Q: My bank want to make loans secured by manufactured or mobile homes that will temporarily house disaster relief workers. The intent is for the structures to become easily moveable to allow them to be transported to the location from the disaster. Must the bank obtain flood zone certifications and otherwise adhere to federal flood regulations?
A: No. The phrase \”mobile home\” in federal flood regulations (see 12 CFR §§22.2(g), 208.25(b)(6), and 339.2) includes such structures which are \”on a permanent foundation.\”
Q: Due to a quantity of bank mergers and acquisitions, my bank has numerous charge card plans with various conditions and terms. The financial institution would like to consolidate them into a single plan. When providing a general change in terms notice, may the financial institution simply include a new set of disclosures or must it specify which terms are changing?
A: As explained in Comment 4 to §1026.9(c)(2)(i) of Regulation Z (Truth in Lending Act) the financial institution may provide a new set of disclosures \”if the change is highlighted around the statement of disclosure, or maybe the statement of disclosure is accompanied by a letter as well as other insert that indicates or draws attention to the term being change.\” The thing is to make clear to cardholders which term(s) will be changing, which a new disclosure absent explanations from the changes will not.
Q: A director of my bank hasn't used her personal charge card from my bank in over Twelve months. May the bank stop treating the charge card as an extension of credit under Regulation O?
A: No. Unless the financial institution closes the charge card account, the credit card is constantly on the qualify as extra time of credit as defined under Regulation O. Section 215.3(a) of Regulation O defines \”extension of credit\” as \”a making or renewal associated with a loan, a granting of a credit line, or an extending of credit in any manner whatsoever,\” which clearly includes a credit card, whether or not the director is not currently utilizing it. Note, however, that per §215.3(b)(5), an extension of credit does not include indebtedness of $15,000 or less within bank credit card plan if certain conditions are met.
Q: Due to some system conversion, my bank want to change the billing cycle and payment due date on existing charge card accounts. Will this require 45 days' advance notice to alter the the account?
A: This will depend on whether the change will cause the grace period to become shorter or longer. Under §1026.9(c)(2)(i)(A) of Regulation Z (Truth in Lending Act), credit card issuers generally must give a notice of the \”significant change\” to some charge card account 45 days before the effective date of the change.
Section 1026.9(c)(2)(ii) defines \”significant changes,\” to incorporate changes to terms that must be disclosed in the account opening disclosures, which includes the grace period, i.e., \”the date by which or the period within which any credit extended may be repaid without incurring a finance fee due to a periodic rate of interest.\”
Comment 3 to §1026.9(c)(2) further explains, \”Whenever the creditor changes the consumer's billing cycle, it has to give a change-in-terms notice if the change affects the terms described in §1026.9(c)(2)(i) -\” which includes the grace period. However, no advance notice is needed \”when the change is definitely an extension of the grace period.\” The purpose of the advance notice of such a change would be to ensure that cardholders can anticipate and budget appropriately for their expected bill.
Thus, when the switch to the billing cycle and payment deadline result in an extension from the grace period, no advance notice is required. However, if the creditor shortens the grace period, advance notice is needed.
Q: I know that there is an exemption for requiring escrow for flood insurance for loans in a designated flood zone with terms of Twelve months or less. When the bank extends the term for another nine months, is the bank necessary to escrow for the flood insurance premiums when it result in the extension?
A: No, it is not. The 2022 amendments to the rule clarified §25 of the Homeowners Flood Insurance Affordability Act which provides the flood insurance escrow exemption for a loan that has a term of no more than 12 months. The Supplementary Information to those final amendments provide:
[I]f financing of 12 months or less is extended or renewed for an additional term of Twelve months or less, the Agencies' regulations would permit the exception to use towards the extended or renewed loan because extra time or renewal is really a triggering event. Therefore, at the time of the triggering event, the regulated lending institution may apply the exception when the term of the newly extended or renewed loan is for a phrase of 12 months or less.
Answers are supplied by Leslie Callaway, CRCM, CAFP, CAMS, senior director of compliance outreach and development; Mark Kruhm, CRCM, CAFP, senior compliance analyst; and Rhonda Castaneda, CRCM, senior compliance analyst, ABA Regulatory Policy and Compliance. Answers do not provide, nor could they be intended to substitute for, professional legal counsel. All answers provided March and April 2022.