for purposes of determining when the three-business-
day waiting period required by Sec. 226.19(a)(2)(ii) begins. The Board
is not adopting separate rules or presumptions regarding the delivery
of disclosures by overnight courier, electronic transmission, or other
means. Although these methods may be faster than delivery by regular
mail, the Board believes that, in light of the variety of delivery
methods and options offered by service providers, it is not feasible to
define with sufficient clarity what may be considered acceptable
``overnight delivery'' or to delineate a separate time period for
presumption of receipt for each available delivery method, as
previously stated in the supplementary information to the Board's July
2008 final rule (see 73 FR at 44593; July 30, 2008).
A creditor is not required to use the presumption of receipt to
determine when the waiting period required by Sec. 226.19(a)(2)(ii)
begins. Thus, if a creditor delivers corrected disclosures
electronically consistent with the E-Sign Act or delivers disclosures
by overnight courier, the creditor may rely on evidence of actual
delivery (such as documentation that the mortgage loan disclosure was
delivered by certified mail or overnight delivery or e-mail (if similar
documentation is available)) to determine when the three-business-day
waiting period begins.
The rules for corrected disclosures are contained in new Sec.
226.19(a)(2)(ii). Therefore, comments 19(a)(2)-1 through 19(a)(2)-4
have been redesignated (as revised) as comments 19(a)(2)(ii)-1 through
19(a)(2)(ii)-4.
APR accuracy for corrected disclosures. New comment 19(a)(2)-4 has
been added to address commenters' request for guidance in cases where
corrected disclosures have been given and the APR subsequently changes.
The new comment clarifies that in such cases, the creditor should
compare the APR at consummation with the APR in the most recently
provided corrected disclosures (not the first set of disclosures
provided) to determine whether the creditor must provide another set of
corrected disclosures.
Commenters requested guidance on whether corrected disclosures are
required if the APR initially disclosed under Sec. 226.19(a)(1)(i)
overstates the actual APR. Comment 19(a)(2)(ii)-1 provides that
corrected disclosures are not required when the APR previously
disclosed is considered accurate under the tolerances in Sec. 226.22.
D. Definition of ``Business Day''--Sec. 226.2(a)(6)
Proposed Rule
The MDIA provides that if the early disclosures are mailed to the
consumer, the consumer is considered to have received them three
business days after they are mailed for purposes of the prohibition on
collecting fees before the consumer receives the early disclosures.
This is consistent with the July 2008 final rule (see 73 FR at 44600-
44601; July 30, 2008). In the rulemaking to implement the MDIA, the
Board proposed to adopt that same presumption for purposes of the
requirement that consumers receive corrected disclosures, if necessary,
not later than the third business day before consummation, as discussed
above in part III.C of the SUPPLEMENTARY INFORMATION. In the July 2008
final rule, the Board also clarified how creditors should count
weekends and Federal legal public holidays in determining when mailed
disclosures are presumed to be received and how long the restriction on
fees applies under Sec. 226.19(a)(1)(ii) (see 73 FR at 44599; July 30,
2008). In this rulemaking, the Board proposed to further clarify that
creditors should count ``business days'' the same way for purposes of
the presumption in Sec. 226.19(a)(2) that consumers receive corrected
disclosures three business days after they are mailed.
Currently, Sec. 226.2(a)(6) contains two definitions of ``business
day.'' Under the general definition, a ``business day'' is a day on
which the creditor's offices are open to the public for carrying on
substantially all of its business functions. However, for some purposes
a more precise definition applies; ``business day'' means all calendar
days except Sundays and specified Federal legal public holidays, for
purposes of Sec. Sec. 226.15(a), 226.23(a), and 226.31(c)(1) and (2).
The July 2008 final rule adopted the more precise definition for use in
determining when mailed disclosures are presumed to be received under
Sec. 226.19(a)(1)(ii). The Board also proposed to apply this
definition for purposes of determining when disclosures are presumed to
be received for purposes of the three-business-day waiting period in
Sec. 226.19(a)(2). As explained below, this approach is being adopted
in this final rule.
Under the MDIA, creditors must deliver the early disclosures, or
place them in the mail, no later than three business days after
receiving a consumer's application for a dwelling-secured mortgage
loan; the delivery or mailing also must occur not later than the
seventh business day before consummation. The Board proposed to use the
general definition of ``business day'' for purposes of satisfying these
timing requirements, both of which were contained in proposed Sec.
226.19(a)(1)(i). This approach was consistent with RESPA's requirement
that creditors provide good faith estimates of settlement costs not
later than three business days after the creditor receives the
consumer's application for a Federally related mortgage loan. See 24
CFR 3500.2(b) and 3500.7. To simplify the rule, the Board proposed that
the general definition of ``business day'' also would be used for
determining when the seven-business-day waiting period expires and
consummation may occur. The Board requested comment, however, on
whether the more precise definition of business day should be used to
facilitate compliance with the seven-business-day waiting period
requirement.
Public Comment
Many commenters addressed which definition of ``business day''
should apply for purposes of determining when the seven-business-day
waiting period expires and consummation may occur. Most of these
commenters stated that the more precise definition of ``business day''
under Sec. 226.2(a)(6)--all calendar days except Sunday and specified
legal public holidays--should be used for this purpose.
Several consumer advocacy organizations stated that using the more
precise definition for all purposes under Sec. 226.19(a) would allow
creditors and supervisory agencies to determine easily whether timing
requirements have been satisfied. A financial services trade
association and a financial institution stated that the general
definition creates uncertainty for a creditor if it has many offices,
branches, and operation centers and only some of them are open on
Saturdays.
Several commenters supported using the general definition of
``business day'' for purposes of the requirement that creditors deliver
or mail the early disclosures within three business days after
receiving the consumer's application, to maintain consistency
[[Page 23294]]
with the RESPA rules. However, these commenters supported using the
more precise definition for all other timing requirements.
A financial services trade association supported using the more
precise definition of ``business day'' for purposes of the seven-
business-day waiting period so that the timing requirement would apply
uniformly to all creditors, regardless of when their offices are open.
A few commenters stated that using the general definition would
disadvantage institutions whose offices are open only five days per
week, including many community banks.
One financial institution and a realtors' trade association
asserted, however, that the general definition of ``business day''
should be used for purposes of the seven-business-day waiting period.
The realtors' trade association stated that the general definition
should be used for all timing requirements to ensure consistency with
RESPA, facilitate compliance, and reduce confusion for consumers. Two
credit union trade associations and a financial institution stated that
a single definition should be used for all timing requirements, but
these commenters did not state a preference for one definition over the
other.
Final Rule
As the Board proposed, the final rule requires that creditors use
the general definition of ``business day'' to calculate the three-
business-day period for providing the early disclosures. Both TILA and
RESPA require creditors to provide disclosures within three business
days after the creditor receives the consumer's application. Using the
general definition of ``business day'' (a day on which the creditor's
offices are open to the public for carrying on substantially all of its
business functions) will maintain consistency between the TILA and
RESPA requirements.
Under the final rule, the more precise definition of ``business
day'' (all calendar days except Sundays and specified Federal legal
public holidays) is used for purposes of the requirements that
creditors deliver or mail the early disclosures no later than the
seventh business day before consummation and that consumers receive
corrected disclosures (if applicable) no later than the third business
day before consummation. The more precise definition of ``business
day'' also is used for purposes of the rule prohibiting the collection
of a fee (other than a fee for obtaining a consumer's credit history)
before the consumer receives the early disclosures, under the final
rule published on July 30, 2008. This is consistent with HUD's
Regulation X (24 CFR 3500.7(a)(4) and 3500.7(b)(4)), which provides
that if a creditor or broker mails good faith estimates of settlement
costs, a consumer is considered to receive them three calendar days
after they are mailed, not including Sundays and specified legal public
holidays.
The Board believes that it is appropriate to use the more precise
definition of ``business day'' for purposes of both the seven-business-
day waiting period and the three-business-day waiting period, for
several reasons. It is easier for a creditor to determine how to meet
timing requirements using the more precise definition, especially a
creditor with multiple offices that are not open on the same days.
Using the more precise definition also will mean that the standard for
determining when a waiting period ends is the same for all creditors.
Moreover, whether a creditor's offices are open or closed does not
affect the time that a consumer has to receive and review disclosures.
E. Consumer's Waiver of Waiting Period Before Consummation--Sec.
226.19(a)(3)
Proposed Rule
Under the MDIA, to expedite consummation of a mortgage transaction,
a consumer may modify or waive the timing requirements for the early
disclosures when the consumer determines that the credit extension is
needed to meet a bona fide personal financial emergency. However, the
consumer must receive the disclosures required by TILA Section 128(a),
15 U.S.C. 1638(a), at or before the time of the consumer's modification
or waiver.
To implement this provision, the Board proposed to permit a
consumer to shorten or waive either the seven-business-day period
required by Sec. 226.19(a)(1)(i) or the three-business-day waiting
period required by Sec. 226.19(a)(2), provided the consumer has
received accurate TILA disclosures reflecting the mortgage
transaction's final costs and terms. Thus, under the proposed rule, if
the consumer waives the seven-business-day waiting period after
receiving the early disclosures and a change occurs that makes the APR
inaccurate (as determined under Sec. 226.22), the consumer would have
to receive corrected disclosures with all changed terms not later than
the third business day before consummation. In such cases, the consumer
could waive the three-business-day waiting period in Sec. 226.19(a)(2)
after receiving the corrected disclosures. Proposed comment 19(a)(3)-2
provided examples to facilitate compliance.
Under proposed Sec. 226.19(a)(3), the consumer would have to give
the creditor a dated written statement describing the emergency and
specifically modifying or waiving the waiting period(s). The use of
pre-printed forms for this purpose would be prohibited and all
consumers entitled to receive the disclosures would have to sign the
statement. The proposal's procedures for waiving the waiting periods
were substantially similar to the existing rules for waiving the three-
business-day rescission period for certain home-secured loans and the
three-business-day waiting period before consummating certain high-cost
mortgage loans. See Sec. Sec. 226.15(e), 226.23(e), and
226.31(c)(1)(iii). The Board solicited comment on whether the proposed
rule should be more or less flexible than the existing procedures.
The Board proposed comment 19(a)(3)-1 to clarify that a consumer
may modify or waive the required waiting period(s) only if the consumer
has a bona fide personal financial emergency that must be met before
the end of the waiting period(s). This proposed comment was designed to
be consistent with the commentary on waiving the rescission period and
the pre-consummation waiting period required for certain high-cost
mortgage loans. See comments 15(e)-1, 23(e)-1, and 31(c)(1)(iii)-1. The
proposed comment explained that whether a bona fide personal financial
emergency exists would be determined by the facts surrounding
individual situations. The imminent sale of the consumer's home at
foreclosure during the three-business-day waiting period was provided
as an example, and the Board solicited comment on whether there are
other circumstances that should be expressly recognized in the final
rule.
Public Comment
Consumer advocacy organizations generally stated that modification
or waiver of a waiting period should be permitted only in narrow
circumstances, such as an imminent foreclosure, tax, or condemnation
sale. Many financial institutions and financial services trade
associations stated that much flexibility is needed to accommodate
consumers who want to expedite consummation. A credit union association
stated that the ``financial emergency'' exception should be available
only in unusual and unforeseeable financial circumstances, however.
[[Page 23295]]
Waiver of either waiting period. Consumer advocacy organizations
stated that the final rule should permit consumers to waive or modify
only the seven-business-day waiting period and asserted that the MDIA
does not allow consumers to waive or modify the three-business-day
waiting period. They asserted that a bona fide personal financial
emergency seldom would arise unexpectedly after the creditor makes
early disclosures and before consummation. Consumer advocates also
stated that even if waiver of the three-business-day waiting period is
permitted in some circumstances, it should not be permitted when the
consumer already has waived the seven-business-day waiting period. They
noted that consumers must receive ``final disclosures'' before waiving
the seven-business-day waiting period and stated that the Board should
interpret the MDIA to prohibit changes in APR after a creditor provides
these disclosures and obtains the consumer's signed waiver. Thus, under
their interpretation of the statute, corrected disclosures and a new
three-business-day waiting period would be unnecessary.
Few of the financial institutions and financial services trade
associations specifically discussed waiver of the three-business-day
waiting period after a consumer receives corrected disclosures, but
those that did address the issue supported allowing such waiver. A
financial institution stated that, in cases where the creditor provides
corrected disclosures, the consumer's previous waiver of the seven-
business-day waiting period under Sec. 226.19(a)(3) automatically
should waive the three-business-day waiting period as well.
Waiver procedures and conditions. Consumer advocacy organizations
supported the waiver procedures as proposed and stated that the waiver
should be handwritten, to prevent consumers from unwittingly signing a
creditor's pre-printed waiver forms. On the other hand, two financial
institutions stated that waiver using pre-printed forms should be
permitted. One financial institution recommended clarifying whether
each consumer primarily liable on the obligation should sign the
written waiver, even though under Sec. 226.17(d) a creditor need only
provide the disclosures to one of the consumers who is primarily liable
on the obligation. A consumer advocacy organization urged the Board to
require creditors to give early disclosures to all of the consumers who
will be obligated on a mortgage transaction. By contrast, a financial
services trade association stated that creditors should be allowed to
accept a waiver from one consumer, even where multiple consumers will
be obligated on the loan.
Most financial institutions and financial services trade
associations stated that the final rule should specify that creditors
do not have to investigate a consumer's determination that the credit
extension is needed to meet a bona fide personal financial emergency.
Two financial institutions stated that the Board should allow consumers
to waive a waiting period even when a bona fide personal financial
emergency does not have to be met during the waiting period. A credit
union stated that the Board should allow consumers to waive a waiting
period where a bona fide personal financial emergency must be satisfied
within a few days after the waiting period, for example, where a
consumer facing imminent foreclosure must make payments before the
actual date of a foreclosure sale. Most consumer advocacy organizations
opposed allowing waiver unless a bona fide personal financial emergency
must be met during the waiting period.
Examples of a bona fide personal financial emergency. Proposed
comment 19(a)(3)-1 states that the imminent sale of a consumer's home
at foreclosure during the waiting period is an example of a bona fide
personal financial emergency. This example is consistent with
commentary on waiving a pre-consummation waiting period that is
required for HOEPA loans under Sec. 226.31(c)(1)(iii). Most of the
financial institutions and financial services trade associations that
discussed this commentary stated that the Board should provide
additional guidance on when waiver is permitted and how it may be
accomplished. Several of these commenters stated that without such
guidance, creditors will rarely, if ever, allow a consumer to waive a
waiting period. Most of these commenters stated that the final rule
should provide additional examples of circumstances that are considered
to be a bona fide personal financial emergency. Two financial services
trade associations stated that the Board should clarify that any
examples are merely illustrative and that a bona fide personal
financial emergency may exist in other circumstances. Two financial
services trade associations stated that the final rule should permit a
consumer to waive a waiting period to avoid a foreclosure on a dwelling
occupied by tenants.
Several financial institutions and financial services trade
associations stated that consumers should be able to waive a waiting
period if they plan to use the loan proceeds to pay a tuition expense.
On the other hand, a credit union association stated that tuition
expenses should not be considered to be a bona fide personal financial
emergency, especially if the payment deadline was known well in
advance. Other circumstances that commenters stated should be
considered as a bona fide personal financial emergency included cases
where a borrower needs to: pay an emergency medical expense; consummate
a transaction before an upcoming increase in a land transfer tax; make
repairs after a natural disaster to prevent additional property damage;
obtain a refinance loan before a payment increase on an adjustable-rate
mortgage; and avoid paying a late charge on an existing obligation.
Final Rule
The Board is adopting Sec. 226.19(a)(3) substantially as proposed,
which is consistent with Regulation Z's existing provisions for waiving
the three-business-day right of rescission for certain mortgage
transactions. Under the final rule, if a consumer determines that an
extension of credit is needed to meet a bona fide personal financial
emergency, the consumer may shorten or waive the seven business-day
waiting period or the three-business-day waiting period required by
Sec. 226.19(a)(2) after the consumer receives accurate TILA
disclosures that reflect the final costs and terms. To shorten or waive
a waiting period, the consumer must give the creditor a dated written
statement that describes the emergency, specifically modifies or waives
the waiting period, and bears the signature of all the consumers who
will be primarily liable on the legal obligation. Creditors may not use
pre-printed forms for this purpose.
Waiver of either waiting period. The final rule permits consumers
to waive either the seven-business-day or the three-business-day
waiting period and thus recognizes that a bona fide personal financial
emergency could occur at any time, including after the consumer
receives the initial early disclosures. For example, a consumer might
receive the initial early disclosures with the expectation of closing
the loan within 60 days. However, the consumer's financial
circumstances might change in the interim, creating a need to
consummate the loan immediately. Under the final rule, if the APR
stated in the early disclosures is no longer accurate, after receiving
a corrected disclosure the consumer can provide a signed statement
describing the financial emergency in order to waive the three-
business-day waiting period and close
[[Page 23296]]
the loan. New comment 19(a)(3)-3 illustrates the case where a consumer
does not modify or waive the seven-business-day waiting period but
modifies the three-business-day waiting period, after receiving a
corrected disclosure.
Consumer advocates asserted that the MDIA does not provide for
waiver of the three-business-day waiting period. The Board disagrees
with that interpretation of the statute. Under the MDIA, consumers may
waive or modify the timing requirements (and thus the waiting periods)
for the disclosures required under TILA Section 128(b)(2)(A). The Board
interprets this provision in the MDIA to apply to the ``good faith
estimates'' provided under section 128(b)(2)(A)--whether they are the
creditor's initial early disclosures or a corrected version provided
subsequently. The requirement in TILA Section 128(b)(2)(D) for a
creditor to provide a corrected disclosure is essentially a requirement
for the creditor to provide an additional set of the early disclosures
required by TILA Section 128(b)(2)(A).
Consumer advocates further asserted that even if the Board
determines that the three-business-day waiting period can be waived in
some circumstances, consumers should not be permitted to waive the
three-business-day waiting period if they have previously waived the
seven-business-day waiting period. In their view, once a consumer
receives the initial early disclosures and waives the seven-business-
day waiting period, the APR may not be changed, even though the
transaction has not been consummated. The consumer advocates note that
under the MDIA consumers can waive the seven-business-day waiting
period only after they receive ``final'' TILA disclosures. The Board
does not agree with the consumer advocates' interpretation of the
statute. The MDIA seeks to ensure that a consumer's decision to waive
the waiting period and immediately consummate the loan is informed by
an accurate ``final'' TILA disclosure. There is no indication, however,
that the Congress intended to make the rate or other terms stated in
the disclosures binding on the parties. Although creditors must provide
an accurate ``final'' disclosure before the consumer waives the seven-
business-day waiting period and consummates the loan, providing such a
disclosure by itself does not assure that the APR (or other loan terms)
cannot change. Thus, if the APR subsequently increases by more that the
specified tolerance, the consumer's previous waiver is no longer
effective and a new ``final'' disclosure must be given. After receiving
the new ``final'' disclosure, a consumer may decide whether to provide
another signed waiver statement.
Waiver procedures and conditions. The final rule requires that
waivers be written, not pre-printed, consistent with regulatory
requirements for waiver of a rescission period or of the waiting period
before consummation of a HOEPA loan. The Board is revising comment
19(a)(3)-1 to clarify that each consumer who will be primarily liable
on the legal obligation must sign the written statement, in order for a
waiver to be effective. The MDIA states that a waiver statement ``shall
bear the signature of all consumers entitled to receive the disclosures
required by'' TILA Section 128(b), 15 U.S.C. 1638(b), and proposed
comment 19(a)(3)-1 contained similar language. However, in a
transaction where multiple consumers are primarily liable on the legal
obligation, a creditor may provide disclosures to one of those
consumers rather than to all of them. TILA Section 121(a), 15 U.S.C.
1631(a); 12 CFR 226.17(d). To avoid confusion, the Board has revised
comment 19(a)(3)-1 to provide that a statement that shortens or waives
a pre-consummation waiting period must be signed by each consumer who
is primarily liable on the legal obligation. This is consistent with,
yet more specific than, comment 23(e), which states that a waiver
statement must be signed by each consumer entitled to rescind, and
comment 31(c)(iii)-1, which states that a waiver statement must be
signed by each consumer entitled to the waiting period for HOEPA loans.
Some commenters requested that the Board adopt a comment stating
that the existence of a consumer's waiver insulates a creditor from
liability in connection with such waiver. The Board is not adopting
such commentary. Comments 15(e)-1 and 23(e)-1 state that the existence
of a consumer's waiver will not, of itself, automatically insulate the
creditor from liability for failing to provide the right of rescission.
The Board expects to consider Regulation Z's modification and waiver
rules for the MDIA, rescission, and HOEPA in connection with its
broader review of regulations for closed-end consumer credit.
Some commenters suggested that consumers may need to obtain the
loan proceeds during the waiting period to prevent an emergency, such
as foreclosure, that will not occur until after the waiting period. For
example, if a foreclosure sale is scheduled to occur a few days after a
waiting period ends, a consumer may need to obtain funds within the
waiting period to reinstate the mortgage before the date of the
scheduled foreclosure sale. However, the longer the period before an
adverse event will occur, the less likely it is that consummation
actually needs to occur during the waiting period to avoid the adverse
event.
Example of a bona fide personal financial emergency. Comment
19(a)(3)-1 has been revised to clarify that consumers who need to
obtain the funds during the waiting period may execute the waiver in
such cases. The example stated in comment 19(a)(3)-1 is merely
illustrative; a consumer may determine that a credit extension is
necessary to meet a bona fide personal financial emergency in
circumstances other than foreclosure. The Board believes that it is not
necessary to state additional examples of a bona fide personal
financial emergency at this time. Whether credit must be extended
before a waiting period expires, in order to meet a bona fide personal
financial emergency, is determined based on the facts associated with
individual situations, as comment 19(a)(3)-1 states. The Board believes
waivers should not be used routinely to expedite consummation for
reasons of convenience. As the MDIA requires, under the final rule a
waiver statement must be written by the consumer. As proposed, the
final rule prohibits the use of pre-printed forms to further protect
against routine modification or waiver of the waiting periods.
F. Notice--Sec. 226.19(a)(4)
Proposed Rule
The MDIA requires that the early disclosures contain a clear and
conspicuous notice containing the following statement: ``You are not
required to complete this agreement merely because you have received
these disclosures or signed a loan application.'' The Board proposed to
implement this requirement in a new Sec. 226.19(a)(4), for the early
disclosures required by Sec. 226.19(a)(1)(i), as well as any corrected
disclosures required by Sec. 226.19(a)(2). The Board solicited comment
on the costs and benefits of the proposed rule. The Board also
solicited comment on the language used in the disclosures and whether
other language might be easier for consumers to understand.
Public Comment
Consumer advocacy organizations stated that the Board should not
alter the statutory language without a compelling reason. These
commenters noted that the statutory text for the
[[Page 23297]]
notice is almost identical to the statutory text for the notice
required for HOEPA loans. Two financial services trade associations and
a financial institution stated that using the phrase ``this agreement''
in the required statement would mislead consumers, because the
disclosures are not in fact an agreement. Several industry commenters
recommended that the Board publish model forms or clarify how creditors
can make the disclosure in ``conspicuous type size and format.'' A
credit union trade association stated that the MDIA's notice
requirements would not benefit consumers but would increase financial
institutions' costs considerably.
A financial institution stated that many creditors routinely
provide new disclosures under Sec. 226.18 to the consumer on the day
of consummation, even where the creditor is not required to provide
corrected disclosures. The bank stated that such ``final'' disclosures
should be permitted to contain the statement required by Sec.
226.19(a)(4) so that creditors may use a single form.
Final Rule
The Board is adopting Sec. 226.19(a)(4) as proposed using the text
contained in the statute. The statement required by Sec. 226.19(a)(4)
must be grouped together with the other disclosures required by Sec.
226.19(a)(1) and Sec. 226.19(a)(2). Most creditors provide TILA
disclosures at consummation, even if the early disclosures remain
accurate and corrected disclosures are not required. To facilitate
compliance for creditors that use the same form for the initial
disclosures and final disclosures, new comment 17(a)(1)-5(xvi)
clarifies that creditors may also include the notice described in Sec.
226.19(a)(4) on the disclosures provided at consummation and may group
the notice together with the disclosures required by Sec. 226.18.
The Board believes that the reference to an ``agreement'' is
sufficiently clear as a reference to the loan agreement that the
disclosures summarize. The Board is not proposing new model disclosures
at this time because the Board anticipates proposing new model
disclosure forms and clauses during 2009, in connection with consumer
testing and the comprehensive review of closed-end mortgage disclosures
that currently is underway.
G. Timeshare Transactions--Sec. 226.19(a)(5)
Proposed Rule
The Board proposed a new Sec. 226.19(a)(5) containing the early
disclosure requirements for mortgage loans secured by a consumer's
interest in a ``timeshare plan'' (timeshare transactions), as defined
in the bankruptcy laws (see 11 U.S.C. 101(53D)). Pursuant to amendments
in the Stabilization Act, the disclosure timing requirements and the
fee restriction added by the MDIA are not applicable to timeshare
transactions, which instead are subject to the same disclosure timing
requirements that applied to ``residential mortgage transactions''
under TILA Section 128(b)(2), 15 U.S.C. 1638(b), before the MDIA was
enacted. Accordingly, for timeshare transactions, proposed Sec.
226.19(a)(5) required that creditors make good faith estimates of the
disclosures required by Sec. 226.18 that must be delivered or placed
in the mail within three business days after the creditor receives the
consumer's application or before the credit is extended, whichever is
earlier. The seven-business-day waiting period and three-business-day
waiting period before consummation contained in Sec. 226.19(a)(2) do
not apply to timeshare transactions.
For timeshare transactions, if the APR stated in the early
disclosures changes beyond the specified tolerance, under proposed
Sec. 226.19(a)(5)(iii), creditors would have to disclose all the
changed terms no later than consummation or settlement of the
transaction, consistent with the existing rules for residential
mortgage transactions in Sec. 226.19(a)(2). Currently, comment
19(a)(2)-3 states that ``consummation'' is defined in Sec. 226.2(a),
and ``date of settlement'' is defined in HUD's Regulation X (24 CFR
3500.2(a)). As discussed above, for transactions other than timeshare
transactions, the MDIA amends TILA to remove reference to
``settlement'' from TILA's provisions requiring creditors to make
corrected disclosures.
The Board solicited comment on the costs and benefits of basing the
timing for corrected disclosures on the time of consummation or
settlement for timeshare transactions but solely on the time of
consummation for other mortgage loans. The Board asked whether
Regulation Z's timing requirements for corrected disclosures should be
made consistent for all closed-end mortgage transactions by requiring
creditors to make corrected disclosures at the time of consummation for
timeshare transactions. The Board also asked, in the alternative,
whether Regulation Z should require creditors to make corrected
disclosures three business days before consummation or settlement,
whichever is later, for closed-end mortgage loans other than timeshare
transactions.
Public Comment
Most consumer advocacy organizations stated that corrected
disclosures for all mortgage loans other than timeshare transactions
should be provided before consummation, which marks the time when the
consumer's legal obligation begins. These commenters stated that
allowing corrected disclosures to be given at the time of settlement
would be less advantageous for consumers, because they would be
obligated on the transaction before they received the corrected
disclosures. They recommended that the same rules should apply to
timeshare transactions as well. A community bank trade association
stated that the disclosure timing requirements for timeshare
transactions should be the same as for other closed-end mortgage
transactions, to facilitate compliance with Regulation Z.
Final Rule
The Board is adopting Sec. 226.19(a)(5) as proposed. The final
rule, like the proposed rule, tracks the MDIA's requirements for
timeshare transactions in TILA Section 128(b)(2)(G), as amended. In
particular, under Sec. 226.19(a)(5)(iii), if the APR stated in the
early disclosures becomes inaccurate, the creditor must disclose all
the changed terms no later than consummation or settlement. By
contrast, for loans other than timeshare transactions, the creditor
must make corrected disclosures (if required) not later than the third
business day before consummation, which conforms with TILA Section
128(b)(2)(D), as added by the MDIA.
For timeshare transactions, the general definition of ``business
day'' (days the creditor's offices are open to the public for carrying
on substantially all of its business functions) is used for purposes of
Sec. 226.19(a)(5)(ii), as proposed. This is consistent with the rules
for providing early disclosures for other types of mortgage
transactions. Also, the commentary accompanying Sec. 226.19(a)(5) has
been revised for clarity.
H. Solicitation of Comments on Timing of Disclosures for Home Equity
Lines of Credit
The MDIA applies only to closed-end loans secured by a consumer's
dwelling and does not affect the disclosure requirements for open-end
credit plans secured by a dwelling (home equity lines of credit, or
HELOCs). In connection with the Board's comprehensive review of
Regulation Z,
[[Page 23298]]
the Board's staff is currently reviewing the content and format of
HELOC disclosures and subjecting them to consumer testing. To aid in
this review, the Board sought comment on whether it is necessary or
appropriate to change the timing of HELOC disclosures and, if so, what
changes should be made. The Board is considering the comments received
and anticipates issuing a proposal to improve the disclosures later in
2009.
I. Effective Date
This final rule becomes effective on July 30, 2009, consistent with
the requirements of the MDIA. The provisions in TILA Section 105(d), 15
U.S.C. 1604(d), regarding the effective date of new disclosure
requirements is superseded by the effective date of the MDIA.
Many financial institutions and financial services trade
associations stated that the final rules implementing the MDIA should
apply only to mortgage transactions for which creditors receive the
consumer's application on or after July 30, 2009. The final rule adopts
this approach, which is consistent with comment 1(d)(5)-1, contained in
the July 2008 final rule.
The Board is adopting new comment 1(d)(3)-1 to facilitate
compliance by specifying which provisions of the July 2008 final rule
will become effective on July 30, 2009 as revised by this final rule.
Compliance with those provisions, as revised, is mandatory for covered
loans for which the creditor receives an application on or after July
30, 2009. The specific amended subsections are Sec. Sec. 226.2(a)(6),
226.17(b) and (f), and 226.19(a)(1) through (a)(5). Covered loans
include refinance loans and assumptions that are considered to be new
transactions under Sec. 226.20(a) or (b).
IV. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the
final rule under the authority delegated to the Board by the Office of
Management and Budget (OMB). The collection of information that is
required by this final rule is found in 12 CFR part 226. The Board may
not conduct or sponsor, and an organization is not required to respond
to, this information collection unless the information collection
displays a currently valid OMB control number. The OMB control number
is 7100-0199.
This information collection is required to provide benefits for
consumers and is mandatory (15 U.S.C. 1601 et seq.). Since the Board
does not collect any information, no issue of confidentiality arises.
The respondents/recordkeepers are creditors and other entities subject
to Regulation Z, including for-profit financial institutions and small
businesses.
TILA and Regulation Z are intended to ensure effective disclosure
of the costs and terms of credit to consumers. For closed-end loans,
such as mortgage and installment loans, cost disclosures are required
to be provided prior to consummation. Special disclosures are required
in connection with certain products, such as reverse mortgages, certain
variable-rate loans, and certain mortgages with rates and fees above
specified thresholds. TILA and Regulation Z also contain rules
concerning credit advertising. Creditors are required to retain
evidence of compliance for twenty-four months (Sec. 226.25), but
Regulation Z does not specify the types of records that must be
retained.
Under the PRA, the Board accounts for the paperwork burden
associated with Regulation Z for the state member banks and other
creditors supervised by the Board that engage in lending covered by
Regulation Z and, therefore, are respondents under the PRA. Appendix I
of Regulation Z defines the institutions supervised by the Federal
Reserve System as: state member banks, branches and agencies of foreign
banks (other than Federal branches, Federal agencies, and insured State
branches of foreign banks), commercial lending companies owned or
controlled by foreign banks, and organizations operating under section
25 or 25A of the Federal Reserve Act. Other Federal agencies account
for the paperwork burden imposed on the entities for which they have
administrative enforcement authority under TILA. To ease the burden and
cost of complying with Regulation Z (particularly for small entities),
the Board provides model forms, which are appended to the regulation.
As discussed above, on December 10, 2008, the Board published in
the Federal Register a notice of proposed rulemaking to implement the
MDIA (73 FR 74989). The comment period for this notice expired February
9, 2009. The Board received two comment letters from banks that
specifically addressed paperwork burden. The commenters asserted that
the hourly estimate of the cost of compliance should be considerably
higher than the Board projected. The commenters noted that, in addition
to updating their systems and internal procedure manuals, compliance
would require additional staff training but did not provide specific
estimates of additional burden hours that would result from the
proposal. In response to those comments, the Board is increasing the
burden estimate attributable to additional staff training and updates
to internal procedures.
Based on this adjustment to the estimate published in the proposed
rule the Board estimates that each of the 1,138 respondents supervised
by the Federal Reserve System would take, on average, 40 hours (one
business week) to update their systems, provide additional staff
training, and update internal procedures to comply with the proposed
disclosure requirements in Sec. Sec. 226.17 and 226.19. This one-time
revision would increase the burden for the respondents supervised by
the Federal Reserve System by 45,520 hours from 688,607 hours to
734,127 hours.
The total estimated burden increase represents averages for all
respondents supervised by the Federal Reserve System. The Board expects
that the amount of time required to implement each of the changes for a
given institution may vary based on the size and complexity of the
respondent.
The other Federal financial institution supervisory agencies (the
Office of the Comptroller of the Currency (OCC), the Office of Thrift
Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC),
and the National Credit Union Administration (NCUA)) are responsible
for estimating and reporting to OMB the total paperwork burden for the
domestically chartered commercial banks, thrifts, and Federal credit
unions and U.S. branches and agencies of foreign banks for which they
have primary administrative enforcement jurisdiction under TILA Section
108(a), 15 U.S.C. 1607(a). These agencies may, but are not required to,
use the Board's burden estimation methodology. Using the Board's
method, the total current estimated annual burden for the approximately
17,200 domestically chartered commercial banks, thrifts, and Federal
credit unions and U.S. branches and agencies of foreign banks
supervised by the Board, OCC, OTS, FDIC, and NCUA under TILA would be
approximately 13,568,725 hours. The final rule will impose a one-time
increase in the estimated annual burden for such institutions by
688,000 hours to 14,256,725 hours. The above estimates represent an
average across all respondents and reflect variations between
institutions based on their size, complexity, and practices.
The Board has a continuing interest in the public's opinions of its
collections of information. At any time, comments
[[Page 23299]]
regarding the burden estimate or any other aspect of this collection of
information, including suggestions for reducing the burden, may be sent
to: Secretary, Board of Governors of the Federal Reserve System, 20th
and C Streets, NW., Washington, DC 20551; and to the Office of
Management and Budget, Paperwork Reduction Project (7100-0199),
Washington, DC 20503.
V. Final Regulatory Flexibility Analysis
In accordance with section 4 of the Regulatory Flexibility Act
(RFA), 5 U.S.C. 601-612, the Board is publishing a final regulatory
flexibility analysis for the proposed amendments to Regulation Z. The
RFA generally requires an agency to perform an assessment of the impact
a rule is expected to have on small entities.\2\ However, under Section
605(b) of the RFA, 5 U.S.C. 605(b), the regulatory flexibility analysis
otherwise required under section 604 of the RFA is not required if an
agency certifies that the rule will not have a significant economic
impact on a substantial number of small entities and states the factual
basis for such certification. The Board continues to believe that this
final rule will not have a significant economic impact on a substantial
number of small entities. The final amendments to Regulation Z are
narrowly designed to implement the revisions to TILA made by the MDIA.
Creditors must comply with the MDIA's requirements when they become
effective on July 30, 2009, whether or not the Board amends Regulation
Z to conform the regulation to the statute. The Board's final rule is
intended to facilitate compliance by eliminating inconsistencies
between Regulation Z's existing requirements and the statutory
requirements imposed by the MDIA starting July 30, 2009.
---------------------------------------------------------------------------
\2\ Under standards the U.S. Small Business Administration sets
(SBA), an entity is considered ``small'' if it has $175 million or
less in assets for banks and other depository institutions; and $6.5
million or less in revenues for non-bank mortgage lenders, mortgage
brokers, and loan servicers. U.S. Small Business Administration,
Table of Small Business Size Standards Matched to North American
Industry Classification System Codes, available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
---------------------------------------------------------------------------
A. Statement of the Need for, and Objectives of, the Final Rule
Congress enacted the TILA based on findings that economic stability
would be enhanced and competition among consumer credit providers would
be strengthened by the informed use of credit resulting from consumers'
awareness of the cost of credit. One of the stated purposes of TILA is
to provide a meaningful disclosure of credit terms to enable consumers
to compare credit terms available in the marketplace more readily and
avoid the uninformed use of credit. TILA also contains procedural and
substantive protections for consumers. TILA directs the Board to
prescribe regulations to carry out the purposes of the statute. The
Board's Regulation Z implements TILA.
Congress enacted the MDIA in 2008 as an amendment to TILA. The MDIA
amends TILA's disclosure requirements for closed-end mortgage
transactions that are secured by a consumer's dwelling and subject to
the Real Estate Settlement Procedures Act (RESPA). In July 2008, the
Board revised Regulation Z to expand the number of transactions in
which creditors must give a good faith estimate of the required
disclosures (early disclosures). Previously, early disclosures were
required only for loans made to finance the purchase or initial
construction of a consumer's principal dwelling. Under the July 2008
final rule, creditors must provide early disclosures for any mortgage
loan secured by the consumer's principal dwelling, such as a home
refinance loan or home equity loan. The MDIA amends TILA to require
early disclosures for consumer loans secured by any dwelling, even if
it is not the consumer's principal dwelling. As explained in parts I
and III of the SUPPLEMENTARY INFORMATION, the MDIA and the Board's
final rule require creditors to delay consummating a loan for seven
business days after the creditor makes early disclosures, and three
business days after the consumer receives any required corrected
disclosures.
B. Summary of Issues Raised by Comments in Response to the Initial
Regulatory Flexibility Analysis
Parts I and III of the SUPPLEMENTARY INFORMATION contain a detailed
discussion of the objectives and legal basis for this final rulemaking.
In summary, the amendments to Regulation Z are designed to implement
changes that the MDIA makes to TILA. The legal basis for the final rule
is in Section 105(a) of TILA.
In connection with the proposed rule to implement the MDIA, the
Board sought information and comment on any costs, compliance
requirements, or changes in operating procedures arising from the
application of the rule to small institutions. The Board received
several comments from small banks and trade associations that represent
small banks. The commenters asserted that compliance with a final rule
to implement the MDIA would increase costs and delay consummation of
loans secured by a consumer's dwelling and subject to RESPA. However,
these comments did not contain specific information about costs that
will be incurred or changes in operating procedures that will be
required to comply with the final rule. In general, the comments
discussed the impact of statutory requirements rather than any impact
that the Board's proposed rule itself would generate. The Board
continues to believe that this final rule will not have a significant
impact on a substantial number of small entities.
C. Description and Estimate of Small Entities to Which the Final Rule
Will Apply
The final regulations will apply to all institutions and entities
that engage in closed-end, dwelling-secured lending that is for
consumer purposes and subject to RESPA. TILA and Regulation Z have
broad applicability to individuals and businesses that originate even
small numbers of home-secured loans. See Sec. 226.1(c)(1). As
discussed in the initial Regulatory Flexibility Analysis, through data
from Reports of Condition and Income (Call Reports) of depository
institutions and certain subsidiaries of banks and bank holding
companies, as well as data reported under the Home Mortgage Disclosure
Act (HMDA),\3\ the Board can estimate the approximate number of small
depository institutions that would be subject to the rules. For the
majority of HMDA respondents that are not depository institutions,
exact asset size information is not available, although the Board has
estimates based on self-reporting from approximately five percent of
the non-depository respondents.
---------------------------------------------------------------------------
\3\ HMDA requires lenders to report information annually to
their federal supervisory agencies for each application and loan
acted on during the calendar year. See 12 U.S.C. 2801 et seq. The
loans reported are estimated to represent about 80 percent of all
home lending nationwide and therefore are likely to be broadly
representative of home lending in the United States. Robert B.
Avery, Kenneth P. Brevoort, and Glenn B. Canner, The 2007 HMDA Data,
84 Federal Reserve Bulletin A107, A107 (Dec. 2008) (2007 HMDA Data),
http://www.federalreserve.gov/pubs/bulletin/2008/pdf/hmda07final.pdf.
---------------------------------------------------------------------------
Based on the best information available, the Board makes the
following estimate of small entities that would be affected by this
final rule: According to December 2008 Call Report data, approximately
9,418 small depository institutions would be subject to the rule.
Approximately 16,648 depository institutions in the United States filed
Call Report data, approximately 12,034 of which had total domestic
assets of
[[Page 23300]]
$175 million or less and thus were considered small entities for
purposes of the RFA. Of the 4,230 banks, 564 thrifts, 7,111 credit
unions, and 129 branches of foreign banks that filed Call Report data
and were considered small entities, 4,090 banks, 529 thrifts, 4,796
credit unions, and 3 branches of foreign banks, totaling 9,418
institutions, extended mortgage credit. For purposes of this Call
Report analysis, thrifts include savings banks, savings and loan
entities, co-operative banks and industrial banks. Further, 1,752 non-
depository institutions (independent mortgage companies, subsidiaries
of a depository institution, or affiliates of a bank holding company)
filed HMDA reports in 2008 for 2007 lending activities.\4\ Based on the
small volume of lending activity reported by these institutions, most
are likely to be small entities.
---------------------------------------------------------------------------
\4\ 2007 HMDA Data at A109 and tbl. 2.
---------------------------------------------------------------------------
D. Reporting, Recordkeeping, and Other Compliance Requirements
The compliance requirements of the final rule are described in
parts I and III of the SUPPLEMENTARY INFORMATION. To comply with the
revised rules, many small entities will be required to modify their
procedures for making credit disclosures for dwelling-secured mortgage
loans. The precise costs to small entities of updating their systems
and disclosures are difficult to predict. These costs will depend on a
number of unknown factors, including, among other things, the
specifications of the current systems used by such entities to prepare
and provide disclosures.
E. Steps Taken To Minimize the Economic Impact on Small Entities
As discussed in part III of the SUPPLEMENTARY INFORMATION, TILA and
RESPA both require disclosures for dwelling-secured loans that must be
given within three business days of application. Under Regulation Z,
the Board has interpreted TILA's timing requirement to be consistent
with the timing of RESPA disclosures. Thus, where possible, the Board
has made terms and definitions used in Regulation Z consistent with
those terms as they are used in HUD's Regulation X. For example,
Regulation Z provides that creditors may rely on RESPA and Regulation X
(including any interpretations issued by HUD) in deciding whether a
``written application'' has been received. As a further example, the
definition of ``business day'' that is used under the Board's final
rule for purposes of requirements for a creditor to deliver or mail
good faith estimates of loan terms (also known as the ``early
disclosures'') within three business days after the creditor receives a
consumer's application is consistent with the ``business day''
definition used under Regulation X for purposes of requirements for
creditors to provide good faith estimates of settlement charges within
three business days after the creditor receives the consumer's
application. Many creditors send the good faith estimates required by
Regulation Z and Regulation X together; these creditors may continue to
send these disclosures together, under the Board's final rule.
Moreover, under both Regulation Z and Regulation X, creditors count all
calendar days except Sundays and specified legal holidays to determine
when a consumer is considered to have received disclosures provided by
means other than delivery in person. Using common definitions for terms
that apply under both Regulation Z and Regulation X reduces the impact
of the MDIA on all creditors, including small creditors.
The Board has made one change in the final rule that further
reduces the impact of the MDIA's amendments to TILA on small creditors
and other creditors. The MDIA adds two pre-consummation waiting
periods--one of seven business days after the creditor delivers the
early disclosures, and the other of three business days after a
consumer receives corrected disclosures, if any are required--to TILA's
requirements. Under the Board's final rule, the same definition of
``business day'' is used for purposes of each waiting period. Further,
the definition of ``business day'' that will apply for purposes of
determining when a waiting period expires and consummation may occur is
an objective definition: all calendar days except Sundays and specified
legal public holidays. The Board is not adopting its proposal to apply
Regulation Z's general definition of ``business day'' (days on which
the creditor's offices are open to the public for carrying on
substantially all of its business functions), for purposes of this
requirement. Under the Board's proposal, creditors whose offices are
open seven days per week would be able to consummate mortgage
transactions that are subject to the MDIA sooner than creditors whose
offices are open fewer days per week. This will not be the case under
the final rule. To the extent that small creditors' offices are less
likely than large creditors' offices to be open on Saturday or Sunday,
the final rule creates parity between small and large entities by
applying the more precise definition of ``business day'' for purposes
of determining when the seven-business-day waiting period expires and
consummation may occur.
This regulatory flexibility analysis does not discuss alternatives
to the final rule because the Board is revising Regulation Z for the
narrow purpose of carrying out its statutory mandate to implement
statutory amendments to TILA.
List of Subjects in 12 CFR Part 226
Advertising, Consumer protection, Federal Reserve System,
Mortgages, Reporting and recordkeeping requirements, Truth in lending.
Authority and Issuance
For the reasons set forth in the preamble, the effective date for
the amendments to 12 CFR 226.2(a)(6), 226.17(b) and (f), and
226.19(a)(1), and, in Supplement I (Official Staff Interpretations) to
part 226, under Section 226.1 Authority, Purpose, Coverage,
Organization, Enforcement and Liability, under Section 226.2
Definitions and Rules of Construction, under Section 226.17 General
Disclosure Requirements, and under Section 226.19 Certain Residential
Mortgage and Variable-Rate Transactions, published on July 30, 2008 (73
FR 44600), previously October 1, 2009, is now July 30, 2009; and the
Board amends Regulation Z, 12 CFR part 226 further, as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
0
1. The authority citation for part 226 continues to read as follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, and 1637(c)(5).
Subpart A--General
0
2. Section 226.2 is amended by revising paragraph (a)(6) to read as
follows:
Sec. 226.2 Definitions and rules of construction.
(a) * * *
(6) Business Day means a day on which the creditor's offices are
open to the public for carrying on substantially all of its business
functions. However, for purposes of rescission under Sec. Sec. 226.15
and 226.23, and for purposes of Sec. 226.19(a)(1)(ii), Sec.
226.19(a)(2), and Sec. 226.31, the term means all calendar days except
Sundays and the legal public holidays specified in 5 U.S.C. 6103(a),
such as New Year's Day, the Birthday of Martin Luther King, Jr.,
Washington's Birthday, Memorial Day,
[[Page 23301]]
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving
Day, and Christmas Day.
* * * * *
Subpart C--Closed-End Credit
0
3. Section 226.17 is amended by revising paragraph (f) to read as
follows:
Sec. 226.17 General disclosure requirements.
* * * * *
(f) Early disclosures. If disclosures required by this subpart are
given before the date of consummation of a transaction and a subsequent
event makes them inaccurate, the creditor shall disclose before
consummation (subject to the provisions of Sec. 226.19(a)(2) and Sec.
226.19(a)(5)(iii)): \39\
---------------------------------------------------------------------------
\39\ [Reserved.]
---------------------------------------------------------------------------
(1) Any changed term unless the term was based on an estimate in
accordance with Sec. 226.17(c)(2) and was labelled an estimate;
(2) All changed terms, if the annual percentage rate at the time of
consummation varies from the annual percentage rate disclosed earlier
by more than \1/8\ of 1 percentage point in a regular transaction, or
more than \1/4\ of 1 percentage point in an irregular transaction, as
defined in Sec. 226.22(a).
* * * * *
0
4. Section 226.19 is amended by revising paragraph (a) to read as
follows:
Sec. 226.19 Certain mortgage and variable-rate transactions.
(a) Mortgage transactions subject to RESPA--(1)(i) Time of
disclosures. In a mortgage transaction subject to the Real Estate
Settlement Procedures Act (12 U.S.C. 2601 et seq.) that is secured by
the consumer's dwelling, other than a home equity line of credit
subject to Sec. 226.5b or mortgage transaction subject to paragraph
(a)(5) of this section, the creditor shall make good faith estimates of
the disclosures required by Sec. 226.18 and shall deliver or place
them in the mail not later than the third business day after the
creditor receives the consumer's written application.
(ii) Imposition of fees. Except as provided in paragraph
(a)(1)(iii) of this section, neither a creditor nor any other person
may impose a fee on a consumer in connection with the consumer's
application for a mortgage transaction subject to paragraph (a)(1)(i)
of this section before the consumer has received the disclosures
required by paragraph (a)(1)(i) of this section. If the disclosures are
mailed to the consumer, the consumer is considered to have received
them three business days after they are mailed.
(iii) Exception to fee restriction. A creditor or other person may
impose a fee for obtaining the consumer's credit history before the
consumer has received the disclosures required by paragraph (a)(1)(i)
of this section, provided the fee is bona fide and reasonable in
amount.
(2) Waiting periods for early disclosures and corrected
disclosures. (i) The creditor shall deliver or place in the mail the
good faith estimates required by paragraph (a)(1)(i) of this section
not later than the seventh business day before consummation of the
transaction.
(ii) If the annual percentage rate disclosed under paragraph
(a)(1)(i) of this section becomes inaccurate, as defined in Sec.
226.22, the creditor shall provide corrected disclosures with all
changed terms. The consumer must receive the corrected disclosures no
later than three business days before consummation. If the corrected
disclosures are mailed to the consumer or delivered to the consumer by
means other than delivery in person, the consumer is deemed to have
received the corrected disclosures three business days after they are
mailed or delivered.
(3) Consumer's waiver of waiting period before consummation. If the
consumer determines that the extension of credit is needed to meet a
bona fide personal financial emergency, the consumer may modify or
waive the seven-business-day waiting period or the three-business-day
waiting period required by paragraph (a)(2) of this section, after
receiving the disclosures required by Sec. 226.18. To modify or waive
a waiting period, the consumer shall give the creditor a dated written
statement that describes the emergency, specifically modifies or waives
the waiting period, and bears the signature of all the consumers who
are primarily liable on the legal obligation. Printed forms for this
purpose are prohibited.
(4) Notice. Disclosures made pursuant to paragraph (a)(1) or
paragraph (a)(2) of this section shall contain the following statement:
``You are not required to complete this agreement merely because you
have received these disclosures or signed a loan application.'' The
disclosure required by this paragraph shall be grouped together with
the disclosures required by paragraphs (a)(1) or (a)(2) of this
section.
(5) Timeshare plans. In a mortgage transaction subject to the Real
Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.) that is
secured by a consumer's interest in a timeshare plan described in 11
U.S.C. 101(53(D)):
(i) The requirements of paragraphs (a)(1) through (a)(4) of this
section do not apply;
(ii) The creditor shall make good faith estimates of the
disclosures required by Sec. 226.18 before consummation, or shall
deliver or place them in the mail not later than three business days
after the creditor receives the consumer's written application,
whichever is earlier; and
(iii) If the annual percentage rate at the time of consummation
varies from the annual percentage rate disclosed under paragraph
(a)(5)(ii) of this section by more than \1/8\ of 1 percentage point in
a regular transaction or more than \1/4\ of 1 percentage point in an
irregular transaction, as defined in Sec. 226.22, the creditor shall
disclose all the changed terms no later than consummation or
settlement.
* * * * *
0
5. In Supplement I to Part 226, under Section 226.1--Authority,
Purpose, Coverage, Organization, Enforcement and Liability:
(A) Heading 1(d) Organization is republished;
(B) New Paragraph 1(d)(1) through Paragraph 1(d)(4) are added;
(C) Under Paragraph 1(d)(5), paragraph 1(d)(5)-1 is revised; and
(D) New Paragraph 1(d)(6) is added.
Supplement I to Part 226--Official Staff Interpretations
* * * * *
Subpart A--General
Sec. 226.1 Authority, Purpose, Coverage, Organization, Enforcement
and Liability.
* * * * *
1(d) Organization.
Paragraph 1(d)(1)
1. [Reserved.]
Paragraph 1(d)(2)
1. [Reserved.]
Paragraph 1(d)(3)
1. Effective date. The Board's amendments to Regulation Z published
on May 19, 2009 apply to covered loans (including refinance loans and
assumptions considered new transactions under Sec. 226.20) for which
the creditor receives an application on or after July 30, 2009.
Paragraph 1(d)(4)
1. [Reserved.]
Paragraph 1(d)(5)
1. Effective dates. The Board's revisions published on July 30,
2008 (the ``final rules'') apply to covered loans (including refinance
loans and
[[Page 23302]]
assumptions considered new transactions under Sec. 226.20) for which
the creditor receives an application on or after October 1, 2009,
except for the final rules on advertising, escrows, and loan servicing.
But see comment 1(d)(3)-1. The final rules on escrow in Sec.
226.35(b)(3) are effective for covered loans (including refinancings
and assumptions in Sec. 226.20) for which the creditor receives an
application on or after April 1, 2010; but for such loans secured by
manufactured housing on or after October 1, 2010. The final rules
applicable to servicers in Sec. 226.36(c) apply to all covered loans
serviced on or after October 1, 2009. The final rules on advertising
apply to advertisements occurring on or after October 1, 2009. For
example, a radio ad occurs on the date it is first broadcast; a
solicitation occurs on the date it is mailed to the consumer. The
following examples illustrate the application of the effective dates
for the final rules.
i. General. A refinancing or assumption as defined in Sec.
226.20(a) or (b) is a new transaction and is covered by a provision of
the final rules if the creditor receives an application for the
transaction on or after that provision's effective date. For example,
if a creditor receives an application for a refinance loan covered by
Sec. 226.35(a) on or after October 1, 2009, and the refinance loan is
consummated on October 15, 2009, the provision restricting prepayment
penalties in Sec. 226.35(b)(2) applies. However, if the transaction
were a modification of an existing obligation's terms that does not
constitute a refinance loan under Sec. 226.20(a), the final rules,
including for example the restriction on prepayment penalties, would
not apply.
ii. Escrows. Assume a consumer applies for a refinance loan to be
secured by a dwelling (that is not a manufactured home) on March 15,
2010, and the loan is consummated on April 2, 2010. The escrow rule in
Sec. 226.35(b)(3) does not apply.
iii. Servicing. Assume that a consumer applies for a new loan on
August 1, 2009. The loan is consummated on September 1, 2009. The
servicing rules in Sec. 226.36(c) apply to the servicing of that loan
as of October 1, 2009.
Paragraph 1(d)(6)
1. [Reserved.]
0
6. In Supplement I to Part 226, under Section 226.2--Definitions and
Rules of Construction, 2(a) Definitions, 2(a)(6) Business day,
paragraph 2(a)(6)-2 is revised to read as follows:
Sec. 226.2 Definitions and Rules of Construction.
2(a) Definitions.
* * * * *
2(a)(6) Business day.
* * * * *
2. Rule for rescission and disclosures for certain mortgage
transactions. A more precise rule for what is a business day (all
calendar days except Sundays and the Federal legal holidays specified
in 5 U.S.C. 6103(a)) applies when the right of rescission or the
receipt of disclosures for certain dwelling-secured mortgage
transactions under Sec. Sec. 226.19(a)(1)(ii), 226.19(a)(2), or
226.31(c) is involved. Four Federal legal holidays are identified in 5
U.S.C. 6103(a) by a specific date: New Year's Day, January 1;
Independence Day, July 4; Veterans Day, November 11; and Christmas Day,
December 25. When one of these holidays (July 4, for example) falls on
a Saturday, Federal offices and other entities might observe the
holiday on the preceding Friday (July 3). In cases where the more
precise rule applies, the observed holiday (in the example, July 3) is
a business day.
* * * * *
0
7. In Supplement I to Part 226, under Section 226.17--General
Disclosure Requirements, 17(a)(1) Form of disclosures, new paragraph
17(a)(1)-5(xvi) is added, to read as follows:
Subpart C--Closed-End Credit
Sec. 226.17 General Disclosure Requirements.
17(a) Form of disclosures.
Paragraph 17(a)(1)
* * * * *
5. * * *
xvi. The notice set forth in Sec. 226.19(a)(4), in a closed-end
transaction not subject to Sec. 226.19(a)(1)(i). In a mortgage
transaction subject to Sec. 226.19(a)(1)(i), the creditor must
disclose the notice contained in Sec. 226.19(a)(4) grouped together
with the disclosures made under Sec. 226.18. See comment 19(a)(4)-1.
* * * * *
0
8. In Supplement I to Part 226, under Section 226.19--Certain Mortgage
and Variable-Rate Transactions:
(A) Under 19(a)(1)(i) Time of disclosure, paragraphs 19(a)(1)(i)-1
through 19(a)(1)(i)-5 are revised;
(B) Paragraph 19(a)(2) Redisclosure required is revised;
(C) Paragraph 19(a)(3) Consumer's waiver of waiting period before
consummation through Paragraph 19(a)(5)(iii) Redisclosure for timeshare
plans are added.
Sec. 226.19 Certain Mortgage and Variable-Rate Transactions.
19(a)(1)(i) Time of disclosure.
1. Coverage. This section requires early disclosure of credit terms
in mortgage transactions that are secured by a consumer's dwelling
(other than home equity lines of credit subject to Sec. 226.5b or
mortgage transactions secured by an interest in a timeshare plan) that
are also subject to the Real Estate Settlement Procedures Act (RESPA)
and its implementing Regulation X, administered by the Department of
Housing and Urban Development (HUD). To be covered by Sec. 226.19, a
transaction must be a Federally related mortgage loan under RESPA.
``Federally related mortgage loan'' is defined under RESPA (12 U.S.C.
2602) and Regulation X (24 CFR 3500.2), and is subject to any
interpretations by HUD.
2. Timing and use of estimates. The disclosures required by Sec.
226.19(a)(1)(i) must be delivered or mailed not later than three
business days after the creditor receives the consumer's written
application. The general definition of ``business day'' in Sec.
226.2(a)(6)--a day on which the creditor's offices are open to the
public for substantially all of its business functions--is used for
purposes of Sec. 226.19(a)(1)(i). See comment 2(a)(6)-1. This general
definition is consistent with the definition of ``business day'' in
HUD's Regulation X--a day on which the creditor's offices are open to
the public for carrying on substantially all of its business functions.
See 24 CFR 3500.2. Accordingly, the three-business-day period in Sec.
226.19(a)(1)(i) for making early disclosures coincides with the time
period within which creditors subject to RESPA must provide good faith
estimates of settlement costs. If the creditor does not know the
precise credit terms, the creditor must base the disclosures on the
best information reasonably available and indicate that the disclosures
are estimates under Sec. 226.17(c)(2). If many of the disclosures are
estimates, the creditor may include a statement to that effect (such as
``all numerical disclosures except the late-payment disclosure are
estimates'') instead of separately labelling each estimate. In the
alternative, the creditor may label as an estimate only the items
primarily affected by unknown information. (See the commentary to Sec.
226.17(c)(2).) The creditor may provide explanatory material concerning
the estimates and the contingencies that may affect the actual terms,
in accordance with the commentary to Sec. 226.17(a)(1).
[[Page 23303]]
3. Written application. Creditors may rely on RESPA and Regulation
X (including any interpretations issued by HUD) in deciding whether a
``written application'' has been received. In general, Regulation X
defines ``application'' to mean the submission of a borrower's
financial information in anticipation of a credit decision relating to
a Federally related mortgage loan. See 24 CFR 3500.2(b). An application
is received when it reaches the creditor in any of the ways
applications are normally transmitted--by mail, hand delivery, or
through an intermediary agent or broker. (See comment 19(b)-3 for
guidance in determining whether or not the transaction involves an
intermediary agent or broker.) If an application reaches the creditor
through an intermediary agent or broker, the application is received
when it reaches the creditor, rather than when it reaches the agent or
broker.
4. Denied or withdrawn applications. The creditor may determine
within the three-business-day period that the application will not or
cannot be approved on the terms requested, as, for example, when a
consumer applies for a type or amount of credit that the creditor does
not offer, or the consumer's application cannot be approved for some
other reason. In that case, or if the consumer withdraws the
application within the three-business-day period, the creditor need not
make the disclosures under this section. If the creditor fails to
provide early disclosures and the transaction is later consummated on
the original terms, the creditor will be in violation of this
provision. If, however, the consumer amends the application because of
the creditor's unwillingness to approve it on its original terms, no
violation occurs for not providing disclosures based on the original
terms. But the amended application is a new application subject to
Sec. 226.19(a)(1)(i).
5. Itemization of amount financed. In many mortgage transactions,
the itemization of the amount financed required by Sec. 226.18(c) will
contain items, such as origination fees or points, that also must be
disclosed as part of the good faith estimates of settlement costs
required under RESPA. Creditors furnishing the RESPA good faith
estimates need not give consumers any itemization of the amount
financed.
* * * * *
19(a)(2) Waiting period(s) required.
1. Business day definition. For purposes of Sec. 226.19(a)(2),
``business day'' means all calendar days except Sundays and the legal
public holidays referred to in Sec. 226.2(a)(6). See comment 2(a)(6)-
2.
2. Consummation after both waiting periods expire. Consummation may
not occur until both the seven-business-day waiting period and the
three-business-day waiting period have expired. For example, assume a
creditor delivers the early disclosures to the consumer in person or
places them in the mail on Monday, June 1, and the creditor then
delivers corrected disclosures in person to the consumer on Wednesday,
June 3. Although Saturday, June 6 is the third business day after the
consumer received the corrected disclosures, consummation may not occur
before Tuesday, June 9, the seventh business day following delivery or
mailing of the early disclosures.
19(a)(2)(i) Seven-business-day waiting period.
1. Timing. The disclosures required by Sec. 226.19(a)(1)(i) must
be delivered or placed in the mail no later than the seventh business
day before consummation. The seven-business-day waiting period begins
when the creditor delivers the early disclosures or places them in the
mail, not when the consumer receives or is deemed to have received the
early disclosures. For example, if a creditor delivers the early
disclosures to the consumer in person or places them in the mail on
Monday, June 1, consummation may occur on or after Tuesday, June 9, the
seventh business day following delivery or mailing of the early
disclosures.
19(a)(2)(ii) Three-business-day waiting period.
1. Conditions for redisclosure. If, at the time of consummation,
the annual percentage rate disclosed is accurate under Sec. 226.22,
the creditor does not have to make corrected disclosures under Sec.
226.19(a)(2). If, on the other hand, the annual percentage rate
disclosed is not accurate under Sec. 226.22, the creditor must make
corrected disclosures of all changed terms (including the annual
percentage rate) so that the consumer receives them not later than the
third business day before consummation. For example, assume
consummation is scheduled for Thursday, June 11 and the early
disclosures for a regular mortgage transaction disclose an annual
percentage rate of 7.00%:
i. On Thursday, June 11, the annual percentage rate will be 7.10%.
The creditor is not required to make corrected disclosures under Sec.
226.19(a)(2).
ii. On Thursday, June 11, the annual percentage rate will be 7.15%.
The creditor must make corrected disclosures so that the consumer
receives them on or before Monday, June 8.
2. Content of new disclosures. If redisclosure is required, the
creditor may provide a complete set of new disclosures, or may
redisclose only the changed terms. If the creditor chooses to provide a
complete set of new disclosures, the creditor may but need not
highlight the new terms, provided that the disclosures comply with the
format requirements of Sec. 226.17(a). If the creditor chooses to
disclose only the new terms, all the new terms must be disclosed. For
example, a different annual percentage rate will almost always produce
a different finance charge, and often a new schedule of payments; all
of these changes would have to be disclosed. If, in addition, unrelated
terms such as the amount financed or prepayment penalty vary from those
originally disclosed, the accurate terms must be disclosed. However, no
new disclosures are required if the only inaccuracies involve estimates
other than the annual percentage rate, and no variable rate feature has
been added. For a discussion of the requirement to redisclose when a
variable-rate feature is added, see comment 17(f)-2. For a discussion
of redisclosure requirements in general, see the commentary on Sec.
226.17(f).
3. Timing. When redisclosures are necessary because the annual
percentage rate has become inaccurate, they must be received by the
consumer no later than the third business day before consummation. (For
redisclosures triggered by other events, the creditor must provide
corrected disclosures before consummation. See Sec. 226.17(f).) If the
creditor delivers the corrected disclosures to the consumer in person,
consummation may occur any time on the third business day following
delivery. If the creditor provides the corrected disclosures by mail,
the consumer is considered to have received them three business days
after they are placed in the mail, for purposes of determining when the
three-business-day waiting period required under Sec. 226.19(a)(2)(ii)
begins. Creditors that use electronic mail or a courier other than the
postal service may also follow this approach.
4. Basis for annual percentage rate comparison. To determine
whether a creditor must make corrected disclosures under Sec. 226.22,
a creditor compares (a) what the annual percentage rate will be at
consummation to (b) the annual percentage rate stated in the most
recent disclosures the creditor made to the consumer. For
[[Page 23304]]
example, assume consummation for a regular mortgage transaction is
scheduled for Thursday, June 11, the early disclosures provided in May
stated an annual percentage rate of 7.00%, and corrected disclosures
received by the consumer on Friday, June 5 stated an annual percentage
rate of 7.15%:
i. On Thursday, June 11, the annual percentage rate will be 7.25%,
which exceeds the most recently disclosed annual percentage rate by
less than the applicable tolerance. The creditor is not required to
make additional corrected disclosures or wait an additional three
business days under Sec. 226.19(a)(2).
ii. On Thursday, June 11, the annual percentage rate will be 7.30%,
which exceeds the most recently disclosed annual percentage rate by
more than the applicable tolerance. The creditor must make corrected
disclosures such that the consumer receives them on or before Monday,
June 8.
19(a)(3) Consumer's waiver of waiting period before consummation.
1. Modification or waiver. A consumer may modify or waive the right
to a waiting period required by Sec. 226.19(a)(2) only after the
creditor makes the disclosures required by Sec. 226.18. The consumer
must have a bona fide personal financial emergency that necessitates
consummating the credit transaction before the end of the waiting
period. Whether these conditions are met is determined by the facts
surrounding individual situations. The imminent sale of the consumer's
home at foreclosure, where the foreclosure sale will proceed unless
loan proceeds are made available to the consumer during the waiting
period, is one example of a bona fide personal financial emergency.
Each consumer who is primarily liable on the legal obligation must sign
the written statement for the waiver to be effective.
2. Examples of waivers within the seven-business-day waiting
period. Assume the early disclosures are delivered to the consumer in
person on Monday, June 1, and at that time the consumer executes a
waiver of the seven-business-day waiting period (which would end on
Tuesday, June 9) so that the loan can be consummated on Friday, June 5:
i. If the annual percentage rate on the early disclosures is
inaccurate under Sec. 226.22, the creditor must provide a corrected
disclosure to the consumer before consummation, which triggers the
three-business-day waiting period in Sec. 226.19(a)(2)(ii). After the
consumer receives the corrected disclosure, the consumer must execute a
waiver of the three-business-day waiting period in order to consummate
the transaction on Friday, June 5.
ii. If a change occurs that does not render the annual percentage
rate on the early disclosures inaccurate under Sec. 226.22, the
creditor must disclose the changed terms before consummation,
consistent with Sec. 226.17(f). Disclosure of the changed terms does
not trigger an additional waiting period, and the transaction may be
consummated on June 5 without the consumer giving the creditor an
additional modification or waiver.
3. Examples of waivers made after the seven-business-day waiting
period. Assume the early disclosures are delivered to the consumer in
person on Monday, June 1 and consummation is scheduled for Friday, June
19. On Wednesday, June 17, a change to the annual percentage rate
occurs:
i. If the annual percentage rate on the early disclosures is
inaccurate under Sec. 226.22, the creditor must provide a corrected
disclosure to the consumer before consummation, which triggers the
three-business-day waiting period in Sec. 226.19(a)(2). After the
consumer receives the corrected disclosure, the consumer must execute a
waiver of the three-business-day waiting period in order to consummate
the transaction on Friday, June 19.
ii. If a change occurs that does not render the annual percentage
rate on the early disclosures inaccurate under Sec. 226.22, the
creditor must disclose the changed terms before consummation,
consistent with Sec. 226.17(f). Disclosure of the changed terms does
not trigger an additional waiting period, and the transaction may be
consummated on Friday, June 19 without the consumer giving the creditor
an additional modification or waiver.
19(a)(4) Notice.
1. Inclusion in other disclosures. The notice required by Sec.
226.19(a)(4) must be grouped together with the disclosures required by
Sec. 226.19(a)(1)(i) or Sec. 226.19(a)(2). See comment 17(a)(1)-2 for
a discussion of the rules for segregating disclosures. In other cases,
the notice set forth in Sec. 226.19(a)(4) may be disclosed together
with or separately from the disclosures required under Sec. 226.18.
See comment 17(a)(1)-5(xvi).
19(a)(5)(ii) Time of disclosures for timeshare plans.
1. Timing. A mortgage transaction secured by a consumer's interest
in a ``timeshare plan,'' as defined in 11 U.S.C. 101(53D), that is also
a Federally related mortgage loan under RESPA is subject to the
requirements of Sec. 226.19(a)(5) instead of the requirements of Sec.
226.19(a)(1) through Sec. 226.19(a)(4). See comment 19(a)(1)(i)-1.
Early disclosures for transactions subject to Sec. 226.19(a)(5) must
be given (a) before consummation or (b) within three business days
after the creditor receives the consumer's written application,
whichever is earlier. The general definition of ``business day'' in
Sec. 226.2(a)(6)--a day on which the creditor's offices are open to
the public for substantially all of its business functions--applies for
purposes of Sec. 226.19(a)(5)(ii). See comment 2(a)(6)-1. These timing
requirements are different from the timing requirements under Sec.
226.19(a)(1)(i). Timeshare transactions covered by Sec. 226.19(a)(5)
may be consummated any time after the disclosures required by Sec.
226.19(a)(5)(ii) are provided.
2. Use of estimates. If the creditor does not know the precise
credit terms, the creditor must base the disclosures on the best
information reasonably available and indicate that the disclosures are
estimates under Sec. 226.17(c)(2). If many of the disclosures are
estimates, the creditor may include a statement to that effect (such as
``all numerical disclosures except the late-payment disclosure are
estimates'') instead of separately labelling each estimate. In the
alternative, the creditor may label as an estimate only the items
primarily affected by unknown information. (See the commentary to Sec.
226.17(c)(2).) The creditor may provide explanatory material concerning
the estimates and the contingencies that may affect the actual terms,
in accordance with the commentary to Sec. 226.17(a)(1).
3. Written application. For timeshare transactions, creditors may
rely on comment 19(a)(1)(i)-3 in determining whether a ``written
application'' has been received.
4. Denied or withdrawn applications. For timeshare transactions,
creditors may rely on comment 19(a)(1)(i)-4 in determining that
disclosures are not required by Sec. 226.19(a)(5)(ii) because the
consumer's application will not or cannot be approved on the terms
requested or the consumer has withdrawn the application.
5. Itemization of amount financed. For timeshare transactions,
creditors may rely on comment 19(a)(1)(i)-5 in determining whether
providing the good faith estimates of settlement costs required by
RESPA satisfies the requirement of Sec. 226.18(c) to provide an
itemization of the amount financed.
19(a)(5)(iii) Redisclosure for timeshare plans.
1. Consummation or settlement. For extensions of credit secured by
a consumer's timeshare plan, when corrected disclosures are required,
they
[[Page 23305]]
must be given no later than ``consummation or settlement.''
``Consummation'' is defined in Sec. 226.2(a). ``Settlement'' is
defined in Regulation X (24 CFR 3500.2(b)) and is subject to any
interpretations issued by HUD. In some cases, a creditor may delay
redisclosure until settlement, which may be at a time later than
consummation. If a creditor chooses to redisclose at settlement,
disclosures may be based on the terms in effect at settlement, rather
than at consummation. For example, in a variable-rate transaction, a
creditor may choose to base disclosures on the terms in effect at
settlement, despite the general rule in comment 17(c)(1)-8 that
variable-rate disclosures should be based on the terms in effect at
consummation.
2. Content of new disclosures. Creditors may rely on comment
19(a)(2)(ii)-2 in determining the content of corrected disclosures
required under Sec. 226.19(a)(5)(iii).
0
9. In Supplement I to Part 226, under Section 226.31--General Rules,
heading Paragraph 31(c)(2) Disclosures for reverse mortgages and
paragraph 31(c)(2)-1 are revised, to read as follows:
Subpart E--Special Rules for Certain Home Mortgage Transactions
Sec. 226.31 General Rules
* * * * *
31(c)(2) Disclosures for reverse mortgages.
1. Business days. For purposes of providing reverse mortgage
disclosures, ``business day'' has the same meaning as in comment
31(c)(1)-1--all calendar days except Sundays and the Federal legal
holidays listed in 5 U.S.C. 6103(a). This means if disclosures are
provided on a Friday, consummation could occur any time on Tuesday, the
third business day following receipt of the disclosures.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, May 13, 2009.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E9-11567 Filed 5-18-09; 8:45 am]
BILLING CODE P