Compliance Blog

Written by Stephanie Lyon, Regulatory Compliance Counsel
 

Bonjour, I am back from a wonderful Paris voyage where I tied the knot with the most wonderful man in compliance.

A few weeks ago we received a question from a member who wanted to know the specific requirements for periodic statements for loans. Regulation Z requires credit unions to provide borrowers with prompt, regular and accurate information for certain loan types. 12 C.F.R. 1026. The content and format of periodic statements vary and it is important to occasionally check your credit union's periodic statements to ensure the correct rules are being applied. I broke down the requirements for four loan types and included the section of the rule in which you can find the specific requirements. Keep in mind that some periodic statements will be shaped by state law and contractual obligations as opposed to federal regulations. Below is a quick reference chart with the loan type and applicable rules.

Closed-End Credit Secured by a Dwelling

For closed-end consumer credit transaction[s] secured by a dwelling, such as closed-end first and second mortgage loans, Reg Z section 1026.41 and its official interpretation specifically address periodic statement requirements. The general requirement is to provide the borrower with a periodic statement for each billing cycle. See, 12 C.F.R. 1026.41(a)(2). The sections that follow talk about timing, form, content and layout, and exceptions. See, 1026.41(b)-(e). Among the most notable exemptions is for small servicers that together with their affiliates, service 5,000 or fewer mortgage loans. See, 12 C.F.R. 1026.41(e)(4).

Appendix H has useful sample forms that combine the components of periodic statements. For example, H-30(A) is a Sample Form of a Periodic Statement, H-30(B) is a sample of a Periodic Statement with Delinquency Box, and H-30(C) is a sample of a Periodic Statement for a Payment-Option Loan. Compliance officers may want to look at these samples and compare them to the ones currently used by their mortgage department to ensure that the statements have not been changed to accommodate vendors, exceptions, and marketing messages.

Non-Home Secured Closed-End Consumer Loans & Non-Secured Closed-End Consumer Loans

Regulation Z does not have specific requirements for these loans. The rule largely defers to the agreement between the credit union and the member to set timing, format and content requirements. Hence if the credit union's loan agreement states that the credit union will provide the member with monthly/quarterly/annual statements, then the requirement to provide periodic statements becomes contractual. There may be state law requirements that regulate periodic statements for these loan types, so the credit union may want to discuss state law requirements with local counsel to ensure that it has the appropriate content, format and timing.

Open-End Credit Secured by a Dwelling

Similar to closed-end credit, Regulation Z breaks up requirements for home secured and non-home secured open-end credit. Specifically, Reg Z section 1026.7(a) and its official interpretation pertain to Home Equity Lines of Credit (HELOCs). The official interpretation in this section is very helpful and in-depth. Some of the information that a HELOCs periodic statements must have are account balance, transactions, credits, rates, balances on which finance charge was computed, amount of finance charge, APR, grace period, address for notice of billing errors, and closing date of billing cycle. See, 12 C.F.R. 1026.7(a)(1)-(10).

For HELOCs, Appendix G-18 has sample periodic statement forms and it also breaks down some sections like interest charge fees and late payments. Make sure to reference home-secured open-end credit periodic statement model forms and not the credit card model form.

Non-Home Secured Open-End Credit

Section 1026.7(b), with its relevant official interpretation, pertains to non-home secured open-end lines of credit including credit cards. Among some of the components of this loan type are previous balances, transactions, noting any credits given such as a returned merchandise or rebate finance charge, periodic rates used to compute the interest rate charges, change-in-terms, due date and late payment costs, etc. See, 12 C.F.R. 1026.7(b)(1)-(12). The format requirements are found in section 1026.7(b)(13) which discusses the positioning, proximity and grouping of certain information. 12 C.F.R. 1026.7(b)(13).

For non-home secured open-end credit, Appendix G-18 provides a great example of the requirements found in the rule. Appendix G-18(D) has a credit card model form and the rest of the G-18 series has other open-end credit periodic statement disclosures and components.

***

Finally, I would like to highlight one final item a photo from my wedding. This is proof that two compliance people can take some time out from rules and regulations to have fun. You may recognize the groom from numerous webcasts, conferences and face-to-face interactions he has with our members.