Interagency Questions and Answers Regarding|
Corrective Action Time Periods Under the Truth in Lending Act Policy Guide
What is the effective date of the new policy change regarding the time
period for corrective action?
The policy change regarding the corrective action time period is effective
immediately. The agencies will apply the new policy when determining the
corrective action time period for pending and future restitution situations.
If the policy change affects the corrective action time period previously
given to an institution in a pending restitution situation, the institution
will be notified of the change. The new policy does not, however, affect
future obligations arising in connection with closed restitution cases.
Can an institution terminate the remainder of its restitution obligation
to a borrower in light of this change in policy?
No. The policy change announced by the agencies applies to future and
pending cases. There will be no change in future obligations arising in
connection with closed restitution cases. The policy guide provides
institutions with two restitution methods, and they select the method
that best satisfies their particular circumstances. Once the institution
makes its decision about the restitution method it will pursue, it is
expected to complete its obligations to affected borrowers.
For example, under the "Lump Sum/Payment Reduction" method of reimbursement,
an institution remits to the borrower a lump sum covering excess money paid
to the point that restitution is made, and then reduces future payments to
cover the remaining restitution obligation. Under the new policy, the agencies will not permit the institution to terminate its remaining
restitution obligation by increasing the borrower's payments to the level
they were prior to the restitution action.
Do the agencies interpret the phrase "immediately preceding examination"
to mean an examination of any type, including types of examinations where
a review for Truth in Lending compliance would not be part of the
Yes. The agencies now interpret the phrase "immediately preceding
examination" to mean an examination of any type conducted for any
purpose by a federal regulatory agency with designated administrative
enforcement responsibility under the Truth in Lending Act (TILA).
However, supervisory visitations, inspections, or other field reviews
that are not considered examinations by the agencies are not considered
examinations for purposes of applying the policy change. An examination
of an affiliated entity, such as an operating subsidiary or an
institution's holding company, is not considered when determining
the corrective action time period.
How will the agencies apply the policy change where "concurrent"
examinations are being conducted at a financial institution?
When concurrent examinations are employed, sometimes several different
types of examinations begin on the same day, sometimes they begin in
succession, and sometimes they begin several weeks or months apart but
within the same examination cycle, based on factors such as the
availability of working space for the examination teams, or the
expressed preferences of management.
For purposes of applying the policy change regarding the corrective action
time period, the agencies consider a concurrent examination to be one event. Assume, for example, the situation where a safety and soundness examination begins on Monday, a trust examination begins on Tuesday, and the compliance examination starts on Wednesday. Assume further that the compliance team identifies a pattern or practice of violations triggering the restitution provisions of the TILA. The agencies will consider the immediately preceding examination to be the last completed examination, not the trust examination that began on Tuesday, or the safety and soundness examination that began on Monday.
Similarly, assume an example where an institution's management asks for
"concurrent" examinations to be conducted in succession, meaning that
the compliance examination should begin after the safety and soundness
and/or trust examination field work is completed, or wrapping up, which
could be several months after the start date. The agencies will consider
those concurrent examinations to be part of the same examination cycle and
will not limit the corrective action time period in such circumstances to
the starting date of the safety and soundness or trust examination.
Does the policy change affect or limit the corrective action time
period where a practice identified at a prior examination is not
corrected by the date of the current examination?
No. The policy guide and statute provide that if a practice is identified
during a current examination and the examiner determines that the same
practice was identified during a prior examination but is not corrected
by the date of the current examination, the corrective action time period
is retroactive to the date of that prior examination, even if there have
been intervening examinations that did not review for compliance with the
Truth in Lending Act and Regulation Z.
Are there any differences in application of the policy change when
restitution situations involve open-end credit rather than closed-end
Yes. The agencies interpret the administrative enforcement provisions
of the TILA to provide different corrective action time periods for
open-end and closed-end credit. The policy change applies to restitution
situations involving closed-end credit. The corrective action time period
for open-end credit covers the 24-month period preceding the date of the
current examination, regardless of whether an immediately preceding
examination intervenes during that period.