What is Regulation Z?
In 1968, Congress passed the Truth Loan Act. Regulation Z is the regulation implemented by the Loan Accuracy Act. Regulation Z and the Loan Verification Act apply the same consumer protection rules to the way lenders issue credit.
Regulation Z helps ensure that lenders provide consumers with clear and relevant credit information. Thanks to the Loan Accuracy Act, lenders should now use similar terminology, making it easier than ever to compare loans.
Over the years, Regulation Z has changed more than a dozen times. One of the most significant changes took place in 2011 when Congress delegated regulatory authority to the Office of Consumer Financial Protection. The CFPB is now helping to shape how the Loan Accuracy Act applies.
The Truth in Lending Act (TILA), 15 U.S.C. 1601 (opens new window), and later, and its implementing rules, Regulation Z (12 CFR 1026 (opens new window)), were initially designed to protect consumers primarily through disclosure. However, over time, TILA and Regulation Z have been expanded to impose a wide variety of requirements and restrictions on consumer credit products.
The Dodd-Frank Wall Street Consumer Protection and Reform Act of 2010 (Dodd-Frank Act (opens new window)) transferred regulatory authority under TILA from the Federal Reserve Board to the Consumer Financial Protection Bureau (CFPB), effective July 1, 2011.
TILA aims to protect consumers and ensure competition among financial institutions through meaningful disclosure of credit terms, enabling consumers to compare standardized credit terms more easily and comprehensibly. Before TILA came into force, consumers were faced with a bewildering variety of credit terms and conditions. It was difficult to compare loans because they were rarely presented in the same format. Now, all financial institutions must use the same credit terminology and interest rate expressions. In addition to providing a uniform information system, TILA:
However, TILA and Regulation Z do not tell financial institutions how much interest they can charge or whether they should lend to a consumer.
The examination procedures will use “TILA” interchangeably for the Real Lending Act and Regulation Z since Regulation Z is the implementing regulation. Unless otherwise specified, all regulatory references refer to Regulation Z (12 CFR 1026 (opens new window)).
Compliance risk can arise when the credit union does not implement the necessary controls to comply with TILA.
Transaction risk can arise when the credit union does not have adequate internal controls and therefore suffers a loss.
Reputational risk can arise when credit unions incur fines and penalties or when members’ reliance on TILA noncompliance is reduced.
Strategic risk can arise when the board of directors does not exercise due diligence to review current and potential policies and procedures and products and services for compliance.
Obtain relevant information for the credit union’s compliance management program inspection area (historical review results, information on complaints and compliance review, and significant audit results).
By speaking with management and reviewing the following documents, determine if the credit union’s internal controls are adequate to ensure compliance for the area under review. Identify the procedures the institution uses daily to quickly detect errors/violations. Also, review the procedures used by the institution to ensure compliance when changes occur (for example, changes in interest rates, service charges, calculation methods, and software programs).
Review audit work documents or other compliance reviews and make sure:
Review credit union record-keeping practices to determine whether required documentation or proof of compliance is retained for at least during:
Two years after the disclosure or other measures were required, in addition to the advertising requirements, the mortgage requirements are subject to §§ 1026.19 (e), (f) (opens new window), and certain description requirements of the mortgage below. (§ 1026.25 (a) (opens new window))
Three years after the last consummation date, the date or the date the deed must be executed must be disclosed to prove compliance with §§ 1026.19 (e) – (f) (opens new window) (within the respect of loans secured by real estate or a cooperative and subject to these sections) other than those outlined in section 4c below. (§ 1026.25 (c) (1) (i) (opens new window))
Five years after completion of the closed disclosure forms and all documents related to such disclosure, as required by §§ 1026.19 (f) (1) (i) or (f) (4) (i) (opens a new window new). If the loan is sold, transferred, or disposed of during this time, the credit union must provide a copy of the Final Disclosure to the owner or servicer as part of the transfer of the loan file. The disclosure must be retained by the new owner or manager for the remainder of the five years. (§ 1026.25 (c) (opens new window))
Three years from the date of receipt of the payment to prove compliance with the compensation requirements of the loan promoter. (§ 1026.25 (opens new window))
Three years after consummation demonstrates compliance with minimum repayment means standards (§§ 1026.43 (c) – (f) (opens new window)) and prepayment penalty restrictions (§§ 1026.43 (g) (opens in a new window)) for home-secured loans. (§ 1026.25(c)(3) (opens new window))
The bottom line
Reading all the information provided can be a hassle, but it exists to help you. Take advantage of Regulation Z and arm yourself with information before applying for a loan or credit card that complies with Regulation Z.
“This is not legal advice, only for informational purposes only”.
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