The Federal Reserve Board recently proposed revisions to the rules and model disclosures, regarding the disclosure and exercise of the right to cancel under TILA. In proposing the new rules and disclosures, the FRB notes that its consumer testing and studies demonstrated that the existing disclosure forms were often confusing and difficult for consumers to understand.
The Federal Register notice for the proposed rule is available at:
Some of the highlights of the proposed rules are as follows:
• New "Notice of Right to Cancel" Form.
The revised notice would include: (a) the calendar date when the creditor reasonably expects three-business-day rescission period to expire, without the explanation of how to calculate the deadline; (b) a statement that the consumer's right to cancel the loan may extend beyond the date stated in the notice and in that case, the consumer must send the notice to either the current owner of the loan or the servicer; (c) a "tear off" form that a consumer may use to exercise his or her right to rescind; (d) a tabular format, as opposed to a narrative format used in the current model rescission forms.
• Only One NORTC.
The proposal also requires creditors to provide just one notice of the right to rescind to each consumer entitled to rescind (as opposed to two copies required under the current regulation).
• Right to Refund During Application Process.
The proposed rules would require lenders to refund fees if the consumer decides to withdraw the application within three days after they receive the disclosures.
• New "Material Disclosures."
The proposed rules would change the list of disclosures that, if not properly made, can trigger an extended right to rescind (including information about the interest rate, the total settlement charges, and whether a loan has negative amortization or permits interest-only payments for closed-end loans, and the credit limit, and total closing costs with a tolerance provision, for HELOCs).
• Important Litigation Changes
"The Board does not believe that Congress intended for the creditor to lose its status as a secured creditor if the consumer does not return the loan balance." The proposed rules would require a response to a rescission demand within 20 calendar days of receipt, stating whether or not the demand was accepted and stating the tender amount, and then release of the lien following payment of the tender amount. In litigation, the loan owner would not be required "to release its security interest until the consumer tenders the principal balance less interest and fees, and any damages and costs, as determined by the court."
In addition, the rules would provide that: (a) a consumer who exercises the extended right may send the notice to the servicer rather than the current holder; (b) certain events terminate the extended right to rescind, such as a refinancing with a new creditor; (c) bona fide personal financial emergencies that enable a consumer to waive the right to rescind will usually involve imminent property damage or threats to health or safety, and not the imminent expiration of a discount on goods or services; and (d) a consumer who guarantees a loan that is subject to the right of rescission and who pledges his principal dwelling has a right to rescind.
Let me know if you have any questions. Thanks.
Ralph T. Wutscher
Kahrl Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 2100
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (866) 581-9302
Mobile: (312) 493-0874
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From: Ralph Wutscher [mailto:rwutscher@kahrlwutscherllp.com]
Sent: Friday, August 27, 2010 12:47 PM
To: Ralph Wutscher
Cc: SoCalOffice; D.C. Office; Chicago Office
Subject: FYI: FRB Proposes Revisions to Rules Requring New TILA Disclosures for Loan Mods
The Federal Reserve Board recently proposed revisions to the rules for determining when a modification of an existing closed-end mortgage loan secured by real property or a dwelling is a new transaction requiring new disclosures.
The Federal Register notice for the proposed rule is available at:
The proposed rules would provide that new TILA disclosures are required when the parties to an existing closed-end loan secured by real property or a dwelling agree to modify key loan terms, without reference to state contract law.
New disclosures would be required when, for example, the parties agree to change the interest rate or monthly payment, advance new money, or add an adjustable rate or other "risky" feature such as a prepayment penalty.
The proposal also provides that whenever a fee is imposed on a consumer in connection with a modification, including a modification for a consumer in default, a "new transaction" would occur requiring new TILA disclosures.
In addition, if a new transaction is created, and the new transaction's APR exceeds the threshold for a "higher-priced mortgage loan" under the FRB's 2008 HOEPA rules, then special HOEPA protections would apply to the new transaction.
Importantly, the FRB notes that, "[c]onsistent with the current rule, the proposal would exempt modifications reached in a court proceeding, and modifications for borrowers in default or delinquency, unless the loan amount or interest rate is increased, or a fee is imposed on the consumer."
Certain beneficial modifications, such as "no cost" rate and payment decreases, would also be exempt from the requirement for new TILA disclosures.
Let me know if you have any questions. Thanks.
Ralph T. Wutscher
Kahrl Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 2100
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (866) 581-9302
Mobile: (312) 493-0874
NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.
Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com
From: Ralph Wutscher [mailto:rwutscher@kahrlwutscherllp.com]
Sent: Friday, August 27, 2010 11:02 AM
To: Ralph Wutscher
Cc: SoCalOffice; D.C. Office; Chicago Office
Subject: FYI: FRB Proposes Significant Changes to Reverse Mtg Disclosures and Ads
The Federal Reserve Board recently proposed significant changes to reverse mortgage advertisements and disclosures.
The Federal Register notice for the proposed rule is available at:
These proposed rules would:
• Impose rules for reverse mortgage advertising to ensure advertisements contain accurate and balanced information.
• Change the disclosures consumers receive for reverse mortgages, including: (a) at application, creditors must provide a new, two-page disclosure which highlights in simple language the basic features and risks of reverse mortgages; (b) within three days after receiving the consumer's application, creditors must provide transaction-specific disclosures that reflect the actual terms of the reverse mortgage being offered, which must be presented in a tabular format; (c) at least three days before closing the loan, creditors must provide final disclosures in the same format, to facilitate comparison with the earlier disclosures; and (d) creditors also must ensure that their advertisements for reverse mortgages are accurate and balanced.
• Prohibit certain unfair practices in the sale of financial products with reverse mortgages, such as: (a) prohibiting creditors from conditioning a reverse mortgage on the consumer's purchase of another financial or insurance product; (b) requiring that a consumer receive counseling about reverse mortgages before a creditor can impose nonrefundable fees for a reverse mortgage or close the loan; and (c) prohibiting creditors from steering consumers to specific reverse mortgage counselors or compensating counselors or counseling agencies.
The comment period ends 90 days after publication of the proposal in the Federal Register, which is expected shortly.
Let me know if you have any questions. Thanks.
Ralph T. Wutscher
Kahrl Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 2100
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (866) 581-9302
Mobile: (312) 493-0874
NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.
Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com
