What Every Us Financial Institution Should Know About Tila Amendments
In years past, many Americans have borrowed extraordinary amounts of money against their homes. Prior to the global economic recession, when their finances were more secure, individuals used this money to buy new cars, take lavish vacations, invest, pay for their children"s college education and much more. As a result, it is estimated that Americans owe a staggering $1.1 trillion on home equity loans today.
However, when the mortgage lending industry collapsed several years ago, individuals did not cut their spending, but instead turned to their credit cards for additional funds. According to the Consumer Federation of America, approximately $850 billion in credit debt is held by consumers, with the average credit debt per household estimated to be approximately $7,430. This pattern of borrowing has led experts to believe that the credit industry could soon face its own collapse. As a result, regulators are enforcing stronger rules and regulations through Regulation Z, which implements the Truth in Lending Act (TILA).
In order to help prevent against a credit industry collapse and protect their customers, financial institutions must educate their employees on all applicable laws and regulations and ensure that they remain up-to-date on any revisions to Regulation Z. Through training, institutions will ensure that their employees are in compliance with these lending policies, while helping their customers to make smarter lending decisions.
Lending Policies
The Truth in Lending Act (TILA) of 1968 is a United States Federal Law that was created to protect consumers and requires that all lending fees be fully disclosed to a potential buyer prior to purchase and settlement. On July 30, 2008, the Federal Reserve Board published a final rule amending Regulation Z. During this time, Congress also enacted the Housing and Economic Recovery Act of 2008, which included amendments to TILA that would become effective on July 30, 2009. The new rule includes the following amendments:
"Lenders must give all consumers a TILA good faith estimate within three business days after they apply for a loan. No other fees except for a credit report can by collected by the lender at this time.
"There is a 7-day waiting period before a consumer can close on a property, after receiving their TILA good faith estimate, known as the "early disclosure" period.
"If the annual percentage rate (APR) changes by .125 percent, a lender is required to give the Borrower a new TILA Disclosure AND the lender and the Borrower must wait an additional three business days before closing the loan.
"The new Regulation Z requirements pertain to mortgages on a borrower"s home, as well as a second home, and any refinance of their home or second home.
"Consumers can waive the 3-day or 7-day waiting period for a "personal financial emergency," such as pending foreclosure.
In addition to these lending amendments, in May 2009, Regulation Z was again amended to implement provisions of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 in an effort to establish fair and transparent practices for open-end consumer credit plans, including credit cards. Under this final rule, credit card companies are blocked from charging more than $25 for late payments except in extreme circumstances, prevented from charging customers for not using their cards, and required to reconsider rate increases imposed since January 1, 2009, according to the Federal Reserve.
Training
Financial institutions can protect themselves and their customers from credit risk by training their employees on all relevant lending laws and regulations. By becoming familiar with Regulation Z and all related revisions, employees will be able to communicate with their customers about the included terms and costs before they make a lending decision.
Additionally, a training program will also teach employees how to avoid lending to customers who are at risk of defaulting on payments. Proper training for employees leads directly to customers making smarter lending decisions and keeps the bank in full compliance with lending policies. Employees" failure to demonstrate compliance with these policies could potentially cost banks millions of dollars. Additionally, lenders must be aware of non-deceptive policies when it comes to lending and prevent customers from falling into predatory lending schemes.
Final Word
Due to the increasing level of bad credit in the US today, it has become increasingly important for financial institutions to fully educate employees on Regulation Z, as well as all recent and future amendments. A well-trained lending staff is the best defense financial institutions can have when facing a possible credit industry collapse. By implementing a comprehensive training initiative, banks will ensure that they are compliant with lending policies, preventing costly litigation and keeping their customers safe, while contributing credit awareness in the US economy.
However, when the mortgage lending industry collapsed several years ago, individuals did not cut their spending, but instead turned to their credit cards for additional funds. According to the Consumer Federation of America, approximately $850 billion in credit debt is held by consumers, with the average credit debt per household estimated to be approximately $7,430. This pattern of borrowing has led experts to believe that the credit industry could soon face its own collapse. As a result, regulators are enforcing stronger rules and regulations through Regulation Z, which implements the Truth in Lending Act (TILA).
In order to help prevent against a credit industry collapse and protect their customers, financial institutions must educate their employees on all applicable laws and regulations and ensure that they remain up-to-date on any revisions to Regulation Z. Through training, institutions will ensure that their employees are in compliance with these lending policies, while helping their customers to make smarter lending decisions.
Lending Policies
The Truth in Lending Act (TILA) of 1968 is a United States Federal Law that was created to protect consumers and requires that all lending fees be fully disclosed to a potential buyer prior to purchase and settlement. On July 30, 2008, the Federal Reserve Board published a final rule amending Regulation Z. During this time, Congress also enacted the Housing and Economic Recovery Act of 2008, which included amendments to TILA that would become effective on July 30, 2009. The new rule includes the following amendments:
"Lenders must give all consumers a TILA good faith estimate within three business days after they apply for a loan. No other fees except for a credit report can by collected by the lender at this time.
"There is a 7-day waiting period before a consumer can close on a property, after receiving their TILA good faith estimate, known as the "early disclosure" period.
"If the annual percentage rate (APR) changes by .125 percent, a lender is required to give the Borrower a new TILA Disclosure AND the lender and the Borrower must wait an additional three business days before closing the loan.
"The new Regulation Z requirements pertain to mortgages on a borrower"s home, as well as a second home, and any refinance of their home or second home.
"Consumers can waive the 3-day or 7-day waiting period for a "personal financial emergency," such as pending foreclosure.
In addition to these lending amendments, in May 2009, Regulation Z was again amended to implement provisions of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 in an effort to establish fair and transparent practices for open-end consumer credit plans, including credit cards. Under this final rule, credit card companies are blocked from charging more than $25 for late payments except in extreme circumstances, prevented from charging customers for not using their cards, and required to reconsider rate increases imposed since January 1, 2009, according to the Federal Reserve.
Training
Financial institutions can protect themselves and their customers from credit risk by training their employees on all relevant lending laws and regulations. By becoming familiar with Regulation Z and all related revisions, employees will be able to communicate with their customers about the included terms and costs before they make a lending decision.
Additionally, a training program will also teach employees how to avoid lending to customers who are at risk of defaulting on payments. Proper training for employees leads directly to customers making smarter lending decisions and keeps the bank in full compliance with lending policies. Employees" failure to demonstrate compliance with these policies could potentially cost banks millions of dollars. Additionally, lenders must be aware of non-deceptive policies when it comes to lending and prevent customers from falling into predatory lending schemes.
Final Word
Due to the increasing level of bad credit in the US today, it has become increasingly important for financial institutions to fully educate employees on Regulation Z, as well as all recent and future amendments. A well-trained lending staff is the best defense financial institutions can have when facing a possible credit industry collapse. By implementing a comprehensive training initiative, banks will ensure that they are compliant with lending policies, preventing costly litigation and keeping their customers safe, while contributing credit awareness in the US economy.
