As you have likely heard by now, the CFPB issued the proposed rule that combines the Truth in Lending disclsoures with the RESPA disclosures for closed-end loans secured by real property. We really want credit unions to comment on this rule, so I’m going to break down the issues in various blog posts to try and make it easier for you to tell them what you think.
The first issue that you want to consider for comment is the finance charge. Currently under Regulation Z, the finance charge is defined as “the cost of consumer credit as a dollar amount” and “includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit.” However, Reg Z also currently provides that various real-estate related fees as well as vountary credit insurance premiums and debt cancellation fees are excluded from the finance charge. (Note that certain conditions must be met for insurance premiums and debt cancellation fees to be excluded.)
The proposed rule would expand the types of fees and costs that would be included in the finance charge making the finance charge more inclusive and resulting in an increased annual percentage rate. In other words, the current exclusions from the finance charge would generally be eliminated for closed-end transactions secured by real property or a dwelling. The only exclusions that would continue to apply would be late fees and similar default or delinquency charges; seller’s points; amounts required to be paid into escrow if not otherwise included in the finance charge; and premiums for property and liablity insurance if certain conditions are met. Even voluntary credit insurance, and debt cancellation or debt suspension fees would be included in the finance charge!
So, below are a few questions to consider (click here to access CUNA’s Comment Call to see all the questions). To comment before the September 7 deadline, click here. It will only take you a few minutes to tell the CFPB what you think!
Questions for Consideration:
- What substantial burdens will the changes to the finance charge impose on your credit union? Staff training? Member education? Software or other processing changes? Costs for such changes?
- Has the CFPB included charges that should still be excluded from the finance charge? If so, why?
- Should voluntary credit insurance premiums and debt cancellation or debt suspension fees be excluded from the finance charge? If so, why?
- Will you know all fees far enough in advance to calculate them as part of the finance charge?