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Most
Common Violations Increase
Compliance with six key federal consumer
regulations (Regulations, B, DD, CC, E, and P) worsened in 2007,
according to reports from the FRB, the FDIC, OCC, and OTS. The
FRB’s 2008 Annual Report included that information along with a
note that almost 99 percent of banks were in compliance with
Regulations AA and M, which wasn’t changed from the past few
years. Following is a description of the violations found most
commonly for each rule, in order of the percent of banks out of
compliance.
·
Regulation Z
– Truth in Lending –
had the highest increase in violations. This was a three
percentage-point jump to 18 percent of banks compared to 2006. This
is similar to 2005 when violations surged by 4 percentage points
between 2004 and 2005.
The most frequently
cited violations included failure to accurately disclose the finance
charge in closed-end credit transactions; accurately disclose the
amount financed, by subtracting any prepaid finance charges from the
amount financed; accurately disclose the payment schedule, including
the number, amounts and timing of payments scheduled to repay the
obligation; and ensure that disclosures reflect the legal obligation
between the parties.
Seventy-five
percent more banks were required to make reimbursements totaling
$2.75 million for understating the annual percentage rate (APR) or
the finance charge in loan disclosures. The OTS issued two
supervisory agreements and two cease-and-desist orders for
violations of consumer regulations, including Reg Z. This compared
with three supervisory agreements last year. The other three
regulators took no formal action.
The FTC continued
litigation against a mortgage broker in federal district court for
alleged violations relating to advertisements and finance-charge
disclosures.
·
Regulation B
– Equal Credit Opportunity
–
showed a two percentage-point rise to 15 percent of banks
being out of compliance compared with 2006. The OTS issued two
supervisory agreements and one cease-and-desist order for alleged
violations of Reg B and other regulations, compared with one
supervisory agreement in 2006.
The most frequently
cited violations involved the failure to properly collect
information for monitoring purposes (race, ethnicity, sex, marital
status, and age) on applicants seeking credit to buy or refinance a
principal residence; improper collection of government monitoring
information when not permitted by regulation; improperly requiring
the signature of the applicant’s spouse or significant other
person, other than a joint applicant, when the applicant qualified
alone; and the failure to provide a written notice of denial to a
credit applicant with specific reasons for the adverse action.
·
Regulation DD
– Truth in Lending
– also had a three percentage-point rise to 12 percent of banks
out of compliance. The OTS was the only regulator who issued a
supervisory agreement and a cease-and-desist order.
The most frequently
cited violations included the failure to provide a statement that
fees could reduce the earnings on an account in advertisements using
the term ”annual percentage yield”; use the term “APY” if an
advertisement states a rate of return; provide initial account
disclosures with all required information; and provide adequate
subsequent account disclosures for time accounts with maturities
greater than one-year.
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