Consumer Compliance Outlook: First Quarter 2010

News from Washington: Regulatory Updates

Federal Trade Commission (FTC) issues final rule for free credit report services. External Site

On February 23, 2010, the FTC announced a final rule that requires certain advertisements for "free credit reports" to include a prominent disclosure to prevent confusion with the free annual credit reports available to consumers under the Fair and Accurate Credit Transactions Act of 2003. The disclosure for print advertisement states: "THIS NOTICE IS REQUIRED BY LAW. You have the right to a free credit report from or 877- 322-8228, the ONLY authorized source under federal law." Slightly different disclosures apply for radio, telemarketing solicitations, and Internet advertisements. The rule also prohibits nationwide consumer reporting agencies from advertising other products or services to consumers seeking free credit reports until after consumers receive their free report. The effective date for the rule is April 2, 2010, except for certain disclosure requirements, which take effect September 1, 2010. The FTC's announcement and the final rule are available on the FTC's website External Site.

The U.S. Department of Housing and Urban Development (HUD) releases new home-buying handbook in anticipation of new RESPA rules. External Site

On December 28, 2009, HUD released a new homebuying handbook entitled Shopping for Your Home Loan: HUD's Settlement Cost Booklet. The Real Estate Settlement Procedures Act (RESPA) requires lenders and mortgage brokers to provide this booklet to applicants within three days after receiving or preparing the application. The booklet will assist consumers in becoming familiar with how interest rates, points, balloon payments, and prepayment penalties will affect their monthly mortgage payments. The booklet also has important information about the loan after settlement, including how to resolve loan servicing problems and steps to take to avoid foreclosure. The booklet along with additional information regarding RESPA can be found on HUD's website External Site.

The Board and the FTC issue final rules on risk-based pricing notices. External Site

On December 22, 2009, the Board and the FTC announced final rules that generally require a creditor to provide a consumer with a notice when, based on the consumer's credit report, the creditor provides credit to the consumer on less favorable terms than it provides to other consumers. Consumers who receive this risk-based pricing notice will be able to obtain a free credit report to check the accuracy of the report. In addition, as an alternative to providing risk-based pricing notices, the final rules permit creditors to provide consumers who apply for credit with a free credit score and information about that score. The final rules implement §311 of the Fair and Accurate Credit Transactions Act of 2003, which amends the Fair Credit Reporting Act and will be effective January 1, 2011. The press release and the Federal Register notice can be found online External Site.

Agencies release annual CRA asset-size threshold adjustments for small and intermediate small institutions. External Site

On December 22, 2009 the federal bank regulatory agencies announced the annual adjustment to the asset-size thresholds used to define small bank, small savings association, intermediate small bank, and intermediate small savings association under the CRA regulations. Annual adjustments to these asset-size thresholds are based on the year-to-year change in the average of the consumer price index (CPI) for urban wage earners and clerical workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million.

As a result of the 0.98 percent decrease in the CPI index for the period ending in November 2009, the definitions of small and intermediate small institutions for CRA examinations will change as follows: (1) small bank or small savings association means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.098 billion; and (2) intermediate small bank or intermediate small savings association means a small institution with assets of at least $274 million as of December 31 of both of the prior two calendar years, and less than $1.098 billion as of December 31 of either of the prior two calendar years.

These asset-size threshold adjustments were effective January 1, 2010. The announcement is available on the website of the Federal Financial Institutions Examination Council (FFIEC) External Site.

The Board publishes HMDA asset-size exemption threshold for depository institutions. External Site

On December 22, 2009, the Board published its annual notice of the asset-size exemption threshold for depository institutions under Regulation C, which implements the Home Mortgage Disclosure Act (HMDA).

The asset-size exemption for depository institutions will remain $39 million based on the annual percentage change in the CPI for the 12-month period ending in November 2009. As a result, depository institutions with assets of $39 million or less as of December 31, 2009, are exempt from collecting HMDA data in 2010. An institution's exemption from collecting data in 2010 does not affect its responsibility to report the data it was required to collect in 2009. The adjustment was effective January 1, 2010.

The Board's announcement is available online External Site.

Financial regulators propose guidance on reverse mortgage products. External Site

On December 17, 2009, the FFIEC, on behalf of its members, released proposed guidance on reverse mortgage products. The guidance addresses the general features of reverse mortgage products, relevant legal requirements, and consumer protection concerns raised by reverse mortgages. It is designed to help financial institutions ensure that their risk management and consumer protection practices adequately address the compliance and reputation risks raised by reverse mortgage lending. The proposed guidance focuses on the need for banks, thrifts, and credit unions to provide clear and balanced information to consumers about the risks and benefits of these products. The deadline for submitting comments was February 16, 2010. The press release is available online External Site.

The Division of Consumer and Community Affairs (DCCA) of the Board issues Consumer Affairs Letter 09-13: Mortgage Loan Modifications and Regulation B's Adverse Action Requirement. External Site

On December 4, 2009, DCCA issued Consumer Affairs Letter 09-13 (CA 09-13) to address questions regarding whether adverse action notices under Regulation B (Equal Credit Opportunity Act) are required for mortgage loan modification declinations, including those made pursuant to the U.S. Department of Treasury's Making Home Affordable Modification Program (HAMP). Regulation B requires an adverse action notice when a creditor declines an application for an extension of credit from a borrower who is not delinquent or in default on that loan. The letter details a four-part analysis, using HAMP as an example, that examiners should use when determining whether adverse action notices are required. CA 09-13 is available online External Site.