Solving Common Violations

Reg Z: Truth in Lending

226.17(c): underlying legal obligation

Everyone should know that disclosures reflect what is in the contract; they are not the contract.
Both the compliance and lending departments should be responsible for comparing credit documents with disclosures to check accuracy.

226.18(b): Amount financed

Calculate the amount financed correctly. Understand the formulas and know how to use automated tools. Also identify all the finance charges correctly.
Subtract out prepaids from the amount financed, even if the prepaids are financed.
In training, it helps to explain that the amount financed is the amount the customer actually gets to use, not including anything the customer pays for.

226.18(d): Finance charge

Lending staff should maintain a list of any charges imposed on customers and notify compliance whenever new charges arise.

Compliance should give lenders guidance on which charges are finance charges.

In compliance audits, review bills sent to and paid by the loan departments to identify fees and charges.
Review HUD-1 disclosures to identify fees that may be finance charges.

226.18(e): APR

If the finance charge is wrong, or the amount financed is wrong, the APR is also wrong. Go back and get those right.
Review how people are trained in using automated disclosure tools. The disclosures are no better than the skill of the people using the tools.

226.18(m): Security Interest

Don't forget to disclose the fact that the bank is taking a security interest in the borrower's property.
In lending checklists, include a pair of questions on this disclosure: Are we taking a security interest? If so, is the security interest disclosed?

226.19(a)(1): Time of disclosure

Make sure that anyone who takes a mortgage loan application must immediately notify the person responsible for generating the early disclosures.

226.22(a): Accuracy of APR

226.23(b)(1): Rescission notices

Any lending staff needs to know when rescission rules kick in. There are two steps: 1) the loan must be a consumer purpose loan, not a business loan; and 2) the security property must be roof currently over the head of one of the borrowers./li>
Establish the procedure of identifying rescindable loans early in the application process. Then use an eye-catching reminder (neon orange paper does nicely) in the file to be sure that rescission is included in the closing set-up.

226.24(b): Advertisement of rate

Use an advertising checklist to avoid trigger terms.
Give marketers examples of trigger terms from the Commentary.
Also give marketers examples of what they can say without triggering additional disclosures.