You’ve heard the phrase “out with the old, in with the new?” Don’t apply that philosophy to your credit union’s regulatory compliance efforts.
As you scramble to manage the growing regulatory compliance burden, do you take time for a compliance review? Staff are often too busy complying with new regulatory changes to revisit previous changes.
But here’s why a review is critical: New information, interpretations, or amendments often are issued after compliance deadlines have passed. They clarify how credit unions should be complying with regs. If you aren’t “looking back” to review or audit your compliance, you could quickly be out of compliance.
Consider three lending compliance issues, and ask if you’re fulfilling all regulatory requirements:
1. Waiting periods for Truth in Lending (TIL) disclosures. Almost a year and a half after the new TIL waiting period requirements became effective for closed-end loans secured by a consumer’s dwelling, credit unions continue to struggle with when to provide these disclosures and how long to wait until they can complete the loan.
According to Regulation Z, the early TIL disclosures must be delivered (or placed in the mail) within at least three business days after you receive a written application. In addition, the loan can’t be consummated until seven business days after the early disclosures are delivered (or mailed). If the annual percentage rate becomes inaccurate, you must provide new TIL disclosures at least three business days before loan closing.
These requirements provide a framework for someone at the credit union to track the dates that the disclosures are being provided and the date the loan is being closed. Many credit unions either don’t have an adequate system to track these dates, haven’t provided sufficient staff training regarding these time frames, or aren’t aware that timing requirements exist. And, unless someone is reviewing the loan files, you won’t realize you’re out of compliance.
2. Incorrect Good Faith Estimates (GFE). Properly completing the GFE has been a struggle for most financial institutions since its 2010 revision. The Department of Housing and Urban Development issued 62 answers to frequently asked questions since the form was revised. One of the most common errors is listing the wrong date on page one, line 2 within the “Important Dates” section.
The Real Estate Settlement Procedures Act states that on line 2, the creditor must insert the date through which all other settlement charges listed on the GFE will be available. This date must be at least 10 business days after the date of the GFE. Often, credit unions insert the date they issued the GFE, rather than one that’s 10 days later. You must be sure you’re inserting the correct date, either by hand or via software.
3. Credit cards. One of the many amendments to the open-end provision of Reg Z prohibits imposing a fee that exceeds the amount of the violation. The fee for a late payment or returned payment can’t exceed the amount of the minimum balance due. Most credit unions understand that provision. But many credit unions failed to update their credit card application disclosures and account opening disclosures to state their late payment or returned payment fees are “up to $XX.” Their disclosures still just list the amount of the fee without saying “up to.”
Transaction fees are considered finance charges under the rule. Many credit unions also fail to make changes to their credit card agreement to indicate transaction fees, such as cash advance fees, are finance charges.
So if you’re only looking forward at new regulatory changes, it may be worth your time—and money—to look back as well.