Requests for Relief from Reimbursement under the Truth
in Lending Act
Historically, the FDIC has treated a request made by non-member
banks seeking relief from making reimbursement under the Truth in
Lending Act, 15 U.S.C. 1601 et seq. (TILA), as an application
under its regulations. The Board has delegated authority to the
Director of the Division of Compliance and Consumer Affairs (DCA)
to grant or deny these requests. The Director has further
delegated this authority to the Regional Directors (DCA) but only
to deny requests where the amount of reimbursement totals less than
The TILA grants the enforcement agencies very little discretion to
grant relief from reimbursement for violations. Because of this
limited discretion, the FDIC has not been able to grant relief in
many instances. From 1991 through 1996, a total of 63 requests
were reviewed at the Washington level and only one of these
requests was granted. In that one instance, it was determined that
the cited violation was, in fact, not a violation of Regulation Z.
Should a nonmember bank wish to pursue a request for relief, even
though there is a strong likelihood that a request will not be
granted, the request will be processed within established time
frames (see FIL-26-96, "Regulatory Responsiveness," dated May 6,
1996, concerning application processing time lines):
Requests that can be processed under delegated authority by
the Regional Director and Regional Counsel must be completed
within 60 days after receipt unless the institution has agreed
in writing to an extension of time to make the determination.
Requests requiring action by the Washington Office will be
referred by the Regional Office to the Washington Office
within 45 days of receipt. A decision will be made within 45
days of receipt in Washington.
Legal Background: Section 108(e) of the TILA, which governs
enforcement of TILA, provides a very specific framework for
requiring agency action on restitution. Once the FDIC determines
that a disclosure error involving an inaccurate APR or finance
charge has occurred, and that the error has resulted from "gross
negligence," or a "clear and consistent pattern or practice of
violations," the agency shall require an adjustment unless one of
four stated exceptions applies, in which case the agency need not
require an adjustment. If the exceptions apply, or in cases of
similar disclosure errors, an agency may require an adjustment.
The use of the terms "shall require an adjustment," "need not
require an adjustment" and "may require an adjustment" within the
same section of the statute suggests that Congress intended the
term "shall require" to be mandatory. The Congress used the word
must, indicating the compulsory nature of its direction that an
agency enforce the TILA with regard to the specific kinds of
violations enumerated, as contrasted with the agency's discretion
to order restitution in other situations:
"Where the violation resulted from a pattern or
practice of violations, gross negligence, or a
willful violation intended to mislead, an agency
must, subject to the restrictions discussed below,
order restitution to the consumer designed to
assure that the consumer pays no more than the
lower of the finance charge or annual percentage
rate actually disclosed.... In the case of
violations not falling under any of the above
criteria, each agency may in its discretion order
restitution." Id. at 12; accord verbatim, S.Rep.
No. 368, 96th Cong., 1st Sess. 26 (1979).
There are four instances where the FDIC has discretion to waive
reimbursement. Three of these exceptions are straightforward and
are fact specific. It would be unusual to find a bank which could
successfully assert one of these exceptions as a defense, since it
is unlikely that restitution would have been ordered in the first
place as FDIC examiners carefully evaluate whether any of the
exceptions exist before requesting that a bank make restitution.
The first three exceptions are where:
1. The error involves a fee or charge that would otherwise be
excludable in computing the finance charge;
2. The error involved a disclosed amount which was 10 percent or
less of the amount that should have been disclosed and either
the annual percentage rate (APR) or finance charge was
disclosed correctly; or
3. The error involved a total failure to disclose either the APR
or finance charge.
The fourth exception is the one most frequently cited by an
institution in requesting relief. It is the one that is most
difficult to meet since it contains four elements, all four of
which must be met for the exception to apply. The conditions are
the error resulted from a unique circumstance,
the disclosure violations are clearly technical and non-
do not adversely affect information provided to the
have not misled or otherwise deceived the consumer.
The legislative history of TILA does not define the term "unique
circumstance"; however, the FDIC considers the term "unique" to
have the traditional meaning, including "unusual," "atypical," and
"infrequent." Where violations involving the finance charge and
APR are concerned, the requirement that the error be "clearly
technical and nonsubstantive" generally cannot be met. Technical
and nonsubstantive violations do not include those which could
affect the outcome of a borrower's decision in credit shopping. See
S. Rep. No. 368, 96th Cong., 1st Sess. 16-17 (1979). Congress
intended the "technical and non-substantive" exception to be
construed very narrowly for use in such situations as clerical or
Similarly, where there is an understatement of the finance charge
or APR, it is unlikely that there will be "no adverse effect on
information provided to the consumer" and that the error would not
have "misled or otherwise deceived the consumer." Thus, it is
extremely rare that the conditions contained in the fourth
exception are ever met. For example, some recent requests by
institutions seeking relief from having to make reimbursement have
included some of the following reasons as a defense that the FDIC
determined to be unacceptable:
Consumers did not pay any additional amount because of
Impact on the institution's reputation in its community
Size of the institution
Consumers signed the credit life insurance application
but did not affirmatively indicate a desire to purchase
Provider of form/software purchased by institution gave
Consumers were given new disclosures but were not
provided monetary reimbursement
Examiners did not cite violation at previous examination
Procedures for Making a Request: If an institution decides to make
a request for relief from reimbursement, it should do so within 30
days of receipt of the report of examination containing the request
to conduct a file search and make restitution to affected
customers. The request should be directed to the attention of the
Regional Director (DCA) and must address the statutory factors
contained in Section 108(e) of the TILA. The Regional Director will
notify the institution of the receipt of the request and that
pending a final determination, the institution is not required to
complete corrective action on the restitution request.
When restitution must be made, the FDIC expects the institution to
carry out the reimbursement to the customer expeditiously according
to the Joint Statement of Policy on Restitution adopted on July 11,
1980. (A copy of the Statement is attached.) When lump sum
payments to consumers are required to be made, they must be
provided to the consumer either by official check or a deposit into
an existing unrestricted consumer asset account, such as an
unrestricted savings, checking or NOW account. If, however, the
loan is delinquent, in default, or has been charged off, the
creditor may apply all or part of the reimbursement to the amount
past due, if permissible under law.
There have been instances where institution personnel have
inappropriately requested consumers to return reimbursement checks
to the institution. This, and any like practice, is not
permissible and the FDIC views any such attempts to prevent
unrestricted access by the consumer to reimbursement proceeds as a
serious breach of fiduciary duty as well as a violation of law and
regulation. These violations will be subject to enforcement
actions, including but not limited to, assessment of civil money
penalties, orders to cease and desist, and possible
Questions about the procedures for requesting relief from
reimbursement may be directed to any of the DCA Review Examiners in
Washington or the Regional Offices listed in Attachment 2.
Distribution: FDIC-Supervised Banks (Commercial and Savings)
Note: Paper copies of FDIC financial institution letters may be
obtained through the FDIC's Public Information Center, 801 17th
Street, N.W., Room 100, Washington, D.C. 20434 ((703) 562-2200 or
ADMINISTRATIVE ENFORCEMENT OF THE TRUTH IN LENDING ACT -
Joint Statement of Policy
The Depository Institutions Deregulation and Monetary Control Act of 1980 was
enacted on March 31, 1980. The Truth in Lending Simplification and Reform
Act amends the Truth in Lending Act, 15 U.S.C. 1601, et seq. effective March
31, 1980 and authorized the federal Truth in Lending enforcement agencies to
order creditors to make monetary and other adjustments to consumers' accounts
when an annual percentage rate (APR) or finance charge was inaccurately
disclosed. It generally requires the agencies to order restitution when such
disclosure errors resulted from a clear and consistent pattern or practice of
violations, gross negligence, or a willful violation that was intended to
mislead the person to whom the credit was extended. However, the Act does
not preclude the agencies from ordering restitution for isolated disclosure
This policy guide summarizes and explains the restitution provisions of the
Truth in Lending Act, as amended. The material also explains corrective
actions the financial regulatory agencies believe will be appropriate and
generally intend to take in those situations in which the Act gives them the
authority to perform equitable remedial action.
The agencies anticipate that most financial institutions will voluntarily
comply with the restitution provisions of Section 608 as part of the normal
regulatory process. If a creditor does not voluntarily act to correct
violations, the agencies will use their cease and desist authority to require
correction pursuant to: 15 U.S.C. 1607 and 12 U.S.C. 1818(b) in the cases of
the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Office of the Comptroller of the Currency, and the
Office of Thrift Supervision; and 15 U.S.C. 1607 and 12 U.S.C. 1786(e)(1) in
the case of the National Credit Union Administration.
Except as provided below, all definitions are those found in the Truth in
Lending Act (Act) and Regulation Z, 12 CFR Part 226.
"Current examination" - the most recent examination begun on or
after March 31, 1980, in which compliance with Regulation Z was reviewed.
"Irregular Mortgage Transaction" means a loan secured by real estate
for which the annual percentage rate (APR) cannot be calculated using Volume
I of the Federal Reserve System's Truth in Lending, Regulation Z, Annual
Percentage Rate Tables.
"Lump sum method" means a method of reimbursement in which a cash
payment equal to the total adjustment will be made to a consumer.
"Lump sum/payment reduction method" means a method of reimbursement
in which the total adjustment to a consumer will be made in two stages:
A cash payment that fully adjusts the consumer's account up to the
time of the cash payment; and,
A reduction of the remaining payment amounts on the loan.
"Understated APR" means:
For other than irregular mortgage transactions, a disclosed APR,
which, when increased by one-quarter of one percentage point, is less than
the actual APR calculated under the Act, without taking into account the
tolerance provided by section 107(c) of that Act.
For irregular mortgage transactions consummated before April 1,
1981, a disclosed APR which is less than the actual APR calculated under
section 107(c) of the Act, including a one-half of one percentage point
For irregular mortgage transactions consummated after March 31,
1981, but before April 1, 1982, a disclosed APR which, when increased by one-
quarter of one percentage point (instead of one-half of one percentage
point), is less than the actual APR calculated under the Act, without taking
into account the tolerance provided by section 107(c) of that Act.
For all loans consummated after March 31, 1982 (including irregular
mortgage transactions), which have an amortization of 10 years or less, a
disclosed APR which, when increased by one-quarter of one percentage point,
is less than the actual APR calculated under the Act, without taking into
account the tolerance provided by section 107(c) of the Act.
For all loans consummated after March 31, 1982 (including irregular
mortgage transactions), which have an amortization schedule of more than 10
years, a disclosed APR which is less than the actual APR, including the
tolerance contained in section 107(c).
For all loans determined to contain a willful violation intended to
mislead a consumer, a disclosed APR which is less than the actual APR
including the tolerance contained in section 107(c).
"Understated finance charge" - A disclosed finance charge which,
when increased by the greater of the finance charge dollar tolerance
specified in the Act and Regulation Z or a dollar tolerance that is generated
by the corresponding APR reimbursement tolerance, is less than the finance
charge calculated under the Act.
De Minimis Rule
If the amount of adjustment on an account is less than $1.00, no restitution
will be ordered. However, the agencies may require a creditor to make any
adjustments of less than $1.00 by paying into the United States Treasury, if
more than one year has elapsed since the date of the violation.
Corrective Action Period
Open-end credit transactions will be subject to an adjustment if the
violation occurred within the two-year period preceding the date of the
Closed-end credit transactions will be subject to an adjustment if the
violation resulted from a clear and consistent pattern or practice or gross
There is an understated APR on a loan which originated between
January 1, 1977 and March 31, 1980.
There is an understated APR or understated finance charge, and the
practice giving rise to the violation is identified during a current
examination. Loans containing the violation that were consummated since the
date of the immediately preceding examination are subject to an adjustment.
There is an understated APR or understated finance charge, the
practice giving rise to the violation was identified during the prior
examination and the practice is not corrected by the date of the current
examination. Loans containing the violation which were consummated since the
creditor was first notified in writing of the violation are subject to an
adjustment. (Prior examinations include any examinations conducted since July
Each closed-end credit transaction containing a willful violation
intended to mislead the consumer consummated since July 1, 1969 is subject to
For terminated loans subject to 2 above, an adjustment will not be
ordered if the violation occurred in a transaction consummated more than two
years prior to the date of the current examination.
Calculating the Adjustment Consumers will not be required to pay any amount
in excess of the finance charge or dollar equivalent of the APR actually
disclosed on transactions involving:
Understated APR violations on transactions consummated between January 1,
1977 and March 31, 1980, or
Willful violations that were intended to mislead the consumer.
On all other transactions, applicable tolerances provided in the definitions
of understated APR and finance charge may be applied in calculating the
amount of adjustment to the consumer's account.
Methods of Adjustment
The consumer's account will be adjusted using the lump sum method or the lump
sum/payment reduction method, at the discretion of the creditor.
Violations Involving the Non-Disclosure of the APR or Finance Charge
In cases where an APR was required to be disclosed but was not, the
disclosed APR shall be considered to be the contract rate, if disclosed on
the note or the Truth in Lending disclosure statement.
In cases where an APR was required to be disclosed but was not, and no
contract rate was disclosed, consumers will not be required to pay an amount
greater than the actual APR reduced by one-quarter of one percentage point,
in the case of first lien mortgage transactions, and by one percentage point
in all other transactions.
In cases where a finance charge was not disclosed, no adjustment will be
Violations Involving the Improper Disclosure of Credit Life, Accident,
Health, or Loss of Income Insurance
Through March 31, 1982:
If the creditor has not disclosed to the consumer in writing that
credit life, accident, health, or loss of income insurance is optional, the
insurance shall be treated as having been required and improperly excluded
from the finance charge. An adjustment will be ordered if it results in an
understated APR or finance charge. The insurance will remain in effect for
the remainder of its term.
If the creditor has disclosed to the consumer in writing that credit
life, accident, health, or loss of income insurance is optional, but there is
either no signed insurance option or no disclosure of the cost of the
insurance, the creditor shall, unless a claim was made on the insurance
policy and paid, be required to send a written notice to the affected consumer
disclosing the cost of the insurance and notifying the consumer that the
insurance is optional and may be canceled within 45 days to obtain a full
refund of all premium charged. If the creditor receives no response from the
consumer within 45 days, the insurance will remain in effect and no further
corrective action, with respect to that loan, will be required.
After March 31, 1982, the above violations of section 106(b) of the
Act will be treated as APR or finance charge violations for adjustment
purposes, as applicable.
Adjustments will not be required for violations involving the disclosures
required by 106(c) and (d).
If an APR was disclosed correctly, but the finance charge required to be
disclosed was understated, or if the finance charge was disclosed correctly,
but the APR required to be disclosed was understated, no adjustment will be
required if the error involved a disclosed value which was 10 percent or less
of the amount that should have been disclosed.
Adjustments will not be required if the agency determines that the disclosure
error resulted from any unique circumstances involving a clearly technical and
nonsubstantive disclosure violation which did not adversely affect information
provided to the consumer and which did not mislead or otherwise deceive the
Safety and Soundness
In connection with loans consummated before April 1, 1980, if full adjustments
would have a significantly adverse impact upon the safety and soundness of the
creditor, partial adjustments which do not have such an impact may be
required. In connection with loans consummated after March 31, 1980, full
adjustments will always be required. However, the affected creditor will be
permitted to make the full adjustment in partial payments over an extended
period to minimize the adverse impact to its safety and soundness.
Exemption from Restitution Orders
A creditor will not be subject to an order to make an adjustment if within 60
days after discovering a disclosure error, whether pursuant to a final
written examination report or through the creditor's own procedures, the
creditor notifies the person concerned of the error and adjusts the account
to ensure that such person will not be required to pay a finance charge in
excess of that actually disclosed or the dollar equivalent of the APR
disclosed, whichever is lower. This 60-day period for correction of
disclosure errors is unrelated to the provisions of the Civil Liability
section of the Act.
By order of the Federal Financial Institutions Examination Council.
REGIONAL OFFICE CONTACTS
ATLANTA - Ms. Lisa Drag, Review Examiner (404) 817-2525
BOSTON - Ms. Carol-Ane Woodard, Review Examiner (617) 320-1731
CHICAGO - Mr. Christopher Lombardo, Review Examiner (312) 382-7584
DALLAS - Mr. Wayne Perun, Review Examiner (214) 220-3357
KANSAS CITY - Ms. Janet Kincaid, Review Examiner (816) 234-8153
MEMPHIS - Mr. James Francomacaro, Review Examiner (901) 821-5231
NEW YORK - Mr. John Soffronoff, Review Examiner (212) 704-1405
SAN FRANCISCO - Ms. Carol Saccomonto, Review Examiner (415) 978-0475
WASHINGTON OFFICE CONTACTS
LEGAL - Ms. Andrea Winkler, Counsel, Compliance and Enforcement (202) 736-0762
DCA - Mr. Ken Baebel, Sr. Review Examiner, Compliance and Enforcement (202) 942-3086
Ms. Alice Beshara, Review Examiner, Compliance and Enforcement (202) 942-3087
Mr. Eric Kooistra, Review Examiner, Compliance and Enforcement (202) 942-3339