Consumer Affairs Hot Topics

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Consumer Affairs Hot Topics
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This Years Topics

• Proposed rules on mortgage lending
• Identity theft
• Flood insurance
• Consumer reporting agencies
• Fair lending

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Proposed Rules on Mortgage Lending

• Amendments to Regulation Z, Truth in Lending
• Purpose
• Protect consumers from unfair/deceptive mortgage
  lending and advertising
• Restrict certain practices
• Require earlier disclosures

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Proposed Rules on Mortgage Lending (cont'd)

• Brought about by subprime lending issues
• Should help level the mortgage lending playing
  field
• Rules cover nonbank mortgage lenders

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Proposed Rules on Mortgage Lending (cont'd)

• Possible items for your change management
• Identifying loans subject to Home Ownership and
  Equity Protection Act (HOEPA)
• Threshold calculations differ from current HOEPA
  and Home Mortgage Disclosure Act (HMDA)
  calculations
• Earlier disclosures on all mortgage lending
• Mortgage broker disclosure requirements

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Proposed Rules on Mortgage Lending (cont'd)

• Higher-priced mortgage loan
• New tier of closed-end mortgage loans
• First lien loans
• APR gt comparable treasury security yield 3, or
• Subordinate lien loans
• APR gt comparable treasury security yield 5
• Includes home purchase loans
• Comparable treasury security based on expected
  loan maturity

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Proposed Rules on Mortgage Lending (cont'd)

• Key protections for higher-priced mortgage loans
• Prohibition on extending credit without regard to
  repayment ability
• Requirement to verify income and assets
• Prepayment penalties allowed only if certain
  conditions are met
• None will apply at least 60 days prior to a
  payment increase

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Proposed Rules on Mortgage Lending (cont'd)

• Key protections for higher-priced mortgage loans
  (cont'd)
• Requirement to establish escrow accounts for
  property taxes and homeowners insurance
• Prohibition on structuring closed-end loans as
  open-end lines to evade the requirements

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Proposed Rules on Mortgage Lending (cont'd)

• Protections on all closed-end loans secured by
  principal dwelling
• Prohibition on payment of yield spread premiums
  to broker without advance, written, consumer
  agreement
• Prohibition on coercing an appraiser to misstate
  property value
• Required advance APR and payment disclosures
• Limit on application fees

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Proposed Rules on Mortgage Lending (cont'd)

• Loan servicing provisions
• Prompt crediting of payments
• No pyramiding of late fees
• Furnishing of fees and accurate payoff statements
  within a reasonable time of customer request

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Proposed Rules on Mortgage Lending (cont'd)

• Advertising provisions
• Clear and conspicuous
• Introductory terms
• Teaser rates
• For advertised rates or payments, include all
  applicable rates over term of loan
• Prohibits seven practices in the advertisement of
  closed-end mortgage loans

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Proposed Rules on Mortgage Lending (cont'd)

• You may find the proposed regulation and submit
  comments at
• http//www.KansasCityFed.org
• Banking Supervision?Proposals for Comment
• Comment period ends April 8, 2008

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Identity Theft

• Significant issue
• Amended Regulation V, 12 CFR 222
• Purpose
• Protect consumers from identity theft
• Mitigate damage from it
• Affects banks offering accounts for personal,
  family or household purposes

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Identity Theft (cont'd)

• What it requires
• Written identity theft prevention program
• Develop and implement by November 1, 2008

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Identity Theft (cont'd)

• What should be in the program?
• Policies/procedures to
• Identify patterns and practices (aka red flags)
  that might signal identity theft
• Detect those red flags
• Respond appropriately to those red flags
• Update the program periodically

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Identity Theft (cont'd)

• Administration of the program
• Board approval of initial program
• Involvement of board or designated senior manager
• Training of staff

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Identity Theft (cont'd)

• Appendix J contains guidelines to assist you on
• What to include in the program
• How to identify red flags
• How to detect the red flags
• Preventing and mitigating identity theft
• Updating the program
• Methods of program administration
• Refer to October 31, 2007 FRS press release
• http//www.KansasCityFed.org
• Banking Supervision?References?Regulations and
  Guidance?All Regulations?Regulation V?Recent
  Amendments

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Flood Insurance

• 1 natural disaster
• Continued national interest
• Changes to the program

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Flood Insurance (cont'd)

• Revised FEMA publication
• Mandatory Purchase of Flood Insurance Guidelines
• Released in September 2007
• Clarifies certain issues arising since 1999
  edition
• Provides some industry best practices
• Federal Emergency Management Agency

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Flood Insurance (cont'd)

• FEMAs map modernization effort
• Flood maps of your communities may have changed
• Important in accurate flood determination
• Flood insurance coverage may be the lowest of
• Outstanding loan balance
• Maximum amount under the law
• 100 replacement cost value

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Flood Insurance (cont'd)

• Purchase insurance for buildings under
  construction either at time of
• Loan consummation, OR
• Specified drawdown of the loan
• Coverage on condominium units

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Flood Insurance (cont'd)

• A copy of the new FEMA booklet is available at
• http//www.KansasCityFed.org
• Banking Supervision?References?Regulations and
  Guidance?Consumer Compliance

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Information to Consumer Reporting Agencies

• Accuracy of consumer information is an issue
• Proposed amendment to regulation
• 12 CFR 222, Fair Credit Reporting
• Purpose
• Ensure accuracy and integrity of information
  furnished to consumer reporting agencies
• Affects banks that furnish information to
  consumer reporting agencies
• Comment period ended February 11, 2008

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Information to Consumer Reporting Agencies
(cont'd)

• Possible items for your change management
• Written policies and procedures to ensure
  accuracy and integrity of reported information
• Consideration of guidelines in Appendix E
• Periodic review and update
• Investigation of direct disputes from consumers

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Fair Lending

• Why talk about fair lending?
• Need for risk assessment and management in banks
  of all sizes
• Common issue in our banks

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2007 Top 5 Compliance Violations10th District

• Real Estate Settlement Procedures Act
• 24 CFR 3500.8(b)
• General accuracy of charges to be stated
• Charges paid outside of closing
• Found in 54 of 2007 compliance examinations
• Equal Credit Opportunity
• 12 CFR 202.7(d)(1)
• May not require spousal signature on credit
  instruments
• Found in 39 of 2007 compliance examinations
• 12 CFR 202.13(a)(1)
• Information for monitoring purposes not obtained
• Found in 35 of 2007 compliance examinations

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2007 Top 5 Compliance Violations10th District
(cont'd)

• Flood Disaster Protection
• 12 CFR 208.25(c)(1)
• Requirement to purchase flood insurance where
  available
• Found in 35 of 2007 compliance examinations
• Fair Credit Reporting Act/FACTA
• 15 USC 1681g(g)(1)
• Timely disclosure of credit scores by certain
  mortgage lenders
• Found in 31 of 2007 compliance examinations

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Consumer Affairs Hot Topics

• Questions?