Amy Bizar

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Truth in Lending ActAnd Regulation Z(With a
Title X Overture)

• Amy Bizar
• Senior Vice President General Counsel
• The Education Resources Institute
• Ryan Charlton
• Program Policy Analyst
• Iowa Student Loan Liquidity Corporation

Including material provided by Arthur
Rotatori McGlinchey Stafford PLLC Cleveland, OH
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• Amy Bizar
• Senior Vice President General Counsel
• The Education Resources Institute

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THE PURPOSE OF TILA

• Adopted by Congress to increase consumer
  understanding about the actual cost of credit
• To promote the ability of consumers to shop for
  the best credit

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CREDIT/CONSUMER CREDIT

• Credit The right to incur payment of debt or to
  incur debt and defer its payments
• Consumer Credit Credit offered or extended to a
  consumer primarily for personal, family or
  household purposes

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OPEN-END CREDIT

• Open-end credit
• the creditor reasonably anticipates repeated
  advances
• the creditor assesses a finance charge on the
  outstanding balance
• the amount of credit that may be extended is
  generally made available to the extent that the
  outstanding balance is repaid.

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OPEN-END CREDIT

• EXAMPLES
• Home equity lines of credit and credit cards

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CLOSED-END CREDIT

• Closed-end credit is every other type of credit

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MULTIPLE ADVANCE LOANS

• Borrower may draw up to a stated maximum amount
• Borrower can/must take all proceeds in increments
• Creditor is obligated to make subsequent advances
  if borrower
• is not in default

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MULTIPLE ADVANCE LOANS

• Closed-end or open-end?
• Can borrower take more than one advance?
• Is there a right to re-borrow?

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REUSABLE LINE FEATURE

• A true open-end plan has an unlimited amount of
  total credit extended-use repay use again
• This differs from a series of advances made
  pursuant to a closed-end credit loan commitment

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REUSABLE LINE FEATURE

• EXAMPLE Creditor agrees to lend a total of
  10,000 in a series of advances as agreed by the
  consumer.
• Once consumer has borrowed the full 10,000, no
  more is advanced even if some of the debt has
  been repaid.

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CREDITOR

• A person who regularly extends credit that is
  subject to a finance charge or is payable by
  written agreement in more than four
  installments.
• Regularly extends credit 25 times per
  calendar year

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EXEMPTIONS

• Extensions of credit 25,000 unless
  secured by the consumers dwelling
• Under Title X, all private student loans will
  be covered
• Business purpose transactions
• Higher Education Act Title IV Loan
  programs

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WHAT IS ANADVERTISEMENT?

• Messages in a newspaper, magazine, leaflet,
  promotional flyer or catalog
• Announcements on radio, TV or public address
  systems
• Exterior or interior signs (i.e., rate boards)
• ATM or other point of sale displays

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WHAT IS ANADVERTISEMENT?

• Telephone or e-mail solicitations
• Internet web page advertising
• Price tags that contain credit information
• Direct mail and letters sent to consumers to
  solicit business

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ADVERTISING REQUIREMENTS

• Actually available terms
• Finance charges must be expressed as an APR
• Variable rate statement
• Catalogs/multiple page documents
• Trigger terms

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OPEN-END CREDITTRIGGER TERMS

• The circumstances under which a finance charge
  will be imposed
• A statement of when finance charges begin to
  accrue, including any no interest period.

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OPEN-END CREDIT TRIGGER TERMS

• A disclosure of each periodic rate that may be
  used to compute the finance charge, including a
  range of applicable balances, and the
  corresponding annual percentage rate.

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OPEN-END CREDIT TRIGGER TERMS

• Method used to determine the balance on which the
  finance charge is computed
• An explanation of how the amount of any finance
  charge will be determined and
• Any description of a security interest being
  acquired.

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OPEN-END CREDIT TRIGGER TERMS

• If an ad includes a trigger term,
• the ad must also clearly and conspicuously
  disclose
• Any minimum, fixed, transaction, activity or
  similar charge that could be imposed

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OPEN-END CREDIT TRIGGER TERMS

• Any periodic rate that may be applied
  expressed as an annual percentage rate
  (including if variable rate)
• Any membership or participation fee that could
  be imposed

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CLOSED-END CREDIT TRIGGER TERMS

• If closed-end credit in an advertisement includes
  a trigger term, you must also disclose other
  terms, including the annual percentage rate and
  the repayment terms.

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CLOSED-END CREDIT TRIGGER TERMS

• The trigger terms are
• The amount of any down payment (expressed
  as a percentage or dollar amount)
• The number of payments or period of repayment

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CLOSED-END CREDIT TRIGGER TERMS

• The amount of any payment or
• In a credit transaction, the amount of the
  down payment.

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EXAMPLES OF TRIGGER TERMS

• Repayment Terms
• 30 years to repay
• 240 month payment terms
• But not Monthly payments or Take years to
  repay

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EXAMPLES OF TRIGGER TERMS

• Payment Amount
• Payable in installments of xy
• xxxx balance payable in y equal installments

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EXAMPLES OF TRIGGER TERMS

• Finance Charge Amount
• xxxxx total cost of credit
• Origination fee of X
• But not No origination fee.

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DISCLOSURE OF REQUIRED TERMS

• Use of Examples
• Use a Typical Transaction
• Call the example what it is
• Use representative terms

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CATALOGS/MULTIPLE PAGE/ ELECTRONIC INTERNET
ADVERTISEMENTS

• Table or chart can be used to make all required
  disclosures
• Table must clearly and conspicuously set forth
  information in sufficient detail

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CATALOGS/MULTIPLE PAGE/ ELECTRONIC INTERNET
ADVERTISEMENTS

• Text mentioning trigger terms must refer to
  location of the page or location where table or
  schedule begins

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• Ryan Charlton
• Program Policy Analyst
• Iowa Student Loan Liquidity Corporation

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PURPOSE/REQUIREMENT

• Informed use of credit
• Truth in Lending Disclosures

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TIMING

• Before credit is extended (TILA 128(b)(1))
• Before consummation of the transaction (Reg. Z
  226.17(b))

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TIMING - CONSUMMATION

• Contractually obligated
• State law governs

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TIMING, CONT.

• Interim Student Credit Extensions
• Regular method single notice prior to
  consummation, or
• Two-TIL method with the first, abbreviated
  notice prior to consummation and a second,
  complete notice at repayment

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FORMAT

• Disclosures must be made
• Clearly and conspicuously
• In writing
• In a form the consumer can keep
• Without containing any information not directly
  related to them

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CONTENT

• Required disclosures
• Identification of the Creditor
• Amount Financed The amount of credit provided
  to you or on your behalf.
• Principal Amount
• Any other amounts financed
• - Prepaid finance charge
• Amount Financed

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CONTENT, CONT.

• Itemization of Amount Financed, to include
• Amount of any proceeds
• Amount credited
• Amounts paid

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CONTENT, CONT.

• Finance Charge The dollar amount the credit
  will cost you.
• Tolerance 5
• 10, 1,000

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CONTENT, CONT.

• Annual Percentage Rate (APR) The cost of your
  credit as a yearly rate.
• Annual Percentage Rate and Finance Charge must be
  more conspicuous than the other disclosures
• Appendix J
• Tolerance

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CONTENT, CONT.

• Variable Rate Information
• Circumstances under which a rate may change
• Any limitations on the increase
• The effect of an increase
• An example of the payment terms that would result
  from an increase

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CONTENT, CONT.

• Payment Schedule
• Total of Payments The amount you will have
  paid when you have made all scheduled payments.

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CONTENT, CONT.

• Miscellaneous Disclosures
• Prepayment Penalties or Rebates
• Late Fees
• Security Interest
• Reference to the Contract

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ERRORS

• Fix the cause
• Adjust the APR
• Notify the affected consumers

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ENFORCEMENT

• Liability
• Administrative
• Civil
• Criminal
• Banking Regulatory Agencies or FTC

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TITLE X

• Part of HEOA
• Amends TILA
• Subtitle A Unfair and Deceptive Practices
• Subtitle B Improved Disclosures for Private
  Education Loans

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TITLE X, CONT.

• (Subtitle B)
• Effective Date March 18, 2010
• Signed on August 14, 2008
• Federal Reserve to write regulations
• Six months to implement regulations

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TITLE X, CONT.

• Three (3) New Disclosure Notices
• Application
• Approval
• Consummation
• (In addition to the traditional disclosures
  that are currently required.)

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TITLE X, CONT.

• Application Disclosures
• To be delivered in any application for a private
  education loan
• Loan Terms
• Title IV Assistance

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TITLE X, CONT.

• Approval Disclosures
• To be provided contemporaneously with the
  approval of the private loan.
• Similar to application disclosures
• More specific/concrete information
• 30 Days

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TITLE X, CONT.

• Consummation Disclosures
• To be made contemporaneously with private loan
  consummation
• Similar to Application and Approval disclosures
• 3 day cancellation period

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TITLE X, CONT.

• Self Certification
• Form must be obtained from the school, by the
  student
• Lender must collect the form before the loan can
  be consummated

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TITLE X, CONT.

• Civil Liability
• One year from the date on which the first regular
  payment of principal is due under the loan
• Previously, this was one year from the date of
  the violation

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Questions?
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