Supplement I to Part 1041 - Official Interpretations
12:9.0.1.1.3.4.1.6.28 :
Supplement I to Part 1041 - Official Interpretations Section 1041.2
- Definitions 2(a)(3) Closed-End Credit
1. In general. Institutions may rely on 12 CFR
1026.2(a)(10) and its related commentary in determining the meaning
of closed-end credit, but without regard to whether the credit is
consumer credit, as that term is defined in 12 CFR 1026.2(a)(12),
or is extended to a consumer, as that term is defined in 12 CFR
1026.2(a)(11).
2(a)(5) Consummation
1. New loan. When a contractual obligation on the
consumer's part is created is a matter to be determined under
applicable law. A contractual commitment agreement, for example,
that under applicable law binds the consumer to the loan terms
would be consummation. Consummation, however, does not occur merely
because the consumer has made some financial investment in the
transaction (for example, by paying a non-refundable fee) unless
applicable law holds otherwise.
2(a)(11) Credit
1. In general. Institutions may rely on 12 CFR
1026.2(a)(14) and its related commentary in determining the meaning
of credit.
2(a)(12) Electronic Fund Transfer
1. In general. Institutions may rely on 12 CFR 1005.3(b)
and its related commentary in determining the meaning of electronic
fund transfer.
2(a)(13) Lender
1. Regularly extends credit. The test for determining
whether a person regularly extends credit for personal, family, or
household purposes is explained in Regulation Z, 12 CFR
1026.2(a)(17)(v). Any loan to a consumer primarily for personal,
family, or household purposes, whether or not the loan is a covered
loan under this part, counts toward the numeric threshold for
determining whether a person regularly extends credit.
2(a)(16) Open-End Credit
1. In general. Institutions may rely on 12 CFR
1026.2(a)(20) and its related commentary in determining the meaning
of open-end credit, but without regard to whether the credit
permits a finance charge to be imposed from time to time on an
outstanding balance as defined in 12 CFR 1026.4. Also, for the
purposes of defining open-end credit under this part, the term
credit, as defined in § 1041.2(a)(11), is substituted for the term
consumer credit, as defined in 12 CFR 1026.2(a)(12); the term
lender, as defined in § 1041.2(a)(13), is substituted for the term
creditor, as defined in 12 CFR 1026.2(a)(17); and the term
consumer, as defined in § 1041.2(a)(4), is substituted for the term
consumer, as defined in 12 CFR 1026.2(a)(11). See generally §
1041.2(b).
2(a)(17) Outstanding Loan
1. Payments owed to third parties. A loan is an
outstanding loan if it meets all the criteria set forth in §
1041.2(a)(17), regardless of whether the consumer is required to
pay the lender, an affiliate of the lender, or a service provider.
A lender selling the loan or the loan servicing rights to a third
party does not affect whether a loan is an outstanding loan under §
1041.2(a)(17).
2. Stale loans. A loan is generally an outstanding loan
if the consumer has a legal obligation to repay the loan, even if
the consumer is delinquent or if the consumer is in a repayment
plan or workout arrangement. However, a loan that the consumer
otherwise has a legal obligation to repay is not an outstanding
loan for purposes of this part if the consumer has not made any
payment on the loan within the previous 180-day period. A loan
ceases to be an outstanding loan as of: The earliest of the date
the consumer repays the loan in full, the date the consumer is
released from the legal obligation to repay, the date the loan is
otherwise legally discharged, or the date that is 180 days
following the last payment that the consumer has made on the loan,
even if the payment is not a regularly scheduled payment in a
scheduled amount. If the consumer does not make any payments on a
loan and none of these other events occur, the loan ceases to be
outstanding 180 days after consummation. A loan cannot become an
outstanding loan due to any events that occur after the consumer
repays the loan in full, the consumer is released from the legal
obligation to repay, the loan is otherwise legally discharged, 180
days following the last payment that the consumer has made on the
loan, or 180 days after consummation of a loan on which the
consumer makes no payments.
2(a)(18) Service Provider
1. Credit access businesses and credit services
organizations. Persons who provide a material service to
lenders in connection with the lenders' offering or provision of
covered loans are service providers, subject to the specific
limitations in section 1002(26) of the Dodd-Frank Act. Accordingly,
credit access businesses and credit service organizations that
provide a material service to lenders during the course of
obtaining for consumers, or assisting consumers in obtaining, loans
from lenders, are service providers, subject to the specific
limitations in section 1002(26) of the Dodd-Frank Act.
2(b) Rule of Construction
1. Incorporation of terms from underlying statutes and
regulations. For purposes of this part, where definitions are
incorporated from other statutes or regulations, users may as
applicable rely on embedded definitions, appendices, and commentary
for those other laws. For example, 12 CFR 1005.2(b) and its related
commentary determine the meaning of account under § 1041.2(a)(1).
However, where this part defines the same term or a parallel term
in a way that creates a substantive distinction, the definition in
this part shall control. See, for example, the definition of
open-end credit in § 1041.2(a)(16), which is generally determined
according to 12 CFR 1026.2(a)(20) and its related commentary but
without regard to whether the credit is consumer credit, as that
term is defined in 12 CFR 1026.2(a)(12), or is extended to a
consumer, as that term is defined in 12 CFR 1026.2(a)(11), because
this part provides a different and arguably broader definition of
consumer in § 1041.2(a)(4).
Section 1041.3 - Scope of Coverage; Exclusions; Exemptions 3(b)
Covered Loans
1. Credit structure. The term covered loan includes
open-end credit and closed-end credit, regardless of the form or
structure of the credit.
2. Primary purpose. Under § 1041.3(b), a loan is not a
covered loan unless it is extended primarily for personal, family,
or household purposes. Institutions may rely on 12 CFR 1026.3(a)
and its related commentary in determining the primary purpose of a
loan.
Paragraph 3(b)(1)
1. Closed-end credit that does not provide for multiple
advances to consumers. A loan does not provide for multiple
advances to a consumer if the loan provides for full disbursement
of the loan proceeds only through disbursement on a single specific
date.
2. Loans that provide for multiple advances to consumers.
Both open-end credit and closed-end credit may provide for multiple
advances to consumers. Open-end credit can have a fixed expiration
date, as long as during the plan's existence the consumer may use
credit, repay, and reuse the credit. Likewise, closed-end credit
may consist of a series of advances. For example:
i. Under a closed-end commitment, the lender might agree to lend
a total of $1,000 in a series of advances as needed by the
consumer. When a consumer has borrowed the full $1,000, no more is
advanced under that particular agreement, even if there has been
repayment of a portion of the debt.
3. Facts and circumstances test for determining whether loan
is substantially repayable within 45 days. Substantially
repayable means that the substantial majority of the loan or
advance is required to be repaid within 45 days of consummation or
advance, as the case may be. Application of the standard depends on
the specific facts and circumstances of each loan, including the
timing and size of the scheduled payments. A loan or advance is not
substantially repayable within 45 days of consummation or advance
merely because a consumer chooses to repay within 45 days when the
loan terms do not require the consumer to do so.
4. Deposit advance products. A loan or advance is
substantially repayable within 45 days of consummation or advance
if the lender has the right to be repaid through a sweep or
withdrawal of any qualifying electronic deposit made into the
consumer's account within 45 days of consummation or advance. A
loan or advance described in this paragraph is substantially
repayable within 45 days of consummation or advance even if no
qualifying electronic deposit is actually made into or withdrawn by
the lender from the consumer's account.
5. Loans with alternative, ambiguous, or unusual payment
schedules. If a consumer, under any applicable law, would
breach the terms of the agreement between the consumer and the
lender or service provider by not substantially repaying the entire
amount of the loan or advance within 45 days of consummation or
advance, as the case may be, the loan is a covered short-term loan
under § 1041.3(b)(1). For loans or advances that are not required
to be repaid within 45 days of consummation or advance, if the
consumer, under applicable law, would not breach the terms of the
agreement between the consumer and the lender by not substantially
repaying the loan or advance in full within 45 days, the loan is a
covered longer-term balloon-payment loan under § 1041.3(b)(2) or a
covered longer-term loan under § 1041.3(b)(3) if the loan otherwise
satisfies the criteria specified in § 1041.3(b)(2) or (3),
respectively.
Paragraph 3(b)(2)
1. Closed-end credit that does not provide for multiple
advances to consumers. See comments 3(b)(1)-1 and
3(b)(1)-2.
2. Payments more than twice as large as other payments.
For purposes of § 1041.3(b)(2)(i) and (ii), all required payments
of principal and any charges (or charges only, depending on the
loan features) due under the loan are used to determine whether a
particular payment is more than twice as large as another payment,
regardless of whether the payments have changed during the loan
term due to rate adjustments or other payment changes permitted or
required under the loan.
3. Charges excluded. Charges for actual unanticipated
late payments, for exceeding a credit limit, or for delinquency,
default, or a similar occurrence that may be added to a payment are
excluded from the determination of whether the loan is repayable in
a single payment or a particular payment is more than twice as
large as another payment. Likewise, sums that are accelerated and
due upon default are excluded from the determination of whether the
loan is repayable in a single payment or a particular payment is
more than twice as large as another payment.
4. Multiple-advance structures. Loans that provide for
more than one advance are considered to be a covered longer-term
balloon-payment loan under § 1041.3(b)(2)(ii) if either:
i. The consumer is required to repay substantially the entire
amount of an advance more than 45 days after the advance is made or
is required to make at least one payment on the advance that is
more than twice as large as any other payment; or
ii. A loan with multiple advances is structured such that paying
the required minimum payment may not fully amortize the outstanding
balance by a specified date or time, and the amount of the final
payment to repay the outstanding balance at such time could be more
than twice the amount of other minimum payments under the plan. For
example, the lender extends an open-end credit plan with a $500
credit limit, monthly billing cycles, and a minimum payment due
each billing cycle that is equal to 10% of the outstanding
principal. Fees or interest on the plan are equal to 10% of the
outstanding principal per month, so that if a consumer pays nothing
other than the minimum payment amount, the outstanding principal
remains the same. All outstanding amounts must be repaid within six
months of the advance. The credit plan is a covered loan under §
1041.3(b)(2)(ii) because if the consumer drew the entire amount at
one time and then made only minimum payments, the sixth payment
would be more than twice the amount of the minimum payment required
($50).
Paragraph 3(b)(3)
1. Conditions for coverage of a longer-term loan. A loan
that is not a covered short-term loan or a covered longer-term
balloon-payment loan is a covered longer-term loan only if it
satisfies both the cost of credit requirement of § 1041.3(b)(3)(i)
and leveraged payment mechanism requirement of § 1041.3(b)(3)(ii).
If the requirements of § 1041.3(b)(3) are met, and the loan is not
otherwise excluded or conditionally exempted from coverage by §
1041.3(d), (e), or (f), the loan is a covered longer-term loan. For
example, a 60-day loan that is not a covered longer-term
balloon-payment loan is not a covered longer-term loan if the cost
of credit as measured pursuant to § 1041.2(a)(6) is less than or
equal to a rate of 36 percent per annum even if the lender or
service provider obtains a leveraged payment mechanism.
2. No balance during a billing cycle. Under §
1041.2(a)(6)(ii)(B), the cost of credit for open-end credit must be
calculated according to the rules for calculating the effective
annual percentage rate for a billing cycle as set forth in
Regulation Z, 12 CFR 1026.14(c) and (d), which provide that the
annual percentage rate cannot be calculated for billing cycles in
which there is a finance charge but no other balance. Accordingly,
pursuant to § 1041.2(a)(6)(ii)(B), the cost of credit could not be
calculated for such billing cycles. Section
1041.3(b)(3)(i)(B)(1) provides that, for such billing
cycles, an open-end credit plan is determined to have exceeded the
threshold set forth in that paragraph if there is no balance other
than a finance charge imposed by the lender.
3. Timing for coverage determination. A loan may become a
covered longer-term loan at any such time as both of the
requirements of § 1041.3(b)(3)(i) and (ii) are met. For
example:
i. A lender originates a closed-end loan that is not a
longer-term balloon-payment loan to be repaid within six months of
consummation with a cost of credit equal to 60 percent. At the time
of consummation, the loan is not a covered longer-term loan because
it does not have a leveraged payment mechanism. After two weeks,
the lender obtains a leveraged payment mechanism. The loan is now a
covered longer-term loan because it meets both of the requirements
of § 1041.3(b)(3)(i) and (ii).
ii. A lender extends an open-end credit plan with monthly
billing cycles and a leveraged payment mechanism. At consummation
and again at the end of the first billing cycle, the plan is not a
covered longer-term loan because its cost of credit is below 36
percent. In the second billing cycle, the plan's cost of credit is
45 percent because several fees are triggered in addition to
interest on the principal balance. The plan is now a covered
longer-term loan because it meets both of the requirements of §
1041.3(b)(3)(i) and (ii). Beginning on the first day of the third
billing cycle, and thereafter for the duration of the plan, the
lender must therefore comply with the requirements of this part
including by, for example, providing a first withdrawal notice
before initiating the first payment transfer on or after the first
day of the third billing cycle. The requirements to provide certain
payment withdrawal notices under § 1041.9 have been structured so
that the notices can be provided in the same mailing as the
periodic statements that are required by Regulation Z, 12 CFR
1026.7(b). See, e.g., § 1041.9(b)(3)(i)(D).
Paragraph 3(b)(3)(ii)
1. Timing. The condition in § 1041.3(b)(3)(ii) is
satisfied if a lender or service provider obtains a leveraged
payment mechanism before, at the same time as, or after the
consumer receives the entire amount of funds that the consumer is
entitled to receive under the loan, regardless of the means by
which the lender or service provider obtains a leveraged payment
mechanism.
2. Leveraged payment mechanism in contract. The condition
in § 1041.3(b)(3)(ii) is satisfied if a loan agreement authorizes
the lender to elect to obtain a leveraged payment mechanism,
regardless of the time at which the lender actually obtains a
leveraged payment mechanism. The following are examples of
situations in which a lender obtains a leveraged payment mechanism
under § 1041.3(b)(3)(ii):
i. Future authorization. A loan agreement provides that
the consumer, at some future date, must authorize the lender or
service provider to debit the consumer's account on a recurring
basis.
ii. Delinquency or default provisions. A loan agreement
provides that the consumer must authorize the lender or service
provider to debit the consumer's account on a one-time or a
recurring basis if the consumer becomes delinquent or defaults on
the loan.
Paragraph 3(c)
1. Initiating a transfer of money from a consumer's
account. A lender or service provider obtains the ability to
initiate a transfer of money when that person can collect payment,
or otherwise withdraw funds, from a consumer's account, either on a
single occasion or on a recurring basis, without the consumer
taking further action. Generally, when a lender or service provider
has the ability to “pull” funds or initiate a transfer from the
consumer's account, that person has a leveraged payment mechanism.
However, a “push” transaction from the consumer to the lender or
service provider does not in itself give the lender or service
provider a leveraged payment mechanism.
2. Lender-initiated transfers. The following are examples
of situations in which a lender or service provider has the ability
to initiate a transfer of money from a consumer's account:
i. Check. A lender or service provider obtains a check,
draft, or similar paper instrument written by the consumer, other
than a single immediate payment transfer at the consumer's request
as described in § 1041.3(c) and comment 3(c)-3.
ii. Electronic fund transfer authorization. The consumer
authorizes a lender or service provider to initiate an electronic
fund transfer from the consumer's account in advance of the
transfer, other than a single immediate payment transfer at the
consumer's request as described in § 1041.3(c) and comment
3(c)-3.
iii. Remotely created checks and remotely created payment
orders. A lender or service provider has authorization to
create or present a remotely created check (as defined by
Regulation CC, 12 CFR 229.2(fff)), remotely created payment order
(as defined in 16 CFR 310.2(cc)), or similar instrument drafted on
the consumer's account.
iv. Transfer by account-holding institution. A lender or
service provider that is an account-holding institution has a right
to initiate a transfer of funds between the consumer's account and
an account of the lender or affiliate, including, but not limited
to, an account-holding institution's right of set-off.
3. Single immediate payment transfer at the consumer's
request excluded. A single immediate payment transfer at the
consumer's request, as defined in § 1041.8(a)(2), is excluded from
the definition of leveraged payment mechanism. Accordingly, if the
loan or other agreement between the consumer and the lender or
service provider does not otherwise provide for the lender or
service provider to initiate a transfer without further consumer
action, the lender or service provider can initiate a single
immediate payment transfer at the consumer's request without
causing the loan to become a covered loan under § 1041.3(b)(3). See
§ 1041.8(a)(2) and related commentary for guidance on what
constitutes a single immediate payment transfer at the consumer's
request.
4. Transfers not initiated by the lender. A lender or
service provider does not initiate a transfer of money from a
consumer's account if the consumer authorizes a third party, such
as a bank's automatic bill pay service, to initiate a transfer of
money from the consumer's account to a lender or service
provider.
3(d) Exclusions 3(d)(1) Certain Purchase Money Security Interest
Loans
1. “Sole purpose” test. The requirements of this part do
not apply to loans made solely and expressly to finance the
consumer's initial purchase of a good in which the lender takes a
security interest as a condition of the credit. For example, the
requirements of this part would not apply to a transaction in which
a lender makes a loan to a consumer for the express purpose of
initially purchasing a motor vehicle, television, household
appliance, or furniture in which the lender takes a security
interest and the amount financed is approximately equal to, or less
than, the cost of acquiring the good, even if the cost of credit
exceeds 36 percent per annum and the lender also obtains a
leveraged payment mechanism. A loan is made solely and expressly to
finance the consumer's initial purchase of a good even if the
amount financed under the loan includes Federal, State, or local
taxes or amounts required to be paid under applicable State and
Federal licensing and registration requirements. This exclusion
does not apply to refinances of credit extended for the purchase of
a good.
3(d)(2) Real Estate Secured Credit
1. Real estate and dwellings. The requirements of this
part do not apply to credit secured by any real property, or by any
personal property, such as a mobile home, used or expected to be
used as a dwelling if the lender records or otherwise perfects the
security interest within the term of the loan, even if the cost of
credit exceeds 36 percent per annum and the lender or servicer
provider also obtains a leveraged payment mechanism. If the lender
does not record or perfect the security interest during the term of
the loan, however, the credit is not excluded from the requirements
of this part under § 1041.3(d)(2).
3(d)(5) Non-Recourse Pawn Loans
1. Lender possession required and no recourse permitted.
A pawn loan must satisfy two conditions to be excluded from the
requirements of this part under § 1041.3(d)(5). First, the lender
must have sole physical possession and use of the property securing
the pawned property at all times during the entire term of the
loan. If the consumer retains either possession or use of the
property, however limited the consumer's possession or use of the
property might be, the loan is not excluded from the requirements
of this part under § 1041.3(d)(5). Second, the lender must have no
recourse if the consumer does not elect to redeem the pawned item
and repay the loan other than retaining the pawned property to
dispose of according to State or local law. If any consumer, or if
any co-signor, guarantor, or similar person, is personally liable
for the difference between the outstanding balance on the loan and
the value of the pawned property, the loan is not excluded from the
requirements of this part under § 1041.3(d)(5).
3(d)(6) Overdraft Services
1. Definitions. Institutions may rely on 12 CFR
1005.17(a) and its related commentary in determining whether credit
is an overdraft service or an overdraft line of credit that is
excluded from the requirements of this part under §
1041.3(d)(6).
3(d)(7) Wage Advance Programs
1. Advances of wages under § 1041.3(d)(7) must be offered by an
employer, as defined in the Fair Labor Standards Act, 29 U.S.C.
203(d), or by the employer's business partner to the employer's
employees pursuant to a wage advance program. For example, an
advance program might be offered by a company that provides payroll
card services or accounting services to the employer, or by the
employer with the assistance of such a company. Similarly, an
advance program might be offered by a company that provides
consumer financial products and services as part of the employer's
benefits program, such that the company would have information
regarding the wages accrued by the employee.
Paragraph 3(d)(7)(i)
1. Under the exclusion in § 1041.3(d)(7)(i), the advance must be
made only against accrued wages. To qualify for that exclusion, the
amount advanced must not exceed the amount of the employee's
accrued wages. Accrued wages are wages that the employee is
entitled to receive under State law in the event of separation from
the employer for work performed for the employer, but for which the
employee has yet to be paid.
Paragraph 3(d)(7)(ii)(B)
1. Under § 1041.3(d)(7)(ii)(B), the entity advancing the funds
is required to warrant that it has no legal or contractual claim or
remedy against the consumer based on the consumer's failure to
repay in the event the amount advanced is not repaid in full. This
provision does not prevent the entity from obtaining a one-time
authorization to seek repayment from the consumer's transaction
account.
3(d)(8) No-Cost Advances
1. Under § 1041.3(d)(8)(i), the entity advancing the funds is
required to warrant that it has no legal or contractual claim or
remedy against the consumer based on the consumer's failure to
repay in the event the amount advanced is not repaid in full. This
provision does not prevent the entity from obtaining a one-time
authorization to seek repayment from the consumer's transaction
account.
3(e) Alternative Loans
1. General. Section 1041.3(e) conditionally exempts from
this part alternative covered loans that satisfy the conditions and
requirements set forth in § 1041.3(e). Nothing in § 1041.3(e)
provides lenders with an exemption from the requirements of other
applicable laws, including State laws. The conditions for an
alternative loan made under § 1041.3(e) largely track the
conditions set forth by the National Credit Union Administration at
12 CFR 701.21(c)(7)(iii) for a Payday Alternative Loan made by a
Federal credit union. All lenders, including Federal credit unions
and persons that are not Federal credit unions, are permitted to
make loans under § 1041.3(e), provided that such loans are
permissible under other applicable laws, including State laws.
3(e)(1) Loan Term Conditions Paragraph 3(e)(1)(iv)
1. Substantially equal payments. Under §
1041.3(e)(1)(iv), payments are substantially equal in amount if the
amount of each scheduled payment on the loan is equal to or within
a small variation of the others. For example, if a loan is
repayable in six biweekly payments and the amount of each scheduled
payment is within 1 percent of the amount of the other payments,
the loan is repayable in substantially equal payments. In
determining whether a loan is repayable in substantially equal
payments, a lender may disregard the effects of collecting the
payments in whole cents.
2. Substantially equal intervals. The intervals for
scheduled payments are substantially equal if the payment schedule
requires repayment on the same date each month or in the same
number of days of the prior scheduled payment. For example, a loan
for which payment is due every 15 days has payments due in
substantially equal intervals. A loan for which payment is due on
the 15th day of each month also has payments due in substantially
equal intervals. In determining whether payments fall due in
substantially equal intervals, a lender may disregard that dates of
scheduled payments may be slightly changed because the scheduled
date is not a business day, that months have different numbers of
days, and the occurrence of leap years. Section 1041.3(e)(1)(iv)
does not prevent a lender from accepting prepayment on a loan made
under § 1041.3(e).
3. Amortization. Section 1041.3(e)(1)(iv) requires that
the scheduled payments fully amortize the loan over the contractual
period and prohibits lenders from making loans under § 1041.3(e)
with interest-only payments or with a payment schedule that
front-loads payments of interest and fees. While under §
1041.3(e)(1)(iv) the payment amount must be substantially equal for
each scheduled payment, the amount of the payment that goes to
principal and to interest will vary. The amount of payment applied
to interest will be greater for earlier payments when there is a
larger principal outstanding.
Paragraph 3(e)(1)(v)
1. Cost of credit. Under § 1041.3(e)(1)(v), the lender
must not impose any charges other than the rate and application
fees permissible for Federal credit unions to charge under 12 CFR
701.21(c)(7)(iii). Under 12 CFR 701.21(c)(7)(iii), application fees
must reflect the actual costs associated with processing the
application and must not exceed $20.
3(e)(2) Borrowing History Condition
1. Relevant records. A lender may make an alternative
covered loan under § 1041.3(e) only if the lender determines from
its records that the consumer's borrowing history on alternative
covered loans made under § 1041.3(e) meets the criteria set forth
in § 1041.3(e)(2). The lender is not required to obtain information
about a consumer's borrowing history from other persons, such as by
obtaining a consumer report.
2. Determining 180-day period. For purposes of counting
the number of loans made under § 1041.3(e)(2), the 180-day period
begins on the date that is 180 days prior to the consummation date
of the loan to be made under § 1041.3(e) and ends on the
consummation date of such loan.
3. Total number of loans made under § 1041.3(e)(2).
Section 1041.3(e)(2) excludes loans from the conditional exemption
in § 1041.3(e) if the loan would result in the consumer being
indebted on more than three outstanding loans made under §
1041.3(e) from the lender in any consecutive 180-day period.
See § 1041.2(a)(17) for the definition of outstanding loan.
Under § 1041.3(e)(2), the lender is required to determine from its
records the consumer's borrowing history on alternative covered
loans made under § 1041.3(e) by the lender. The lender must use
this information about borrowing history to determine whether the
loan would result in the consumer being indebted on more than three
outstanding loans made under § 1041.3(e) from the lender in a
consecutive 180-day period, determined in the manner described in
comment 3(e)(2)-2. Section 1041.3(e) does not prevent lenders from
making a covered loan subject to the requirements of this part.
4. Example. For example, assume that a lender seeks to
make an alternative loan under § 1041.3(e) to a consumer and the
loan does not qualify for the safe harbor under § 1041.3(e)(4). The
lender checks its own records and determines that during the 180
days preceding the consummation date of the prospective loan, the
consumer was indebted on two outstanding loans made under §
1041.3(e) from the lender. The loan, if made, would be the third
loan made under § 1041.3(e) on which the consumer would be indebted
during the 180-day period and, therefore, would be exempt from this
part under § 1041.3(e). If, however, the lender determined that the
consumer was indebted on three outstanding loans under § 1041.3(e)
from the lender during the 180 days preceding the consummation date
of the prospective loan, the condition in § 1041.3(e)(2) would not
be satisfied and the loan would not be an alternative loan subject
to the exemption under § 1041.3(e) but would instead be a covered
loan subject to the requirements of this part.
3(e)(3) Income Documentation Condition
1. General. Section 1041.3(e)(3) requires lenders to
maintain policies and procedures for documenting proof of recurring
income and to comply with those policies and procedures when making
alternative loans under § 1041.3(e). For the purposes of §
1041.3(e)(3), lenders may establish any procedure for documenting
recurring income that satisfies the lender's own underwriting
obligations. For example, lenders may choose to use the procedure
contained in the National Credit Union Administration's guidance at
12 CFR 701.21(c)(7)(iii) on Payday Alternative Loan programs
recommending that Federal credit unions document consumer income by
obtaining two recent paycheck stubs.
3(f) Accommodation Lending
1. General. Section 1041.3(f) provides a conditional
exemption for covered loans if, at the time of origination: (1) The
lender and its affiliates collectively have made 2,500 or fewer
covered loans in the current calendar year and made 2,500 or fewer
covered loans in the preceding calendar year; and (2) during the
most recent completed tax year in which the lender was in
operation, if applicable, the lender and any affiliates that were
in operation and used the same tax year derived no more than 10
percent of their receipts from covered loans, or if the lender was
not in operation in a prior tax year, the lender reasonably
anticipates that the lender and any of its affiliates that use the
same tax year will, during the current tax year, derive no more
than 10 percent of their combined receipts from covered loans. For
example, assume a lender begins operation in January 2019, uses the
calendar year as its tax year, and has no affiliates. In 2019, the
lender could originate up to 2,500 covered loans that are not
subject to the requirements of this part if at the time of each
origination it reasonably anticipates that no more than 10 percent
of its receipts during the current tax year will derive from
covered loans. In 2020, the lender could originate up to 2,500
covered loans that are not subject to the requirements of this part
if the lender made 2,500 or fewer covered loans in 2019 and the
lender derived no more than 10 percent of its receipts in the 2019
tax year from covered loans. Section 1041.3(f) provides that
covered longer-term loans for which all transfers meet the
conditions in § 1041.8(a)(1)(ii), and receipts from such loans, are
not included for the purpose of determining whether the conditions
of § 1041.3(f)(1) and (2) have been satisfied. For example, a bank
that makes a covered longer-term loan using a loan agreement that
includes the conditions in § 1041.8(a)(1)(ii) does not need to
include that loan, or the receipts from that loan, in determining
whether it is below the 2,500 loan threshold or the 10 percent of
receipts threshold in § 1041.3(f)(1) and (2).
2. Reasonable anticipation of receipts for current tax
year. A lender and its affiliates can look to receipts to date
in forecasting their total receipts for the current tax year, but
are expected to make reasonable adjustments to account for an
upcoming substantial change in business plans or other relevant and
known factors.
Section 1041.7 - Identification of Unfair and Abusive Practice
1. General. A lender who complies with § 1041.8 with
regard to a covered loan has not committed the unfair and abusive
practice under § 1041.7.
Section 1041.8 - Prohibited Payment Transfer Attempts 8(a)
Definitions 8(a)(1) Payment Transfer
1. Lender-initiated. A lender-initiated debit or
withdrawal includes a debit or withdrawal initiated by the lender's
agent, such as a payment processor.
2. Any amount due. The following are examples of funds
transfers that are for the purpose of collecting any amount due in
connection with a covered loan:
i. A transfer for the amount of a scheduled payment due under a
loan agreement for a covered loan.
ii. A transfer for an amount smaller than the amount of a
scheduled payment due under a loan agreement for a covered
loan.
iii. A transfer for the amount of the entire unpaid loan balance
collected pursuant to an acceleration clause in a loan agreement
for a covered loan.
iv. A transfer for the amount of a late fee or other penalty
assessed pursuant to a loan agreement for a covered loan.
3. Amount purported to be due. A transfer for an amount
that the consumer disputes or does not legally owe is a payment
transfer if it otherwise meets the definition set forth in §
1041.8(a)(1).
4. Transfers of funds not initiated by the lender. A
lender does not initiate a payment transfer when:
i. A consumer, on her own initiative or in response to a request
or demand from the lender, makes a payment to the lender in cash
withdrawn by the consumer from the consumer's account.
ii. A consumer makes a payment via an online or mobile bill
payment service offered by the consumer's account-holding
institution.
iii. The lender seeks repayment of a covered loan pursuant to a
valid court order authorizing the lender to garnish a consumer's
account.
Paragraph 8(a)(1)(i)(A)
1. Electronic fund transfer. Any electronic fund transfer
meeting the general definition in § 1041.8(a)(1) is a payment
transfer, including but not limited to an electronic fund transfer
initiated by a debit card or a prepaid card.
Paragraph 8(a)(1)(i)(B)
1. Signature check. A transfer of funds by signature
check meeting the general definition in § 1041.8(a)(1) is a payment
transfer regardless of whether the transaction is processed through
the check network or through another network, such as the ACH
network. The following example illustrates this concept: A lender
processes a consumer's signature check through the check system to
collect a scheduled payment due under a loan agreement for a
covered loan. The check is returned for nonsufficient funds. The
lender then converts and processes the check through the ACH
system, resulting in a successful payment. Both transfers are
payment transfers, because both were initiated by the lender for
purposes of collecting an amount due in connection with a covered
loan.
Paragraph 8(a)(1)(i)(E)
1. Transfer by account-holding institution. Under §
1041.8(a)(1)(i)(E), when the lender is the account holder, a
transfer of funds by the account-holding institution from a
consumer's account held at the same institution is a payment
transfer if it meets the general definition in § 1041.8(a)(1)(i),
unless the transfer of funds meets the conditions in §
1041.8(a)(1)(ii) and is therefore excluded from the definition. See
§ 1041.8(a)(1)(ii) and related commentary.
2. Examples. Payment transfers initiated by an
account-holding institution from a consumer's account include, but
are not limited to, the following:
i. Initiating an internal transfer from a consumer's account to
collect a scheduled payment on a covered loan.
ii. Sweeping the consumer's account in response to a delinquency
on a covered loan.
iii. Exercising a right of offset to collect against an
outstanding balance on a covered loan.
Paragraph 8(a)(1)(ii) Conditional Exclusion for Certain Transfers
by Account-Holding Institutions
1. General. The exclusion in § 1041.8(a)(1)(ii) applies
only to a lender that is also the consumer's account-holding
institution. The exclusion applies only if the conditions in both §
1041.8(a)(1)(ii)(A) and (B) are met with respect to a particular
transfer of funds. A lender whose transfer meets the exclusion has
not committed the unfair and abusive practice under § 1041.7 and is
not subject to § 1041.8 or § 1041.9 in connection with that
transaction, but is subject to subpart C for any transfers that do
not meet the exclusion in § 1041.8(a)(1)(ii) and are therefore
payment transfers under § 1041.8(a)(1).
Paragraph 8(a)(1)(ii)(A)
1. Terms of loan agreement or account agreement. The
condition in § 1041.8(a)(1)(ii)(A) is met only if the terms of the
loan agreement or account agreement setting forth the restrictions
on charging fees are in effect at the time the covered loan is made
and remain in effect for the duration of the loan.
2. Fees prohibited. Examples of the types of fees
restricted under § 1041.8(a)(1)(ii)(A) include, but are not limited
to, nonsufficient fund fees, overdraft fees, and returned-item
fees. A lender seeking to initiate transfers of funds pursuant to
the exclusion in § 1041.8(a)(1)(ii) may still charge the consumer a
late fee for failure to make a timely payment, as permitted under
the terms of the loan agreement and other applicable law,
notwithstanding that the lender has initiated a transfer of funds
meeting the description in § 1041.8(a)(1)(ii)(A) in an attempt to
collect the payment.
Paragraph 8(a)(1)(ii)(B)
1. General. Under § 1041.8(a)(1)(ii)(B), to be eligible
for the exclusion in § 1041.8(a)(1)(ii), a lender may not close the
consumer's account in response to a negative balance that results
from a lender-initiated transfer of funds in connection with the
covered loan. A lender is not restricted from closing the
consumer's account in response to another event, even if the event
occurs after a lender-initiated transfer of funds has brought the
account to a negative balance. For example, a lender may close the
account at the consumer's request, for purposes of complying with
other regulatory requirements, or to protect the account from
suspected fraudulent use or unauthorized access, and still meet the
condition in § 1041.8(a)(1)(ii)(B).
2. Terms of loan agreement or account agreement. The
condition in § 1041.8(a)(1)(ii)(B) is met only if the terms of the
loan agreement or account agreement providing that the lender will
not close the account in the specified circumstances are in effect
at the time the covered loan is made and remain in effect for the
duration of the loan.
8(a)(2) Single Immediate Payment Transfer at the Consumer's Request
Paragraph 8(a)(2)(i)
1. Time of initiation. A one-time electronic fund
transfer is initiated at the time that the transfer is sent out of
the lender's control. Thus, the electronic fund transfer is
initiated at the time that the lender or its agent sends the
transfer to be processed by a third party, such as the lender's
bank. The following example illustrates this concept: A lender
obtains a consumer's authorization for a one-time electronic fund
transfer at 2 p.m. and sends the payment entry to its agent, a
payment processor, at 5 p.m. on the same day. The agent then sends
the payment entry to the lender's bank for further processing the
next business day at 8 a.m. The timing condition in §
1041.8(a)(2)(ii) is satisfied, because the lender's agent sent the
transfer out of its control within one business day after the
lender obtained the consumer's authorization.
Paragraph 8(a)(2)(ii)
1. Time of processing. A signature check is processed at
the time that the check is sent out of the lender's control. Thus,
the check is processed at the time that the lender or its agent
sends the check to be processed by a third party, such as the
lender's bank. For an example illustrating this concept within the
context of initiating a one-time electronic fund transfer, see
comment 8(a)(2)(i)-1.
2. Check provided by mail. For purposes of §
1041.8(a)(2)(ii), if the consumer provides the check by mail, the
check is deemed to be provided on the date that the lender receives
it.
8(b) Prohibition on Initiating Payment Transfers From a Consumer's
Account After Two Consecutive Failed Payment Transfers
1. General. When the prohibition in § 1041.8(b) applies,
a lender is generally restricted from initiating any further
payment transfers from the consumer's account in connection with
any covered loan that the consumer has with the lender at the time
the prohibition is triggered, unless the requirements and
conditions in either § 1041.8(c) or (d) are satisfied for each such
covered loan for which the lender seeks to initiate further payment
transfers. The prohibition applies, for example, to payment
transfers that might otherwise be initiated to collect payments
that later fall due under a loan agreement for a covered loan and
to transfers to collect late fees or returned item fees as
permitted under the terms of such a loan agreement. In addition,
the prohibition applies regardless of whether the lender holds an
otherwise valid authorization or instrument from the consumer,
including but not limited to an authorization to collect payments
by preauthorized electronic fund transfers or a post-dated check.
See § 1041.8(c) and (d) and accompanying commentary for guidance on
the requirements and conditions that a lender must satisfy to
initiate a payment transfer from a consumer's account after the
prohibition applies.
2. Account. The prohibition in § 1041.8(b) applies only
to the account from which the lender attempted to initiate the two
consecutive failed payment transfers.
3. More than one covered loan. The prohibition in §
1041.8(b) is triggered after the lender has attempted to initiate
two consecutive failed payment transfers in connection with any
covered loan or covered loans that the consumer has with the
lender. Thus, when a consumer has more than one covered loan with
the lender, the two consecutive failed payment transfers need not
be initiated in connection with the same loan in order for the
prohibition to be triggered, but rather can be initiated in
connection with two different loans. For example, the prohibition
is triggered if the lender initiates the first failed payment
transfer to collect payment on one covered loan and the second
consecutive failed payment transfer to collect payment on a
different covered loan, assuming that the conditions for a first
failed payment transfer, in § 1041.8(b)(2)(i), and second
consecutive failed transfer, in § 1041.8(b)(2)(ii), are met.
4. Application to bona fide subsequent loan. If a lender
triggers the prohibition in § 1041.8(b), the lender is not
prohibited under § 1041.8(b) from initiating a payment transfer in
connection with a bona fide subsequent covered loan that was
originated after the prohibition was triggered, provided that the
lender has not attempted to initiate two consecutive failed payment
transfers from the consumer's account in connection with the bona
fide subsequent covered loan. For purposes of § 1041.8(b) only, a
bona fide subsequent covered loan does not include a covered loan
that refinances or rolls over any covered loan that the consumer
has with the lender at the time the prohibition is triggered.
8(b)(1) General
1. Failed payment transfer. A payment transfer results in
a return indicating that the consumer's account lacks sufficient
funds when it is returned unpaid, or is declined, due to
nonsufficient funds in the consumer's account.
2. Date received. The prohibition in § 1041.8(b) applies
as of the date on which the lender or its agent, such as a payment
processor, receives the return of the second consecutive failed
transfer or, if the lender is the consumer's account-holding
institution, the date on which the second consecutive failed
payment transfer is initiated.
3. Return for other reason. A transfer that results in a
return for a reason other than a lack of sufficient funds, such as
a return made due to an incorrectly entered account number, is not
a failed transfer for purposes of § 1041.8(b).
4. Failed payment transfer initiated by a lender that is the
consumer's account-holding institution. When a lender that is
the consumer's account-holding institution initiates a payment
transfer for an amount that the account lacks sufficient funds to
cover, the payment transfer is a failed payment transfer for
purposes of the prohibition in § 1041.8(b), regardless of whether
the result is classified or coded in the lender's internal
procedures, processes, or systems as a return for nonsufficient
funds or, if applicable, regardless of whether the full amount of
the payment transfer is paid out of overdraft. Such a lender does
not initiate a failed payment transfer for purposes of the
prohibition if the lender merely defers or foregoes debiting or
withdrawing payment from an account based on the lender's
observation that the account lacks sufficient funds.
8(b)(2) Consecutive Failed Payment Transfers 8(b)(2)(i) First
Failed Payment Transfer
1. Examples. The following examples illustrate concepts
of first failed payment transfers under § 1041.8(b)(2)(i). All of
the examples assume that the consumer has only one covered loan
with the lender:
i. A lender, having made no other attempts, initiates an
electronic fund transfer to collect the first scheduled payment due
under a loan agreement for a covered loan, which results in a
return for nonsufficient funds. The failed transfer is the first
failed payment transfer. The lender, having made no attempts in the
interim, re-presents the electronic fund transfer and the
re-presentment results in the collection of the full payment.
Because the subsequent attempt did not result in a return for
nonsufficient funds, the number of consecutive failed payment
transfers resets to zero. The following month, the lender initiates
an electronic fund transfer to collect the second scheduled payment
due under the covered loan agreement, which results in a return for
nonsufficient funds. That failed transfer is a first failed payment
transfer.
ii. A storefront lender, having made no prior attempts,
processes a consumer's signature check through the check system to
collect the first scheduled payment due under a loan agreement for
a covered loan. The check is returned for nonsufficient funds. This
constitutes the first failed payment transfer. The lender does not
thereafter convert and process the check through the ACH system, or
initiate any other type of payment transfer, but instead contacts
the consumer. At the lender's request, the consumer comes into the
store and makes the full payment in cash withdrawn from the
consumer's account. The number of consecutive failed payment
transfers remains at one, because the consumer's cash payment was
not a payment transfer as defined in § 1041.8(a)(2).
8(b)(2)(ii) Second Consecutive Failed Payment Transfer
1. General. Under § 1041.8(b)(2)(ii), a failed payment
transfer is the second consecutive failed transfer if the previous
payment transfer was a first failed payment transfer. The following
examples illustrate this concept:
i. Assume that a consumer has only one covered loan with a
lender. The lender, having initiated no other payment transfer in
connection with the covered loan, initiates an electronic fund
transfer to collect the first scheduled payment due under the loan
agreement. The transfer is returned for nonsufficient funds. The
returned transfer is the first failed payment transfer. The lender
next initiates an electronic fund transfer for the following
scheduled payment due under the loan agreement for the covered
loan, which is also returned for nonsufficient funds. The second
returned transfer is the second consecutive failed payment
transfer.
ii. Assume that a consumer has two covered loans, Loan A and
Loan B, with a lender. Further assume that the lender has initiated
no failed payment transfers in connection with either covered loan.
On the first of the month, the lender initiates an electronic fund
transfer to collect a regularly scheduled payment on Loan A,
resulting in a return for nonsufficient funds. The returned
transfer is the first failed payment transfer. Two weeks later, the
lender, having initiated no further payment transfers in connection
with either covered loan, initiates an electronic fund transfer to
collect a regularly scheduled payment on Loan B, also resulting in
a return for nonsufficient funds. The second returned transfer is
the second consecutive failed payment transfer, and the lender is
thus prohibited under § 1041.8(b) from initiating further payment
transfers in connection with either covered loan.
2. Previous payment transfer. Section 1041.8(b)(2)(ii)
provides that a previous payment transfer includes a payment
transfer initiated at the same time or on the same day as the first
failed payment transfer. The following example illustrates how this
concept applies in determining whether the prohibition in §
1041.8(b) is triggered: Assume that a consumer has only one covered
loan with a lender. The lender has made no other payment transfers
in connection with the covered loan. On Monday at 9 a.m., the
lender initiates two electronic fund transfers to collect the first
scheduled payment under the loan agreement, each for half of the
total amount due. Both transfers are returned for nonsufficient
funds. Because each transfer is one of two failed transfers
initiated at the same time, the lender has initiated a second
consecutive failed payment transfer under § 1041.8(b)(2)(ii), and
the prohibition in § 1041.8(b) is therefore triggered.
3. Application to exception in § 1041.8(d). When, after a
second consecutive failed payment transfer, a lender initiates a
single immediate payment transfer at the consumer's request
pursuant to the exception in § 1041.8(d), the failed transfer count
remains at two, regardless of whether the transfer succeeds or
fails. Further, the exception is limited to a single payment
transfer. Accordingly, if a payment transfer initiated pursuant to
the exception fails, the lender is not permitted to re-initiate the
transfer, such as by re-presenting it through the ACH system,
unless the lender obtains a new authorization under § 1041.8(c) or
(d).
8(b)(2)(iii) Different Payment Channel
1. General. Section 8(b)(2)(iii) provides that if a
failed payment transfer meets the descriptions set forth in §
1041.8(b)(2)(ii), it is the second consecutive failed transfer
regardless of whether the first failed transfer was made through a
different payment channel. The following example illustrates this
concept: A lender initiates an electronic funds transfer through
the ACH system for the purpose of collecting the first payment due
under a loan agreement for a covered loan. The transfer results in
a return for nonsufficient funds. This constitutes the first failed
payment transfer. The lender next processes a remotely created
check through the check system for the purpose of collecting the
same first payment due. The remotely created check is returned for
nonsufficient funds. The second failed attempt is the second
consecutive failed attempt because it meets the description set
forth in § 1041.8(b)(2)(ii).
8(c) Exception for Additional Payment Transfers Authorized by the
Consumer
1. General. Section 1041.8(c) sets forth one of two
exceptions to the prohibition in § 1041.8(b). Under the exception
in § 1041.8(c), a lender is permitted to initiate additional
payment transfers from a consumer's account after the lender's
second consecutive transfer has failed if the additional transfers
are authorized by the consumer in accordance with certain
requirements and conditions as specified in the rule. In addition
to the exception under § 1041.8(c), a lender is permitted to
execute a single immediate payment transfers at the consumer's
request under § 1041.8(d), if certain requirements and conditions
are satisfied.
8(c)(1) General
1. Consumer's underlying payment authorization or instrument
still required. The consumer's authorization required by §
1041.8(c) is in addition to, and not in lieu of, any separate
payment authorization or instrument required to be obtained from
the consumer under applicable laws.
8(c)(2) General Authorization Requirements and Conditions
8(c)(2)(i) Required Payment Transfer Terms
1. General. Section 1041.8(c)(2)(i) sets forth the
general requirement that, for purposes of the exception in §
1041.8(c), the specific date, amount, and payment channel of each
additional payment transfer must be authorized by the consumer,
subject to a limited exception in § 1041.8(c)(2)(iii) for payment
transfers solely to collect a late fee or returned item fee.
Accordingly, for the exception to apply to an additional payment
transfer, the transfer's specific date, amount, and payment channel
must be included in the signed authorization obtained from the
consumer under § 1041.8(c)(3)(iii). For guidance on the
requirements and conditions that apply when obtaining the
consumer's signed authorization, see § 1041.8(c)(3)(iii) and
accompanying commentary.
2. Specific date. The requirement that the specific date
of each additional payment transfer be authorized by the consumer
is satisfied if the consumer authorizes the month, day, and year of
each transfer.
3. Amount larger than specific amount. The exception in §
1041.8(c)(2) does not apply if the lender initiates a payment
transfer for an amount larger than the specific amount authorized
by the consumer. Accordingly, such a transfer would violate the
prohibition on additional payment transfers under § 1041.8(b).
4. Smaller amount. A payment transfer initiated pursuant
to § 1041.8(c) is initiated for the specific amount authorized by
the consumer if its amount is equal to or smaller than the
authorized amount.
8(c)(2)(iii) Special Authorization Requirements and Conditions for
Payment Transfers To Collect a Late Fee or Returned Item Fee
1. General. If a lender obtains the consumer's
authorization to initiate a payment transfer solely to collect a
late fee or returned item fee in accordance with the requirements
and conditions under § 1041.8(c)(2)(iii), the general requirement
in § 1041.8(c)(2) that the consumer authorize the specific date and
amount of each additional payment transfer need not be
satisfied.
2. Highest amount. The requirement that the consumer's
signed authorization include a statement that specifies the highest
amount that may be charged for a late fee or returned item fee is
satisfied, for example, if the statement specifies the maximum
amount permitted under the loan agreement for a covered loan.
3. Varying fee amounts. If a fee amount may vary due to
the remaining loan balance or other factors, the rule requires the
lender to assume the factors that result in the highest amount
possible in calculating the specified amount.
8(c)(3) Requirements and Conditions for Obtaining the Consumer's
Authorization 8(c)(3)(ii) Provision of Payment Transfer Terms to
the Consumer
1. General. A lender is permitted under §
1041.8(c)(3)(ii) to request a consumer's authorization on or after
the day that the lender provides the consumer rights notice
required by § 1041.9(c). For the exception in § 1041.8(c) to apply,
however, the consumer's signed authorization must be obtained no
earlier than the date on which the consumer is considered to have
received the consumer rights notice, as specified in §
1041.8(c)(3)(iii).
2. Different options. Nothing in § 1041.8(c)(3)(ii)
prohibits a lender from providing different options for the
consumer to consider with respect to the date, amount, or payment
channel of each additional payment transfer for which the lender is
requesting authorization. In addition, if a consumer declines a
request, nothing in § 1041.8(c)(3)(ii) prohibits a lender from
making a follow-up request by providing a different set of terms
for the consumer to consider. For example, if the consumer declines
an initial request to authorize two recurring payment transfers for
a particular amount, the lender may make a follow-up request for
the consumer to authorize three recurring payment transfers for a
smaller amount.
Paragraph 8(c)(3)(ii)(A)
1. Request by email. Under § 1041.8(c)(3)(ii)(A), a
lender is permitted to provide the required terms and statement to
the consumer in writing or in a retainable form by email if the
consumer has consented to receive electronic disclosures in that
manner under § 1041.9(a)(4) or agrees to receive the terms and
statement by email in the course of a communication initiated by
the consumer in response to the consumer rights notice required by
§ 1041.9(c). The following example illustrates a situation in which
the consumer agrees to receive the required terms and statement by
email after affirmatively responding to the notice:
i. After a lender provides the consumer rights notice in §
1041.9(c) by mail to a consumer who has not consented to receive
electronic disclosures under § 1041.9(a)(4), the consumer calls the
lender to discuss her options for repaying the loan, including the
option of authorizing additional payment transfers pursuant to §
1041.8(c). In the course of the call, the consumer asks the lender
to provide the request for the consumer's authorization via email.
Because the consumer has agreed to receive the request via email in
the course of a communication initiated by the consumer in response
to the consumer rights notice, the lender is permitted under §
1041.8(c)(3)(ii)(A) to provide the request to the consumer by that
method.
2. E-Sign Act does not apply to provision of terms and
statement. The required terms and statement may be provided to
the consumer electronically in accordance with the requirements for
requesting the consumer's authorization in § 1041.8(c)(3) without
regard to the E-Sign Act. However, under § 1041.8(c)(3)(iii)(A), an
authorization obtained electronically is valid only if it is signed
or otherwise agreed to by the consumer in accordance with the
signature requirements in the E-Sign Act. See §
1041.8(c)(3)(iii)(A) and comment 8(c)(3)(iii)(A)-1.
3. Same communication. Nothing in § 1041.8(c)(3)(ii)
prohibits a lender from requesting the consumer's authorization for
additional payment transfers and providing the consumer rights
notice in the same communication, such as a single written mailing
or a single email to the consumer. Nonetheless, the consumer rights
notice may be provided to the consumer only in accordance with the
requirements and conditions in § 1041.9, including but not limited
to the segregation requirements that apply to the notice. Thus, for
example, if a lender mails the request for authorization and the
notice to the consumer in the same envelope, the lender must
provide the notice on a separate piece of paper, as required under
§ 1041.9. Similarly, a lender could provide the notice to a
consumer in the body of an email and attach a document containing
the request for authorization. In such cases, it would be
permissible for the lender to add language after the text of the
notice explaining that the other document is a request for a new
authorization.
Paragraph 8(c)(3)(ii)(B)
1. Request by oral telephone communication. Nothing in §
1041.8(c)(3)(ii) prohibits a lender from contacting the consumer by
telephone to discuss repayment options, including the option of
authorizing additional payment transfers. However, under §
1041.8(c)(3)(ii)(B), a lender is permitted to provide the required
terms and statement to the consumer by oral telephone communication
for purposes of requesting authorization only if the consumer
affirmatively contacts the lender in that manner in response to the
consumer rights notice required by § 1041.9(c) and agrees to
receive the terms and statement by that method of delivery in the
course of, and as part of, the same communication.
8(c)(3)(iii) Signed Authorization Required 8(c)(3)(iii)(A) General
1. E-Sign Act signature requirements. For authorizations
obtained electronically, the requirement that the authorization be
signed or otherwise agreed to by the consumer is satisfied if the
E-Sign Act requirements for electronic records and signatures are
met. Thus, for example, the requirement is satisfied by an email
from the consumer or by a code entered by the consumer into the
consumer's telephone keypad, assuming that in each case the
signature requirements in the E-Sign Act are complied with.
2. Consumer's affirmative response to the notice. A
consumer affirmatively responds to the consumer rights notice that
was provided by mail when, for example, the consumer calls the
lender on the telephone to discuss repayment options after
receiving the notice.
8(c)(3)(iii)(C) Memorialization Required
1. Timing. The memorialization is deemed to be provided
to the consumer on the date it is mailed or transmitted.
2. Form of memorialization. The requirement that the
memorialization be provided in a retainable form is not satisfied
by a copy of a recorded telephone call, notwithstanding that the
authorization was obtained in that manner.
3. Electronic delivery. A lender is permitted under §
1041.8(c)(3)(iii)(C) to provide the memorialization to the consumer
by email in accordance with the requirements and conditions for
requesting authorization in § 1041.8(c)(3)(ii)(A), regardless of
whether the lender requested the consumer's authorization in that
manner. For example, if the lender requested the consumer's
authorization by telephone but also has obtained the consumer's
consent to receive electronic disclosures by email under §
1041.9(a)(4), the lender may provide the memorialization to the
consumer by email, as specified in § 1041.8(c)(3)(ii)(A).
8(d) Exception for Initiating a Single Immediate Payment Transfer
at the Consumer's Request
1. General. For guidance on the requirements and
conditions that must be satisfied for a payment transfer to meet
the definition of a single immediate payment transfer at the
consumer's request, see § 1041.8(a)(2) and accompanying
commentary.
2. Application of prohibition. A lender is permitted
under the exception in § 1041.8(d) to initiate a single payment
transfer requested by the consumer only once and thus is prohibited
under § 1041.8(b) from re-initiating the payment transfer if it
fails, unless the lender subsequently obtains the consumer's
authorization to re-initiate the payment transfer under § 1041.8(c)
or (d). However, a lender is permitted to initiate any number of
payment transfers from a consumer's account pursuant to the
exception in § 1041.8(d), provided that the requirements and
conditions are satisfied for each such transfer. See comment
8(b)(2)(ii)-3 for further guidance on how the prohibition in §
1041.8(b) applies to the exception in § 1041.8(d).
3. Timing. A consumer affirmatively contacts the lender
when, for example, the consumer calls the lender after noticing on
her bank statement that the lender's last two payment withdrawal
attempts have been returned for nonsufficient funds.
8(e) Prohibition Against Evasion
1. General. Section 1041.8(e) provides that a lender must
not take any action with the intent of evading the requirements of
§ 1041.8. In determining whether a lender has taken action with the
intent of evading the requirements of § 1041.8, the form,
characterization, label, structure, or written documentation of the
lender's action shall not be dispositive. Rather, the actual
substance of the lender's action as well as other relevant facts
and circumstances will determine whether the lender's action was
taken with the intent of evading the requirements of § 1041.8. If
the lender's action is taken solely for legitimate business
purposes, it is not taken with the intent of evading the
requirements of § 1041.8. By contrast, if a consideration of all
relevant facts and circumstances reveals a purpose that is not a
legitimate business purpose, the lender's action may have been
taken with the intent of evading the requirements of § 1041.8. A
lender action that is taken with the intent of evading the
requirements of this part may be knowing or reckless. Fraud,
deceit, or other unlawful or illegitimate activity may be one fact
or circumstance that is relevant to the determination of whether a
lender's action was taken with the intent of evading the
requirements of § 1041.8, but fraud, deceit, or other unlawful or
illegitimate activity is not a prerequisite to such a finding.
2. Illustrative example. A lender collects payment on its
covered loans primarily through recurring electronic fund transfers
authorized by consumers at consummation. As a matter of lender
policy and practice, after a first attempt to initiate an ACH
payment transfer from a consumer's account for the full payment
amount is returned for nonsufficient funds, the lender initiates a
second payment transfer from the account on the following day for
$1.00. If the second payment transfer succeeds, the lender
immediately splits the amount of the full payment into two separate
payment transfers and initiates both payment transfers from the
account at the same time, resulting in two returns for
nonsufficient funds in the vast majority of cases. The lender
developed the policy and began the practice shortly prior to August
19, 2019. The lender's prior policy and practice when re-presenting
the first failed payment transfer was to re-present for the
payment's full amount. Depending on the relevant facts and
circumstances, the lender's actions may have been taken with the
intent of evading the requirements of § 1041.8. Specifically, by
initiating a second payment transfer for $1.00 from the consumer's
account the day after a first transfer for the full payment amount
fails and, if that payment transfer succeeds, initiating two
simultaneous payment transfers from the account for the split
amount of the full payment, resulting in two returns for
nonsufficient funds in the vast majority of cases, the lender
avoided the prohibition in § 1041.8(b) on initiating payment
transfers from a consumer's account after two consecutive payment
transfers have failed.
Section 1041.9 - Disclosure of Payment Transfer Attempts
1. General. Section 1041.9 sets forth two main disclosure
requirements related to collecting payments from a consumer's
account in connection with a covered loan. The first, set forth in
§ 1041.9(b), is a payment notice required to be provided to a
consumer in advance of a initiating the first payment withdrawal or
an unusual withdrawal from the consumer's account, subject to
certain exceptions. The second, set forth in § 1041.9(c), is a
consumer rights notice required to be provided to a consumer after
a lender receives notice of a second consecutive failed payment
transfer from the consumer's account, as described in § 1041.8(b).
In addition, § 1041.9 requires lenders to provide an electronic
short notice in two situations when they are providing the
disclosures required by this section through certain forms of
electronic delivery. The first, set forth in § 1041.9(b)(4), is an
electronic short notice that must be provided along with the
payment notice. This provision allows an exception for when the
method of electronic delivery is email; for that method, the lender
may use the electronic short notice under § 1041.9(b)(4)(ii) or may
provide the full notice within the body of the email. The second,
set forth in § 1041.9(c)(4), is an electronic short notice that
must be provided along with the consumer rights notice. As with the
payment notices, this consumer rights notice provision also allows
an exception for when the method of electronic delivery is email;
for that method, the lender may use the electronic short notice
under § 1041.9(c)(4)(ii) or may provide the full notice within the
body of the email.
9(a) General Form of Disclosures 9(a)(1) Clear and Conspicuous
1. Clear and conspicuous standard. Disclosures are clear
and conspicuous for purposes of § 1041.9 if they are readily
understandable and their location and type size are readily
noticeable to consumers.
9(a)(2) In Writing or Electronic Delivery
1. Electronic delivery. Section 1041.9(a)(2) allows the
disclosures required by § 1041.9 to be provided through electronic
delivery as long as the requirements of § 1041.9(a)(4) are
satisfied, without regard to the Electronic Signatures in Global
and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et
seq.).
9(a)(3) Retainable
1. General. Electronic disclosures, to the extent
permitted by § 1041.9(a)(4), are retainable for purposes of §
1041.9 if they are in a format that is capable of being printed,
saved, or emailed by the consumer. The general requirement to
provide disclosures in a retainable form does not apply when the
electronic short notices are provided in via mobile application or
text message. For example, the requirement does not apply to an
electronic short notice that is provided to the consumer's mobile
telephone as a text message. In contrast, if the access is provided
to the consumer via email, the notice must be in a retainable form,
regardless of whether the consumer uses a mobile telephone to
access the notice.
9(a)(4) Electronic Delivery
1. General. Section 1041.9(a)(4) permits disclosures
required by § 1041.9 to be provided through electronic delivery if
the consumer consent requirements under § 1041.9(a)(4) are
satisfied.
9(a)(4)(i) Consumer Consent 9(a)(4)(i)(A) General
1. General. Section 1041.9(a)(4)(i) permits disclosures
required by § 1041.9 to be provided through electronic delivery if
the lender obtains the consumer's affirmative consent to receive
the disclosures through a particular electronic delivery method.
This affirmative consent requires lenders to provide consumers with
an option to select a particular electronic delivery method. The
consent must clearly show the method of electronic delivery that
will be used, such as email, text message, or mobile application.
Consent provided by checking a box during the origination process
may qualify as being in writing. Consent can be obtained for
multiple methods of electronic delivery, but the consumer must have
affirmatively selected and provided consent for each method.
9(a)(4)(i)(B) Email Option Required
1. General. Section § 1041.9(a)(4)(i)(B) provides that
when obtaining consumer consent to electronic delivery under §
1041.9(a)(4), a lender must provide the consumer with an option to
receive the disclosures through email. The lender may choose to
offer email as the only method of electronic delivery under §
1041.9(a)(4).
9(a)(4)(ii) Subsequent Loss of Consent
1. General. The prohibition on electronic delivery of
disclosures in § 1041.9(a)(4)(ii) applies to the particular
electronic method for which consent is lost. When a lender loses a
consumer's consent to receive disclosures via text message, for
example, but has not lost the consumer's consent to receive
disclosures via email, the lender may continue to provide
disclosures via email, assuming that all of the requirements in §
1041.9(a)(4) are satisfied.
2. Loss of consent applies to all notices. The loss of
consent applies to all notices required by § 1041.9. For example,
if a consumer revokes consent in response to the electronic short
notice text message delivered along with the payment notice under §
1041.9(b)(4)(ii), that revocation also applies to text delivery of
the electronic short notice that would be delivered with the
consumer rights notice under § 1041.9(c)(4)(ii).
Paragraph 9(a)(4)(ii)(A)
1. Revocation. For purposes of § 1041.9(a)(4)(ii)(A), a
consumer may revoke consent for any reason and by any reasonable
means of communication. Reasonable means of communication may
include calling the lender and revoking consent orally, mailing a
revocation to an address provided by the lender on its consumer
correspondence, sending an email response or clicking on a
revocation link provided in an email from the lender, and
responding by text message to a text message sent by the
lender.
Paragraph 9(a)(4)(ii)(B)
1. Notice. A lender receives notification for purposes of
§ 1041.9(a)(4)(ii)(B) when the lender receives any information
indicating that the consumer did not receive or is unable to
receive disclosures in a particular electronic manner. Examples of
notice include but are not limited to the following:
i. An email returned with a notification that the consumer's
account is no longer active or does not exist.
ii. A text message returned with a notification that the
consumer's mobile telephone number is no longer in service.
iii. A statement from the consumer that the consumer is unable
to access or review disclosures through a particular electronic
delivery method.
9(a)(5) Segregation Requirements for Notices
1. Segregated additional content. Although segregated
additional content that is not required by § 1041.9 may not appear
above, below, or around the required content, additional content
may be delivered through a separate form, such as a separate piece
of paper or Web page.
9(a)(7) Model Forms
1. Safe harbor provided by use of model forms. Although
the use of the model forms and clauses is not required, lenders
using them will be deemed to be in compliance with the disclosure
requirement with respect to such model forms.
9(b) Payment Notice 9(b)(1)(i) First Payment Withdrawal
1. First payment withdrawal. Depending on when the
payment authorization granted by the consumer is obtained on a
covered loan and whether the exception for a single immediate
payment transfer made at the consumer's request applies, the first
payment withdrawal may or may not be the first payment made on a
covered loan. When a lender obtains payment authorization during
the origination process, the lender may provide the first payment
withdrawal notice at that time. A lender that obtains payment
authorization after a payment has been made by the consumer in
cash, or after initiating a single immediate payment transfer at
the consumer's request, would deliver the notice later in the loan
term. If a consumer provides one payment authorization that the
lender uses to initiate a first payment withdrawal after a notice
as required by § 1041.9(b)(1)(i), but the consumer later changes
the authorization or provides an additional authorization, the
lender's exercise of that new authorization would not be the first
payment withdrawal; however, it may be an unusual withdrawal under
§ 1041.9(b)(1)(ii).
2. First payment withdrawal is determined when the loan is in
covered status. As discussed in comment 3(b)(3)-3, there may be
situations where a longer-term loan is not covered at the time of
origination but becomes covered at a later date. The lender's first
attempt to execute a payment transfer after a loan becomes a
covered loan under this part is the first payment withdrawal. For
example, consider a loan that is not considered covered at the time
of origination. If the lender initiates a payment withdrawal during
the first and second billing cycles and the loan becomes covered at
the end of the second cycle, any lender initiated payment during
the third billing cycle is considered a first payment withdrawal
under this section.
3. Intervening payments. Unscheduled intervening payments
do not change the determination of first payment withdrawal for
purposes of the notice requirement. For example, a lender
originates a loan on April 1, with a payment scheduled to be
withdrawn on May 1. At origination, the lender provides the
consumer with a first payment withdrawal notice for May 1. On April
28, the consumer makes the payment due on May 1 in cash. The lender
does not initiate a withdrawal on May 1. The lender initiates a
withdrawal for the next scheduled payment June 1. The lender
satisfied its notice obligation with the notice provided at
origination, so it is not required to send a first payment notice
in connection with the June 1 payment although it may have to send
an unusual payment notice if the transfer meets one of the
conditions in § 1041.9(b)(3)(ii)(C).
9(b)(1)(iii) Exceptions
1. Exception for initial payment transfer applies even if the
transfer is unusual. The exception in § 1041.9(b)(1)(iii)(A)
applies even if the situation would otherwise trigger the
additional disclosure requirements for unusual attempts under §
1041.9(b)(3). For example, if the payment channel of the initial
payment transfer after obtaining the consumer's consent is
different than the payment channel used before the prohibition
under § 1041.8 was triggered, the exception in §
1041.9(b)(1)(iii)(A) applies.
2. Multiple transfers in advance. If a consumer has
affirmatively consented to multiple transfers in advance, the
exception in § 1041.9(b)(1)(iii)(A) applies only to the first
initial payment transfer of that series.
9(b)(2) First Payment Withdrawal Notice 9(b)(2)(i) Timing
1. When the lender obtains payment authorization. For all
methods of delivery, the earliest point that the lender may provide
the first payment withdrawal notice is when the lender obtains the
payment authorization. For example, the notice can be provided
simultaneously when the lender provides a consumer with a copy of a
completed payment authorization, or after providing the
authorization copy. The provision allows the lender to provide
consumers with the notice at a convenient time because the lender
and consumer are already communicating about the loan, but also
allows flexibility for lenders that prefer to provide the notice
closer to the payment transfer date. For example, the lender could
obtain consumer consent to electronic delivery and deliver the
notice through email 4 days before initiating the transfer, or the
lender could hand deliver it to the consumer at the end of the loan
origination process.
9(b)(2)(i)(A) Mail
1. General. The six business-day period begins when the
lender places the notice in the mail, not when the consumer
receives the notice. For example, if a lender places the notice in
the mail on Monday, June 1, the lender may initiate the transfer of
funds on Tuesday, June 9, if it is the 6th business day following
mailing of the notice.
9(b)(2)(i)(B) Electronic Delivery Paragraph 9(b)(2)(i)(B)(1)
1. General. The three-business-day period begins when the
lender sends the notice, not when the consumer receives or is
deemed to have received the notice. For example, if a lender sends
the notice by email on Monday, June 1, the lender may initiate the
transfer of funds on Thursday, June 4, the third business day
following transmitting the notice.
Paragraph 9(b)(2)(i)(B)(2)
1. General. In some circumstances, a lender may lose a
consumer's consent to receive disclosures through a particular
electronic delivery method after the lender has provided the
notice. In such circumstances, the lender may initiate the transfer
for the payment currently due as scheduled. If the lender is
scheduled to make a future unusual withdrawal attempt following the
one that was disclosed in the previously provided first withdrawal
notice, the lender must provide notice for that unusual withdrawal
through alternate means, in accordance with the applicable timing
requirements in § 1041.9(b)(3)(i).
2. Alternate Means. The alternate means may include a
different electronic delivery method that the consumer has
consented to, in person, or by mail, in accordance with the
applicable timing requirements in § 1041.9(b)(3)(i).
9(b)(2)(ii) Content Requirements 9(b)(2)(ii)(B) Transfer Terms
Paragraph 9(b)(2)(ii)(B)(1) Date
1. Date. The initiation date is the date that the payment
transfer is sent outside of the lender's control. Accordingly, the
initiation date of the transfer is the date that the lender or its
agent sends the payment to be processed by a third party. For
example, if a lender sends its ACH payments to a payment processor
working on the lender's behalf on Monday, June 1, but the processor
does not submit them to its bank and the ACH network until Tuesday,
June 2, the date of the payment transfer is Tuesday the 2nd.
Paragraph 9(b)(2)(ii)(B)(2) Amount
1. Amount. The amount of the transfer is the total amount
of money that will be transferred from the consumer's account,
regardless of whether the total corresponds to the amount of a
regularly scheduled payment. For example, if a single transfer will
be initiated for the purpose of collecting a regularly scheduled
payment of $50.00 and a late fee of $30.00, the amount that must be
disclosed under § 1041.9(b)(2)(ii)(B)(2) is $80.00.
Paragraph 9(b)(2)(ii)(B)(5) Payment Channel
1. General. Payment channel refers to the specific
payment method, including the network that the transfer will travel
through and the form of the transfer. For example, a lender that
uses the consumer's paper check information to initiate a payment
transfer through the ACH network would use the ACH payment channel
under § 1041.9(b)(2)(ii)(B)(5). A lender that uses consumer
account and routing information to initiate a remotely created
check over the check network would use the remotely created check
payment channel. A lender that uses a post-dated signature check to
initiate a transfer over the check network would use the signature
check payment channel. A lender that initiates a payment from a
consumer's prepaid card would specify whether that payment is
processed as an ACH transfer, a PIN debit card network payment, or
a signature debit card network payment.
2. Illustrative examples. In describing the payment
channel in the disclosure, the most common payment channel
descriptions include, but are not limited to, ACH transfers,
checks, remotely created checks, remotely created payment orders,
internal transfers, PIN debit card payments, and signature debit
card network payments.
9(b)(2)(ii)(C) Payment Breakdown 9(b)(2)(ii)(C)(2) Principal
1. General. The amount of the payment that is applied to
principal must always be included in the payment breakdown table,
even if the amount applied is $0.
9(b)(2)(ii)(C)(4) Fees
1. General. This field must only be provided if some of
the payment amount will be applied to fees. In situations where
more than one fee applies, fees may be disclosed separately or
aggregated. A lender may use its own term to describe the fee, such
as “late payment fee.”
9(b)(2)(ii)(C)(5) Other Charges
1. General. This field must only be provided if some of
the payment amount will be applied to other charges. In situations
when more than one other charge applies, other charges may be
disclosed separately or aggregated. A lender may use its own term
to describe the charge, such as “insurance charge.”
9(b)(3) Unusual Withdrawal Notice 9(b)(3)(i) Timing
1. General. See comments on 9(b)(2) regarding the first
payment withdrawal notice.
9(b)(3)(ii) Content Requirements
1. General. If the payment transfer is unusual according
to the circumstances described in § 1041.9(b)(3)(ii)(C), the
payment notice must contain both the basic payment information
required by § 1041.9(b)(2)(ii)(B) through (D) and the description
of unusual withdrawal required by § 1041.9(b)(3)(ii)(C).
9(b)(3)(ii)(C) Description of Unusual Withdrawal
1. General. An unusual withdrawal notice is required
under § 1041.9(b)(3) if one or more conditions are present. The
description of an unusual withdrawal informs the consumer of the
condition that makes the pending payment transfer unusual.
2. Illustrative example. The lender provides a first
payment withdrawal notice at origination. The first payment
withdrawal initiated by the lender occurs on March 1, for $75, as a
paper check. The second payment is scheduled for April 1, for $75,
as an ACH transfer. Before the second payment, the lender provides
an unusual withdrawal notice. The notice contains the basic payment
information along with an explanation that the withdrawal is
unusual because the payment channel has changed from paper check to
ACH. Because the amount did not vary, the payment is taking place
on the regularly scheduled date, and this is not a re-initiated
payment, the only applicable content under § 1041.9(b)(3)(ii)(C) is
the different payment channel information.
3. Varying amount. The information about varying amount
for closed-end loans in § 1041.9(b)(3)(ii)(C)(1)(i)
applies in two circumstances. First, the requirement applies when a
transfer is for the purpose of collecting a payment that is not
specified by amount on the payment schedule, including, for
example, a one-time electronic payment transfer to collect a late
fee. Second, the requirement applies when the transfer is for the
purpose of collecting a regularly scheduled payment for an amount
different from the regularly scheduled payment amount according to
the payment schedule. Given existing requirements for open-end
credit, circumstances that trigger an unusual withdrawal for
open-end credit are more limited according to §
1041.9(b)(3)(ii)(C)(1)(ii). Because the outstanding
balance on open-end credit may change over time, the minimum
payment due on the scheduled payment date may also fluctuate.
However, the minimum payment amount due for open-end credit would
be disclosed to the consumer according to the periodic statement
requirement in Regulation Z. The payment transfer amount would not
be considered unusual with regards to open-end credit unless the
amount deviates from the minimum payment due as disclosed in the
periodic statement. The requirement for a first payment withdrawal
notice under § 1041.9(b)(2) and the other circumstances that could
trigger an unusual withdrawal notice under §
1041.9(b)(3)(ii)(C)(2) through (4), continue to
apply.
4. Date other than due date of regularly scheduled
payment. The changed date information in §
1041.9(b)(3)(ii)(C)(2) applies in two circumstances. First,
the requirement applies when a transfer is for the purpose of
collecting a payment that is not specified by date on the payment
schedule, including, for example, a one-time electronic payment
transfer to collect a late fee. Second, the requirement applies
when the transfer is for the purpose of collecting a regularly
scheduled payment on a date that differs from the regularly
scheduled payment date according to the payment schedule.
9(b)(4) Electronic Delivery
1. General. If the lender is using a method of electronic
delivery other than email, such as text or mobile application, the
lender must provide the notice with the electronic short notice as
provided in § 1041.9(b)(4)(ii). If the lender is using email as the
method of electronic delivery, § 1041.9(b)(4)(iii) allows the
lender to determine whether to use the electronic short notice
approach or to include the full text of the notice in the body of
the email.
9(b)(4)(ii) Electronic Short Notice 9(b)(4)(ii)(A) General Content
1. Identifying statement. If the lender is using email as
the method of electronic delivery, the identifying statement
required in § 1041.9(b)(2)(ii)(A) and (b)(3)(ii)(A) must be
provided in both the email subject line and the body of the
email.
9(c) Consumer Rights Notice 9(c)(2) Timing
1. General. Any information provided to the lender or its
agent that the payment transfer has failed would trigger the timing
requirement provided in § 1041.9(c)(2). For example, if the
lender's agent, a payment processor, learns on Monday, June 1 that
an ACH payment transfer initiated by the processor on the lender's
behalf has been returned for non-sufficient funds, the lender would
be required to send the consumer rights notice by Thursday, June
4.
9(c)(3) Content Requirements
1. Identifying statement. If the lender is using email as
the method of electronic delivery, the identifying statement
required in § 1041.9(c)(3)(i) must be provided in both the email
subject line and the body of the email.
2. Fees. If the lender is also the consumer's
account-holding institution, this includes all fees charged in
relation to the transfer, including any returned payment fees
charged to outstanding loan balance and any fees, such as overdraft
or insufficient fund fees, charged to the consumer's account.
9(c)(4) Electronic Delivery
1. General. See comments 9(b)(4)-1 and
9(b)(4)(ii)(A)-1.
Section 1041.12 - Compliance Program and Record Retention 12(a)
Compliance Program
1. General. Section 1041.12(a) requires a lender making a
covered loan to develop and follow written policies and procedures
that are reasonably designed to ensure compliance with the
applicable requirements in this part. These written policies and
procedures must provide guidance to a lender's employees on how to
comply with the requirements in this part. In particular, under §
1041.12(a), a lender must develop and follow detailed written
policies and procedures reasonably designed to achieve compliance,
as applicable, with the payments requirements in §§ 1041.8 and
1041.9. The provisions and commentary in each section listed above
provide guidance on what specific directions and other information
a lender must include in its written policies and procedures.
12(b) Record Retention
1. General. Section 1041.12(b) requires a lender to
retain various categories of documentation and information
concerning payment practices in connection with covered loans. The
items listed are non-exhaustive as to the records that may need to
be retained as evidence of compliance with this part.
12(b)(4) Retention of Records Relating to Payment Practices for
Covered Loans
1. Methods of retaining documentation. Section
1041.12(b)(4) requires a lender either to retain certain
payment-related information in connection with covered loans in
original form or to be able to reproduce an image of such documents
accurately. For example, § 1041.12(b)(4) requires the lender to
either retain a paper copy of the leveraged payment mechanism
obtained in connection with a covered longer-term loan or to be
able to reproduce an image of the mechanism. For documentation that
the lender receives electronically, the lender may retain either
the electronic version or a printout.
12(b)(5) Electronic Records in Tabular Format Regarding Payment
Practices for Covered Loans
1. Electronic records in tabular format. Section
1041.12(b)(5) requires a lender to retain records regarding payment
practices in electronic, tabular format. Tabular format means a
format in which the individual data elements comprising the record
can be transmitted, analyzed, and processed by a computer program,
such as a widely used spreadsheet or database program. Data formats
for image reproductions, such as PDF, and document formats used by
word processing programs are not tabular formats.
Section 1041.13 - Prohibition Against Evasion
1. Lender action taken with the intent of evading the
requirements of the rule. Section 1041.13 provides that a
lender must not take any action with the intent of evading the
requirements of this part. In determining whether a lender has
taken action with the intent of evading the requirements of this
part, the form, characterization, label, structure, or written
documentation of the lender's action shall not be dispositive.
Rather, the actual substance of the lender's action as well as
other relevant facts and circumstances will determine whether the
lender's action was taken with the intent of evading the
requirements of this part. If the lender's action is taken solely
for legitimate business purposes, it is not taken with the intent
of evading the requirements of this part. By contrast, if a
consideration of all relevant facts and circumstances reveals the
presence of a purpose that is not a legitimate business purpose,
the lender's action may have been taken with the intent of evading
the requirements of this part. A lender action that is taken with
the intent of evading the requirements of this part may be knowing
or reckless. Fraud, deceit, or other unlawful or illegitimate
activity may be one fact or circumstance that is relevant to the
determination of whether a lender's action was taken with the
intent of evading the requirements of this part, but fraud, deceit,
or other unlawful or illegitimate activity is not a prerequisite to
such a finding.
[82 FR 54871, Nov. 17, 2017, as amended at 84 FR 27929, June 17,
2019; 85 FR 44445, July 22, 2020]
A-4 Model Form for
Unusual Withdrawal Notice Under § 1041.9(b)(3) 
A-5 Model Form for
Consumer Rights Notice Under § 1041.9(c) 
A-6 Model Clause
for First Payment Withdrawal Electronic Short Notice Under §
1041.9(b)(4) 
A-7 Model Clause
for Unusual Withdrawal Electronic Short Notice Under §
1041.9(c)(4)( ii)(B) 
A-8 Model Clause
for Consumer Rights Electronic Short Notice Under § 1041.9(c)(4)
[82 FR
54871, Nov. 17, 2017, as amended at 84 FR 27929, June 17, 2019; 85
FR 44445, July 22, 2020]