October 1, 2012 

To the Reader: 

Today we are releasing Version 2 of the CFPB Supervision and Examination Manual, the guide 

our examiners use in overseeing companies that provide consumer financial products and 

services. Our manual, originally released in October 2011, describes how the CFPB supervises 

and examines these providers and gives our examiners direction on how to determine if 

companies are complying with consumer financial protection laws. 

We updated the supervision manual to reflect the renumbering of the consumer financial 

protection regulations for which the CFPB is responsible. The numbering conventions in the 

Code of Federal Regulations (CFR) allow the reader to easily identify which regulations fall 

under a particular agency’s responsibility. The renumbering incorporated throughout the manual 

reflects the Dodd-Frank Act of 2010 transfer of rulemaking responsibility for many consumer 

financial protection regulations from other Federal agencies to the CFPB. In December 2011, the 

CFPB published its renumbered regulations in the Federal Register. The renumbered regulations 

also included certain technical changes but no substantive changes. The CFPB’s renumbering 

reflects the codification of its regulations in Title 12 (Banks and Banking), Chapter X (Bureau of 

Consumer Financial Protection) of the CFR. For example, before July 21, 2011, the Federal 

Reserve had rulemaking authority for the Home Mortgage Disclosure Act, which was codified in 

Title 12, Chapter II (Federal Reserve System), Part 203. The CFPB’s implementing regulation 

for the Home Mortgage Disclosure Act is now codified in Title 12, Chapter X, Part 1003. 

In addition to changes related to the renumbering of the CFPB regulations, the manual 

incorporates updated interagency examination procedures for the Truth in Lending Act (TILA) 

and for the Fair Credit Reporting Act (FCRA), both of which were revised to reflect statutory 

and regulatory changes. Specifically, changes to the TILA procedures include amendments to 

TILA and its implementing Regulation Z pursuant to the Credit Card Accountability 

Responsibility and Disclosure Act of 2009. Changes to the FCRA procedures include DoddFrank Act amendments that require the disclosure of a credit score and related information when 

a credit score is used in taking an adverse action or in risk-based pricing. 

Finally, we updated the manual to incorporate: 

•	 new examination procedures released since the issuance of the manual in October 2011 

(covering mortgage origination; short-term, small-dollar lending; SAFE Act; and 

consumer reporting); 

•	 the June 21, 2012, Interagency Guidance on Mortgage Servicing Practices Concerning 

Military Homeowners with Permanent Change of Station Orders; and 

•	 technical corrections and formatting changes. 

The CFPB welcomes feedback and suggestions from industry representatives and participants, 

consumer groups, and members of the public. Comments may be sent to 

CFPB_Supervision@CFPB.gov. 
 

 

 

 

 

Preface 

• Preface 

• Table of Contents 

Part I – Compliance Supervision and Examination 

Supervision and Examination Process 

• Overview 

• Examination Process 

Part II – Examinations Procedures 

A. Compliance Management System 

Compliance Management Review 

• Examination Procedures 

B. Product-Based Procedures 

Consumer Reporting Larger Participants 

• Examination Procedures 

Mortgage Origination 

• Examination Procedures 

Mortgage Servicing 

• Examination Procedures 

Short-Term, Small-Dollar Lending 

• Examination Procedures 

C. Statutory- and Regulation-Based Procedures 

Unfair, Deceptive or Abusive Acts or Practices 

• Narrative 

• Examination Procedures 

Equal Credit Opportunity Act 

• Narrative 

• Examination Procedures 

• Interagency Fair Lending Examination Procedures 

• Interagency Fair Lending Examination Procedures – Appendix 

Home Mortgage Disclosure Act 

• Narrative 
 

 

 

 

 

 

• Examination Procedures 

• Checklist 

Truth in Lending Act 

• Narrative 

• Examination Procedures 

Real Estate Settlement Procedures Act 

• Narrative 

• Examination Procedures 

• Checklist 

Homeowners Protection Act 

• Narrative 

• Examination Procedures 

Consumer Leasing Act 

• Narrative 

• Examination Procedures 

• Checklist 

Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act 

• Narrative 

• Examination Procedures 

Fair Credit Reporting Act 

• Narrative 

• Examination Procedures 

Fair Debt Collection Practices Act 

• Narrative 

• Examination Procedures 

Electronic Fund Transfer Act 

• Narrative 

• Examination Procedures 

• Checklist 

Truth in Savings Act 

• Narrative 

• Examination Procedures 

• Checklist 

Privacy of Consumer Financial Information (Gramm-Leach-Bliley Act) 

• Narrative 
 

 

• Examination Procedures 

• Examination Procedures Attachment 

• Checklist 

Part III – Examination Process Templates 

Templates 

• Entity Profile 

• Risk Assessment 

• Supervision Plan 

• Examination Scope Summary 

• Compliance Management Review 

• Examination Report – Cover Letter 

• Examination Report 

• Supervisory Letter – Cover Letter 

• Supervisory Letter 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB Supervision 

and Examination Process Overview 

Background 

Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Act)1 

established the Consumer Financial Protection Bureau (CFPB) and authorizes it to supervise 

certain consumer financial services companies and large depository institutions and their affiliates 

for consumer protection purposes.

2 The Bureau’s purpose is set forth by Section 1021 of the Act: 

(a) PURPOSE.—The Bureau shall seek to implement and, where applicable, enforce 

Federal consumer financial law consistently for the purpose of ensuring that all 

consumers have access to markets for consumer financial products and services and 

that markets for consumer financial products and services are fair, transparent, and 

competitive.3 

Federal consumer financial law 

Subject to the provisions of the Act, the CFPB has responsibility to implement, examine for 

compliance with, and enforce “Federal consumer financial law.”4 Those laws include, among 

other things, Title X itself, which prohibits unfair, deceptive, or abusive acts and practices in 

connection with consumer financial products and services,5 and the following “enumerated 

consumer laws”6

 and the implementing regulations.7 

1 The Act can be found here: http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf. 

2

Sec. 1024 of the Act authorizes CFPB to supervise certain entities and individuals that engage in offering or providing a consumer 

financial product or service and their service providers that are not covered by Secs. 1025 or 1026 of the Act. Specifically, Sec. 

1024 applies to those entities and individuals who offer or provide mortgage-related products or services and payday and private 

student loans as well as larger participants of other consumer financial service or product markets as defined by a CFPB rule, among 

others, plus their service providers. Sec. 1025 authorizes CFPB to supervise those entities that are large insured depository 

institutions and credit unions with more than $10 billion in total assets and all their affiliates (including subsidiaries), as well as 

service providers for such entities. Sec. 1026 provides the prudential regulators with consumer compliance examination authority for 

smaller depository institutions ($10 billion or less in total assets) not covered by Sec. 1025. The Bureau may, under Sec. 1026, 

include its examiners on a sampling basis at examinations of smaller insured depository institutions to assess compliance with the 

requirements of Federal consumer financial law. Under Sec. 1026, the Bureau has supervisory authority over a service provider to a 

substantial number of smaller depository institutions. “Insured depository institutions” include banks and savings associations. Under 

Sec. 1029, the Bureau may not exercise any authority over certain dealers predominantly engaged in the servicing and sale or leasing 

of motor vehicles. For ease of reference for purposes of this manual, entities and individuals within the scope of Sec. 1024 are 

referred to as “non-depository consumer financial service companies,” and those within the scope of Sec. 1025 are referred to as 

“large depository institutions and their affiliates.” The following are referred to as “supervised entities”: (1) non-depository 

consumer financial service companies and their service providers; (2) large insured depository institutions, large insured credit 

unions, and their affiliates, as well as service providers to these entities; and (3) service providers to a substantial number of small 

insured depository institutions or small insured credit unions. 

3 Emphasis added. See also Sec. 1021(b)(4). 

4

See Sec. 1002(14) for the definition of “Federal consumer financial law.” 

5

See Sec. 1036; see also 1031. 

6

See Sec. 1002(12). Parts of Title XIV of the Act are also designated as enumerated consumer laws. See Sec. 1400(b). 

7

See Sec. 1002(12). 

CFPB Manual V.2 (October 2012) Overview 1 
 

 

CFPB Supervision 

and Examination Process Overview 

•	 Alternative Mortgage Transaction Parity Act of 1982 (12 U.S.C. 3801 et seq.); 

•	 Consumer Leasing Act of 1976 (15 U.S.C. 1667 et seq.); 

•	 Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.), except with respect to Section 920 of 

that Act; 

•	 Equal Credit Opportunity Act (15 U.S.C. 1691et seq.); 

•	 Fair Credit Billing Act (15 U.S.C. 1666 et seq.); 

•	 Fair Credit Reporting Act (15 U.S.C. 1681et seq.), except with respect to Sections 615(e) and 

628 of that Act (15 U.S.C. 1681m(e), 1681w); 

•	 Home Owners Protection Act of 1998 (12 U.S.C. 4901 et seq.); 

•	 Fair Debt Collection Practices Act (15 U.S.C. 1692 et seq.); 

•	 Subsections (b) through (f) of Section 43 of the Federal Deposit Insurance Act (12 U.S.C. 

1831t(b)–(f)); 

•	 Sections 502 through 509 of the Gramm-Leach-Bliley Act of 2009 [Privacy of Consumer 

Financial Information](15 U.S.C. 6802–6809) except for Section 505 as it applies to Section 

501(b); 

•	 Home Mortgage Disclosure Act of 1975 (12 U.S.C. 2801 et seq.); 

•	 Home Ownership and Equity Protection Act of 1994 (15 U.S.C. 1601 note); 

•	 Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2601 et seq.); 

•	 S.A.F.E. Mortgage Licensing Act of 2008 (12 U.S.C. 5101 et seq.); 

•	 Truth in Lending Act (15 U.S.C. 1601 et seq.); 

•	 Truth in Savings Act (12 U.S.C. 4301 et seq.); 

•	 Section 626 of the Omnibus Appropriations Act of 2009, Public Law 111–8; and 

•	 Interstate Land Sales Full Disclosure Act (15 U.S.C. 1701). 

CFPB	 Manual V.2 (October 2012) Overview 2 
 

 

 

CFPB Supervision 

and Examination Process Overview 

In addition, the CFPB may enforce the following rules issued by the Federal Trade Commission: 

•	 Telemarketing Sales Rule (16 CFR Part 310);

8 

•	 Use of Prenotification Negative Option Plans (16 CFR Part 425); 

•	 Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations 

(16 CFR Part 429); 

•	 Preservation of Consumers’ Claims and Defenses (16 CFR Part 433); 

•	 Credit Practices (16 CFR Part 444); 

•	 Mail or Telephone Order Merchandise (16 CFR Part 435); 

•	 Disclosure Requirements and Prohibitions Concerning Franchising (16 CFR Part 436); 

•	 Disclosure Requirements and Prohibitions Concerning Business Opportunities (16 CFR Part 

437). 

Supervision and examination 

The statutory frameworks for supervision of large depository institutions and their affiliates and 

for non-depository consumer financial service companies are largely the same,9

 although the 

supervision authority for each is found in separate sections of the Act. The frameworks include: 

•	 The purpose of supervision, including examination, to: 

o assess compliance with Federal consumer financial laws, 

o obtain information about activities and compliance systems or procedures, and 

o	 detect and assess risks to consumers and to markets for consumer financial products and 

services; 

•	 The requirement to coordinate with other Federal and state regulators; and 

•	 The requirement to use where possible publicly available information and existing reports to 

Federal or state regulators pertaining to supervised entities. 

8 The CFPB may enforce the Telemarketing and Consumer Fraud and Abuse Prevention Act. 

9 Most of the differences in the grants of supervision and examination authority will not be relevant for examiners in their daily 

work; supervised entities will be examined consistent with the applicable statutory provision. 

CFPB	 Manual V.2 (October 2012) Overview 3 
 

 

 

 

 

 

CFPB Supervision 

and Examination Process Overview 

Supervision and Examination Principles 

Three main principles guide the CFPB supervision process. 

Focus on consumers 

The CFPB will focus on risks to consumers when it evaluates the policies and practices of a 

financial institution. We expect that institutions will offer consumer financial products and 

services in accordance with Federal consumer financial laws and will maintain effective systems 

and controls to manage their compliance responsibilities. As we conduct our reviews, we will 

focus on an institution’s ability to detect, prevent, and correct practices that present a significant 

risk of violating the law and causing consumer harm.10 

Data Driven 

Like all CFPB activities, the supervision function rests firmly on analysis of available data about 

the activities of entities it supervises, the markets in which they operate, and risks to consumers 

posed by activities in these markets. Supervision staff (examiners and analysts) will use data 

from a wide range of sources: data obtained from the entity and through direct observation 

during monitoring and examination; information provided by the CFPB’s Research, Markets and 

Regulations and Consumer Education and Engagement divisions, the Office of Fair Lending and 

Equal Opportunity, the Enforcement division, Consumer Response Center, and Offices 

addressing the special needs of students, Older Americans, Service members, and the 

underserved; and other state and Federal regulatory agencies. 

Consistency 

The CFPB will supervise both depository institutions that offer a wide variety of consumer 

financial products and services and non-depository consumer financial services companies that 

offer one or more such products. In order to fulfill its statutory mandate to consistently enforce 

Federal consumer financial law, the CFPB will apply consistent standards in its supervision of 

both types of entities, to the extent possible. To help accomplish this, the CFPB will use the same 

procedures to examine all supervised entities that offer the same types of consumer financial 

products or services, or conduct similar activities. 

Such consistency, however, does not dictate uniformity in supervisory expectations. While all of 

the firms under our jurisdiction must follow the law, we understand that the means that they 

employ to achieve that goal will – and likely should – differ. We recognize that large, complex 

entities necessarily have different compliance oversight and management systems than smaller 

entities or those offering a more limited number of products or services. 

10 The discussion of the Risk Assessment under Pre-examination Planning in this Manual describes more fully what the CFPB 

means by risks or potential risks of consumer harm. 

CFPB Manual V.2 (October 2012) Overview 4 
 

 

 

 

 

 

 

 

 

CFPB Supervision 

and Examination Process Overview 

Examination Scheduling 

Non-depository consumer financial services companies will be identified for examination on the 

basis of risks to consumers, including consideration of the company’s asset size, volume of 

consumer financial transactions, extent of state oversight, and other factors determined relevant 

by CFPB. Examinations will be coordinated with State and prudential regulators as applicable.

11 

Regular examination schedules for large depository institutions and affiliates will depend on two 

considerations: (1) an assessment of risks to consumers and (2) ensuring consistency with statutory 

requirements that CFPB and prudential regulators coordinate the scheduling of examinations of 

large depository institutions and affiliates and conduct “simultaneous” examinations of depository 

institutions, as well as coordinating examinations with State regulators.12 

Supervised entities will generally be notified in advance of an upcoming examination. 

General Description of Examinations 

Examiners will coordinate throughout the supervision and examination process with Supervision 

managers, and analysts, experts, and attorneys from Supervision, Research, Markets and 

Regulations, the Office of General Counsel, and other CFPB divisions at Headquarters. 

Supervision will work especially closely with the Office of Fair Lending and Equal Opportunity 

(OFLEO) and the Enforcement division when reviewing fair lending compliance and evaluating 

other potential violations of Federal consumer financial laws. In this Manual the coordination 

process will generally be referred to as “consulting internally.” Alternatively, “Headquarters” will 

be used to signify the involvement of multiple divisions or offices in addition to Supervision. 

Specific examination procedures will be similar to those of the prudential and, in some instances, 

State regulators.13As appropriate and in accordance with CFPB policy, examiners and 

Supervision managers will generally do the following in the course of an examination: 

•	 Collect and review available information (from within the CFPB, from other Federal and 

state agencies, and from public sources), consistent with statutory requirements; 

•	 Request and review supplementary documents and information from the entity to be 

examined; 

•	 Develop and obtain internal approval for a preliminary risk focus and scope for the onsite 

portion of the examination; 

•	 Go onsite to observe, conduct interviews, and review additional documents and information; 

11See Sec. 1024(b)(3). 

12See Sec. 1025(e). 

13 Prudential regulators refer to the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, 

National Credit Union Association, and Office of the Comptroller of the Currency. 

CFPB	 Manual V.2 (October 2012) Overview 5 
 

 

 

 

 

 

 

 

CFPB Supervision 

and Examination Process Overview 

•	 Consult internally if the examination indicates potential unfair, deceptive, or abusive acts or 

practices; discrimination; or other violations of law; 

•	 Draw preliminary conclusions about the regulated entity’s compliance management and its 

statutory and regulatory compliance; 

•	 Consult internally about follow-up corrective actions that the institution should take, whether 

through informal agreement or a formal enforcement action, if warranted by findings; 

•	 Draft the examination report; 

•	 Obtain appropriate internal review and approval for the examination work and draft 

examination report; 

•	 Share the draft report with the prudential regulator and obtain and consider any comments 

they may offer, consistent with statutory requirements; and 

•	 After final internal clearance, finalize and transmit the report to the supervised entity. 

During the examination, the Examiner in Charge will communicate with appropriate supervised 

entity personnel about preliminary findings and conclusions. CFPB will seek cooperation from 

the entity to correct any problems identified. 

The CFPB considers all supervisory information, including examination reports and 

ratings, highly confidential. Requirements for the handling of supervisory information not 

only by CFPB employees, but also by supervised institutions are described in its regulation 

on the Disclosure of Records and Information.

14 

Detailed examination procedures are located in Part II of this Manual. 

Examination Follow-up 

How the CFPB addresses negative examination findings will depend, among other things, on the 

individual facts and circumstances at issue. Whether informal supervisory measures or formal 

enforcement action is necessary will depend on the type of problem(s) found and the severity of 

harm to consumers. Self-correction will be encouraged, but some circumstances may 

nevertheless be sufficiently serious to warrant a public enforcement action. With respect to large 

depository institutions and their affiliates, CFPB will share draft examination reports and consult 

with prudential regulators regarding supervisory action, consistent with statutory requirements.

15 

14 12 CFR Part 1070 (76 FR 45372) (July 28, 2011)). 

15 See Sec.1025(e). 

CFPB	 Manual V.2 (October 2012) Overview 6 
 

 

 

 

 

 

 

 

 

CFPB Supervision 

and Examination Process Overview 

Target and Horizontal Reviews 

In addition to regularly scheduled examinations, CFPB expects to conduct Target and Horizontal 

Reviews. Target Reviews will generally involve a single entity and will focus on a particular 

situation such as significant volume of particular customer complaints or a specific concern that 

has come to CFPB’s attention. Horizontal Reviews will look across multiple entities to examine 

issues arising from particular products or practices and determine whether supervisory measures 

or enforcement actions are needed. 

Enforcement Authority 

CFPB is authorized to conduct investigations to determine whether any person is, or has, 

engaged in conduct that violates Federal consumer financial law.

16 Investigations may be 

conducted jointly with other regulators,17 and may include subpoenas or civil investigative 

demands for testimony, responses to written questions, documents, or other materials.

18 

CFPB may bring administrative enforcement proceedings19 or civil actions in Federal district 

court.20 The Bureau can obtain “any appropriate legal or equitable relief with respect to a 

violation of Federal consumer financial law,” including, but not limited to: 

• Rescission or reformation of contracts. 

• Refund of money or return of real property. 

• Restitution. 

• Disgorgement or compensation for unjust enrichment. 

• Payment of damages or other monetary relief. 

• Public notification regarding the violation. 

• Limits on the activities or functions of the person against whom the action is brought. 

• Civil monetary penalties (which can go either to victims or to financial education). 

CFPB has no criminal enforcement authority. 

16 Sec. 1051 

17 Sec. 1052(a) 

18 Sec. 1052(b) and (c) 

19 Sec. 1053 

20 Sec. 1054 

CFPB Manual V.2 (October 2012) Overview 7 
 

 

 

CFPB Supervision 

and Examination Process Overview 

Referral of Matters or Information to Other Agencies 

Criminal Activity 

In the course of their work, examiners may obtain evidence that a regulated entity or a customer 

has engaged in conduct that may constitute a violation of Federal criminal law. The CFPB is 

required by the Act21 to refer such findings to the Department of Justice (DOJ) for further review 

and action. Examiners who, during the course of conducting their examination duties, believe 

they have found evidence of criminal conduct should consult internally to discuss their findings 

and the appropriate next steps. Headquarters will handle referral of appropriate matters to DOJ. 

Some examples of fact scenarios that may necessitate a referral to the DOJ include, but are not 

limited to, the following: 

•	 Based on documented information that the examiner has obtained, a regulated entity’s 

financial records are comprised of data that appear to be false. 

•	 A regulated entity’s records or files show that it has direct business relationships with 

individuals or businesses based in a country that is the target of one or more types of United 

States government sanctions. (See sanctioned country lists at www.treasury.gov and 

www.state.gov.) 

•	 A loan file or other type of file or record concerning a customer of a regulated entity contains 

one or more of the following documents that may indicate that the customer has engaged in 

potentially criminal conduct: 

o	 Bank statements that show that the customer has one or more bank accounts in a country 

that is a target of United States government sanctions. (See sanctioned country lists at 

www.treasury.gov and www.state.gov.) 

o	 Based on documented information in a loan file, (1) a loan application appears to contain 

false information, (2) an appraisal for real property appears to contain false information, 

or (3) a document used to verify loan eligibility appears to contain false information. 

(Documents used to verify loan eligibility include but are not limited to bank statements, 

Forms 1099, Forms W-2, and/or federal income tax returns.) 

Tax Law Non-Compliance 

The CFPB is also required under the Act to refer information identifying possible tax law noncompliance to the Internal Revenue Service (IRS).

22 Examiners who, during the course of 

conducting their examination duties, believe they have found evidence of tax law noncompliance should consult internally about the appropriate next steps. Headquarters will handle 

referral of matters to the IRS. 

21 See Sec. 1056 

22 See Secs. 1024(b)(6) and 1025(b)(5). 

CFPB	 Manual V.2 (October 2012) Overview 8 
 

 

 

 

 

 

 

CFPB Supervision 

and Examination Process Overview 

Some examples of fact scenarios that may necessitate a referral to the IRS include, but are not 

limited to, the following: 

•	 Based on documented information that the examiner has obtained, a regulated entity’s tax 

returns are comprised of data that appear false. 

•	 A loan file or other type of file or record concerning a customer of a regulated entity contains 

one or more of the following documents that may indicate that the customer has failed to 

comply with the tax laws: 

o	 Documents used to verify loan eligibility that clearly document that the customer has 

substantially greater income than the income that the customer reported on Federal 

income tax returns. Documents used to verify loan eligibility include statements showing 

a customer’s investment portfolio, bank statements, and/or Forms 1099. 

ECOA/pattern or practice 

The Equal Credit Opportunity Act (ECOA) requires the CFPB to refer matters to DOJ whenever 

the CFPB “has reason to believe that one or more creditors has engaged in a pattern or practice 

of discouraging or denying applications for credit in violation of Section 1691(a)” of ECOA, 

which states ECOA’s basic prohibitions against discrimination.23 In matters that do not involve a 

pattern or practice of discouragement or denial, the CFPB may refer the matter to the DOJ 

whenever the agency has reason to believe that one or more creditors has violated Section 

1691(a).24 Headquarters will handle referral of appropriate matters to DOJ. 

Matters not within the CFPB’s authority 

When examiners find information that may indicate violations of law that are not within the 

CFPB’s authority, the information will be passed on to the appropriate prudential, other Federal, 

or state regulator. These situations will generally be handled by the Examiner in Charge, after 

consulting internally. 

2315 U.S.C. § 1691e(g). 

24Id. 

CFPB	 Manual V.2 (October 2012) Overview 9 
CFPB Supervision 

and Examination Process Overview 

 

 

The Supervision and Examination Cycle
 

Pre-Examination / Scoping 

 Review and analyze available 

information to identify risks, areas of 

inquiry, and focus 

 Request and review documents and 

information needed to begin 

examination (e.g., internal policies, 

audit reports, training materials, 

recent data) 

 Make initial plan for on-site testing 

and review 

Examination (offsite and onsite) 

 Interview senior managers, loan 

officers, compliance officers, and 

account personnel as appropriate 

 Observe operations (e.g., call 

center, branches) 

 Compare policies and procedures to 

actual practices by reviewing a 

sample of transactions 

 Compare conduct to legal 

requirements and policy guidance 

Communicate conclusions and required 

corrective action 

 Communicate findings and expected 

corrective actions to management 

and Board of Directors
 

 Pursue appropriate supervisory 

agreement or formal enforcement 

action as needed
 

Monitoring 

 Nonbank – Product / Market 

analysis 

 Bank – Periodic checks on 

institution activities; calls and
 

meetings 

Both —	 

 Risk Assessment 

 Review reports and information 

 

As shown in the graphic and described in more detail below, CFPB supervision will operate as a 

continuous cycle. Although specific examination procedures are consistent, there are some 

differences in the Bureau’s approach to supervising depository institutions, and non-depository 

consumer financial services companies, as outlined below. 

CFPB	 Manual V.2 (October 2012) Overview 10 
 

 

 

 

 

 

 

 

 

CFPB Supervision 

and Examination Process Overview 

Non-depository consumer financial services companies 

The Nonbank Supervision Risk Analytics and Monitoring team (RAM) in Headquarters will 

provide risk-based analysis of consumer financial markets and participants in the financial 

marketplace to support the examination program. This team will acquire and analyze qualitative 

and quantitative information and data pertaining to consumer financial product and service 

markets to determine what industries and institutions pose the greatest risk to consumers. The 

data will include external data, including, but not limited to, Home Mortgage Disclosure Act and 

Home Affordable Modification Program data, institution and industry reports, state and Federal 

reports of examination, and legal documents. It will also include CFPB-generated data, such as 

complaints, reports of examination, and market and other reports. Using consumer risk indicators 

for particular markets, RAM will provide a risk ranking of entities to program teams for use in 

scheduling examinations. Once a particular examination is scheduled, the examination team will 

follow the same general examination process used for all supervised entities, including 

preparation of a Risk Assessment and an Examination Scope Summary. The Supervision Plan 

template will generally not be used for non-depository consumer financial services companies. 

These documents are described below and in Part II of this Manual. 

Depository Institutions 

Each large depository institution will be assigned a Lead Examiner who will, either individually 

or with a team, monitor information about the entity and its affiliates. That information will be 

collected in an Institution Profile and used as the basis for a Risk Assessment and a Supervision 

Plan. The Lead Examiner may or may not be the Examiner in Charge of a particular examination 

of the entity. The Institution Profile, Risk Assessment, and Supervision Plan will be updated as 

appropriate with information gathered through regular monitoring as well as examinations. 

Monitoring: The purpose of depository institution monitoring is to maintain reasonably current 

information about the institution’s activities in order to determine whether changes in risks to 

consumers or markets warrant a change in the CFPB Supervision Plan. Affiliated entities are 

considered together. The frequency and depth of monitoring will vary depending on the 

organization’s risk profile, but should be undertaken at least quarterly. As an initial matter, Lead 

Examiners and their supervisors will agree on a monitoring schedule. 

CFPB Manual V.2 (October 2012) Overview 11 
 

 

 

 

 

 

 

 

CFPB Supervision 

and Examination Process Overview 

Basic monitoring activities include: 

•	 Reviewing supervisory and public information about the entity, such as: 

o	 Prudential and state regulator examination reports; 

o	 Community Reinvestment Act (CRA) performance evaluations; 

o	 Current enforcement actions; 

o	 Call report data; 

o	 Complaint data; 

o	 Home Mortgage Disclosure Act; 

o	 Home Affordable Modification Program Data; 

o	 SEC filings; 

o	 Licensing or registration information; 

o	 Reports from the entity to prudential or state regulators, if any; 

o	 CFPB research analyst reports; and 

o	 Institution website. 

•	 Contacting the appropriate officer of the institution to discuss new products or services, 

events that may impact compliance management, and any questions raised by information 

reviewed by the Lead Examiner. 

•	 Contacting the prudential regulator to discuss any recent events and any questions raised by 

supervisory or public information about the institution. 

•	 Consulting internally. 

After reviewing periodic monitoring information, the Lead Examiner should update the 

Institution Profile, Risk Assessment, and Supervision Plan as appropriate. 

Institution Profile: The Institution Profile contains summary information about a depository 

institution and its affiliates and provides a quick reference guide. An Institution Profile template 

is provided in Part III. 

Risk Assessment: The Lead Examiner completes and periodically updates a Risk Assessment for 

a large depository institution and its affiliates. The Risk Assessment may be the product of 

multiple individual Risk Assessments of specific lines of business or companies. It provides the 

basis for the Supervision Plan, which is the CFPB plan for supervising a depository institution 

and its affiliates and for allocating supervision resources to the organization. The same risk 

assessment process is also used to scope examinations, as discussed in Part II, where the process 

is discussed in more detail. A Risk Assessment template is provided in Part III. 

CFPB	 Manual V.2 (October 2012) Overview 12 
 

 

 

CFPB Supervision 

and Examination Process Overview 

Supervision Plan: The Supervision Plan, which is based on the Institution Profile and Risk 

Assessment, summarizes the plan for monitoring and examining the institution and its affiliates. 

It describes the priorities for CFPB supervision activities to assist in allocating and scheduling 

examiner resources. It describes the plan and timeline for monitoring the institution, including 

any follow-up required for Matters Requiring Attention identified during examinations, other 

supervisory measures, or enforcement actions. The minimum monitoring schedule is quarterly. 

The Supervision Plan describes the proposed focus and scope of examination activities during 

the year (either a full examination or a series of limited examinations); information about 

scheduling coordination with the prudential and/or state regulators; and the proposed number of 

examiners, deployment schedule, and any special skills or knowledge needed. 

The Plan should be updated at least annually and may be updated at any time as a result of 

changes in the Risk Assessment. A Supervision Plan template is provided in Part III. 

CFPB Manual V.2 (October 2012) Overview 13 
 

 

 

 

 

 

 

CFPB Supervision 

and Examination Process Examinations 

Pre-Examination Planning 

The goal of a risk-focused examination is to direct resources toward areas with higher degrees of 

risk. CFPB examinations focus on risks of harm to consumers, including the risk a supervised 

entity will not comply with Federal consumer financial law. The overall objective of preexamination planning is to collect information necessary to determine the examination’s scope, 

resource needs, and work plan. This information allows the Examiner in Charge (EIC) or 

designee and the examination team to plan and conduct its work both offsite and onsite during 

the examination. The information available, timing, and order in which steps are performed may 

vary by the type of examination or supervised entity. 

Pre-examination planning consists of gathering available information and documents and 

preparation of an examination Information Request. The examination Information Request is a 

tailored list of information and documents that the supervised entity is asked to forward to CFPB 

for offsite review or make available when the examiners arrive onsite. It may include a request 

for an electronic data download. The pre-examination planning process will vary depending on 

the size, complexity, business strategy, products, systems, and risk profile of a particular 

supervised entity. This section provides a general overview of the process. 

Gather Available Information 

The EIC and examination team members collect information about a supervised entity from both 

internal and external sources to aid in constructing the risk focus and scope of an examination. 

Examiners should gather as much information as possible from within the CFPB, other regulatory 

agencies, and third-party public sources, because the Bureau is required by statute to use, to the 

fullest extent possible, information available from other agencies or reported publicly.1 

The following key documents and information are relevant to understanding a supervised entity 

and its ability to manage its compliance responsibilities and risks to consumers. Not all 

documents will necessarily be available for a particular entity. 

From CFPB Internal Sources and Other Regulatory Agencies 

•	 Monitoring information; 

•	 Most recent Risk Assessment; 

•	 Prior Scope Summary, Supervision Plan, or similar document produced by state or prudential 

regulator; 

•	 Prior Examination Reports and supporting workpapers (internal and from Federal prudential 

regulator, state regulator(s), or other agency); 

1

See Dodd-Frank Act, Secs. 1024(b)(4) and 1025(a)(3). 

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•	 Information about prior corrective actions (such as restitution) and responses to Examination 

Reports; 

•	 Information on enforcement or other public actions (if applicable); 

•	 Correspondence from prudential or state regulator(s) and CFPB correspondence files; 

•	 State licensing information for the entity; 

•	 Complaint information (internal, state, CFPB, other sources); 

•	 FTC Consumer Sentinel database; 

•	 Uniform Bank Performance Report (UBPR) and Call Reports; 

•	 Previous years’ FFIEC Home Mortgage Disclosure Act Loan Application Registers (HMDA 

LARs); 

•	 Home Affordable Modification Program data; 

•	 Fair lending analysis; 

•	 Office of the Comptroller of the Currency (OCC) Federal Housing Home Loan Data System 

(FHHLDS) report; 

•	 Mortgage Call Report (MCR) from the Nationwide Mortgage Licensing System (NMLS); and 

•	 Registration or licensing information for mortgage originators (Secure and Fair Enforcement 

for Mortgage Licensing Act (SAFE Act) 

From Public Information or Third Parties 

•	 Institution securities filings, its offered securitizations, and similar public records; 

•	 Industry publications showing credit ratings, product performance, and areas of profitability; 

•	 Newspaper articles, web postings, or blogs that raise examination related issues; 

•	 Neighborhood Watch: 

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/lender/nw_home; 

•	 Vendor programs; and 

•	 Content of the supervised entity’s website. 

Before contacting the supervised entity to gather additional information, the EIC (or designee(s)) 

reviews the material gathered from these sources to help avoid duplicative requests. Of course, it 

may still be necessary to verify or update the information or documents with the supervised 

entity, but the burden of production will be reduced. 

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Update or Prepare the Risk Assessment 

CFPB’s Risk Assessment is designed to evaluate on a consistent basis the extent of risk to 

consumers arising from the activities of a supervised entity or particular lines of business within 

it and to identify the sources of that risk. “Risk to consumers” for the purpose of the CFPB Risk 

Assessment is the potential for consumers to suffer economic loss or other legally-cognizable 

injury (e.g., invasion of privacy) from a violation of Federal consumer financial law. The risk 

assessment includes factors related particularly to the potential for unfair, deceptive or abusive 

practices, or discrimination. Two sets of factors interact to result in a finding that the overall risk 

in a business or entity is low, moderate, or high. The first set of factors relate to the inherent risk 

in the particular line of business or the entity overall. The second set of factors is the quality of 

controls that manage and mitigate that risk. The Risk Assessment also includes a judgment, 

based on current or recent information, about the expected change in the overall risk: decreasing, 

increasing, or unchanged. 

The CFPB uses the Risk Assessment described below, and presented as a template in Part III, to 

develop its plan for supervising and examining large depository institutions and their affiliates 

(the Supervision Plan), and to determine the focus of particular examinations. Risk Assessments 

will be used to set priorities and focus examination and supervision activities. 

Risk assessments are not used to reach conclusions about whether an entity has violated a 

particular law or regulation. 

The Lead Examiner completes or updates a Risk Assessment at least annually for a large 

depository institution and its depository and non-depository affiliates. When evaluating the group 

of entities as a whole, considerations include the extent to which these affiliates share or allocate 

risk (such as when one entity purchases or services loans originated by another) and the ways in 

which they manage risk under a corporate compliance program (quality of risk management). 

CFPB’s Nonbank Supervision Risk Analytics and Monitoring unit and other Headquarters units, 

including the Office of Fair Lending and Equal Opportunity, will collect data about and from 

supervised non-depository consumer financial services companies in order to help define and 

assess risk for purposes of examination prioritization. The examination team will perform a more 

specific Risk Assessment as part of the pre-examination process. 

In undertaking a Risk Assessment, examiners should consider both the volume and the nature of 

consumer complaints received by the entity or by regulatory bodies including the CFPB. In 

addition to shedding important light on the extent and types of concerns of consumers utilizing 

the entity’s consumer financial products or services, complaints may provide indications of 

potential regulatory violations, including unfair, deceptive, or abusive acts or practices 

(UDAAPs). How the entity handles complaints is also a key element in evaluating its compliance 

management system. 

Regulatory violations or matters requiring attention identified in prior examinations by the CFPB 

or by other regulatory agencies, including the prudential regulators, should also be considered 

when assessing risk and planning an examination. 

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Inherent Risk 

For markets which involve the sale of financial services products or services to consumers, the 

key factors that are relevant in assessing risk are (i) the nature and structure of the products 

offered, (ii) the consumer segments to which such products are offered, (iii) the methods of 

selling the products, and (iv) the methods of managing the delivery of the products or services 

and the ongoing relationship with the consumer.2 

Quality of Controls and Mitigation of Inherent Risk 

The second part of the Risk Assessment entails an evaluation of the extent to which the 

institution has established controls to monitor and mitigate inherent risks to consumers. Some of 

these controls will necessarily be established and assessed across the lines of business at the 

institution or enterprise level, while others will operate at the line of business level to mitigate 

identified risks. 

After risks are identified, the focus and priorities for examination or review activities will take 

into account the number of consumers potentially harmed and the severity of that potential harm. 

Expected Change/Direction of Risk 

Finally, the Risk Assessment calls for a determination of the direction of risk at the entity: 

increasing, decreasing, or stable. The direction determination should be based on the findings of 

very recent reviews or the most recent examination, recent changes in entity structure, new 

business strategy, monitoring information, or other information about prospective risk and risk 

management. The date of the most recent change in the direction of risk should also be noted. An 

institution that has been stable for a long time that suddenly changes will likely require a 

different supervisory response than one that has been on the same trajectory for some time, 

although both may be of serious concern. 

A Risk Assessment template is provided in Part III. 

Develop a Scope Summary 

The Scope Summary is based in large part on the conclusions of the Risk Assessment. The table 

of risk conclusions from the Risk Assessment should be included in the Scope Summary. 

The Examiner in Charge prepares the Scope Summary, which provides all members of the 

examination team with a central point of reference throughout the examination. The initial Scope 

Summary is based on internal consultation and a review of available information and documents 

gathered prior to sending the Information Request to the supervised entity; the Summary is 

developed after preparing the Risk Assessment. 

2 Some markets for consumer financial products or services operate on a business to business basis; this is true, for example, of 

the credit reporting market and the collections market. The factors that are indicative of inherent risk in these markets will be 

different from those in the business to consumer markets. Risk assessments for such businesses will be developed separately. 

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The initial Scope Summary addresses the following: 

•	 The basis for the Risk Assessment; and 

•	 Examination activities to be undertaken to review: 

o	 the compliance management system; 

o	 potential legal violations involving unfair, deceptive, or abusive practices; 

o	 fair lending compliance; 

o	 issues arising from complaints; and 

o	 specific regulatory compliance issues. 

At the conclusion of the examination, the EIC updates the initial Scope Summary with the 

following: 

•	 Description of changes to the examination scope during the course of the examination, and 

reasons for such changes; and 

•	 Recommendations for the scope of the following examination. 

The initial Scope Summary, as well as any material changes to the scope of the examination during 

the examination, should be approved in accordance with current CFPB requirements. The Scope 

Summary is maintained with the examination records in the Supervision and Examination System. 

A Scope Summary template is found in Part III and may be tailored to individual circumstances 

as appropriate. 

Contact the Entity to be Examined 

For most full-scope examinations, the EIC, or designee, contacts the supervised entity’s 

management approximately 60 days prior to the scheduled onsite date for the examination to 

arrange either a telephone or in-person discussion of the examination Information Request. The 

principal purpose of the discussion is to gather current information to ensure that the request is 

tailored to what is necessary to properly conduct the examination of that particular institution. 

The EIC or designee should also use the discussion to help determine whether certain 

information needed for the examination should be sent to the examination team for review offsite 

or held for onsite review. The discussion should include the timing of production and the 

subsequent onsite examination. The EIC should use the discussions to apprise management about 

who should be available to be interviewed during the onsite portion of the examination. If not 

already known, the EIC should obtain information about the organization of the entity and where 

it maintains certain operations for the purpose of deciding which operation centers and/or 

branches the team will review. 

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For depository institutions under a continuous examination schedule, periodic requests will 

be necessary and the lead time may vary depending on the product, service, or regulation 

being reviewed. 

Early contact and review provides the EIC the opportunity to determine if specialized examiner 

or other CFPB resources are needed for particular examination activities and then to obtain them. 

A customizable Interview template is available in the Supervision and Examination System. It 

may be used as a tool to help guide the discussion with the supervised entity and the subsequent 

tailoring of the Information Request. 

Prepare and Send the Information Request 

After conducting the review and discussion outlined above, the EIC or designee will use the 

monitoring information and any other relevant information to customize an Information 

Request that includes only items that are pertinent to the examination of a particular entity. Not 

all items will be relevant to every examination. In addition, the Information Request must 

specify the review period when it requests information or documentation such as periodic 

reports, ledgers, policies and procedures, and administrative changes, to avoid receiving data 

not relevant to the examination. 

The EIC or designee may provide the examination Information Request to entity management in 

either hard copy or electronic format, although electronic is preferred, indicating where the 

materials should be delivered and in what format. If at all possible, the requested materials 

should be delivered to the CFPB electronically. Examiners should consult with their field 

managers about what system should be used for secure requests and transmission of electronic 

examination files. The timing of the request and the response date must ensure that entity staff 

has sufficient time to assemble the requested information and the examination team has 

sufficient time to adequately review the materials. 

Contacting the supervised entity at least 60 days prior to the onsite date, whenever feasible, and 

sending the examination information request as soon as possible thereafter will generally ensure 

that staff of the supervised entity have sufficient time to properly gather and submit the response, 

and that the examination team has time to conduct its offsite review. To the extent possible and 

consistent with statutory requirements, coordinate the examination information request with the 

prudential and state regulator(s) and keep them abreast of monitoring efforts, correspondence 

with the supervised entity, and schedule planning. 

The customizable Information Request template is available in the Supervision and 

Examination System. 

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Conduct the Examination 

After receiving and reviewing the information and documents requested from the entity, the EIC 

will determine the specific examination procedures to use during the onsite review and how to 

deploy the examination team to conduct interviews, observations, transaction testing, and other 

processes. Guided by the Risk Assessment, every examination must include a review of 

compliance management, any potential unfair, deceptive, or abusive practices, and regulatory 

compliance matters presenting risks to consumers. Every examination of lending must also 

include a review for discrimination. 

Available examination procedures are part of this Supervision / Examination Manual. Templates 

should be downloaded from the Supervision and Examination System and used to create 

workpapers. 

Upon determining the onsite start date, the EIC should arrange an entrance meeting with the 

appropriate member(s) of the supervised entity’s management. At the meeting, the EIC can 

introduce the examination team, discuss generally the expected activities, clarify any questions 

about arrangements for being onsite at the entity (such as building security, work space, etc.), 

and set the tone for the examination. 

Thereafter, the EIC should meet regularly with the entity point of contact to discuss interim 

findings and examination progress. The EIC should also communicate regularly with his or her 

point of contact at the entity’s prudential or state regulator(s). 

Throughout the examination, the EIC should coordinate with his or her Field Manager regarding 

internal consultation and review requirements and should provide progress reports as required. 

Close the Examination 

Closing Meeting 

When the EIC determines that all onsite activities and internal CFPB consultations are complete, he 

or she should meet with the supervised entity’s management to discuss the preliminary examination 

findings, expected corrective actions, recommended rating, and next steps, if any. Management 

should be reminded that supervisory information, including ratings, is confidential and should not be 

shared except as allowed by CFPB regulation. Depending on the severity of the findings, other CFPB 

representatives may attend this meeting as well. Management should be alerted if a meeting with the 

board of directors or principals of the supervised entity will be required. 

Entity management must be informed that examination findings, including compliance 

ratings, are not final until internal CFPB reviews are conducted and, in the case of an insured 

depository institution or affiliate, the prudential regulator has had the opportunity to review 

and comment on the draft report. 

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Determine the Compliance Rating 

The CFPB has adopted the FFIEC Uniform Consumer Compliance Rating System.3 Under this 

system, after an examination a supervised entity is assigned a confidential consumer compliance 

rating based upon an evaluation of its present compliance with Federal consumer financial law 

and the adequacy of its systems designed to ensure compliance on a continuing basis. The rating 

system is based upon a scale of 1 through 5 in increasing order of supervisory concern. Thus, “1” 

represents the highest rating and consequently the lowest level of supervisory concern, while “5” 

represents the lowest, most critically deficient level of performance and therefore the highest 

degree of supervisory concern. Each of the five ratings is described in greater detail below. 

In assigning a consumer compliance rating, all relevant factors must be evaluated and weighed. 

In general, these factors include the nature and extent of present compliance with Federal 

consumer financial law, the commitment of management to compliance and its ability and 

willingness to take the necessary steps to assure compliance, and the adequacy of systems, 

including internal procedures, controls, and audit activities designed to ensure compliance on a 

routine and consistent basis. The assignment of a compliance rating may incorporate other 

factors that impact significantly the overall effectiveness of an institution's compliance efforts. 

While each type of entity supervised by the CFPB has differences in its general business powers, 

all generally are subject to the same Federal consumer financial laws covered by the rating 

system. Thus, there is no need to evaluate different types of entities on specific criteria relating to 

their particular industry. As a result, the assignment of a consumer compliance rating based on a 

set of uniform criteria will help direct supervisory attention in an efficient and consistent manner 

that does not depend solely upon the nature of the institution’s business. The primary purpose of 

the uniform rating system is to help identify those institutions whose compliance with Federal 

consumer financial law displays weaknesses requiring special supervisory attention and which 

are cause for more than a normal degree of supervisory concern. To accomplish this objective, 

the rating system identifies an initial category of institutions that have compliance deficiencies 

that warrant more than normal supervisory concern. These institutions are not deemed to present 

a significant risk of financial or other harm to consumers, but do require a higher than normal 

level of supervisory attention. Institutions in this category are generally rated “3.” The rating 

system also identifies certain institutions whose weaknesses are so severe that they may 

represent a substantial or general disregard for the law. These institutions are, depending upon 

nature and degree of their weaknesses, rated “4” or “5.” 

3 This description of the rating system is adapted for CFPB purposes from the 1980 FFIEC resolution adopting the rating system. 

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The uniform identification of institutions causing more than a normal degree of supervisory 

concern will help ensure: 

•	 That the degree of supervisory attention and the type of supervisory response are based upon 

the severity and nature of the institution's deficiencies; 

•	 That supervisory attention and action are, to the extent possible, administered consistently, 

regardless of the type of institution or the identity of the supervising agency; and 

•	 That appropriate supervisory action is taken with respect to those institutions whose 

compliance problems entail the greatest potential for financial or other harm to consumers. 

Consumer Compliance Ratings 

Consumer Compliance Ratings are defined and distinguished as follows: 

One 

An [entity] in this category is in a strong compliance position. Management is capable of and 

staff is sufficient for effectuating compliance. An effective compliance program, including an 

efficient system of internal procedures and controls, has been established. Changes in consumer 

statutes and regulations are promptly reflected in the institution's policies, procedures, and 

compliance training. The institution provides adequate training for its employees. If any 

violations are noted they relate to relatively minor deficiencies in forms or practices that are 

easily corrected. There is no evidence of discriminatory acts or practices, reimbursable 

violations, or practices resulting in repeat violations. Violations and deficiencies are promptly 

corrected by management. As a result, the institution gives no cause for supervisory concern. 

Two 

An [entity] in this category is in a generally strong compliance position. Management is capable 

of administering an effective compliance program. Although a system of internal operating 

procedures and controls has been established to ensure compliance, violations have nonetheless 

occurred. These violations, however, involve technical aspects of the law or result from oversight 

on the part of operating personnel. Modification in the institution's compliance program and/or 

the establishment of additional review/audit procedures may eliminate many of the violations. 

Compliance training is satisfactory. There is no evidence of discriminatory acts or practices, 

reimbursable violations, or practices resulting in repeat violations. 

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Three 

Generally, an [entity] in this category is in a less than satisfactory compliance position. It is a 

cause for supervisory concern and requires more than normal supervision to remedy deficiencies. 

Violations may be numerous. In addition, previously identified practices resulting in violations 

may remain uncorrected. Overcharges, if present, involve a few consumers and are minimal in 

amount. There is no evidence of discriminatory acts or practices. Although management may 

have the ability to effectuate compliance, increased efforts are necessary. The numerous 

violations discovered are an indication that management has not devoted sufficient time and 

attention to consumer compliance. Operating procedures and controls have not proven effective 

and require strengthening. This may be accomplished by, among other things, designating a 

compliance officer and developing and implementing a comprehensive and effective compliance 

program. By identifying an institution with marginal compliance early, additional supervisory 

measures may be employed to eliminate violations and prevent further deterioration in the 

institution's less-than-satisfactory compliance position. 

Four 

An [entity] in this category requires close supervisory attention and monitoring to promptly 

correct the serious compliance problems disclosed. Numerous violations are present. 

Overcharges, if any, affect a significant number of consumers and involve a substantial amount 

of money. Often practices resulting in violations and cited at previous examinations remain 

uncorrected. Discriminatory acts or practices may be in evidence. Clearly, management has not 

exerted sufficient effort to ensure compliance. Its attitude may indicate a lack of interest in 

administering an effective compliance program that may have contributed to the seriousness of 

the institution's compliance problems. Internal procedures and controls have not proven effective 

and are seriously deficient. Prompt action on the part of the supervisory agency may enable the 

institution to correct its deficiencies and improve its compliance position. 

Five 

An [entity] in this category is in need of the strongest supervisory attention and monitoring. It is 

substantially in non-compliance with the consumer statutes and regulations. Management has 

demonstrated its unwillingness or inability to operate within the scope of consumer statutes and 

regulations. Previous efforts on the part of the regulatory authority to obtain voluntary 

compliance have been unproductive. Discrimination, substantial overcharges, or practices 

resulting in serious repeat violations are present. 

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Draft the Examination Report 

An Examination Report template is provided in Part III. Instructions are embedded in it. 

The primary purpose of the report is to communicate examination findings to the board of 

directors or principals and senior executives of a supervised entity. The report narrative should 

be concise, constructive, and direct. The commentaries for stable 1-rated entities with low 

consumer or compliance risk should be brief, while the commentaries for 2- through 5-rated 

institutions and those with elevated or increasing risk should successively provide more support 

and detail. 

Comments should clearly cite statutory or regulatory violations and describe the basis for the 

findings. This will ensure that the supervised entity understands the basis for the conclusions and 

so that enforcement actions, if required, are well supported. Matters Requiring Attention and 

Required Corrective Actions must include specific expectations and the expected time frame for 

implementation. 

For each specific area reviewed, the narrative sections of the report have three parts: conclusion, 

comments and supporting analysis, and required corrective actions: 

•	 Conclusion – The Conclusion contains an overall conclusion followed by a concise summary 

of findings. The conclusion should match the tone and language of the rating definition. This 

section should include summary details or facts supporting the conclusion, including a 

summary of material deficiencies that support 3, 4, and 5 ratings. Avoid an overly detailed 

conclusion section. Include details supporting the conclusion in the Comments and 

Supporting Analysis section. Do not include cross-references within the Conclusion section. 

•	 Comments and Supporting Analysis – Comments discuss major strengths and/or weaknesses 

to support the conclusions. Supporting Analysis is information that demonstrates 

conclusions. 

•	 Required Corrective Actions – Required Corrective Actions identify actions that management 

needs to take to resolve supervisory concerns. They should include specific action 

requirements and time frames for completion. If there are no corrective actions for a 

particular area, just insert “N/A.” 

If a finding is sufficiently serious to bring to the attention of the board of directors or principals 

of an entity, the Required Corrective Action should be included in the Matters Requiring 

Attention section of the Examination Conclusions. Include repeat deficiencies as Matters 

Requiring Attention. 

Suggestions or ideas for management to consider may be included in the Recommendations 

section. The CFPB does not require follow-up for Recommendations; they are provided as 

suggestions to improve already satisfactory operations. 

The Examination Report comments should focus on those matters that support the overall 

conclusion and rating; they do not need to cover every area reviewed during an examination. 

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Submit Examination Report for Review 

After the Examination Report draft is complete, the EIC uploads it into the Supervision and 

Examination System. The Field Manager or designee will review it and will obtain any other 

reviews required by internal CFPB policy. 

If the report concerns an insured depository institution, the draft must be shared with the 

institution’s prudential regulator.4

 The regulator must be given a reasonable opportunity to 

review and comment (not less than 30 days after the date of receipt of the report by the 

prudential regulator). The CFPB must take into consideration any concerns raised by the 

prudential regulator prior to issuing a final Examination Report or taking supervisory action. The 

interagency comment process will be managed by the CFPB’s regional offices, with input from 

CFPB headquarters as appropriate. If a conflict arises between the CFPB and the prudential 

regulator regarding a proposed supervisory determination, regional and Headquarters 

management will seek to resolve the issue as expeditiously as possible, with due regard for each 

agency’s supervisory responsibilities. 

If the report concerns other types of regulated entities, opportunities for comment by state 

regulators will depend on whether CFPB is conducting joint or coordinated examinations with 

the relevant state regulators. The comment process will also be handled by the regional offices. 

Board of Directors or Principal(s) Meeting 

The purpose of a meeting with a supervised entity’s board of directors or principal(s) is to 

convey the findings of an examination directly to those individuals ultimately responsible for the 

policies and procedures of the institution. Board meetings should be conducted after the closing 

meeting with management, and should be attended by at least a quorum of directors or by the 

entity principal(s). The EIC and appropriate CFPB management should attend. The board or 

principals should be reminded that the examination report and rating are confidential and should 

not be disclosed except as permitted by CFPB regulation.5 

A board or principal(s) meeting is required when one or more of the following circumstances are 

present: 

• The proposed compliance rating is “3,” “4,” or “5”; 

• An informal supervisory agreement or formal enforcement action is recommended; or 

• The supervised entity’s management, board, or principal(s) requests such a meeting. 

The meeting should be used to discuss examination findings, Matters Requiring Attention, and 

expected corrective actions; advise the board or principal(s) of the recommended compliance 

rating; and discuss any recommended enforcement actions. 

4 Dodd-Frank Act, Section 1025(e)(1)(C) 

5

See 12 CFR 1070.42 

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The timing of a board or principal(s) meeting will depend on the specific situation, and the EIC 

should work this out with his or her Field Manager, who will ensure the necessary internal 

coordination. Meetings should be coordinated with Federal prudential and state examiners, and 

planned for regularly scheduled meetings whenever possible. 

Send the Examination Report 

The EIC signs the final Examination Report. Regional office administrative staff will handle 

transmission to the supervised entity. 

Upload Final Examination Documents 

At the conclusion of the examination, the EIC must finalize the Scope Summary, ensure all 

workpapers are complete, and be certain that all required documents and information are 

uploaded or entered into the Supervision and Examination System. 

Examination Workpapers 

During an examination, examiners collect and review information from the supervised entity to 

reach conclusions about its practices, its compliance management, and its compliance with 

specific laws and regulations. The records documenting the review are called workpapers. 

Workpapers should contain sufficient information and supporting documents to explain – to a 

knowledgeable reviewer – the basis for the examination conclusions. 

Purposes of Workpapers 

Examiners develop and maintain workpapers for three principal purposes: 

•	 To provide a record of the work performed during the examination that supports findings or 

recommendations made during the examination; 

•	 To maintain the evidence necessary to support supervisory agreements or formal 

enforcement actions; and 

•	 To facilitate internal quality control reviews. 

All information collected and all records created during the examination could potentially be 

included in the workpapers. For example, if an examiner interviews a Real Estate Lending 

Officer, the write-up of the interview notes becomes a workpaper. If the examiner also scans 

pages of the supervised entity’s RESPA procedures manual to help illustrate deviations from 

policy, the scanned pages should be included in the workpapers. Other examples of workpapers 

include, but are not limited to: 

•	 Completed CFPB Examination Procedures (downloadable templates that allow the examiner 

to enter narrative findings as they follow the procedures); 

•	 Completed CFPB Checklists; 

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•	 Other documents such as spreadsheets created during the examination; 

•	 Documentation of staff and management interviews; 

•	 Meeting agendas, attendance lists, and notes or minutes; 

•	 Documentation of compliance research performed (e.g., legal opinions, regulation sections 

reviewed, regulatory alerts); and 

•	 Scanned copies of material obtained from the supervised entity, such as policies, procedures, 

rate sheets, internal memos and reports, external audit reports, complaint letters. 

Generally, workpapers should document or support the: 

•	 Proposed scope of the examination and any changes to the scope during the course of the 

examination; 

•	 Work performed during the examination (what you did); 

•	 Sampling process used (how you did it); 

•	 Findings and violations noted during the examination (what you found); 

•	 Recommendations made (new and repeated); 

•	 Communications with management regarding findings, corrective actions, and 

recommendations; 

•	 Management’s response (oral and written) to findings and violations; 

•	 Commitments made by management regarding corrective action, remediation, and financial 

relief; 

•	 Changes to the Risk Assessment; 

•	 Consumer Compliance Rating; and 

•	 Changes to the Supervision Plan (where applicable). 

The amount of supporting documentation from the entity’s records that is necessary to maintain 

in the workpapers will depend on the particular situation. The general principle is that 

examinations involving numerous problems in high-risk areas require especially thorough 

documentation to support the conclusions reached and any potential supervisory measures or 

enforcement action. Examination of areas of low risk and few problems normally require less 

documentation. 

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Examiner in Charge Review and Signoff 

The EIC is responsible for the adequacy of the workpapers created during the examination. Since 

large team examinations require the EIC to delegate numerous specific areas of review to other 

examiners, the EIC must track the: 

• Workpapers developed; 

• Responsible examination team member; and 

• EIC’s review and approval of the workpapers. 

Workpapers that require additional analysis or support should be discussed with and returned to 

the responsible examiner for further development. The Workpaper Table of Contents and EIC 

Signoff document, found in the Supervision and Examination System, must be used to record the 

EIC’s review and sign off on all workpapers developed during the examination. After the EIC 

reviews and signs off on the workpapers, the Field Manager should also review and sign off on 

their adequacy. 

Electronic Format and Encryption 

All workpapers and related documentation for the examination should be maintained in 

electronic form. If the supervised entity is only able to provide a document in hard copy form, 

the examiner should scan the document and return the original. Workpapers should be uploaded 

to the Supervision and Examination System with the completed examination to be preserved as 

part of the examination record and made available for future reference. 

All electronic documents received from the supervised entity should be transmitted and 

maintained on encrypted media. Examiners should be mindful at all times of the need to protect 

personally identifiable information (e.g., names, social security numbers, account numbers) and 

confidential supervisory information. Hard copies should not be left anywhere unattended (even 

onsite at the entity), should not be removed from the examination site, and if printed while 

working offsite, should be kept in a locked cabinet when not being used. Consult CFPB’s 

Privacy and FOIA regulations and guidance for further information.6 

Quality Control Reviews 

Workpapers will also be reviewed through an internal quality control process. Workpapers 

should be sufficiently detailed so that an internal quality control reviewer will understand what 

the examiner did, follow the logic of the examiner's analyses, and understand how the examiner 

reached his or her conclusion(s). The level of documentation should be commensurate with the 

risks and problems associated with the areas under review. (The optional Workpaper Checklist 

can help ensure that workpapers are sufficient.) 

6

See Disclosure of Records and Information, 12 CFR Part 1070 (76 Fed. Reg. 45372 (July 28, 2011)), and any subsequent related 

guidance that may be issued. 

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General Principles and Introduction 

Supervised entities within the scope of CFPB’s supervision and enforcement authority include 

both depository institutions and non-depository consumer financial services companies. These 

financial service providers operate in a dynamic environment influenced by challenges to 

profitability and survival, increased focus on outcomes to consumers, industry consolidation, 

advancing technology, market globalization, and changes in laws and regulations. 

To remain competitive and responsive to consumer needs in such an environment, supervised 

entities continuously assess their business strategies and modify product and service offerings and 

delivery channels. To maintain legal compliance, a supervised entity must develop and maintain a 

sound compliance management system that is integrated into the overall framework for product 

design, delivery, and administration — that is, the entire product and service lifecycle. Ultimately, 

compliance should be part of the day-to-day responsibilities of management and the employees of 

a supervised entity; issues should be self-identified; and corrective action should be initiated by the 

entity. Supervised entities are also expected to manage relationships with service providers to 

ensure that these providers effectively manage compliance with Federal consumer financial laws 

applicable to the product or service being provided.

1 

Weaknesses in compliance management systems can result in violations of law or regulation and 

associated harm to consumers. Therefore, the CFPB expects every regulated entity under its 

supervision and enforcement authority to have an effective compliance management system 

adapted to its business strategy and operations. Each CFPB examination will include review and 

testing of components of the supervised entity’s compliance management system. An initial 

review will help determine the scope and intensity of an examination. The findings of more 

detailed reviews and transaction testing will determine the effectiveness of the compliance 

management system and whether enhancements or corrective actions are appropriate. 

CFPB understands that compliance will likely be managed differently by large banking 

organizations with complex compliance profiles and a wide range of consumer financial products 

and services2

 at one end of the spectrum, than by entities that may be owned by a single 

individual and feature a narrow range of financial products and services, at the other end of the 

spectrum. Compliance may be managed on a firm- or enterprise-wide basis, and supervised 

entities may engage outside firms to assist with compliance management. However compliance 

is managed, a provider of consumer financial products or services under CFPB’s supervisory 

purview is expected to comply with Federal consumer financial laws and appropriately address 

and prevent violations of law and associated harms to consumers through its compliance 

management process. 

1 See CFPB Bulletin 2012-03, Service Providers (April 13, 2012), which describes the CFPB’s expectation that supervised banks 

and nonbanks oversee their business relationships with service providers in a manner that ensures compliance with Federal 

consumer financial law. http://files.consumerfinance.gov/f/201204 cfpb bulletin service-providers.pdf 

2 For example, the Federal Reserve Board of Governors expects large banking organizations with complex compliance profiles to 

implement firm-wide compliance risk management programs and have a corporate compliance function. SR 08-8 / CA 08-11, 

October 16, 2008. The CFPB will expect no less. 

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CFPB also understands that supervised entities will organize compliance management to include 

compliance with consumer-related state and Federal laws that are outside the scope of CFPB’s 

supervision responsibilities, in addition to the matters that are within CFPB’s scope. CFPB, 

therefore, expects that compliance management activities will be organized within a firm, legal 

entity, division, or business unit in the way that is most effective for the supervised entity, and 

that the manner of organization will vary from entity to entity. 

This section of the Manual discusses the common elements of an effective consumer compliance 

management system: board of directors and management oversight, the compliance program, 

response to consumer complaints, and audit coverage of compliance matters. 

Compliance Management System 

A compliance management system is how a supervised entity: 

•	 Establishes its compliance responsibilities; 

•	 Communicates those responsibilities to employees; 

•	 Ensures that responsibilities for meeting legal requirements and internal policies are 

incorporated into business processes; 

•	 Reviews operations to ensure responsibilities are carried out and legal requirements are met; 

and 

•	 Takes corrective action and updates tools, systems, and materials as necessary. 

An effective compliance management system commonly has four interdependent control 

components: 

•	 Board and management oversight; 

•	 Compliance program; 

•	 Response to consumer complaints; and 

•	 Compliance audit. 

When all of these four control components are strong and well-coordinated, a supervised entity 

should be successful at managing its compliance responsibilities and risks. 

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Compliance Management Examination Procedures 

Board of Directors and Management Oversight 

In a depository institution, the board of directors is ultimately responsible for developing and 

administering a compliance management system that ensures compliance with Federal consumer 

financial laws and regulations and addresses and prevents associated risks of harm to consumers. 

In a non-depository consumer financial services company, that ultimate responsibility may rest 

with a board of directors in the case of a corporation or with a controlling person or some other 

arrangement. For the balance of this section of the Manual, references to the “board of directors” 

or “board” generally refer to the board of directors or other individual or group exercising similar 

oversight functions. In addition, some supervised entities may be governed by firm-wide 

standards, policies, and procedures developed by a holding company or other top-tier corporation 

for adoption, use, and modification, as necessary, by subsidiary entities. 

Board of Directors and Management Oversight – Examination Objectives 

Because the effectiveness of a compliance management system is grounded in the actions taken 

by its board and senior management, CFPB examiners should seek to determine whether the 

board and senior management have: 

1.	 Demonstrated clear expectations about compliance, not only within the entity, but also to 

service providers. 

2.	 Adopted clear policy statements regarding consumer compliance. 

3.	 Appointed an appropriately qualified and experienced chief compliance officer and provided 

for other compliance officers with authority and accountability. (In smaller or less complex 

entities where staffing is limited, a full-time compliance officer may not be necessary. 

However, management should have clear responsibility for compliance management and 

compliance staff should be assigned to carry out this function in a manner commensurate 

with the size of the entity and the nature and risks of its activities.) 

4.	 Established a compliance function to set policies, procedures, and standards. 

5.	 Allocated resources to the compliance function commensurate with the size and complexity 

of the entity’s operations and practices, the Federal consumer financial laws and regulations 

to which the entity is subject, and necessary to avoid the potential consumer harm associated 

with violations of such laws and regulations. 

6.	 Addressed consumer compliance issues and associated risks of harm to consumers 

throughout product development, marketing, and account administration, and through the 

entity’s handling of consumer complaints and inquiries. 

7.	 Required audit coverage of compliance matters and reviewed the results of periodic 

compliance audits. 

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8.	 Provided for recurring reports of compliance risks, issues, and resolution through a 

committee structure or to the board. 

Board of Directors and Management Oversight – Examination Procedures 

Through pre-examination work or follow-up to previous examinations, examiners should request 

and review records, and discuss issues and questions with senior management. With respect to 

board and senior management oversight, examiners should: 

1.	 Review board meeting minutes and supporting materials during the period under review for 

coverage of compliance matters. 

2.	 Determine board committee structures and delegated responsibility for compliance matters, 

such as to an audit committee or risk committee, and review the meeting minutes and 

supporting materials of those committees for coverage of compliance matters. 

3.	 Determine any management committees with delegated authority and accountability for 

compliance matters, including fair lending, and review their composition, functions, and 

reporting to committees of the board or to the board. 

4.	 Determine the authority and accountability for compliance matters of regional or business 

unit governance bodies; and review their composition, functions, and reporting. 

5.	 Review policies for clarity, comprehensiveness, currency, and appropriate reflection of risks 

to consumers posed by the organization’s practices, as well as compliance issues and risks 

facing the organization. 

6.	 Review the formal written compliance function document adopted by the board of directors 

or an appropriate committee of the board, and determine the resource allocation to 

compliance as part of the entity’s budget and planning process. 

7.	 Identify the chief compliance officer and other responsible individuals. 

8.	 Review the role of the chief compliance officer for authority to lead a compliance program 

and independence from business units. 

9.	 Review board and board committee records for evidence of the chief compliance officer’s 

independent access to board members and governance bodies. 

10. Review processes for the identification of new regulatory requirements, changes in 

requirements, and planning for implementation. 

11. Review processes for development and implementation of new consumer financial products 

or services, distribution channels or strategies, to determine degree of compliance function 

participation. Determine whether these processes consider fair lending compliance risk. 

12. Determine degree of compliance review of draft marketing material (including scripts) and 

their implementation. 

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13. Review reporting for the identification and resolution of issues and the timeliness and 

completeness of such actions. 

14. Review board or committee consideration of compliance audit matters for coverage of key 

risks, independence from business functions, and resolution of identified issues. 

15. Draw preliminary conclusions about the strength, adequacy, or weakness of board and 

senior management oversight, subject to risk focused review and testing for compliance. 

In the absence of a board of directors and board committee structure, the examiner should 

determine that the person or group exercising similar oversight functions receives relevant 

information about compliance and consumer protection matters and takes steps to ensure that the 

key elements, resources, and individuals necessary for a compliance management system 

commensurate with the supervised entity’s risk profile are in place and functioning. 

Compliance Program 

A sound compliance program is essential to the efficient and successful operation of the 

supervised entity, much as a business plan. A compliance program includes the following 

components: 

• Policies and procedures; 

• Training; and 

• Monitoring and corrective action. 

A supervised entity should establish a formal, written compliance program, and that program 

generally should be administered by a chief compliance officer. In addition to being a planned and 

organized effort to guide the entity’s compliance activities, a written program represents an 

essential source document that may serve as a training and reference tool for employees. A well 

planned, implemented, and maintained compliance program will prevent or reduce regulatory 

violations, protect consumers from non-compliance and associated harms, and help align business 

strategies with outcomes. The examination objectives and procedures for the compliance program 

are divided in this section of the Manual among the three components of a program. 

Policies and Procedures – Examination Objectives 

Compliance policies and procedures should be documented and in sufficient detail to implement 

the board-approved policy documents. Overall, examiners should seek to determine whether 

compliance policies and procedures: 

1.	 Are consistent with board-approved policies. 

2.	 Address compliance with applicable Federal consumer financial laws in a manner designed 

to prevent violations and to detect and prevent associated risks of harm to consumers. 

3.	 Cover product or service lifecycles. 

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4.	 Are maintained and modified to remain current and to serve as a reference for employees in 

their day-to-day activities. 

Policies and Procedures – Examination Procedures 

Examiners should request and review compliance policies and procedures and discuss elements 

with compliance officers or other responsible officers and employees of the supervised entity, as 

follows: 

1.	 Request and review policies and procedures related to consumer compliance, including fair 

lending and other Federal consumer financial laws and policies and procedures related to 

offering consumer financial products and services. 

2.	 Review policies and procedures for changes management committed to make following 

recent monitoring, audit, and examination findings and recommendations. 

3.	 Review policies and procedures to determine whether and how they address new or 

amended Federal consumer financial laws and regulations since the preceding examination 

or since the most recent consumer compliance examination by a state or prudential 

regulator, if applicable, if this is CFPB’s first examination. 

4.	 Request and review policies and procedures to determine whether they cover consumer 

financial products or services introduced since the preceding examination or since the most 

recent consumer compliance examination by a state or prudential regulator, if applicable, if 

this is CFPB’s first examination. 

5.	 Review policies and procedures relating to compliance with specific regulatory requirements 

(such as fair lending or the privacy of consumer financial information) and their 

implementing procedures. 

6.	 Review for outdated content, the names of unaffiliated entities, or other indicators that 

policies are overly general or not tailored to the needs and actual practices of the supervised 

entity being examined. 

7.	 Review policies and procedures for products with features that may inhibit consumer 

understanding or otherwise pose heightened risks of (a) unfair, deceptive, or abusive 

practices, or (b) fair lending. 

8.	 Review policies and procedures for products containing features that may pose heightened 

risk of unlawful discrimination. Such features may include: 

a. particular incentives created by employee compensation structures; 

b. discretion over product selection, underwriting, or pricing; or 

c. distinctions related to geography or prohibited bases (such as age or marital status). 

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9.	 Review policies and procedures designed to ensure that the entity’s service providers 

comply with legal obligations applicable to the product or service of the examined entity and 

the provider. 

10. Review policies and procedures maintained by different regional, business unit, or legal 

entities subject to the same corporate or board-level policies for consistency. 

11. Review policies and procedures for record retention and destruction timeframes to ensure 

compliance with legal requirements. 

12. If compliance procedures are embedded in automated tools or business unit procedures, 

determine that a qualified compliance officer or contractor reviewed these tools for 

consistency with policies and procedures and compliance with applicable Federal consumer 

laws and approved them for the purpose for which they are utilized. 

13. Draw preliminary conclusions regarding the strength, adequacy, or weakness of policies and 

procedures, and identify business units, delivery channels, or offices for transaction testing. 

Test to confirm that actual practices are consistent with strong or adequate written policies 

and procedures. Test to determine the impact of apparently weak procedures. 

Training – Examination Objectives 

Education of an entity’s board of directors, management, and staff is essential to maintaining an 

effective compliance program. Board members should receive sufficient information to enable 

them to understand the entity’s responsibilities and the commensurate resource requirements. 

Management and staff should receive specific, comprehensive training that reinforces and helps 

implement written policies and procedures. Requirements for compliance with Federal consumer 

financial laws, including prohibitions against unlawful discrimination and unfair, deceptive, and 

abusive acts and practices, should be incorporated into training for all relevant officers and 

employees, including audit personnel. Examiners should seek to determine whether: 

1.	 Compliance training is current, complete, directed to appropriate individuals based on their 

roles, effective, and commensurate with the size of the entity and nature and risks to 

consumers presented by its activities. 

2.	 Training is consistent with policies and procedures and designed to reinforce those policies 

and procedures. 

3.	 Compliance professionals have access to training that is necessary to administer a 

compliance program that is appropriate for that supervised entity and its business strategy 

and operations. 

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Training – Examination Procedures 

Examiners should request and review training records and interview management and staff as 

appropriate to evaluate this element of the compliance program and to refine and focus the 

examination. Examiners should: 

1.	 Request and review the schedule, record of completion, and materials for recent compliance 

training of board members and executive officers. 

2.	 Determine the involvement of compliance officer(s) in selecting, reviewing, or delivering 

training content. 

3.	 Request and review policies, standards, schedules, and records of completion for 

compliance-specific training of compliance professionals, managers, and staff, and 

documents demonstrating that service providers who have consumer contact or compliance 

responsibilities are appropriately trained. 

4.	 Request and review samples of the content of training materials and comprehension tests, 

including training related to fair lending, new regulatory requirements, new products or 

channels of distribution, and marketing (including scripts). 

5.	 Request and review training developed as a result of management commitments to address 

monitoring, audit, or examination findings and recommendations or issues raised in 

consumer complaints and inquiries. 

6.	 Determine whether the program is designed to provide training about the specific regulatory 

requirements relevant to the functions of particular positions for loan officers, such as the 

Truth in Lending Act and the Equal Credit Opportunity Act. 

7.	 Review records of follow-up, escalation, and enforcement for units with training completion 

rates that do not meet the supervised entity’s standards or deadlines. 

8.	 Request and review the supervised entity’s plans for additions, deletions, or modifications to 

compliance training over the next 12 months and any plans for changes to the overall 

training resources and compare actual training activities to prior plans. 

9.	 Draw preliminary conclusions about the strength, adequacy, or weakness of the training 

element of the compliance program, and select lines of business, organizational units, or 

other areas for more detailed review and testing. 

Monitoring and Corrective Action – Examination Objectives 

Monitoring is a compliance program element that seeks, in an organized and risk-focused way, to 

identify procedural or training weaknesses in an effort to provide for a high level of compliance 

by promptly identifying and correcting weaknesses. Monitoring and testing is generally more 

frequent and less formal than compliance audit coverage and reporting, may be carried out by the 

business unit, and does not require the same level of independence from the business or 

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compliance function that an audit program does. Examiners should evaluate monitoring and 

audit programs to determine whether, considered together, they are adequate and comprehensive. 

Examiners review of compliance monitoring and testing should determine whether: 

1.	 Monitoring is scheduled and completed and leads to timely corrective actions where 

appropriate. 

2.	 The supervised entity is determining that transactions and other consumer contacts are 

handled according to the entity’s policies and procedures. 

3.	 Monitoring and testing consider the results of risk assessments or other guides for 

prioritizing reviews. 

4.	 Monitoring addresses deficiencies identified in internal or external audits, and the board’s or 

management’s directives on resolving the deficiencies. 

5.	 Findings are escalated to management and to the board of directors if appropriate. 

Monitoring and Corrective Action – Examination Procedures 

Examiners should review monitoring, testing, and corrective action reports; sample supporting 

documents; and interview individuals responsible for compliance monitoring, testing, and 

corrective action. Examiners should: 

1.	 Determine the chief compliance officer’s role in the compliance monitoring element of the 

compliance program. 

2.	 Request and review the monitoring and testing schedule for the current year or next 12 

months, and review the currency of reviews in process against the current schedule. 

3.	 Request and review the risk assessments or other documents that led to the monitoring and 

testing program plan, including any fair lending risk assessments. 

4.	 Discuss with the compliance officer or monitoring manager the coverage of service 

providers that have contact with consumers. 

5.	 Determine whether and to what extent monitoring includes calculation tools, the content of 

consumer disclosures and notices, marketing materials, and scripts or guides for employee 

contacts with consumers. 

6.	 Request and review all compliance monitoring, testing and corrective action reports 

completed during a specific period of time. Include reports related to fair lending 

compliance, such as fair lending “self-evaluations.” (But do not request reports of fair 

lending “self-tests” that meet the strict requirements set forth in 12 CFR 1002.15.) 

7.	 Review reports for indications of systemic weaknesses, repeat violations of law and 

resulting risks or harms to consumers, or other matters of significant concern such as 

potential discriminatory effects of policies or procedures or particular business units with 

continuing or high levels of non-compliance. 

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8.	 Review a sample of reports and supporting documents covering potential unfair, deceptive, 

or discriminatory practices or related matters that pose heightened risks to consumers for 

thoroughness of review, accuracy of findings, and appropriateness of recommendations. 

9.	 Determine whether monitoring results in corrective action that is timely and appropriate in 

size and scope. 

10. Draw a preliminary conclusion regarding the strength, adequacy, or weakness of the 

monitoring and corrective action element of the compliance program, and select areas for 

further review either because of lack of coverage by the monitoring program or to confirm 

monitoring or corrective action findings. 

Consumer Complaint Response 

An effective compliance management system should ensure that a supervised entity is responsive 

and responsible in handling consumer complaints and inquiries. Intelligence gathered from 

consumer contacts should be organized, retained, and used as part of an institution’s compliance 

management system. 

Consumer Complaint Response – Examination Objectives 

Examiners will consider consumer complaints to determine whether: 

1.	 Consumer complaints and inquiries, regardless of where submitted, are appropriately 

recorded and categorized. 

2.	 Complaints and inquiries, whether regarding the entity or its service providers, are addressed 

and resolved promptly. 

3.	 Complaints that raise legal issues involving potential consumer harm from unfair treatment 

or discrimination, or other regulatory compliance issues, are appropriately escalated. 

4.	 Complaint data and individual cases drive adjustments to business practices as appropriate. 

5.	 Consumer complaints result in retrospective corrective action to correct the effects of the 

supervised entity’s actions when appropriate. 

6.	 Weaknesses in the compliance management system exist, based on the nature or number of 

substantive complaints from consumers. 

Consumer Complaint Response – Examination Procedures 

Examiners should review records, interview management, and contact consumers if needed to 

evaluate this consumer response component of the compliance management system. Examiners 

should: 

1.	 Obtain and review records of recent consumer complaints and inquiries received by CFPB 

about the entity and its service providers. 

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2.	 Review industry or other benchmarking complaint data collected by CFPB. 

3.	 To the extent available, obtain and review records of recent consumer complaints against the 

institution from the prudential regulator, from state regulators, from state attorneys general 

offices or licensing and registration agencies, and from private or other industry sources. 

4.	 Request and review from the institution being examined its policies and procedures for 

receiving, escalating, and resolving consumer complaints and inquiries. 

5.	 Request and review the record of consumer complaints and inquiries received by the 

institution for a specific recent period of time. 

6.	 Identify complaints alleging deception, unfair treatment, unlawful discrimination, or other 

significant consumer injury; and review some or all of those complaints for handling, 

timeliness, disposition, and any prospective and retrospective corrective actions. 

7.	 Determine whether corrective action is offered or taken for any complaint resulting in a 

conclusion of violation of law or regulation. 

8.	 Determine whether complaints involving service providers or other third parties referring 

business to the supervised entity receive prompt and appropriate handling and follow-up by 

the entity. 

9.	 If a supervised entity maintains multiple consumer response centers or units, determine 

whether it employs a common set of best practices as applicable. 

10. Determine whether evaluations of consumer contacts are shared within the supervised entity 

and included in compliance management reporting to the Board and senior management, and 

whether such information is used in modifying policies, procedures, training, and monitoring. 

11. Draw preliminary conclusions regarding the strength, adequacy, or weakness of the 

supervised entity’s response to consumer issues and concerns, and identify business conduct 

areas, specific regulations, or organizational units for more detailed review. 

Compliance Audit 

Audit coverage of compliance matters is the fourth component of an effective compliance 

management system. The audit function should review an institution’s compliance with Federal 

consumer financial laws and adherence to internal policies and procedures and be independent of 

both the compliance program and business functions that include customer sales or service. 

A compliance audit program provides a board of directors or its designated committees with a 

determination of whether policies and standards adopted by the board to guide risk management 

are being implemented to provide for the level of compliance and consumer protection established 

by the board. The audit should also identify any significant gaps in board policies and standards. 

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Compliance Audit – Examination Objectives 

Examiners will seek to determine whether: 

1.	 The audit program is sufficiently independent and reports to the board or a committee of the 

board. 

2.	 The audit program addresses compliance with all applicable Federal consumer financial laws. 

3.	 The schedule and coverage of audit activities is appropriate to the size of the entity, its 

consumer financial product offerings, and its manner of conducting its consumer financial 

products business. 

4.	 All appropriate compliance and business unit managers receive copies of audit reports in a 

timely manner. 

5.	 Audit results lead to appropriate, timely corrective action. 

Compliance Audit – Examination Procedures 

Examiners will review records of the compliance audit program and discuss the audit methods, 

results, and reporting with audit managers. Examiners should: 

1.	 Request the supervised entity’s audit plans and schedules for the prior year, current year, 

and the following year. 

2.	 If compliance audit is performed by a third party, request and review the engagement letters 

or contracts covering the prior year and the current year. 

3.	 Determine the basis for the audit plan and schedule and whether reporting is to the board of 

directors or to an audit committee or other committee of the board. 

4. Request and review all compliance audit reports for a specified period of time, including 

any fair lending audit reports. 

5.	 Determine whether written audit reports identify the scope, sampling techniques, 

findings/deficiencies, recommendations for corrective action, and management responses 

with time frames for corrective action. 

6.	 Determine whether audit scopes include previous audit, and examination findings, new 

requirements, new products and channels, and self-identified higher risk areas of the 

supervised entity’s operations. 

7.	 Request and review audit workpapers for a sample of audits covering fair lending laws and 

regulations; potential unfair, deceptive, or abusive practices; or other areas that may pose 

heightened risks to consumers. 

8.	 Determine whether corrective actions are tracked and any delay in appropriate management 

response or lack of corrective action is escalated. 

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9.	 Determine whether the supervised entity’s chief compliance officer and appropriate business 

unit head(s) receive copies of audit reports, so that adjustments can be made to compliance 

program elements in a timely manner. 

10. Review audit function structure and policies and procedures to ensure that the audit 

function, whether internal or external, is sufficiently independent of the business line and 

compliance management function. 

11. Draw preliminary conclusions about the strength, adequacy, or weakness of the compliance 

audit component of the compliance management system, and identify areas for further review 

based on gaps in audit coverage or to confirm the accuracy of audit findings and reporting. 

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Examination Procedures Larger Participants
 

Examination Procedures 

Consumer Reporting Agencies 

These examination procedures are intended for use in examining larger participants in the 

consumer reporting market. The procedures contain a series of modules, grouping similar 

requirements together. Prior to using these procedures, examiners should complete a risk 

assessment and scope memorandum. Depending on the scope, and in conjunction with the 

compliance management system review procedures, each examination will cover one or more of 

the following modules: 

1. Entity Business Model 

2. Accuracy of Information and Furnisher Relations 

3. Contents of Consumer Reports 

4. Permissible Purposes and Other User Issues 

5. Consumer File and Score Disclosures 

6. Consumer Inquiries, Complaints, and Disputes and the Reinvestigation Process 

7. Consumer Alerts and Identity Theft Provisions 

8. Prescreening, Employment Reports, and Investigative Consumer Reports 

9. Other Products and Services and Risks to Consumers 

Examination Objectives 

•	 To evaluate the quality of the regulated entity’s compliance management systems, including 

its internal controls and policies and procedures, related to its consumer reporting business. 

•	 To identify acts or practices that materially increase the risk of violations of federal consumer 

financial law in connection with consumer reporting. 

•	 To gather facts that help to determine whether a regulated entity engages in acts or practices 

that violate the requirements of federal consumer financial law. 

•	 To determine, in accordance with CFPB internal consultation requirements, whether a 

violation of federal consumer financial law has occurred and whether further supervisory or 

enforcement actions are appropriate. 

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Examination Procedures Larger Participants
 

Background 

A consumer report contains information about a consumer, such as a credit history and other 

transaction details. Lenders use one type of consumer report—commonly referred to as credit 

reports—to assess borrower risk when evaluating applications for credit cards, home mortgage 

loans, automobile loans, and other types of credit. Consumer reports also may be used for a 

number of other purposes, such as to determine eligibility and pricing for other types of products 

and services and other relationships. The consumer reporting market affects hundreds of millions 

of consumers. 

The Dodd-Frank Act (12 U.S.C. 5514(a)(1)(B)) gave the Consumer Financial Protection Bureau 

(“CFPB”) supervisory authority over “larger participants” of markets for consumer financial 

products or services, as the CFPB defines by rule. In July 2012, the CFPB finalized its larger 

participant regulation in the market of consumer reporting (77 Fed. Reg. 42874). The rule, which 

appears in 12 CFR Part 1090, and was published in the Federal Register on July 20, 2012, is 

effective September 30, 2012. It provides that a nonbank covered person that offers or provides 

consumer reporting is a larger participant of the consumer reporting market if the person’s 

annual receipts resulting from consumer reporting are more than $7 million. (12 CFR 

1090.104(b)). Under the regulation, “consumer reporting” includes different types of consumer 

reporting entities, such as credit bureaus, resellers, specialty consumer reporting agencies, and 

analyzers of consumer report information and other account information. (12 CFR 

1090.104(a)(4); 77 Fed. Reg. at 42875, 42883-85). 

These entities perform a variety of functions. For example, credit bureaus collect information, 

including credit account information, items sent for collection, and public records such as 

judgments and bankruptcies. Resellers purchase consumer information from one or more 

consumer reporting agencies, typically provide further input to the consumer report (including by 

merging files from multiple agencies or adding information from other data sources), and then 

resell the report to lenders and other users. Specialty consumer reporting agencies primarily 

collect and provide specific types of information that may be used to make eligibility decisions 

for particular consumer financial products or services, such as payday loans or checking 

accounts, or for decisions in other areas, such as employment or rental housing. Analyzers apply 

statistical and other methods to consumer report information to facilitate the interpretation of that 

information and its use in decisions regarding other products and services. For example, they 

may develop and sell credit scoring services and products. 

A key federal consumer financial law relevant specifically to the consumer reporting market is the 

Fair Credit Reporting Act (“FCRA”) (15 U.S.C. 1681 et seq.).1 The FCRA was enacted in 1971 

and significantly amended in 1996, 2003, and 2010. Together with its implementing regulation, 

1 For clarity, these procedures refer to the FCRA by listing the section of the Act followed by the relevant section of Title 15 of 

the U.S. Code (e.g., Section 603; 15 U.S.C. 1681a). 

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Regulation V,2 it creates a regulatory framework for the furnishing, use, and disclosure of 

information in reports associated with credit, insurance, employment, and other decisions made 

about consumers. In doing so, it imposes a number of obligations on entities that qualify as 

“consumer reporting agencies.” It also imposes obligations on persons who use consumer report 

information (“users”) or furnish information to consumer reporting agencies (“furnishers”). 

While there is considerable overlap, the definition of “consumer reporting” in the CFPB’s larger 

participant rule does not mirror the FCRA’s definitions of “consumer report” or “consumer 

reporting agency.”3 As a result, an entity that is subject to the larger participant rule may or may 

not be a “consumer reporting agency” for FCRA purposes. Module 1 includes procedures to 

determine whether a particular larger participant is a “consumer reporting agency” and meets 

other FCRA definitions. If a particular larger participant is determined not to be a “consumer 

reporting agency” in Module 1, examiners should consult with Headquarters on the extent to 

which the remaining modules apply to the entity being examined (since many presuppose the 

existence of a consumer reporting agency) and on the extent to which other federal consumer 

financial laws apply to the entity. 

If a larger participant operates as a consumer reporting agency, the FCRA requires it to employ 

reasonable procedures, in preparing consumer reports, to “assure maximum possible accuracy” 

of the information concerning the individual about whom the report relates. (Section 607(b); 15 

U.S.C. 1681e(b)). A consumer reporting agency may provide only consumer reports in specific 

circumstances and must adopt reasonable procedures to ensure a consumer report is provided 

only when the requester has a permissible purpose. (Section 604; 15 U.S.C. 1681b; Section 

607(a); 15 U.S.C. 1681e(a)). Consumers have the right to access information in their files at 

consumer reporting agencies and the right to dispute information and have it corrected if it is 

found to be inaccurate. (Section 609(a); 15 U.S.C. 1681g(a); Section 611(a)(1); 15 U.S.C. 

1681i(a)(1)). The FCRA provides consumers additional protections such as the opportunity to 

elect not to receive prescreening offers and to request fraud and active duty alerts. (Section 

604(e)(5); 15 U.S.C. 1681b(e)(5); Section 605A; 15 U.S.C. 1681c-1). 

The FCRA also imposes special obligations on two types of consumer reporting agencies that 

operate nationwide, known as “nationwide consumer reporting agencies” (Section 603(p); 15 

U.S.C. 1681a(p)) and “nationwide specialty consumer reporting agencies” (Section 603(x); 15 

U.S.C. 1681a(x)). For example, these nationwide agencies generally must provide consumers a 

free file disclosure every twelve months upon request. (Section 612(a); 15 U.S.C. 1681j(a)). 

In addition to complying with all applicable provisions of the FCRA, larger participants of the 

consumer reporting market must comply with other applicable federal consumer financial laws. 

For example, the Gramm-Leach-Bliley Act (GLBA) and its implementing regulation, Regulation 

2 Pursuant to its authority under the Dodd-Frank Act, the CFPB in late 2011 restated the FCRA’s implementing rules in 

Regulation V, 12 CFR Part 1022. 

3 Compare 12 CFR 1090.104 with FCRA Section 603(d), (f); 15 U.S.C. 1681a(d), (f). 

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P,4 govern how nonpublic personal information that financial institutions collect about consumers 

can be shared with nonaffiliated third parties and what financial institutions must tell consumers 

about their information-sharing practices. These provisions limit how consumer reporting agencies 

can disclose to nonaffiliated third parties nonpublic personal information obtained from financial 

institutions (such as credit header information5) if the disclosure is not part of a consumer report. 

(12 CFR 1016.11; see generally 65 Fed. Reg. 33646, 33668 (May 24, 2000)). 

To carry out the objectives set forth in the Examination Objectives section, the examination 

process also will include assessing other risks to consumers. These risks may include potentially 

unfair, deceptive, or abusive acts or practices (UDAAPs). Please refer to the examination 

procedures regarding UDAAPs in the CFPB examination manual for information about the legal 

standards and the CFPB’s approach to examining for UDAAPs. The particular facts and 

circumstances in a case are crucial to the determination of UDAAPs. As set out in the 

Examination Objectives section, examiners should consult with Headquarters to determine 

whether the applicable legal standards have been met before a violation of any federal consumer 

financial law could be cited, including a UDAAP violation. 

General Considerations 

Completing the following examination modules will allow examiners to develop a thorough 

understanding of the regulated entity’s practices and operations. To complete the modules, 

examiners should obtain and review the following as applicable: 

•	 Organizational charts and process flowcharts; 

•	 Board minutes, annual reports, or the equivalent to the extent available; 

•	 Relevant management reporting; 

•	 Policies and procedures, including complaint monitoring procedures; 

•	 Applications from prospective furnishers and users; 

•	 Furnisher and user audit results; 

•	 Samples of individual consumer reports, file disclosures, and disputes and responses to them, 

and other consumer reporting product outputs, notes, and disclosures; 

•	 Telephone recordings; 

•	 Operating and compliance checklists, worksheets, and review documents; 

4 In 2011, the CFPB restated various privacy regulations that had been issued by other federal agencies under the Gramm-LeachBliley Act. The resulting Regulation P appears at 12 CFR Part 1016. 

5 “Credit header” information refers to basic information in a credit report that identifies the person who is the subject of the 

report, such as name, variations of names, current and prior addresses, and phone numbers. 

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• Relevant computer program and system details; 

• Due diligence and monitoring procedures; 

• Compensation policies; 

• Historical examination information; 

• Audit and compliance reports, and management responses to findings; 

• Training programs and materials; 

• Third-party contracts, including agreements with furnishers and users; and 

• Advertisements, marketing research, and website information. 

Depending on the scope of the examination, examiners should perform transaction testing using 

sampling procedures, which may require use of a judgmental or statistical sample. Examiners 

also should conduct interviews with management and staff to determine whether they understand 

and consistently follow the policies, procedures, and regulatory requirements applicable to 

consumer reporting and implement effective controls. 

Examiners should review relevant consumer complaints in scoping and conducting 

examinations, as appropriate. Examiners also may consider conducting user, furnisher, and/or 

consumer interviews. 

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Examination Procedures 

Module 1 - Entity Business Model 

NATURE OF OPERATIONS FOR FCRA PURPOSES 

Assess whether the entity operates as a “consumer reporting agency,” a “nationwide consumer 

reporting agency,” a “nationwide specialty consumer reporting agency,” and/or a “reseller” for 

FCRA purposes by making the following determinations: 

1.	 Consumer Reporting Agency. Determine in consultation with Headquarters if the entity 

operates as a “consumer reporting agency.” (Section 603(f); 15 U.S.C. 1681a(f)). Definitions 

of “consumer reporting agency” and “consumer report” (including a list of items that are not 

“consumer reports”) are set forth in the Glossary. If the entity does not operate as a 

“consumer reporting agency,” contact Headquarters for instructions before proceeding with 

the remaining examination procedures. 

2.	 Nationwide Consumer Reporting Agency. Determine in consultation with Headquarters 

whether the entity operates as a consumer reporting agency that compiles and maintains files 

on consumers on a nationwide basis (hereinafter a “nationwide consumer reporting agency”) 

by assessing whether it is a consumer reporting agency that regularly engages in the practice 

of assembling or evaluating, and maintaining, for the purpose of furnishing consumer reports 

to third parties bearing on a consumer’s credit worthiness, credit standing, or credit capacity, 

each of the following regarding consumers residing nationwide: 

a.	 Public record information and 

b.	 Credit account information from persons who furnish that information regularly and in 

the ordinary course of business. (Section 603(p); 15 U.S.C. 1681a(p)). 

3.	 Circumvention or Evasion of Treatment as a Nationwide Consumer Reporting Agency. If 

the answer to step 2 above is no, assess whether the entity is circumventing or evading treatment 

as a nationwide consumer reporting agency by any means, including but not limited to: 

a.	 Corporate organization, reorganization, structure, or restructuring, including merger, 

acquisition, dissolution, divestiture, or asset sale of a consumer reporting agency (for 

example, by (1) restructuring operations so that certain data types are assembled and 

maintained only by a corporate affiliate or (2) restructuring so that corporate affiliates 

separately assemble and maintain all information on consumers residing in each state); or 

b.	 Maintaining or merging public record and credit account information in a manner that is 

substantially equivalent to that described in steps 2a and 2b above. 

If the entity is circumventing or evading treatment as a nationwide consumer reporting 

agency, assess whether the entity is in compliance with all obligations imposed upon 

nationwide consumer reporting agencies in reviewing the remaining modules. (15 U.S.C. 

1681x; 12 CFR 1022.140(c)). 

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4.	 Nationwide Specialty Consumer Reporting Agency. Determine in consultation with 

Headquarters whether the entity qualifies as a “nationwide specialty consumer reporting 

agency” by determining whether it is a consumer reporting agency that compiles and 

maintains files on consumers on a nationwide basis relating to: 

a.	 Medical records or payments, 

b.	 Residential or tenant history, 

c.	 Check writing history, 

d.	 Employment history, or 

e.	 Insurance claims. (Section 603(x); 15 U.S.C. 1681a(x)). 

5.	 Reseller. Determine in consultation with Headquarters whether the entity operates as a 

“reseller” by determining whether it is a consumer reporting agency that: 

a.	 Assembles and merges information contained in the database of another consumer reporting 

agency or multiple consumer reporting agencies concerning any consumer for purposes of 

furnishing such information to any third party, to the extent of such activities; and 

b.	 Does not maintain a database of the assembled or merged information from which new 

consumer reports are produced. (Section 603(u); 15 U.S.C. 1681a(u)). 

AFFILIATES AND OTHER THIRD-PARTY RELATIONSHIPS 

6.	 Affiliates. 

a.	 Ascertain whether the entity is affiliated with any other entities. 

b.	 If so, determine: 

i.	 The identities of the affiliates, 

ii.	 The nature of their business activities, including whether any of the affiliates operate 

as consumer reporting agencies, and 

iii. The ownership and governance structure of the affiliates. 

7.	 Service Providers. Determine whether the entity uses any service providers in conducting its 

consumer reporting business. If so: 

a.	 Identify who the service providers are, whether they are affiliated with the entity, and 

what services they perform, and 

b.	 Assess whether the entity: 

i. Requests and reviews the service providers’ policies, procedures, internal controls, 

and training materials to ensure that the service providers conduct appropriate 

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training and oversight of employees or agents that have consumer contact or 

compliance responsibilities; 

ii.	 Includes in its contracts with its service providers clear expectations about 

compliance as well as appropriate and enforceable consequences for violating any 

compliance-related responsibilities; 

iii. Establishes internal controls and ongoing monitoring to determine whether its service 

providers are complying with federal consumer financial law; and 

iv. Takes prompt action to address fully any problems identified through the monitoring 

process, including terminating the relationship where appropriate. See CFPB Bulletin 

2012-03 (April 13, 2012). 

INTERNAL STRUCTURE, CONTROLS, AND COMPLIANCE MANAGEMENT 

8.	 Organizational Structure. Review the organizational chart to determine the reporting 

structure and the responsibilities of key managers for consumer reporting activities. 

9.	 Staff Who Interact With Consumers. Review the qualifications, experience levels, and 

training programs that the company requires or uses for staff who interact with consumers. 

10. Compliance Management Review. Review the entity’s general compliance management 

system using the compliance management review section of the CFPB examination manual. 

CUSTOMER BASE AND PRODUCTS AND SERVICES OFFERED 

11. Furnishers. If the entity assembles information about consumers, identify who furnishes the 

information to the entity (including, for example, by type of business or industry). 

12. Users. If the entity provides consumer reports to third parties, identify the third parties that 

use reports from the entity (including, for example, by type of business or industry). 

13. Specialization. Ascertain whether the entity specializes in collecting and reporting particular 

types of information and, if so, what types. 

14. Prescreening. Determine if the entity engages in “prescreening,” by furnishing consumer 

reports (e.g., lists of consumers) in connection with any credit or insurance transactions that 

are not initiated by the consumers (to solicit the consumers to obtain credit or insurance) and 

where the consumers have not authorized the entity to provide such reports. (Section 603(l); 

15 U.S.C. 1681a(l); Section 604(c)(1); 15 U.S.C. 1681b(c)(1)). Prescreening is discussed 

further in Module 8. 

15. Employment Reports. Determine if the entity furnishes any reports for employment 

purposes and, if so, to whom (including, for example, by type of business or industry). 

(Section 603(h); 15 U.S.C. 1681a(h); Section 604(b); 15 U.S.C. 1681b(b)). Employment 

reports are discussed further in Module 8. 

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16. Investigative Consumer Reports. Determine whether the entity provides any “investigative 

consumer reports.” (Section 603(e); 15 U.S.C. 1681a(e)). Investigative consumer reports are 

defined in the Glossary and discussed in Module 8. 

17. Credit Scoring and Other Scoring Products. 

a.	 Determine whether the entity offers any credit scores to third parties. Refer to the 

Glossary for the definition of “credit score” for these procedures.
 

b.	 Determine whether the entity offers any other types of scoring products to third parties, 

such as insurance scores. 

c.	 If the answer to (a) or (b) above is yes, determine: 

i.	 What role the entity plays in developing or modifying the scores and scoring products, 

ii.	 Whether any other parties are involved in developing or modifying the scores and 

scoring products, and 

iii. To whom the scores and scoring products are offered and provided. 

18. Other Products or Services. Ascertain whether the entity offers any types of products or 

services other than consumer reports and scoring products. If so, review all of these products 

and services and to whom they are offered and provided. Other products and services are 

discussed further in Module 9. 

19. Relationship of FCRA and Non-FCRA Products and Services. 

a. Determine if the entity offers some products and services that are subject to the FCRA 

and other products and services that the entity does not treat as subject to the FCRA. 

b.	 If so, identify: 

i.	 All products and services that the entity treats as not subject to the FCRA, 

ii.	 The information sources and uses for such products, and 

iii. Any policies, practices, and procedures deployed by the entity to differentiate 

between the products and services that it treats as subject to the FCRA and those that 

it treats as not subject to the FCRA. 

c.	 For products that the entity deems not subject to the FCRA, identify the criteria relied on 

for treating each product as non-FCRA. 

d.	 Assess in consultation with Headquarters whether there are any products or services 

offered by the entity that constitute “consumer reports,” but that the entity is not treating 

as subject to the FCRA. 

e.	 Consult with Headquarters on whether any other federal consumer financial laws should 

be reviewed with respect to those products and services that are not subject to the FCRA. 

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Module 2 - Accuracy of Information and Furnisher Relations 

This module discusses the FCRA requirement that consumer reporting agencies employ 

reasonable procedures in preparing consumer reports to assure maximum possible accuracy of 

consumer information, as well as other FCRA requirements relating to dealings with furnishers. 

Additional FCRA requirements related to accuracy are addressed in other modules (such as 

Module 6, which addresses how disputes must be handled). 

1.	 Reasonable Procedures to Ensure Maximum Possible Accuracy. Assess whether the entity 

follows reasonable procedures, in preparing a consumer report, to assure maximum possible 

accuracy of information concerning the individual to whom the report relates. (Section 607(b); 

15 U.S.C. 1681e(b)). In doing so, consider all relevant factors, including the following: 

a.	 Screening of furnishers. Determine what measures the entity uses to screen furnishers. 

b.	 Form and manner in which information is reported. Assess the steps the entity takes 

to ensure that information is furnished in a form and manner that minimizes the 

likelihood that the information may be incorrectly reflected in a consumer report. 

Consider, for example, whether the entity ensures that reported information: 

i.	 Includes appropriate identifying information about the consumer to whom it pertains, 

ii.	 Is furnished in a clearly understandable form and manner, and 

iii. Is furnished with a date specifying the time period to which the information pertains. 

c.	 Screening and matching of information from furnishers. 

i.	 Review procedures used by the entity to screen information received from furnishers 

for accuracy, including any audit procedures or other quality control measures. 

Identify relevant data quality metrics used by the entity. Assess how the entity 

responds if it receives poor quality data from a particular furnisher. 

ii.	 Review procedures used by the entity to match data to the appropriate consumer file. 

d.	 Measures to prevent duplicative tradelines on reports. Assess the measures utilized by 

the entity to ensure that reports do not include duplicative tradelines. Review, for 

example, what information the entity requires furnishers to provide—such as information 

to identify the original creditor for debts—before it accepts tradelines. 

e.	 Other measures to test accuracy. Review any other measures utilized by the entity to 

assess the accuracy of consumer information. Identify the nature of all such measures. 

2.	 Notice of Furnisher Responsibilities. Determine whether the entity provides a notice of 

furnisher responsibilities under the FCRA to every person who regularly and in the ordinary 

course of business furnishes consumer information to the entity. (Section 607(d); 15 U.S.C. 

1681e(d)). Review the terms of the notice provided to determine whether it is substantially 

similar to the model notice in Appendix M to Regulation V (12 CFR Part 1022). 

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Module 3 - Contents of Consumer Reports 

This module addresses the FCRA’s requirements governing what consumer reporting agencies 

must include in or exclude from consumer reports. 

1.	 Required Information in Consumer Reports. Determine whether the entity includes the 

following required information in its consumer reports: 

a.	 Bankruptcy information. If the report identifies information regarding a case under 

Title 11 of the U.S. Code that involves the consumer: 

i.	 The chapter of Title 11 invoked (e.g., chapter 7, 11, etc.) if provided by the source of 

the information and 

ii.	 The fact that the bankruptcy action has been withdrawn before a final judgment, if the 

entity has received documentation so certifying. (Section 605(d)(1); 15 U.S.C. 

1681c(d)(1)). 

b.	 Voluntary closure of account. The fact that an account was voluntarily closed by the 

consumer, if the entity includes information related to the account in the report after 

receiving notification from the furnisher that the account was voluntarily closed. (Section 

605(e); 15 U.S.C. 1681c(e)). 

c.	 Inquiries as factor. If the entity provides a consumer report that contains any credit or 

other risk score or predictor on any consumer and a key factor that adversely affected 

such score or predictor was the number of inquiries, a clear and conspicuous statement 

that a key factor that adversely affected such score or predictor was the number of 

inquiries (unless the entity is a check services company, acting as such, to the extent that 

it is engaged in issuing authorizations for the purpose of approving or processing 

negotiable instruments, electronic fund transfers, or similar methods of payments). 

(Section 605(d)(2); 15 U.S.C. 1681c(d)(2)). 

d.	 Existence of a dispute. The fact that the consumer disputes information, if the entity 

includes disputed information in the report after receiving notification from a furnisher of 

the dispute. (Section 605(f); 15 U.S.C. 1681c(f)). 

e.	 Overdue child support obligations. Any information on the failure of the consumer to 

pay overdue support which: 

i. Is provided 

A. To the consumer reporting agency by a state or local child support enforcement 

agency; or 

B. To the consumer reporting agency and verified by any local, state, or federal 

government agency; and 

ii. Predates the report by seven years or less. (Section 622; 15 U.S.C. 1681s-1). 

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2.	 Prohibited Information in Consumer Reports. Determine whether the entity provides 

reports that include any of the following prohibited types of information. 

a.	 Previously deleted information. Determine whether the entity includes in consumer 

reports or in a consumer’s file information that was previously deleted from the 

consumer’s file (unless the information has been reinserted based on a certification from 

the furnisher that the information is complete and accurate). (Section 611(a)(5)(B)(i), 

(5)(C); 15 U.S.C. 1681i(a)(5)(B)(i), (5)(C)). 

b.	 Obsolete information. The FCRA prohibits the inclusion of the five types of information 

listed below in all reports except those reports used in connection with (1) credit 

transactions or life insurance underwriting that involve or may reasonably be expected to 

involve at least $150,000 or (2) individual employment decisions where the annual salary 

equals or may reasonably be expected to equal $75,000 or more. For all reports that do 

not fall within these two exemptions, determine whether the entity includes any of the 

following types of prohibited information: 

i.	 Cases under Title 11 or the Bankruptcy Act, if the date of entry of the order for relief 

or the date of adjudication is more than 10 years earlier than the date of the report; 

ii.	 Civil suits, civil judgments, and records of arrest, if: 

A. The governing statute of limitations had expired as of the date of the report and 

B. The date of entry is more than seven years before the date of the report; 

iii. Paid tax liens if the date of payment is more than seven years before the date of the 

report; 

iv. Accounts placed for collection or charged to profit and loss that are more than seven 

years old as of the date of the report, provided that: 

A. For delinquent accounts placed for collection, charged to profit and loss, or 

subjected to any similar action, the seven-year period begins 180 days after the 

date of delinquency that immediately preceded the collection activity, charge to 

profit and loss, or similar action, but 

B. Special triggering rules apply for reporting on Federal Family Education Loans, 

20 U.S.C. 1080a(f), and 

C. Information regarding the status of Perkins Loans may be reported until the loan 

is paid in full, 20 U.S.C. 1087cc(c)(3); or 

v.	 Any other adverse item of information (other than records of convictions of crimes) 

that is more than seven years old as of the date of the report. (Section 605(a)-(c); 15 

U.S.C. 1681c(a)-(c)). 

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c.	 Medical contact information. Determine whether the entity includes the name, address, 

and telephone number of any medical information furnisher that has notified the agency 

of its status, other than under the following permitted circumstances: 

i.	 The name, address, and telephone number are restricted or reported using codes that 

do not identify, or provide information sufficient to infer, the specific provider or the 

nature of the services, products, or devices to a person other than the consumer or 

ii.	 The report is being provided to an insurance company for a purpose relating to 

engaging in the business of insurance other than property and casualty insurance. 

(Section 605(a)(6); 15 U.S.C. 1681c(a)(6)). 

d.	 Other prohibited medical information. Determine whether the entity provides 

consumer reports that contain any medical information about a consumer for employment 

purposes or in connection with a credit or insurance transaction, other than under any one 

of the following permitted circumstances: 

i.	 The information consists of medical contact information treated in the manner
 

specified in 2c above;
 

ii.	 If furnished in connection with an insurance transaction, the consumer affirmatively 

consented to the furnishing of the report; 

iii. If furnished for employment purposes or in connection with a credit transaction: 

A. The information is relevant to process or effect the employment or credit 

transaction and 

B. The consumer provided specific written consent for the furnishing of the report 

that describes in clear and conspicuous language the use for which the 

information will be furnished; or 

iv. The information pertains solely to transactions, accounts, or balances relating to debts 

arising from the receipt of medical services, products, or devises, where such 

information, other than account status or amounts, is restricted or reported using 

codes that do not identify, or do not provide information sufficient to infer, the 

specific provider or the nature of such services, products, or devices, as provided in 

step 2c above. (Section 604(g); 15 U.S.C. 1681b(g)). 

e.	 Information subject to an identity theft block. Determine whether the entity provides 

any consumer reports that include information that must be blocked pursuant to an 

identity theft block, as explained in steps 15-21 of Module 7. (Section 605B; 15 U.S.C. 

1681c-2). 

f.	 Prohibited information about prescreening inquiries. Determine whether the entity 

includes information about “credit or insurance transactions that are not initiated by the 

consumer” (which are typically related to prescreened offers) in consumer reports. This 

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prohibition does not apply to disclosure to the consumer of such inquiries made no more 

than one year prior to the consumer’s request for a file disclosure. Note that the term 

“credit or insurance transactions that are not initiated by the consumer” does not include 

the use of a consumer report by a person with which the consumer has an account or 

insurance policy, for purposes of reviewing the account or insurance policy or collecting 

the account. (Section 603(m); 15 U.S.C. 1681a(m); Section 604(c)(3); 15 U.S.C. 

1681b(c)(3)). 

g.	 Prohibited disclosure of the fact that government has sought or obtained 

information for counterterrorism purposes. 

i.	 Determine whether the entity has disclosed, in a consumer report or in any other 

manner, any information indicating that the FBI has sought or obtained a consumer 

report or information identifying the consumer’s financial institutions. If so, 

determine whether prior to making the disclosure, the agency received a 

certification from an appropriate FBI official that disclosure may: 

A. Threaten national security; 

B. Interfere with a criminal, counterterrorism, or counterintelligence investigation; 

C. Interfere with diplomatic relations; or 

D. Endanger the life or physical safety of any person. (Section 626(d); 15 U.S.C. 

1681u(d)). 

ii.	 Determine whether the entity discloses, in a consumer report or in any other manner, 

any information indicating that a government agency that conducts investigations, 

intelligence or counterintelligence activities, or analysis related to international 

terrorism has sought or obtained access to a consumer report or other information in the 

consumer’s file. If so, determine whether prior to making the disclosure, the agency 

received a certification from an appropriate agency official that disclosure may: 

A. Threaten national security; 

B. Interfere with a criminal, counterterrorism, or counterintelligence investigation; 

C. Interfere with diplomatic relations; or 

D. Endanger the life or physical safety of any person. (Section 627(c); 15 U.S.C. 

1681v(c)). 

h.	 Adverse information from previously prepared investigative reports. If the entity 

prepares investigative consumer reports, determine whether any of its consumer reports 

include any adverse information from a previously-generated investigative consumer 

report (other than information that is a matter of public record). If so, determine whether: 

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i.	 Such adverse information was verified in the process of preparing the subsequent 

consumer report or 

ii.	 The adverse information was received within the three-month period preceding the 

date the subsequent report was furnished. (Section 614; 15 U.S.C. 1681l). 

3.	 Procedures Regarding Contents of Consumer Reports. Determine whether the entity 

maintains adequate procedures to meet the FCRA requirements regarding information that 

must be contained in or excluded from consumer reports (described in steps 1 and 2 above). 

Consider in particular the following: 

a.	 Whether the entity has reasonable procedures in place to ensure that required information 

about bankruptcies, voluntary closures of accounts, and inquiries as factors is included 

and that disputed information is marked as such, as described in step 1 above; 

b.	 Whether the entity uses reasonable procedures to ensure that information described in 

step 2b above is excluded from consumer reports once it is too old to be disclosed; and 

c.	 Whether the entity has reasonable procedures in place to protect medical contact
 

information, as described in step 2c above. (Section 607(a); 15 U.S.C. 1681e(a)).
 

(Procedures to prevent the reappearance of deleted information are addressed in step 15 of 

Module 6. Procedures related to identity theft and prescreening inquiries are discussed in step 1 

of Module 7 and step 11 of Module 8, respectively.) 

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Module 4 - Permissible Purposes and Other User Issues 

This module discusses various requirements that the FCRA imposes on consumer reporting 

agencies in their dealings with users of consumer reports. One such requirement is the obligation 

to ensure that anyone to whom it furnishes a consumer report has a permissible purpose (as 

detailed below) to obtain a report. 

Examiners should note that reports made to governmental agencies that contain only identifying 

information (i.e., name, address, former addresses, places of employment, or former places of 

employment) are not subject to the permissible purpose requirement described below. (Section 

608; 15 U.S.C. 1681f). The FCRA also requires certain disclosures, on proper certification, to the 

FBI for counterintelligence purposes and to other governmental agencies for counterterrorism 

purposes. (Section 626; 15 U.S.C. 1681u; Section 627; 15 U.S.C. 1681v). 

1.	 Verification of Identity and Uses of Prospective Users. Determine whether the entity 

makes a reasonable effort to verify the identity of a new prospective user and the uses 

certified by such prospective user prior to furnishing a consumer report to the user. (Section 

607(a); 15 U.S.C. 1681e(a)). Determine the steps the entity takes to verify the uses certified 

by prospective users (such as onsite visits to the users’ places of business, checking the users’ 

references, confirmation of applicants’ business identity, examining applications and 

supporting documentation supplied by applicants, or other methods, to detect suspect 

representations, discrepancies, illogical information, suspicious patterns, factual anomalies, 

and other indicia of unreliability). 

2.	 Certification of Purposes. Determine whether the entity’s procedures require prospective 

users of consumer reports to: 

a.	 Identify themselves, 

b.	 Certify the purposes for which the information is sought, and 

c.	 Certify that the information will be used for no other purpose. (Section 607(a); 15 U.S.C. 

1681e(a)). 

3.	 Reasonable Procedures Regarding Permissible Purposes. Determine whether the entity 

maintains reasonable procedures to ensure that, aside from the provision of consumer reports 

to government agencies in appropriate circumstances, consumer reports are furnished only in 

the following permissible circumstances: 

a.	 In response to a court order or federal grand jury subpoena. 

b.	 In accordance with the written instructions of the consumer. 

c.	 To a person that the entity has reason to believe intends to use the report as information 

for any of the following reasons: 

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i.	 In connection with a credit transaction involving the consumer on whom information 

is to be furnished and that involves (a) extending credit to the consumer, (b) 

reviewing an account of the consumer, or (c) collecting an account of the consumer; 

ii.	 For employment purposes; 

iii. In connection with the underwriting of insurance involving the consumer; 

iv. In connection with a determination of the consumer’s eligibility for a license or other 

benefit granted by a governmental instrumentality that is required by law to consider 

an applicant’s financial responsibility or status; 

v.	 As a potential investor or servicer, or current insurer, in connection with a valuation 

of, or an assessment of the credit or prepayment risks associated with, an existing 

credit obligation; 

vi.	 Otherwise has a legitimate business need for the information: 

A. In connection with a business transaction that the consumer initiates or 

B. To review an account to determine whether the consumer continues to meet the 

terms of the account. 

vii. To executive departments and agencies in connection with the issuance of 

government-sponsored individually billed travel charge cards. 

d.	 In response to a request by the head of a state or local child support enforcement agency 

(or authorized appointee) if the person making the request makes various certifications to 

the consumer reporting agency regarding the need to obtain the report. 

e.	 To an agency administering a state plan under 42 U.S.C. 654 to set an initial or modified 

child support award. 

f.	 To the Federal Deposit Insurance Corporation or the National Credit Union 

Administration in connection with its appointment or operation as a conservator, receiver, 

or liquidating agent for an insured depository institution or insured credit union or its 

resolution or liquidation of a failed or failing insured depository institution or insured 

credit union. (Section 604; 15 U.S.C. 1681b; Section 607(a); 15 U.S.C. 1681e(a)). 

4.	 Reasonable Grounds for Belief That Information Will Be Misused. Determine whether 

the entity has furnished a consumer report to any person even though the entity had 

reasonable grounds for believing that the consumer report would not be used for one of the 

permissible purposes listed in step 3 above. (Section 607(a); 15 U.S.C. 1681e(a)). 

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5.	 Specific Permissible Use Issues for Consumer Reporting Agencies That Furnish 

Reports for Resale. 

a.	 Determine whether the entity provides reports to any person that seeks the report for 

purposes of reselling the report or any information in the report. (For purposes of this 

analysis and step 5b below, do not consider any reselling where the end-user is a federal 

agency or department that obtains the information in order to determine the consumer’s 

eligibility for access to classified information and that certifies that nondisclosure is 

required for the reasons set forth in Section 607(e)(3) (15 U.S.C. 1681e(e)(3)).) 

b.	 If the entity does furnish reports that are used for resale, determine whether the entity 

requires the reseller to disclose to the entity the following information: 

i.	 The identity of the end-user of the report (or information) and 

ii.	 Each permissible purpose for which the report is furnished to the end-user of the 

report (or information). (Section 604; 15 U.S.C. 1681b; Section 607(e); 15 U.S.C. 

1681e(e)). 

6.	 Specific Permissible Use Issues for Entities that Resell Reports (or Information From 

Reports) Obtained From Other Consumer Reporting Agencies. 

a.	 Determine whether the entity obtains consumer reports from another consumer reporting 

agency for purposes of reselling the report or any information in the report. (For 

purposes of this analysis and step 6b below, do not consider any reselling where the enduser is a federal agency or department that obtains the information in order to determine 

the consumer’s eligibility for access to classified information and that certifies that 

nondisclosure is required for the reasons set forth in Section 607(e)(3) (15 U.S.C. 

1681e(e)(3)).) 

b.	 If so, consider the following with respect to the entity’s reselling activities: 

i.	 Determine whether the entity discloses to the originating consumer reporting agency: 

A. The identity of the end-user of the report or information and 

B. Each permissible purpose for which the report or information is furnished to the 

end-user. (Section 607(e)(1); 15 U.S.C. 1681e(e)(1)). 

ii.	 Assess whether the entity has established and complies with reasonable procedures 

designed to ensure that the report or information is resold only for a permissible 

purpose identified in step 3 above. Determine, for example, whether the entity 

requires each person to which the report or information is resold and that resells or 

provides the report or information to any other person to: 

A. Identify each end-user of the resold report or information, 

B. Certify each purpose for which the report or information will be used, and 

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C. Certify that the report or information will be used for no other purpose. (Section 

607(e)(2)(A); 15 U.S.C. 1681e(e)(2)(A)). 

iii. Assess whether the entity makes reasonable efforts before reselling any report to 

verify the identifications and certifications referred to in step 6bii above. (Section 

607(e)(2)(B); 15 U.S.C. 1681e(e)(2)(B)). 

7.	 Improper Limits on User Disclosures to Consumers. Determine whether the entity 

prohibits any user of its consumer reports from disclosing the report’s contents to the 

consumer, if adverse action against the consumer has been taken by the user based in whole 

or in part on the report. (Section 607(c); 15 U.S.C. 1681e(c)). 

8.	 Required Notices to Users. Determine whether the entity provides users with a notice of 

their responsibilities under the FCRA. (Section 607(d); 15 U.S.C. 1681e(d)). Review the 

content of the notice provided to determine: 

a.	 Whether it is substantially similar to the content prescribed in Appendix N to Regulation 

V (12 CFR Part 1022) and 

b.	 Whether the information is clearly and prominently displayed. 

9.	 Address Discrepancy Notices. If the entity is a nationwide consumer reporting agency, 

determine whether it notifies persons who request consumer reports of the existence of an 

address discrepancy in all instances when: 

a.	 A request includes an address for the consumer that substantially differs from the 

addresses in the consumer’s file and 

b.	 The entity provides a consumer report in response to the request. (Section 605(h); 15 

U.S.C. 1681c(h)). 

10. Unauthorized disclosures by officers or employees. Determine whether the entity has 

policies and procedures in effect to ensure that officers and employees do not provide 

information concerning an individual from the agency’s files to a person not authorized to 

receive that information. (Section 620; 15 U.S.C. § 1681r). 

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Module 5 - Consumer File and Score Disclosures 

This module assesses compliance with the FCRA provisions that require consumer reporting 

agencies to give consumers access to their files and scores. 

1.	 Identification Required for Consumer Disclosures. 

a.	 Determine whether the entity requires consumers to furnish proper identification in order 

to obtain disclosure of their files and/or scores. (Section 610(a)(1); 15 U.S.C. 

1681h(a)(1)). 

b.	 Assess whether the entity has developed and implemented reasonable requirements for 

the types of information consumers need to provide to constitute proof of identity. 

Evaluate whether the entity: 

i.	 Ensures that the information is sufficient to enable the entity to match consumers with 

their files and 

ii.	 Adjusts the information to be commensurate with an identifiable risk of harm arising 

from misidentifying the consumer. (For illustrative examples, see 12 CFR 1022.123.) 

2.	 Statement of Rights to Be Provided With Disclosures. Determine whether the entity 

provides the following with each written file disclosure provided at the consumer’s request: 

a.	 A summary of rights that: 

i.	 Is substantially similar to the CFPB’s model summary in Appendix K to Regulation 

V (12 CFR Part 1022), 

ii.	 Has all information clearly and prominently displayed, and 

iii. Includes a description of: 

A. The right of a consumer to obtain a copy of a consumer report under Section 

609(a) (15 U.S.C. 1681g(a)) from each consumer reporting agency; 

B. The frequency and circumstances under which a consumer is entitled to receive a 

free consumer report under Section 612 (15 U.S.C. 1681j); 

C. The right of a consumer to dispute information in the consumer’s file under 

Section 611 (15 U.S.C. 1681i); 

D. The right of a consumer to obtain a credit score from a consumer reporting agency 

and a description of how to obtain a credit score; 

E. The method by which a consumer can contact, and obtain a free consumer report 

from, a nationwide consumer reporting agency; and 

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F.	 The method by which a consumer can contact, and obtain a consumer report from, 

a nationwide specialty consumer reporting agency; 

b.	 In the case of a nationwide consumer reporting agency, a toll-free telephone number for 

the entity at which personnel are accessible to consumers during normal business hours; 

c.	 A list of all federal agencies responsible for enforcing the FCRA (with addresses and phone 

numbers), in a form that will assist the consumer in selecting the appropriate agency; 

d.	 A statement that the consumer may have additional rights under state law and that the 

consumer may wish to contact a state or local consumer protection agency or a state 

attorney general (or the equivalent thereof) to learn of those rights; and 

e.	 A statement that a consumer reporting agency is not required to remove accurate 

derogatory information from a consumer’s file, unless the information is outdated under 

Section 605 (15 U.S.C. 1681c) or cannot be verified. (Section 609(c)(1)-(2); 15 U.S.C. 

1681g(c)(1)-(2); 12 CFR Part 1022, Appendix K). 

3.	 Information to Be Provided in Response to File Requests. Determine whether the entity 

clearly and accurately discloses the following to consumers upon request: 

a.	 All information in the consumer’s file at the time of the request, except— 

i.	 The entity must not disclose the first five digits of the consumer’s Social Security 

number (or similar identification number) if the consumer requests (after providing 

appropriate proof of identity) that they be truncated (as explained in step 1b above); 

and 

ii.	 The entity need not disclose any information concerning credit scores or any other 

risk scores or predictors relating to the consumer (except under the circumstances 

described in step 4 below). 

b.	 The sources of the information, except for sources acquired and used solely in preparing 

an investigative consumer report. (For disclosures required with respect to investigative 

consumer reports, see step 19 of Module 8.) 

c.	 The name or trade name written in full (and, if requested by the consumer, the address 

and telephone number) of each person that procured a consumer report (including all endusers, but not including certain federal government users for purposes related to classified 

information in national security investigations): 

i.	 For employment purposes, during the two-year period preceding the date of the 

request; or 

ii.	 For any other purpose, during the one-year period preceding the date of the request. 

d.	 The dates, original payees, and amounts of any checks that: 

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i.	 Are included in the file at the time of the disclosure and 

ii.	 Form the basis for any adverse characterization of the consumer. 

e.	 A record of all inquiries received by the entity during the 1-year period preceding the 

request that identified the consumer in connection with a credit or insurance transaction 

that was not initiated by the consumer. 

f.	 If the consumer requests a credit file and not a credit score, a statement that the consumer 

may request and obtain a credit score. (Section 609(a); 15 U.S.C. 1681g(a)). 

4.	 Information to Be Provided in Response to Credit Score Requests. 

a.	 Determine whether the entity: 

i.	 Distributes any scores that are used in connection with residential real property loans 

or 

ii.	 Develops any scores that assist credit providers in understanding a consumer’s 

general credit behavior and predicting the consumer’s future credit behavior. 

(Section 609(f)(4); 15 U.S.C. 1681g(f)(4)). 

If the answers to (i) and (ii) above are both “no,” skip to step 5 below. 

b.	 Assess the entity’s handling of consumer requests for credit scores. Refer to the Glossary 

and step 17 of Module 1 for the definition of “credit score.” In evaluating the entity’s 

handling of consumer requests for credit scores, consider: 

i.	 Whether the entity provides the following information when a consumer requests a 

credit score: 

A. A statement indicating that the information and credit scoring model may be 

different than the credit score that may be used by the lender and 

B. A notice that includes: 

(1) The current credit score of the consumer or the most recent credit score of the 

consumer that was previously calculated by the entity for a purpose related to 

the extension of credit; 

(2) The range of possible credit scores under the model used; 

(3) All of the key factors (as defined in the Glossary) that adversely affected the 

credit score of the consumer in the model used (not to exceed four factors, 

except that if the number of inquiries is a key factor it must be included 

without regard to the numerical limit); 

(4) The date on which the credit score was created; and 

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(5) The name of the source that provided the credit score or credit file upon which 

the credit score was created. (Section 609(f)(1), (f)(2)(B), (f)(7), (f)(9); 15 

U.S.C. 1681g(f)(1), (f)(2)(B), (f)(7), (f)(9)). 

ii.	 Whether the entity provides a credit score that: 

A. Is derived from a credit scoring model that the entity distributes widely to users in 

connection with residential real property loans or 

B. Should assist the consumer in understanding the credit scoring assessment of the 

consumer’s credit behavior and predictions about the consumer’s future credit 

behavior. (Section 609(f)(7); 15 U.S.C. 1681g(f)(7)). 

5.	 Explaining File and Score Disclosures. Evaluate whether the entity provides trained 

personnel to explain information in the disclosures to consumers described above. (Section 

610(c); 15 U.S.C. 1681h(c)). 

6.	 Contact Information for Developer of Score or Methodology. When a consumer requests 

a credit score that the entity distributes but did not develop or modify, assess whether the 

entity provides the consumer with the name, address, and website for contacting the person 

or entity that developed the score or developed the methodology for the score. (Section 

609(f)(5); 15 U.S.C. 1681g(f)(5)). 

7.	 Form of Disclosures. Determine whether the entity: 

a.	 Makes the disclosures described in steps 2, 3, 4, and 6 above in writing, unless the 

consumer authorizes another form (Section 610(a)(2), (b); 15 U.S.C. 1681h(a)(2), (b)) 

and 

b.	 Allows a consumer obtaining a disclosure described above to be accompanied by one 

other person of his or her choosing who furnishes reasonable identification (Section 

610(d); 15 U.S.C. 1681h(d)). 

8.	 Free Annual Reports. The FCRA requires nationwide consumer reporting agencies and 

nationwide specialty consumer reporting agencies to provide free annual reports if they have 

been in continuous operation for at least a year. Nationwide consumer reporting agencies 

must jointly operate a “centralized source” that consumers can use to obtain their free 

reports. Each nationwide specialty consumer reporting agency must make free reports 

available through a “streamlined process.” 

a. Who must provide free annual reports. Determine if the entity has an obligation to 

provide free annual reports in response to consumer requests by assessing whether: 

i.	 It has been furnishing consumer reports to third parties on a continuing basis with 

respect to consumers residing nationwide for the last 12 months and 

ii.	 It is a nationwide consumer reporting agency or a nationwide specialty consumer 

reporting agency (as determined in steps 2 and 4 of Module 1). 

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If the answer to (i) or (ii) above is no, skip to step 9 below regarding free disclosures after 

adverse actions. (Section 612(a)(1)(A), (a)(4); 15 U.S.C. 1681j(a)(1)(A), (a)(4)). 

b.	 Basic compliance. Determine whether the entity provides all of the disclosures described 

in steps 2 and 3 above without charge to the consumer upon a consumer’s request once 

during any 12-month period. For nationwide consumer reporting agencies, this obligation 

applies only to requests made through the centralized source. (Section 612(a)(1)(A)-(B); 

15 U.S.C. 1681j(a)(1)(A)-(B)). 

c.	 Timeliness. Assess whether the entity provides free annual reports within the statutory 

timeframe, which is within 15 days after the date the request is received. (Section 

612(a)(2); 15 U.S.C. 1681j(a)(2)). 

d.	 Special requirements for nationwide consumer reporting agencies. If the entity is a 

nationwide consumer reporting agency, assess whether it meets the following 

requirements in addition to those described in (b) and (c) above: 

i.	 Ease of access. Determine whether the entity through the centralized source does the 

following when consumers seek information regarding their files with the entity: 

A. Makes available a standardized form for consumers to use when requesting an 

annual file disclosure request by mail or through the website; 

B. Provides information through the centralized source website and telephone 

number regarding how to make a request through the website, by a toll-free 

telephone number, and by a single mail address; 

C. Provides clear and easily understandable information and instructions, including: 

(1) Providing information on the progress of the consumer’s request; 

(2) Providing access on the website to a “help” or “frequently asked questions” 

screen, which includes specific information that consumers might reasonably 

need to request file disclosures, answers to questions that consumers might 

reasonably ask, and instructions on how to file a complaint with the 

centralized source and the CFPB; 

(3) If a consumer cannot be properly identified, notifying the consumer and 

providing directions on how to complete the request, including what 

additional information or documentation will be required to complete the 

request, and how to submit such information; and 

(4) A statement indicating that the consumer has reached the website or telephone 

number for ordering free annual credit reports as required by federal law. (12 

CFR 1022.136(a)-(b)). 

ii.	 Collection of personally identifiable information. Determine whether the entity 

collects only as much personally identifiable information through the centralized 

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source as is reasonably necessary to properly identify the consumer and to process the 

transaction(s) requested by the consumer. (12 CFR 1022.136(b)(2)(ii)). 

iii.	 Procedures to anticipate and respond to volume of consumers who request 

consumer reports from the centralized source. Determine whether the entity, in 

conjunction with the other nationwide consumer reporting agencies, has implemented 

reasonable procedures to anticipate, and respond to, the volume of consumers who use 

the centralized source to meet the requirements of 12 CFR 1022.136(b)(2)(i), (c), & (e). 

iv.	 Reports owned by an associated consumer reporting agency. Determine whether, 

in response to a consumer’s request (accompanied by proper identification) through 

the centralized source, the entity provides a file disclosure of every consumer report 

that the entity has the ability to provide to a third party relating to that consumer, 

regardless of whether the consumer report is owned by the entity or by an associated 

consumer reporting agency. (12 CFR 1022.136(d)). 

v.	 Advertising, marketing, or establishment of accounts. If any advertising or 

marketing for products or services or requests to establish accounts are done through 

the centralized source, determine whether: 

A. They are delayed until after the consumer has obtained his or her annual file 

disclosure and 

B. Any communications, instructions, or permitted advertising or marketing do not 

interfere with, detract from, contradict, or otherwise undermine the purpose of the 

centralized source. (12 CFR 1022.136(g)). 

vi.	 Conditions. Determine whether the centralized source requires consumers to set up 

an account or asks or requires consumers to agree to terms or conditions in 

connection with obtaining an annual file disclosure from the entity. (12 CFR 

1022.136(h)). 

e.	 Special requirements for nationwide specialty consumer reporting agencies. If the 

entity is a nationwide specialty consumer reporting agency, assess whether it meets the 

following requirements in addition to those described in 8b and 8c above: 

i.	 Streamlined process. Determine whether the entity has established a streamlined 

process for accepting and processing consumer requests for free annual disclosures 

that: 

A. Includes a toll-free telephone number that: 

(1) Allows consumers to request their disclosures; 

(2) Provides clear and prominent instructions for requesting disclosures by any 

additional available request methods that do not interfere with, detract from, 

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contradict, or otherwise undermine the ability of consumers to obtain annual 

file disclosures through the streamlined process; 

(3) Is published in conjunction with other published numbers for the entity; and 

(4) Is clearly and prominently posted on any website related to consumer 

reporting that the entity owns or maintains, along with instructions for 

requesting disclosures by any additional available request methods; and 

B. Provides clear and easily understandable information and instructions to 

consumers, including: 

(1) Providing information on the status of the consumer’s request; 

(2) For a website request method, providing access to a “help” or “frequently asked 

questions” screen, which includes more specific information on how to order 

file disclosures, answers to questions that consumers might reasonably ask, and 

instructions on how to file a complaint with the entity and the CFPB; and 

(3) If a consumer cannot be properly identified, providing notice of that fact and 

directions on how to complete the request, including what additional 

information or documentation is required and how to submit it. (12 CFR 

1022.137(a)). 

ii.	 Collection of personal information. Determine whether the entity collects only as 

much personal information as is reasonably necessary to properly identify the 

consumer. (12 CFR 1022.137(a)(2)(ii)). 

iii. Anticipating and responding to volume of consumers. Determine whether the 

entity has implemented reasonable procedures to anticipate, and respond to, the 

volume of consumers who will use the streamlined process to meet the requirements 

of 12 CFR 1022.137(a)(2)(i), (b), & (c). 

iv.	 Requests received through other methods. Determine whether the entity accepts 

consumer requests for annual file disclosures from consumers who use methods other 

than the streamlined process or instructs such consumers on how to use the 

streamlined process. (12 CFR 1022.137(e)). 

f.	 Handling of personally identifiable information. Determine whether the entity (or the 

centralized source) uses or discloses any personally identifiable information collected 

from a consumer because of the consumer’s request for an annual or other disclosure 

required by the FCRA from the entity that the consumer made through the centralized 

source or the streamlined process, for any reason other than the following: 

i.	 To provide the FCRA disclosure requested by the consumer; 

ii.	 To process a transaction requested by the consumer at the same time as the disclosure 

request; 

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iii. To comply with applicable legal requirements; or 

iv. To update personally identifiable information already maintained by the entity for the 

purpose of providing consumer reports, provided that the entity uses and discloses the 

updated personally identifiable information subject to the same legal restrictions that 

would apply to the information that is updated or replaced. (12 CFR 1022.136(f), 

1022.137(d)). 

9.	 Free Disclosures After Adverse Action. Determine whether the entity complies with its 

obligation to provide a statement of rights and make the file disclosure described in steps 2 

and 3 above without charge to any consumer about whom it maintains a file if the consumer 

makes a request within 60 days after receiving either: 

a.	 An adverse action notice or 

b.	 A notification from a debt collection agency affiliated with the entity stating that the 

consumer’s credit rating may be or has been adversely affected. (Section 612(b); 15 

U.S.C. 1681j(b)). 

10. Free Disclosures in Connection With Fraud Alerts. If the entity is a nationwide consumer 

reporting agency and inserts a fraud alert in the consumer’s file at the request of the 

consumer or the consumer’s representative, determine whether it: 

a.	 Discloses to the consumer that the consumer may request: 

i.	 A free file disclosure (in the case of an initial fraud alert) or 

ii.	 Two free file disclosures in the 12-month period beginning on the date of the fraud 

alert (in the case of an extended fraud alert); and 

b.	 Provides all disclosures described in steps 2 and 3 above without charge within three 

business days after the consumer requests the disclosure. (Section 605A(a)(2), (b)(2); 15 

U.S.C. 1681c-1(a)(2), (b)(2)). 

11. Other Free Disclosures. Determine whether the entity makes all disclosures described in 

steps 2 and 3 above without charge to any consumer upon request once during any 12-month 

period if the consumer certifies in writing that the consumer: 

a.	 Is unemployed and intends to apply for employment in the 60-day period beginning on 

the date of the certification, 

b.	 Is a recipient of public welfare assistance, or 

c.	 Has reason to believe that the consumer’s file at the entity contains inaccurate 

information due to fraud. (Section 612(c); 15 U.S.C. 1681j(c)).
 

12. Charges for Other File Disclosures. Determine whether any charges imposed by the entity 

for file disclosures not covered in steps 8 to 11 above are: 

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a.	 Reasonable, 

b.	 Not in excess of the annually adjusted maximum amount ($11.50 as of January 2012), 

and 

c.	 Indicated to the consumer before the disclosure is made. (Section 612(f); 15 U.S.C. 

1681j(f)). 

13. Charges for Credit Score Disclosures. Determine in consultation with Headquarters 

whether the fees charged by the entity for credit score disclosures are reasonable and fair. 

(Section 609(f)(8); 15 U.S.C. 1681g(f)(8)). 

14. “Free” Disclosures in Exchange for Other Purchases. 

a.	 Determine whether the entity offers any file disclosures prepared by or obtained from, 

directly or indirectly, a nationwide consumer reporting agency that are represented, either 

expressly or by implication, to be available to the consumer at no cost if the consumer 

purchases a product or service or agrees to purchase a product or service subject to 

cancellation. 

b.	 If so, determine in consultation with Headquarters whether all such offers prominently 

include the disclosures required by 12 CFR 1022.138(b), as applicable, and comply with 

the general requirements of 12 CFR 1022.138(a)(3)(i)-(vi). Advertising issues are also 

addressed in Module 9. 

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Module 6 - Consumer Inquiries, Complaints, and Disputes 

and the Reinvestigation Process 

This module addresses consumer inquiries, complaints, and disputes, as well as the investigation 

procedures the FCRA requires a consumer reporting agency to follow if a consumer disputes the 

completeness or accuracy of any item of information contained in his or her file. Compliance 

management is addressed in Module 1 and in the compliance management review section of the 

examination manual, and consumer file disclosure requests are discussed in detail in Module 5. 

GENERAL PROCESSES 

1.	 Channels for Consumers to Contact the Entity. 

a.	 Identify all channels the entity makes available for consumers to submit inquiries, 

complaints, and disputes, including telephone, physical locations, addresses for written 

submissions, websites, email addresses, and other Internet-based channels. 

b.	 Assess the effectiveness of each of these channels, including ease of access for 

consumers, wait times, and company responsiveness. Consider the limits, if any, that 

each channel places on the amount or type of information or documentation that 

consumers can submit in support of their dispute. 

2.	 Toll-Free Number for Nationwide Consumer Reporting Agencies. If the entity is a 

nationwide consumer reporting agency, determine whether it has established a toll-free 

telephone number at which personnel are accessible to consumers during normal business 

hours. Assess the ease of accessing a live person, including hold times and call abandonment 

rates. (Section 609(c)(2)(B); 15 U.S.C. 1681g(c)(2)(B)). 

3.	 Responsiveness and Training of Personnel. Assess the responsiveness and training of 

company personnel who handle consumer inquiries, complaints, and disputes. In doing so: 

a.	 Determine if staffing levels are sufficient for the volume of inquiries, complaints, and 

disputes. Assess whether assumptions used for staffing determinations are supported by 

analysis. (For procedures related to staffing levels for the centralized source and 

streamlined processes, see also steps 8d and 8e of Module 5). 

b.	 Consider response times and other performance metrics used by the entity. 

c.	 Assess the level of training provided or required for all staff that handle consumer 

inquiries, complaints, and disputes. (For procedures related to training of personnel who 

explain file disclosures, see step 5 of Module 5.) 

4.	 Systems and Procedures Review. 

a.	 Evaluate the systems, procedures, and policies used by the entity for capturing, logging, 

categorizing, tracking, handling, investigating, and resolving consumer inquiries, 

disputes, and complaints. Assess whether these systems and procedures are adequate to 

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ensure compliance with the requirements identified in steps 5-25 below. Include in this 

review any systems and procedures used to communicate information to and from 

furnishers, users, and other consumer reporting agencies. 

b.	 Assess how the systems and procedures identify and handle: 

i.	 Patterns of complaints or disputes that suggest systematic problems and 

ii.	 Repeated complaints or disputes by the same consumer. 

5.	 Handling of CFPB Complaints. If the entity is a nationwide consumer reporting agency, 

assess the following with respect to complaints it receives from the CFPB: 

a.	 Whether the entity reviews each such complaint to determine whether its legal 

obligations under the FCRA have been met (including any obligation imposed by an 

applicable court or administrative order); 

b.	 Whether it provides reports to the CFPB regarding the determinations of and actions 

taken in connection with its review of such complaints; and 

c.	 Whether it maintains, for a reasonable time period, records regarding the disposition of 

each such complaint. (Section 611(e)(3); 15 U.S.C. 1681i(e)(3)). 

DISPUTES AND THE REINVESTIGATION PROCESS 

Steps 6 to 21 below apply to consumer reporting agencies except those that operate only as 

resellers (as defined in the Glossary and step 5 of Module 1). If the entity operates only as a 

reseller, skip to steps 22 to 25 below. 

6.	 Reasonable Reinvestigation. Determine whether the entity conducts a reasonable 

reinvestigation, free of charge, when a consumer notifies the entity (directly or through a 

reseller) that the consumer disputes the completeness or accuracy of any item of information 

contained in the consumer’s file at the entity. (Section 611(a)(1); 15 U.S.C. 1681i(a)(1)). 

7.	 Termination of Frivolous or Irrelevant Reinvestigations. Assess the circumstances under 

which the entity declines to investigate a dispute on the grounds that it is frivolous or 

irrelevant. Determine: 

a.	 Whether the entity reasonably determines before terminating such a reinvestigation that 

the dispute by the consumer is frivolous or irrelevant (such as if a consumer fails to 

provide sufficient information to investigate the disputed information) and 

b.	 Whether the entity provides notice to the consumer within five business days after 

determining that a dispute is frivolous or irrelevant, by mail or other means authorized by 

the consumer, that: 

i.	 Includes the reasons for the determination and 

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ii.	 Identifies any information required to investigate the disputed information (the entity 

may identify this information by using a standardized form describing the general 

nature of such information). (Section 611(a)(3); 15 U.S.C. 1681i(a)(3)). 

8.	 Review of All Relevant Information. Determine whether in conducting its reinvestigations 

the entity reviews and considers all relevant information submitted by the consumer within 

30 days after receiving the dispute from the consumer or reseller. (Section 611(a)(1)(A), 

(a)(4); 15 U.S.C. 1681i(a)(1)(A), (a)(4)). Review how the entity handles and uses 

attachments and other supplementary materials and text provided by the consumer in disputes 

submitted by mail, Internet, telephone, or other means. 

9.	 Timely and Complete Notification to Furnisher. 

a.	 Determine whether within five business days after receiving notice of a dispute, the entity 

provides notification to the furnisher (other than in cases of “expedited dispute 

resolutions” described in step 19 below). 

b.	 Assess whether this notification includes all relevant information regarding the dispute 

that the entity has received from the consumer or reseller. (Section 611(a)(2)(A); 15 

U.S.C. 1681i(a)(2)(A)). In making this assessment: 

i.	 Consider disputes that come in through all of the different channels that consumers 

can use to lodge disputes. 

ii.	 Assess how information from attachments submitted by consumers is handled. 

10. Update to Furnisher if Additional Information Received. If the entity receives additional 

information from the consumer or reseller after it provides the initial notification to the 

furnisher, but within thirty days after receiving the dispute, determine whether the entity 

provides such information to the furnisher (other than in cases of “expedited dispute 

resolutions” described in step 19 below). (Section 611(a)(2)(B); 15 U.S.C. 1681i(a)(2)(B)). 

11. Time Limits for Completing Reinvestigation. For disputes that are not terminated as 

frivolous or irrelevant (see step 7 above), determine whether the entity completes the 

reinvestigation and records the current status or deletes the information before the applicable 

statutory deadline. The deadline is 30 days after the entity receives the notice from the 

consumer or reseller, except under the following two circumstances: 

a.	 The time can be extended up to 15 additional days if: 

i.	 The entity receives information from the consumer during the initial 30-day period 

that is relevant to the reinvestigation and 

ii.	 The disputed information is not found to be inaccurate or incomplete or unverifiable 

in the initial 30-day period (Section 611(a)(1); 15 U.S.C. 1681i(a)(1)); or 

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b.	 The deadline is 45 days after receipt of the notice from the consumer or reseller if the 

dispute was sent after the consumer received an annual free report (Section 612(a)(3); 15 

U.S.C. 1681j(a)(3)). 

12. Inaccurate, Incomplete, or Unverifiable Information. If information disputed by a 

consumer is found to be inaccurate, incomplete, or cannot be verified, determine if the entity: 

a.	 Promptly deletes the information from the consumer’s file, or modifies it as appropriate; 

b.	 Promptly notifies the furnisher that the information has been modified or deleted from the 

consumer’s file; and 

c.	 Ensures that the information is not reinserted into the consumer’s file unless the furnisher 

certifies that the information is complete and accurate. (Section 611(a)(5)(A), 

(a)(5)(B)(i); 15 U.S.C. 1681i(a)(5)(A), (a)(5)(B)(i)). 

13. Handling of Disputes Related to Credit Scores Developed by Others. If the entity 

declines to process disputes relating to credit scores that were developed by another person or 

entity, confirm: 

a.	 That the entity did not itself develop or modify the scores and 

b.	 That the entity provides the consumer with the name and address and website for 

contacting the person or entity who developed the score or developed the methodology of 

the score. (Section 609(f)(5); 15 U.S.C. 1681g(f)(5)). 

14. Reinsertion of Deleted Information. If information deleted from a consumer’s file through 

a reinvestigation is later reinserted in the file, determine whether the entity provides the 

consumer the following in writing within five business days of the reinsertion: 

a.	 A statement that the disputed information has been reinserted; 

b.	 The business name and address (and telephone number, if reasonably available) of any 

furnisher contacted by the entity or that contacted the entity in connection with the 

reinsertion of such information; and 

c.	 A notice that the consumer has the right to add a statement to the consumer’s file
 

disputing the accuracy or completeness of the disputed information. (Section
 

611(a)(5)(B); 15 U.S.C. 1681i(a)(5)(B)).
 

15. Procedures to Prevent Reappearance of Deleted Information. Assess whether the entity 

maintains reasonable procedures designed to prevent the reappearance in a consumer’s file, 

and in consumer reports, of information that is deleted based on a reinvestigation (other than 

information that is reinserted after the furnisher certifies that it is complete and accurate). 

(Section 611(a)(5)(C); 15 U.S.C. 1681i(a)(5)(C)). See also step 2a of Module 3, which 

addresses whether the entity actually has included previously deleted information in 

consumer reports. 

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16. Automated System for Furnishers to Report Reinvestigation Results. If the entity is a 

nationwide consumer reporting agency, determine if it provides furnishers access to an 

automated system that allows them to report the results of a reinvestigation that finds 

incomplete or inaccurate information to other nationwide consumer reporting agencies. 

(Section 611(a)(5)(D); 15 U.S.C. 1681i(a)(5)(D)). 

17. Notice to Consumer of Results of Reinvestigation. Determine if the entity provides written 

notice to a consumer (or the reseller, if the dispute was provided through a reseller) of the 

results of a reinvestigation, by mail or by any other means authorized by the consumer, 

within five business days after the completion of the reinvestigation (except in the case of 

“expedited resolutions” described in step 19 below). Determine whether, as part of this 

notice or in addition to this notice, the entity provides the following to the consumer in 

writing within the five-day period: 

a.	 A statement that the reinvestigation is completed; 

b.	 A consumer report based upon the consumer’s file as revised; 

c.	 A notice that, if requested by the consumer, a description of the procedure used to 

determine the information’s accuracy and completeness will be provided by the entity, 

including the business name and address of any furnisher contacted in connection with 

such information (with telephone number, if reasonably available); 

d.	 A notice that the consumer has the right to add a statement to the consumer's file
 

disputing the information’s accuracy or completeness; and
 

e.	 A notice that the consumer has the right to request that the entity furnish notifications 

regarding deletions or statements of dispute to certain users who have received reports 

containing the information. (Section 611(a)(6); 15 U.S.C. 1681i(a)(6)). 

18. Description of Procedures Used. If a consumer requests a description of the procedures 

used, determine whether the entity provides such a description within 15 days after receiving 

the request (except in cases of “expedited dispute resolutions” described in step 19 below). 

(Section 611(a)(7); 15 U.S.C. 1681i(a)(7)). 

19. Expedited Dispute Resolutions. 

a.	 Determine whether the entity engages in any “expedited dispute resolutions” in which it 

does not provide timely and complete notification or updates to the furnisher, does not 

provide written notice to the consumer of the results of the reinvestigation, and/or does 

not make available a description of the procedures used upon consumer request (per steps 

9, 10, 17, and 18 above). 

b.	 If so, determine whether for each of these “expedited dispute resolutions,” the entity: 

i.	 Deletes the disputed information within three business days after the date on which 

the entity receives notice of the dispute from the consumer, 

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ii.	 Provides prompt notice of the deletion to the consumer (or to the reseller, if the 

complaint came through a reseller) by telephone, 

iii. Provides written confirmation of the deletion and a revised consumer report, within 

five business days after making the deletion, and 

iv. Includes in the telephone notice described in 19bii above or in a written notice 

accompanying the confirmation and copy of the report described in 19biii above a 

statement of the consumer’s right to request that the entity notify certain prior users 

under Section 611(d) (15 U.S.C. 1681i(d)). (Section 611(a)(8); 15 U.S.C. 

1681i(a)(8)). 

20. Statements of Dispute. 

a. If the reinvestigation does not resolve the dispute, determine whether the entity allows the 

consumer to file a brief statement setting forth the nature of the dispute. (Section 611(b); 

15 U.S.C. 1681i(b)). 

b. If the entity limits the length of such statements of dispute, determine whether: 

i. The entity allows the consumer up to at least 100 words and 

ii. The entity provides the consumer with assistance in writing a clear summary of the 

dispute. (Section 611(b); 15 U.S.C. 1681i(b)). 

c. In instances where consumers file statements of dispute: 

i. Determine whether the entity: 

A. Clearly notes in any subsequent reports containing the information in question 

that it is disputed by the consumer and 

B. Provides either the consumer’s statement or a codification or summary thereof 

that is clear and accurate. 

ii. If not, assess whether there are reasonable grounds for the entity to believe that the 

dispute is frivolous or irrelevant. (Section 611(c); 15 U.S.C. 1681i(c)). 

21. Notification to Users of Deletions or Disputes. Review whether the entity notifies users 

upon consumer request of (1) any deletion of information which is found to be inaccurate or 

whose accuracy can no longer be verified or (2) any notation as to disputed information. 

Such notification must be provided to any person specifically designated by the consumer 

who has received a consumer report containing the deleted or disputed information: 

a.	 For employment purposes within the previous two years or 

b.	 For any other purpose within the previous six months. (Section 611(d); 15 U.S.C. 

1681i(d)). 

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RESELLER RESPONSIBILITIES REGARDING DISPUTES 

The following procedures should be used to review a reseller’s conduct when the reseller 

receives consumer disputes concerning the completeness or accuracy of information contained in 

a consumer report produced by the reseller. 

22. Assessment by Reseller. Determine whether the reseller determines whether the item of 

information is incomplete or inaccurate as a result of an act or omission of the reseller within 

five business days of receiving notice of a dispute from a consumer and without charge to the 

consumer. (Section 611(f)(2)(A); 15 U.S.C. 1681i(f)(2)(A)). 

23. Timely Correction of Reseller Errors. When the reseller determines that disputed 

information is incomplete or inaccurate as a result of its own act or omission, determine 

whether the reseller corrects the information in the consumer report or deletes it within 20 

days after receiving the notice without charge to the consumer. (Section 611(f)(2)(B)(i); 15 

U.S.C. 1681i(f)(2)(B)(i)). 

24. Notice to Consumer Reporting Agency That Produced Report. 

a.	 For instances where the reseller determines that the item of information is not incomplete 

or inaccurate as a result of its own acts or omissions, determine whether the reseller 

conveys notice of the dispute to each consumer reporting agency that provided the 

reseller with the information at issue without charge to the consumer. 

b.	 If so, determine: 

i.	 Whether the reseller includes with the notice all relevant information provided by the 

consumer and 

ii.	 Whether the reseller uses an address or a notification mechanism specified by the 

consumer reporting agency for such notices. (Section 611(f)(2)(B); 15 U.S.C. 

1681i(f)(2)(B)). 

25. Conveyance of Reinvestigation Notices to Consumers. Determine whether the reseller 

immediately reconveys reinvestigation notices that it receives from the consumer reporting 

agency to the consumer, including any notice of a deletion by telephone. (Section 611(f)(3); 

15 U.S.C. 1681i(f)(3)). 

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Module 7 - Consumer Alerts and Identity Theft Provisions 

This Module addresses a number of requirements that the FCRA imposes on consumer reporting 

agencies to address identity theft and to protect active duty military consumers, including fraud 

and active duty alerts and blocking of reporting of information that stems from identity theft. In 

addition to the procedures set out below, other modules also touch on identity protection issues – 

including, for example, the requirement that consumer reporting agencies notify parties 

requesting reports regarding address discrepancies (discussed in step 9 of Module 4). 

POLICIES AND PROCEDURES 

1.	 Review and assess the entity’s general policies and procedures governing how the entity 

responds when consumers assert that they are or have been a victim of fraud or identity theft. 

For policies and procedures specifically related to alerts, see step 5 below. 

FRAUD AND ACTIVE DUTY ALERTS 

2.	 Duty to Provide Contact Information. If the entity is not a nationwide consumer reporting 

agency, determine whether it explains to consumers who suspect they have been or are about 

to be a victim of fraud or a related crime (including identity theft) how to contact the CFPB 

and the nationwide consumer reporting agencies to obtain more detailed information and 

request alerts. (Section 605A(g); 15 U.S.C. 1681c-1(g)). 

3.	 Reseller Responsibility to Reconvey Alerts. If the entity acts as a reseller (see step 5 of 

Module 1), determine whether it complies with its statutory obligation to include in its 

reports any fraud alert or active duty alert placed in the file of a consumer by another 

consumer reporting agency. (Section 605A(f); 15 U.S.C. 1681c-1(f)). 

4.	 Applicability of Requirement to Include Alerts. The procedures in steps 5 to 12 below 

apply only to nationwide consumer reporting agencies. If the entity is not a nationwide 

consumer reporting agency, skip to step 13 below. 

5.	 Specific Policies and Procedures Regarding Alerts. Determine whether the nationwide 

consumer reporting agency has established policies and procedures relating to fraud alerts 

and active duty alerts, including: 

a.	 Procedures that inform consumers of the availability of such alerts and 

b.	 Procedures that allow consumers to request initial, extended, or active duty alerts in a 

simple and easy manner, including by telephone. (Section 605A(d); 15 U.S.C. 1681c-1(d)). 

6.	 Requirements for Alerts. Determine whether the nationwide consumer reporting agency 

includes an initial fraud alert, extended fraud alert, or active duty alert in a consumer’s file 

when the entity: 

a.	 Maintains a file on the consumer, 

b.	 Has received appropriate proof of the requester’s identity (see step 1b of Module 5), and 

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c. Receives from the consumer (or an individual acting on behalf of or as a personal 

representative of a consumer): 

i. In the case of an initial fraud alert, a direct request that asserts in good faith a 

suspicion that the consumer has been or is about to become a victim of fraud or 

related crime, including identity theft; 

ii. In the case of an extended fraud alert, a direct request and an identity theft report (as 

defined in the Glossary); or 

iii. In the case of an active duty alert, a direct request from an active duty military 

consumer (or an individual acting on behalf of or as a personal representative of an 

active duty military consumer). (Section 605A(a)(1), (b)(1), (c); 15 U.S.C. 1681c1(a)(1), (b)(1), (c)). An active duty military consumer means a consumer in military 

service who: 

A. Is on active duty6 or is a reservist performing duty under a call or order to active 

duty under a provision of law referred to in 10 U.S.C. 101(a)(13), and 

B. Is assigned to service away from the usual duty station of the consumer. (Section 

603(q)(1); 15 U.S.C. 1681(q)(1)). 

7.	 Duration of Alerts. Determine whether the nationwide consumer reporting agency includes 

any fraud or active duty alert in the consumer’s file and provides the alert along with any 

credit score generated in using that file for: 

a.	 Not less than 90 days from the request date for initial fraud alerts, 

b.	 7 years from the request date for extended fraud alerts, and 

c.	 12 months from the request date for active duty alerts, 

unless the consumer or his or her representative requests that the alert be removed earlier and 

provides appropriate proof of the requester’s identity (see step 1b of Module 5). (Section 

605A(a)(1)(A), (b)(1)(A), (c)(1); 15 U.S.C. 1681c-1(a)(1)(A), (b)(1)(A), (c)(1); 12 CFR 

1022.121). 

8.	 Referrals to and From Other Nationwide Consumer Reporting Agencies of Alerts. 

a.	 Determine whether the nationwide consumer reporting agency refers information 

regarding fraud alerts, extended fraud alerts, and active duty alerts to each of the other 

nationwide consumer reporting agencies and has appropriate referral procedures in place. 

6 The term “active duty” here means full-time duty in the active military service of the United States. This includes full-time 

training duty, annual training duty, and attendance while in the active military service, at a school designated as a service school 

by law or by the Secretary of the military department concerned. It does not include full-time National Guard duty. (10 U.S.C. 

101(d)(1)). 

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(Section 605A(a)(1)(B), (b)(1)(C), (c)(3); 15 U.S.C. 1681c-1(a)(1)(B), (b)(1)(C), (c)(3); 

Section 621(f); 15 U.S.C. 1681s(f)). 

b.	 When the nationwide consumer reporting agency receives referrals of fraud alerts and 

active duty alerts from other nationwide consumer reporting agencies, determine whether 

it responds in the same way that it would if it received the request directly from the 

consumer. (Section 605A(e); 15 U.S.C. 1681c-1(e)). 

9.	 Free Disclosures in Connection with Fraud Alerts. See step 10 of Module 5 for 

procedures regarding nationwide consumer reporting agencies’ obligation to provide upon 

request a free file disclosure in connection with an initial fraud alert or two free file 

disclosures in connection with an extended fraud alert and to disclose the consumer’s right to 

such disclosures. (Section 605A(a)(2), (b)(2); 15 U.S.C. 1681c-1(a)(2), (b)(2)). 

10. Exclusion From Prescreening During Extended Fraud Alerts and Active Duty Alerts. 

See steps 9 and 10 of Module 8 for procedures relating to the requirement that nationwide 

consumer reporting agencies exclude consumers with extended fraud alerts and active duty 

alerts from prescreening lists for five or two years respectively, unless the consumer asks to 

be included. (Section 605A(b)(1)(B), (c)-(d); 15 U.S.C. 1681c-1(b)(1)(B), (c)-(d)). 

11. Contents of Alerts. Determine whether the entity’s fraud alerts and active duty alerts: 

a.	 Notify all prospective consumer report users that the consumer may be the victim of 

fraud, including identity theft, or is an active duty military consumer, as applicable, and 

b.	 Are presented in a manner that facilitates clear and conspicuous view of such notification 

by any person requesting a consumer report about the consumer. (Section 603(q)(2); 15 

U.S.C. 1681a(q)(2)). 

12. Notification in Alerts Regarding Credit Extensions. 

a.	 Determine whether each initial fraud alert, extended fraud alert, and active duty alert 

included in a file by the entity notifies prospective users that the consumer does not 

authorize establishment of any new credit plan or extension of credit in the consumer’s 

name (other than under an open-end credit plan), or issuance of an additional card on an 

existing credit account requested by the consumer, or any increase in credit limit on an 

existing credit account requested by the consumer, except under specific circumstances 

permitted by Section 605A(h); 15 U.S.C. 1681c-1(h). 

b.	 In the case of extended fraud alerts, determine whether each alert included by the entity 

also provides a telephone number or other reasonable contact method designated by the 

consumer. (Section 605A(h); 15 U.S.C. 1681c-1(h)). 

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IDENTITY THEFT STATEMENT OF RIGHTS 

The FCRA requires consumer reporting agencies under certain circumstances to provide a 

summary of rights of identity theft victims that contains all of the information required by the 

CFPB. 

13. Who Receives a Statement of Rights. Determine if the entity provides a statement of rights 

to any consumer who expresses a belief to the entity that the consumer is a victim of fraud or 

identity theft involving credit, an electronic fund transfer, or an account or transaction at or 

with a financial institution or other creditor. (Section 609(d)(2); 15 U.S.C. 1681g(d)(2)). 

14. Content and Format of Statement of Rights. Confirm that: 

a.	 The disclosures provided are substantially similar to the CFPB’s model summary in 

Appendix I to Regulation V, 12 CFR Part 1022, and 

b.	 All required information is clearly and prominently displayed. (Section 609(d); 15 U.S.C. 

1681g(d); 12 CFR Part 1022, Appendix I). 

IDENTITY THEFT BLOCKING REQUIREMENT 

Consumer reporting agencies must “block” the reporting of certain information resulting from an 

alleged identity theft. Special rules apply to two different types of consumer reporting agencies. 

15. Entities Subject to Different Blocking Requirements. Check services companies and 

resellers have different obligations than other consumer reporting agencies when consumers 

request an identity theft block. Determine if the entity is: 

a.	 A reseller (as determined in step 5 of Module 1) or 

b.	 A check services company acting as such that issues authorizations for the purpose of 

approving or processing negotiable instruments, electronic funds transfers, or similar 

methods of payment. 

If so, skip to step 19 (for resellers) or 20 (for check services companies) below. (Section 

605B(d)-(e); 15 U.S.C. 1681c-2(d)-(e)). 

16. Blocking Requirement. Absent the circumstances described in step 17 below, determine 

whether the entity blocks the reporting of consumer file information that the consumer 

identifies as resulting from an alleged identity theft (other than in reports provided to a 

federal, state, or local law enforcement agency) within four business days after the entity 

receives: 

a.	 Appropriate proof of the identity of the consumer (see step 1b of Module 5), 

b.	 A copy of an identity theft report, 

c.	 The identification of such information by the consumer, and 

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d.	 A statement by the consumer that the information is not information relating to any 

transaction by the consumer. (Section 605B(a), (f); 15 U.S.C. 1681c-2(a), (f)). 

17. Requirements If Declining to Block Information. The FCRA allows consumer reporting 

agencies to decline a block request or rescind a block under limited circumstances. If the 

entity declines to implement an identity theft block, or rescinds any identity theft block, 

assess whether it: 

a.	 Notifies the consumer promptly, in the same manner as consumers are notified of the 

reinsertion of previously-deleted information and 

b.	 Reasonably determines that: 

i.	 The information was blocked in error or a block was requested by the consumer in 

error; 

ii.	 The information was blocked, or a block was requested by the consumer, on the basis 

of a material misrepresentation of fact by the consumer relevant to the request to 

block; or 

iii. The consumer obtained possession of goods, services, or money as a result of the 

blocked transaction or transactions. (Section 605B(c); 15 U.S.C. 1681c-2(c)). 

18. Notification to Furnishers of Identity Theft Block. Determine whether the entity promptly 

notifies the furnisher of information subject to an identity theft block request: 

a.	 That the information may be a result of identity theft, 

b.	 That an identity theft report has been filed, 

c.	 That a block has been requested, and 

d.	 Of the block’s effective dates. (Section 605B(b); 15 U.S.C. 1681c-2(b)). 

19. Reseller Obligations. If the entity is a reseller, review how it responds when consumers 

request an identity theft block to determine if the reseller does the following: 

a.	 In instances where the reseller is not otherwise furnishing or reselling a consumer report 

concerning the information identified by the consumer at the time of the block request, 

determine if the reseller informs the consumer that the consumer may report the identity 

theft to the CFPB to obtain consumer information regarding identity theft. 

b.	 In instances where the consumer identifies to the entity information in the consumer’s file 

that resulted from identity theft and where the entity is a reseller of the identified 

information, determine if the reseller: 

i.	 Blocks any consumer report it maintains from subsequent use and 

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ii.	 Provides notice to the consumer of the file block, including the name, address, and 

telephone number of the consumer reporting agency from which the information was 

obtained. (Section 605B(d); 15 U.S.C. 1681c-2(d)). 

20. Obligations of Check Services Company. If the entity is a check services company, 

determine whether it refrains from reporting to a nationwide consumer reporting agency any 

information that an identity theft report identifies as resulting from identity theft beginning 

four business days after the entity receives: 

a.	 Appropriate proof of the identity of the consumer (as explained in step 1b in Module 5), 

b.	 A copy of an identity theft report, and 

c.	 The consumer’s identification of such information. (Section 605B(e); 15 U.S.C. 1681c2(e)). 

21. Acceptance of Identity Theft Reports. If the entity asks for additional information or 

documentation before accepting an identity theft report in connection with a request for an 

extended fraud alert or for identity theft blocking, determine whether: 

a.	 The entity’s request is reasonable and made for the purpose of determining the validity of 

the alleged identity theft, 

b.	 The entity makes its request within 15 days after the later of the date it receives the copy 

of the report form or the request by the consumer for the extended fraud alert or for 

identity theft blocking, and 

c.	 The entity makes any supplemental requests for information or documentation and its 

final determination on the acceptance of the identity theft report by the statutory deadline, 

which is: 

i.	 15 days after its initial request for information or documentation or 

ii.	 If the entity receives any additional information or documentation on the eleventh day 

or later within the 15-day period, within five days after the date of receipt. (12 CFR 

1022.3(i)). 

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Module 8 - Prescreening, Employment Reports, and 

Investigative Consumer Reports 

This module addresses the requirements that the FCRA imposes on consumer reporting agencies 

that engage in prescreening or furnish employment reports or investigative consumer reports. 

PRESCREENING 

The FCRA includes detailed requirements that must be followed when consumer reporting 

agencies provide consumer reports not authorized by the consumer that are used to solicit 

consumers to obtain credit or insurance, a process known as “prescreening.” In prescreening, a 

consumer reporting agency typically either edits a list of consumers developed by the requesting 

creditor or insurer (or its agents) or independently creates a list of consumers according to the 

requesting entity’s specifications. 

In addition to the examination procedures listed below, step 2f of Module 3 and step 3e of 

Module 5 address the FCRA’s requirements that consumer reporting agencies include 

prescreening inquiries from the preceding year in consumer file disclosures, but not list 

prescreening inquiries in consumer reports issued to third parties. (Section 604(c)(3); 15 U.S.C. 

1681b(c)(3); Section 609(a)(5); 15 U.S.C. 1681g(a)(5)). 

1.	 Whether Entity Engages in Prescreening. Determine if the entity engages in 

“prescreening,” by furnishing consumer reports in connection with any credit or insurance 

transactions that are not initiated by the consumers (to solicit the consumers to obtain credit 

or insurance) and where the consumers have not authorized the entity to provide such reports 

(as determined in step 14 of Module 1). (Section 603(l); 15 U.S.C. 1681a(l); Section 

604(c)(1); 15 U.S.C. 1681b(c)(1)). If not, skip to step 12 below. 

2.	 Consumer Information Released in Prescreening. Determine whether the entity provides 

any information about the consumer other than the following in connection with 

prescreening: 

a.	 The name and address of a consumer, 

b.	 An identifier that is not unique to the consumer and that is used solely for the purpose of 

verifying the consumer’s identity, and 

c.	 Other information pertaining to the consumer that does not identify the relationship or 

experience of the consumer with respect to a particular creditor or other entity. (Section 

604(c)(2); 15 U.S.C. 1681b(c)(2)). 

3.	 Notification System for Opt-Outs. Determine whether the entity maintains a notification 

system, including a toll-free telephone number, which permits any consumer whose 

consumer report is maintained by the entity to notify the entity, with appropriate 

identification, of the consumer’s election to be excluded (“opt out”) from any list of names 

and addresses provided by the entity for prescreening. (Section 604(e)(5); 15 U.S.C. 

1681b(e)(5)). 

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a.	 Affiliates. If the entity has affiliates that engage in prescreening, determine whether they 

are part of the notification system and whether opt-outs are honored by all of the 

affiliated entities. (Section 604(e)(4)(D), (e)(5); 15 U.S.C. 1681b(e)(4)(D), (e)(5)). 

b.	 Joint notification system for nationwide consumer reporting agencies. If the entity is 

a nationwide consumer reporting agency, determine whether it maintains a joint 

notification system with other nationwide consumer reporting agencies to accomplish the 

purposes described in step 3 above. (Section 604(e)(6); 15 U.S.C. 1681b(e)(6)). 

c.	 Publicity. Assess how information about the notification system is disseminated to 

consumers, including whether the entity annually publishes in a publication of general 

circulation in the area served by the entity: 

i.	 A notification that information in consumer files maintained by the entity may be 

used in connection with prescreening and 

ii.	 The address and toll-free telephone number to use to opt out. (Section 604(e)(5); 15 

U.S.C. 1681b(e)(5)). 

4.	 Entity Response After System Notification. When the entity’s notification system provides 

notification of a consumer’s election, determine whether the entity: 

a.	 Informs the consumer that the election is effective only for five years unless the 

consumer submits to the entity a signed notice of election form issued by the entity and 

b.	 Provides a notice of election form if requested by the consumer (which must be provided 

within five business days after receipt of the election notification, if the request is made 

with the system notification). (Section 604(e)(3); 15 U.S.C. 1681b(e)(3)). 

5.	 Tracking Opt-Outs. Assess the systems and procedures that the entity uses for tracking 

which consumers have opted out and the effective period for each such opt-out, which must: 

a.	 Begin no more than five business days after the date of notification and 

b.	 Continue until: 

i.	 The consumer notifies the entity through its notification system that the election is no 

longer effective or 

ii.	 If the consumer did not provide a signed notice of election form issued by the entity, 

five years and five business days after the notification. (Section 604(e)(4); 15 U.S.C. 

1681b(e)(4)). 

6.	 Honoring Opt-Outs. Assess whether the entity has systems and processes in place to ensure 

that consumers who have opted out are not included in prescreening lists. Determine whether 

the entity provides any consumer reports for prescreening about consumers who have opted 

out (either through the notification system or by submitting a signed notice of election form 

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issued by the entity) during the effective period of the opt-outs. (Section 604(c)(1); 15 

U.S.C. 1681b(c)(1)). 

7.	 Firm Offer of Credit. Determine whether the entity has adequate procedures in place to 

determine whether the persons to whom it provides prescreened consumer reports are 

extending firm offers of credit or insurance (as defined in the Glossary) to each identified 

consumer. (Section 603(l); 15 U.S.C. 1681a(l); Section 604(c)(1); 15 U.S.C. 1681b(c)(1)). 

8.	 Consumers Under 21. Determine whether the entity provides consumer reports for 

prescreening that contain dates of birth that show that the consumers are not yet 21, without 

first obtaining the consumers’ consent. (Section 604(c)(1)(B)(iv); 15 U.S.C. 

1681b(c)(1)(B)(iv)). 

9.	 Extended Fraud Alerts. Determine whether the entity excludes any consumer whose file 

includes an extended fraud alert from any list of consumers it prepares and provides to any 

third party for prescreening, unless: 

a.	 The consumer or the consumer’s representative requests that such exclusion be rescinded 

or 

b.	 More than five years have elapsed since the consumer requested the extended fraud alert. 

(Section 605A(b)(1)(B); 15 U.S.C. 1681c-1(b)(1)(B)). 

10. Active Duty Alerts. Determine whether the entity excludes any consumer whose file 

includes an active duty alert from any list of consumers that it prepares and provides to any 

third party for prescreening, unless: 

a.	 The consumer or the consumer’s representative requests that such exclusion be rescinded 

or 

b.	 More than two years have elapsed since the consumer requested the active duty alert. 

(Section 605A(c)(2); 15 U.S.C. 1681c-1(c)(2)). 

11. Tracking Inquiries. Assess the systems and procedures that the entity uses to track 

prescreening inquiries. Evaluate whether these systems and procedures are adequate to meet 

the entity’s obligations to provide to the consumer a list of all prescreening inquiries over the 

last year with any consumer file disclosure, but not to disclose information about such 

inquiries in consumer reports furnished to others (see steps 2f in Module 3 and step 3e in 

Module 5). (Section 604(c)(3); 15 U.S.C. 1681b(c)(3); Section 609(a)(5); 15 U.S.C. 

1681g(a)(5)). 

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EMPLOYMENT REPORTS 

The FCRA imposes additional requirements on consumer reporting agencies when they prepare 

and furnish reports for employment purposes. 

12. Whether Entity Provides Employment Reports. Determine if the entity furnishes any 

reports for employment purposes (as determined in step 15 of Module 1). If not, skip to step 

18 below. 

13. Certification Regarding Employment Laws. Determine if prior to furnishing consumer 

reports for employment purposes, the entity obtains a certification from the person requesting 

the report that information from the consumer report will not be used in violation of any 

applicable federal or state equal employment opportunity law or regulation. (Section 

604(b)(1)(A)(ii); 15 U.S.C. 1681b(b)(1)(A)(ii)). 

14. Other Certifications. Determine if prior to furnishing consumer reports for employment 

purposes (other than in connection with an application for employment in a position 

regulated by the Secretary of Transportation under 49 U.S.C. 31502 or subject to safety 

regulation by a state transportation agency, when the application was made solely by mail, 

telephone, computer, or other similar means), the entity obtains a certification from the 

person requesting the report that: 

a.	 A separate, clear, and conspicuous written disclosure has been provided to the consumer 

before the report is procured or caused to be procured indicating that a consumer report 

may be obtained for employment purposes; 

b.	 The consumer has authorized in writing (on the disclosure described in (a) above or on 

another document) the procurement of the report by that person; and 

c.	 Before taking any adverse action based in whole or in part on the report the requester will 

provide the following to the consumer to whom the report relates (unless the user is a 

federal agency or department and appropriate certifications relating to a national security 

investigation are made under Section 604(b)(4)(A) (15 U.S.C. 1681b(b)(4)(A))): 

i.	 A copy of the report and 

ii.	 A written description of the consumer’s FCRA rights, as prescribed by the CFPB. 

(Section 604(b); 15 U.S.C. 1681b(b)). 

15. Summary of Rights. Determine if the entity provides a summary of the consumer’s FCRA 

rights, as prescribed by the CFPB, either before furnishing the report or with the report. 

(Section 604(b)(1)(B); 15 U.S.C. 1681b(b)(1)(B); Section 609(c); 15 U.S.C. 1681g(c)). 

16. Certain Transportation-Related Reports. When consumer reports are issued for use in 

decisions regarding employment in positions regulated by the Secretary of Transportation 

under 49 U.S.C. 31502 or subject to safety regulation by a state transportation agency, in 

connection with applications made solely by mail, telephone, computer, or other similar 

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means, determine if prior to furnishing such reports, the entity obtains a certification from the 

person requesting the report that: 

a.	 The requester has provided to the consumer, by oral, written, or electronic means, notice 

that a consumer report may be obtained for employment purposes and a summary of the 

consumer’s rights under Section 615(a)(3); 15 U.S.C. 1681m(a)(3); 

b.	 The consumer has consented, orally, in writing, or electronically, to the procurement of 

the report by the requester; 

c.	 If the requester takes adverse action on the employment application based in whole or in 

part on the report, the requester will provide to the consumer to whom the report relates 

within three business days of taking such action, an oral, written, or electronic 

notification: 

i.	 That adverse action has been taken based in whole or in part on a consumer report 

received from a consumer reporting agency; 

ii.	 Of the name, address, and telephone number of the consumer reporting agency that 

furnished the consumer report (including a toll-free telephone number established by 

the entity if the entity is a nationwide consumer reporting agency); 

iii. That the consumer reporting agency did not make the decision to take the adverse 

action and is unable to provide to the consumer the specific reasons why the adverse 

action was taken; and 

iv. That the consumer may, upon providing proper identification, request a free copy of a 

report and may dispute with the consumer reporting agency the accuracy or 

completeness of any information in the report; and 

d.	 If the consumer requests a copy of the consumer report from the person after receiving 

the disclosure identified above, the person will send or provide to the consumer a copy of 

the report and a written description of the consumer’s FCRA rights, as prescribed by the 

CFPB, within three business days of receiving the consumer’s request, together with 

proper identification. (Section 604(b)(2)-(3); 15 U.S.C. 1681b(b)(2)-(3)). 

17. Public Record Information for Employment Purposes. 

a.	 Determine whether the entity in preparing consumer reports for employment purposes 

compiles and reports items of information on consumers that are matters of public record 

and are likely to have an adverse effect upon a consumer’s ability to obtain employment 

(excluding any situations where the user is a federal agency or department and 

appropriate certifications relating to a national security investigation are made under 

Section 604(b)(4)(A) (15 U.S.C. 1681b(b)(4)(A))). 

b.	 If the answer is yes, determine whether the entity: 

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i. Notifies the consumer of the fact that public record information is being reported by 

the consumer reporting agency, together with the name and address of the person to 

whom such information is being reported, at the time that the public record 

information is reported to the user of the consumer report; or 

ii. Maintains strict procedures designed to ensure that whenever public record 

information that is likely to have an adverse effect on a consumer’s ability to obtain 

employment is reported, it is complete and up-to-date. For purposes of this paragraph, 

items of public record relating to arrests, indictments, convictions, suits, tax liens, and 

outstanding judgments are considered up-to-date if the current public record status of 

the item at the time of the report is reported. (Section 613; 15 U.S.C. 1681k). 

INVESTIGATIVE CONSUMER REPORTS 

The FCRA imposes additional requirements on consumer reporting agencies when they prepare 

and furnish “investigative consumer reports.” The term “investigative consumer report” is 

defined in the Glossary and is a type of consumer report that includes information obtained 

through personal interviews with the consumer’s neighbors, friends, associates, or others. 

In addition to the procedures listed below, step 2h in Module 3 addresses when adverse 

information from investigative consumer reports can be included in subsequent consumer reports 

under Section 614 (15 U.S.C. 1681l), and step 3b in Module 5 relates to information sources for 

investigative consumer reports under Section 609 (15 U.S.C. 1681g). 

18. Whether the Entity Furnishes Investigative Reports. Determine if the entity furnishes any 

investigative reports (as determined in step 16 of Module 1). If not, skip steps 19-20 below. 

19. Certification From Person Requesting Report. Determine whether prior to preparing or 

furnishing investigative consumer reports, the entity obtains from the person requesting the 

report a certification that: 

a.	 Within three days after first requesting the report, the requester mailed or otherwise 

delivered a written disclosure to the consumer that 

i.	 Clearly and accurately discloses that an investigative consumer report including 

information as to his character, general reputation, personal characteristics, and mode 

of living, whichever are applicable, may be made, and 

ii.	 Includes a statement informing the consumer of his or her right to request the 

additional disclosures described below and a written summary of rights under Section 

609(c) (15 U.S.C. 1681g); and 

b.	 Upon written request made by the consumer within a reasonable period of time after the 

receipt of the disclosure mentioned above, the requester will make a complete and 

accurate disclosure of the nature and scope of the investigation requested, in writing 

mailed, or otherwise delivered, to the consumer within five days after the date the 

disclosure request was received or the date the report was first requested, whichever is 

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later. (Section 606(a)(1)-(2); 15 U.S.C. 1681d(a)(1)-(2); Section 606(d)(1); 15 U.S.C. 

1681d(d)(1)). 

20. Prohibited Activities. Determine whether the entity engages in any of the following 

prohibited activities: 

a.	 Inquiries that would violate employment law if made by an employer. Making an 

inquiry for the purpose of preparing an investigative consumer report for employment 

purposes if the making of the inquiry by an employer or prospective employer of the 

consumer would violate any applicable federal or state equal employment opportunity 

law or regulation. (Section 606(d)(2); 15 U.S.C. 1681d(d)(2)). 

b.	 Certain public record information. Furnishing an investigative consumer report that 

includes public record information relating to an arrest, indictment, conviction, civil 

judicial action, tax lien, or outstanding judgment, unless: 

i.	 The entity has verified the information’s accuracy during the 30-day period ending on 

the date the report is furnished or 

ii.	 The report is for employment purposes and complies with all of the requirements 

described in step 17 above. (Section 606(d)(3); 15 U.S.C. 1681d(d)(3)). 

c.	 Certain adverse information from personal interviews. Preparing or furnishing an 

investigative consumer report on a consumer that contains information that is adverse to 

the consumer’s interest and that is obtained through a personal interview with a neighbor, 

friend, or associate of the consumer or with another person with whom the consumer is 

acquainted or who has knowledge of such item of information, unless: 

i. The entity has followed reasonable procedures to obtain confirmation of the 

information from an additional source that has independent and direct knowledge of 

the information or 

ii. The person interviewed is the best possible source of the information. (Section 

606(d)(4); 15 U.S.C. 1681d(d)(4)). 

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Module 9 - Other Products and Services and 

Risks to Consumers 

Larger participants of the consumer reporting market may provide consumer financial products 

or services that are not covered in the preceding modules. Examiners should consider whether 

any of the entity’s consumer financial products or services creates other risks to consumers. In 

addition, products and services that are covered in Modules 2 to 8 may be subject to federal 

consumer financial laws that are not specifically addressed in those modules, including the 

prohibition on engaging in any unfair, deceptive, or abusive acts or practices. The advertising 

and Gramm-Leach-Bliley privacy procedures below provide examples of the types of conduct to 

identify. Please refer also to the UDAAP examination procedures in doing this review. 

Examiners should consult with Headquarters to determine whether the applicable legal standards 

have been met before citing any violation. 

ADVERTISING ISSUES 

1.	 Review any advertising and promotional materials prepared by or on behalf of the entity to 

market the entity’s products or services to consumers in any media or channel. Determine 

whether they contain any material misrepresentations, expressly or by implication, including 

of the following: 

a.	 The existence, nature, or amount of fees or other costs, 

b.	 The nature and benefits of the product or service advertised, 

c.	 The means by which to close or cancel an account, or 

d.	 Account terms. 

In doing this review, consider how the entity’s representations compare to its actual 

practices, including, for example, how companies close or cancel accounts based on 

consumer requests, especially for accounts that were part of a free trial or that involve 

automatic billing or renewal. 

2.	 Determine whether advertisements and promotional materials directed to consumers in any 

media or channel clearly disclose all material limitations or conditions on the terms or 

availability of products or services marketed to consumers, such as: 

a.	 The expiration date for terms that apply only during an introductory period or 

b.	 Material prerequisites for obtaining particular products, services, or benefits (e.g., 

discounts, refunds, or rebates).
 

3.	 Determine whether advertisements and promotional materials directed to consumers in any 

media or channel avoid using fine print, separate statements, or inconspicuous disclosures to 

correct potentially misleading headlines. 

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4.	 If additional products or services are sold or offered in connection with products or services 

sold to consumers, determine if the entity ensures that: 

a.	 Marketing materials, including direct mail promotions, telemarketing scripts, internet and 

print ads, radio recordings, and television commercials, reflect the actual terms and 

conditions of the product and are not deceptive or misleading to consumers; 

b.	 Employee incentive or compensation programs tied to the sale and marketing of add-on 

products require adherence to company-specific program guidelines and do not create 

incentives for employees to provide inaccurate information about the products; 

c.	 Scripts and manuals used by the entity’s telemarketing and customer service centers: 

i.	 Direct the telemarketers and customer service representatives to accurately state the 

terms and conditions of the various products, including material limitations on 

eligibility for benefits; 

ii.	 Prohibit enrolling consumers in programs without clear affirmative consent to 

purchase the add-on product, obtained after the consumer has been informed of the 

terms and conditions; 

iii. Provide clear guidance as to the wording and appropriate use of rebuttal language and 

any limits on the number of times that the telemarketer or customer service 

representative may attempt to rebut the consumer's request for additional information 

or to decline the product; and 

iv. Where applicable, make clear to consumers that the purchase of add-on products is 

not required as a condition of obtaining the requested product or service, unless there 

is such a requirement; 

d.	 To the maximum extent practicable, telemarketers and customer service representatives 

do not deviate from approved scripts; and 

e.	 Cancellation requests are handled in a manner that is consistent with the product's actual 

terms and conditions and that does not mislead the consumer. 

See generally CFPB Bulletin 2012-06 (July 18, 2012). (For “free” file disclosures that 

require purchase of additional products or services, see also step 14 in Module 5). 

5.	 For each product or service that the entity markets to consumers, assess whether the entity 

designs advertisements, promotional materials, disclosures, and scripts used in any media or 

channel to be comprehensible by the target audience. 

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GRAMM-LEACH-BLILEY ACT/REGULATION P 

6.	 For information that is not in or from a consumer report subject to the FCRA: 

a.	 Identify the types of consumer information that the entity shares with third parties (other 

than consumer reports subject to the FCRA) and any policies and procedures that the 

entity has in place governing such information sharing. 

b.	 Determine whether the entity discloses to nonaffiliated third parties nonpublic personal 

information that it receives from financial institutions (other than in the form of a 

consumer report subject to the FCRA). This could occur, for example, if a consumer 

reporting agency discloses credit header information obtained from a financial institution 

to nonaffiliated direct marketers or others that do not have a permissible purpose to 

obtain that information as part of a consumer report. If not, skip to step 7 below. 

c.	 If the answer to step 6b is yes, determine: 

i.	 Whether the originating financial institution provided notice to its customers of the 

sharing described in step 6b and gave them an opportunity to opt out and 

ii.	 Whether the redisclosure of the information by the entity under examination 

described in step 6b was done in a manner that was consistent with the originating 

financial institution’s privacy policy and any applicable consumer opt-out directions. 

If the answer to step 6ci or 6cii is no, consult with Headquarters regarding GrammLeach-Bliley Act/Regulation P limitations on reuse and redisclosure. (12 CFR 1016.11). 

For background on this topic, see 65 Fed. Reg. 33646, 33668 (May 24, 2000)). 

7.	 Determine whether the entity’s privacy and information-sharing practices are otherwise 

consistent with the requirements of Sections 502 to 509 of the Gramm-Leach-Bliley Act (15 

U.S.C. 6802-09) and Regulation P (12 CFR Part 1016), to the extent they apply. Refer to the 

Privacy of Consumer Financial Information examination procedures for more information. 

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GLOSSARY: 

1.	 “Consumer reporting agency” is any person who, for monetary fees, dues, or on a 

cooperative nonprofit basis, regularly engages in whole or in part in the practice of 

assembling or evaluating consumer credit information or other information on consumers for 

the purpose of furnishing consumer reports to third parties, and who uses any means or 

facility of interstate commerce for the purpose of preparing or furnishing consumer reports. 

(Section 603(f); 15 U.S.C. 1681a(f)). 

2.	 “Consumer report” is any written, oral, or other communication of any information by a 

consumer reporting agency that bears on a consumer’s credit worthiness, credit standing, 

credit capacity, character, general reputation, personal characteristics, or mode of living that 

is used or expected to be used or collected, in whole or in part, for the purpose of serving as a 

factor in establishing the consumer's eligibility for any of the following: 

a.	 Credit or insurance to be used primarily for personal, family, or household purposes. 

b.	 Employment purposes. 

c.	 Any other purpose authorized under Section 604 (15 U.S.C. 1681b). (Section 603(d); 15 

U.S.C. 1681a(d)). 

BUT the term “consumer report” does not include any of the following (except with respect 

to certain disclosures of medical information, as explained in Section 603(d)(3) (15 U.S.C. 

1681a(d)(3)) and Section 604(g)(3) (15 U.S.C. 1681b(g)(3)): 

a.	 Any report containing information solely about transactions or experiences between the 

consumer and the institution making the report. 

b.	 Any communication of that transaction or experience information among entities related 

by common ownership or affiliated by corporate control (for example, different 

institutions that are members of the same holding company or subsidiary companies of an 

insured institution). 

c.	 Communication of other information among persons related by common ownership or 

affiliated by corporate control if: 

i.	 It is clearly and conspicuously disclosed to the consumer that the information may be 

communicated among such persons; and 

ii.	 The consumer is given the opportunity, before the time that the information is 

communicated, to direct that the information not be communicated among such 

persons. 

d.	 Any authorization or approval of a specific extension of credit directly or indirectly by 

the issuer of a credit card or similar device. 

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e.	 Any report in which a person who has been requested by a third party to make a specific 

extension of credit directly or indirectly to a consumer, such as a lender who has received 

a request from a broker, conveys his or her decision with respect to such a request, if the 

third party advises the consumer of the name and address of the person to whom the 

request was made, and such person makes the disclosures the consumer required under 

Section 615 (15 U.S.C. 1681m). 

f.	 A communication that meets the requirements of Section 603(o) (15 U.S.C. 1681a(o)) by 

a person who regularly performs employment procurement services. 

g.	 An employee investigation report of the specific type described in Section 603(y) (15 

U.S.C. 1681a(y)). (Section 603(d)(2); 15 U.S.C. 1681a(d)(2)). 

3.	 “Credit score”: 

a.	 Means a numerical value or a categorization derived from a statistical tool or modeling 

system used by a person who makes or arranges a loan to predict the likelihood of certain 

credit behaviors, including default; 

b.	 But does not include – 

i.	 Any mortgage score or rating of an automated underwriting system that considers one 

or more factors in addition to credit information, including the loan to value ratio, the 

amount of down payment, or the financial assets of a consumer; or 

ii.	 Any other elements of the underwriting process or underwriting decision. (Section 

609(f)(2)(A)(ii); 15 U.S.C. 1681g(f)(2)(A)(ii)). 

4.	 “Firm offer of credit or insurance” means an offer of credit or insurance that will be 

honored if the consumer is determined, based on information in a consumer report on the 

consumer, to meet the specific criteria used to select the consumer for the offer. Despite this 

general definition, the offer may be made conditional on one or more of the following: 

a.	 That the consumer must be found, based on information in the consumer's application, to 

meet specific criteria bearing on credit worthiness or insurability, as applicable. These 

specific criteria must be established: 

i.	 Before selection of the consumer for the offer and 

ii.	 For the purpose of determining whether to extend credit or insurance pursuant to the 

offer. 

b.	 That there must be a verification: 

i.	 That the consumer continues to meet the specific criteria used to select the consumer 

for the offer, by using information in a consumer report on the consumer, information 

in the consumer's application for the credit or insurance, or other information bearing 

on the credit worthiness or insurability of the consumer; or 

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ii.	 Of the information in the consumer's application for the credit or insurance, to 

determine that the consumer meets the specific criteria bearing on credit worthiness 

or insurability. 

c.	 That the consumer must furnish any collateral that is a requirement for the extension of 

the credit or insurance. Such a requirement must be established before selection of the 

consumer for the offer of credit or insurance and must be disclosed to the consumer in the 

offer of credit or insurance. (Section 603(l); 15 U.S.C. 1681a(l)). 

5.	 “Identity theft” means a fraud committed or attempted using the identifying information of 

another person without authority. (12 CFR 1022.3(h)). 

6.	 “Identity theft report” means a report that alleges identity theft with as much specificity as 

the consumer can provide and that is a copy of an official valid report filed by the consumer 

with a law enforcement agency, the filing of which subjects the person filing the report to 

criminal penalties if the information is false, as well as any additional information or 

documentation that an information furnisher or consumer reporting agency reasonably 

requests to determine the validity of the alleged identity theft pursuant to the procedures set 

forth in the FCRA. (12 CFR 1022.3(i)). 

7.	 “Investigative consumer reports” means consumer reports or portions thereof in which 

information on a consumer’s character, general reputation, personal characteristics, or mode 

of living is obtained through personal interviews with neighbors, friends, or associates of the 

consumer reported on or with others with whom he is acquainted or who may have 

knowledge concerning any such items of information. This does not include specific factual 

information on a consumer’s credit record obtained directly from a creditor of the consumer 

or from a consumer reporting agency when such information was obtained directly from a 

creditor of the consumer or from the consumer. (Section 603(e); 15 U.S.C. 1681a(e)). 

8.	 “Key factors” means all relevant elements or reasons adversely affecting the credit score for 

the particular individual, listed in the order of their importance based on their effect on the 

credit score. (Section 609(f)(2)(B); 15 U.S.C. 1681g(f)(2)(B)). 

9.	 “Nationwide consumer reporting agency” is a consumer reporting agency that regularly 

engages in the practice of assembling or evaluating and maintaining, for the purpose of 

furnishing consumer reports to third parties bearing on a consumer’s credit worthiness, credit 

standing, or credit capacity, each of the following regarding consumers residing nationwide: 

a.	 Public record information and 

b.	 Credit account information from persons who furnish that information regularly and in 

the ordinary course of business. (Section 603(p); 15 U.S.C. 1681a(p)). 

10. “Nationwide specialty consumer reporting agency” is a consumer reporting agency that 

compiles and maintains files on consumers on a nationwide basis relating to: 

a.	 Medical records or payments, 

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b.	 Residential or tenant history, 

c.	 Check writing history, 

d.	 Employment history, or 

e.	 Insurance claims. (Section 603(x); 15 U.S.C. 1681a(x)). 

11. “Reseller” is a consumer reporting agency that: 

a.	 Assembles and merges information contained in the database of another consumer 

reporting agency or multiple consumer reporting agencies concerning any consumer for 

purposes of furnishing such information to any third party, to the extent of such activities; 

and 

b.	 Does not maintain a database of the assembled or merged information from which new 

consumer reports are produced. (Section 603(u); 15 U.S.C. 1681a(u)). 

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Mortgage Origination 

These Mortgage Origination Examination 

Procedures (“Procedures”) consist of modules 

covering the various elements of the mortgage 

origination process; each module identifies specific matters for review. Examiners will use the 

Procedures in examinations of mortgage brokers and mortgage lenders. Before using the 

Procedures, examiners should complete a risk assessment and examination scope memorandum 

in accordance with general CFPB procedures. Depending on the scope, and in conjunction with 

the compliance management system review, including consumer complaint review, each 

examination will cover one or more of the following modules. 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

Module 1 Company Business Model 

Module 2 Advertising and Marketing 

Module 3 Loan Disclosures and Terms 

Module 4 Underwriting, Appraisals, and Originator Compensation 

Module 5 Closing 

Module 6 Fair Lending 

Module 7 Privacy 

Examination Objectives 

1.	 To assess the quality of a supervised entity’s compliance management systems in its 

mortgage origination business. 

2.	 To identify acts or practices that materially increase the risk of violations of federal 

consumer financial law, and associated harm to consumers, in connection with mortgage 

origination. 

3.	 To gather facts that help determine whether a supervised entity engages in acts or practices 

that are likely to violate federal consumer financial law in connection with mortgage 

origination. 

4.	 To determine, in accordance with CFPB internal consultation requirements, whether a 

violation of a federal consumer financial law has occurred and whether further supervisory 

or enforcement actions are appropriate. 

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Background 

This section of the Procedures provides background on the mortgage business and the federal 

consumer financial law requirements that apply. 

A. Mortgage Types 

Residential mortgage loans offer a variety of features to meet differing consumer needs. The 

length of a mortgage can vary from one year to 50 years, with a number of lengths available in 

between. Interest rates can be fixed or adjustable. Some adjustable rate mortgage loans (ARMs) 

are “hybrid,” having a fixed interest rate for a certain period of time and then changing to an 

adjustable rate. Hybrid ARMs often are identified using two numbers, such as 5/1. The first 

number identifies the number of years the interest rate will be fixed, and the second number 

identifies the frequency with which the interest rate will adjust after the fixed interest rate period 

ends. A “5/1” loan would have a fixed interest rate for five years, and then the interest rate would 

adjust one time per year. Alternatively, the second number denotes the number of years the loan 

will have an adjustable rate: in a “2/28 loan,” the loan would have a fixed interest rate for two 

years, and then the interest rate would adjust periodically over the subsequent 28 years. 

Most, but not all, loans are “fully amortizing,” meaning that the borrower pays down part of the 

principal and the full amount of interest that is due each month so that at the end of the loan term, 

the principal is paid off. Other loans might not amortize fully over their terms. An example is an 

“interest-only” (I-O) loan, which requires the payment of only interest for a certain time period at 

the beginning of the loan; after the initial period, the borrower either makes increased principal and 

interest payments to amortize the principal over the remaining term or pays a large “balloon” 

payment, usually at the end of the term. I-O loans can be fixed- or adjustable-rate. In addition, for a 

period of time, payment option adjustable rate mortgages (“Pay Option ARMs” or “Option 

Payment ARMs”) were offered to many consumers. These loans offer borrowers several payment 

choices each month during the loan’s introductory period, including a minimum payment that is 

less than the interest accruing and due on the principal each month. If the borrower chooses the 

minimum payment option, the interest amount that remains unpaid each month is added to the loan 

balance, so the principal amount owed by the borrower increases. This is known as negative 

amortization. In addition, the loan is recast after the introductory period (typically five years), and 

the borrower’s fully amortizing payments typically increase in order to repay the increased 

principal and the interest rate due at the adjusted rate over the remaining loan term. Interest-only 

loans and Pay Option ARMs often are called “non-traditional loans.” 

Mortgage originators offer various mortgage products that may be classified in different ways, 

such as: 

1. Purpose 

Mortgages often are categorized by whether they are used to purchase real property (called 

“purchase money loans”) or to refinance an existing loan (“refinances”). Refinance loans are 

sometimes “cash out” loans, made for more than the existing loan’s outstanding principal 

balance. The borrower receives the cash borrowed in excess of the amount necessary to pay off 

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the existing loan. Another category is a “home equity” loan, in which the borrower can receive 

funds to use for any purpose by borrowing against home equity. Equity is the amount the 

property is currently worth, minus the outstanding principal balance of any other mortgage the 

consumer has. Reverse mortgages are available to older homeowners to borrow against the 

equity they have in their homes. (See below for fuller discussion of reverse mortgages.) 

2.	 Lien position 

Lien position determines which mortgage loan receives priority over other loans in the event 

of a foreclosure or bankruptcy. A mortgage that is in a first lien position, sometimes called a 

senior loan, has priority for payment over a mortgage in a junior lien position if there is a 

foreclosure or bankruptcy proceeding. The proceeds from the foreclosure sale are divided 

according to lien position. A “simultaneous second lien” is a second lien originated at the 

same time as a first lien mortgage, which may allow a consumer to borrow an amount that is 

100% of the value of the home. Sometimes lenders have allowed consumers to borrow an 

amount greater than the value of the property, although this practice is not common in 

today’s mortgage marketplace. 

3.	 Closed-end or open-end 

Most purchase money and refinance mortgages are considered “closed-end credit” under the 

Truth in Lending Act, generally consisting of installment financing where the amount 

borrowed and repayment schedule are set at the transaction’s outset. Closed-end mortgages 

can take first or junior lien positions. 

In contrast, home equity lines of credit (HELOCs) are “open-end credit,” extended to a 

consumer under a plan in which: 

•	 the creditor reasonably contemplates repeated transactions; 

•	 the credit line generally is made available to the consumer to the extent that any unpaid 

balance is repaid; and 

•	 the creditor may impose a finance charge from time to time on an outstanding unpaid 

balance.

1 

 

During the time while borrowers are able to draw down funds, they usually must pay a 

monthly interest charge on the outstanding balance. If the borrower owes funds after a fixed 

period of years, called the “draw period,” the consumer enters the “repayment period” and 

must pay off the outstanding balance in regular periodic payments of principal and interest. 

The repayment period is also a fixed term of years. HELOCs are often, but not always, in a 

junior lien position. 

1 12 CFR 1026.2(a)(20). 

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Depending upon the lender and the HELOC agreement, the consumer may have to pay back 

the entire outstanding balance as soon as the draw period ends. In these cases, there is no 

repayment period, just a balloon payment in the amount of the outstanding balance when the 

draw period ends. HELOCs usually have an adjustable interest rate that changes over time, so 

the consumer’s payments may not be the same from month to month. 

4. Reverse Mortgages 

A reverse mortgage is a special type of loan that allows homeowners 62 and older to borrow 

against the equity in their homes. It is called “reverse” because the consumer receives 

payments from the lender, without making loan payments to the lender. In exchange for 

borrowing the money and receiving these payments, the borrower grants a lien interest in the 

home in the favor of the lender. The lender charges interest each month and is paid off when 

the consumer leaves the home permanently. In taking out a reverse mortgage loan, a 

consumer can receive a lump-sum payment, regular monthly payments, or a line of credit. 

The consumer does not have to pay back the loan as long as he continues to live in the home, 

maintain it, and stay current on expenses like homeowner’s insurance and property taxes. If 

the consumer moves, passes away, or goes into assisted living or a nursing home on a longterm basis, the loan has to be paid off, usually by selling the house. 

The vast majority of reverse mortgages extended today are through the Home Equity 

Conversion Mortgage (HECM) program, which is the reverse mortgage product insured by 

the Federal Housing Administration. 

Because of the unique features of reverse mortgages, examiners should follow the procedures 

that are specific to reverse mortgages and be aware that other examination procedures may 

not apply to reverse mortgages. 

5. Conventional Lending 

Conventional lending generally refers to prime standardized mortgage products that are not 

government-backed loans (discussed below). Conventional loans can be “conforming” or 

“non-conforming.” Conventional conforming mortgages meet the underwriting and 

documentation standards set by the government sponsored enterprises (GSEs): Federal 

National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation 

(Freddie Mac). On the other hand, non-conforming mortgages have, among other attributes, 

principal balances that exceed the loan limits set by the GSEs. Loans that are larger than the 

limits set by the GSEs also are called jumbo mortgages. 

6. Subprime and Alt-A Lending 

Subprime mortgages carry interest rates higher than the rates of prime mortgages. A 

subprime mortgage is generally a higher cost loan that is meant to be offered to prospective 

borrowers with impaired credit records – those borrowers whose credit rating is “subprime.” 

The higher interest rate is intended to compensate the lender for accepting the greater risk in 

lending to such borrowers. Traditionally, “subprime” has been the riskiest lending category, 

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followed by “Alt-A,” or Alternative-A, and then A-paper, or “prime,” as the least risky. AltA borrowers may have prime credit, but some aspect of the loan makes it riskier. 

7. Governmental Support 

Government-backed lending includes mortgage lending that is insured by the Federal 

Housing Administration (FHA) or guaranteed by the U.S. Department of Veteran Affairs 

(VA). Government-supported loans generally offer terms similar to conventional loans, but 

these loans allow additional benefits such as smaller down payments, higher loan-to-value 

ratios (amount of loan as a proportion of the appraised value of the home), or lower interest 

rates. FHA loans also are available to consumers with lower credit scores who otherwise 

meet FHA underwriting standards. Generally, consumers that qualify for these loans must 

pay additional insurance or guarantee fees. 

B. Business of Mortgage Origination 

Mortgage lending generally occurs through retail, wholesale, or correspondent lending channels. 

Sometimes there are no clear lines of demarcation among the channels, as a participant may 

operate in more than one of them. Each channel is described in more detail below. 

1. Retail Channel 

In the retail channel, the lender conducts the origination process directly with the consumer, 

either in person or through an online application. An employee of the lender, generally called 

a loan officer, solicits the loan, takes the application, and tracks the application through to the 

closing process. 

2. Wholesale Channel − Mortgage Brokers 

In the wholesale channel, a mortgage broker solicits the loan and takes the application from 

the consumer. Mortgage brokers are independent contractors and are not employees of the 

lender. The broker establishes relationships with multiple mortgage lenders and offers 

different mortgage loan products from these lenders. Mortgage brokers generally do not 

make underwriting decisions and do not actually fund the loans. In this channel, it is the 

mortgage lender that makes the underwriting decision, based on information provided by the 

broker. These mortgage lenders, called wholesale lenders, often are divisions of larger 

depository institutions. Generally, a wholesale lender requires a broker to enter into a 

wholesale lending agreement before the broker may originate loans on the lender’s behalf. 

In a variant of standard wholesale mortgage originations, some brokers “table fund” loans. In a 

table-funded transaction, the mortgage broker closes the loan as the lender of record and then 

assigns the loan to a purchaser at or immediately after the closing. The loan purchaser provides 

the funding for the loan, but the documents name the mortgage broker as the creditor. 

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3.	 Correspondent Channel – Small Mortgage Lenders 

Correspondent lending, a hybrid of retail channel and wholesale channel lending, often 

features smaller institutions, acting as correspondent lenders. Correspondent lenders are the 

primary interface with consumers, conducting all steps in the mortgage origination process 

and funding their own loans. They generally originate and deliver loans pursuant to 

underwriting standards set by other lenders or investors, usually larger depository lenders, 

upon advance commitment on price. In addition to soliciting consumers directly, 

correspondent lenders may receive applications and mortgage documents from mortgage 

brokers and subsequently speak directly with the consumer. Generally, a wholesale lender 

requires a correspondent to enter into a written correspondent lending agreement before the 

correspondent may originate loans for sale to the wholesale lender. 

C. Federal Consumer Financial Law Requirements 

Mortgage originators must comply with the following federal consumer financial laws: 

•	 The Real Estate Settlement Procedures Act (RESPA) and its implementing regulation, 

Regulation X, require lenders or brokers, with respect to mortgage origination, to provide 

borrowers with disclosures regarding the nature and costs of the real estate settlement 

process. The Act also protects borrowers against certain abusive practices, such as kickbacks, 

and places requirements on the administration of, and limitations upon required deposits into, 

escrow accounts. The main disclosure requirements applicable at origination include: 

o	 Good Faith Estimate of settlement costs within three business days after application; 

o	 Disclosure of affiliated business arrangements; 

o	 An initial notice explaining whether the lender is likely to sell the servicing rights to the 

loan; and 

o	 A listing of the final settlement charges of borrowers and sellers on a prescribed 

settlement statement (HUD-1 or HUD-1A) that is provided at or before closing (and, at 

the borrower’s request and whether it is complete or not, must be available for inspection 

one business day before closing). 

•	 The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, provide a 

uniform system for creditors’ disclosures of credit terms. In addition, they: 

o	 Impose certain advertising rules; 

o	 Require written disclosure and re-disclosure of certain loan terms; 

o	 Provide consumers with rescission rights in certain circumstances; 

o	 Delineate and prohibit certain unfair and deceptive mortgage lending practices; 

o	 Prohibit certain mortgage loan originator compensation structures; 

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o	 Prohibit certain terms and practices in the origination of “higher-priced” loans and 

prohibit additional terms and practices on a subset of these loans known as “HOEPA 

loans;” and 

o	 Prohibit certain appraisal practices. 

•	 The Equal Credit Opportunity Act (ECOA), and its implementing regulation, Regulation B, 

prohibit creditors from discriminating against any applicant with respect to any aspect of a 

credit transaction: 

o	 On the basis of race, color, religion, national origin, sex, marital status, or age (provided 

the applicant has the capacity to contract); 

o	 Because all or part of the applicant’s income derives from any public assistance program; 

or 

o	 Because the applicant has in good faith exercised any right under the Consumer Credit 

Protection Act.2 

Creditors also are prohibited from making any oral or written statement, in advertising or 

otherwise, to applicants or prospective applicants that would discourage on a prohibited basis 

a reasonable person from making or pursuing an application. 

In addition, ECOA and Regulation B require lenders to provide adverse action notices and 

appraisal reports to consumers. 

•	 The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) 

establishes requirements for registration and, when applicable, standards for licensing of 

individuals who are residential mortgage loan originators. The registration and licensing 

requirements are administered, in part, through the Nationwide Mortgage Licensing System 

and Registry (NMLSR). The SAFE Act and Regulation H require each mortgage loan 

originator who is not an employee of a federally regulated depository institution or certain 

subsidiaries of such an institution to obtain a state license, register with the NMLSR, obtain a 

unique identifier, and maintain the license and registration. In addition, the SAFE Act 

requires states to meet specific minimum standards for licensing and renewing licenses of 

state-licensed originators. State regulators are responsible for determining whether to grant 

licenses to loan originator applicants. Employees of depository institutions and certain 

subsidiaries of those institutions, as well as institutions regulated by the Farm Credit 

Administration, are subject to different requirements under the SAFE Act and Regulation G. 

Each such employee who acts as a residential mortgage loan originator must register through 

2 The Consumer Credit Protection Act, 15 U.S.C. 1601 et seq., is the collection of federal statutes that protects consumers when 

applying for or receiving credit. The Act includes statutes that have dispute rights for consumers, such as the Fair Credit 

Reporting Act. The ECOA prohibits discriminating against an applicant who has exercised a dispute right pursuant to one of the 

statutes outlined in the Act. 

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the NMLSR, obtain a unique identifier and provide it to consumers in certain circumstances, 

and maintain registration − but generally is not required to be licensed. 

•	 The Home Mortgage Disclosure Act (HMDA) and its implementing regulation, Regulation 

C, require mortgage lenders that meet certain threshold conditions to collect, report to 

federal regulators, and disclose to the public certain data about applications for, and 

originations and purchases of, home purchase loans, home improvement loans, and 

refinancings for each calendar year. The data include information about the loan or 

application (e.g., loan amount, loan purpose, action taken), the applicant (e.g., sex, 

ethnicity and race), and the property (e.g., property type and geographic information such 

as state and metropolitan statistical area (MSA)). 

•	 The Gramm-Leach-Bliley Act (GLB), through its implementing regulation, Regulation P, 

requires covered entities to provide privacy notices and limit information sharing in 

particular ways. 

•	 The Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V, 

impose disclosure and other requirements on mortgage lenders that obtain information from a 

consumer reporting agency to determine a consumer’s credit worthiness. These include the 

disclosure of credit score information, disclosure of adverse action, and disclosure of riskbased pricing. 

•	 Mortgage Acts and Practices – Advertising Rule (MAP Rule), Regulation N, issued pursuant to 

the 2009 Omnibus Appropriations Act as clarified by the Credit Card Accountability 

Responsibility and Disclosure Act of 2009, applies only to non-depository mortgage lenders and 

state-chartered credit unions, as well as entities that market and advertise mortgage products but 

are not mortgage lenders, such as mortgage brokers, real estate brokers, advertising agencies, 

lead generators, and rate aggregators. The MAP Rule sets forth specific deceptive acts and 

practices in the advertising of mortgage loan products and prohibits misrepresentation in any 

commercial communication concerning terms of mortgage loan products.3 

 

These laws historically have been implemented by regulations published by one or more of seven 

federal agencies, including the Federal Trade Commission, the Department of Housing and 

Urban Development, the Board of Governors of the Federal Reserve System, and other 

prudential regulators. The Dodd-Frank Act generally transferred these agencies’ rulemaking 

authority under those laws to the Bureau, which has published new implementing regulations 

under its authority, effective December 30, 2011. Citations to implementing regulations in this 

manual are to the Bureau’s regulations. In examining an institution, however, formal citations for 

any observed violations of regulatory requirements should be to the regulation that was in effect 

at the time the cited act occurred. 

3 The MAP Rule became effective on August 19, 2011. Mortgage Acts and Practices – Advertising, 76 Fed. Reg. 43826 (July 

22, 2011). 

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To carry out the objectives set forth in the Examination Objectives section, the examination 

process also will include assessing other risks to consumers generally prohibited by the DoddFrank Act. These risks may include potentially unfair, deceptive, or abusive acts or practices 

(UDAAPs) with respect to mortgage originators’ interactions with consumers.4 The standards the 

CFPB will use in assessing UDAAPs are: 

o	 A representation, omission, act, or practice is deceptive when: 

(1) the representation, omission, act, or practice misleads or is likely to mislead the 

consumer; 

(2) the consumer’s interpretation of the representation, omission, act, or practice is 

reasonable under the circumstances; and 

(3) the misleading representation, omission, act, or practice is material. 

o	 An act or practice is unfair when: 

(1) it causes or is likely to cause substantial injury to consumers; 

(2) the injury is not reasonably avoidable by consumers; and 

(3) the injury is not outweighed by countervailing benefits to consumers or to 

competition. 

o	 An abusive act or practice: 

(1) materially interferes with the ability of a consumer to understand a term or condition 

of a consumer financial product or service; or 

(2) takes unreasonable advantage of – 

 a lack of understanding on the part of the consumer of the material risks, costs, or 

conditions of the product or service; 

 the inability of the consumer to protect the interests of the consumer in selecting 

or using a consumer financial product or service; or 

 the reasonable reliance by the consumer on a covered person to act in the interests 

of the consumer. 

Please refer to CFPB’s examination procedures regarding UDAAPs for more information about 

the legal standards and the CFPB’s approach to examining for UDAAPs. 

The particular facts in a case are crucial to a determination of unfair, deceptive, or abusive 

practices. As set out in the Examination Objectives section, examiners should consult with 

4 Sec. 1036 of the Dodd Frank Act (July 21, 2010). 

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Headquarters to determine whether the applicable legal standards have been met before a 

violation of any federal consumer financial law could be cited, including a UDAAP violation. 

General Considerations 

Completing the following examination modules will allow examiners to develop a thorough 

understanding of mortgage brokers’ and lenders’ practices and operations. To complete the 

modules, examiners should obtain and review, as applicable, each entity’s: organizational charts 

and process flowcharts; board minutes, annual reports, or the equivalent to the extent available; 

relevant management reporting; policies and procedures; rate sheets; loan applications, loan 

account documentation, notes, disclosures, and all other contents of loan underwriting and closing 

files; operating checklists, worksheets, and review documents; relevant computer program and 

system details; wholesale and correspondent lending agreements, due diligence and monitoring 

procedures, and lending procedures; underwriting guidelines; compensation policies; historical 

examination information; audit and compliance reports; management’s responses to findings; 

training programs and materials; service provider contracts; 5 advertisements; and complaints. 

Depending on the scope of the examination, examiners should perform transaction testing using 

approved sampling procedures, which may require use of a judgmental or statistical sample. 

Examiners also should conduct interviews with management and staff to determine whether they 

understand and consistently follow the policies, procedures, and regulatory requirements 

applicable to mortgage lending; manage change appropriately; and implement effective controls. 

Examiners also should consider observing customer interactions and, if consumer complaints or 

document review indicate potential concerns, interviewing customers. 

5 CFPB issued a bulletin highlighting its expectation that supervised banks and nonbanks oversee their business relationships 

with service providers in a manner that ensures compliance with Federal consumer financial law. See CFPB Bulletin 2012-03, 

Service Providers (April 13, 2012), http://files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf 

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Examination Procedures 

Module 1 – Company Business Model 

Conduct initial interviews for all relevant departments. 

1. Determine the type of mortgage origination channel(s) used by the entity. Is the entity: 

• Acting as a broker; 

• Acting as a correspondent; 

• Lending through a retail system; 

• Lending through a wholesale or correspondent system; or 

• Using a combination of these strategies? 

2.	 Determine the funding source(s) that the entity uses. 

3.	 Ascertain the product volume, mix, trends, and concentrations, including in any of the 

branches. 

4.	 Review the organizational chart and reporting structure for mortgage loan origination to 

determine the reporting structure and responsibilities of key managers. 

5.	 Determine whether the quality control (or audit, as applicable), underwriting, and appraisal 

functions operate independently of the production function (sales unit). 

6.	 Review and list the types of products the entity offers. Determine whether the entity offers 

hybrid ARMs, interest-only loans, Payment Option ARMs, simultaneous second liens, AltA loans, or subprime loans. If the entity offers reverse mortgages, determine whether it 

offers HECMs and, if so, what percentage of the reverse mortgages originated are HECMs. 

7.	 Review the qualifications, experience levels, and training programs for originators, 

processors, underwriters, closers, and the quality control (or audit, as applicable) staff. 

8.	 Determine whether the entity uses service providers in conducting its business, such as 

mortgage brokers (if it is a lender), lead generators or affinity groups, business process 

outsourcing, processors, underwriters, appraisers, or insurers. 

9.	 Review compensation arrangements, including incentive programs for employees and 

service providers. 

10.	 Review the entity’s general compliance management system using the compliance 

management review section of the CFPB examination manual and its fair lending 

compliance management using Section A of the ECOA Examination Procedures if you 

have not already done so. 

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Module 2 – Advertising and Marketing 

This module applies to both mortgage brokers and mortgage lenders. Examiners should develop a 

detailed understanding of the entity’s marketing program to determine whether its marketing 

policies, procedures, and practices are consistent with the requirements of applicable laws and 

regulations. First, examiners should evaluate the originator’s advertising materials and disclosures 

across all media, including: print, television, radio, telephone solicitation scripts, and electronic 

media including the Internet, email and text messages. If the entity engages in telemarketing, 

examiners also should listen to a selection of the sales calls. Finally, examiners should determine 

whether the entity employs or acts as a third-party lead generator, and should understand the extent 

of any relationships that the entity has with affiliated or other service providers (i.e., as a broker or 

agent) to advertise, offer, or provide loans or other products and services. 

TILA, Regulation Z 

1.	 Assess compliance with TILA, Advertising Provisions, for advertisements concerning 

open-end accounts. Please refer to the examination procedures regarding TILA, 12 CFR 

1026.16, for more information. 

2.	 Assess compliance with TILA, Advertising Provisions, for advertisements concerning 

closed-end loans. Please refer to the examination procedures regarding TILA, 12 CFR 

1026.24, for more information. 

RESPA, Regulation X 

3.	 Determine whether the entity complies with the RESPA Section 8 prohibitions against 

giving or accepting kickbacks for the referral of settlement service business and unearned 

fees. Please refer to the examination procedures regarding RESPA, 12 CFR 1024.14, for 

more information. 

ECOA, Regulation B 

4.	 Assess compliance with ECOA’s prohibition against discrimination or discouragement on 

a prohibited basis. Please refer to the examination procedures regarding ECOA / 

Regulation B, 12 CFR 1002.4, for more information. See Module 6 for more information 

on fair lending examinations. 

SAFE Act 

5.	 For federal regulated depository institutions and certain of their subsidiaries, assess 

compliance with the SAFE Act’s requirements to register in the NMLSR (and obtain a 

unique identifier) and to maintain that registration. For examinations of those institutions, 

please refer to the SAFE Act examination procedures for more information. 

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Other Risks to Consumers - General 

6.	 Determine whether advertisements and promotional materials for mortgage loan products 

contain material misrepresentations, expressly or by implication, of the following:

6 

a.	 the existence, nature, or amount of fees or other costs; 

b.	 number, amount, or timing of payments, including whether the payment includes 

amounts for monthly escrow payments for taxes and insurance; 

c.	 credit qualifications for a particular product or program; 

d.	 potential for default; 

e.	 product type; 

f.	 product effectiveness with respect to debt elimination; 

g.	 nature of counseling services; or 

h.	 the existence, nature, or amount of prepayment penalties. 

7.	 Determine whether advertisements and promotional materials for mortgage loan products 

contain misleading representations that a lender or broker is acting in a fiduciary capacity 

or in the consumer’s best interest. 

8.	 Determine whether advertisements and promotional materials for mortgage loan products 

clearly disclose all material limitations or conditions on the terms or availability of 

products or services, such as: 

a.	 special interest rates for a limited time period (teaser rates); 

b.	 the expiration date for terms that apply only during an introductory period; 

c.	 interest rate resets that could cause significant increases in payments; 

d.	 material prerequisites for obtaining particular products, services, or benefits (e.g., 

discounts, refunds or rebates); 

e.	 non-amortizing or less-than-fully amortizing loan terms; 

f.	 balloon payments; or 

g.	 prepayment penalties. 

6 The MAP Rule, 12 CFR 1014.3, which applies to nonbanks and certain state-chartered credit unions, lists 19 examples of 

specific prohibited claims, including the claims described in this item. 

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9.	 Determine whether advertisements and promotional materials avoid using fine print, 

separate statements, or inconspicuous disclosures to correct potentially misleading 

headlines. 

10.	 If additional products or services are sold or offered in connection with the loan, such as 

credit insurance products, home warranties, or annuities, determine whether advertisements 

and promotional materials provide timely, clear, and understandable information about the 

existence of costs, payment terms, penalties, or other terms and charges, the reasons for 

their imposition, and the salesperson’s compensation from cross-sales. 

11.	 Determine the target audience for each type of advertisement and product and whether the 

entity designs advertisements, promotional materials, disclosures and scripts to be 

comprehensible by the target audience. 

12.	 Determine whether the entity maintains appropriate procedures for resolving complaints 

about marketing practices. 

Other Risks to Consumers - Non-traditional Mortgage Loans 

13.	 Determine whether advertisements and promotional materials: 

a.	 Provide information about the costs, terms, and features associated with nontraditional mortgage loans, including information about payment shock, balloon 

clauses, negative or less than full amortization, prepayment penalties, and the cost of 

reduced documentation; 

b.	 Provide timely, clear, and understandable information about the relative risks of nontraditional mortgage products; 

c.	 Clearly disclose key terms, including limitations and conditions that are important in 

enabling the consumer to make an informed decision regarding whether the product or 

service meets the consumer’s needs. 

Other Risks to Consumers - Reverse Mortgages 

14.	 Determine whether the entity offers other financial products, like an annuity or long-term 

care insurance, with the proceeds of the reverse mortgage. If so, determine whether the 

entity provides timely, clear, and understandable information about these products. 

15.	 Determine whether the entity provides timely, clear, and understandable information about 

the costs and relative risks of reverse mortgages. 

16.	 Determine whether the entity provides timely, clear, and understandable information about 

the requirements to pay property taxes, insurance, utilities, maintenance, and other 

expenses after obtaining a reverse mortgage. 

17.	 Determine whether the entity provides timely, clear, and understandable information about 

the circumstances under which the borrower may be required to pay the loan in full. 

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18.	 Determine whether the entity has adequate safeguards against improper marketing of 

reverse mortgages to seniors who have medical or cognitive problems or in situations 

raising concerns about undue influence by third parties. 

Conduct of Employees and Service Providers 

19.	 Determine whether the entity has developed appropriate training and monitoring policies 

and procedures for employees and service providers, including: 

a.	 monitoring outbound calls to consumers to ensure compliance with applicable law and 

internal policies; 

b.	 ensuring service provider compliance with legal obligations; and 

c.	 regular evaluations of employee and service provider performance. 

Refer to the Compliance Management Review - Compliance Program examination 

procedures for more information. 

Module 3 – Loan Disclosures and Terms 

When lenders take applications, evaluate applicants, and originate mortgage loans, they are 

subject to disclosure and operational requirements. Examiners should identify acts, practices, or 

materials that indicate potential violations of federal consumer financial laws. 

1.	 Examiners should review financial institution policies, procedures, and systems to 

determine whether the applicable disclosures listed below are scheduled to be furnished 

when required. 

2.	 Examiners should obtain a list of consumer accounts and select a sample for further 

review. 

a.	 Consider weighting the sample so that more loans from branches with a larger volume 

of complaints are reviewed. 

b.	 Obtain complete loan files, which contain the disclosures required by federal 

consumer financial laws and other legal documents, as well as underwriting 

documents, rate sheets, and all documents provided to the consumer. 

3.	 Review the sample of loan origination files to assess the adequacy and completeness of 

required disclosures, as described below. 

4.	 Determine whether the required disclosures were made as required and ensure the presence 

and accuracy of the items below, as applicable. 

5.	 If consumer complaints or document review indicate potential violations in the areas 

discussed below, examiners also may conduct review of recorded telephone calls and/or 

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complaints, if available, and interviews of consumers from the sample and ask questions 

relevant to each topic area below. 

RESPA, Regulation X 

Under RESPA and it implementing regulation, Regulation X, the lender/creditor is responsible 

for providing the Good Faith Estimate (GFE) and the Settlement Cost Booklet. The regulations 

permit the mortgage broker to provide the disclosures, but the lender must ascertain whether the 

GFE has been provided. During an examination of a mortgage broker, examiners should 

determine whether it has agreed to provide the GFE and Booklet and if so, whether it is doing so. 

6.	 For mortgage lenders, determine whether the lender complies with RESPA Special 

Information Booklet Provisions. Please refer to the examination procedures regarding 

RESPA, 12 CFR 1024.6, for more information. 

7.	 For mortgage lenders, determine whether the lender complies with RESPA GFE 

requirements. Please refer to the examination procedures regarding RESPA, 12 CFR 

1024.7, for more information. 

8.	 For any person making a referral to an entity that is part of an affiliated business 

arrangement, determine whether the entity complies with RESPA requirements for 

affiliated business arrangements. Please refer to the examination procedures regarding 

RESPA, 12 CFR 1024.15, for more information. 

9.	 Review the final settlement statement (HUD-1 or HUD-1A), and assess compliance with 

RESPA disclosure requirements and tolerance limits on settlement charges. Please refer to 

the examination procedures regarding RESPA, 12 CFR 1024.7, for more information. 

TILA, Regulation Z 

10.	 Assess compliance with TILA’s disclosure provisions, including appropriate disclosure of 

amount financed, annual percentage rate, and payment schedule or rate and payment 

summary table (as applicable). Please refer to the examination procedures regarding TILA, 

12 CFR 1026.4, 1026.5, 1026.40, and 1026.6 (open-end accounts) and 1026.4, 1026.17 – 

1026.20 (closed-end accounts), for more information. 

11.	 Assess compliance with TILA disclosure provisions for appropriate calculation of finance 

charge and annual percentage rate. Please refer to the regulation and examination narrative 

and procedures regarding TILA, 12 CFR 1026.4 and 1026.14 (open-end accounts) and 

1026.4 and 1026.22 (closed-end accounts), for more information. 

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12.	 If the creditor originates high-cost mortgage loans, assess compliance with TILA 

provisions concerning those mortgage loans.7 Please refer to the examination procedures 

regarding TILA, 12 CFR 1026.32 and 1026.34, for more information. 

13.	 If the creditor originates reverse mortgage loans, assess compliance with TILA provisions 

concerning those loans. Please refer to the examination procedures regarding TILA, 12 

CFR 1026.33, for more information. 

14.	 If the creditor originates higher-priced mortgage loans, assess compliance with TILA 

provisions concerning those.8

 Please refer to the examination procedures regarding TILA, 

12 CFR 1026.35, for more information. 

15.	 Ensure that the creditor does not structure a high-cost or higher-priced mortgage loan as an 

open-end plan to evade the requirements of Regulation Z. 

16.	 If the creditor originates high-cost mortgage loans, assess compliance with TILA and 

Regulation Z provisions concerning restrictions on prepayment penalties and required 

escrow account for property taxes and homeowners insurance, for high-cost, closed-end 

mortgages. Please refer to the examination procedures regarding Regulation Z, 12 CFR 

1026.32, for more information. 

ECOA, Regulation B, Adverse Action Notices 

17.	 Review loan files to determine whether ECOA adverse action notices were provided when 

required. Please refer to the examination procedures regarding Regulation B, 12 CFR 

1002.9, for more information. 

18.	 Assess compliance with ECOA’s prohibition against discrimination or discouragement on 

a prohibited basis. Please refer to the examination procedures regarding ECOA / 

Regulation B, 12 CFR 1002.4, for more information. See Module 6 for more information 

on fair lending examinations. 

FCRA, Regulation V 

7 A “high-cost” loan is a consumer credit transaction secured by the consumer’s principal dwelling, in which either: 

• The APR at consummation will exceed by more than 8 percentage points for first-lien mortgage loans, or by more than 10 

percentage points for subordinate-lien mortgage loans, the yield on Treasury securities having comparable periods of maturity to 

the loan’s maturity (as of the 15th day of the month immediately preceding the month in which the application for the extension 

of credit is received by the creditor); or 

• The total points and fees (as defined in the regulation) payable by the consumer at or before loan closing will exceed the greater 

of 8 percent of the total loan amount or $579 for the calendar year 2010. (This dollar amount is adjusted annually based on 

changes in the Consumer Price Index. See staff commentary to 12 CFR 1026.32(a)(1)(ii) for a historical list of dollar amount 

adjustments.) 

8 A “higher-priced” mortgage loan is a consumer credit transaction secured by the consumer’s principal dwelling with an APR 

that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by: 1.5 or more 

percentage points for loans secured by a first lien on a dwelling; or 3.5 or more percentage points for loans secured by a 

subordinate lien on a dwelling. 

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19.	 Review the loan file to determine whether FCRA adverse action and risk-based pricing 

notices were provided when required. Please refer to the examination procedures regarding 

FCRA, 15 U.S.C. 1681m(a) and 12 CFR 1022.72, for more information. 

Homeowners Protection Act 

20.	 Determine whether the entity provided a notice to the borrower of the borrower’s ability to 

terminate private mortgage insurance. Please refer to the examination procedures regarding 

the Homeowners Protection Act for more information. 

Other Risks to Consumers 

21.	 Review the loan file to determine whether loan documentation, including income 

documentation, has been altered or forged. Any indications of fraud should be handled in 

accordance with CFPB internal consultation procedures, and examiners should refer them 

to other authorities, as appropriate. 

22.	 Review policies and procedures regarding rate locks, and review the loan file to determine 

whether there are instances where consumers lose their rate locks prior to its expiration, 

resulting in their being placed in more expensive mortgage products, despite obtaining a 

rate lock and submitting all required documentation within required time frames. 

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Module 4 – Underwriting, Appraisals, and Originator 

Compensation 

Underwriting, appraisals, and originator compensation are important parts of the origination 

process and important areas for review. 

Underwriting 

This section of the Procedures applies only to mortgage lenders, not mortgage brokers. 

TILA, Regulation Z – High-cost or higher-priced mortgage loans 

If the entity originates high-cost mortgage loans (12 CFR 1026.32) or higher-priced mortgage 

loans (12 CFR 1026.35), assess compliance with provisions concerning the borrower’s 

repayment ability for closed-end, high-cost mortgages, including required documentation of 

income and assets. Please refer to the examination procedures regarding Regulation Z, 12 CFR 

1026.32 and 1026.35, for more information. 

Other Risks to Consumers 

1.	 Review the mortgage lender’s underwriting policies and guidelines to determine whether 

they contain: 

a. Verifiable standards for qualifying borrowers, including ranges/limits for applicable 

debt-to-income (DTI) ratios, credit scores, and loan-to-value (LTV) ratios for the 

different loan products offered by the institution. 

b. Authenticated processes and bases for approving exceptions to underwriting standards. 

c. Standards and methods for determining, verifying, and documenting that the borrower 

has the ability to repay the loan. 

2.	 Review communication logs or notes in the mortgage loan files, and interview sales and 

production staff of the mortgage lender or broker to determine the independence of 

underwriters from the sales or production unit, with an emphasis on any influence 

mortgage loan originators may have over underwriters. 

3.	 Determine whether the compensation systems for underwriters (whether in-house or 

contracted) affects their incentives concerning the speed and quality of their underwriting. 

4.	 If the lender offers non-traditional or subprime loan products: 

a. Determine if underwriting standards take adjusted payments into account in considering 

borrower ability to repay at expected payment change dates. 

b. If the lender offers loans that have two or more risky characteristics (called “risk 

layering”), determine whether risk layering is taken into account as part of the 

underwriting policies, whether any mitigating factors are required for approval, and 

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whether actual underwriting practices conform with policies. Risky characteristics are 

any of the following: 

• Limited or no documentation of income, assets, and/or employment; 

• Simultaneous second lien; 

• Negative amortization, option payment, or interest-only features; 

• Introductory rate 200 basis points or more below fully-indexed rate; 

• Borrowers with subprime characteristics; 

• No escrow for property taxes and homeowner’s insurance; 

• Extended amortization period or extended loan terms; or 

• Balloon clauses. 

c. Determine whether a customer is referred up to prime if he qualifies for prime and 

whether the referral is structured or framed to discourage the customer from applying 

for a prime loan. 

5.	 Review the documentation used to make underwriting decisions, including applications, 

tax returns, verifications of income, assets, and employment, credit reports, and all other 

required documentation to determine that the entity complied with applicable underwriting 

policies and procedures and with regulatory requirements. If not, determine the reasons for 

and frequency of exceptions. 

6.	 For loans made using automated underwriting systems, determine whether the originator 

entered the correct inputs and that all of the conditions on the feedback certificate were 

satisfied and documented before the loan was funded. 

7.	 Confirm that the lender has an adequate quality assurance program both pre-funding and 

post-closing to detect and correct any violations of its underwriting policies. 

8.	 Determine whether the lender has appropriate policies and procedures related to 

underwriting of loans to be sure that the borrower is able to repay without selling or 

refinancing and whether the lender is adhering to its policies. 

9.	 Determine whether the lender frequently uses exceptions to override underwriting 

decisions in order to allow a greater volume of loans into the pipeline. 

10.	 Review underwriting guidelines and use of exceptions for changes and deterioration in 

lending standards. 

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ECOA 

11.	 Assess compliance with ECOA’s prohibition against discrimination or discouragement on 

a prohibited basis. Please refer to the examination procedures regarding ECOA / 

Regulation B, 12 CFR 1002.4, for more information. See Module 6 for more information 

on fair lending examinations. 

Appraisals 

Review appraisal policies and procedures. Interview employees about their relationships with 

independent third-party appraisers to determine whether there are conflicts of interest. Determine 

whether the entity has an affiliated appraisal company or appraisal management company. 

TILA, Regulation Z – Valuation Independence 

12.	 Determine whether the lender complies with the Regulation Z requirements for valuation 

independence. Please refer to the examination procedures regarding Regulation Z, 12 CFR 

1026.42 for more information. 

ECOA, Regulation B – Providing Appraisal Reports 

13.	 Determine whether the regulated entity provides appraisals to applicants in accordance 

with Regulation B, 12 CFR 1002.14. 

Other Risks to Consumers 

14.	 Determine whether practices of the mortgage lender or its employees undermine appraisal 

independence. 

15.	 Confirm that the entity maintains adequate oversight of the appraisers it uses (including 

termination where necessary) and safeguards against appraisal fraud. 

Originator Compensation 

Review compensation policies and procedures. Interview employees to assess the entity’s actual 

compensation practices. Review loan files and originator compensation records to confirm that 

the entity is complying with its applicable policies and procedures. 

TILA, Regulation Z - Prohibited Payments to Loan Originators 

16.	 Determine that, in connection with a consumer credit transaction secured by a dwelling, no 

loan originator receives and no person pays to a loan originator, directly or indirectly, 

compensation that is based on any of the transaction’s terms or conditions (12 CFR 

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1026.36(d)(1)(i)).9 Please refer to the examination procedures regarding Regulation Z, 12 

CFR 1026.36(d)(1)(i) for more information. 

17.	 If any loan originator receives compensation directly from a consumer in a consumer credit 

transaction secured by a dwelling, determine that (12 CFR 1026.36(d)(2)): 

a. No loan originator receives compensation, directly or indirectly, from any person other 

than the consumer in connection with the transaction (12 CFR 1026.36(d)(2)(i)); and 

b. No person who knows or has reason to know of the consumer-paid compensation to the 

loan originator (other than the consumer) pays any compensation to a loan originator, 

directly or indirectly, in connection with the transaction (12 CFR 1026.36(d)(2)(ii)). 

Please refer to the examination procedures regarding Regulation Z, 12 CFR 

1026.36(d)(2), for more information. 

TILA, Regulation Z - Prohibition on Steering 

18.	 Confirm that, in connection with a consumer credit transaction secured by a dwelling, a loan 

originator does not direct or “steer” a consumer to consummate a transaction based on the 

fact that the originator will receive greater compensation from the creditor in that transaction 

than in other transactions the originator offered or could have offered to the consumer, unless 

the consummated transaction is in the consumer’s interest (12 CFR 1026.36(e)(1)). The rule 

provides a safe harbor to facilitate compliance with the prohibition on steering in 12 CFR 

1026.36(e)(1). The loan originator is deemed to comply with the anti-steering prohibition if 

the consumer is presented with loan options that meet specific conditions for each type of 

transaction in which the consumer expressed an interest. Please refer to the examination 

procedures regarding Regulation Z, 12 CFR 1026. 36(e)(1), for more information. 

ECOA 

19.	 Assess compliance with ECOA’s prohibition against discrimination or discouragement on 

a prohibited basis. Please refer to the examination procedures regarding ECOA / 

Regulation B, 12 CFR 1002.4, for more information. See Module 6 for more information 

on fair lending examinations. 

9 This prohibition does not apply if the loan originator receives compensation directly from a consumer in a consumer credit 

transaction secured by a dwelling. Additionally, the amount of credit extended is not deemed to be a transaction term or 

condition, provided compensation received by or paid to a loan originator, directly or indirectly, is based on a fixed percentage of 

the amount of credit extended. Such compensation may be subject to a minimum or maximum dollar amount. 

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Module 5 – Closing 

In addition to making sure they comply with the disclosure requirements covered in Module 3 – 

Mortgage Disclosures and Terms, lenders are responsible for the way their closings are 

conducted. If consumer complaints or document review indicate potential violations in these 

areas, examiners also may conduct interviews of consumers from the sample and ask questions 

relevant to each topic area below. 

1.	 Determine whether the entity has adopted written policies and procedures to ensure that all 

disclosures required to be provided to the borrower at or before closing, including the final 

TILA disclosure, HUD-1 (or HUD-1A), servicing transfer disclosure, PMI cancellation 

notice, and privacy and opt-out notices, were provided. 

2.	 Determine whether the entity allows borrowers to choose their settlement agents or 

requires the borrowers to use any other settlement service provider (other than an attorney, 

credit reporting agency, or appraiser chosen by the entity to represent its interests in the 

transaction, all of which are permitted). 

3.	 Review the sample of loan files to assess the entity’s closing procedures. 

4.	 Determine whether the settlement agent established escrow accounts for taxes and 

insurance as required for higher-priced mortgages under Regulation Z, 12 CFR 

1026.35(b)(3). Please refer to the examination procedures regarding Regulation Z, 12 CFR 

1026.35(b)(3), for more information. 

5.	 If escrow accounts were established, determine whether the borrower received an initial 

escrow account statement. Please refer to the examination procedures regarding RESPA, 

12 CFR 1024.17, for more information. 

6.	 Determine whether each borrower received copies of the notice of the right to rescind 

required by Regulation Z for a loan secured by a principal dwelling. Please refer to the 

examination procedures regarding TILA, 12 CFR 1026.15 (open-end credit) and 

1026.23(b) (closed-end accounts), for more information. 

7.	 Review policies or scripts that explain loan terms to consumers, in connection with loan 

closings, in a deceptive manner. 

8.	 Determine whether the entity’s practices obscure or obfuscate key loan terms, fees, or 

provisions. Compare initial GFEs and TIL disclosures with final HUD-1 settlement 

statements and final TIL disclosures for any evidence of bait-and-switch tactics with 

respect to the interest rate, points, closing costs, or the loan product or loan features. 

9.	 Review complaints and closing files for evidence of coercion of or fraud against the 

borrower at settlement. 

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Module 6 – Fair Lending 

The purpose of a fair lending examination is to determine whether the creditor discriminated on a 

prohibited basis in any aspect of its credit operations. This includes examining whether any of the 

creditor’s policies and procedures has an adverse impact on a prohibited basis, and is not supported 

by a legitimate business need that cannot be met by a less discriminatory alternative. Most fair 

lending examinations will involve requesting loan-level data and detailed information concerning 

lending practices. Headquarters staff will perform statistical modeling and analysis based on entityspecific information and data. Examiners are responsible for collecting and reviewing policies and 

procedures, interviewing bank employees, and conducting comparative file reviews. Examiners 

and Headquarters staff will work together to scope the fair lending examination. 

For fair lending scoping and examination procedures, the CFPB is using the FFIEC Interagency 

Fair Lending Examination Procedures which are referenced in Section B of the CFPB’s ECOA 

Examination Program. When conducting a fair lending examination, consult and work with 

Headquarters. 

HMDA, Regulation C 

HMDA data are used for fair lending examinations. See HMDA Examination Procedures. 

Financial institutions routinely provide HMDA data on an annual basis as required by the statute. 

The CFPB usually has this information, so it is not necessary to ask the regulated entity to 

produce HMDA data. However, we will ask the entity to produce additional non-HMDA data 

fields when conducting a fair lending examination. 

ECOA, Regulation B 

See Section B (Fair Lending Examination Procedures) of the ECOA Examination Procedures for 

details. 

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Module 7 – Privacy 

Financial institutions often sell and share consumer information. The main objectives for 

evaluating privacy and information sharing are to ensure consumers’ non-public information is 

protected as required by federal consumer financial law. Mortgage lenders and brokers must 

adhere to disclosure requirements and information sharing restrictions under the Gramm-Leach 

Bliley Act (GLBA) and its implementing regulation, Regulation P, as well as the FCRA and its 

implementing regulation, Regulation V. These requirements generally are triggered at the start of 

the customer relationship, depending on the information that entity is sharing or selling. 

GLBA, Regulation P 

GLBA and Regulation P govern the treatment of nonpublic personal information about 

consumers by financial institutions and restrict the sharing of nonpublic personal information 

with unaffiliated third parties. GLBA requires financial institutions to disclose their privacy 

policies to consumers. GLBA also permits consumers to opt out of certain sharing practices. 

1.	 Determine whether the entity’s information sharing practices are consistent with the 

requirements of the GLBA and implementing rule. Please refer to the examination 

procedures regarding Regulation P, 12 CFR 1016.4, for more information. 

FCRA, Regulation V 

FCRA’s privacy provisions cover information sharing among affiliates. In general, entities may 

share customer transaction and experience information with affiliated entities. However, an 

entity may not use information received from an affiliate to market its products or services to a 

consumer, unless the consumer is given notice and a reasonable and simple method to opt out of 

the making of such solicitations. 

2.	 Assess compliance with FCRA’s affiliate marketing rule. Please refer to the examination 

procedures regarding Regulation V, 12 CFR 1022.20 – 1022.27, for more information. 

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Mortgage Servicing 

After completing the risk assessment and 

examination scoping, examiners should use these 

procedures, in conjunction with the compliance 

management system review procedures, to conduct a mortgage servicing examination. The 

examination procedures contain a series of modules, grouping similar requirements together. 

Depending on the scope, each examination will cover one or more of the following modules: 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

Routine Servicing 

Module 1 Servicing Transfers, Loan Ownership Transfers, and Escrow Disclosures 

Module 2 Payment Processing and Account Maintenance 

Module 3 Customer Inquiries and Complaints 

Module 4 Maintenance of Escrow Accounts and Insurance Products 

Module 5 Credit Reporting 

Module 6 Information Sharing and Privacy 

Default Servicing 

Module 7 Collections and Accounts in Bankruptcy 

Module 8 Loss Mitigation 

Foreclosure 

Module 9 Foreclosures 

Examination Objectives 

1.	 To assess the quality of the regulated entity’s compliance risk management systems, 

including internal controls and policies and procedures, for preventing violations of federal 

consumer financial law in its mortgage servicing business. 

2.	 To identify acts or practices that materially increase the risk of violations of federal consumer 

financial law in connection with mortgage servicing. 

3.	 To gather facts that help determine whether a regulated entity engages in acts or practices 

that are likely to violate federal consumer financial law in connection with mortgage 

servicing. 

4.	 To determine, in consultation with Headquarters, whether a violation of a federal consumer 

financial law has occurred and whether further supervisory or enforcement actions are 

appropriate. 

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Background 

A servicer may service loans on behalf of itself or an affiliate. It may service as a contractor of 

the trustee where a mortgage is included in a mortgage-backed security, or it may service whole 

loans for an outside third-party investor.1 A servicer may sell the rights to service the loan 

separately from any ownership transfers. This is because some entities have expertise in payment 

processing and other servicing responsibilities, while others seek to invest in the underlying 

mortgages. These procedures apply whether the servicer obtained the servicing rights from 

another entity or the servicing responsibility is transferred within a company from the origination 

platform to the servicing platform. 

Servicers must comply with various laws to the extent that the law applies to the particular 

servicer and its activities: 

•	 The Real Estate Settlement Procedures Act (RESPA) and its implementing regulation, 

Regulation X, impose requirements for servicing transfers, written consumer inquiries, and 

escrow account maintenance. 

•	 The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, generally 

impose requirements on owners for home mortgage ownership transfers. It also imposes 

requirements on servicers regarding crediting of payments, imposition of late fee and 

delinquency charges, and provision of payoff statements with respect to closed-end consumer 

credit transactions secured by a principal dwelling. For open-end mortgages, Regulation Z 

provisions related to payment crediting and error resolution apply to the extent that the 

servicer is a creditor. 

•	 The Electronic Funds Transfer Act (EFTA) and its implementing regulation, Regulation E, 

impose requirements if servicers within the scope of coverage obtain electronic payments 

from borrowers. 

•	 The Fair Debt Collection Practices Act (FDCPA) governs collection activities conducted by 

third-party collection agencies, as well as servicer collection activities if the servicer acquired 

the loan when it was already in default. 

•	 The Homeowners Protection Act (HPA) limits private mortgage insurance that can be 

assessed on customer accounts. 

•	 The Fair Credit Reporting Act (FCRA) requires servicers that furnish information to 

consumer reporting agencies to ensure the accuracy of data placed in the consumer reporting 

system. The FCRA also limits certain information sharing between company affiliates. 

1 If the owner is a separate entity, the servicer generally has contractual commitments to the owner of the loan. In the private 

securitization market, the contracts generally are called Pooling and Servicing Agreements or PSAs. If a Fannie Mae or Freddie 

Mac owns the loan, the commitments are set forth in the company’s seller/servicer guides. 

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•	 The Gramm-Leach-Bliley Act (GLBA) requires servicers within the scope of coverage to 

provide privacy notices and limit information sharing in particular ways. 

•	 The Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, 

apply to those servicers that are creditors, such as those who participate in a credit decision 

about whether to approve a mortgage loan modification. The statute makes it unlawful to 

discriminate against any borrower with respect to any aspect of a credit transaction: 

o	 On the basis of race, color, religion, national origin, sex or marital status, or age
 

(provided the applicant has the capacity to contract);
 

o	 Because all or part of the applicant’s income derives from any public assistance program; or 

o	 Because the applicant has in good faith exercised any right under the Consumer Credit 

Protection Act.

2 

To carry out the objectives set forth in the Examination Objectives section, the examination 

process also will include assessing other risks to consumers that are not governed by specific 

statutory or regulatory provisions. These risks may include potentially unfair, deceptive, or 

abusive acts or practices (UDAAPs) with respect to servicers’ interactions with consumers.3 

Collecting information about risks to consumers, whether or not there are specific legal 

guidelines addressing such risks, can help inform the Bureau’s policymaking. The standards the 

CFPB will use in assessing UDAAPs are: 

o	 A representation, omission, act, or practice is deceptive when: 

(1)	 the representation, omission, act, or practice misleads or is likely to mislead the 

consumer; 

(2)	 the consumer’s interpretation of the representation, omission, act, or practice is 

reasonable under the circumstances; and 

(3)	 the misleading representation, omission, act, or practice is material. 

o	 An act or practice is unfair when: 

(1)	 it causes or is likely to cause substantial injury to consumers; 

(2)	 the injury is not reasonably avoidable by consumers; and 

2 The Consumer Credit Protection Act, 15 U.S.C. 1601 et seq., is the collection of federal statutes that protects consumers when 

applying for or receiving credit. The Act includes statutes that have dispute rights for consumers, such as the Fair Credit 

Reporting Act. The ECOA prohibits discriminating against an applicant who has exercised a dispute right pursuant to one of the 

statutes outlined in the Act. 

3 Dodd-Frank Act, Sec. 1036, PL 111-203 (July 21, 2010). 

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(3)	 the injury is not outweighed by countervailing benefits to consumers or to 

competition. 

o An abusive act or practice: 

(1) materially interferes with the ability of a consumer to understand a term or condition 

of a consumer financial product or service or 

(2) takes unreasonable advantage of – 

 a lack of understanding on the part of the consumer of the material risks, costs, or 

conditions of the product or service; 

 the inability of the consumer to protect its interests in selecting or using a 

consumer financial product or service; or 

 the reasonable reliance by the consumer on a covered person to act in the interests 

of the consumer. 

Please refer to the examination procedures regarding UDAAPs for more information about the 

legal standards and the CFPB’s approach to examining for UDAAPs. 

The particular facts in a case are crucial to a determination of unfair, deceptive, or abusive 

practices. As set out in the Examination Objectives section, examiners should consult with 

Headquarters to determine whether the applicable legal standards have been met before a 

violation of any federal consumer financial law could be cited, including a UDAAP violation. 

CFPB	 Manual V.2 (October 2012) Procedures 4 
 

 

 

 

 

 

 

 

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Examination Procedures Servicing
 

Module 1 – Servicing Transfers, Loan Ownership 

Transfers, and Escrow Disclosures 

Servicing Transfers 

Examiners should engage in several steps to assess potential violations of law in connection with 

servicing transfers, loan ownership transfers, and escrow disclosures. First, examiners should 

review a sample of servicing records, from the servicer’s primary computer system, for loans 

transferred within the previous year. Examiners also may need to review copies of the electronic 

and paper documents transferred from the prior servicer. Additionally, they should review relevant 

records outside the servicer’s primary computer system, such as copies of monthly statements sent 

to consumers, copies of the RESPA disclosures, and evidence of delivery. If consumer complaints 

or document review indicate potential violations in these areas, examiners also may conduct 

interviews of consumers from the sample and ask questions relevant to each topic area below. 

RESPA 

1.	 Assess compliance with RESPA, Notice of Transfer Provisions. Please refer to the 

examination procedures regarding RESPA, 12 CFR 1024.21, for more information. 

[Click&type] 

FDCPA 

2.	 Assess compliance with FDCPA, Right to Validation Notice for Certain Consumers. 

Please refer to the examination procedures regarding FDCPA, 15 U.S.C. 1692g (a), for 

more information. 

[Click&type] 

Other Risks to Consumers 

3.	 Determine whether the servicer conducts adequate due diligence in connection with 

acquiring servicing rights to ensure that it does not misrepresent amounts owed after 

transfer of account servicing. 

[Click&type] 

4.	 For loans subject to modification agreements and forbearance agreements: 

a.	 Determine that the servicer has received executed copies of prior servicers’ 

modification agreements and forbearance agreements. 

b.	 Determine whether the servicer is properly applying, after transfer, payments due 

under a loan modification agreement or other payment modification to which the 

prior servicer agreed. 

c.	 Determine whether the servicer is charging amounts not due under a loan 

modification agreement or forbearance agreement. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 5 
 

 

 

 

 

 

 

 

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5.	 For loans subject to negotiations related to modification agreements and forbearance 

agreements, determine whether the servicer receives adequate information about loan 

modifications or other foreclosure alternatives that were under discussion with the prior 

servicer. If the servicer does not receive system notes or other information documenting 

such discussions, assess and document the information that the servicer does receive. 

[Click&type] 

Ownership Transfer 

Regulation Z 

Examiners should determine whether the servicer is required to transmit the loan ownership 

transfer notice. The institution would have this obligation if (a) it owns any of the loans in the 

servicing portfolio and (b) the loan is secured by the principal dwelling of the consumer. (12 

CFR 1026.39(a)(1)).4 

To assess whether the servicer is complying with obligations under Regulation Z to notify 

consumers of changes in the loan ownership, examiners should sample from the list of loans in 

which the loan’s owner changed within the previous year. For the loans in the sample, 

examiners should review copies of consumer disclosures regarding loan ownership and 

evidence of delivery. 

6.	 Assess compliance with Regulation Z, Notice of Ownership Transfer Provision. Please 

refer to the examination procedures regarding Regulation Z, 12 CFR 1026.39, for more 

information. 

[Click&type] 

4 A servicer of a mortgage loan is not treated as an owner of the obligation if the servicer holds title to the loans, or 

title is assigned to the servicer, solely for the administrative convenience of the servicer in servicing the obligation. 

Contractually, the loan owner may have delegated the Regulation Z obligation to the servicer. Although the loan 

owner cannot delegate its obligation under law, examiners should assess whether the servicer is fulfilling its 

commitment, if applicable. 

CFPB	 Manual V.2 (October 2012) Procedures 6 
 

 

 

 

 

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Escrow Transfers 

RESPA 

To assess whether the servicer is complying with obligations under Regulation X to notify 

consumers of changes in the escrow account requirements resulting from a transfer of servicing, 

examiners should sample from the list of loans transferred within the previous year that included 

escrow accounts. For the loans in the sample, examiners should review copies of consumer 

disclosures regarding the escrow accounts and evidence of delivery. 

7.	 Assess compliance with RESPA, Escrow Transfer Provisions. Please refer to the 

examination procedures regarding RESPA, 12 CFR 1024.17, for more information. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 7 
 

 

 

 

 

 

 

 

 

 

CFPB Mortgage 

Examination Procedures Servicing
 

Module 2 – Payment Processing and Account 

Maintenance 

To assess payment posting and fee practices, examiners should review a sample of servicing 

records. Examiners should begin by reviewing a sample of records from the servicer’s primary 

record system; if potential problems are found, examiners should review copies of relevant 

records outside the primary system, such as copies of monthly statements, copies of consumer 

payment records, and copies of bills from vendors documenting any services related to the 

consumer’s loan account. If consumer complaints or document review indicates potential 

violations in these areas, examiners also may conduct interviews of consumers from the sample 

and ask questions relevant to each topic area below. 

Payment Processing 

Regulation Z 

1.	 Assess compliance with Regulation Z, Payment Posting Provisions for closed-end 

accounts. Please refer to the examination procedures regarding Regulation Z, 12 CFR 

1026.36, for more information. 

[Click&type] 

2.	 Assess compliance with Regulation Z, Payment Posting Provisions for open-end 

mortgages. Please refer to the examination procedures regarding Regulation Z, 12 CFR 

1026.10, for more information. 

[Click&type] 

Other Risks to Consumers – Payment Posting 

3.	 Assess how the servicer uses suspense accounts in the time period before the servicer 

has provided the customer notice that the contract has been declared in default and 

the remaining payments due under the contract have been accelerated. 

a.	 For loans that are not Daily Simple Interest Loans: 

i.	 Determine the circumstances under which the servicer places payments into a 

suspense account. Determine whether the servicer informs consumers of these 

actions in a timely, clear, and understandable manner. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 8 
 

 

 

 

 

 

 

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Examination Procedures Servicing
 

ii.	 Determine the servicer’s practices in connection with crediting amounts held in a 

suspense account, including whether the servicer leaves money in the suspense 

account without assessing whether the consumer has cumulatively made a PITI 

payment and applying such a payment. 

[Click&type] 

iii. Determine the servicer’s practices in connection with the use of funds in a 

suspense account, including whether the servicer pays late fees or default-related 

fees from suspense accounts before crediting those funds towards the PITI 

payment. 

[Click&type] 

iv. Determine the circumstances under which the servicer sends back payments, 

including, if applicable, whether the servicer in a timely, clear, and 

understandable manner explains the reason a payment is sent back, and the future 

payment amount that would be accepted. 

[Click&type] 

b.	 For Daily Simple Interest Loans: Determine whether the servicer promptly accepts 

and applies all borrower payments, including cure payments, trial modification 

payments, and payments by or on behalf of a borrower in bankruptcy while the case is 

pending, as well as non-conforming payments. 

[Click&type] 

4.	 Determine whether the servicer credits payments toward principal and interest before 

it applies payments to fees and other charges. 

[Click&type] 

Optional Products 

ECOA 

5.	 Determine whether the servicer offers debt cancellation, debt suspension, or other 

similar additional products or services and, if so, which products and/or services the 

servicer offers. 

[Click&type] 

6.	 Determine whether each such optional product or service is offered and provided in a 

manner consistent with ECOA. Targeted marketing of these products on the basis of 

race, for example, may indicate an increased risk of potential ECOA violations and 

require further inquiry. In consultation with Headquarters, assess whether marketing 

is targeted on such a basis to particular consumers or in particular areas. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 9 
 

 

 

 

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Examination Procedures Servicing
 

Other Risks to Consumers 

7.	 Determine whether the servicer offers additional products or services (such as 

payment protection or credit protection) and, if so, which products and/or services the 

servicer offers. 

[Click&type] 

8.	 Review marketing materials, whether they are telemarketing scripts, direct mail, webbased, or other media, and determine whether each optional product’s costs and terms 

are clearly and prominently disclosed. If consumer complaints or document review 

indicates potential violations in these areas and the servicer engages in telemarketing, 

monitor call center activity, and statements of representatives marketing the products. 

If the servicer engages in web-based marketing, monitor Internet communications 

related to the marketing. 

[Click&type] 

9.	 Determine whether the servicer added on optional products or services without 

obtaining explicit authorization from the consumer. If the servicer obtains written 

authorization, review records of customers who received additional products or 

services to ensure that written authorization has been provided and retained. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 10 
 

 

 

 

 

 

 

 

 

CFPB Mortgage 

Examination Procedures Servicing
 

Fees 

Other Risks to Consumers – Fees Imposed to Protect the Owner’s Security 

Interest 

10. Determine the servicer’s practices in assessing attorney’s fees, property inspection 

fees, sheriff’s fees, publication fees, and other charges, including whether the servicer 

ensures that fees are only assessed when the activity or service actually takes place. 

a.	 Determine the servicer’s practices in assessing foreclosure attorney’s fees, 

including whether these fees are assessed in stages to ensure that the servicer does 

not charge the entire fee for a foreclosure at the initial stage of the foreclosure 

referral before all of the charged services have been rendered. 

[Click&type] 

b.	 Determine the servicer’s practices in connection with obtaining invoices for 

services rendered, for example determining whether it assesses charges when it 

has a valid invoice. 

[Click&type] 

c.	 Determine whether the servicer assesses charges for estimated fees in connection 

with the reinstatement or payoff of a loan in foreclosure, including, if applicable, 

whether it: 

1.	 Clearly and conspicuously explains the estimated fees; and 

2.	 For borrowers who reinstate or pay off the loan, (1) perform a timely 

reconciliation of the fees paid to ensure that all fees assessed were imposed 

for services that were valid and actually performed and (2) reimburses the 

borrower in the event of any overpayment, within a reasonable time, using 

reasonable efforts to update the borrower’s address. 

[Click&type] 

d.	 Determine whether the servicer or any of its affiliates impose mark-ups on any 

third-party fees or insurance products without performing administrative work, 

quality control, or providing other services consistent with the mark-up. 

[Click&type] 

11. Document the timing and frequency of fees, and determine whether the servicer has 

established reasonable intervals for repeat services. 

[Click&type] 

Periodic Statements and Other Disclosures 

Examiners must review the servicer’s policies, procedures, and systems to assess the adequacy of 

periodic statements and whether applicable disclosures are furnished when required by 

Regulation Z. Examiners also should review a sample of periodic statements. 

CFPB	 Manual V.2 (October 2012) Procedures 11 
 

 

 

 

 

 

 

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Regulation Z 

12. Assess compliance with Regulation Z – Change in Term Disclosures for Open-End 

Mortgages. Please refer to the examination procedures regarding Regulation Z, 12 

CFR 1026.9, for more information. 

[Click&type] 

13. Assess compliance with Regulation Z – Periodic Statements for Open End 

Mortgages. Please refer to the examination procedures regarding Regulation Z, 12 

CFR 1026.7, for more information. 

[Click&type] 

EFTA 

14. Assess compliance with EFTA – Electronic Payments. Please refer to the 

examination procedures regarding EFTA’s provisions on pre-authorized electronic 

transfers, 12 CFR 1005, for more information. 

[Click&type] 

Other Risks to Consumers – Periodic Statements 

15. Review sample periodic statements to ensure that information provided is clear and 

understandable. If the servicer uses general categories such as “other fees,” determine 

whether the reason for the fee is otherwise made clear. 

[Click&type] 

16. Determine whether the servicer adequately informs the customer of the reason for 

any amounts due (particularly those other than PITI) in a timely manner. 

[Click&type] 

17. Determine whether the servicer has adequate controls and an adequate data integrity 

program to ensure that information about amounts due and the loan’s status that is 

communicated to consumers is accurate and contains all material information. 

[Click&type] 

18. Determine whether the factual assertions made in periodic statements and other 

communications to the borrower are accurate and contain all material information. 

[Click&type] 

19. For any adjustable rate mortgage, determine whether the monthly payment amount 

stated on a periodic statement after an interest rate change is consistent with the 

consumer’s obligations under the note. 

[Click&type] 

CFPB Manual V.2 (October 2012) Procedures 12 
 

 

 

 

 

 

 

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Examination Procedures Servicing
 

Payoff Statements 

Regulation Z – Payoff Statements 

20. Examiners should verify whether the servicer failed to provide, within a reasonable 

time after receiving a request from the consumer or person acting on behalf of the 

consumer, an accurate statement of the total outstanding balance that would be 

required to satisfy the consumer’s obligations in full as of a specific date. Please 

refer to the examination procedures regarding Regulation Z, 12 CFR 1026.36, for 

more information. 

[Click&type] 

Other Risks to Consumers – Payoff Statements 

21. Determine whether, when calculating the payoff amount, the servicer includes late 

charges and fees owed in the payoff amount or instead deducts such fees and charges 

from the escrow account. 

[Click&type] 

Treatment of Credit Balances 

Regulation Z – Treatment of Credit Balances 

22. Assess compliance with Regulation Z – Treatment of Credit Balances. Please refer to 

the regulation and examination narrative and procedures regarding Regulation Z, 12 

CFR 1026.11 and 1026.21, for more information. 

[Click&type] 

Treatment of Private Mortgage Insurance 

Homeowners’ Protection Act of 1998 

23. Assess compliance with Homeowners’ Protection Act. Please refer to the 

examination procedures regarding the HPA, 12 U.S.C. 4902, for more information. 

[Click&type] 

CFPB Manual V.2 (October 2012) Procedures 13 
 

 

 

 

 

 

 

CFPB Mortgage 

Examination Procedures Servicing
 

Module 3 – Customer Inquiries and Complaints 

Examiners should review consumer complaints and call specific complaining consumers to 

interview them regarding their experiences. Examiners should determine whether their 

complaints were resolved adequately, and whether they were resolved in a timely manner. 

RESPA – Responses to Qualified Written Requests 

1.	 Assess compliance with RESPA – Requirements Related to Responses to Qualified 

Written Requests. Please refer to the examination procedures regarding RESPA, 12 CFR 

1024.21(e), for more information. 

[Click&type] 

Open-End Mortgages – Billing Errors 

2.	 Assess compliance with Regulation Z – Open-End Credit, Billing Errors Procedures. 

Please refer to the examination procedures regarding this regulation, 12 CFR 1026.13, 

for more information. 

[Click&type] 

Other Risks to Consumers 

3.	 Identify all channels and physical locations the servicer provides for receipt of customer 

complaints and inquiries. 

[Click&type] 

4.	 Evaluate the comprehensiveness of systems, procedures, and/or flowcharts for capturing, 

logging, tracking, handling, and reporting complaints and their resolutions. 

[Click&type] 

5.	 Assess the effectiveness of any telephone line available for inquiries or complaints, 

including (a) whether it is toll-free, (b) the ease of accessing a live person, (c) the hold 

times, and (c) the call abandonment rates. 

[Click&type] 

6.	 Assess the effectiveness of other means available for inquiries or complaints, including 

written submissions and any online portal. 

[Click&type] 

7.	 Evaluate the servicer’s processes and speed for responses to consumer complaints. 

Review reports to management and the board of directors (or principals). Review the 

consumer complaint log(s), performance metrics, and exception/trend reports to 

determine whether consumer complaints are captured, correctly categorized, and are 

handled appropriately. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 14 
 

 

 

CFPB Mortgage 

Examination Procedures Servicing
 

8.	 Determine if staffing levels are sufficient for volume. Then determine whether 

assumptions used for staffing determinations are validated or supported by analysis. 

[Click&type] 

9.	 Listen to live calls and taped calls to assess the quality and training of call center 

personnel. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 15 
 

 

 

 

 

 

 

 

CFPB Mortgage 

Examination Procedures Servicing
 

Module 4 – Maintenance of Escrow Accounts and 

Insurance Products 

Maintenance of Escrow 

Examiners should obtain a sample of servicing records. For the loans in the sample, examiners 

should assess whether the servicer is complying with the law in the areas listed below. If the file 

review indicates potential risks, examiners also should conduct interviews of a sample of 

consumers and staff, if appropriate, to assess consumer experiences with escrow accounts and 

any force-placed insurance products. 

Escrow Disclosures 

1.	 Assess compliance with RESPA – Escrow Disclosures. Please refer to the RESPA 

examination procedures, 12 CFR 1024.17, for more information. 

[Click&type] 

Escrow Disbursement 

2.	 Assess compliance with RESPA – Escrow Disbursement. Please refer to the RESPA 

examination procedures, 12 CFR 1024.21, for more information. 

[Click&type] 

Other Risks to Consumers 

3.	 Determine whether the customer incurred penalties or unnecessary charges in the event 

the servicer failed to make disbursements of escrow funds for insurance, taxes, and other 

charges with respect to the property in a timely manner. 

[Click&type] 

4.	 Evaluate whether the servicer has established adequate procedures to ensure customers 

are not improperly assessed force-placed insurance, including the servicer’s procedures 

for notifying customers that the servicer needs evidence of insurance coverage. 

[Click&type] 

5.	 Review the extent to which borrowers are provided with relevant information about 

force-placed insurance in a timely, accurate, and understandable manner. Review the 

servicer’s practices when borrowers fail to respond to such notices. 

[Click&type] 

6.	 Determine whether the servicer cancels force-placed insurance when the customer 

provides adequate evidence of existing and sufficient insurance coverage. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 16 
 

 

CFPB Mortgage 

Examination Procedures Servicing
 

7.	 Determine whether the servicer refunds insurance premiums and any related fees that 

were assessed for force-placed insurance coverage that ran concurrent with the 

customer’s existing insurance coverage. 

[Click&type] 

8.	 Determine whether the servicer or any of its affiliates imposes mark-ups, or received 

commissions or other payments, related to any force-placed insurance products. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 17 
 

 

 

 

 

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Module 5 – Credit Reporting 

Examiners should obtain a sample of loan servicing records. For the loans in the sample, 

compare the information in the servicer’s system of record with the information reported to the 

credit reporting agencies. If consumer complaints or document review indicates potential FCRA 

violations, examiners also may conduct interviews of consumers from the sample. 

FCRA Furnisher Requirements 

1.	 Assess compliance with FCRA Furnisher Requirements. Please refer to the FCRA 

examination procedures, 12 CFR 1022.40-43, for more information. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 18 
 

 

 

 

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Module 6 – Information Sharing and Privacy 

Privacy Notices 

1.	 Assess compliance with Privacy of Consumer Financial Information Regulation that 

implements the GLBA. Please refer to the GLBA examination procedures, 12 CFR 

1016.4 and 1016.5, for more information. 

[Click&type] 

Information Sharing With Affiliates 

2.	 Assess compliance with the FCRA Affiliate Marketing Rule. Please refer to the FCRA 

examination procedures, 12 CFR 1022.21, for more information. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 19 
 

 

 

 

 

 

 

 

 

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Module 7 – Collections and Accounts in Bankruptcy 

Examiners should obtain a sample of servicing records of customers in default, including a 

sufficient number of loans in which the consumer has filed for bankruptcy, to assess collection 

practices. Examiners should obtain collection call records and listen to a sample of collection calls. 

If consumer complaints or document review indicates potential violations in these areas, examiners 

also may conduct interviews of consumers from the sample and ask questions relevant to each 

topic area below. In connection with these steps, examiners should evaluate the following. 

Under the FDCPA, a “debt collector” is defined as any person who regularly collects, or attempts 

to collect, consumer debts for another person or institution or uses some name other than its own 

when collecting its own consumer debts, with certain exceptions. The definition includes, for 

example, an institution that regularly collects debts for an unrelated institution. 

The debt collector definition has an exception that frequently applies to mortgage servicing: an 

institution is not a debt collector under the FDCPA when it collects debts that were not in 

default when they were obtained by the servicer.5 Thus, a servicer that purchases the servicing 

rights for a portfolio of loans will be a debt collector only for loans that were in “default” at the 

time of the purchase.6 

Examiners should obtain a sample of collection call records and assess whether collectors 

complied with the requirements listed in the FDCPA procedures. Examiners should also listen on 

a sample of collection calls. 

FDCPA 

1.	 Assess compliance with FDCPA. Please refer to the FDCPA examination procedures for 

more information. 

[Click&type] 

Other Risks to Consumers 

2.	 Determine whether the servicer contacts borrowers in an appropriate manner: 

a.	 Employees and third-party contractors clearly indicate to consumers that they are 

calling about the collection of a debt. 

b.	 Employees and third-party contractors do not disclose the existence of a 

consumer’s debt to the public without the consent of the consumer, except as 

permitted by law. 

5 15 U.S.C. 1692a (6)(F)(iii). 

6 The FDCPA itself does not contain a definition of the term “default.” The standard mortgage note states that the debt is in 

default if the payment is even one day late. 

CFPB	 Manual V.2 (October 2012) Procedures 20 
 

 

 

 

 

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Examination Procedures Servicing
 

c.	 The entity has policies on avoiding repeated telephone calls to consumers that 

annoy, abuse, or harass any person at the number called. 

[Click&type] 

3.	 Determine whether the servicer’s representatives make misrepresentations or use 

deceptive means to collect debts.
 

[Click&type] 

4.	 Determine whether collections staff transfer borrowers to loss mitigation staff, in 

accordance with the institution’s policies and procedures, to discuss loss mitigation 

alternatives. 

[Click&type] 

Bankruptcy 

Other Risks to Consumers 

5.	 If the servicer does not perform an annual escrow analysis because of the bankruptcy, 

determine whether the borrower is notified of any escrow account deficiency or shortage. 

[Click&type] 

6.	 For customers who have filed for bankruptcy, determine whether the servicer provides 

notice of fees or other amounts charged to the account to the debtor, the bankruptcy 

trustee, or the court during the pendency of the bankruptcy case. 

[Click&type] 

7.	 Determine whether payments received from a bankruptcy trustee are properly applied to 

the customer’s account. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 21 
 

 

 

 

 

 

 

 

 

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Examination Procedures Servicing
 

Module 8 – Loss Mitigation 

Examiners should obtain a sample of servicing records of customers who are delinquent or at 

imminent risk of default to assess loss mitigation activity. If consumer complaints or document 

review indicates potential concerns in these areas, examiners also may conduct interviews of 

consumers from the sample who sought loss mitigation in the prior year and ask questions 

relevant to each topic area below. 

ECOA 

Disparate Treatment in Loss Mitigation 

As discussed above, examiners should obtain a sample of servicing records of customers in 

default or at imminent risk of default to assess loss mitigation activity. While conducting the 

review of the servicer’s loss mitigation activities discussed above, examiners must be mindful of 

activities that may indicate disparate treatment of consumers in violation of the ECOA on the 

bases of race, color, religion, national origin, sex or marital status, or age (provided the applicant 

has the capacity to contract); because all or part of the applicant’s income derives from any 

public assistance program; or because the applicant has in good faith exercised any right under 

the Consumer Credit Protection Act. 

Examiners should: 

1.	 Determine whether the file documents indicate that decisions were made based upon any 

protected status. 

[Click&type] 

2.	 Determine whether there were clear policies and procedures for making loss mitigation 

decisions or whether there was broad employee discretion. If employees have discretion, 

determine whether the procedures, controls, and monitoring that govern the exercise of 

discretion are adequate. 

[Click&type] 

3. Assess policies and procedures for assessing fees, with a specific focus on discretion. 

[Click&type] 

4.	 Determine whether there were adequate processes and controls for policy exceptions and 

adequate documentation of decisions. 

[Click&type] 

5.	 Review complaints of discrimination and litigation alleging discrimination. 

[Click&type] 

6.	 Review any internal fair lending audits or reports. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 22 
 

 

 

 

 

 

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Disparate Impact in Loss Mitigation 

An examination of whether a servicer’s loss mitigation program results in adverse impact on the 

basis of a protected class will rely on procedures outlined in the CFPB’s ECOA Examination 

Program Manual and the Interagency Fair Lending Examination Procedures (IFLEP). 

Examiners, in consultation with Headquarters, should: 

7.	 Obtain information sufficient to determine whether loss mitigation workouts have been 

provided to consumers in compliance with ECOA and Regulation B. For example, this 

may involve an analysis of the distribution of protected class members in the pool of 

delinquent borrowers versus the distribution of protected class members receiving a 

range of loss mitigation outcomes, including: reinstatement, repayment plan, 

forbearance, loan modification, short sale, deed-in-lieu, and foreclosure. 

[Click&type] 

8.	 Obtain information sufficient to determine whether loan modifications have been 

provided in compliance with ECOA and Regulation B. For example, this may involve an 

analysis of processing times and loan modification attributes including interest rate, 

principal, and monthly payment reductions for protected class members when compared 

to non-protected class members. 

[Click&type] 

9.	 Obtain information sufficient to determine whether the rate and timing of foreclosures 

are in compliance with ECOA and Regulation B. For example, this may include analysis 

of the representation of protected classes in the group of seriously delinquent borrowers 

versus their representation among borrowers who lose their homes to foreclosure. 

[Click&type] 

To complete a disparate impact analysis of a servicer’s loss mitigation program, and determine 

whether a facially neutral policy or practice that has an adverse effect on a protected class meets 

a legitimate business need that cannot reasonably be achieved by a less discriminatory 

alternative, refer to Section B of the CFPB’s Fair Lending Examination Procedures and consult 

with Headquarters. 

CFPB	 Manual V.2 (October 2012) Procedures 23 
 

 

 

 

 

 

 

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Other Risks to Consumers 

Application Process 

10. Determine whether information provided to consumers about loss mitigation alternatives 

is clear, prominent, and readily understandable. 

[Click&type] 

11. Determine whether the servicer is providing military homeowners who have informed 

the servicer that they have received military Permanent Change of Station orders with 

accurate, clear, and readily understandable information about available assistance options 

for which the consumer may qualify. 

[Click&type] 

12. Determine whether the servicer advises customers to stop payments in order to qualify 

for loss mitigation relief. 

[Click&type] 

13. Determine whether the servicer is providing customers with accurate information
 

throughout the loss mitigation process.
 

If there are consumer complaints or other indications that the servicer is not providing 

customers with accurate information throughout the process, evaluate the servicer’s 

practices in the following areas: 

a.	 Determine whether the servicer provides adequate methods for consumers to contact 

it for information about the loss mitigation process, and timely responds to those 

contacts. 

[Click&type] 

b.	 Determine whether the servicer adequately documents its contacts with consumers 

regarding loss mitigation. Appropriate documentation of oral contacts includes the 

dates of communications, names of contact person(s), and a summary of the 

conversation. 

[Click&type] 

c.	 If the servicer represents to consumers that it is accessible for intake of loss 

mitigation requests, including if it represents that it has a “single point of contact” 

system in place, evaluate whether consumers can readily access the servicer’s 

representatives and obtain complete responses. 

[Click&type] 

d.	 Determine whether the servicer has procedures in place to ensure all paperwork is 

collected and tracked in an efficient and reliable manner. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 24 
 

 

 

 

 

 

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e. Determine whether the servicer is providing customers with timely information on the 

status of loan modifications and other foreclosure alternatives. 

[Click&type] 

f. Determine whether the servicer is accurately applying its procedures for evaluating 

customers for foreclosure alternatives, including compliance with Home Affordable 

Modification Program requirements, if applicable. 

[Click&type] 

g. Determine whether any collection contacts occurring during the loss mitigation 

process acknowledge the loss mitigation process and avoid UDAAPs. In particular, 

determine whether collections staff transfer borrowers to loss mitigation staff, in 

accordance with the institution’s policies and procedures, to discuss loss mitigation 

alternatives. 

[Click&type] 

h. If the servicer denies the customer’s application for loan modification, determine 

whether it provides the customer with timely notice of rejection as well as the 

rationale and any other options that may be available to the consumer. 

[Click&type] 

i. Evaluate the servicer’s training programs for employees involved in the loan 

modification process. 

[Click&type] 

14. Determine whether the servicer discloses all fees associated with modifications in a 

timely, prominent, and understandable manner. 

[Click&type] 

Consequences of Loss Mitigation 

15. Determine whether the servicer discloses any rescheduling of payments that may occur 

under an existing obligation in a clear, prominent, and understandable manner. 

[Click&type] 

16. Determine whether the servicer discloses any negative consequences that may occur as a 

result of the borrower’s failing to make payments during the loss mitigation process. 

[Click&type] 

17. Determine whether the servicer discloses any material negative consequences that may 

occur as a result of a completed loan modification (e.g., decreased credit score, income 

tax implications if principal reduction is offered, and any increase in monthly payment 

amount). 

[Click&type] 

CFPB Manual V.2 (October 2012) Procedures 25 
 

 

 

CFPB Mortgage 

Examination Procedures Servicing
 

18. Determine whether the servicer discloses future changes in the modified loan terms (e.g., 

with respect to any principal forbearance or temporary interest rate reductions). 

[Click&type] 

19. Determine whether the servicer asks consumers to waive their legal rights under the 

Servicemembers Civil Relief Act or any other law as a prerequisite to the servicer either 

providing information to the consumer about available options or evaluating the 

consumer’s eligibility for assistance. 

[Click&type] 

20. Determine if the servicer includes any waiver of legal rights in its loan modification or 

other foreclosure alternative agreements. 

[Click&type] 

Short Sales 

21. If the servicer is offering short sales as a loss mitigation tool, determine whether it 

provides clear, timely disclosures to the customer about the process. 

[Click&type] 

22. If the servicer demands deficiency payments upon agreeing to a short sale to recoup any 

principal not recovered through the short sale, determine whether the servicer discloses 

in a clear, prominent, and understandable manner that it or an investor will demand a 

deficiency payment or related cash contribution and the approximate amount of that 

deficiency. 

[Click&type] 

Deeds-In-Lieu of Foreclosures 

23. If the servicer offers deeds-in-lieu of foreclosures, determine whether it provides clear, 

timely disclosures about requirements and cost to the customer. 

[Click&type] 

CFPB Manual V.2 (October 2012) Procedures 26 
 

 

 

 

 

CFPB Mortgage 

Examination Procedures Servicing
 

Module 9 – Foreclosures 

Examiners should obtain a sample of servicing records of consumers whose loans have been 

referred to foreclosure. For the loans in the sample, examiners should focus on whether the 

consumer is in fact in default and whether all amounts due are correct. Examiners should review 

amounts set forth in foreclosure affidavits, compare them to amounts recorded in the servicer’s 

primary computer system, and compare them to all statements made in communications from the 

borrower, including consumer complaints. Examiners also should review all complaints of 

consumers whose loans were referred to foreclosure in the prior year. In reviewing foreclosure 

practices, examiners should focus on the following areas: 

ECOA 

1.	 See above, Module 8. Examiners should collect information sufficient to determine 

whether there has been disparate treatment discrimination in violation of the ECOA and 

Regulation B in the servicer’s foreclosure processing as part of the file review. 

Examiners should work with OFLEO to determine whether there has been disparate 

impact discrimination in foreclosure processing as part of the loss mitigation data 

analysis discussed above. 

[Click&type] 

Other Risks to Consumers 

Referrals to Foreclosure 

2.	 Evaluate the servicer’s process for determining whether to refer a loan to foreclosure. 

Determine whether the servicer has reviewed adequate information to confirm the 

borrower’s default, including the borrower’s loan history, notes in the servicing system 

regarding borrower communications, whether the borrower is entitled to protection from 

foreclosure under applicable law, and any complaints lodged with the servicer. 

[Click&type] 

3.	 Determine whether the servicer has referred to foreclosure, or foreclosed upon, any 

customer who is current or not seriously delinquent. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 27 
 

 

 

 

 

 

 

CFPB Mortgage 

Examination Procedures Servicing
 

Dual Tracking 

4.	 Determine whether the servicer has foreclosed on any customers paying on a trial 

modification agreement, permanent modification agreement, forbearance agreement, or 

other similar agreement. 

[Click&type] 

5.	 Determine whether the servicer has foreclosed on any customer with whom the servicer 

had agreed to a modification agreement, forbearance agreement, or other similar 

agreement, but the first payment was not yet due. 

[Click&type] 

6.	 Determine whether the servicer has proceeded with foreclosure without giving customers 

an adequate opportunity for consideration for a foreclosure alternative, or has foreclosed 

on any customer who has a modification or forbearance agreement request pending. 

[Click&type] 

Accuracy of Filings 

7.	 Determine whether the factual assertions made in foreclosure documents filed by or on 

behalf of the financial institution are accurate and adequately supported by file 

documentation. Examiners should focus on whether the borrower is in default and 

statements regarding amounts owed. 

[Click&type] 

8.	 Determine whether affiants have reviewed adequate information to confirm the right to 

foreclose, including required ownership documentation. 

[Click&type] 

9.	 Determine under what circumstances the servicer files a lost note affidavit instead of 

filing the note in a foreclosure action. 

[Click&type] 

Walkaways 

10. Evaluate the servicer’s process for informing consumers about changes in the foreclosure 

process, including decisions not to go forward. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 28 
 

 

 

 

 

CFPB Mortgage 

Examination Procedures Servicing
 

GLOSSARY 

BPOs: broker price opinions, which provide estimates of the property value. 

Consumer Reporting Agency: a person which, for monetary fees, dues, or on a cooperative 

non-profit basis, regularly engages in whole or in part in the practice of assembling or evaluating 

consumer credit information or other information on consumers for the purpose of furnishing 

consumer reports to third parties, and which uses any means or facility of interstate commerce 

for the purpose of preparing or furnishing consumer reports. 

Daily Simple Interest Loan: any loan on which interest is calculated based on a daily accrual or 

daily interest method. For these loans, if a consumer pays before the payment due date, the 

amount of interest paid should decrease. If a consumer pays after the due date, the amount of 

interest paid should increase. 

Deed in Lieu of Foreclosure: a foreclosure alternative in which the consumer voluntarily transfers 

the property title to the servicer in exchange for cancellation of the remainder of the debt. 

Escrow Account: an account the servicer maintains to pay property taxes and insurance on 

behalf of the borrower. 

Forbearance: a foreclosure alternative in which the servicer reduces or suspends the customer’s 

mortgage payments for an agreed period of time. At the end of that time, the consumer resumes 

making the regular payments as well as a lump sum payment or additional monthly payments to 

bring the loan current. Forbearance may be an option if the consumer’s income is reduced 

temporarily and the mortgage is affordable. 

Force-Placed Insurance: an insurance policy taken out by a lender or creditor when it 

determines that a customer has breached the mortgage contract by failing to carry appropriate 

insurance on the home that is collateral for the mortgage. 

Foreclosure Trustee: an individual or company chosen to administer the assets of the 

beneficiary and facilitate the foreclosure process. 

CFPB Manual V.2 (October 2012) Procedures 29 
 

 

 

 

 

 

 

 

CFPB Mortgage 

Examination Procedures Servicing
 

HAMP: The Home Affordable Modification Program (HAMP) is a temporary government 

program encouraging certain loan modifications. HAMP modifications lower consumer’s 

mortgage payment to 31 percent of verified monthly gross income. 

A consumer is eligible to apply for a HAMP modification if he: (a) occupies the house as his 

primary residence; (b) obtained the mortgage on or before January 1, 2009; (c) has a 

mortgage payment that is more than 31 percent of monthly gross income; (d) owes up to 

$729,750 on the home; (e) has a financial hardship and is either delinquent or in danger of 

falling behind; (f) has sufficient, documented income to support the modified payment; and 

(g) has not been convicted within the last ten years of felony larceny, theft, fraud or forgery, 

money laundering or tax evasion, in connection with a mortgage or real estate transaction. 

The list of servicers participating in HAMP is available at 

http://www.makinghomeaffordable.gov/get-assistance/contact-mortgage/Pages/default.aspx. 

Loan Instruments: the promissory note and the security instrument that detail the rights and 

obligations of the parties. 

Loan Modification: a foreclosure alternative in which the servicer changes one or more of the 

terms of the mortgage contract, typically to lower the monthly payments. Modifications may 

include reducing the interest rate, extending the term of the loan, or adding missed payments to 

the loan balance. A modification also may involve reducing the amount of money the consumer 

owes by forgiving a portion of the mortgage debt, which is known as “principal forgiveness.” 

Loss Mitigation: a process for considering alternatives to foreclosure when customers fall 

behind on their mortgage payments or are at risk of default. 

PITI Payment: principal, interest, taxes, and insurance payment 

Promissory Note: a document that evidences the debt and the promise to repay. 

Property Inspection Fees: fees for inspections of the property so that the servicer can make sure 

that it is occupied and not abandoned. 

Property Preservation Fees: fees for services purchased to maintain the property in good 

condition and typically include lawn mowing, winterizing, and making repairs. 

Proprietary Loan Modifications: loan modifications other than HAMP modifications. The 

eligibility requirements and structure of these modifications depend on the servicer and the 

investor that owns the particular loan. 

Reinstatement: a process by which, after going into default, the customer pays the loan servicer 

the entire past-due amount, plus any late fees or penalties, by an agreed date. This option may be 

appropriate if the consumer’s problem paying the mortgage is temporary. 

Repayment Plan: a foreclosure alternative in which the servicer allows the customer a fixed 

amount of time to repay the amount he is behind by adding a portion of what is past due to the 

CFPB Manual V.2 (October 2012) Procedures 30 
 

 

 

 

 

CFPB Mortgage 

Examination Procedures Servicing
 

regular payment. This option may be appropriate if the consumer has missed a small number of 

payments and can afford the mortgage. 

Security Instrument: a document that evidences the lien on the property. Depending on the 

state, the security instrument is called either a deed of trust or mortgage deed. 

Short Sale: a foreclosure alternative in which the servicer allows the consumer to sell the home 

for less than the mortgage balance before it forecloses on the property and may agree to forgive 

any shortfall between the sale price and the mortgage balance. 

Suspense Account: an account holding funds that are earmarked for — but not immediately 

credited to — the consumer’s loan account. Also called an unapplied funds account. 

Uniform Instruments: form instruments developed by Fannie Mae and Freddie Mac that are 

used to document the large majority of mortgage loans. 

CFPB Manual V.2 (October 2012) Procedures 31 
 

 

 

 

 

 

 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Short-Term, 

Small-Dollar Lending 

Commonly Known as 

Payday Lending 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

These examination procedures apply to the short-term, small-dollar credit market, commonly 

known as payday lending. The procedures are comprised of modules covering a payday loan’s 

lifecycle, and each module identifies relevant matters for review. Prior to using the procedures, 

however, examiners should complete a risk assessment and examination scope memorandum. 

Depending on the scope, and in conjunction with the compliance management system and 

consumer complaint response review procedures, each examination will cover one or more of the 

following modules: 

1. Marketing 

2. Application and Origination 

3. Payment Processing and Sustained Use 

4. Collections, Accounts in Default, and Consumer Reporting 

5. Service Provider Relationships 

Examination Objectives 

In consultation with headquarters: 

1.	 To assess the quality of the regulated entity’s compliance risk management systems, 

including its internal controls and policies, for its payday lending business. 

2.	 To identify acts or practices that materially increase the risk of violations of federal consumer 

financial laws in connection with payday lending. 

3.	 To gather facts that help to determine whether a regulated entity engages in acts or practices 

that violate the requirements of federal consumer financial laws. 

4.	 To determine if a violation of a federal consumer financial law has occurred and whether 

supervisory or enforcement actions are appropriate. 

CFPB	 Manual V.2 (October 2012) Procedures 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Background 

Lenders typically market payday loans to consumers as a means of bridging a cash-flow shortage 

between pay or benefits checks. Payday loans generally have three features: the loans are smalldollar; borrowers must repay loan proceeds quickly (i.e., they are short-term); and they require that 

a borrower give lenders access to repayment through a claim on the borrower’s deposit account. 

Other loan features vary. Although often structured to pay off in one balloon payment, 

installment payments and interest-only payments are not unusual. Loans may be open-end or 

closed-end, and although loans are commonly issued for terms under one month, others may 

have terms for as long as six months. Loans may be disbursed in cash, on a prepaid card, through 

the Automated Clearing House (“ACH”) network, or by check. 

Most loans are for several hundred dollars and have finance charges of $15 to $20 per each $100 

borrowed. For the two-week term typical of a payday loan, these fees equate to an Annual 

Percentage Rate (“APR”) ranging from 391 percent to 521 percent. Loan amounts and finance 

charges can vary due to factors including differences in state law. 

Although lenders sometimes access third-party data about their customers, lenders generally do not 

underwrite their applicants using traditional credit criteria. Because consumers provide lenders 

with access to their bank accounts in advance — through, for example, a personal check in the 

amount of the outstanding balance (i.e., loan amount and finance charge) owed — consumers 

typically need only a regular source of income and a checking account in good standing to qualify. 

If the consumer does not repay the loan in full by the due date, the loan agreement typically 

permits the lender to deposit the consumer’s check to obtain payment. In the case of a weboriginated loan, the loan agreement typically preauthorizes repayment through an electronic debit 

transaction (such as an ACH transaction). Store-front lenders may use ACH transactions as well. 

Some banks market a payday loan variant they call an “advance” — a direct deposit advance, an 

early access advance, a ready advance, or a checking account advance1

. A typical credit line is 

$500 and costs $10 per $100 borrowed. To qualify for an advance, a consumer must have a 

deposit account with the bank or credit union offering the advance and a recurring direct deposit 

of funds into that deposit account. The loan and accompanying fee generally must be repaid 

through the consumer’s next direct deposit of funds or within 35 days of the extension of credit. 

Once repaid, the line is replenished, and consumers are able to obtain additional funds without 

further application. 

1 For clarity, this product is neither an overdraft line of credit nor an overdraft service. An overdraft service means a service 

under which a financial institution assesses a fee or charge on a consumer's account held by the institution for paying a 

transaction (including a check or other item) when the consumer has insufficient or unavailable funds in the account. 

CFPB Manual V.2 (October 2012) Procedures 2 
 

 

 

 

 

 

 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Regardless of the channel used by lenders to conduct business — whether through a lead 

generator, online, through a brick and mortar location, by mail, or by telephone — the following 

federal consumer financial laws and regulations apply to payday loans: 

•	 The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, require 

lenders to disclose loan terms and Annual Percentage Rates. Regulation Z also requires 

lenders to provide advertising disclosures, credit payments properly, process credit 

balances in accordance with its requirements, and provide periodic disclosures. Note that 

the requirements for open-end and closed-end loans differ. 

•	 The Electronic Fund Transfer Act (EFTA) and its implementing regulation, Regulation E, 

protect consumers engaging in electronic fund transfers. Among other things, Regulation 

E prohibits lenders from requiring, as a condition of loan approval, a customer’s 

authorization for loan repayment through a recurring electronic funds transfer (EFT), 

except in limited circumstances. 

•	 The Fair Debt Collection Practices Act (FDCPA) governs collection activities conducted 

by: (1) third-party collection agencies collecting on behalf of lenders; (2) lenders 

collecting their own debt using an assumed name, to suggest that a third person is 

collecting or attempting to collect such debt; and (3) any collection agency that acquires 

the debt if the collector acquired the debt when it already was in default. 

•	 The Fair Credit Reporting Act (FCRA) and its implementing regulations require that 

furnishers of information to consumer reporting agencies ensure the accuracy of data 

placed in the consumer reporting system. Additionally, the FCRA prohibits the use of 

consumer reports for impermissible purposes, and it requires users of consumer reports to 

provide certain disclosures to consumers. The FCRA also limits certain information 

sharing between affiliated companies. Examiners should note that the FCRA’s 

implementing regulations may differ for depository and non-depository institutions. 

•	 The Gramm-Leach-Bliley Act (GLBA) and its implementing regulations prevent 

financial institutions from impermissibly sharing a consumer’s nonpublic personal 

information with third parties, and it requires that financial institutions disclose their 

privacy policies. Examiners should note that the GLBA’s implementing regulations may 

differ for depository and non-depository institutions. 

•	 The Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation 

B, set forth requirements for accepting applications and providing notice of any adverse 

action, and they prohibit discrimination against any borrower with respect to any aspect 

of a credit transaction: 

o	 On the basis of race, color, religion, national origin, sex or marital status, or age 

(provided the applicant has the capacity to contract); 

o	 Because all or part of the applicant’s income derives from any public assistance 

program; or 

CFPB	 Manual V.2 (October 2012) Procedures 3 
 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

o	 Because the applicant has in good faith exercised any right under the Consumer 

Credit Protection Act. 

To carry out the objectives set forth in the Examination Objectives section, examiners also 

should assess other consumer risks, including potentially unfair, deceptive, or abusive acts or 

practices (UDAAPs) with respect to lenders’ interactions with consumers. The standards the 

CFPB will use in assessing UDAAPs are: 

o	 A representation, omission, act, or practice is deceptive when: 

(1) the representation, omission, act, or practice misleads or is likely to mislead the 

consumer; 

(2) the consumer’s interpretation of the representation, omission, act, or practice is 

reasonable under the circumstances; and 

(3) the misleading representation, omission, act, or practice is material. 

o	 An act or practice is unfair when: 

(1) it causes or is likely to cause substantial injury to consumers; 

(2) the injury is not reasonably avoidable by consumers; and 

(3) the injury is not outweighed by countervailing benefits to consumers or to 

competition. 

o	 An abusive act or practice: 

(1) materially interferes with the ability of a consumer to understand a term or 

condition of a consumer financial product or service; or 

(2) takes unreasonable advantage of – 

 a lack of understanding on the part of the consumer of the material risks, 

costs, or conditions of the product or service; 

 the inability of the consumer to protect its interests in selecting or using a 

consumer financial product or service; or 

 the reasonable reliance by the consumer on a covered person to act in the 

interests of the consumer. 

Refer to the examination procedures regarding UDAAPs for more information about the legal 

standards and the CFPB’s approach to examining for UDAAPs. The particular facts and 

circumstances in a case are crucial to the determination of UDAAPs. Examiners should consult 

with headquarters to determine whether the applicable legal standards have been met before a 

UDAAP violation is cited. 

CFPB	 Manual V.2 (October 2012) Procedures 4 
 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

General Considerations 

Completing the following examination modules will allow examiners to develop a thorough 

understanding of lenders’ practices and operations. To complete the modules, examiners should 

obtain and review the following as applicable: organizational charts and process flowcharts; 

board minutes, annual reports, or the equivalent to the extent available; relevant management 

reporting, including aggregate loan data to the extent available; policies and procedures; price 

structure; loan applications, loan account documentation, telephone recordings, notes, and 

disclosures; operating checklists, worksheets, and review documents; relevant computer program 

and system details; historical examination information; audit and compliance reports; training 

programs and materials; service provider contracts; advertisements, marketing research, and 

website information; and complaints. 

Depending on the scope of the examination, examiners should perform transaction testing using 

approved sampling procedures, which may require use of a judgmental or statistical sample. 

Examiners should also conduct interviews with management and staff to determine whether they 

understand and consistently follow the policies, procedures, and regulatory requirements 

applicable to payday lending; manage change appropriately; and implement effective controls. In 

consultation with headquarters, examiners may also consider using customer surveys. 

CFPB Manual V.2 (October 2012) Procedures 5 
 

 

 

 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Module 1 – Marketing 

Examiners should develop a detailed understanding of the lender’s marketing program to 

determine whether its marketing policies, procedures, and practices are consistent with the 

requirements of applicable federal consumer financial laws and regulations. 

•	 Identify a lender’s marketing targets and its methods for reaching those targets. 

•	 Evaluate the lender’s advertising materials and disclosures across all media, including: print, 

television, radio, telephone solicitation scripts, and electronic media including the Internet, 

email, and text messages. The evaluation should include a review of advertising materials 

provided in languages other than English, the media used to distribute those materials, and a 

comparison to English language materials and media. 

•	 Identify the practices and product features that are rewarded by any incentive compensation 

programs. 

•	 Determine whether a lender employs or acts as a lead generator and the extent of any 

relationships that the lender has with affiliated or other third parties (e.g., as a broker or 

agent) to advertise, offer, or provide loans or other products and services. 

Advertising Requirements 

Truth in Lending Act/Regulation Z 

1.	 Determine whether the loans being offered are closed end or open end. 

2.	 Determine whether the lender’s advertisements are consistent with the requirements of 

Regulation Z. Examiners should conduct the advertising review by following the open-end 

and closed-end advertising procedures in the TILA examination procedures, as applicable, 

focusing carefully on whether advertisements contain triggering terms and include required 

statements, information, and disclosures. 

Equal Credit Opportunity Act/Regulation B 

1.	 Assess how the lender reaches its potential customers through its statements, advertising, or 

other marketing representations. Examiners should review: 

a.	 Marketing and advertising materials, including signs or other displays and prescreened 

solicitations; 

b.	 The criteria used to determine the potential recipients of the particular solicitation; 

c.	 Any scripts and interview forms used for sales and taking applications; and 

d.	 Product information used in discussing available types of credit with applicants. 

CFPB	 Manual V.2 (October 2012) Procedures 6 
 

 

 

 

 

 

 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Other Risks to Consumers 

1.	 Assess whether the lender clearly and prominently discloses the material terms of the payday 

loan. 

2.	 Determine whether the promotional materials clearly and prominently disclose any material 

limitations, conditions, or restrictions on the offer. This is of particular importance when the 

lender uses terms such as “rewards,” “discounts,” or “free.” 

3.	 Assess (i) whether the lender clearly and prominently discloses the costs and any other 

material terms for any additional products marketed to the consumer (e.g., pre-paid debit card 

or credit insurance) in connection with the payday loan; and, (ii) whether the lender clearly 

and prominently discloses that the additional products are or are not required to obtain credit 

and are or are not considered in decisions to grant credit. If the cross-marketed product is 

mandatory, under the TILA, it may need to be disclosed in the APR. Refer to the TILA 

examination procedures for additional detail. 

4.	 Determine whether the lender reviews or monitors recorded telephone calls, transcripts of 

online communication, and websites to ensure that advertising and solicitations comply with 

applicable federal consumer financial laws. 

Compensation Practices 

Evaluate compensation practices and programs. If the lender offers an incentive compensation 

program, identify the products, product features, services, referrals, and sales goals or behaviors 

that qualify for rewards under the program. Evaluate the quality and impact of controls on the 

compensation program. Finally, in consultation with headquarters, assess whether the program 

incentivizes behaviors or practices that result in heightened risk to consumers. 

Lead Generation 

Lenders both employ and are employed as lead generators, which are businesses that identify 

potential borrowers for lenders. A lead generator typically charges lenders for its services and, in 

some cases, may charge borrowers as well. Some lenders operate as lead generators when they 

are unable to originate a particular loan — when, for example, they are not licensed to originate 

loans in a particular state. In these instances, the lead generator will contract with another lender 

that is able to make the loan. 

When examining lenders, examiners should: 

1.	 Identify whether the lender is, or uses, a lead generator and, as applicable, review the 

advertising materials of: 

a.	 Lead generators or brokers employed by the lender. 

b.	 The lender, in its capacity of lead generator or broker. 

CFPB	 Manual V.2 (October 2012) Procedures 7 
 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

2.	 Determine whether the nature of the relationship between the parties is clearly disclosed, 

including whether the lead generator or broker represents to consumers that it is working on 

behalf of third-party organizations and whether the new lender is identified when referred to 

another party. 

3.	 Determine whether the statements and representations made by a company on another’s 

behalf are accurate and non-deceptive. 

4.	 Determine whether all fees for referred services are appropriately disclosed to consumers. 

To the extent set forth in the scoping memorandum, examiners should further evaluate any 

service provider relationships under the provisions of the vendor management, privacy, and 

information sharing sections in the Service Provider Relationships Module. 

CFPB	 Manual V.2 (October 2012) Procedures 8 
 

 

 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Module 2 – Application and Origination 

When lenders take applications, evaluate applicants, and originate payday loans, they are subject 

to the disclosure and other legal requirements discussed below. Examiners should identify acts, 

practices, or materials that indicate potential violations of federal consumer financial laws and 

regulations. 

Equal Credit Opportunity Act/Regulation B 

Examiners should use the CFPB’s ECOA examination procedures to assess the lender’s 

compliance with requirements for taking applications, evaluating customer qualifications, 

providing disclosures (i.e., adverse action), and extending and denying credit. 

Fair Credit Reporting Act 

As noted previously, lenders typically do not access traditional credit reporting agency data. 

However, alternative third-party data providers may be consumer reporting agencies, as defined 

by the FCRA. Lenders that obtain information from a consumer reporting agency to determine a 

consumer’s credit worthiness must comply with the requirements of FCRA. When a lender does 

not offer a loan or provides a loan on materially less favorable terms to a consumer (e.g., 

charging a higher interest rate) because of the consumer report information it obtains, the lender 

must provide appropriate adverse action or risk-based pricing notices to the consumer. 

Examiners should refer to the CFPB’s FCRA examination procedures for additional information. 

Truth In Lending Act/Regulation Z 

1.	 Determine whether the loans being offered are closed-end or open-end. 

2.	 Determine whether the appropriate disclosures required for the loan type (i.e., disclosures for 

closed-end credit vs. open-end credit) are being provided by the lender. Examiners should 

use the TILA/Regulation Z examination procedures to evaluate the lender’s compliance with 

the open- and closed-end disclosure requirements of Regulation Z, as may be applicable 

depending on the products offered by the lender. 

3.	 Examine the loan product to verify that the product being offered conforms to the lender’s 

representations or to determine if the lender has mischaracterized or misclassified its product 

and therefore is not complying with the proper set of requirements (e.g., the lender 

characterizes its loan product as closed-end where the product in fact is open-end, and the 

lender should be complying with TILA/Regulation Z’s requirements for open-end credit). 

4.	 For refinanced loans, determine whether the appropriate disclosures are being provided by 

the lender. 

CFPB	 Manual V.2 (October 2012) Procedures 9 
 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Electronic Fund Transfer Act/Regulation E 

Depending on how the lender transfers funds to and from consumers, the lender may be required 

to comply with the requirements of the EFTA. If the lender has established electronic fund 

transfers from the borrower’s account, examiners should use the CFPB’s EFTA examination 

procedures to review the extent to which the lender is complying with the EFTA. 

1.	 Determine if the agreement contemplates or involves initiating an electronic fund transfer 

subject to EFTA/Regulation E (“EFT”). Consider if the lender is using methods subject to 

EFTA or using remotely-created checks or other non-EFT methods, which are not subject 

to EFTA. 

2.	 Determine whether the EFT is a single or a recurring EFT that is a preauthorized electronic 

transfer. To qualify as a preauthorized electronic fund transfer, the transfer is one that is 

authorized in advance to recur at substantially regular intervals. 

3.	 If the lender initiates preauthorized EFTs, assess the lender’s or financial institution’s 

compliance with the applicable advance authorization, disclosures, and other requirements 

relating to preauthorized electronic fund transfers under the EFTA and Regulation E. 

a.	 Does the lender obtain proper written authorization for preauthorized electronic fund 

transfers from a consumer’s account and provide a copy of the authorization to the 

consumer? 

b.	 Does the lender require compulsory use of EFTs and condition the extension of credit to 

consumers on the repayment of loans by preauthorized electronic debits? 

i.	 Examine the agreement for terms requiring that the borrower agree to electronic 

payment. Such terms may violate the EFTA’s prohibition on requiring repayment by 

means of preauthorized electronic fund transfers as a condition of the extension of 

credit, except as authorized. 

ii.	 Determine if the lender offers the borrower an option to pay using a non-EFT method 

of payment. 

c.	 Will the preauthorized transfers vary in amount? If so, does the payee or financial 

institution, prior to each transfer, provide reasonable advance notice to the consumer, in 

accordance with applicable regulations, of the amount to be transferred and the scheduled 

date of transfer? 

4.	 If the loan agreement provides for a single or one-time EFT, assess whether the lender 

obtained authorization from the consumer to initiate an EFT. 

CFPB	 Manual V.2 (October 2012) Procedures 10 
 

 

 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Other Risks to Consumers 

1.	 Determine whether, in the application and origination process, the lender makes statements, 

representations, or claims, or provides information to consumers that may mislead the 

consumer regarding the cost, value, availability, cost savings, benefits, or terms of the 

product or service. 

2.	 Determine whether the lender accurately and non-deceptively represents the amount of 

potential, approved, or useable credit that the consumer will receive. 

3.	 Determine whether the lender clearly and prominently discloses its funds disbursement 

practices, including: 

a.	 Whether the lender clearly and prominently discloses all fees that the borrower might 

incur to gain access to loan funds. For example: 

i.	 If the lender disburses funds by check, does the lender disclose its check cashing fee? 

ii.	 If the lender disburses funds by prepaid debit card, does it disclose its ATM access 

fee? 

4.	 Determine whether the lender offers additional products or services, either related or 

unrelated to the payday loan in connection with the payday loan. If yes: 

a.	 Determine whether the lender clearly and prominently discloses material terms of the 

optional product or service, including costs. 

b.	 Determine whether the lender receives and documents the consumer’s express
 

authorization prior to adding optional products or services to the payday loan. 

c.	 Review to ensure authorizations were provided and documented. Review methods of 

obtaining authorization to ensure that customer affirmatively selects product. 

5.	 Determine whether the lender discloses its repayment and collection practices. 

6.	 Determine whether the lender clearly and prominently discloses the consumer’s rights 

regarding payment methods. 

7.	 In assessing application risks to consumers, examiners may find evidence of violations of – 

or an absence of compliance policies and procedures with respect to – other laws applicable 

to payday lending, such as the Military Lending Act. In these circumstances, examiners 

should identify such matters for possible referral to federal or state regulators or other 

appropriate action. 

CFPB	 Manual V.2 (October 2012) Procedures 11 
 

 

 

 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Module 3 – Payment Processing and Sustained Use 

As set forth in the examination scope memorandum, examiners should review a sample of 

customer accounts for the following issues: 

Truth In Lending Act/Regulation Z 

1.	 Determine whether the loans being offered are closed-end or open-end. 

2.	 Assess compliance, as applicable, with the open- or closed-end TILA requirements for 

payment processing, billing errors and inquiries, credit balances larger than $1, and 

periodic statements. 

Electronic Fund Transfer Act/Regulation E 

1.	 Determine whether the lender is complying with the appropriate disclosure requirements if 

the lender is converting check payments from borrowers to electronic fund transfers. 

2.	 Determine whether the lender is complying with the appropriate disclosure requirements if 

the lender is collecting returned item fees by electronic fund transfer. 

Sustained Use 

When a borrower cannot repay a loan by its due date, lenders may allow the borrower to modify 

or “roll over” the loan by paying an additional fee to extend the loan term. A lender may also 

engage in a transaction in which a borrower uses the proceeds from a new loan to satisfy and pay 

off an older loan. If these transaction types are prohibited by state law, a borrower may be asked 

to repay one loan before opening a new loan. This is often called a back-to-back transaction. All 

of these borrowing patterns may constitute sustained use. Note that in some instances, lenders 

may allow borrowers to convert a balloon payment into an installment plan. 

Examiners first should determine whether the lender offers any of the above options. If yes, then: 

1.	 Determine whether the lender represents accurately and non-deceptively the payment options 

that will be available to borrowers. 

2.	 Determine whether the lender provides borrowers with all available repayment options 

offered by the lender. 

3.	 Determine whether the lender discloses clearly and prominently all fees and material terms 

associated with the sustained use transactions. 

4.	 Determine whether the lender has policies and procedures related to sustained use of the loan 

product and whether the lender is adhering to its policies. 

5.	 If a sequential transaction is considered a refinance, determine whether the lender provides 

loan disclosures as required by Regulation Z. 

CFPB	 Manual V.2 (October 2012) Procedures 12 
 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

6.	 If a consumer’s request for new terms is an application as defined by Regulation B, 

determine whether the lender’s practices are consistent with the application and disclosure 

requirements of Regulation B. Refer to the ECOA examination procedures for additional 

information. 

7.	 Determine whether the lender monitors or limits a borrower’s usage of payday loans on an 

ongoing basis. 

8.	 Determine whether the lender assesses income or other financial information to determine an 

applicant’s ability to repay a loan without modifying or refinancing the loan. 

Other Risks to Consumers 

1.	 Determine whether payments are applied properly. 

2.	 Determine whether the lender informs consumers in a clear and timely manner about fees, 

penalties, or other charges that have been imposed and the reasons for their imposition. 

CFPB	 Manual V.2 (October 2012) Procedures 13 
 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Module 4 – Collections, Accounts in Default, and 

Consumer Reporting 

A lender may collect a payday loan in default by directly engaging in collection activities on its 

own behalf by assigning collection activity to third parties for a fee; or, by selling defaulted debts 

to a third party. The FDCPA does not apply to a lender collecting debts on its own behalf and 

under its own name. Practices that would otherwise violate the FDCPA, however, may be unfair, 

deceptive, or abusive. 

Fair Debt Collection Practices Act 

Assess compliance with the FDCPA when the lender is engaging in debt collection practices 

(e.g., they have purchased defaulted payday loans from another lender, or are using an assumed 

name). Refer to the FDCPA examination procedures for additional information. 

Fair Credit Reporting Act 

1.	 Note that, although lenders typically do not obtain a consumer report at the application stage, 

they may obtain a report for collection purposes. If a lender obtains a consumer report in the 

collection process, assess the lender’s compliance with the FCRA. Refer to the FCRA 

examination procedures for additional information. 

2.	 Lenders may choose to report information about a borrower to a consumer reporting agency. 

This may include providing information to a traditional credit bureau, but may also include 

providing information to another type of consumer reporting company (e.g., check 

verification firms). Reported information may include the number of outstanding loans, loan 

balances, and defaulted loan balances. Assess whether lenders maintain written policies and 

procedures regarding data accuracy, report information accurately, and have procedures in 

place to ensure that inquiries and complaints concerning reported data are appropriately 

resolved in accordance with FCRA requirements. 

3.	 Assess compliance with the FCRA’s furnisher requirements. Refer to the FCRA examination 

procedures for more information. 

Other Risks to Consumers 

1.	 Determine whether the lender contacts borrowers in an appropriate manner by assessing whether: 

a.	 Employees and third-party contractors clearly disclose to consumers that they are
 

contacting the consumer about the collection of a debt. 

b.	 Employees and third-party contractors do not disclose the existence of a consumer’s debt to 

members of the public without the consent of the consumer, except as permitted by law. 

c.	 The lender has policies on avoiding repeated telephone calls that abuse or harass any 

person at the number called. 

2.	 Determine whether the lender makes misrepresentations or uses other deceptive means to 

collect debts. Determine whether the lender has appropriate controls to prevent such practices. 

CFPB	 Manual V.2 (October 2012) Procedures 14 
 

 

 

 

 

 

 

 

 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Module 5 – Service Provider Relationships 

Lenders sell and buy consumer information. Additionally, lenders often employ and may be 

employed by third parties to perform services, from marketing and origination to servicing and 

collection activities. The lender’s use of information in these contexts is subject to GLBA and its 

implementing regulations, which primarily cover the sharing of nonpublic personal information 

among third parties. GLBA requires financial institutions to disclose their privacy policies to 

consumers and prohibits them from disclosing nonpublic personal information about a consumer 

to certain third parties unless the institution satisfies notice and opt-out requirements. GLBA also 

requires financial institutions to permit customers to opt out of certain sharing practices with 

unaffiliated entities. 

FCRA covers information sharing between affiliates (e.g., any company that controls, is 

controlled by, or is under common control with another company). Generally, although financial 

institutions may share customer transaction and experience information with affiliated entities, 

an affiliated entity may not use that information for marketing purposes unless the consumer is 

given notice and an opportunity to opt out and the consumer does not opt out. 

Moreover, lenders may be responsible for the activities of service providers. Examiners should 

ensure that such lenders appropriately manage their relationships with service providers. For more 

information please refer to CFPB Bulletin 2012-03 (April 13, 2012) regarding service providers.2 

Gramm-Leach-Bliley Act and Fair Credit Reporting Act 

Requirements 

1.	 Examiners should assess a lender’s compliance with the GLBA examination procedures. 

a.	 Determine whether the lender’s information-sharing practices are consistent with the 

requirements of the GLBA. 

b.	 Determine whether the lender accurately and timely discloses its sharing practices to 

consumers and customers. (For example, a person who applies for a payday loan is a 

consumer. A person who obtains a payday loan is a customer.) 

c.	 Determine whether the lender properly manages opt-out requests. 

2.	 Assess compliance with the FCRA’s affiliate marketing rule. Refer to the FCRA examination 

procedures for more information. 

2 http://files.consumerfinance.gov/f/201204 cfpb bulletin service-providers.pdf 

CFPB	 Manual V.2 (October 2012) Procedures 15 
 

 

 

CFPB Short-Term, 

Examination Procedures Small-Dollar Lending 

Vendor Management 

Examiners should evaluate copies of any agreements between lenders and service providers 

acting on behalf of the lender for purposes of assessing risks to consumers. 

1.	 Evaluate whether the lender has compliance management controls for selecting and 

monitoring affiliates and/or service providers. 

2.	 Evaluate whether the lender takes steps to ensure that the service providers it uses are 

licensed or registered to the extent required. 

3.	 Evaluate whether the lender performs initial due diligence concerning the service providers’ 

prior regulatory compliance history before entering into an agreement (i.e., determining the 

existence and extent of any prior enforcement actions against the service providers). 

4.	 Evaluate whether the lender monitors the screening, hiring, and training practices of service 

providers employees who perform services on the lender’s behalf. 

5.	 Evaluate whether the lender takes steps to ensure service providers compliance with the 

lender’s privacy policy with respect to data that the service providers receives from or on 

behalf of the lender. 

6.	 Evaluate whether the lender reviews the internal or external audit reports covering service 

providers’ activities and whether the lender responds appropriately to identified concerns. 

CFPB	 Manual V.2 (October 2012) Procedures 16 
 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations UDAAP 

Unfair, Deceptive, or Abusive Acts or Practices 

Unfair, deceptive, or abusive acts and practices (UDAAPs) can cause significant financial injury to 

consumers, erode consumer confidence, and undermine the financial marketplace. Under the 

Dodd-Frank Act, it is unlawful for any provider of consumer financial products or services or a 

service provider to engage in any unfair, deceptive or abusive act or practice.1 The Act also 

provides CFPB with rule-making authority and, with respect to entities within its jurisdiction, 

enforcement authority to prevent unfair, deceptive, or abusive acts or practices in connection with 

any transaction with a consumer for a consumer financial product or service, or the offering of a 

consumer financial product or service.

2 In addition, CFPB has supervisory authority for detecting 

and assessing risks to consumers and to markets for consumer financial products and services.3 

As examiners review products or services, such as deposit products or lending activities, they 

generally should identify the risks of harm to consumers that are particular to those activities. 

Examiners also should review products that combine features and terms in a manner that can 

increase the difficulty of consumer understanding of the overall costs or risks of the product and 

the potential harm to the consumer associated with the product. 

These examination procedures provide general guidance on: 

•	 The principles of unfairness, deception, and abuse in the context of offering and providing 

consumer financial products and services; 

•	 Assessing the risk that an institution’s practices may be unfair, deceptive, or abusive; 

•	 Identifying unfair, deceptive or abusive acts or practices (including by providing examples of 

potentially unfair or deceptive acts and practices); and 

•	 Understanding the interplay between unfair, deceptive, or abusive acts or practices and other 

consumer protection statutes. 

Unfair Acts or Practices 

The standard for unfairness in the Dodd-Frank Act is that an act or practice is unfair when: 

(1) It causes or is likely to cause substantial injury to consumers; 

(2) The injury is not reasonably avoidable by consumers; and 

1 Dodd-Frank Act, Title X, Subtitle C, Sec. 1036; PL 111-203 (July 21, 2010). 

2 Sec. 1031 of the Dodd-Frank Act. The principles of “unfair” and “deceptive” practices in the Act are similar to those under Sec. 

5 of the Federal Trade Commission Act (FTC Act). The Federal Trade Commission (FTC) and federal banking regulators have 

applied these standards through case law, official policy statements, guidance, examination procedures, and enforcement actions 

that may inform CFPB. 

3 Dodd-Frank Act, Secs. 1024; 1025(b)(1); 1026(b) of the Act. 

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CFPB Consumer 

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(3) The injury is not outweighed by countervailing benefits to consumers or to competition.4 

• The act or practice must cause or be likely to cause substantial injury to consumers. 

Substantial injury usually involves monetary harm. Monetary harm includes, for 

example, costs or fees paid by consumers as a result of an unfair practice.

5

An act or 

practice that causes a small amount of harm to a large number of people may be deemed 

to cause substantial injury. 

Actual injury is not required in every case. A significant risk of concrete harm is also 

sufficient. However, trivial or merely speculative harms are typically insufficient for a 

finding of substantial injury. Emotional impact and other more subjective types of harm 

also will not ordinarily amount to substantial injury. Nevertheless, in certain 

circumstances, such as unreasonable debt collection harassment, emotional impacts may 

amount to or contribute to substantial injury. 

• Consumers must not be reasonably able to avoid the injury. 

An act or practice is not considered unfair if consumers may reasonably avoid injury. 

Consumers cannot reasonably avoid injury if the act or practice interferes with their 

ability to effectively make decisions or to take action to avoid injury. Normally the 

marketplace is self-correcting; it is governed by consumer choice and the ability of 

individual consumers to make their own private decisions without regulatory 

intervention. If material information about a product, such as pricing, is modified after, or 

withheld until after, the consumer has committed to purchasing the product; however, the 

consumer cannot reasonably avoid the injury. Moreover, consumers cannot avoid injury 

if they are coerced into purchasing unwanted products or services or if a transaction 

occurs without their knowledge or consent. 

A key question is not whether a consumer could have made a better choice. Rather, the 

question is whether an act or practice hinders a consumer’s decision-making. For 

example, not having access to important information could prevent consumers from 

comparing available alternatives, choosing those that are most desirable to them, and 

avoiding those that are inadequate or unsatisfactory. In addition, if almost all market 

participants engage in a practice, a consumer’s incentive to search elsewhere for better 

terms is reduced, and the practice may not be reasonably avoidable.6 

The actions that a consumer is expected to take to avoid injury must be reasonable. While 

a consumer might avoid harm by hiring independent experts to test products in advance 

or by bringing legal claims for damages in every case of harm, these actions generally 

4 The standard for unfairness in the Dodd-Frank Act has the same three-part test as the FTC Act. This standard was first stated in 

the FTC Policy Statement on Unfairness (Dec. 17, 1980), available at: http://www ftc.gov/bcp/policystmt/ad-unfair htm. 

Congress later amended the FTC Act to include this specific standard in the Act itself. 15 U.S.C. § 45(n). 

5 FTC Policy Statement on Unfairness, at p. 3. 

6 See Credit Practices Rule, 49 Fed. Reg. 7740, 7746 (1984). 

CFPB Manual V.2 (October 2012) UDAAP 2 
 

 

 

 

CFPB Consumer 

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would be too expensive to be practical for individual consumers and, therefore, are not 

reasonable. 

•	 The injury must not be outweighed by countervailing benefits to consumers or
 

competition.
 

To be unfair, the act or practice must be injurious in its net effects — that is, the injury 

must not be outweighed by any offsetting consumer or competitive benefits that also are 

produced by the act or practice. Offsetting consumer or competitive benefits of an act or 

practice may include lower prices to the consumer or a wider availability of products and 

services resulting from competition. 

Costs that would be incurred for measures to prevent the injury also are taken into 

account in determining whether an act or practice is unfair. These costs may include the 

costs to the institution in taking preventive measures and the costs to society as a whole 

of any increased burden and similar matters. 

Public policy, as established by statute, regulation, judicial decision, or agency determination, 

may be considered with all other evidence to determine whether an act or practice is unfair. 

However, public policy considerations by themselves may not serve as the primary basis for 

determining that an act or practice is unfair. 

Examples 

The examples described below stem from federal enforcement actions. They provide insight into 

practices that have been alleged to be unfair by other regulators and may inform CFPB’s 

determinations. However, the particular facts in a case are crucial to a determination of unfairness. 

It is important to bear in mind that a change in facts could change the appropriate determination. 

Moreover, the brief summaries below do not present all of the material facts relevant to the 

determinations in each case. The examples show how the unfairness standard may be applied. 

Refusing to release lien after consumer makes final payment on a mortgage.7 The FTC 

brought an enforcement action against a mortgage company based on allegations, described below, 

that repeatedly failed to release liens after consumers fully paid the amount due on their mortgages. 

•	 Substantial injury. Consumer’s sustained economic injury when the mortgage servicer did 

not release the liens on their properties after the consumers had repaid the total amount due 

on the mortgages. 

•	 Not outweighed by benefits. Countervailing benefits to competition or consumers did not 

result from the servicer’s alleged failure to appropriately service the mortgage loan and 

release the lien promptly. 

7

FTC v. Capital City Mortgage Corp., Civil No. 98 CV-237 (D.D.C. Feb. 2005), available at 

http://www ftc.gov/opa/2005/02/capitalcity.shtm. 

CFPB	 Manual V.2 (October 2012) UDAAP 3 
 

 

 

 

 

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•	 Not reasonably avoidable. Consumers had no way to know in advance of obtaining the loan 

that the mortgage servicer would not release the lien after full payment. Moreover, 

consumers generally cannot avoid the harm caused by an improper practice of a mortgage 

servicer because the servicer is chosen by the owner of the loan, not the borrower. Thus, 

consumers cannot choose their loan servicer and cannot change loan servicers when they are 

dissatisfied with the quality of the loan servicing. 

Dishonoring credit card convenience checks without notice.

8

 The OTS and FDIC brought 

enforcement actions against a credit card issuer that sent convenience checks with stated credit 

limits and expiration dates to customers. For a significant percentage of consumers, the issuer 

reduced credit lines after the checks were presented, and then the issuer dishonored the 

consumers’ checks. 

•	 Substantial injury. Customers paid returned-check fees and may have experienced a negative 

impact on credit history. 

•	 Not outweighed by benefits. The card issuer later reduced credit limits based on credit 

reviews. Based on the particular facts involved in the case, the harm to consumers from the 

dishonored convenience checks outweighed any benefit of using new credit reviews. 

•	 Not reasonably avoidable. Consumers reasonably relied on their existing credit limits and 

expiration dates on the checks when deciding to use them for a payment. Consumers had 

received no notice that the checks they used were being dishonored until they learned from 

the payees. Thus, consumers could not reasonably have avoided the injury. 

Processing payments for companies engaged in fraudulent activities.

9

 The OCC brought an 

enforcement action in a case involving a bank that maintained deposit account relations with 

telemarketers and payment processors, based on the following allegations. The telemarketers 

regularly deposited large numbers of remotely created checks drawn against consumers’ 

accounts. A large percentage of the checks were not authorized by consumers. The bank failed to 

establish appropriate policies and procedures to prevent, detect, or remedy such activities. 

•	 Substantial injury. Consumers lost money from fraudulent checks created remotely and 

drawn against their accounts. 

•	 Not outweighed by benefits. The cost to the bank of establishing a minimum level of due 

diligence, monitoring, and response procedures sufficient to remedy the problem would have 

been far less than the amount of injury to consumers that resulted from the bank’s avoiding 

those costs. 

8

In re American Express Bank, FSB (Cease and Desist Order WN-09-016, and Order of Assessment of a Civil Money Penalty for 

$250,000, WN-09-017, June 29, 2009) OTS Docket No. 15648; In re American Express Centurion Bank, (Cease and Desist 

Order, June 30, 2009) Docket FDIC-09-251b, available at http://www fdic.gov/news. 

9

In re Wachovia Bank, National Association, available at http://www.occ.treas.gov 

CFPB	 Manual V.2 (October 2012) UDAAP 4 
 

 

 

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•	 Not reasonably avoidable. Consumers could not avoid the harm because the harm resulted 

principally from transactions to which the consumers had not consented. 

Deceptive Acts or Practices 

A representation, omission, actor practice is deceptive when 

(1) The representation, omission, act, or practice misleads or is likely to mislead the consumer; 

(2) The consumer’s interpretation of the representation, omission, act, or practice is reasonable 

under the circumstances; and 

(3) The misleading representation, omission, act, or practice is material.10 

•	 There must be a representation, omission, act, or practice that misleads or is likely to 

mislead the consumer. 

Deception is not limited to situations in which a consumer has already been misled. 

Instead, an act or practice may be deceptive if it is likely to mislead consumers. 

It is necessary to evaluate an individual statement, representation, or omission not in 

isolation, but rather in the context of the entire advertisement, transaction, or course of 

dealing, to determine whether the overall net impression is misleading or deceptive. A 

representation may be an express or implied claim or promise, and it may be written or 

oral. If material information is necessary to prevent a consumer from being misled, it may 

be deceptive to omit that information. 

Written disclosures may be insufficient to correct a misleading statement or 

representation, particularly where the consumer is directed away from qualifying 

limitations in the text or is counseled that reading the disclosures is unnecessary. 

Likewise, oral or fine print disclosures or contract disclosures may be insufficient to cure 

a misleading headline or a prominent written representation. Similarly, a deceptive act or 

practice may not be cured by subsequent truthful disclosures. 

Acts or practices that may be deceptive include: making misleading cost or price claims; 

offering to provide a product or service that is not in fact available; using bait-and-switch 

techniques; omitting material limitations or conditions from an offer; or failing to provide 

the promised services. 

The FTC’s “four Ps” test can assist in the evaluation of whether a representation, 

omission, act, or practice is likely to mislead: 

o	 Is the statement prominent enough for the consumer to notice? 

10See FTC Policy Statement on Deception, available at http://www.ftc.gov/bcp/policystmt/ad-decept.htm. Examiners should be 

informed by the FTC’s standard for deception. 

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o	 Is the information presented in an easy-to-understand format that does not contradict 

other information in the package and at a time when the consumer’s attention is not 

distracted elsewhere? 

o	 Is the placement of the information in a location where consumers can be expected to 

look or hear? 

o	 Finally, is the information in close proximity to the claim it qualifies?11 

•	 The representation, omission, act, or practice must be considered from the perspective 

of the reasonable consumer. 

In determining whether an act or practice is misleading, one also must consider whether the 

consumer’s interpretation of or reaction to the representation, omission, act, or practice is 

reasonable under the circumstances. In other words, whether an act or practice is deceptive 

depends on how a reasonable member of the target audience would interpret the 

representation. When representations or marketing practices target a specific audience, such 

as older Americans, young people, or financially distressed consumers, the communication 

must be reviewed from the point of view of a reasonable member of that group. 

Moreover, a representation may be deceptive if the majority of consumers in the target 

class do not share the consumer’s interpretation, so long as a significant minority of 

such consumers is misled. When a seller’s representation conveys more than one 

meaning to reasonable consumers, one of which is false, the seller is liable for the 

misleading interpretation. 

Exaggerated claims or “puffery,” however, are not deceptive if the claims would not be 

taken seriously by a reasonable consumer. 

•	 The representation, omission, or practice must be material. 

A representation, omission, act, or practice is material if it is likely to affect a consumer’s 

choice of, or conduct regarding, the product or service. Information that is important to 

consumers is material. 

Certain categories of information are presumed to be material. In general, information 

about the central characteristics of a product or service – such as costs, benefits, or 

restrictions on the use or availability – is presumed to be material. Express claims made 

with respect to a financial product or service are presumed material. Implied claims are 

presumed to be material when evidence shows that the institution intended to make the 

claim (even though intent to deceive is not necessary for deception to exist). 

11FTC, Dot Com Disclosures, Information about On-Line Advertising, available at: http://business ftc.gov/documents/bus41-dotcom-disclosures-information-about-online-advertising.pdf. 

CFPB	 Manual V.2 (October 2012) UDAAP 6 
 

 

 

CFPB Consumer 

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Claims made with knowledge that they are false are presumed to be material. Omissions 

will be presumed to be material when the financial institution knew or should have known 

that the consumer needed the omitted information to evaluate the product or service. 

If a representation or claim is not presumed to be material, it still would be considered material if 

there is evidence that it is likely to be considered important by consumers. 

Examples 

The examples described below stem from federal enforcement actions. They provide insight into 

practices that have been alleged to be deceptive by other regulators and may inform CFPB’s 

determinations. However, as with unfairness, the particular facts in a case are crucial to a 

determination of deception. It is important to bear in mind that a change in facts could change the 

appropriate determination. Moreover, the brief summaries below do not present all of the 

material facts relevant to the determinations in each case. The examples show how the deception 

standard may be applied. 

Inadequate disclosure of material lease terms in television advertising.

12 The FTC brought 

actions against vehicle leasing companies alleging that their television advertisements 

represented that consumers could lease vehicles for “$0 down” when advertising a monthly lease 

payment. However, the FTC alleged that the “blur” of “unreadable fine print” that flashed on the 

screen at the end of the advertisement disclosed costs of at least $1,000. The settlements 

prohibited the vehicle leasing companies from misrepresenting the amount consumers must pay 

when signing the lease. 

In addition, the FTC required that if the companies make any representation about the amounts 

due at lease signing, or that there is “no down payment,” the companies must make an equally 

prominent (readable and audible) disclosure of the total amount of all fees due when consumers 

sign the lease. 

•	 Representation or omission likely to mislead. The television advertisements featured 

prominent statements of “no money down” or “$0 down” at lease signing. The advertisement 

also contained, at the bottom of the screen, a “blur” of small print in which disclosures of 

various costs required by Regulation M (the Consumer Leasing Act) were made. The FTC 

alleged that the disclosures were inadequate because they were not clear, prominent, or 

audible to consumers. 

•	 Reasonable consumer perspective. A reasonable consumer would believe that he did not have 

to put any money down and that all he owed was the regular monthly payment. 

•	 Material representation. The stated “no money down” or “$0 down” plus the low monthly 

lease payment were material representations to consumers. The fact that the additional, 

12 In the matters of Mazda Motor of America, Inc.; Mitsubishi Motor Sales of America, Inc.; American Honda Motor Company, 

Inc.; General Motors Corporation; American Isuzu Motors, Inc., available at http://www.ftc.gov/opa/1997/02/petapp09.shtm. 

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material costs were disclosed at signing of the lease did not cure the deceptive failure to 

disclose in the television advertising, the FTC claimed. 

Misrepresentation about loan terms.13 In 2004, the FTC sued a mortgage broker advertising 

mortgage refinance loans at “3.5% fixed payment 30-year loan” or “3.5% fixed payment for 30 

years,” implying that the offer was for a 30-year loan with a 3.5% fixed interest rate. Instead, the 

FTC claimed that the broker offered adjustable rate mortgages (ARMs) with an option to pay 

various amounts, including a minimum monthly payment that represented only a portion of the 

required interest. As a result, unpaid interest was added to the principal of the loan, resulting in 

negative amortization.

14 

•	 Practice likely to mislead. The FTC claimed that the advertisements were misleading because 

they compared payments on a mortgage that fully amortized to payments on a nonamortizing loan with payments that increased after the first year. In addition, the FTC 

claimed that after application, the broker provided Truth in Lending Act (TILA) disclosures 

that misstated the annual percentage rate (APR) and that failed to state that the loan was a 

variable rate loan. 

•	 Reasonable consumer perspective. It was reasonable for consumers to believe that they 

would obtain fixed-rate mortgages, based on the representations. 

•	 Material representation. The representations were material because consumers relied on them 

when making the decision to refinance their fully amortizing 30-year fixed loans. As a result, 

the consumers ended up with adjustable rate mortgages that would negatively amortize if 

they made payments at the stated 3.5% payment rate. 

13 FTC v. Chase Financial Funding, Inc., No. SACV04-549 (C.D.Cal. 2004), Stipulated Preliminary Injunction, available at 

http://www ftc.gov/os/caselist/0223287/0223287.shtm. 

14 In 2008, amendments to the Truth in Lending Act’s Regulation Z were adopted to prohibit certain advertising practices, such 

as misleading advertising of fixed rates and payments, for credit secured by a dwelling. Similar practices could be identified as 

deceptive in other product lines. See 73 Fed. Reg. 44522 (July 30, 2008) (promulgating 12 CFR 226.24), which has since been 

recodified as 12 CFR 1026.24. 

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CFPB Consumer 

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Abusive Acts or Practices 

The Dodd-Frank Act makes it unlawful for any covered person or service provider to engage in 

an “abusive act or practice.”15 An abusive act or practice: 

•	 Materially interferes with the ability of a consumer to understand a term or condition of a 

consumer financial product or service or 

•	 Takes unreasonable advantage of: 

o	 A lack of understanding on the part of the consumer of the material risks, costs, or 

conditions of the product or service; 

o	 The inability of the consumer to protect its interests in selecting or using a consumer 

financial product or service; or 

o	 The reasonable reliance by the consumer on a covered person to act in the interests of the 

consumer. 

Although abusive acts also may be unfair or deceptive, examiners should be aware that the legal 

standards for abusive, unfair, and deceptive each are separate. 

The Role of Consumer Complaints in Identifying Unfair, 

Deceptive, or Abusive Acts or Practices 

Consumer complaints play a key role in the detection of unfair, deceptive, or abusive practices. 

Consumer complaints have been an essential source of information for examinations, 

enforcement, and rule-making for regulators. As a general matter, consumer complaints can 

indicate weaknesses in elements of the institution’s compliance management system, such as 

training, internal controls, or monitoring. 

While the absence of complaints does not ensure that unfair, deceptive, or abusive practices are 

not occurring, complaints may be one indication of UDAAPs. For example, the presence of 

complaints alleging that consumers did not understand the terms of a product or service may be a 

red flag indicating that examiners should conduct a detailed review of the relevant practice. This 

is especially true when numerous consumers make similar complaints about the same product or 

service. Because the perspective of a reasonable consumer is one of the tests for evaluating 

whether a representation, omission, act, or practice is potentially deceptive, consumer complaints 

alleging misrepresentations or misunderstanding may provide a window into the perspective of 

the reasonable consumer. 

When reviewing complaints against an institution, examiners should consider complaints lodged 

against subsidiaries, affiliates, and third parties regarding the products and services offered 

through the institution or using the institution’s name. In particular, examiners should determine 

15 Dodd-Frank Act, Sec. 1036(a)(1)(B), 12 U.S.C. § 5536(a)(1)(B). 

CFPB	 Manual V.2 (October 2012) UDAAP 9 
 

 

 

 

 

CFPB Consumer 

Laws and Regulations UDAAP 

whether an institution itself receives, monitors, and responds to complaints filed against 

subsidiaries, affiliates, and third parties. Consumers can file complaints at a number of entities: 

the institution itself, the Better Business Bureau, State Attorneys General, the FTC’s Consumer 

Sentinel, the CFPB Consumer Response Center, other Federal and State agencies, or on-line 

consumer complaint boards such as www.ripoffreport.com or www.complaints.com. 

Analyzing Complaints 

Analysis of consumer complaints may assist in the identification of potential unfair, deceptive, or 

abusive practices. Examiners should consider the context and reliability of complaints; every 

complaint does not indicate violation of law. When consumers repeatedly complain about an 

institution’s product or service, however, examiners should flag the issue for possible further 

review. Moreover, even a single substantive complaint may raise serious concerns that would 

warrant further review. Complaints that allege, for example, misleading or false statements, or 

missing disclosure information, may indicate possible unfair, deceptive, or abusive acts or 

practices needing review. 

Another area that could indicate potential unfair, deceptive, or abusive acts or practices is a high 

volume of charge-backs or refunds for a product or service. While this information is relevant to 

the consumer complaint analysis, it may not appear in the institution’s complaint records. 

Relationship to Other Laws 

An unfair, deceptive, or abusive act or practice may also violate other federal or state laws. For 

example, pursuant to the TILA, creditors must “clearly and conspicuously” disclose the costs and 

terms of credit. An act or practice that does not comply with these provisions of TILA may also 

be unfair, deceptive, or abusive. 

Conversely, a transaction that is in technical compliance with other federal or state laws may 

nevertheless violate the prohibition against UDAAPs. For example, an advertisement may 

comply with TILA’s requirements, but contain additional statements that are untrue or 

misleading, and compliance with TILA’s disclosure requirements does not insulate the rest of the 

advertisement from the possibility of being deceptive. 

CFPB Manual V.2 (October 2012) UDAAP 10 
 

 

 

 

 

 

CFPB 

Examination Procedures UDAAP 

Unfair, Deceptive, or Abuse 

Acts and Practices 

Examination Objectives 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

•	 To assess the quality of the regulated entity’s compliance risk management systems, 

including internal controls and policies and procedures, for avoiding unfair, deceptive, or 

abusive acts or practices (UDAAP). 

•	 To identify acts or practices that materially increase the risk of consumers being treated in an 

unfair, deceptive, or abusive manner. 

•	 To gather facts that help determine whether a regulated entity engages in acts or practices 

when offering or providing consumer financial products or services that are likely to be 

unfair, deceptive, or abusive. 

•	 To determine, in consultation with Headquarters, whether an unfair, deceptive or abusive act 

or practice has occurred and whether further supervisory or enforcement actions are 

appropriate. 

General Guidance 

Based on the results of the risk assessment of the entity, examiners should review for potential 

unfair, deceptive, or abusive acts or practices, taking into account an entity’s marketing 

programs, product and service mix, customer base, and other factors, as appropriate. Even if the 

risk assessment has not identified potential unfair, deceptive, or abusive acts or practices, 

examiners should be alert throughout an examination for situations that warrant review. 

1. Document Review 

a.	 To initially identify potential areas of UDAAP concerns, obtain and review copies of the 

following to the extent relevant to the examination: 

b. Training materials. 

c.	 Lists of products and services, including descriptions, fee structure, disclosures, notices, 

agreements, and periodic and account statements. 

d. Procedure manuals and written policies, including those for servicing and collections. 

e.	 Minutes of the meetings of the Board of Directors and of management committees, 

including those related to compliance. 

f. Internal control monitoring and auditing materials. 

g. Compensation arrangements, including incentive programs for employees and third parties. 

CFPB	 Manual V.2 (October 2012) Procedures 1 
 

 

 

 

 

 

 

CFPB 

Examination Procedures UDAAP 

h. Documentation related to new product development, including relevant meeting minutes 

of Board of Directors, and of compliance and new product committees. 

i. Marketing programs, advertisements, and other promotional material in all forms of 

media (including print, radio, television, telephone, Internet, or social media advertising). 

j. Scripts and recorded calls for telemarketing and collections. 

k. Organizational charts, including those related to affiliate relationships and work processes. 

l. Agreements with affiliates and third parties that interact with consumers on behalf of the 

entity. 

m. Consumer complaint files. 

n.	 Documentation related to software development and testing, as applicable. 

Management and Policy-Related Examination Procedures 

1.	 Identify potential UDAAP concerns by reviewing all relevant written policies and procedures, 

customer complaints received by the entity or by the CFPB, internal and external audit reports, 

statistical and management reports, and examination reports. Determine whether: 

a.	 The scope of the entity’s compliance audit includes a review of potential unfair, 

deceptive, or abusive acts or practices. 

b.	 The compliance audit work is performed consistent with the audit plan and scope. 

c.	 The frequency and depth of audit review is appropriate to the nature of the activities and 

size of the entity. 

d.	 Management and the Board of Directors are made aware of and review significant 

deficiencies and their causes. 

e.	 Management has taken corrective actions to followup on any identified deficiencies. 

f.	 The entity’s compliance programs ensure that policies are being followed through its 

sampling of relevant product types and decision centers, including sales, processing, and 

underwriting. 

g.	 The entity has a process to respond to consumer complaints in a timely manner and 

determine whether consumer complaints raise potential UDAAP concerns. 

h.	 The entity has been subject to any enforcement actions or has been investigated by a 

regulatory or law enforcement agency for violations of consumer protection laws or 

regulations that may indicate potential UDAAP concerns. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 2 
 

 

 

CFPB 

Examination Procedures UDAAP 

2. Through discussions with management and a review of available information, determine 

whether the entity’s internal controls are adequate to prevent unfair, deceptive or abusive acts 

or practices. Consider whether: 

a.	 The compliance management program includes measures aimed at avoiding unfair, 

deceptive, or abusive practices, including: 

o	 Organization charts and process flowcharts; 

o	 Policies and procedures; and 

o	 Monitoring and audit procedures. 

b.	 The entity conducts prior UDAAP reviews of advertising and promotional materials, 

including promotional materials and marketing scripts for new products. 

c.	 The entity evaluates initial and subsequent disclosures, including customer agreements 

and changes in terms, for potential UDAAP concerns. 

d.	 The entity reviews new products and changes in the terms and conditions of existing 

products for potential UDAAP concerns. 

e.	 The entity has a thorough process for receiving and responding to consumer complaints 

and has a process to receive complaints made to third parties, such as the Better Business 

Bureau or the CFPB. 

f.	 The entity evaluates servicing and collections for UDAAP concerns. 

g.	 The entity has established policies and controls relating to employee and third-party 

conduct, including: 

o	 Initial and ongoing training; 

o	 Performance reviews or audits; 

o	 Discipline policies and records of disciplinary actions; 

o	 Third-party agreements and contractual performance standards; 

o	 Compensation programs; and 

o	 Monitoring. 

h.	 The entity’s internal control processes are documented. 

i.	 Computer programs are tested and documented to ensure accurate and timely disclosures 

to consumers. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 3 
 

 

 

 

CFPB 

Examination Procedures UDAAP 

3. Potential Areas for Transaction Testing 

Through a high-level assessment of the entity’s products, services, and customer base, 

identify areas for potential transaction testing. This process should determine whether: 

a.	 The entity does not underwrite a given credit product on the basis of ability to repay. 

b.	 A product’s profitability depends significantly on penalty fees or “back-end” rather than 

upfront fees. 

c.	 A product has high rates of repricing or other changes in terms. 

d.	 A product combines features and terms in a manner that can increase the difficulty of 

consumer understanding of the overall costs or risks of the product and the potential harm. 

e.	 Penalties are imposed on a customer when he terminates his relationship with the entity. 

f.	 Fees or other costs are imposed on a consumer to obtain information about his account. 

g.	 A product is targeted to particular populations, without appropriate tailoring of marketing, 

disclosures, and other materials designed to ensure understanding by the consumers. 

[Click&type] 

Transaction-Related Examination Procedures 

If upon conclusion of the management and policy-related examination procedures, procedural 

weaknesses, or other UDAAP risks require further investigation, conduct transaction testing, as 

necessary, using the following examination procedures. Use judgment in deciding to what extent 

to sample individual products, services, or marketing programs. Increase the sample size to 

achieve confidence that all aspects of the entity’s products and services are reviewed sufficiently. 

Consult with Headquarters to obtain assistance with the sampling process. 

1. Marketing and Disclosures 

Through a review of marketing materials, customer agreements, and other disclosures, 

determine whether, before the consumer chooses to obtain the product or service: 

a.	 All representations are factually based. 

b.	 All materials describe clearly, prominently, and accurately: 

o	 costs, benefits, and other material terms of the products or services being offered; 

o	 related products or services being offered either as an option or required to obtained 

certain terms; and 

o	 material limitations or conditions on the terms or availability of products and 

services, such as time limitations for favorable rates, promotional features, expiration 

dates, prerequisites for obtaining particular products or services, or conditions for 

canceling services. 

CFPB	 Manual V.2 (October 2012) Procedures 4 
 

 

 

 

 

CFPB 

Examination Procedures UDAAP 

c.	 The customer’s attention is drawn to key terms, including limitations and conditions, that 

are important to enable the consumer to make an informed decision. 

d.	 All materials clearly and prominently disclose the fees, penalties, and other charges that 

may be imposed and the reason for the imposition. 

e.	 Contracts clearly inform customers of contract provisions that permit changes in terms 

and conditions of the product or service. 

f.	 All materials clearly communicate the costs, benefits, availability, and other terms in 

language that can be understood when products are targeted to particular populations, 

such as reverse mortgage loans for the elderly. 

g.	 Materials do not misrepresent costs, conditions, limitations, or other terms either
 

affirmatively or by omission.
 

h.	 The entity avoids advertising terms that are generally not available to the typical targeted 

consumer. 

[Click&type] 

2. Availability of Terms or Services as Advertised 

Evaluate whether product(s) and service(s) that consumers are receiving are consistent with the 

disclosures and policies. For each product and service being reviewed, select a sample that: 

a.	 Is sufficient in size to reach a supportable conclusion about such consistency; 

b.	 Includes, as appropriate, transactions from different origination and underwriting 

channels — for example, different geographical areas or different sectors of the entity’s 

organization structure; and 

c. Includes approved and/or denied accounts. 

Determine whether:
 

a.	 Consumers are reasonably able to obtain the products and services, including interest 

rates or rewards, as represented by the entity. 

b.	 Consumers receive the specific product or service that they request. 

c.	 Counter-offers clearly, prominently, and accurately explain the difference between the 

original product or services requested and the one being offered. 

d.	 Actual practices are consistent with stated policies, procedures, or account disclosures. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 5 
 

 

 

 

CFPB 

Examination Procedures UDAAP 

3. Availability of Actual Credit to the Consumer 

Evaluate whether the entity represents the amount of useable credit that the consumer will 

receive in a truthful way. Consider whether: 

a.	 The available credit is sufficient to allow the consumer to use the product as advertised 

and disclosed to the consumer. 

b.	 The fees and charges, typically imposed on the average targeted customer, both initially 

and throughout the term of the loan, remain in a range that does not prevent the 

availability of credit. 

c.	 The entity honors convenience checks when used by the customer in a manner consistent 

with introductory or promotional materials and disclosures. 

[Click&type] 

4. Employees and Third Parties Interacting with Consumers 

Evaluate how the entity monitors the activities of employees and third-party contractors, 

marketing sales personnel, vendors, and service providers to ensure they do not engage in 

unfair, deceptive, or abusive acts or practices with respect to consumer interactions. 

Interview employees and third parties, as appropriate. Specifically, consider whether: 

a.	 The entity ensures that employees and third parties who market or promote products or 

services are adequately trained so that they do not engage in unfair, deceptive, or abusive 

acts or practices. 

b.	 The entity conducts periodic evaluations or audits to check whether employees or third 

parties follow the entity’s training and procedures and has a disciplinary policy in place 

to deal withany deficiencies. 

c.	 The entity reviews compensation arrangements for employees, third-party contractors, 

and service providers to ensure that they do not create unintended incentives to engage in 

unfair, deceptive, or abusive acts or practices, particularly with respect to product sales, 

loan originations, and collections. 

d.	 Performance evaluation criteria do not create unintended incentives to engage in unfair, 

deceptive, or abusive acts or practices, including criteria for sales personnel based on 

sales volume, size, terms of sale, or account performance. 

e.	 The entity implements and maintains effective risk and supervisory controls to select and 

manage third-party contractors and service providers. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 6 
 

 

 

 

 

 

 

CFPB 

Examination Procedures UDAAP 

5. Servicing and Collections 

Evaluate whether servicing and collections practices raise potential UDAAP concerns, by 

considering whether: 

a.	 The entity has policies detailing servicing and collections practices and has monitoring 

systems to prevent unfair, deceptive or abusive acts or practices. 

b.	 Call centers, either operated by the entity itself or by third parties, effectively respond to 

consumers’ calls. 

c.	 The entity ensures that employees and third party contractors: 

o	 represent fees or charges on periodic statements in a manner that is not misleading; 

o	 post and credit consumer payments in a timely manner; 

o	 apply payments in a manner that does not unnecessarily increase customer payments, 

without clear justification; 

o	 only charge customers for products and services, such as insurance or credit 

protection programs, that are specifically agreed to; 

o	 mail periodic statements in time to provide the consumer ample opportunity to avoid 

late payments; and 

o	 do not represent to consumers that they may pay less than the minimum amount 

without clearly and prominently disclosing any fees for paying the reduced amount. 

d.	 The entity has policies to ensure compliance with the standards under the Fair Debt 

Collections Practices Act to prevent abusive, deceptive, or unfair debt collection 

practices. 

e.	 Employees and third party contractors clearly indicate to consumers that they are calling 

about the collection of a debt. 

f.	 Employees and third party contractors do not disclose the existence of a consumer’s debt 

to the public without the consent of the consumer, except as permitted by law. 

g.	 The entity avoids repeated telephone calls to consumers that annoy, abuse, or harass any 

person at the number called. 

[Click&type] 

6. Interviews with Consumers 

If potential UDAAP issues are identified that would necessitate interviews with consumers, 

consult with regional management who will confer with Headquarters. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 7 
 

CFPB 

Examination Procedures UDAAP 

Examiner’s Summary, Recommendations, and Comments 

[Click&type] 

CFPB Manual V.2 (October 2012) Procedures 8 
 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations ECOA 

Equal Credit Opportunity Act (ECOA) 

The Equal Credit Opportunity Act (ECOA), which is implemented by Regulation B, applies to 

all creditors. When originally enacted, ECOA gave the Federal Reserve Board responsibility for 

prescribing the implementing regulation. The Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010 (Dodd-Frank Act) transferred this authority to the Consumer Financial 

Protection Bureau (“CFPB” or “Bureau”). The Dodd-Frank Act granted rule-making authority 

under ECOA to the CFPB and, with respect to entities within its jurisdiction, granted authority to 

the CFPB to supervise for and enforce compliance with ECOA and its implementing 

regulations.1 In December 2011, the CFPB restated the Federal Reserve’s implementing 

regulation at 12 CFR Part 1002 (76 Fed. Reg. 79442)(December 21, 2011). 

The statute provides that its purpose is to require financial institutions and other firms engaged in 

the extension of credit to “make credit equally available to all creditworthy customers without 

regard to sex or marital status.” Moreover, the statute makes it unlawful for “any creditor to 

discriminate against any applicant with respect to any aspect of a credit transaction (1) on the 

basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant 

has the capacity to contract); (2) because all or part of the applicant’s income derives from any 

public assistance program; or (3) because the applicant has in good faith exercised any right 

under the Consumer Credit Protection Act.” The ECOA has two principal theories of liability: 

disparate treatment and disparate impact. Disparate treatment occurs when a creditor treats an 

applicant differently based on a prohibited basis such as race or national origin.2 Disparate 

impact occurs when a creditor employs facially neutral policies or practices that have an adverse 

effect or impact on a protected class unless it meets a legitimate business need that cannot 

reasonably be achieved as well by means that are less disparate in their impact.

3 

In keeping with the broad reach of the statute’s prohibition, the regulation covers creditor 

activities before, during, and after the extension of credit. A synopsis of some of the more 

important points of Regulation B follows, and an examination program is provided for a more 

thorough review. 

For fair lending scoping and examination procedures, the CFPB is temporarily adopting the 

FFIEC Interagency Fair Lending Examination Procedures that are referenced in the examination 

program. However, in applying those procedures the CFPB takes into account that the Fair 

1

Sec.1071 of the Dodd-Frank Act added a new Sec. 704B to ECOA to require the collection of small business loan data. 

Sec.1474 amended subsection 701(e) of ECOA to generally require creditors to provide applicants copies of written appraisals 

and valuations developed in connection with the applicant’s application for a loan that is secured or would have been secured by 

a first lien on a dwelling promptly upon completion. Those amendments will be reflected in this document at a later date once 

they become effective. 

2

12 CFR Part 1002 Supp. I Sec. 1002.4(a)-1; 12 CFR Part 1002 Supp. I Sec. 1002.4(a)-1. “Disparate treatment” may be “overt” 

(when the creditor openly discriminates on a prohibited basis) or it may be found through comparing the treatment of applicants 

who receive different treatment for no discernable reason other than a prohibited basis. In the latter case, it is not necessary that 

the creditor acts with any specific intent to discriminate. 

3

12 CFR Part 1002 Supp. I Sec. 1002.6(a)-2. 

CFPB Manual V.2 (October 2012) ECOA 1 
 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations ECOA 

Housing Act (FHAct), 42 U.S.C. 3601 et seq., unlike ECOA, is not a “Federal consumer 

financial law” as defined by the Dodd-Frank Act for which the CFPB has supervisory authority.4 

Applicability – 12 CFR 1002.2(e), 1002.2(f), 1002.2(j), 

1002.2(l), 1002.2(m), and 1002.2(q) 

Regulation B applies to all persons who, in the ordinary course of business, regularly participate 

in the credit decision, including setting the terms of the credit. The term “creditor” includes a 

creditor’s assignee, transferee, or subrogee who so participates. For purposes of discrimination or 

discouragement, 12 CFR 1002.4(a) and (b), the term creditor also includes a person who, in the 

ordinary course of business, regularly refers applicants or prospective applicants to creditors, or 

selects or offers to select creditors to whom requests for credit may be made. 

Regulation B’s prohibitions apply to every aspect of an applicant’s dealings with a creditor 

regarding an application for credit or an existing extension of credit (including, but not limited 

to: information requirements; investigation procedures; standards of creditworthiness; terms of 

credit; furnishing of credit information; revocation, alteration, or termination of credit; and 

collection procedures). The regulation defines “applicant” as any person who requests or who 

has received an extension of credit from a creditor and includes any person who is or may 

become contractually liable regarding an extension of credit. Under Regulation B, an 

“application” means an oral or written request for an extension of credit made in accordance with 

procedures used by a creditor for the type of credit requested. “Extension of credit” means “the 

granting of credit in any form (including, but not limited to, credit granted in addition to any 

existing credit [,] the refinancing or other renewal of credit...or the continuance of existing credit 

without any special effort to collect at or after maturity).” Because the ECOA and Regulation B 

prohibit discrimination in any aspect of a credit transaction, a creditor violates the statute and 

regulation when discriminating against borrowers on a prohibited basis in approving or denying 

loan modifications. Moreover, as the definition of credit includes the right granted by a creditor 

to an applicant to defer payment of a debt, a loan modification is itself an extension of credit and 

subject to ECOA and Regulation B. Examples of loan modifications that are extensions of credit 

include, but are not limited to, the right to defer payment of a debt by capitalizing accrued 

interest and certain escrow advances, reducing the interest rate, extending the loan term, and/or 

providing for principal forbearance.5 

4 In addition to potential ECOA violations, an examiner may identify potential violations of the FHAct through the course of an 

examination. The FHAct prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related 

transactions, based on race, color, national origin, religion, sex, familial status (including children under the age of 18 living with 

parents or legal custodians, pregnant women, and people securing custody of children under the age of 18), and handicap 

(disability). The CFPB cooperates with the U.S. Department of Housing and Urban Development (HUD) to further the purposes 

of the FHAct. If a potential FHAct violation is identified, the examiner must consult with Headquarters to determine whether a 

referral to HUD or the U.S. Department of Justice and, if applicable, the creditor’s prudential regulator is appropriate. 

5 See Federal Reserve Board Consumer Affairs Letter 09-13 (December 4, 2009) 

(http://www federalreserve.gov/boarddocs/caletters/2009/0913/caltr0913 htm). 

CFPB Manual V.2 (October 2012) ECOA 2 
 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations ECOA 

Prohibited Practices – 12 CFR 1002.4 

Regulation B contains two basic and comprehensive prohibitions against discriminatory lending 

practices: 

•	 A creditor shall not discriminate against an applicant on a prohibited basis regarding any 

aspect of a credit transaction. 

•	 A creditor shall not make any oral or written statement, in advertising or otherwise, to 

applicants or prospective applicants that would discourage, on a prohibited basis, a 

reasonable person from making or pursuing an application. 

Note that the regulation is concerned not only with the treatment of persons who have initiated 

the application process, but also with lender behavior before the application is even taken. 

Lending officers and employees must be careful to take no action that would, on a prohibited 

basis, discourage a reasonable person from applying for a loan. For example, a creditor may not 

advertise its credit services and practices in ways that would tend to encourage some types of 

borrowers and discourage others on a prohibited basis. In addition, a creditor may not use 

prescreening tactics likely to discourage potential applicants on a prohibited basis. Instructions to 

loan officers or brokers to use scripts, rate quotes, or other means to discourage applicants from 

applying for credit on a prohibited basis are also prohibited. 

The prohibition against discouraging applicants applies to in-person oral and telephone inquiries 

as well as to written applications. Lending officers must refrain from requesting prohibited 

information in conversations with applicants during the pre-interview phase (that is, before the 

application is taken) as well as when taking the written application. 

To prevent discrimination in the credit-granting process, the regulation imposes a delicate 

balance between the creditor’s need to know as much as possible about a prospective borrower 

with the borrower’s right not to disclose information irrelevant to the credit transaction as well as 

relevant information that is likely to be used in connection with discrimination on a prohibited 

basis. To this end, the regulation addresses taking, evaluating, and acting on applications as well 

as furnishing and maintaining credit information. 

Electronic Disclosures – 12 CFR 1002.4(d) 

Disclosures required to be given in writing may be provided to the applicant in electronic form, 

generally subject to compliance with the consumer consent and other applicable provisions of the 

Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). 

Rules for Taking Applications – 12 CFR 1002.5 

Regulation B permits creditors to ask for any information in connection with a credit transaction, 

so long as they avoid certain clearly defined areas set forth in 12 CFR 1002.5, which include 

both the specific prohibited bases of discrimination and certain types of information that often 

relates to discrimination on a prohibited basis. 

CFPB	 Manual V.2 (October 2012) ECOA 3 
 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations ECOA 

Applicant Characteristics 

Creditors may not request or collect information about an applicant’s race, color, religion, national 

origin, or sex. Exceptions to this rule generally involve situations in which the information is 

necessary to test for compliance with fair lending rules or is required by a state or federal 

regulatory agency or other government entity for a particular purpose, such as to determine 

eligibility for a particular program. For example, a creditor may request prohibited information: 

•	 In connection with a self-test being conducted by the creditor (provided that the self-test 

meets certain requirements) (12 CFR 1002.15); 

•	 For monitoring purposes in relation to credit secured by real estate (12 CFR 1002.13; the 

Home Mortgage Disclosure Act, 12 U.S.C. 2801 (“HMDA”); Home Affordable Modification 

Program (“HAMP”)); or 

•	 To determine an applicant’s eligibility for special-purpose credit programs (12 CFR 

1002.8(b), (c) and (d)). 

Information about a Spouse or Former Spouse – 

12 CFR 1002.5(c) 

A creditor may not request information about an applicant’s spouse or former spouse except 

under the following circumstances: 

•	 The non-applicant spouse will be a permitted user of or joint obligor on the account. (NOTE: 

The term “permitted user” applies only to open-end accounts.) 

•	 The non-applicant spouse will be contractually liable on the account. 

•	 The applicant is relying on the spouse’s income, at least in part, as a source of repayment. 

•	 The applicant resides in a community property state, or the property upon which the 

applicant is relying as a basis for repayment of the credit requested is located in such a state. 

•	 The applicant is relying on alimony, child support, or separate maintenance income as a basis 

for obtaining the credit. 

CFPB	 Manual V.2 (October 2012) ECOA 4 
 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations ECOA 

Inquiries Concerning Marital Status – 

12 CFR 1002.5(d)(1) and 1002.5(d)(3) 

Individual Credit 

When an applicant applies for individual credit, the creditor may not ask the applicant’s marital 

status. There are two exceptions to this rule: 

•	 If the credit transaction is to be secured, the creditor may ask the applicant’s marital status. 

(This information may be necessary to determine what would be required to gain access to 

the collateral in the event of default.) 

•	 If the applicant either resides in a community property state or lists assets to support the debt 

that are located in such a state, the creditor may ask the applicant’s marital status. (In 

community property states, assets owned by a married individual may also be owned by the 

spouse, thus complicating the availability of assets to satisfy a debt in the event of default.) 

Joint Credit 

When a request for credit is joint (made by two or more individuals who will be primarily liable), 

the creditor may ask the applicant’s marital status, regardless of whether the credit is to be secured 

or unsecured, but may use only the terms “married,” “unmarried,” and “separated.” This 

requirement applies to oral as well as written requests for marital status information. ‘‘Unmarried’’ 

may be defined to include divorced, widowed, or never married, but the application must not be 

structured in such a way as to encourage the applicant to distinguish among these. 

Alimony, Child Support, or Separate Maintenance Income – 

12 CFR 1002.5(d)(2) 

A creditor may ask if an applicant is receiving alimony, child support, or separate maintenance 

payments. However, the creditor must first disclose to the applicant that such income need not be 

revealed unless the applicant wishes to rely on that income in the determination of 

creditworthiness. An appropriate notice to that effect must be given whenever the creditor makes 

a general request concerning income and the source of that income. Therefore, a creditor either 

must ask questions designed to solicit only information about specific income (for example, 

“salary,” “wages,” “employment,” or other specified categories of income) or must state that 

disclosure of alimony, child support, or separate maintenance payments is not required. 

Residency and Immigration Status – 12 CFR 1002.5(e) 

The creditor may inquire about the applicant’s permanent residence and immigration status in the 

United States in determining creditworthiness. 

CFPB	 Manual V.2 (October 2012) ECOA 5 
 

 

 

 

 

 

 

 

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Rules for Evaluating Applications – 12 CFR 1002.6 

General Rule 

A creditor may consider any information in evaluating applicants, so long as the use of the 

information does not have the intent or the effect of discriminating against an applicant on a 

prohibited basis. Generally, a creditor may not: 

•	 Consider any of the prohibited bases, including age (providing the applicant is old enough, 

under state law, to enter into a binding contract) and the receipt of public assistance; 

•	 Use child-bearing or child-rearing information, assumptions, or statistics to determine 

whether an applicant’s income may be interrupted or decreased; 

•	 Consider whether there is a telephone listing in the applicant’s name (but the creditor may 

consider whether there is a telephone in the applicant’s home); or 

•	 Discount or exclude part-time income from an applicant or the spouse of an applicant. 

Systems for Analyzing Credit 

Regulation B neither requires nor endorses any particular method of credit analysis. Creditors 

may use traditional methods, such as judgmental systems that rely on a credit officer’s subjective 

evaluation of an applicant’s creditworthiness, or they may use more-objective, statistically 

developed techniques such as credit scoring. 

Credit Scoring Systems 

Section 1002.2(p) of Regulation B prescribes the standards that a credit scoring system must 

meet to qualify as an ‘‘empirically derived, demonstrably and statistically sound, credit system.’’ 

All forms of credit analysis that do not meet the standards are automatically classified as 

‘‘judgmental’’ systems. This distinction is important because creditors that use a ‘‘demonstrably 

and statistically sound’’ system may take applicant age directly into account as a predictive 

variable,6 whereas judgmental systems may do so only to determine a pertinent element of 

creditworthiness or to favor an elderly applicant. 

Judgmental Evaluation Systems 

Any system other than one that is empirically derived and demonstrably and statistically sound, 

is a judgmental system (including any credit scoring system that does not meet the prescribed 

technical standards). With limited exception, such a system may not take applicant age directly 

into account in evaluating creditworthiness. The act and the regulation permit a creditor to 

consider the applicant’s age for the purpose of evaluating other applicant information that has a 

6 This applies provided that the age of an elderly applicant is not assigned a negative factor or value. 

CFPB	 Manual V.2 (October 2012) ECOA 6 
 

 

 

 

 

 

 

 

 

 

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demonstrable relationship to creditworthiness.7 Additionally, in any system of evaluating 

creditworthiness, a creditor may consider the age of an elderly applicant to favor the applicant in 

extending credit. 

Rules for Extensions of Credit – 12 CFR 1002.7 

Section 1002.7 of Regulation B provides a set of rules proscribing certain discriminatory 

practices regarding the creation and continuation of credit accounts. 

Signature Requirements 

The primary purpose of the signature requirements is to permit creditworthy individuals 

(particularly women) to obtain credit on their own. Two general rules apply: 

•	 A creditor may not require a signature other than the applicant’s or joint applicant’s if under 

the creditor’s standards of creditworthiness the applicant qualifies for the amount and terms 

of the credit requested. 

•	 A creditor has more latitude in seeking signatures on instruments necessary to reach property 

used as security, or in support of the customer’s creditworthiness, than it has in obtaining the 

signatures of persons other than the applicant on documents that establish the contractual 

obligation to repay. 

When assessing the level of a creditor’s compliance with the signature requirements, examiners 

should consult with the Examiner-in-Charge if any questions arise. 

Special-Purpose Credit Programs – 12 CFR 1002.8 

The ECOA and Regulation B allow creditors to establish special-purpose credit programs for 

applicants who meet certain eligibility requirements. Generally, these programs target an 

economically disadvantaged class of individuals and are authorized by federal or state law. Some 

are offered by not-for-profit organizations that meet certain IRS guidelines, and some by forprofit organizations that meet specific tests outlined in 12 CFR 1002.8. 

Examiners are encouraged, if an issue arises regarding such a program, to consult with Headquarters. 

Notifications – 12 CFR 1002.9 

A creditor must notify an applicant of action taken on the applicant’s request for credit, whether 

favorable or adverse, within 30 days after receiving a completed application. Notice of approval 

may be expressly stated or implied (for example, the creditor may give the applicant the credit 

card, money, property, or services for which the applicant applied). 

Notification of adverse action taken on an existing account must also be made within 30 days. 

7

Judgmental systems may consider the amount and probable continuance of income. A planned reduction in income due to 

retirement may, for example, be considered. 

CFPB	 Manual V.2 (October 2012) ECOA 7 
 

 

 

 

 

 

 

 

 

 

 

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Under at least two circumstances, the creditor need not comply with the 30-day notification rule: 

•	 The creditor must notify an applicant of adverse action within 90 days after making a 

counteroffer unless the applicant accepts or uses the credit during that time. 

•	 The creditor may not have to notify an applicant of adverse action if the application was 

incomplete and the creditor sent the applicant a notice of incompleteness that met certain 

requirements set forth in 12 CFR 1002.9(c). 

Adverse Action Notice – 12 CFR 1002.9(a)(2) 

A notification of adverse action must be in writing and must contain certain information, 

including the name and address of the creditor and the nature of the action that was taken. In 

addition, the creditor must provide an ECOA notice that includes the identity of the federal 

agency responsible for enforcing compliance with the act for that creditor. This notice is 

generally included on the notification of adverse action. The creditor must also either provide the 

applicant with the specific principal reason for the action taken or disclose that the applicant has 

the right to request the reason(s) for denial within 60 days of receipt of the creditor’s notification, 

along with the name, address, and telephone number of the person who can provide the specific 

reason(s) for the adverse action. The reason may be given orally if the creditor also advises the 

applicant of the right to obtain the reason in writing upon request. 

Incomplete Applications – 12 CFR 1002.9(c) 

When a creditor receives an incomplete application, it may send one of two alternative 

notifications to the applicant. One is a notice of adverse action; the other is a notice of 

incompleteness. The notice of incompleteness must be in writing and must specify the 

information the creditor needs if it is to consider the application; it must also provide a 

reasonable period of time for the applicant to furnish the missing information. 

Applications Submitted Through a Third Party – 

12 CFR 1002.9(g) 

When more than one creditor is involved in a transaction and adverse action is taken with 

respect to the application for credit by all the creditors involved, each creditor that took such 

action must provide a notice of action taken. The notification may be given by a third party; 

however, the notice must disclose the identity of each creditor on whose behalf the notice is 

given. If one of the creditors approves the application, the creditors that took adverse action 

need not provide notification. 

Notification to Business Credit Applicants – 

12 CFR 1002.9(a)(3) 

The notification requirements for business credit applicants are different from those for 

consumer credit applicants and are more extensive if the business had gross revenues of 

CFPB	 Manual V.2 (October 2012) ECOA 8 
 

 

 

 

 

CFPB Consumer 

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$1,000,000 or less in the preceding fiscal year. Extensions of trade credit, credit incident to a 

factoring agreement, and similar types of credit are subject to the same rules as those that apply 

to businesses that had gross revenues of more than $1,000,000. 

Generally, a creditor must comply with the same notification requirements for business credit 

applicants with gross revenues of $1,000,000 or less as it does for consumer credit applicants. 

However, the creditor has more options when dealing with these business credit applicants. First, 

the creditor may tell the business credit applicant orally of the action taken. Second, if the 

creditor chooses to provide a notice informing the business credit applicant of the right to request 

the reason for action taken, it may, rather than disclose the reason itself, provide the notice at the 

time of application. If the creditor chooses to inform the applicant of the right to request a 

reason, however, it must provide a disclosure with an ECOA notice that is in retainable form and 

that gives the applicant the same information that must be provided to consumer credit applicants 

when this option is used (see 12 CFR 1002.9(a)(2)(ii)). Finally, if the application was made 

entirely over the phone, the creditor may provide an oral statement of action taken and of the 

applicant’s right to a statement of reasons for adverse action. 

The notification requirements for business credit applicants with gross revenues of more than 

$1,000,000 are relatively simple. The creditor must notify the applicant of the action taken 

within a reasonable time period. The notice may be oral or in writing; a written statement of the 

reasons for adverse action and the ECOA notice need be provided only if the applicant makes a 

written request within 60 days of the creditor’s notification of the action taken. 

Designation of Accounts – 12 CFR 1002.10(a) 

A creditor that furnishes credit information to a consumer reporting agency must designate: 

•	 Any new account to reflect the participation of both spouses if the applicant’s spouse is 

permitted to use or is contractually liable on the account; and 

•	 Any existing account to reflect the participation of both spouses within 90 days after 

receiving a written request to do so from one of the spouses. 

If a creditor furnishes credit information to a consumer reporting agency, the creditor must 

furnish the information in the name of the spouse about whom the information was requested. 

Record Retention – 12 CFR 1002.12 

Applications 

In general, a creditor must preserve all written or recorded information connected with an 

application for 25 months (12 months for business credit) after the date on which the creditor 

informed the applicant of action taken on an application or of incompleteness of an application. 

CFPB	 Manual V.2 (October 2012) ECOA 9 
 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

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Prohibited Information 

A creditor may retain information in its files that it may not use in evaluating applications. 

However, the information must have been obtained inadvertently or in accordance with federal 

or state law or regulation. 

Existing Accounts 

A creditor must preserve any written or recorded information concerning adverse action on an 

existing account as well as any written statement submitted by the applicant alleging a violation 

of the ECOA or Regulation B. This evidence must be kept for 25 months (12 months for 

business credit). 

Prescreened Solicitations 

The 25-month retention rule also applies when a creditor makes an offer of credit to potential 

customers. In such cases, the creditor must retain for 25 months following the date of the 

solicitation: 

• The text of any prescreened solicitation; 

• The list of criteria the creditor used to select potential recipients of the solicitation; and 

• Any correspondence related to complaints (formal or informal) about the solicitation. 

Rules for Providing Appraisal Reports – 12 CFR 1002.14 

Regulation B requires that creditors provide a copy of the appraisal report used in connection 

with an application for credit to be secured by a lien on a dwelling. A creditor may provide the 

copy either routinely (whether or not credit is granted or the application is withdrawn) or upon an 

applicant’s written request. If the creditor provides an appraisal report only upon request, it must 

inform the applicant in writing of the right to receive a copy of the report. 

Incentives for Self-Testing and Self-Correction – 

12 CFR 1002.15 

A self-test, as discussed in 12 CFR 1002.15 of Regulation B, must meet two criteria. First, it 

must be a program, practice, or study that a lender designs and uses specifically to determine the 

extent or effectiveness of its compliance with the regulation. Second, the results of the self-test 

must create data or factual information that is otherwise not available and cannot be derived from 

loan or application files or other records related to credit transactions. The findings of a self-test 

that is conducted voluntarily by a creditor and that meets the conditions set forth in 12 CFR 

1002.15 are privileged against discovery or use by (1) a government agency in any examination 

or investigation related to the ECOA or Regulation B or (2) a government agency or an applicant 

in any legal proceeding involving an alleged violation of the ECOA or Regulation B. Privileged 

information includes the report or results of the test; data or other information created by the test; 

and any analysis, opinions, or conclusions regarding the results of the test. 

CFPB Manual V.2 (October 2012) ECOA 10 
 

 

 

 

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To qualify for the privilege, appropriate corrective action is required when the results of a selftest show that it is more likely than not that there has been a violation of the ECOA or 

Regulation B.

8

 The privilege does not cover information about whether a test was conducted; the 

methodology, scope, time period, or dates covered by the test; loan or application files or other 

business records; and information derived from such files and records, even if aggregated, 

summarized, or reorganized. 

Enforcement, Penalties, and Liabilities – 12 CFR 1002.16 

In addition to actual damages, the Act provides for punitive damages of up to $10,000 in 

individual lawsuits and up to the lesser of $500,000 or 1 percent of the creditor’s net worth in 

class action suits. Successful complainants are also entitled to an award of court costs and 

attorney’s fees. 

A creditor is not liable for failure to comply with the notification requirements of 12 CFR 1002.9 

or the reporting requirements of 12 CFR 1002.10 if the failure was caused by an inadvertent 

error and the creditor, after discovering the error (1) corrects the error as soon as possible and (2) 

begins compliance with the requirements of the regulation. ‘‘Inadvertent errors’’ include 

mechanical, electronic, and clerical errors that the creditor can show (1) were not intentional and 

(2) occurred despite the fact that the creditor maintains procedures reasonably adapted to avoid 

such errors. Similarly, failure to comply with 12 CFR 1002.6(b)(6), 1002.12, and 1002.13 is not 

considered a violation if it results from an inadvertent error and the creditor takes the corrective 

action noted above. Errors involving 12 CFR 1002.12 and 1002.13 may be corrected 

prospectively by the creditor. 

REFERENCES 

Laws 

12 U.S.C. 1691 et seq. Equal Credit Opportunity Act 

Regulations 

Consumer Financial Protection Bureau Regulation (12 CFR) 

Part 1002 Equal Credit Opportunity (Regulation B) 

8

12 CFR 1002.15(c) 

CFPB Manual V.2 (October 2012) ECOA 11 
CFPB

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 1 

Equal Credit 

Opportunity Act

Examination Procedures 

• To determine whether the creditor has established policies, procedures, and internal controls 

to ensure that it is in compliance with the Equal Credit Opportunity Act (ECOA) and its 

implementing Regulation B.

• To determine whether the creditor discriminated against members of one or more protected 

classes in any aspect of its credit operations. 

• To determine whether the creditor is in compliance with those requirements of ECOA that 

are set forth in Regulation B. 

NOTE: This document refers throughout to the Interagency Fair Lending Examination 

Procedures (“IFLEP”). When applying those procedures, it is important to keep in mind that the 

Fair Housing Act, unlike ECOA, is not a “Federal consumer financial law” for which the CFPB 

has supervisory authority. 

Section A: ECOA / REGULATION B COMPLIANCE 

MANAGEMENT / RISK ASSESSMENT EXAMINATION 

PROCEDURES

A. Examination Objective & Purpose

• To determine whether the creditor has established policies, procedures and internal controls 

to ensure that it is in compliance with the ECOA and Regulation B. The intensity and scope 

of the current ECOA / Regulation B examination will depend in part on the adequacy of the 

creditor’s compliance management program.

B. Examination Procedures 

1. Review the creditor’s overall compliance management program. Following the 

Compliance Management Review procedures in the CFPB’ Supervision/Examination 

Manual; verify that the ECOA and Regulation B compliance is effectively integrated into 

the creditor’s compliance management program. 

2. Consult Part II (“Compliance Management Review”) of the IFLEP and apply the 

Compliance Management Analysis Checklist in the IFLEP Appendix. 

NOTE: When performing 1 and 2 above, pay special close attention to the creditor’s compliance 

management policies and procedures with respect to the following:

• Does any aspect of the creditor’s credit operations appear to vary by any of the prohibited 

bases? Examples: (i) The creditor establishes most of its branches in predominately nonExam Date: [Click&type]

Prepared By: [Click&type]

Reviewer: [Click&type]

Docket #: [Click&type]

Entity Name: [Click&type]
CFPB

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 2 

minority neighborhoods and does not have a presence in nearby minority neighborhoods; or 

(ii) Spanish and English advertisements emphasize different credit products.

• Do the creditor’s underwriting or pricing guidelines contain any unusual criteria that could 

have a possibly negative disparate impact on a protected class? (e.g., underwriting or price 

models that use ZIP codes. 

• Are the creditor’s policies, procedures, or guidelines vague or unduly subjective with respect 

to (i) underwriting; (ii) pricing; (iii) referring applicants to subsidiaries, affiliates, or lending 

channels within the creditor; (iv) classifying applicants as “prime” or “sub-prime” borrowers; 

or (v) deciding what kinds of alternative loan products should be offered or recommended to 

applicants?

• Does the creditor allow exceptions to its underwriting, pricing, or product recommendation 

policies and procedures to be made subjectively or without clear guidance? Even if the 

policies and procedures are clear, does the creditor make a large number of such exceptions?

• Does the creditor give its employees significant discretion to decide what products to offer or 

the price to offer, including both interest rates and fees?

• Does any employee receive incentives depending, directly or indirectly, on the terms or 

conditions of the credit product sold or the price (including both interest rates and fees) 

charged?

• Does the creditor rely on third parties, such as brokers, for a significant part of its credit 

operations? 

These factors create conditions under which the risk of fair lending violations may be increased. 

Whether any particular factor constitutes a fair lending violation requires consideration of the 

particular facts and circumstances at issue.

C. Examiner’s Compliance Management / Risk Assessment Examination Summary, 

Recommendation and Comments

[Click&type]
CFPB

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 3 

Section B: FAIR LENDING EXAMINATION PROCEDURES

A. Examination Objective & Purpose

• To determine whether the creditor discriminated against members of one or more protected 

classes in any aspect of its credit operations. 

B. Pre-Examination Procedures – Data Request1

1. For mortgages, determine if the CFPB has received all the data typically used by 

creditors in pricing and underwriting decisions.2 If not, in consultation with 

Headquarters, request from the creditor all relevant data in electronic format. 

2. For non-mortgage products, in consultation with Headquarters, request from the creditor

all relevant data in electronic format. 

NOTE: It may take a significant amount of time for the creditor to produce data and for 

Headquarters to review it. Data requests should be sent out as early as practicable to ensure the 

incorporation of all analyses in the examination. 

C. Pre-Examination Procedures – Scoping 

No single fair lending examination can reasonably be expected to scrutinize every aspect of an 

institution’s credit operations. The purpose of pre-examination scoping is to help examiners 

target areas with the highest fair lending risk. 

The examiners, together with Headquarters, should use statistical analyses whenever appropriate 

to scope fair lending examinations in addition to following the procedures in Part I of the IFLEP 

(“Examination Scope Guidelines”). 

1. Review any preliminary data screens provided by Headquarters to identify possible 

examination focal points.3

2. Review information from previous compliance examinations that could inform potential 

focal points of the current examination. 

3. Follow the steps in the Examination Scope Guidelines. Inform Headquarters of the 

information you gathered about the creditor. Consult Headquarters to determine what 

additional information would be helpful to improve data analyses and refine scoping. 

4. Together with Headquarters, finalize the scope and intensity of the fair lending 

examination.

 

1 If it is decided that statistical methods will not be used in the examination, this step can be skipped.

2

 For some creditors, the CFPB routinely requests additional mortgage data fields beyond the HMDA data. For these creditors, 

the examiners will likely not have to make any pre-examination mortgage data requests. 

3 A focal point is a combination of loan product(s), market(s), decision center(s), time frame and prohibited basis to be analyzed 

during the fair lending examination.
CFPB

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 4 

D. Examination Procedures

The IFLEP’s examination procedures (Part III) are focused on conducting comparative file 

reviews and not statistical analysis. It is important to supplement the IFLEP examination 

procedures whenever statistical analysis is involved. 

1. When statistical analysis is not part of the examination, follow Part III of the IFLEP to 

examine the creditor. Working with Headquarters, assess possible violations, and follow 

Part IV of the IFLEP, Steps 1–3, when discussing results with the creditor and reviewing 

all responses. 

2. When statistical analysis is part of the examination, examiners should work closely with 

Headquarters to do the following: 

a. Follow Part III of the IFLEP to examine the creditor, including conducting 

comparative file reviews as appropriate. 

b. Integrate creditor-specific information into statistical models. Follow Part III.A of the 

IFLEP to verify the accuracy of the data. To the extent HMDA data is used, apply the 

HMDA / Regulation C examination procedures to verify data integrity. For nonmortgage data, consult with Headquarters on how to verify data integrity. If the most 

recent Compliance Management review indicates that the creditor does not have 

adequate policies and procedures in place to ensure data integrity, increase the sample 

size for the data verification.

c. Assess possible violations, and follow Part IV of the IFLEP, Step 1, to discuss results 

with the creditor, including sharing our statistical analyses with the creditor and 

asking for comments and explanations. 

d. Review the creditor’s response. Follow Part IV of the IFLEP, Steps 2–3. If necessary, 

in consultation with Headquarters, refine our statistical models and re-analyze. 

3. Consult with Headquarters to reach the final conclusions. Follow Part IV of the IFLEP, 

Steps 4–5. 

E. Examiner’s Fair Lending Examination Summary, Recommendation and Comments 

[Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 5 

Section C: REGULATION B EXAMINATION CHECKLIST

A. Examination Objective & Purpose

• To determine whether the creditor is in compliance with those requirements of ECOA that 

are set forth in Regulation B. 

B. Examination Procedures

The ECOA and its implementing Regulation B not only prohibit discrimination in credit 

transactions, but also set forth additional requirements, such as requiring adverse action notices 

in appropriate circumstances. Thus, not all items on the checklist relate to discrimination. Some 

items on the checklist, however, do reflect a possible fair lending violation even though they are 

not stated in those terms. 

Accordingly, depending on the general risk profile of the creditor and the Section A Compliance 

Management/Risk Assessment, not all items on the checklist need be included in every fair 

lending exam. Examiners should consult with Headquarters to determine which sections of this 

checklist should be completed in an examination. 

The checklist, supporting documentation for any apparent violations, and management response 

should be included in the work papers. In consultation with Headquarters, the Examiner-inCharge, and the Regional Manager, request that the management responsible for the transactions 

provide a response on any apparent violations. 

A “No” answer indicates a possible exception or deficiency and should be explained in the work 

papers.4 If a line item is not applicable within the area you are reviewing, indicate “NA.”

 

4 If the violation of 12 CFR 1002.6(b)(6), 1002.9, 1002.10, 1002.12, or 1002.13 results from an inadvertent error, namely a 

mechanical, electronic, or clerical error that the creditor demonstrates was not intentional and occurred notwithstanding the

maintenance of procedures reasonably adapted to avoid such errors, there is no violation. On discovering an inadvertent error 

under 12 CFR 1002.9 and 1002.10, the creditor must correct it as soon as possible; inadvertent errors under 12 CFR 1002.12 and 

1002.13 must be corrected prospectively. To determine whether an error is inadvertent, you should consult with the Examinerin-Charge. 
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 6 

All citations are to Regulation B, 12 CFR Part 1002.

Yes No Basis of Conclusion

Prohibited Practices [Click&type]

Discrimination [Click&type]

See Section B: Fair Lending Examination Procedures [Click&type]

Discouragement [Click&type]

Obtain and review marketing and advertising materials (including signs or 

other displays), prescreened solicitations, and the criteria used to determine 

the potential recipients of the particular solicitation, scripts, and interview 

forms used for pre-application interviews and for taking applications, and 

rate sheets and product information used in discussing available types of 

credit with applicants. Conduct loan agent interviews to determine whether 

they show an understanding of the regulatory requirements.

 [Click&type]

1. Does the creditor not make any oral or written statements, in 

advertising or otherwise, to applicants or prospective applicants that 

would discourage on a prohibited basis a reasonable person from 

making or pursuing an application? (12 CFR 1002.4(b))

 [Click&type]

2. Does the creditor not use statements that the applicant should not 

bother to apply based on a prohibited basis (e.g., you shouldn’t bother 

to apply because you are retired)? (12 CFR Part 1002, Supp. I, 

Comment 1002.4(b)-1(i))

 [Click&type]

3. Does the creditor not use words, symbols, models or other forms of 

communication in advertising that express, imply, or suggest a 

discriminatory preference or a policy of exclusion in violation of the 

ECOA? (Comment 1002.4(b)-1(ii))

 [Click&type]

4. Does the creditor not use scripts that discourage applications on a 

prohibited basis? (Comment 1002.4(b)-1(iii))

 [Click&type]

5. Are the criteria used for prescreened solicitations not discriminatory 

on a prohibited basis? (12 CFR 1002.4(a), (b)) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 7 

Yes No Basis of Conclusion

6. Does the text of any prescreened solicitations avoid statements that 

would tend to discourage, on a prohibited basis, a reasonable person 

from making or pursuing an application? (12 CFR 1002.4(b)) 

 [Click&type]

Rules for Taking Applications5

Obtain and review application forms (including scripts for telephone 

applications and screen shots of online applications), disclosures, a sample of 

loan files,6 creditor policies and procedures and audits pertaining to the 

taking of applications, and training materials. Conduct loan officer interviews 

to determine whether they show an understanding of the regulatory 

requirements and that policies and procedures are consistently applied.

7. Does the creditor use written applications for credit that is primarily 

for the purchase or refinancing of dwellings that are occupied or to be 

occupied by the applicant as a principal residence and where the credit 

will be secured by the dwellings? (12 CFR 1002.4(c), 1002.13(a)) 

 [Click&type]

 

8. If the creditor collects information (in addition to information required 

for government monitoring purposes, such as 12 CFR 1002.13, 

HMDA, and HAMP) on the race, color, religion, national origin, or 

sex of the applicant or any other person in connection with a credit 

transaction for purposes of a “self-test”:

a. Does the creditor meet the “self-test” requirements of 12 CFR 

1002.15 (see Checklist Items 70–71)?

 [Click&type]

 

 

5 A creditor may obtain information that is otherwise restricted to determine eligibility for a special purpose program, as provided in 12 CFR 1002.8(b), (c), and (d). To the extent there 

is an appropriately established and administered special purpose program under which any otherwise restricted information was requested, obtaining such information should not 

constitute a violation, and Headquarters and the Examiner-in-Charge should be consulted.

6 To the extent the institution maintains any information in its files that is prohibited by the ECOA or Regulation B for use in evaluating applications, that information may be retained if 

it was obtained (a) prior to March 23, 1977; (b) from consumer reporting agencies, an applicant, or others without the specific request of the creditor; or (c) as required to monitor 

compliance with the ECOA and Regulation B or other federal or state statutes or regulations. (12 CFR 1002.12(a))
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 8 

Yes No Basis of Conclusion

b. Does the creditor disclose to the applicant, orally or in writing, 

when requesting the information that: (1) the applicant is not 

required to provide the information; (2) the creditor is requesting 

the information to monitor its compliance with the federal 

ECOA; (3) Federal law prohibits the creditor from discriminating 

on the basis of this information, or on the basis of an applicant’s 

decision not to furnish the information; and (4) if applicable, 

certain information will be collected based on visual observation 

or surname if not provided by the applicant or other person? (12 

CFR 1002.5(b)(1)) 

 [Click&type]

9. If a designation of title, such as Ms., Miss, Mrs., or Mr. is requested on 

an application form, does the form disclose that such designation is 

optional, and does the application form otherwise use only terms that 

are neutral as to sex? (12 CFR 1002.5(b)(2)) 

 [Click&type]

10. Does the creditor only request any information concerning the spouse 

or former spouse of an applicant when:

a. The spouse will be permitted to use the account; [Click&type]

b. The spouse will be contractually liable on the account; [Click&type]

c. The applicant is relying on the spouse’s income as a basis for 

repayment of the credit requested;

 [Click&type]

d. The applicant resides in a community property state or is relying 

on property located in such a state as a basis for repayment of the 

credit requested; or

 [Click&type]

e. The applicant is relying on alimony, child support, or separate 

maintenance payments from a spouse or former spouse as a basis 

for repayment of the credit requested? (12 CFR 1002.5(c)(2))

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 9 

Yes No Basis of Conclusion

11. In the case of applications for individual unsecured credit, does the 

creditor inquire about the applicant’s marital status only when the 

applicant resides in a community property state or is relying on 

property located in such a state as a basis for repayment of the credit 

requested? (12 CFR 1002.5(d)(1)) 

 [Click&type]

12. In the case of applications for other than individual unsecured credit, 

are the creditor’s inquiries into marital status limited to the terms 

“married,” “unmarried,” and “separated” (a creditor may explain that 

the category “unmarried” includes single, divorced, and widowed 

persons)? (12 CFR 1002.5(d)(1))

 [Click&type]

13. If the creditor inquires whether income stated in an application is 

derived from alimony, child support, or separate maintenance 

payments, does the creditor also disclose to the applicant that such 

income need not be revealed if the applicant does not want the creditor 

to consider the information in determining the applicant’s 

creditworthiness? (12 CFR 1002.5(d)(2)) 

 [Click&type]

14. Does the creditor not inquire about birth control practices, intentions 

concerning the bearing or rearing of children, or capability to bear 

children? (A creditor may inquire about the number and ages of an 

applicant’s dependents or about dependent-related financial 

obligations or expenditures, provided such information is requested 

without regard to sex, marital status, or any other prohibited basis.) (12 

CFR 1002.5(d)(3))

 [Click&type]

Rules for Evaluating Applications 

Obtain and review policies and procedures, training materials, a sample of 

loan files, audits pertaining to evaluating, and pricing applications for credit 

(including, but not limited to those regarding loan servicing, modifications, 

collections, and loss mitigation), and information regarding statistical models 

used in credit evaluations. Conduct loan underwriter interviews to determine 

whether they show an understanding of the regulatory requirements and that 

policies and procedures are consistently applied.
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 10

Yes No Basis of Conclusion

15. To the extent that a creditor takes into account an applicant’s age 

(assuming that the applicant has the capacity to enter into a binding 

contract), determine whether the creditor uses age in an empirically 

derived, demonstrably and statistically sound, credit scoring system or 

a judgmental system. (12 CFR 1002.2(p)) 

a. In an empirically derived, demonstrably and statistically sound, 

credit scoring system, is age a predictive variable and is the age of 

an elderly applicant (62 or older) not assigned a negative factor or 

value? (12 CFR 1002.6(b)(2)(ii))

 [Click&type]

b. In a judgmental system of evaluating creditworthiness, is the 

applicant’s age considered only for the purpose of determining a 

pertinent element of creditworthiness? (12 CFR 1002.6(b)(2)(iii))

 [Click&type]

c. Except as set forth in Checklist Item 15(b) above (use for pertinent 

element of creditworthiness), in any system for evaluating 

creditworthiness, is the age of an applicant 62 or older considered 

only to favor him or her in extending credit? (12 CFR 

1002.6(b)(2)(iv)) 

 [Click&type]

16. Does the creditor only take into account whether an applicant’s income 

derives from any public assistance program in a judgmental system of 

evaluating creditworthiness and only for the purpose of determining a 

pertinent element of creditworthiness? (12 CFR 1002.6(b)(2)(iii))

 [Click&type]

17. When evaluating creditworthiness, does the creditor not make 

assumptions or use aggregate statistics relating to the likelihood that 

any category of persons will bear or rear children or will, for that 

reason, receive diminished or interrupted income in the future? (12 

CFR 1002.6(b)(3))

 [Click&type]

18. Does the creditor not take into account whether there is a telephone 

listing in the name of an applicant for consumer credit? (12 CFR 

1002.6(b)(4)) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 11

Yes No Basis of Conclusion

19. Does the creditor count, and not discount or exclude from 

consideration, the income of an applicant or the spouse of an applicant 

because of a prohibited basis? (12 CFR 1002.6(b)(5)) (A creditor may 

consider the amount and probable continuance of any income in 

evaluating an applicant’s creditworthiness.)

 [Click&type]

20. Does the creditor consider income derived from part-time 

employment, alimony, child support, separate maintenance payments, 

retirement benefits, or public assistance on an individual basis, and not 

on the basis of aggregate statistics? (Comment 1002.6(b)(5)-1) 

 [Click&type]

21. Does the creditor count, and not discount or exclude from 

consideration, the income of an applicant or the spouse of an applicant 

because the income is derived from part-time employment, is an 

annuity, pension, or other retirement benefit, or comes from multiple 

income streams? (12 CFR 1002.6(b)(5), Comment 1002.6(b)(5)-4) (A 

creditor may consider the amount and probable continuance of any 

income in evaluating an applicant’s creditworthiness.) 

 [Click&type]

22. When an applicant relies on alimony, child support, or separate 

maintenance payments in applying for credit, does the creditor 

consider such payments as income to the extent that they are likely to 

be consistently made? (12 CFR 1002.6(b)(5))

 [Click&type]

23. To the extent the creditor considers credit history in evaluating the 

creditworthiness of similarly qualified applicants for a similar type and 

amount of credit, in evaluating an applicant’s creditworthiness, does 

the creditor consider: 

 [Click&type]

a. The credit history, when available, of accounts designated as 

accounts that the applicant and the applicant’s spouse are 

permitted to use or for which both are contractually liable? (12 

CFR 1002.6(b)(6)(i)) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 12

Yes No Basis of Conclusion

b. On the applicant’s request, any information that the applicant may 

present that tends to indicate the credit history being considered by 

the creditor does not accurately reflect the applicant’s 

creditworthiness? (12 CFR 1002.6(b)(6)(ii)) 

 [Click&type]

c. On the applicant’s request, the credit history, when available, of 

any account reported in the name of the applicant’s spouse or 

former spouse that the applicant can demonstrate accurately 

reflects the applicant’s creditworthiness? (12 CFR 

1002.6(b)(6)(iii))

 [Click&type]

24. Does the creditor not deny credit in whole or in part based on the 

country an applicant is from? (Comment 1002.2(z)-2)) 

 [Click&type]

25. Are married and unmarried applicants evaluated by the same 

standards? (12 CFR 1002.6(b)(8)) 

 [Click&type]

26. In evaluating joint applicants, are joint applicants treated in the same 

manner regardless of the existence, absence, or likelihood of a marital 

relationship between the parties? (12 CFR 1002.6(b)(8))

 [Click&type]

27. Does the creditor not consider race, color, religion, or sex (or an 

applicant’s or other person’s decision not to provide the information) 

in any aspect of a credit transaction? (12 CFR 1002.6(b)(1), (9)) 

 [Click&type]

Rules for Extensions of Credit

Obtain and review policies and procedures, training materials, a sample of 

loan files, closing instructions on a sample of loans, and audits pertaining to 

extensions of credit (including, but not limited to signature requirements and 

account management). Conduct loan officer and closing agent interviews to 

determine whether they show an understanding of the regulatory 

requirements and that policies and procedures are consistently applied.

28. Does the creditor not refuse to grant an individual account to a 

creditworthy applicant on a prohibited basis? (12 CFR 1002.7(a)) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 13

Yes No Basis of Conclusion

29. Does the creditor not refuse to allow an applicant to open or maintain 

an account in a birth-given first name and a surname that is the 

applicant’s birth-given surname, the spouse’s surname, or a combined 

surname? (12 CFR 1002.7(b)) 

 [Click&type]

30. With respect to applicants who are contractually liable on an existing 

open-end account, does the creditor on the basis of the applicant’s 

reaching a certain age or retiring or on the basis of a change in the 

applicant’s name or marital status, not require reapplication (except as 

permitted by 12 CFR 1002.7(c)(2), see Checklist Item 31), change the 

terms of the account, or terminate the account, unless there is evidence 

of the applicant’s inability or unwillingness to repay? (12 CFR 

1002.7(c)(1))

 [Click&type]

31. To the extent the creditor requires reapplication for an open-end 

account on the basis of a change in the marital status of an applicant 

who is contractually liable: 

a. Does it do so only when (1) the original credit granted was based 

in whole or in part on the income of the applicant’s spouse; and (2) 

the creditor has information available to it indicating that the 

applicant’s income may not support the amount of credit currently 

available; and 

 [Click&type]

b. Does it allow the account holder full access to the account under 

the existing contract terms while the reapplication is pending? (12 

CFR 1002.7(c)(2), Comment 1002.7(c)(2)-1) 

 [Click&type]

32. For joint applications, is there evidence of an intent to apply for joint 

credit at the time of application? (The creditor shall not deem the 

submission of a joint financial statement or other evidence of jointly 

held assets as an application for joint credit.) (12 CFR 1002.7(d)(1), 

Comment 1002.7(d)(1)-3) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 14

Yes No Basis of Conclusion

33. Does the creditor allow an applicant who is individually creditworthy 

to obtain credit without a spouse’s or other person’s signature (other 

than as a joint applicant)? (12 CFR 1002.7(d)(1), Comment 

1002.7(d)(1)-1) 

 [Click&type]

34. Does the creditor require a signature of an applicant’s spouse or other 

person, other than a joint applicant, on any credit instrument in only 

the following circumstances and based only on existing forms of 

ownership and not on the possibility of a subsequent change 

(Comment 1002.7(d)(2)-1(i)):

 [Click&type]

a. If an applicant requests unsecured credit and relies in part upon 

property that the applicant owns jointly with another person to 

satisfy the creditor’s standards of creditworthiness, the creditor 

requires the signature of the other person only on the instrument(s) 

necessary, or reasonably believed by the creditor to be necessary, 

under the law of the state in which the property is located, to enable 

the creditor to reach the property being relied upon in the event of 

the death or default of the applicant. (12 CFR 1002.7(d)(2))

 [Click&type]

b. If a married applicant requests unsecured credit and resides in a 

community property state, or if the applicant is relying on property 

located in such a state, the creditor requires the signature of the 

spouse only on any instrument necessary, or reasonably believed 

by the creditor to be necessary, under applicable state law to make 

the community property available to satisfy the debt in the event of 

default and (1) applicable state law denies the applicant power to 

manage or control sufficient community property to qualify for the 

credit requested under the creditor’s standards of creditworthiness; 

and (2) the applicant does not have sufficient separate property to 

qualify for the credit requested without regard to community 

property. (12 CFR 1002.7(d)(3))

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 15

Yes No Basis of Conclusion

c. If an applicant requests secured credit, the creditor requires the 

signature of the applicant’s spouse or other person only on those 

instruments necessary, or reasonably believed by the creditor to be 

necessary, under applicable state law to make the property being 

offered as security available to satisfy the debt in the event of 

default (for example, an instrument to create a valid lien, pass 

clear title, waive inchoate rights, or assign earnings). (12 CFR

1002.7(d)(4)) 

 [Click&type]

35. Does the creditor refrain from routinely requiring a non-applicant joint 

owner to sign an instrument (such as a quitclaim deed) that would 

result in the forfeiture of the joint owner’s interest in the property? 

(Comment 1002. 7(d)(2)-1(ii)(C))

 [Click&type]

36. In those situations when under the creditor’s standards of 

creditworthiness, the personal liability of an additional party is 

necessary to support the credit requested, does the creditor allow the 

applicant to have either his or her spouse or someone other than his or 

her spouse to serve as the additional party? (12 CFR 1002.7(d)(5))

 [Click&type]

37. If a borrower’s creditworthiness is reevaluated when a credit 

obligation is renewed, does the creditor determine whether an 

additional party is still warranted and, if not warranted, release the 

additional party? (Comment 1002.7(d)(5)-3) 

 [Click&type]

38. Does the creditor not refuse to extend credit and not terminate an 

account because credit life, health, accident, or disability insurance is 

not available because of the applicant’s age? (12 CFR 1002.7(e))

 [Click&type]

Special-Purpose Credit Programs

Inquire as to whether the creditor offers a special-purpose credit program.
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 16

Yes No Basis of Conclusion

39. To the extent an issue arose regarding a special-purpose credit 

program, were the Examiner-in-Charge and Headquarters consulted? 

In the Basis of Conclusion section, describe the issue, the office (and 

person) consulted at Headquarters, and the resolution. If not 

applicable, please note in the Basis of Conclusion. 

 [Click&type]

Notifications

Obtain and review policies and procedures, training materials, a sample of 

loan files, and audits pertaining to notifications (including, but not limited to 

those that pertain to prequalification and preapproval processes, incomplete 

applications, counteroffers, loan modifications, and those that apply when 

there are third parties or multiple creditors). Conduct loan officer interviews 

to determine whether they show an understanding of the regulatory 

requirements and that policies and procedures are consistently applied.

Consumer Credit

40. With respect to consumer credit, the creditor appropriately notified 

applicants as follows:

a. Within 30 days after receiving a completed application, the 

creditor notified applicants concerning the creditor’s approval of, 

counteroffer to, or adverse action on the application (unless the 

parties contemplated that the applicant would inquire about the 

status, the application was approved, and the applicant failed to 

inquire within 30 days after applying, in which case the creditor 

may treat the application as withdrawn). (12 CFR 1002.9(a)(1)(i)

and 1002.9(e))

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 17

Yes No Basis of Conclusion

b. Within 30 days after taking adverse action on an incomplete

application, the creditor notified applicants of the adverse action in 

writing (unless written notice of incompleteness is provided within 

30 days of receipt of the incomplete application, specifying the 

information needed, designating a reasonable period of time for 

the applicant to provide the information, and informing the 

applicant that failure to provide the information requested will 

result in no further consideration being given to the application), 

(12 CFR 1002.9(a)(1)(ii) and 1002.9(c))

 [Click&type]

c. Within 30 days after taking adverse action on an existing account, 

the creditor notified applicants of the adverse action in writing; (12 

CFR 1002.9(a)(1)(iii))

 [Click&type]

d. Within 90 days after notifying the applicant of a counteroffer, if 

the applicant does not expressly accept or use the credit offered, 

the creditor notified applicants of the adverse action taken in 

writing (unless the counteroffer was accompanied by the notice of 

adverse action on the credit terms originally sought) (12 CFR 

1002.9(a)(1)(iv), Comment 1002.9(a)(1)-6) 

 [Click&type]

41. With respect to consumer credit, the creditor’s notifications given to 

an applicant when an adverse action is taken are in writing, capable of 

being retained, and contain all of the following:

 [Click&type]

a. A statement of the action taken; [Click&type]

b. The name and address of the creditor; [Click&type]

c. A statement of the provisions of Section 701(a) of the ECOA;7 [Click&type]

 

7 This statement must be substantially similar to the following: “The federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the 

basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant’s 

income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The federal agency 

that administers compliance with this law concerning this creditor is [name and address as specified by the appropriate agency listed in appendix A of this regulation].” (12 CFR 

1002.9(b)(1))
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 18

Yes No Basis of Conclusion

d. The name and address of the federal agency that administers 

compliance with respect to the creditor; and 

 [Click&type]

e. Either: 

i. A statement of specific reasons for the action taken that is 

specific and indicates the principal reason(s) for the adverse 

action (Statements that the adverse action was based on the 

creditor’s internal standards or policies or that the applicant, 

joint applicant, or similar party failed to achieve a qualifying 

score on the creditor’s credit scoring system are insufficient); 

or 

ii. A disclosure (which contains the name, address, and telephone 

number of the person or office from which the statement of 

reasons can be obtained) of the applicant’s right to a statement 

of specific reasons within 30 days, if the statement is 

requested within 60 days of the creditor’s notification (and if, 

the creditor chooses to provide the reasons orally, the creditor 

shall also disclose the applicant’s right to have them 

confirmed in writing within 30 days of receiving the 

applicant’s written request for confirmation). (12 CFR 

1002.4(d)(1) and 1002.9(a)(2), (b)(1), (b)(2))

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 19

Yes No Basis of Conclusion

Small Business Credit

42. Except for transactions conducted entirely by phone, in connection 

with business credit for businesses with gross revenues of $1 

million or less in the preceding fiscal year or to start a new business 

(Comment 1002.9(a)(3)-1) (other than an extension of trade credit, 

credit incident to a factoring agreement, or other similar types of 

business credit): 

a. Within 30 days after receiving a completed application, the 

creditor notified applicants concerning the creditor’s approval of, 

counteroffer to, or adverse action on the application orally or in 

writing (unless the parties contemplated that the applicant would 

inquire about the status, the application was approved, and the 

applicant failed to inquire within 30 days after applying, in which 

case the creditor may treat the application as withdrawn). (12 CFR 

1002.9(a)(1)(i), 1002.9(e), and 1002.9(a)(3)(i)(A))

 [Click&type]

b. Within 30 days after taking adverse action on an incomplete 

application, the creditor notified applicants of the adverse action 

orally or in writing (unless written notice of incompleteness is 

provided within 30 days of receipt of the incomplete application, 

specifying the information needed, designating a reasonable period 

of time for the applicant to provide the information, and informing 

the applicant that failure to provide the information requested will 

result in no further consideration being given to the application), 

(12 CFR 1002.9(a)(1)(ii), 1002.9(c)), and 1002.9(a)(3)(i)(A))

 [Click&type]

c. Within 30 days after taking adverse action on an existing account, 

the creditor notified applicants of the adverse action orally or in 

writing; (12 CFR 1002.9(a)(1)(iii) and 1002.9(a)(3)(i)(A))

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 20

Yes No Basis of Conclusion

d. Within 90 days after notifying the applicant of a counteroffer, if 

the applicant does not expressly accept or use the credit offered, 

the creditor notified applicants of the adverse action orally or in 

writing (unless the counteroffer was accompanied by the notice of 

adverse action on the credit terms originally sought) (12 CFR 

1002.9(a)(1)(iv), Comment 1002.9(a)(1)-6, and 12 CFR 

1002.9(a)(3)(i)(A))

 [Click&type]

43. Except for transactions conducted entirely by phone, in connection 

with business credit for businesses with gross revenues of $1 million 

or less in the preceding fiscal year or to start a new business 

(Comment 1002.9(a)(3)-1) (other than an extension of trade credit, 

credit incident to a factoring agreement, or other similar types of 

business credit), the creditor’s adverse action notices contained (orally 

or in writing): 

a. A statement of the action taken; [Click&type]

b. The name and address of the creditor; [Click&type]

c. A statement of the provisions of Section 701(a) of the ECOA;8 [Click&type]

d. The name and address of the federal agency that administers 

compliance with respect to the creditor (namely, CFPB); and 

 [Click&type]

 

8

 See supra note 7. 
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 21

Yes No Basis of Conclusion

e. Either:

i. A statement of specific reasons for the action taken (that is 

specific and indicates the principal reason(s) for the adverse 

action); or

ii. Unless provided at the time of application, a written, capable 

of being retained, disclosure (which contains the name, 

address, telephone number of the person or office from which 

the statement of reasons can be obtained, and, if given at the 

time of application, a statement of the provisions of 

Section 701(a) of the ECOA9) of the applicant’s right to a 

statement of specific reasons within 30 days, if the statement 

is requested within 60 days of the creditor’s notification (and 

if, the creditor chooses to provide the reasons orally, the 

creditor shall also disclose the applicant’s right to have them 

confirmed in writing within 30 days of receiving the 

applicant’s written request for confirmation). (12 CFR 

1002.9(a)(2), 1002.9(a)(3)(i)(A), 1002.9(a)(3)(i)(B), and 

1002.9(b)(1)) 

 [Click&type]

44. With respect to applications made entirely by telephone in 

connection with business credit for businesses with gross revenues 

of $1 million or less in the preceding fiscal year or to start a new 

business (Comment 1002.9(a)(3)-1) (other than an extension of trade 

credit, credit incident to a factoring agreement, or other similar types 

of business credit), the creditor at least made an oral statement of the 

action taken and of the applicant’s right to a statement of reasons for 

adverse action. (12 CFR 1002.9(a)(3)(i)(C))

 [Click&type]

 

9

 See supra note 7. 
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 22

Yes No Basis of Conclusion

Large Business Credit

45. For businesses with gross revenues in excess of $1 million in the 

preceding fiscal year, or for extensions of trade credit, credit incident 

to a factoring agreement or other similar types of business credit, did 

the creditor at least: 

a. Communicate the notification of action taken within a reasonable 

time orally or in writing, and 

b. In response to an applicant’s written request for the reasons within 

60 days of the creditor’s notification, provide in writing the 

reasons for adverse action and a statement of the provisions of 

Section 701(a) of the ECOA10? (12 CFR 1002.9(a)(3)(ii))

 [Click&type]

All Credit Transactions [Click&type]

46. Within 30 days after receiving an application that is incomplete 

regarding matters than an applicant can complete, does the creditor (a) 

notify the applicant of adverse action (in the manner appropriate for 

the type of credit – business or consumer), or (b) send a written notice 

to the applicant specifying the information needed, designating a 

reasonable period of time for the applicant to provide the information, 

and informing the applicant that failure to provide the information 

requested will result in no further consideration being given to the 

application? (Although the creditor may inform the applicant orally of 

the need for additional information, if the application remains 

incomplete it must provide either notice within the specified time 

period.) (12 CFR 1002.9(c))

 [Click&type]

 

10 See supra note 7. 
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 23

Yes No Basis of Conclusion

47. When declining a request for a modification of a loan, does the 

creditor always provide an adverse action notice when the consumer is 

not delinquent or in default? (12 CFR 1002.9(a)(1); see Federal 

Reserve Board Consumer Affairs Letter 09-13 (December 4, 2009) 

(http://www.federalreserve.gov/boarddocs/caletters/2009/0913/caltr09

13.htm).

 [Click&type]

48. When an application involves multiple applicants, does the creditor 

provide notification of action to the primary applicant, when one is 

readily apparent? (12 CFR 1002.9(f))

 [Click&type]

49. When an application is made on behalf of an applicant by a third party 

to multiple creditors, including the creditor, and no credit is offered or 

if the applicant does not expressly accept or use the credit offered, 

does the creditor provide the appropriate adverse action notice either 

directly or through the third party (disclosing the identify of each 

creditor on whose behalf the notice is given)? (12 CFR 1002.9(g)) 

 [Click&type]

Designation of Accounts

Obtain and review policies and procedures, training materials, and audits 

pertaining to the designation of accounts on furnishing them to credit 

reporting agencies, as well as a sample of information reported to the credit 

reporting agencies.

50. To the extent the creditor furnishes consumer credit information, does 

it designate any new account to reflect the participation of both 

spouses if the applicant’s spouse is permitted to use or is contractually 

liable on the account (other than as a guarantor, surety, endorser, or 

similar party) (12 CFR 1002.10(a), Comment 1002.10-1) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 24

Yes No Basis of Conclusion

51. To the extent the creditor furnishes consumer credit information, does 

it designate any existing account to reflect the participation of both 

spouses if the applicant’s spouse is permitted to use or is contractually 

liable on the account (other than as a guarantor, surety, endorser, or 

similar party) within 90 days after receiving a written request to do so 

from one of the spouses? (12 CFR 1002.10(a), Comment 1002.10-1) 

 [Click&type]

52. To the extent the creditor furnishes consumer credit information to a 

consumer reporting agency concerning accounts designated to reflect 

the participation of both spouses, does the creditor furnish the 

information in a manner that enables the consumer reporting agency to 

provide access to the information in the name of each spouse? (12 

CFR 1002.10(b), Comment 1002.10-1) 

 [Click&type]

53. To the extent the creditor furnishes consumer credit information in 

response to inquiries about accounts designated to reflect the 

participation of both spouses, does the creditor furnish the information 

in the name of the spouse about whom the information is requested? 

(12 CFR 1002.10(c), Comment 1002.10-1) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 25

Yes No Basis of Conclusion

Record Retention

Obtain and review policies and procedures, training materials, audits, a 

sample of loan files, relevant third-party contracts, and other records 

required to be retained (e.g., information relating to prescreened offers of 

credit and self-tests) that pertain to record retention (including but not 

limited to record retention schedules, retention of documents relating to 

prescreened offers of credit, and retention of documents relating to any selftests). Inquire into whether there is any enforcement action or investigation 

involving the creditor. 

54. Does the creditor retain for 25 months (12 months for business credit 

regarding businesses with gross revenues of $1 million or less in the 

previous fiscal year, except an extension of trade credit, credit incident 

to a factoring agreement, or other similar types of business credit) after 

the date that the creditor notifies an applicant of action taken or of 

incompleteness, an original or copy of the following: 

 [Click&type]

a. The application and any other written or recorded information 

used in evaluating the application that is not returned to the 

applicant at the applicant’s request? (12 CFR 1002.12(b)(1)(i)) 

 [Click&type]

b. Any information required to be obtained concerning characteristics 

of the applicant to monitor compliance with the ECOA and 

Regulation B or other similar law, such as the Home Mortgage 

Disclosure Act or Home Affordable Modification Program? (12 

CFR 1002.12(b)(1)(i)) 

 [Click&type]

c. A copy of the notification of action taken, if written, or any 

notation or memorandum by the creditor, if made orally? (12 CFR 

1002.12(b)(1)(ii)(A)) 

 [Click&type]

d. A statement of specific reasons for adverse action, if written, or 

any notation or memorandum by the creditor, if made orally? (12 

CFR 1002.12(b)(1)(ii)(B)) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 26

Yes No Basis of Conclusion

e. Any written statement submitted by the applicant alleging a 

violation of the ECOA or Regulation B? (12 CFR 

1002.12(b)(1)(iii)) 

 [Click&type]

55. Does the creditor retain for 25 months (12 months for business credit 

regarding businesses with gross revenues of $1 million or less in the 

previous fiscal year, except an extension of trade credit, credit incident 

to a factoring agreement, or other similar types of business credit) after 

the date that the creditor notifies an applicant of adverse action 

regarding an existing account, an original or copy of the following: 

a. Any written or recorded information concerning the adverse 

action? (12 CFR 1002.12(b)(2)(i)) 

 [Click&type]

b. Any written statement submitted by the applicant alleging a 

violation of the ECOA or Regulation B? (12 CFR 

1002.12(b)(2)(ii)) 

 [Click&type]

56. Does the creditor retain for 25 months (12 months for business credit 

regarding businesses with gross revenues of $1 million or less in the 

previous fiscal year, except an extension of trade credit, credit incident 

to a factoring agreement, or other similar types of business credit) after 

the date the creditor receives an application for which 1002.9’s 

notification requirements do not apply (e.g., when an application is 

expressly withdrawn, or an application is submitted to more than one 

creditor on behalf of the applicant, and the application is approved by 

one of the other creditors) all written or recorded information in its 

possession concerning the applicant, including any notation of action 

taken? (12 CFR 1002.12(b)(3), Comment 1002.12(b)(3)-1) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 27

Yes No Basis of Conclusion

57. If the creditor has actual notice that it is under investigation or is 

subject to an enforcement proceeding for an alleged violation of the 

ECOA or Regulation B by the Attorney General of the United States 

or by the CFPB or other enforcement agency charged with monitoring 

the creditor’s compliance with the ECOA and Regulation B, or if it has 

been served with notice of an action filed pursuant to Section 706 of 

the ECOA, did the creditor retain the foregoing information identified 

in Checklist Items 54–56 until final disposition of the matter (unless an 

earlier time is allowed by order of the agency or court). (12 CFR 

1002.12(b)(4)) 

 [Click&type]

58. For business credit from businesses with gross revenues of more than 

$1 million in the previous fiscal year, or an extension of trade credit, 

credit incident to a factoring agreement, or other similar types of 

business credit, does the creditor retain records for at least 60 days 

after notifying the applicant of the action taken, or for 12 months if the 

applicant requests in writing during the 60-day time period the reasons 

for adverse action or that records be retained? (12 CFR 1002.12(b)(5)) 

 [Click&type]

59. If the creditor conducts a self-test pursuant to 12 CFR 1002.15: 

a. Does the creditor retain for 25 months after the self-test is 

completed, all written or recorded information about the self-test?

 [Click&type]

b. If the creditor has actual notice that it is under investigation or is 

subject to an enforcement proceeding for an alleged violation, or if 

it has been served with notice of a civil action, does the creditor 

retain the information until final disposition of the matter (unless 

an earlier time is allowed by the appropriate agency or court 

order)? (12 CFR 1002.12(b)(6)) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 28

Yes No Basis of Conclusion

60. For prescreened solicitations, does the creditor retain for 25 months 

(12 months for business credit except regarding businesses with gross 

revenues of more than $1 million in the previous fiscal year, or an 

extension of trade credit, credit incident to a factoring agreement, or 

other similar types of business credit) after the date on which an offer 

of credit was made to potential customers: (a) the text of any 

prescreened solicitation; (b) the list of criteria the creditor used both to 

determine the potential recipients of the particular solicitation and to 

determine who will actually be offered credit; and (c) any 

correspondence related to complaints (formal or informal) about the 

solicitation? (12 CFR 1002.12(b)(7), Comment 1002.12(b)(7)-2) 

 [Click&type]

Information for Monitoring Purposes as to Applications from Natural 

Persons 

Obtain and review policies and procedures, training materials, a sample of 

loan files, quality control reports, and audits pertaining to information 

gathered for monitoring. Conduct loan officer interviews to determine 

whether they show an understanding of the regulatory requirements and that 

policies and procedures are consistently applied.

61. With respect to applications for credit that are primarily for the 

purchase or refinancing of dwellings (as defined in 12 

CFR 1002.13(a)(2)) that are occupied or to be occupied by the 

applicant as a principal residence where the credit will be secured by 

the dwelling,11 does the creditor request (but not require) either on the 

application form or on a separate form that refers to the application (12 

CFR 1002.13(b)) the following information regarding the applicant: 

 

11 Examiners should ensure that the institution limits its requests for government monitoring information under this section to only these loans, except as permitted by 12 

CFR 1002.5(a)&(b) (see Checklist Item 8) or as required by HMDA (reaching home purchase loans, home improvement loans, refinancings, and (optionally) home equity lines of 

credit made in whole or in part for the purpose of home improvement or home purchase), or other governmental program or directive such as the Home Affordable Modification 

Program (HAMP).
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 29

Yes No Basis of Conclusion

a. Ethnicity, using the categories “Hispanic or Latino,” and “Not 

Hispanic or Latino”; and race, using the categories “American 

Indian or Alaska Native,” “Asian,” “Black or African American,” 

“Native Hawaiian or Other Pacific Islander,” and “White,” and 

allowing applicants to select more than one racial designation? (12 

CFR 1002.13(a)(1)(i), Comment 1002.13(b)-1) 

 [Click&type]

b. Sex? (12 CFR 1002.13(a)(1)(ii)) [Click&type]

c. Marital status, using the categories married, unmarried, and 

separated? (12 CFR 1002.13(a)(1)(iii)

 [Click&type]

d. Age? (12 CFR 1002.13(a)(1)(iv)) [Click&type]

62. If an applicant chooses not to provide the requested information or any 

part of it, does the creditor note that on the monitoring form and note 

on the form, to the extent possible, the ethnicity, race, and sex of the 

applicant(s) on the basis of visual observation or surname? (12 CFR 

1002.13(b)) 

 [Click&type]

63. If the creditor receives applications by mail, telephone, or electronic 

media and it is not evident on the face of an application how it was 

received, does the creditor indicate on the form or other application 

record how it was received? (Comment 1002.13(b)-3(iii))

 [Click&type]

64. Does the creditor inform applicant(s) (a) that the information regarding 

ethnicity, race, sex, marital status, and age is being requested by the 

federal government for the purpose of monitoring compliance with 

federal statutes that prohibit creditors from discriminating against 

applicants on those bases; and (b) that if the applicant(s) chooses not 

to provide the information, the creditor is required to note the 

ethnicity, race and sex on the basis of visual observation or surname? 

(12 CFR 1002.13(c)) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 30

Yes No Basis of Conclusion

Appraisal Reports12

Obtain and review policies and procedures, training materials, a sample of 

loan files, and audits pertaining to providing appraisal reports. Conduct 

loan officer interviews to determine whether they show an understanding of 

the regulatory requirements and that policies and procedures are 

consistently applied.

65. With respect to applications for credit to be secured by a lien on a 

dwelling, does the creditor either:

a. Routinely provide a copy of an appraisal report to an applicant 

(whether credit is granted or denied or the application is 

withdrawn); or

b. Provide a copy upon an applicant’s written request and notify (at 

any time during the application process and no later than when the 

creditor provides notice of action taken) an applicant in writing of 

the right to receive a copy of the appraisal report, specifying (i) 

that the applicant’s request must be in writing, (ii) the creditor’s 

mailing address, and (iii) that the request must be received within 

90 days after the creditor provides notice of action taken on the 

application or 90 days after the application is withdrawn? (12 

CFR 1002.14(a)) 

 [Click&type]

66. Does the creditor mail or deliver a copy of the appraisal report 

promptly (generally within 30 days) after the creditor receives the 

applicant’s request, receives the report, or receives reimbursement 

from the applicant for the report, whichever is last to occur? (12 CFR 

1002.14(a)(2)(ii))

 [Click&type]

 

12 A creditor that is subject to the National Credit Union Administration regulations on making copies of appraisal reports available is not subject to these requirements (12 CFR 

1002.14(b)).
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 31

Yes No Basis of Conclusion

Disclosures

Obtain and review policies and procedures, training materials, and a 

sample of loan files, audits related to disclosures, and disclosures. 

67. Are the creditor’s written disclosures that are required by Regulation B 

clear, conspicuous, and except for those required by 12 CFR 1002.5 

(self-tests) and 1002.13 (monitoring), in a form the applicant can 

retain? (12 CFR 1002.4(d)) 

 [Click&type]

68. Are those disclosures that are required to be in writing that are made in 

electronic form provided in compliance with the consumer consent and 

other applicable provisions of the Electronic Signatures in Global and 

National Commerce (E-Sign) Act, where applicable? (12 CFR 

1002.4(d)(2)) 

 [Click&type]

69. If an applicant accesses a credit application electronically from a place 

other than the creditor’s office, did the creditor provide the disclosures 

in a timely manner on or with the application, namely in electronic 

form (such as with the applications form on its website)? (Comment 

1002.4(d)-2) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 32

Yes No Basis of Conclusion

Voluntary Self-Tests

Identify whether the creditor purports to conduct self-tests. If so, request

and review information required to be maintained under 12 

CFR 1002.12(b)(6), including but not limited to information regarding its 

design and expected outputs, corrective actions, the methodology used or the 

scope of the self-test, the time period covered by the self-test, the dates it was 

conducted, and entities to whom it was disclosed.

70. To the extent the creditor conducts voluntary self-tests: 

a. Is the program, practice or study (1) designed and used specifically 

to determine the extent or effectiveness of the creditor’s 

compliance with the ECOA or Regulation B; and (2) resulting in 

data or factual information that is not available and cannot be 

derived from loan or application files or other records related to 

credit transactions; and

 [Click&type]

b. Has the creditor taken or is it taking appropriate and timely 

corrective action when the self-test shows that it is more likely 

than not that a violation occurred (even though no violation has 

been formally adjudicated), namely action that is reasonably likely 

to remedy the cause and effect of a likely violation by identifying 

the policies and practices that are the likely cause of the violation 

and assessing the extent and scope of any violation? (12 CFR 

1002.15(a)(2), (b)(1), (c), Comment 1002.15(a)(2)-2) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 33

Yes No Basis of Conclusion

71. To the extent the creditor is claiming that the self-test privilege applies:

a. Is the creditor providing information that is not privileged, 

including (a) information about whether the creditor conducted a 

self-test, the methodology used or the scope of the self-test, the 

time period covered by the self-test, or the dates it was conducted; 

(b) loan and application files or other business records related to 

credit transactions, and information derived from such files and 

records, even if the information has been aggregated, summarized, 

or reorganized to facilitate analysis; and (c) the creditor’s property 

appraisal reports, minutes of loan committee meetings, analysis 

performed as part of processing or underwriting a credit 

application, or other documents reflecting the basis for a decision 

to approve or deny an application, loan policies or procedures, 

underwriting standards, and broker compensation records? (12 

CFR 1002.15(b)(3), Comments 1002.15(b)(1)(ii)-2 and 

1002.15(b)(3)(ii)-1) 

 [Click&type]

b. Has the creditor not voluntarily disclosed any part of the report or 

results, or any other privileged information, as a self test, to an 

applicant, government agency, or the public? (12 CFR 

1002.15(d)(2)(i)) 

 [Click&type]

c. Has the creditor not disclosed any part of the report or results, or 

any other information privileged as a self-test, as a defense to 

charges that the creditor has violated the ECOA or Regulation B? 

(12 CFR 1002.15(d)(2)(ii))

 [Click&type]

d. Has the creditor produced written or recorded information about 

the self-test that is required to be retained by 12 

CFR 1002.12(b)(6)? (12 CFR 1002.15(d)(2)(iii)) 

 [Click&type]
CFPB 

Examination Procedures ECOA

CFPB Manual V.2 (October 2012) Procedures 34

Yes No Basis of Conclusion

e. As applicable, has the creditor provided the self-test report, results, 

and any other information privileged under Regulation B in order 

to determine a penalty or remedy for a violation of the ECOA or 

Regulation that has been adjudicated or admitted? (12 CFR 

1002.15(d)(3))

 [Click&type]

Examiner’s Overall Summary, Recommendations, and Comments 

[Click&type]
__________________________________________________________________ 

__________________________________________________________________ 

 

Office of the Comptroller of the Currency 

Federal Deposit Insurance Corporation 

Federal Reserve Board 

Office of Thrift Supervision 

National Credit Union Administration 

INTERAGENCY FAIR LENDING
 

EXAMINATION PROCEDURES
 

August 2009
 

CFPB Manual V.2 (October 2012) Procedures 1 
 

 

CONTENTS 

INTRODUCTION 3
 

PART I: EXAMINATION SCOPE GUIDELINES 8
 

Background 8
 

Step One: Develop an Overview 12
 

Step Two: Identify Compliance Program Discrimination Risk Factors 13
 

Step Three: Review Residential Loan Products 13
 

Step Four: Identify Residential Lending Discrimination Risk Factors 14
 

Step Five: Organize and Focus Residential Risk Analysis 18
 

Step Six: Identify Consumer Lending Discrimination Risk Factors 19
 

Step Seven: Identify Commercial Lending Discrimination Risk Factors 19
 

Step Eight: Complete the Scoping Process 19
 

PART II: COMPLIANCE MANAGEMENT REVIEW 21
 

PART III: EXAMINATION PROCEDURES 22
 

A. Verify Accuracy of Data 22
 

B. Documenting Overt Evidence of Disparate Treatment 22
 

C. Transactional Underwriting Analysis - Residential and Consumer Loans. 23
 

D. Analyzing Potential Disparities in Pricing and Other Terms and Conditions 26
 

E. Steering Analysis 28
 

F. Transactional Underwriting Analysis - Commercial Loans. 31
 

G. Analysis of Potential Discriminatory “Redlining”. 33
 

H. Analysis of Potential Discriminatory Marketing Practices. 40
 

I. Credit Scoring. 42
 

J. Disparate Impact Issues. 42
 

PART IV: OBTAINING AND EVALUATING RESPONSES
 

FROM THE INSTITUTION AND CONCLUDING THE EXAMINATION 43
 

APPENDIX
 

I. Compliance Management Analysis Checklist 

II. Considering Automated Underwriting and Credit Scoring 

III. Evaluating Responses to Evidence of Disparate Treatment 

IV. Fair Lending Sample Size Tables 

V. Identifying Marginal Transactions 

VI. Potential Scoping Information 

VII. Special Analyses 

VIII. Using Self-Tests and Self-Evaluations to Streamline the Examination 

CFPB Manual V.2 (October 2012) Procedures 2
 
 

 

 

 

 

 

 

 

 

Interagency Fair Lending Examination Procedures 

INTRODUCTION 

Overview of Fair Lending Laws and Regulations 

This overview provides a basic and abbreviated discussion of federal fair lending laws and 

regulations. It is adapted from the Interagency Policy Statement on Fair Lending issued in 

March 1994. 

1. Lending Discrimination Statutes and Regulations 

The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit 

transaction. It applies to any extension of credit, including extensions of credit to small 

businesses, corporations, partnerships, and trusts. 

The ECOA prohibits discrimination based on: 

•	 Race or color; 

•	 Religion; 

•	 National origin; 

•	 Sex; 

•	 Marital status; 

•	 Age (provided the applicant has the capacity to contract); 

•	 The applicant’s receipt of income derived from any public assistance program; or 

•	 The applicant’s exercise, in good faith, of any right under the Consumer Credit Protection 

Act. 

The Federal Reserve Board’s Regulation B, found at 12 CFR Part 202, implements the 

ECOA.1 Regulation B describes lending acts and practices that are specifically prohibited, 

permitted, or required. Official staff interpretations of the regulation are found in Supplement 

I to 12 CFR part 202. 

The Fair Housing Act (FHAct) prohibits discrimination in all aspects of "residential real-estaterelated transactions," including but not limited to: 

•	 Making loans to buy, build, repair, or improve a dwelling; 

•	 Purchasing real estate loans; 

•	 Selling, brokering, or appraising residential real estate; or 

•	 Selling or renting a dwelling. 

The FHAct prohibits discrimination based on: 

•	 Race or color; 

•	 National origin; 

•	 Religion; 

•	 Sex; 

•	 Familial status (defined as children under the age of 18 living with a parent or legal 

custodian, pregnant women, and people securing custody of children under 18); or 

•	 Handicap. 

1 In December 2011, the Consumer Financial Protection Bureau restated the Federal Reserve’s implementing 

regulation at 12 CFR Part 1002 (76 Fed. Reg. 79442)(December 21, 2011). 

CFPB	 Manual V.2 (October 2012) Procedures 3 
 

 

 

 

 

 

Interagency Fair Lending Examination Procedures 

HUD’s regulations implementing the FHAct are found at 24 CFR Part 100. Because both the 

FHAct and the ECOA apply to mortgage lending, lenders may not discriminate in mortgage 

ending based on any of the prohibited factors in either list. 

Under the ECOA, it is unlawful for a lender to discriminate on a prohibited basis in any aspect of 

a credit transaction, and under both the ECOA and the FHAct, it is unlawful for a lender to 

discriminate on a prohibited basis in a residential real-estate-related transaction. Under one or 

both of these laws, a lender may not, because of a prohibited factor 

•	 Fail to provide information or services or provide different information or services 

regarding any aspect of the lending process, including credit availability, application 

procedures, or lending standards; 

•	 Discourage or selectively encourage applicants with respect to inquiries about or
 

applications for credit;
 

•	 Refuse to extend credit or use different standards in determining whether to extend credit; 

•	 Vary the terms of credit offered, including the amount, interest rate, duration, or type of 

loan; 

•	 Use different standards to evaluate collateral; 

•	 Treat a borrower differently in servicing a loan or invoking default remedies; or 

•	 Use different standards for pooling or packaging a loan in the secondary market. 

A lender may not express, orally or in writing, a preference based on prohibited factors, or 

indicate that it will treat applicants differently on a prohibited basis. A violation may still exist 

even if a lender treated applicants equally. 

A lender may not discriminate on a prohibited basis because of the characteristics of 

•	 An applicant, prospective applicant, or borrower; 

•	 A person associated with an applicant, prospective applicant, or borrower (for example, a 

co-applicant, spouse, business partner, or live-in aide); or 

•	 The present or prospective occupants of either the property to be financed or the 

characteristics of the neighborhood or other area where property to be financed is located. 

Finally, the FHAct requires lenders to make reasonable accommodations for a person with 

disabilities when such accommodations are necessary to afford the person an equal opportunity 

to apply for credit. 

2. Types of Lending Discrimination 

The courts have recognized three methods of proof of lending discrimination under the ECOA 

and the FHAct: 

•	 Overt evidence of disparate treatment; 

•	 Comparative evidence of disparate treatment; 

•	 Evidence of disparate impact. 

CFPB	 Manual V.2 (October 2012) Procedures 4 
 

 

 

 

 

Interagency Fair Lending Examination Procedures 

Disparate Treatment 

The existence of illegal disparate treatment may be established either by statements revealing 

that a lender explicitly considered prohibited factors (overt evidence) or by differences in 

treatment that are not fully explained by legitimate nondiscriminatory factors (comparative 

evidence). 

Overt Evidence of Disparate Treatment. There is overt evidence of discrimination when a lender 

openly discriminates on a prohibited basis. 

Example: A lender offered a credit card with a limit of up to $750 for applicants aged 21-

30 and $1,500 for applicants over 30. This policy violated the ECOA’s prohibition on 

discrimination based on age. 

There is overt evidence of discrimination even when a lender expresses - but does not act on - a 

discriminatory preference: 

Example: A lending officer told a customer, “We do not like to make home mortgages to 

Native Americans, but the law says we cannot discriminate and we have to comply with 

the law.” This statement violated the FHAct’s prohibition on statements expressing a 

discriminatory preference as well as Section 202.4(b) of Regulation B, which prohibits 

discouraging applicants on a prohibited basis. 

Comparative Evidence of Disparate Treatment. Disparate treatment occurs when a lender treats a 

credit applicant differently based on one of the prohibited bases. It does not require any showing 

that the treatment was motivated by prejudice or a conscious intention to discriminate against a 

person beyond the difference in treatment itself. 

Disparate treatment may more likely occur in the treatment of applicants who are neither clearly 

well-qualified nor clearly unqualified. Discrimination may more readily affect applicants in this 

middle group for two reasons. First, if the applications are “close cases,” there is more room and 

need for lender discretion. Second, whether or not an applicant qualifies may depend on the 

level of assistance the lender provides the applicant in completing an application. The lender 

may, for example, propose solutions to credit or other problems regarding an application, 

identify compensating factors, and provide encouragement to the applicant. Lenders are under no 

obligation to provide such assistance, but to the extent that they do, the assistance must be 

provided in a nondiscriminatory way. 

Example: A non-minority couple applied for an automobile loan. The lender found 

adverse information in the couple’s credit report. The lender discussed the credit report 

with them and determined that the adverse information, a judgment against the couple, 

was incorrect because the judgment had been vacated. The non-minority couple was 

granted their loan. A minority couple applied for a similar loan with the same lender. 

Upon discovering adverse information in the minority couple’s credit report, the lender 

denied the loan application on the basis of the adverse information without giving the 

couple an opportunity to discuss the report. 

The foregoing is an example of disparate treatment of similarly situated applicants, apparently 

based on a prohibited factor, in the amount of assistance and information the lender provided. 

If a lender has apparently treated similar applicants differently on the basis of a prohibited factor, 

it must provide an explanation for the difference in treatment. If the lender's explanation is found 

CFPB Manual V.2 (October 2012) Procedures 5 
 

 

 

 

 

 

 

 

 

 

 

Interagency Fair Lending Examination Procedures 

to be not credible, the agency may find that the lender discriminated. 

Redlining is a form of illegal disparate treatment in which a lender provides unequal access to 

credit, or unequal terms of credit, because of the race, color, national origin, or other prohibited 

characteristic(s) of the residents of the area in which the credit seeker resides or will reside or in 

which the residential property to be mortgaged is located. Redlining may violate both the FHAct 

and the ECOA. 

Disparate Impact 

When a lender applies a racially or otherwise neutral policy or practice equally to all credit 

applicants, but the policy or practice disproportionately excludes or burdens certain persons on a 

prohibited basis, the policy or practice is described as having a “disparate impact.” 

Example: A lender’s policy is not to extend loans for single family residences for less 

than $60,000. This policy has been in effect for 10 years. This minimum loan amount 

policy is shown to disproportionately exclude potential minority applicants from 

consideration because of their income levels or the value of the houses in the areas in 

which they live. 

The fact that a policy or practice creates a disparity on a prohibited basis is not alone proof of a 

violation. When an Agency finds that a lender’s policy or practice has a disparate impact, the 

next step is to seek to determine whether the policy or practice is justified by “business 

necessity.” The justification must be manifest and may not be hypothetical or speculative. 

Factors that may be relevant to the justification could include cost and profitability. Even if a 

policy or practice that has a disparate impact on a prohibited basis can be justified by business 

necessity, it still may be found to be in violation if an alternative policy or practice could serve 

the same purpose with less discriminatory effect. Finally, evidence of discriminatory intent is 

not necessary to establish that a lender's adoption or implementation of a policy or practice that 

has a disparate impact is in violation of the FHAct or ECOA. 

These procedures do not call for examiners to plan examinations to identify or focus on potential 

disparate impact issues. The guidance in this Introduction is intended to help examiners 

recognize fair lending issues that may have a potential disparate impact. Guidance in the 

Appendix to the Interagency Fair Lending Examination Procedures provides details on how to 

obtain relevant information regarding such situations along with methods of evaluation, as 

appropriate. 

General Guidelines 

These procedures are intended to be a basic and flexible framework to be used in the majority of 

fair lending examinations conducted by the FFIEC agencies. They are also intended to guide 

examiner judgment, not to supplant it. The procedures can be augmented by each agency as 

necessary to ensure their effective implementation. 

While these procedures apply to many examinations, agencies routinely use statistical analyses 

or other specialized techniques in fair lending examinations to assist in evaluating whether a 

prohibited basis was a factor in an institution’s credit decisions. Examiners should follow the 

procedures provided by their respective agencies in these cases. 

For a number of aspects of lending – for example, credit scoring and loan pricing – the “state of 

the art” is more likely to be advanced if the agencies have some latitude to incorporate promising 

CFPB Manual V.2 (October 2012) Procedures 6 
 

 

Interagency Fair Lending Examination Procedures 

innovations. These interagency procedures provide for that latitude. 

Any references in these procedures to options, judgment, etc., of “examiners” means discretion 

within the limits provided by that examiner’s agency. An examiner should use these procedures 

in conjunction with his or her own agency’s priorities, examination philosophy, and detailed 

guidance for implementing these procedures. These procedures should not be interpreted as 

providing an examiner greater latitude than his or her own agency would. For example, if an 

agency’s policy is to review compliance management systems in all of its institutions, an 

examiner for that agency must conduct such a review rather than interpret Part II of these 

interagency procedures as leaving the review to the examiner’s option. 

The procedures emphasize racial and national origin discrimination in residential transactions, 

but the key principles are applicable to other prohibited bases and to nonresidential transactions. 

Finally, these procedures focus on analyzing institution compliance with the broad, 

nondiscrimination requirements of the ECOA and the FHAct. They do not address such explicit 

or technical compliance provisions as the signature rules or adverse action notice requirements in 

Sections 202.7 and 202.9, respectively, of Regulation B. 

CFPB Manual V.2 (October 2012) Procedures 7 
 

 

 

 

Interagency Fair Lending Examination Procedures 

PART I
 

EXAMINATION SCOPE GUIDELINES
 

Background 

The scope of an examination encompasses the loan product(s), market(s), decision center(s), 

time frame, and prohibited basis and control group(s) to be analyzed during the examination. 

These procedures refer to each potential combination of those elements as a "focal point." Setting 

the scope of an examination involves, first, identifying all of the potential focal points that 

appear worthwhile to examine. Then, from among those, examiners select the focal point(s) that 

will form the scope of the examination, based on risk factors, priorities established in these 

procedures or by their respective agencies, the record from past examinations, and other relevant 

guidance. This phase includes obtaining an overview of an institution’s compliance management 

system as it relates to fair lending. 

When selecting focal points for review, examiners may determine that the institution has 

performed “self-tests” or “self-evaluations” related to specific lending products. The difference 

between “self-tests” and “self-evaluations” is discussed in the Using Self-Tests and SelfEvaluations to Streamline the Examination section of the Appendix. Institutions must share all 

information regarding “self-evaluations” and certain limited information related to “self-tests.” 

Institutions may choose to voluntarily disclose additional information about “self-tests.” 

Examiners should make sure that institutions understand that voluntarily sharing the results of 

self-tests will result in a loss of confidential status of these tests. Information from “selfevaluations” or “self-tests” may allow the scoping to be streamlined. Refer to Using Self-Tests 

and Self-Evaluations to Streamline the Examination in the Appendix for additional details. 

Scoping may disclose the existence of circumstances – such as the use of credit scoring or a large 

volume of residential lending – which, under an agency's policy, call for the use of regression 

analysis or other statistical methods of identifying potential discrimination with respect to one or 

more loan products. Where that is the case, the agency’s specialized procedures should be 

employed for such loan products rather than the procedures set forth below. 

Setting the intensity of an examination means determining the breadth and depth of the analysis 

that will be conducted on the selected loan product(s). This process entails a more involved 

analysis of the institution’s compliance risk management processes, particularly as they relate to 

selected products, to reach an informed decision regarding how large a sample of files to review 

in any transactional analyses performed and whether certain aspects of the credit process deserve 

heightened scrutiny. 

Part I of these procedures provides guidance on establishing the scope of the examination. Part II 

(Compliance Management Review) provides guidance on determining the intensity of the 

examination. There is naturally some interdependence between these two phases. Ultimately, the 

scope and intensity of the examination will determine the record of performance that serves as 

the foundation for agency conclusions about institutional compliance with fair lending 

obligations. The examiner should employ these procedures to arrive at a well-reasoned and 

practical conclusion about how to conduct a particular institution’s examination of fair lending 

performance. 

In certain cases where an agency already possesses information that provides examiners with 

CFPB Manual V.2 (October 2012) Procedures 8 
 

 

 

 

Interagency Fair Lending Examination Procedures 

guidance on priorities and risks for planning an upcoming examination, such information may 

expedite the scoping process and make it unnecessary to carry out all of the steps below. For 

example, the report of the previous fair lending examination may have included 

recommendations for the focus of the next examination. However, examiners should validate 

that the institution’s operational structure, product offerings, policies, and risks have not changed 

since the prior examination before condensing the scoping process. 

The scoping process can be performed either off-site, onsite, or both, depending on whatever is 

determined appropriate and feasible. In the interest of minimizing burdens on both the 

examination team and the institution, requests for information from the institution should be 

carefully thought out so as to include only the information that will clearly be useful in the 

examination process. Finally, any off-site information requests should be made sufficiently in 

advance of the on-site schedule to permit institutions adequate time to assemble necessary 

information and provide it to the examination team in a timely fashion. (See "Potential Scoping 

Information" in the Appendix for guidance on additional information that the examiner might 

wish to consider including in a request). 

Examiners should focus the examination based on: 

•	 An understanding of the credit operations of the institution; 

•	 The risk that discriminatory conduct may occur in each area of those operations; and 

•	 The feasibility of developing a factually reliable record of an institution's performance 

and fair lending compliance in each area of those operations. 

1. Understanding Credit Operations 

Before evaluating the potential for discriminatory conduct, the examiner should review sufficient 

information about the institution and its market to understand the credit operations of the 

institution and the representation of prohibited basis group residents within the markets where 

the institution does business. The level of detail to be obtained at this stage should be sufficient 

to identify whether any of the risk factors in the steps below are present. Relevant background 

information includes: 

•	 The types and terms of credit products offered, differentiating among broad categories of 

credit such as residential, consumer, or commercial, as well as product variations within 

such categories (fixed vs. variable, etc.); 

•	 Whether the institution has a special purpose credit program or other program that is 

specifically designed to assist certain under-served populations; 

•	 The volume of, or growth in, lending for each of the credit products offered; 

•	 The demographics (e.g., race, national origin, etc.) of the credit markets in which the 

institution is doing business; 

•	 The institution’s organization of its credit decision-making process, including 

identification of the delegation of separate lending authorities and the extent to which 

discretion in pricing or setting credit terms and conditions is delegated to various levels 

of managers, employees or independent brokers or dealers; 

•	 The institution’s loan officer or broker compensation program; 

•	 The types of relevant documentation/data that are available for various loan products and 

what is the relative quantity, quality and accessibility of such information (e.g., for which 

loan product(s) will the information available be most likely to support a sound and 

CFPB	 Manual V.2 (October 2012) Procedures 9 
 

 

 

Interagency Fair Lending Examination Procedures 

reliable fair lending analysis); and 

•	 The extent to which information requests can be readily organized and coordinated with 

other compliance examination components to reduce undue burden on the institution. (Do 

not request more information than the exam team can be expected to utilize during the 

anticipated course of the examination.) 

In thinking about an institution’s credit markets, the examiner should recognize that these 

markets may or may not coincide with an institution’s Community Reinvestment Act (CRA) 

assessment area(s). Where appropriate, the examiner should review the demographics for a 

broader geographic area than the assessment area. 

Where an institution has multiple underwriting or loan processing centers or subsidiaries, each 

with fully independent credit-granting authority, consider evaluating each center and/or 

subsidiary separately, provided a sufficient number of loans exist to support a meaningful 

analysis. In determining the scope of the examination for such institutions, examiners should 

consider whether: 

•	 Subsidiaries should be examined. The agencies will hold a financial institution 

responsible for violations by its direct subsidiaries, but not typically for those by its 

affiliates (unless the affiliate has acted as the agent for the institution or the violation by 

the affiliate was known or should have been known to the institution before it became 

involved in the transaction or purchased the affiliate’s loans). When seeking to determine 

an institution’s relationship with affiliates that are not supervised financial institutions, 

limit the inquiry to what can be learned in the institution and do not contact the affiliate 

without prior consultation with agency staff. 

•	 The underwriting standards and procedures used in the entity being reviewed are used in 

related entities not scheduled for the planned examination. This will help examiners to 

recognize the potential scope of policy-based violations. 

•	 The portfolio consists of applications from a purchased institution. If so, for scoping 

purposes, examiners should consider the applications as if they were made to the 

purchasing institution. For comparison purposes, applications evaluated under the 

purchased institution’s standards should not be compared to applications evaluated under 

the purchasing institution’s standards.) 

•	 The portfolio includes purchased loans. If so, examiners should look for indications that 

the institution specified loans to purchase based on a prohibited factor or caused a 

prohibited factor to influence the origination process. 

•	 A complete decision can be made at one of the several underwriting or loan- processing 

centers, each with independent authority. In such a situation, it is best to conduct on-site 

a separate comparative analysis at each underwriting center. If covering multiple centers 

is not feasible during the planned examination, examiners should review their processes 

and internal controls to determine whether or not expanding the scope and/or length of 

the examination is justified. 

CFPB	 Manual V.2 (October 2012) Procedures 10 
 

 

 

 

 

 

 

 

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•	 Decision-making responsibility for a single transaction may involve more than one 

underwriting center. For example, an institution may have authority to decline mortgage 

applicants, but only the mortgage company subsidiary may approve them. In such a 

situation, examiners should learn which standards are applied in each entity and the 

location of records needed for the planned comparisons. 

•	 Applicants can be steered from the financial institution to the subsidiary or other lending 

channel and vice versa and what policies and procedures exist to monitor this practice. 

•	 Any third parties, such as brokers or contractors, are involved in the credit decision and 

how responsibility is allocated among them and the institution. The institution’s 

familiarity with third-party actions may be important, for an institution may be in 

violation if it participates in transactions in which it knew or reasonably ought to have 

known other parties were discriminating. 

As part of understanding the financial institution’s own lending operations, it is also important to 

understand any dealings the financial institution has with affiliated and non-affiliated mortgage 

loan brokers and other third-party lenders. 

These brokers may generate mortgage applications and originations solely for a specific financial 

institution or may broadly gather loan applications for a variety of local, regional, or national 

lenders. As a result, it is important to recognize what impact these mortgage brokers and other 

third-party lender actions and application processing operations have on the lending operations 

of a financial institution. Because brokers can be located anywhere in or out of the financial 

institution’s primary lending or CRA assessment areas, it is important to evaluate broker activity 

and fair lending compliance related to underwriting, terms and conditions, redlining, and 

steering, each of which is covered in more depth in sections of these procedures. Examiners 

should consult with their respective agencies for specific guidance regarding broker activity. 

If the institution is large and geographically diverse, examiners should select only as many 

markets or underwriting centers as can be reviewed readily in depth, rather than selecting 

proportionally to cover every market. As needed, examiners should narrow the focus to the 

Metropolitan Statistical Area (MSA) or underwriting center(s) that are determined to present the 

highest discrimination risk. Examiners should use Loan Application Register (LAR) data 

organized by underwriting center, if available. After calculating denial rates between the control 

and prohibited basis groups for the underwriting centers, examiners should select the centers 

with the highest fair lending risk. This approach would also be used when reviewing pricing or 

other terms and conditions of approved applicants from the prohibited basis and control groups. 

If underwriting centers have fewer than five racial or national origin denials, examiners should 

not examine for racial discrimination in underwriting. Instead, they should shift the focus to 

other loan products or prohibited bases or examination types, such as a pricing examination. 

However, if examiners learn of other indications of risks that favor analyzing a prohibited basis 

with fewer transactions than the minimum in the sample-size tables, they should consult with 

their supervisory office on possible alternative methods of analysis. For example, there is strong 

reason to examine a pattern in which almost all of 19 male borrowers received low rates, but 

almost all of four female borrowers received high rates, even though the number of each group is 

fewer than the stated minimum. Similarly, there would be strong reason to examine a pattern in 

which almost all of 100 control group applicants were approved, but all four prohibited basis 

group applicants were not, even though the number of prohibited basis denials was fewer than 

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five. 

2. Evaluating the Potential for Discriminatory Conduct 

Step One: Develop an Overview 

Based on his or her understanding of the credit operations and product offerings of an institution, 

an examiner should determine the nature and amount of information required for the scoping 

process and should obtain and organize that information. No single examination can reasonably 

be expected to evaluate compliance performance as to every prohibited basis, in every product, 

or in every underwriting center or subsidiary of an institution. In addition to information gained 

in the process of Understanding Credit Operations, above, the examiner should keep in mind the 

following factors when selecting products for the scoping review: 

•	 Which products and prohibited bases were reviewed during the most recent prior 

examination(s), and conversely, which products and prohibited bases have not recently 

been reviewed? 

•	 Which prohibited basis groups make up a significant portion of the institution’s market 

for the different credit products offered? 

•	 Which products and prohibited basis groups the institution reviewed using either a 

voluntarily disclosed self-test or a self-evaluation? 

Based on consideration of the foregoing factors, the examiner should request information for all 

residential and other loan products considered appropriate for scoping in the current examination 

cycle. In addition, wherever feasible, examiners should conduct preliminary interviews with the 

institution’s key underwriting personnel and those involved with establishing the institution’s 

pricing policies and practices. 

Using the accumulated information, the examiner should evaluate the following, as applicable: 

•	 Underwriting guidelines, policies, and standards; 

•	 Descriptions of credit scoring systems, including a list of factors scored, cutoff scores, 

extent of validation, and any guidance for handling overrides and exceptions. (Refer to 

Part A of the Considering Automated Underwriting and Credit Scoring section of the 

Appendix for guidance); 

•	 Applicable pricing policies, risk-based pricing models, and guidance for exercising 

discretion over loan terms and conditions; 

•	 Descriptions of any compensation system, including whether compensation is related to 

loan production or pricing; 

•	 The institution’s formal and informal relationships with any finance companies, subprime 

mortgage or consumer lending entities, or similar institutions; 

•	 Loan application forms; 

•	 Home Mortgage Disclosure Act – Loan Application Register (HMDA-LAR) or loan 

registers and lists of declined applications; 

•	 Description(s) of databases maintained for loan product(s) to be reviewed; 

•	 Records detailing policy exceptions or overrides, exception reporting, and monitoring 

processes; 

•	 Copies of any consumer complaints alleging discrimination and related loan files; 

•	 Compliance program materials (particularly fair lending policies), training manuals, 

organization charts, as well as record keeping, monitoring protocols, and internal 

CFPB	 Manual V.2 (October 2012) Procedures 12 
 

 

 

 

Interagency Fair Lending Examination Procedures 

controls; and 

•	 Copies of any available marketing materials or descriptions of current or previous
 

marketing plans or programs or pre-screened solicitations. 

Step Two: Identify Compliance Program Discrimination Risk Factors 

Review information from agency examination work papers, institutional records, and any 

available discussions with management representatives in sufficient detail to understand the 

organization, staffing, training, recordkeeping, auditing, policies, and procedures of the 

institution’s fair lending compliance systems. Review these systems and note the following risk 

factors: 

C1. Overall institution compliance record is weak. 

C2. Prohibited basis monitoring information required by applicable laws and 

regulations is nonexistent or incomplete. 

C3. Data and/or recordkeeping problems compromised reliability of previous 

examination reviews. 

C4. Fair lending problems were previously found in one or more institution products 

or in institution subsidiaries. 

C5. The size, scope, and quality of the compliance management program, including 

senior management’s involvement, designation of a compliance officer, and 

staffing is materially inferior to programs customarily found in institutions of 

similar size, market demographics, and credit complexity. 

C6. The institution has not updated compliance policies and procedures to reflect 

changes in law or in agency guidance. 

C7. Fair lending training is nonexistent or weak. 

Consider these risk factors and their impact on particular lending products and practices as you 

conduct the product specific risk review during the scoping steps that follow. Where this review 

identifies fair lending compliance system deficiencies, give them appropriate consideration as 

part of the Compliance Management Review in Part II of these procedures. 

Step Three: Review Residential Loan Products 

Although home mortgages may not be the ultimate subject of every fair lending examination, 

this product line must at least be considered in the course of scoping every institution that is 

engaged in the residential lending market. 

Divide home mortgage loans into the following groupings: home purchase, home improvement, 

and refinancings. Subdivide those three groups further if an institution does a significant number 

of any of the following types or forms of residential lending and consider them separately: 

•	 Government-insured loans; 

•	 Mobile home or manufactured housing loans; 

•	 Wholesale, indirect, and brokered loans; and 

•	 Portfolio lending (including portfolios of Fannie Mae/Freddie Mac rejections). 

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In addition, determine whether the institution offers any conventional “affordable” housing loan 

programs special purpose credit programs or other programs that are specifically designed to 

assist certain borrowers, such as under-served populations and whether their terms and 

conditions make them incompatible with regular conventional loans for comparative purposes. 

If so, consider them separately. 

If previous examinations have demonstrated the following, then an examiner may limit the focus 

of the current examination to alternative underwriting or processing centers or to other 

residential products that have received less scrutiny in the past: 

•	 A strong fair lending compliance program; 

•	 No record of discriminatory transactions at particular decision centers or in particular 

residential products; 

•	 No indication of a significant change in personnel, operations or underwriting or pricing 

policies at those centers or in those residential products; 

•	 No unresolved fair lending complaints, administrative proceedings, litigation or similar 

factors; or 

•	 No discretion to set price or credit terms and conditions in particular decision centers or 

for particular residential products. 

Step Four: Identify Residential Lending Discrimination Risk Factors 

•	 Review the lending policies, marketing plans, underwriting, appraisal and pricing 

guidelines, broker/agent agreements, and loan application forms for each residential loan 

product that represents an appreciable volume of, or displays noticeable growth in, the 

institution’s residential lending. 

•	 Review also any available data regarding the geographic distribution of the institution’s 

loan originations with respect to the race and national origin percentages of the census 

tracts within its assessment area or, if different, its residential loan product lending 

area(s). 

•	 Conduct interviews of loan officers and other employees or agents in the residential 

lending process concerning adherence to and understanding of the above policies and 

guidelines as well as any relevant operating practices. 

•	 In the course of conducting the foregoing inquiries, look for the following risk factors 

(factors are numbered alphanumerically to coincide with the type of factor, e.g., "O" for 

"overt"; "P" for "pricing", etc.). 

NOTE: For risk factors below that are marked with an asterisk (*), examiners need not attempt to 

calculate the indicated ratios for racial or national origin characteristics when the institution is 

not an HMDA reporter. However, consideration should be given in such cases to whether or not 

such calculations should be made based on gender or racial-ethnic surrogates. 

Overt indicators of discrimination such as: 

O1. Including explicit prohibited basis identifiers in the institution’s written or oral 

policies and procedures (underwriting criteria, pricing standards, etc.). 

O2. Collecting information, conducting inquiries or imposing conditions contrary to 

express requirements of Regulation B. 

O3. Including variables in a credit scoring system that constitute a basis or factor 

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Interagency Fair Lending Examination Procedures 

prohibited by Regulation B or, for residential loan scoring systems, the FHAct. (If a 

credit scoring system scores age, refer to Part E of the Considering Automated 

Underwriting and Credit Scoring section of the Appendix.). 

O4. Statements made by the institution’s officers, employees, or agents that constitute an 

express or implicit indication that one or more such persons have engaged or do engage 

in discrimination on a prohibited basis in any aspect of a credit transaction. 

O5. Employee or institutional statements that evidence attitudes based on prohibited 

basis prejudices or stereotypes. 

Indicators of potential disparate treatment in Underwriting such as: 

U1. *Substantial disparities among the approval/denial rates for applicants by monitored 

prohibited basis characteristic (especially within income categories). 

U2. *Substantial disparities among the application processing times for applicants by 

monitored prohibited basis characteristic (especially within denial reason groups). 

U3. *Substantially higher proportion of withdrawn/incomplete applications from 

prohibited basis group applicants than from other applicants. 

U4. Vague or unduly subjective underwriting criteria. 

U5. Lack of clear guidance on making exceptions to underwriting criteria, including 

credit scoring overrides. 

U6. Lack of clear loan file documentation regarding reasons for any exceptions to 

standard underwriting criteria, including credit scoring overrides. 

U7. Relatively high percentages of either exceptions to underwriting criteria or overrides 

of credit score cutoffs. 

U8. Loan officer or broker compensation based on loan volume (especially loans 

approved per period of time). 

U9. Consumer complaints alleging discrimination in loan processing or in 

approving/denying residential loans. 

Indicators of potential disparate treatment in Pricing (interest rates, fees, or points) such as: 

P1. Financial incentives for loan officers or brokers to charge higher prices (including 

interest rates, fees, and points). Special attention should be given to situations where 

financial incentives are accompanied by broad pricing discretion (as in P2), such as 

through the use of overages or yield-spread premiums. 

P2. Presence of broad discretion in loan pricing (including interest rate, fees, and points), 

such as through overages, underages, or yield-spread premiums. Such discretion may be 

present even when institutions provide rate sheets and fees schedules if loan officers or 

brokers are permitted to deviate from those rates and fees without clear and objective 

criteria. 

P3. Use of risk-based pricing that is not based on objective criteria or applied 

consistently. 

P4. *Substantial disparities among prices being quoted or charged to applicants who 

CFPB Manual V.2 (October 2012) Procedures 15 
 

 

 

 

 

Interagency Fair Lending Examination Procedures 

differ as to their monitored prohibited basis characteristics. 

P5. Consumer complaints alleging discrimination in residential loan pricing. 

P6. *In mortgage pricing, disparities in the incidence or rate spreads2

 of higher-priced 

lending by prohibited basis characteristics as reported in the HMDA data. 

P7. *A loan program that contains only borrowers from a prohibited basis group or has 

significant differences in the percentages of prohibited basis groups, especially in the 

absence of a Special Purpose Credit Program under ECOA. 

Indicators of potential disparate treatment by Steering such as: 

S1. Lack of clear, objective, and consistently implemented standards for (i) referring 

applicants to subsidiaries, affiliates, or lending channels within the institution (ii) 

classifying applicants as “prime” or “sub-prime” borrowers or (iii) deciding what kinds of 

alternative loan products should be offered or recommended to applicants (product 

placement). 

S2. Financial incentives for loan officers or brokers to place applicants in nontraditional 

products (e.g., negative amortization, “interest only”, “payment option” adjustable rate 

mortgages) or higher cost products. 

S3. For an institution that offers different products based on credit risk levels, any 

significant differences in percentages of prohibited basis groups in each of the alternative 

loan product categories. 

S4. *Significant differences in the percentage of prohibited basis applicants in loan 

products or products with specific features relative to control group applicants. Special 

attention should be given to products and features that have potentially negative 

consequences for applicants (e.g., non-traditional mortgages, prepayment penalties, lack 

of escrow requirements, or credit life insurance). 

S5. *For an institution that has one or more sub-prime mortgage subsidiaries or affiliates, 

any significant differences, by loan product, in the percentage of prohibited basis 

applicants of the institution compared to the percentage of prohibited basis applicants of 

the subsidiary(ies) or affiliate(s). 

S6. *For an institution that has one or more lending channels that originate the same loan 

product, any significant differences in the percentage of prohibited basis applicants in one 

of the lending channels compared to the percentage of prohibited basis applicants of the 

other lending channel. 

S7. Consumer complaints alleging discrimination in residential loan pricing or product 

placement. 

S8. *For an institution with sub-prime mortgage subsidiaries, a concentration of those 

subsidiaries’ branches in minority areas relative to its other branches. 

Indicators of potential discriminatory Redlining such as: 

R1. *Significant differences, as revealed in HMDA data, in the number of applications 

2 Regulation C, Section 203.4(a)(12). 

CFPB Manual V.2 (October 2012) Procedures 16 
 

 

 

 

 

 

 

 

 

 

Interagency Fair Lending Examination Procedures 

received, withdrawn, approved not accepted, and closed for incompleteness or loans 

originated in those areas in the institution's market that have relatively high 

concentrations of minority group residents compared with areas with relatively low 

concentrations of minority residents. 

R2. *Significant differences between approval/denial rates for all applicants (minority 

and non-minority) in areas with relatively high concentrations of minority group residents 

compared with areas with relatively low concentrations of minority residents. 

R3. *Significant differences between denial rates based on insufficient collateral for 

applicants from areas with relatively high concentrations of minority residents and those 

areas with relatively low concentrations of minority residents. 

R4. * Significant differences in the number of originations of higher-priced loans or loans 

with potentially negative consequences for borrowers, (e.g., non-traditional mortgages, 

prepayment penalties, lack of escrow requirements) in areas with relatively high 

concentrations of minority residents compared with areas with relatively low 

concentrations of minority residents. 

R5. Other patterns of lending identified during the most recent CRA examination that 

differ by the concentration of minority residents. 

R6. Explicit demarcation of credit product markets that excludes MSAs, political 

subdivisions, census tracts, or other geographic areas within the institution's lending 

market or CRA assessment areas and having relatively high concentrations of minority 

residents. 

R7. Difference in services available or hours of operation at branch offices located in 

areas with concentrations of minority residents when compared to branch offices located 

in areas with concentrations of non-minority residents. 

R8. Policies on receipt and processing of applications, pricing, conditions, or appraisals 

and valuation, or on any other aspect of providing residential credit that vary between 

areas with relatively high concentrations of minority residents and those areas with 

relatively low concentrations of minority residents. 

R9. The institution’s CRA assessment area appears to have been drawn to exclude areas 

with relatively high concentrations of minority residents. 

R10. Employee statements that reflect an aversion to doing business in areas with 

relatively high concentrations of minority residents. 

R11. Complaints or other allegations by consumers or community representatives that 

the institution excludes or restricts access to credit for areas with relatively high 

concentrations of minority residents. Examiners should review complaints against the 

institution filed either with their agency or the institution; the CRA public comment file; 

community contact forms; and the responses to questions about redlining, discrimination, 

and discouragement of applications, and about meeting the needs of racial or national 

origin minorities, asked as part of obtaining local perspectives on the performance of 

financial institutions during prior CRA examinations. 

R12. An institution that has most of its branches in predominantly non-minority 

neighborhoods at the same time that the institution's sub-prime mortgage subsidiary has 

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Interagency Fair Lending Examination Procedures 

branches which are located primarily in predominantly minority neighborhoods. 

Indicators of potential disparate treatment in Marketing of residential products, such as: 

M1. Advertising patterns or practices that a reasonable person would believe indicate 

prohibited basis customers are less desirable. 

M2. Advertising only in media serving non-minority areas of the market. 

M3. Marketing through brokers or other agents that the institution knows (or has reason 

to know) would serve only one racial or ethnic group in the market. 

M4. Use of marketing programs or procedures for residential loan products that exclude 

one or more regions or geographies within the institution’s assessment or marketing area 

that have significantly higher percentages of minority group residents than does the 

remainder of the assessment or marketing area. 

M5. Using mailing or other distribution lists or other marketing techniques for prescreened or other offerings of residential loan products that: 

•	 Explicitly exclude groups of prospective borrowers on a prohibited basis or 

•	 Exclude geographies (e.g., census tracts, ZIP codes) within the institution's marketing 

area that have significantly higher percentages of minority group residents than does 

the remainder of the marketing area. 

M6. *Proportion of prohibited basis applicants is significantly lower than that group's 

representation in the total population of the market area. 

M7. Consumer complaints alleging discrimination in advertising or marketing loans. 

Step Five: Organize and Focus Residential Risk Analysis 

Review the risk factors identified in Step 4 and, for each loan product that displays risk factors, 

articulate the possible discriminatory effects encountered and organize the examination of those 

loan products in accordance with the following guidance. For complex issues regarding these 

factors, consult with agency supervisory staff. 

•	 Where overt evidence of discrimination, as described in factors O1-O5, has been found in 

connection with a product, document those findings as described in Part III, B, besides 

completing the remainder of the planned examination analysis. 

•	 Where any of the risk factors U1-U9 are present, consider conducting an underwriting 

comparative file analysis as described in Part III, C. 

•	 Where any of the risk factors P1-P7 are present, consider conducting a pricing
 

comparative file analysis as described in Part III, D.
 

•	 Where any of the risk factors S1-S8 are present, consider conducting a steering analysis 

as described in Part III, E. 

•	 Where any of the risk factors R1-R12 are present, consider conducting an analysis for 

redlining as described in Part III, G. 

•	 Where any of the risk factors M1-M7 are present, consider conducting a marketing 

analysis as described in Part III, H. 

•	 Where an institution uses age in any credit scoring system, consider conducting an 

CFPB	 Manual V.2 (October 2012) Procedures 18 
 

 

 

 

 

 

Interagency Fair Lending Examination Procedures 

examination analysis of that credit scoring system’s compliance with the requirements of 

Regulation B as described in Part III, I. 

Step Six: Identify Consumer Lending Discrimination Risk Factors 

For any consumer loan products selected in Step One for risk analysis, examiners should conduct 

a risk factor review similar to that conducted for residential lending products in Steps Three 

through Five, above. Examiners should consult with agency supervisory staff regarding the 

potential use of surrogates to identify possible prohibited basis group individuals. 

NOTE: The term surrogate in this context refers to any factor related to a loan applicant 

that potentially identifies that applicant’s race, color, or other prohibited basis 

characteristic in instances where no direct evidence of that characteristic is available. 

Thus, in consumer lending, where monitoring data is generally unavailable, a Hispanic or 

Asian surname could constitute a surrogate for an applicant’s race or national origin 

because the examiner can assume that the institution (which can rebut the presumption) 

perceived the person to be Hispanic or Asian. Similarly, an applicant's given name could 

serve as a surrogate for his or her gender. A surrogate for a prohibited basis group 

characteristic may be used to set up a comparative analysis with control group applicants 

or borrowers. 

Examiners should then follow the rules in Steps Three through Five, above, and identify the 

possible discriminatory patterns encountered and consider examining those products determined 

to have sufficient risk of discriminatory conduct. 

Step Seven: Identify Commercial Lending Discrimination Risk Factors 

Where an institution does a substantial amount of lending in the commercial lending market, 

most notably small business lending, and the product has not recently been examined or the 

underwriting standards have changed since the last examination of the product, the examiner 

should consider conducting a risk factor review similar to that performed for residential lending 

products, as feasible, given the limited information available. Such an analysis should generally 

be limited to determining risk potential based on risk factors U4-U8; P1-P3; R5-R7; and M1-M3. 

If the institution makes commercial loans insured by the Small Business Administration (SBA), 

determine from agency supervisory staff whether SBA loan data (which codes race and other 

factors) are available for the institution and evaluate those data pursuant to instructions 

accompanying them. 

For large institutions reporting small business loans for CRA purposes and where the institution 

also voluntarily geocodes loan denials, look for material discrepancies in ratios of approval-todenial rates for applications in areas with high concentrations of minority residents compared to 

areas with concentrations of non-minority residents. 

Articulate the possible discriminatory patterns identified and consider further examining those 

products determined to have sufficient risk of discriminatory conduct in accordance with the 

procedures for commercial lending described in Part III, F. 

Step Eight: Complete the Scoping Process 

CFPB Manual V.2 (October 2012) Procedures 19 
Interagency Fair Lending Examination Procedures 

To complete the scoping process, the examiner should review the results of the preceding steps 

and select those focal points that warrant examination, based on the relative risk levels identified 

above. In order to remain within the agency’s resource allowances, the examiner may need to 

choose a smaller number of focal points from among all those selected on the basis of risk. In 

such instances, set the scope by first, prioritizing focal points on the basis of (i) high number 

and/or relative severity of risk factors; (ii) high data quality and other factors affecting the 

likelihood of obtaining reliable examination results; (iii) high loan volume and the likelihood of 

widespread risk to applicants and borrowers; and (iv) low quality of any compliance program 

and, second, selecting for examination review as many focal points as resources permit. 

Where the judgment process among competing focal points is a close call, information learned in 

the phase of conducting the compliance management review can be used to further refine the 

examiner’s choices. 

CFPB Manual V.2 (October 2012) Procedures 20 
 

 

 

 

 

 

Interagency Fair Lending Examination Procedures 

PART II
 

COMPLIANCE MANAGEMENT REVIEW
 

The Compliance Management Review enables the examination team to determine: 

•	 The intensity of the current examination based on an evaluation of the compliance
 

management measures employed by an institution. 

•	 The reliability of the institution’s practices and procedures for ensuring continued fair 

lending compliance. 

Generally, the review should focus on: 

•	 Determining whether the policies and procedures of the institution enable management to 

prevent, or to identify and self-correct, illegal disparate treatment in the transactions that 

relate to the products and issues identified for further analysis under Part I of these 

procedures. 

•	 Obtaining a thorough understanding of the manner by which management addresses its 

fair lending responsibilities with respect to (a) the institution’s lending practices and 

standards, (b) training and other application-processing aids, (c) guidance to employees 

or agents in dealing with customers, and (d) its marketing or other promotion of products 

and services. 

To conduct this review, examiners should consider institutional records and interviews with 

appropriate management personnel in the lending, compliance, audit, and legal functions. The 

examiner should also refer to the Compliance Management Analysis Checklist contained in the 

Appendix to evaluate the strength of the compliance programs in terms of their capacity to 

prevent, or to identify and self-correct, fair lending violations in connection with the products or 

issues selected for analysis. Based on this evaluation: 

•	 Set the intensity of the transaction analysis by minimizing sample sizes within the 

guidelines established in Part III and the Fair Lending Sample Size Tables in the 

Appendix to the extent warranted by the strength and thoroughness of the compliance 

programs applicable to those focal points selected for examination. 

•	 Identify any compliance program or system deficiencies that merit correction or 

improvement and present these to management in accordance with Part IV of these 

procedures. 

Where an institution performs a self-evaluation or has voluntarily disclosed the report or results 

of a self-test of any product or issue that is within the scope of the examination and has been 

selected for analysis pursuant to Part I of these procedures, examiners may streamline the 

examination, consistent with agency guidance, provided the self-test or self-evaluation meets the 

requirements set forth in Using Self-Tests and Self-Evaluations to Streamline the Examination 

located in the Appendix. 

CFPB	 Manual V.2 (October 2012) Procedures 21 
 

 

 

 

 

 

 

 

Interagency Fair Lending Examination Procedures 

PART III
 

EXAMINATION PROCEDURES
 

Once the scope and intensity of the examination have been determined, assess the institution’s 

fair lending performance by applying the appropriate procedures that follow to each of the 

examination focal points already selected. 

A. Verify Accuracy of Data 

Prior to any analysis and preferably before the scoping process, examiners should assess the 

accuracy of the data being reviewed. Data verifications should follow specific protocols 

(sampling, size, etc.) intended to ensure the validity of the review. For example, where an 

institution’s LAR data are relied upon, examiners should generally validate the accuracy of the 

institution’s submitted data by selecting a sample of LAR entries and verifying that the 

information noted on the LAR was reported according to instructions by comparing information 

contained in the loan file for each sampled loan. If the LAR data are inconsistent with the 

information contained in the loan files, depending on the nature of the errors, examiners may not 

be able to proceed with a fair lending analysis until the LAR data have been corrected by the 

institution. In cases where inaccuracies impede the examination, examiners should direct the 

institution to take action to ensure data integrity (data scrubbing, monitoring, training, etc.). 

NOTE: While the procedures refer to the use of HMDA data, other data sources should be 

considered, especially in the case of non-HMDA reporters or institutions that originate loans, but 

are not required to report them on an LAR. 

B. Documenting Overt Evidence of Disparate Treatment 

Where the scoping process or any other source identifies overt evidence of disparate treatment, 

the examiner should assess the nature of the policy or statement and the extent of its impact on 

affected applicants by conducting the following analysis 

Step 1: Where the indicator(s) of overt discrimination are found in or based on a written 

policy (for example, a credit scorecard) or communication, determine and document: 

a.	 The precise language of the apparently discriminatory policy or communication and 

the nature of the fair lending concerns that it raises; 

b.	 he institution’s stated purpose in adopting the policy or communication and the 

identity of the person on whose authority it was issued or adopted; 

c.	 How and when the policy or communication was put into effect; 

d.	 How widely the policy or communication was applied; and 

e.	 Whether and to what extent applicants were adversely affected by the policy or 

communication. 

Step 2: Where any indicator of overt discrimination was an oral statement or unwritten 

practice, determine and document: 

a.	 The precise nature of both the statement or practice and of the fair lending concerns 

that they raise; 

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b.	 The identity of the persons making the statement or applying the practice and their 

descriptions of the reasons for it and the persons authorizing or directing the use of 

the statement or practice; 

c.	 How and when the statement or practice was disseminated or put into effect; 

d.	 How widely the statement or practice was disseminated or applied; and 

e.	 Whether and to what extent applicants were adversely affected by the statement or 

practice. 

Assemble findings and supporting documentation for presentation to management in connection 

with Part IV of these procedures. 

C. Transactional Underwriting Analysis - Residential and Consumer Loans. 

Step 1: Set Sample Size 

a.	 For each focal point selected for this analysis, two samples will be utilized: (i) 

prohibited basis group denials and (ii) control group approvals, both identified either 

directly from monitoring information in the case of residential loan applications or 

through the use of application data or surrogates in the case of consumer applications. 

b.	 Refer to Fair Lending Sample Size Tables, Table A in the Appendix and determine 

the size of the initial sample for each focal point, based on the number of prohibited 

basis group denials and the number of control group approvals by the institution 

during the 12 month (or calendar year) period of lending activity preceding the 

examination. In the event that the number of denials and/or approvals acted on 

during the preceding 12 month period substantially exceeds the maximum sample 

size shown in Table A, reduce the time period from which that sample is selected to a 

shorter period. (In doing so, make every effort to select a period in which the 

institution’s underwriting standards are most representative of those in effect during 

the full 12-month period preceding the examination.) 

c.	 If the number of prohibited basis group denials or control group approvals for a given 

focal point that were acted upon during the 12-month period referenced in 1.b., 

above, do not meet the minimum standards set forth in the Sample Size Table, 

examiners need not attempt a transactional analysis for that focal point. Where other 

risk factors favor analyzing such a focal point, consult with agency supervisory staff 

on possible alternative methods of judgmental comparative analysis. 

d.	 If agency policy calls for a different approach to sampling (e.g., a form of statistical 

analysis, a mathematical formula, or an automated tool) for a limited class of 

institutions, examiners should follow that approach. 

Step 2: Determine Sample Composition. 

a.	 To the extent the institution maintains records of loan outcomes resulting from 

exceptions to its credit underwriting standards or other policies (e.g., overrides to 

credit score cutoffs), request such records for both approvals and denials, sorted by 

loan product and branch or decision center, if the institution can do so. Include in the 

initial sample for each focal point all exceptions or overrides applicable to that focal 

point. 

b.	 Using HMDA/LAR data or, for consumer loans, comparable loan register data to the 

CFPB	 Manual V.2 (October 2012) Procedures 23 
 

 

 

 

 

 

 

 

 

 

 

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extent available, choose approved and denied applications based on selection criteria 

that will maximize the likelihood of finding marginal approved and denied applicants, 

as discussed below. 

c.	 To the extent that the above factors are inapplicable or other selection criteria are 

unavailable or do not facilitate selection of the entire sample size of files, complete 

the initial sample selection by making random file selections from the appropriate 

sample categories in the Sample Size Table. 

Step 3: Compare Approved and Denied Applications 

Overview: Although a creditor's written policies and procedures may appear to be 

nondiscriminatory, lending personnel may interpret or apply policies in a discriminatory manner. 

In order to detect any disparate treatment among applicants, the examiner should first eliminate 

all but "marginal transactions" (see 3.b. below) from each selected focal point sample. Then, a 

detailed profile of each marginal applicant's qualifications, the level of assistance received during 

the application process, the reasons for denial, the loan terms, and other information should be 

recorded on an Applicant Profile Spreadsheet. Once profiled, the examiner can compare the 

target and control groups for evidence that similarly qualified applicants have been treated 

differently as to either the institution's credit decision or the quality of assistance provided. 

a. Create Applicant Profile Spreadsheet 

Based upon the institution's written and/or articulated credit standards and loan policies, 

identify categories of data that should be recorded for each applicant and provide a field 

for each of these categories on a worksheet or computerized spreadsheet. Certain data 

(income, loan amount, debt, etc.) should always be included in the spreadsheet, while the 

other data selected will be tailored for each loan product and institution based on 

applicable underwriting criteria and such issues as branch location and underwriter. 

Where credit bureau scores and/or application scores are an element of the institution’s 

underwriting criteria (or where such information is regularly recorded in loan files, 

whether expressly used or not), include a data field for this information in the 

spreadsheet. 

In order to facilitate comparisons of the quality of assistance provided to target and 

control group applicants, respectively, every work sheet should provide a "comments" 

block appropriately labeled as the site for recording observations from the file or 

interviews regarding how an applicant was, or was not, assisted in overcoming credit 

deficiencies or otherwise qualifying for approval. 

b. Complete Applicant Profiles 

From the application files sample for each focal point, complete applicant profiles for 

selected denied and approved applications as follows: 

•	 A principal goal is to identify cases where similarly qualified prohibited basis and 

control group applicants had different credit outcomes, because the agencies have 

found that discrimination, including differences in granting assistance during the 

approval process, is more likely to occur with respect to applicants who are not either 

clearly qualified or unqualified, e.g., “marginal” applicants. The examiner-in-charge 

should, during the following steps, judgmentally select from the initial sample only 

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those denied and approved applications which constitute marginal transactions. (See 

Appendix on Identifying Marginal Transactions for guidance.) 

•	 If few marginal control group applicants are identified from the initial sample, review 

additional files of approved control group applicants. This will either increase the 

number of marginal approvals or confirm that marginal approvals are so infrequent 

that the marginal denials are unlikely to involve disparate treatment. 

•	 The judgmental selection of both marginal-denied and marginal-approved applicant 

loan files should be done together, in a “back and forth” manner, to facilitate close 

matches and a more consistent definition of “marginal” between these two types of 

loan files. 

•	 Once the marginal files have been identified, the data elements called for on the 

profile spreadsheet are extracted or noted and entered. 

•	 While conducting the preceding step, the examiner should simultaneously look for 

and document on the spreadsheet any evidence found in marginal files regarding the 

following: 

•	 The extent of any assistance, including both affirmative aid and waivers or partial 

waivers of credit policy provisions or requirements, that appears to have been 

provided to marginal-approved control group applicants, which enabled them to 

overcome one or more credit deficiencies, such as excessive debt-to-income ratios; 

and 

•	 The extent to which marginal-denied target group applicants with similar deficiencies 

were, or were not, provided similar affirmative aid, waivers, or other forms of 

assistance. 

c. Review and Compare Profiles 

•	 For each focal point, review all marginal profiles to determine if the underwriter 

followed institution lending policies in denying applications and whether the 

reason(s) for denial were supported by facts documented in the loan file and properly 

disclosed to the applicant pursuant to Regulation B. If any (a) unexplained deviations 

from credit standards, (b) inaccurate reasons for denial, or (c) incorrect disclosures 

are noted, (whether in a judgmental underwriting system, a scored system, or a mixed 

system) the examiner should obtain an explanation from the underwriter and 

document the response on an appropriate workpaper. 

NOTE: In constructing the applicant profiles to be compared, examiners must adjust 

the facts compared so that assistance, waivers, or acts of discretion are treated 

consistently between applicants. For example, if a control group applicant's DTI ratio 

was lowered to 42% because the institution decided to include short-term overtime 

income, and a prohibited basis group applicant who was denied due to "insufficient 

income" would have had his ratio drop from 46% to 41% if his short-term overtime 

income had been considered, then the examiners should consider 41%, not 46%, in 

determining the benchmark. 

•	 For each reason for denial identified within the target group, rank the denied 

prohibited basis applicants, beginning with the applicant whose qualification(s) 

related to that reason for denial were least deficient. (The top-ranked denied 

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applicant in each such ranking will be referred to below as the “benchmark” 

applicant.) 

•	 Compare each marginal control group approval to the benchmark applicant in each 

reason-for-denial ranking developed in step (b), above. If there are no approvals who 

are equally or less qualified, then there are no instances of disparate treatment for the 

institution to account for. For all such approvals that appear no better qualified than 

the denied benchmark applicant: 

•	 Identify the approved loan on the worksheet or spreadsheet as an “overlap 

approval;” and 

•	 Compare that overlap approval with other marginal prohibited basis denials in 

the ranking to determine whether additional overlaps exist. If so, identify all 

overlapping approvals and denials as above. 

•	 Where the focal point involves use of a credit scoring system, the analysis for 

disparate treatment is similar to the procedures set forth in (c) above, and should 

focus primarily on overrides of the scoring system itself. For guidance on this type of 

analysis, refer to Considering Automated Underwriting and Credit Scoring, Part C, in 

the Appendix. 

Step 4: If there is some evidence of violations in the underwriting process, but not enough 

to clearly establish the existence of a pattern or practice, the examiner should expand the 

sample as necessary to determine whether a pattern or practice does or does not exist. 

Step 5: Discuss all findings resulting from the above comparisons with management and 

document both the findings and all conversations on an appropriate worksheet. 

D. Analyzing Potential Disparities in Pricing and Other Terms and Conditions 

Depending on the intensity of the examination and the size of the borrower population to be 

reviewed, the analysis of decisions on pricing and other terms and conditions may involve a 

comparative file review, statistical analysis, a combination of the two, or other specialized 

technique used by an agency. Each examination process assesses an institution’s credit-decision 

standards and whether decisions on pricing and other terms and conditions are applied to 

borrowers without regard to a prohibited basis. 

The procedures below encompass the examination steps for a comparative file review. 

Examiners should consult their own agency’s procedures for detailed guidance where 

appropriate. For example, when file reviews are undertaken in conjunction with statistical 

analysis, the guidance on specific sample sizes referenced below may not apply. 

Step 1: Determine Sample Selection 

Examiners may review data in its entirety or restrict their analysis to a sample depending on the 

examination approach used and the quality of the institution’s compliance management system. 

The Fair Lending Sample Size Tables in the Appendix provide general guidance about 

appropriate sample sizes. Generally, the sample size should be based on the number of 

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prohibited basis group and control group originations for each focal point selected during the 12 

months preceding the examination and the outcome of the compliance management system 

analysis conducted in Part II. When possible, examiners should request specific loan files in 

advance and request that the institution have them available for review at the start of the 

examination. 

Step 2: Determine Sample Composition and Create Applicant Profiles 

Examiners should tailor their sample and subsequent analysis to the specific factors that the 

institution considers when determining its pricing, terms, and conditions. For example, while 

decisions on pricing and other terms and conditions are part of an institution’s underwriting 

process, general underwriting criteria should not be used in the analysis if they are not relevant to 

the term or condition to be reviewed. Additionally, consideration should be limited to factors 

which examiners determine to be legitimate. 

a.	 While the period for review should be 12 months, prohibited basis group and control 

group borrowers should be grouped and reviewed around a range of dates during which 

the institution’s practices for the term or condition being reviewed were the same. 

Generally, examiners should use the loan origination date or the loan application date. 

b.	 Identify data to be analyzed for each focal point to be reviewed and record this 

information for each borrower on a spreadsheet to ensure a valid comparison regarding 

terms and conditions. For example, in certain cases, an institution may offer slightly 

differentiated products with significant pricing implications to borrowers. In these cases, 

it may be appropriate to group these procedures together for the purposes of evaluation. 

Step 3: Review Terms and Conditions; Compare with Borrower Outcomes 

a.	 Review all loan terms and conditions (rates, points, fees, maturity variations, LTVs, 

collateral requirements, etc.) with special attention to those that are left, in whole or in 

part, to the discretion of loan officers or underwriters. For each such term or condition, 

identify (a) any prohibited basis group borrowers in the sample who appear to have been 

treated unfavorably with respect to that term or condition and (b) any control group 

borrowers who appear to have been treated favorably with respect to that term or 

condition. The examiner's analysis should be thoroughly documented in the workpapers. 

b.	 Identify from the sample universe any control group borrowers who appear to have been 

treated more favorably than one or more of the above-identified prohibited basis group 

borrowers and who have pricing or creditworthiness factors (under the institution’s 

standards) that are equal to or less favorable than the prohibited basis group borrowers. 

c.	 Obtain explanations from the appropriate loan officer or other employee for any 

differences that exist and reanalyze the sample for evidence of discrimination.
 

d.	 If there is some evidence of violations in the imposition of terms and conditions, but not 

enough to clearly establish the existence of a pattern or practice, the examiner should 

expand the sample as necessary to determine whether a pattern or practice does or does 

not exist. 

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e.	 Discuss differences in comparable loans with the institution's management and document 

all conversations on an appropriate worksheet. For additional guidance on evaluating 

management’s responses, refer to Part A, 1 - 5, Evaluating Responses to Evidence of 

Disparate Treatment in the Appendix. 

E. Steering Analysis 

An institution that offers a variety of lending products or product features, either through one 

channel or through multiple channels, may benefit consumers by offering greater choices and 

meeting the diverse needs of applicants. Greater product offerings and multiple channels, 

however, may also create a fair lending risk that applicants will be illegally steered to certain 

choices based on prohibited characteristics. 

Several examples illustrate potential fair lending risk: 

•	 An institution that offers different lending products based on credit risk levels may 

present opportunities for loan officers or brokers to illegally steer applicants to the 

higher-risk products; 

•	 An institution that offers nontraditional loan products or loan products with potentially 

onerous terms (such as prepayment penalties) may present opportunities for loan officers 

or brokers to illegally steer applicants to certain products or features; and 

•	 An institution that offers prime or sub-prime products through different channels may 

present opportunities for applicants to be illegally steered to the sub-prime channel. 

The distinction between guiding consumers toward a specific product or feature and illegal 

steering centers on whether the institution did so on a prohibited basis, rather than based on an 

applicant’s needs or other legitimate factors. It is not necessary to demonstrate financial harm to 

a group that has been “steered.” It is enough to demonstrate that action was taken on a 

prohibited basis regardless of the ultimate financial outcome. If the scoping analysis reveals the 

presence of one or more risk factors S1 through S8 for any selected focal point, consult with 

agency supervisory staff about conducting a steering analysis as described below. 

Step 1: Clarify what options are available to applicants. 

Through interviews with appropriate personnel of the institution and review of policy manuals, 

procedure guidelines, and other directives, obtain and verify the following information for each 

product-alternative product pairing or grouping identified above: 

a.	 All underwriting criteria for the product or feature and their alternatives that are 

offered by the institution or by a subsidiary or affiliate. Examples of products may 

include stated income, negative amortization, and options ARMs. Examples of terms 

and features include prepayment penalties and escrow requirements. The distinction 

between a product, term, and feature may vary institution to institution. For example, 

some institutions may consider “stated income” a feature, whiles others may consider 

that a distinct product. 

b.	 Pricing or other costs applicable to the product and the alternative product(s), 

including interest rates, points, and all fees. 

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Step 2: Document the policies, conditions or criteria that have been adopted by the 

institution for determining how referrals are to be made and choices presented to 

applicants. 

a. Obtain not only information regarding the product or feature offered by the institution 

and alternatives offered by subsidiaries/affiliates, but also information on alternatives 

offered solely by the institution itself. 

b. Obtain any information regarding a subsidiary of the institution directly from that 

entity, but seek information regarding an affiliate or holding company subsidiary only 

from the institution itself. 

c. Obtain all appropriate documentation and provide a written summary of all 

discussions with loan personnel and managers. 

d. Obtain documentation and/or employee estimates as to the volume of referrals made 

from or to the institution, for each product, during a relevant time period. 

e. Resolve to the extent possible any discrepancies between information found in the 

institution's documents and information obtained in discussions with loan personnel 

and managers by conducting appropriate follow-up interviews. 

f. Identify any policies and procedures established by the institution and/or the subsidiary 

or affiliate for (i) referring a person who applies to the institution, but does not meet 

its criteria, to another internal lending channel, subsidiary, or affiliate; (ii) offering 

one or more alternatives to a person who applies to the institution for a specific 

product or feature, but does not meet its criteria; or (iii) referring a person who 

applies to a subsidiary or affiliate for its product, but who appears qualified for a loan 

from the institution, to the institution; or referring a person who applies through one 

internal lending channel for a product, but who appears to be qualified for a loan 

through another lending channel to that particular lending channel. 

g. Determine whether loan personnel are encouraged, through financial incentives or 

otherwise, to make referrals, either from the institution to a subsidiary/affiliate or vice 

versa. Similarly, determine whether the institution provides financial incentives 

related to products and features. 

Step 3: Determine how referral decisions are made and documented within the institution. 

Determine how a referral is made to another internal lending channel, subsidiary, or affiliate. 

Determine the reason for referral and how it is documented. 

Step 4: Determine to what extent individual loan personnel are able to exercise personal 

discretion in deciding what loan products or other credit alternatives will be made 

available to a given applicant. 

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Step 5: Determine whether the institution's stated policies, conditions, or criteria in fact are 

adhered to by individual decision makers. If not, does it appear that different policies or 

practices are actually in effect? 

Enter data from the prohibited basis group sample on the spreadsheets and determine whether the 

institution is, in fact, applying its criteria as stated. For example, if one announced criterion for 

receiving a "more favorable" prime mortgage loan was a back-end debt ratio of no more than 

38%, review the spreadsheets to determine whether that criteria were adhered to. If the 

institution's actual treatment of prohibited basis group applicants appears to differ from its stated 

criteria, document such differences for subsequent discussion with management. 

Step 6: To the extent that individual loan personnel have any discretion in deciding what 

products and features to offer applicants, conduct a comparative analysis to determine 

whether that discretion has been exercised in a nondiscriminatory manner. 

Compare the institution's or subsidiary/affiliate's treatment of control group and prohibited basis 

group applicants by adapting the "benchmark" and "overlap" technique discussed in Part III, 

Section C, of these procedures. For purposes of this Steering Analysis, that technique should be 

conducted as follows: 

a.	 For each focal point to be analyzed, select a sample of prohibited basis group 

applicants who received "less favorable" treatment (e.g., referral to a finance 

company or a subprime mortgage subsidiary or counteroffers of less favorable 

product alternatives). 

NOTE: In selecting the sample, follow the guidance of Fair Lending Sample Size 

Tables, Table B in the Appendix and select "marginal applicants" as instructed in 

Part III, Section C, above. 

b.	 Prepare a spreadsheet for the sample which contains data entry categories for those 

underwriting and/or referral criteria that the institution identified in Step 1.b as used 

in reaching underwriting and referral decisions between the pairs of products. 

c.	 Review the "less favorably" treated prohibited basis group sample and rank this 

sample from least qualified to most qualified. 

d.	 From the sample, identify the best qualified prohibited basis group applicant based on 

the criteria identified for the control group, above. This applicant will be the 

"benchmark" applicant. Rank order the remaining applicants from best to least 

qualified. 

e.	 Select a sample of control group applicants. Identify those who were treated "more 

favorably" with respect to the same product-alternative product pair as the prohibited 

basis group. (Again refer to the Sample Size Table B and marginal applicant 

processes noted above in selecting the sample.) 

f.	 Compare the qualifications of the benchmark applicant with those of the control 

group applicants, beginning with the least qualified member of that sample. Any 

control group applicant who appears less qualified than the benchmark applicant 

should be identified on the spreadsheet as a "control group overlap." 

g.	 Compare all control group overlaps with other, less qualified prohibited basis group 

applicants to determine whether additional overlaps exist. 

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h.	 Document all overlaps as possible disparities in treatment. Discuss all overlaps and 

related findings (e.g., any differences between stated and actual underwriting and/or 

referral criteria) with management, documenting all such conversations. 

Step 7: Examiners should consult with their agency’s supervisory staff if they see a need to 

contact control group or prohibited basis group applicants to substantiate the steering 

analysis. 

F. Transactional Underwriting Analysis - Commercial Loans. 

Overview: Unlike consumer credit, where loan products and prices are generally homogenous 

and underwriting involves the evaluation of a limited number of credit variables, commercial 

loans are generally unique and underwriting methods and loan pricing may vary depending on a 

large number of credit variables. The additional credit analysis that is involved in underwriting 

commercial credit products will entail additional complexity in the sampling and discrimination 

analysis process. Although ECOA prohibits discrimination in all commercial credit activities of 

a covered institution, the agencies recognize that small businesses (sole proprietorships, 

partnerships, and small, closely-held corporations) may have less experience in borrowing. 

Small businesses may have fewer borrowing options, which may make them more vulnerable to 

discrimination. Therefore, in implementing these procedures, examinations should generally be 

focused on small business credit (commercial applicants that had gross revenues of $1,000,000 

or less in the preceding fiscal year), absent some evidence that a focus on other commercial 

products would be more appropriate. 

Step 1: Understand Commercial Loan Policies 

For the commercial product line selected for analysis, the examiner should first review credit 

policy guidelines and interview appropriate commercial loan managers and officers to obtain 

written and articulated standards used by the institution in evaluating commercial loan 

applications. 

NOTE: Examiners should consult their own agencies for guidance on when a comparative 

analysis or statistical analysis is appropriate and follow their agencies procedures for conducting 

such a review/analysis. 

Step 2: Conduct Comparative File Review 

a.	 Select all (or a maximum of 10) denied applications that were acted on during the 

three-month period prior to the examination. To the extent feasible, include denied 

applications from businesses that are (i) located in minority and/or integrated 

geographies or (ii) appear to be owned by women or minority group members, based 

on the names of the principals shown on applications or related documents. (In the 

case of institutions that do a significant volume of commercial lending, consider 

reviewing more than ten applications.) 

b.	 For each of the denied commercial applications selected, record specific information 

from loan files and through interviews with the appropriate loan officer(s), about the 

principal owners, the purpose of the loan, and the specific, pertinent financial 

information about the commercial enterprise (including type of business - retail, 

manufacturing, service, etc.), that was used by the institution to evaluate the credit 

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request. Maintenance or use of data that identifies prohibited basis characteristics of 

those involved with the business (either in approved or denied loan applications) 

should be evaluated as a potential violation of Regulation B. 

c.	 Select 10 approved loans that appear to be similar with regard to business type, 

purpose of loan, loan amount, loan terms, and type of collateral, as the denied loans 

sampled. For example, if the denied loan sample includes applications for lines of 

credit to cover inventory purchases for retail businesses, the examiner should select 

approved applications for lines of credit from retail businesses. 

d.	 For each approved commercial loan application selected, obtain and record 

information parallel to that obtained for denied applications. 

e.	 The examiner should first compare the credit criteria considered in the credit process 

for each of the approved and denied applications to established underwriting 

standards, rather than comparing files directly. 

f.	 The examiner should identify any deviations from credit standards for both approved 

and denied credit requests and differences in loan terms granted for approved credit 

requests. 

g.	 The examiner should discuss each instance where deviations from credit standards 

and terms were noted, but were not explained in the file, with the commercial credit 

underwriter. Each discussion should be documented. 

Step 3: Conduct Targeted Sampling 

a.	 If deviations from credit standards or pricing are not sufficiently explained by other 

factors either documented in the credit file or the commercial underwriter was not 

able to provide a reasonable explanation, the examiner should determine if deviations 

were detrimental to any protected classes of applicants. 

b. The examiner should consider employing the same techniques for determining race 

and gender characteristics of commercial applicants as those outlined in the consumer 

loan sampling procedures. 

c.	 If it is determined that there are members of one or more prohibited basis groups 

among commercial credit requests that were not underwritten according to established 

standards or received less favorable terms, the examiner should select additional 

commercial loans, where applicants are members of the same prohibited basis group 

and select similarly situated control group credit requests in order to determine 

whether there is a pattern or practice of discrimination. These additional files should 

be selected based on the specific applicant circumstance(s) that appeared to have been 

viewed differently by lending personnel on a prohibited basis. 

d. If there are not enough similarly situated applicants for comparison in the original 

sample period to draw a reasonable conclusion, the examiner should expand the 

sample period. The expanded sample period should generally not go beyond the date 

of the prior examination. 

Sampling Guidelines 

a.	 Generally, the task of selecting an appropriate expanded sample of prohibited basis 

and control group applications for commercial loans will require examiner judgment. 

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The examiner should select a sample that is large enough to be able to draw a 

reasonable conclusion. 

b. The examiner should first select from the applications that were acted on during the 

initial sample period, but were not included in the initial sample, and select 

applications from prior time periods as necessary. 

c.	 The expanded sample should include both approved and denied, prohibited basis and 

control group applications, where similar credit was requested by similar enterprises 

for similar purposes. 

G. Analysis of Potential Discriminatory “Redlining” 

Overview: For purposes of this analysis, traditional “redlining” is a form of illegal disparate 

treatment in which an institution provides unequal access to credit, or unequal terms of credit, 

because of the race, color, national origin, or other prohibited characteristic(s) of the residents of 

the area in which the credit seeker resides or will reside or in which the residential property to be 

mortgaged is located. Redlining may also include “reverse redlining,” the practice of targeting 

certain borrowers or areas with less advantageous products or services based on prohibited 

characteristics. 

The redlining analysis may be applied to determine whether, on a prohibited basis: 

•	 An institution fails or refuses to extend credit in certain areas; 

•	 An institution targets certain borrowers or certain areas with less advantageous products; 

•	 An institution makes loans in such an area, but at a restricted level or upon less-favorable 

terms or conditions as compared to contrasting areas; or 

•	 An institution omits or excludes such an area from efforts to market residential loans or 

solicit customers for residential credit. 

This guidance focuses on possible discrimination based on race or national origin. The same 

analysis could be adapted to evaluate relative access to credit for areas of geographical 

concentration on other prohibited bases – for example, age. 

NOTE: It is true that neither the Equal Credit Opportunity Act (ECOA) nor the Fair 

Housing Act (FHAct) specifically uses the term “redlining.” However, federal courts as 

well as agencies that have enforcement responsibilities for the FHAct have interpreted it 

as prohibiting institutions from having different marketing or lending practices for certain 

geographic areas, compared to others, where the purpose or effect of such differences 

would be to discriminate on a prohibited basis. Similarly, the ECOA would prohibit 

treating applicants for credit differently on the basis of differences in the racial or ethnic 

composition of their respective neighborhoods. 

Like other forms of disparate treatment, redlining can be proven by overt or comparative 

evidence. If any written or oral policy or statement of the institution (see risk factors R6-10 in 

Part I, above) suggests that the institution links the racial or national origin character of an area 

with any aspect of access to or terms of credit, the examiners should refer to the guidance in 

Section B of this Part III, on documenting and evaluating overt evidence of discrimination. 

Overt evidence includes not only explicit statements, but also any geographical terms used by the 

institution that would, to a reasonable person familiar with the community in question, connote a 

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specific racial or national origin character. For example, if the principal information conveyed 

by the phrase “north of 110th Street” is that the indicated area is principally occupied by 

Hispanics, then a policy of not making credit available “north of 110th Street” is overt evidence 

of potential redlining on the basis of national origin. 

Overt evidence is relatively uncommon. Consequently, the redlining analysis usually will focus 

on comparative evidence (similar to analyses of possible disparate treatment of individual 

customers) in which the institution’s treatment of areas with contrasting racial or national origin 

characters is compared. 

When the scoping process (including consultation within an agency as called for by agency 

procedures) indicates that a redlining analysis should be initiated, examiners should complete the 

following steps of comparative analysis: 

1.	 Identify and delineate any areas within the institution’s CRA assessment area and 

reasonably expected market area for residential products that have a racial or national 

origin character; 

2.	 Determine whether any minority area identified in Step 1 appears to be excluded, 

under-served, selectively excluded from marketing efforts, or otherwise lessfavorably treated in any way by the institution; 

3.	 Identify and delineate any areas within the institution’s CRA assessment area and 

reasonably expected market area for residential products that are non-minority in 

character and that the institution appears to treat more favorably; 

4.	 Identify the location of any minority areas located just outside the institution’s CRA 

assessment area and market area for residential products, such that the institution may 

be purposely avoiding such areas; 

5.	 Obtain the institution’s explanation for the apparent difference in treatment between 

the areas and evaluate whether it is credible and reasonable; and 

6.	 Obtain and evaluate other information that may support or contradict interpreting 

identified disparities to be the result of intentional illegal discrimination. 

These steps are discussed in detail below. 

Using information obtained during scoping 

Although the six tasks listed are presented below as examination steps in the order given above, 

examiners should recognize that a different order may be preferable in any given examination. 

For example, the institution’s explanation (Step 5) for one of the policies or patterns in question 

may already be documented in the CRA materials reviewed (Step 1) and the CRA examiners 

may already have verified it, which may be sufficient for purposes of the redlining analysis. 

As another example, as part of the scoping process, the examiners may have reviewed an 

analysis of the geographic distribution of the institution’s loan originations with respect to the 

racial and national origin composition of census tracts within its CRA assessment or residential 

market area. Such analysis might have documented the existence of significant discrepancies 

between areas, by degree of minority concentration, in loans originated (risk factor R1), 

approval/denial rates (risk factor R2), and/or rates of denials because of insufficient collateral 

CFPB	 Manual V.2 (October 2012) Procedures 34 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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(risk factor R3). In such a situation in which the scoping process has produced a reliable factual 

record, the examiners could begin with Step 5 (obtaining an explanation) of the redlining 

analysis below. 

In contrast, when the scoping process only yields partial or questionable information or when the 

risk factors on which the redlining analysis is based on complaints or allegations against the 

institution, Steps 1-4 must be addressed. 

Comparative analysis for redlining 

Step 1: Identify and delineate any areas within the institution’s CRA assessment area and 

reasonably expected market area for residential products that are of a racial or national 

origin minority character. 

NOTE: The CRA assessment area can be a convenient unit for redlining analysis because 

information about it typically already is in hand. However, the CRA assessment area may be 

too limited. The redlining analysis focuses on the institution’s decisions about how much 

access to credit to provide to different geographical areas. The areas for which those 

decisions can best be compared are areas where the institution actually marketed and 

provided credit and where it could reasonably be expected to have marketed and provided 

credit. Some of those areas might be beyond or otherwise different from the CRA 

assessment area. 

If there are no areas identifiable for their racial or national origin minority character within the 

institution’s CRA assessment area or reasonably expected market area for residential products, a 

redlining analysis is not appropriate. (If there is a substantial, but dispersed minority population, 

potential disparate treatment can be evaluated by a routine comparative file review of applicants.) 

This step may have been substantially completed during scoping, but unresolved matters may 

remain. (For example, several community spokespersons may allege that the institution is redlining, 

but disagree in defining the area.) The examiners should: 

a.	 Describe as precisely as possible why a specific area is recognized in the community 

(perceptions of residents, etc.) and/or is objectively identifiable (based on census or other 

data) as having a particular racial or national origin minority character. 

•	 The most obvious identifier is the predominant race or national origin of the residents 

of the area. Examiners should document the percentages of racial or national origin 

minorities residing within the census tracts that make up the area. Analyzing racial 

and national origin concentrations in quartiles (such as 0 to <=25%, >25% to < = 

50%, >50% to <= 75%, and >75%) or based on majority concentration (0 to <=50%, 

and >50%) may be helpful. However, examiners should bear in mind that it is illegal 

for the institution to consider a prohibited factor in any way. For example, an area or 

neighborhood may only have a minority population of 20%, but if the area’s 

concentration appears related to lending practices, it would be appropriate to use that 

area’s level of concentration in the analysis. Contacts with community groups can be 

helpful to learn whether there are such subtle features of racial or ethnic character 

within a particular neighborhood. 

•	 Geographical groupings that are convenient for CRA may obscure racial patterns. 

For example, an under-served, low-income, predominantly minority 

CFPB	 Manual V.2 (October 2012) Procedures 35 
 

 

 

 

 

 

 

 

 

 

Interagency Fair Lending Examination Procedures 

neighborhood that lies within a larger low-income area that primarily consisted of 

non-minority neighborhoods may seem adequately served when the entire lowincome area is analyzed as a unit. However, a racial pattern of underservice to 

minority areas might be revealed if the low-income minority neighborhood shared 

a border with an under-served, middle-income, minority area and those two 

minority areas were grouped together for purposes of analysis. 

b. Describe how the racial or national origin character changes across the suspected 

redlining area’s various boundaries. 

c.	 Document or estimate the demand for credit within the minority area. This may 

include the applicable demographics of the area, including the percentage of 

homeowners, the median house value, median family income, or the number of small 

businesses, etc. Review the institution’s non-originated loan applications from the 

suspected redlined areas. If available, review aggregate institution data for loans 

originated and applications received from the suspected redlined areas. Community 

contacts may also be helpful in determining the demand for such credit. If the 

minority area does not have a significant amount of demand for such credit, the area 

is not appropriate for a redlining analysis. 

Step 2: Determine whether any minority area identified in Step 1 is excluded, underserved, selectively excluded from marketing efforts, or otherwise less-favorably treated in 

any way by the institution. 

The examiners should begin with the risk factors identified during the scoping process. The 

unfavorable treatment may have been substantially documented during scoping and needs only to 

be finished in this step. If not, this step will verify and measure the extent to which HMDA data 

show the minority areas identified in Step 1 to be under-served and/or how the institution's 

explicit policies treat them less favorably. 

a.	 Review prior CRA lending test analyses to learn whether they have identified any 

excluded or otherwise under-served areas or other significant geographical disparities 

in the institution’s lending. Determine whether any of those are the minority areas 

identified in Step 1. 

b. Learn from the institution itself whether, as a matter of policy, it treats any separate or 

distinct geographical areas within its marketing or service area differently from other 

areas. This may have been done completely or partially during scoping analysis 

related to risk factors R5-R9. The differences in treatment can be in marketing, 

products offered, branch operations (including the services provided and the hours of 

operation), appraisal practices, application processing, approval requirements, 

pricing, loan conditions, evaluation of collateral, or any other policy or practice 

materially related to access to credit. Determine whether any of those less-favored 

areas are the minority areas identified in Step 1. 

c.	 Obtain from the institution: (i) its reasons for such differences in policy, (ii) how the 

differences are implemented, and (iii) any specific conditions that must exist in an 

area for it to receive the particular treatment (more favorable or less favorable) that 

the institution has indicated. 

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Step 3: Identify and delineate any areas within the institution’s CRA assessment area and 

reasonably expected market area for residential products that are non-minority in 

character and that the institution appears to treat more favorably. 

To the extent not already completed during scoping: 

a.	 Document the percentages of control group and of racial or national origin minorities 

residing within the census tract(s) that comprise(s) the non-minority area; 

b. Document the nature of the housing stock in the area; 

c.	 Describe, to the extent known, how the institution’s practices, policies, or its rate of 

lending change from less- to more-favorable as one leaves the minority area at its 

various boundaries (Examiners should be particularly attentive to instances in which 

the boundaries between favored and disfavored areas deviate from boundaries the 

institution would reasonably be expected to follow, such as political boundaries or 

transportation barriers.); and 

d. Examiners should particularly consider whether, within a large area that is composed 

predominantly of racial or national origin minority households, there are enclaves that 

are predominantly non-minority or whether, along the area’s borders, there are 

irregularities where the non-minority group is predominant. As part of the overall 

comparison, examiners should determine whether credit access within those small 

non-minority areas differs from credit access in the larger minority area. 

Step 4: Identify the location of any minority areas just outside the institution’s CRA 

assessment area and market area for residential products, such that the institution may be 

purposely avoiding such areas. 

Review the analysis from prior CRA examinations of whether the assessment area appears to 

have been influenced by prohibited factors. If there are minority areas that the institution 

excluded from the assessment area improperly, consider whether they ought to be included in the 

redlining analysis. Analyze the institution’s reasonably expected market area in the same 

manner. 

Step 5: Obtain the institution’s explanation for the apparent difference in treatment 

between the areas and evaluate whether it is credible and reasonable. 

This step completes the comparative analysis by soliciting from the institution any additional 

information not yet considered by the examiners that might show that there is a 

nondiscriminatory explanation for the apparent disparate treatment based on race or ethnicity. 

For each matter that requires explanation, provide the institution full information about what 

differences appear to exist in how it treats minority and non-minority areas and how the 

examiners reached their preliminary conclusions at this stage of the analysis. 

a.	 Evaluate whether the conditions identified by the institution in Step 2 as justifying more 

favorable treatment pursuant to institutional policy existed in minority neighborhoods 

that did not receive the favorable treatment called for by institutional policy. If there 

are minority areas for which those conditions existed, ask the institution to explain why 

the areas were treated differently despite the similar conditions. 

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b. Evaluate whether the conditions identified by the institution in Step 2 as justifying 

less favorable treatment pursuant to institutional policy existed in non-minority 

neighborhoods that received favorable treatment nevertheless. If there are nonminority areas for which those conditions existed, ask the institution to explain why 

those areas were treated differently, despite the similar conditions. 

c.	 Obtain explanations from the institution for any apparent differences in treatment 

observed by the examiners, but not called for by the institution’s policies 

•	 If the institution’s explanation cites any specific conditions in the non-minority 

area(s) to justify more favorable treatment, determine whether the minority 

area(s) identified in Step 1 satisfied those conditions. If there are minority areas 

for which those conditions existed, ask the institution to explain why the areas 

were treated differently despite the similar conditions. 

•	 If the institution’s explanation cites any specific conditions in the minority area(s) 

to justify less favorable treatment, determine whether the non-minority area(s) 

had those conditions. If there are non-minority areas for which those conditions 

existed, ask the institution to explain why those areas were treated differently, 

despite the similar conditions. 

d. Evaluate the institution’s responses by applying appropriate principles selected from 

the Appendix on Evaluating Responses to Evidence of Disparate Treatment. 

Step 6: Obtain and evaluate specific types of other information that may support or 

contradict a finding of redlining. 

As a legal matter, discriminatory intent can be inferred simply from the lack of a legitimate 

explanation for clearly less-favorable treatment of racial or national origin minorities. 

Nevertheless, if the institution’s explanations do not adequately account for a documented 

difference in treatment, the examiners should consider additional information that might support 

or contradict the interpretation that the difference in treatment constituted redlining. 

a.	 Comparative file review. If there was a comparative file review conducted in 

conjunction with the redlining examination, review the results; or if it is necessary 

and feasible to do so to clarify what appears to be discriminatory redlining, compare 

denied applications from within the suspected redlining area to approved applications 

from the contrasting area. 

•	 Learn whether there were any denials of fully qualified applicants from the 

suspected redlining area. If so, that may support the view that the institution was 

avoiding doing business in the area. 

•	 Learn whether the file review identified instances of illegal disparate treatment 

against applicants of the same race or national origin as the suspected redlining 

area. If so, that may support the view that the institution was avoiding doing 

business with applicants of that group, such as the residents of the suspected 

redlining area. Learn whether any such identified victims applied for transactions 

in the suspected redlining area. 

•	 If there are instances of either of the above, identify denied non-minority 

residents, if any, of the suspected redlining area and review their application files 

to learn whether they appear to have been treated in an irregular or less favorable 

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Interagency Fair Lending Examination Procedures 

way. If so, that may support the view that the character of the area rather than of 

the applicants themselves appears to have influenced the credit decisions. 

•	 Review withdrawn and incomplete applications for the suspected redlining 

area, if those can readily be identified from the HMDA-LAR, and learn 

whether there are reliable indications that the institution discouraged those 

applicants from applying. If so, that may support the view that the 

institution was avoiding conducting business in the area and may 

constitute evidence of a violation of Section 202.4(b) of Regulation B. 

Conversely, if the comparisons of individual transactions show that the institution treated 

minority and non-minority applicants within and outside the suspected redlining area 

similarly, that tends to contradict the conclusion that the institution avoided the areas 

because it had minority residents. 

b. Interviews of third parties. The perspectives of third parties will have been taken into 

account to some degree through the review of available materials during scoping. 

Later in the examination, in appropriate circumstances, information from third parties 

may help determine whether the institution’s apparent differences in treatment of 

minority and non-minority areas constitute redlining. 

•	 Identify persons (such as housing or credit counselors, home improvement 

contractors, or real estate and mortgage brokers) who may have extensive 

experience dealing with credit applicants from the suspected redlined area. 

•	 After obtaining appropriate authorization and guidance from your agency, 

interview those persons to learn of their first-hand experiences related to: 

•	 Oral statements or written indications by an institution’s representatives that 

loan applications from a suspected redlined area were discouraged; 

•	 Whether the institution treated applicants from the suspected redlining area as 

called for in its own procedures (as the examiners understand them) and/or 

whether it treated them similarly to applicants from non-minority areas (as the 

examiners are familiar with those transactions); 

•	 Any unusual delays or irregularities in loan processing for transactions in the 

suspected redlining area; and 

•	 Differences in the institution’s pricing, loan conditions, property valuation 

practices, etc., in the suspected redlining area compared to contrasting areas. 

Also, learn from the third parties the names of any consumers they described as having 

experienced the questionable behavior recounted by the third party, and consider 

contacting those consumers. 

If third parties witnessed specific conduct by the institution that indicates the institution 

wanted to avoid business from the area or prohibited basis group in question, this would 

tend to support interpreting the difference in treatment as intended. Conversely, if third 

parties report proper treatment or positive actions toward such area or prohibited basis 

group, this would tend to contradict the view that the institution intended to discriminate. 

c.	 Marketing. A clear exclusion of the suspected redlining area from the institution’s 

marketing of residential loan products supports the view that the institution did not 

want to do business in the area. Marketing decisions are affirmative acts to include or 

exclude areas. Disparities in marketing between two areas may reveal that the 

CFPB	 Manual V.2 (October 2012) Procedures 39 
Interagency Fair Lending Examination Procedures 

institution prefers one to the other. If sufficiently stark and supported by other 

evidence, a difference in marketing to racially different areas could itself be treated as 

a redlining violation of the Fair Housing Act. Even below that level of difference, 

marketing patterns can support or contradict the view that disparities in lending 

practices were intentional. 

•	 Review materials that show how the institution has marketed in the suspected 

redlined area and in non-minority areas. Begin with available CRA materials and 

discuss the issues with CRA examiners, then review other materials as 

appropriate. The materials may include, for example, the institution’s guidance 

for the geographical distribution of pre-approved solicitations for credit cards or 

home equity lines of credit, advertisements in local media or business or 

telephone directories, business development calls to real estate brokers, and calls 

by telemarketers. 

d. Peer performance. Market share analysis and other comparisons to competitors are 

insufficient by themselves to prove that an institution engaged in illegal redlining. By 

the same token, an institution cannot justify its own failure to market or lend in an 

area by citing other institutions’ failures to lend or market there. 

However, an institution’s inactivity in an under-served area where its acknowledged 

competitors are active would tend to support the interpretation that it intends to avoid 

doing business in the area. Conversely, if it is as active as other institutions that 

would suggest that it intends to compete for, rather than avoid, business in the area. 

•	 Develop a list of the institution's competitors. 

•	 Learn the level of lending in the suspected redlining area by competitors. Check 

any public evaluations of similarly situated competitors obtained by the CRA 

examiners as part of evaluating the performance context or obtain such 

evaluations independently. 

e.	 Institution’s record. Request from the institution information about its overall record 

of serving or attempting to serve the racial or national origin minority group with 

which the suspected redlining area is identified. The record may reveal an intent to 

serve that group that tends to contradict the view that the institution intends to 

discriminate against the group. 

NOTE: For any information that supports interpreting the situation as illegal discrimination, 

obtain and evaluate an explanation from the institution as called for in Part IV. If the 

institution’s explanation is that the disparate results are the consequence of a specific, neutral 

policy or practice that the institution applies broadly, such as not making loans on homes below a 

certain value, review the guidance in the Special Analyses section of the Appendix under 

Disproportionate Adverse Impact Violations and consult agency managers. 

H. Analysis of Potential Discriminatory Marketing Practices. 

When scoping identifies significant risk factors (M1-M7) related to marketing, examiners should 

consult their agency’s supervisory staff and experts about a possible marketing discrimination 

analysis. If the supervisory staff agrees to proceed, the examiners should collect information as 

follows: 

CFPB	 Manual V.2 (October 2012) Procedures 40 
 

 

Interagency Fair Lending Examination Procedures 

Step 1: Identify the institution’s marketing initiatives. 

a.	 Pre-approved solicitations 

•	 Determine whether the institution sends out pre-approved solicitations: 

•	 for home purchase loans; 

•	 for home improvement loans; and 

•	 for refinance loans. 

•	 Determine how the institution selects recipients for such solicitations: 

•	 learn from the institution its criteria for such selections; and 

•	 review any guidance or other information the institution provided credit-reporting 

companies or other companies that supply such lists. 

b.	 Media Usage 

•	 Determine in which newspapers and broadcast media the institution advertises; 

•	 identify any racial or national origin identity associated with those media; and 

•	 determine whether those media focus on geographical communities of a particular 

racial or national origin character. 

•	 Learn the institution's strategies for geographic and demographic distribution 

of advertisements. 

•	 Obtain and review copies of the institution's printed advertising and promotional materials. 

•	 Determine what criteria the institution communicates to media about what is an attractive 

customer or an attractive area to cultivate business. 

•	 Determine whether advertising and marketing are the same to racial and national origin 

minority areas as compared to non-minority areas. 

c.	 Self-produced promotional materials 

•	 Learn how the institution distributes its own promotional materials, both methods and 

geographical distribution; and 

•	 Learn what the institution regards as the target audience(s) for those materials. 

d.	 Realtors, brokers, contractors, and other intermediaries 

•	 Determine whether the institution solicits business from specific realtors, brokers, home 

improvement contractors, and other conduits; 

•	 learn how the institution decides which intermediaries it will solicit; 

•	 identify the parties contacted and determine the distribution between minority and 

non-minority areas; 

•	 obtain and review the types of information the institution distributes to 

intermediaries; and
 

•	 determine how often the institution contacts intermediaries. 

CFPB	 Manual V.2 (October 2012) Procedures 41 
 

 

 

 

Interagency Fair Lending Examination Procedures 

•	 Determine what criteria the institution communicates to intermediaries about the type of 

customers it seeks or the nature of the geographic areas in which it wishes to do business. 

e.	 Telemarketers or predictive dialer programs 

•	 Learn how the institution identifies which consumers to contact and whether the
 

institution sets any parameters on how the list of consumers is compiled.
 

Step 2: Determine whether the institution's activities show a significantly lower level of 

marketing effort toward minority areas or toward media or intermediaries that tend to 

reach minority areas. 

Step 3: If there is any such disparity, document the institution's explanation for it. 

For additional guidance, refer to Part C of the Special Analyses section in the Appendix. 

I. Credit Scoring. 

If the scoping process results in the selection of a focal point that includes a credit or mortgage 

scored loan product, refer to the Considering Automated Underwriting and Credit Scoring 

section of the Appendix. 

If the institution utilizes a credit scoring program which scores age for any loan product selected 

for review in the scoping stage, either as the sole underwriting determinant or only as a guide to 

making loan decisions, refer to Part E of the Considering Automated Underwriting and Credit 

Scoring section of the Appendix. 

J. Disparate Impact Issues. 

These procedures have thus far focused primarily on examining comparative evidence for 

possible unlawful disparate treatment. Disparate impact has been described briefly in the 

Introduction. Whenever an examiner believes that a particular policy or practice of an institution 

appears to have a disparate impact on a prohibited basis, the examiner should refer to Part A of 

the Special Analyses section of the Appendix or consult with agency supervisory staff for further 

guidance. 

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Interagency Fair Lending Examination Procedures 

PART IV
 

OBTAINING AND EVALUATING RESPONSES FROM THE
 

INSTITUTION AND CONCLUDING THE EXAMINATION
 

Step 1: Present to the institution’s management for explanation: 

a.	 Any overt evidence of disparate treatment on a prohibited basis. 

b.	 All instances of apparent disparate treatment (e.g., overlaps) in either the underwriting of 

loans or in loan prices, terms, or conditions. 

c.	 All instances of apparent disparate treatment in the form of discriminatory steering, redlining, 

or marketing policies or practices. 

d.	 All instances where a denied prohibited basis applicant was not afforded the same level of 

assistance or the same benefit of discretion as an approved control group applicant who was 

no better qualified with regard to the reason for denial. 

e.	 All instances where a prohibited basis applicant received conspicuously less favorable 

treatment by the institution than was customary from the institution or was required by the 

institution's policy. 

f.	 Any statistically significant average difference in either the frequency or amount of pricing 

disparities between control group and prohibited basis group applicants. 

g.	 Any evidence of neutral policies, procedures, or practices that appear to have a disparate 

impact or effect on a prohibited basis. 

Explain that unless there are legitimate, nondiscriminatory explanations (or in the case of 

disparate impact, a compelling business justification) for each of the preliminary findings of 

discrimination identified in this Part, the agency could conclude that the institution is in violation 

of the applicable fair lending laws. 

Step 2: Document all responses that have been provided by the institution, not just its 

“best” or “final” response. Document each discussion with dates, names, titles, questions, 

responses, any information that supports or undercuts the institution's credibility, and any 

other information that bears on the issues raised in the discussion(s). 

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Interagency Fair Lending Examination Procedures 

Step 3: Evaluate whether the responses are consistent with previous statements, 

information obtained from file review, documents, reasonable banking practices, and other 

sources, and satisfy common-sense standards of logic and credibility. 

a.	 Do not speculate or assume that the institution's decision-maker had specific intentions or 

considerations in mind when he or she took the actions being evaluated. Do not, for 

example, conclude that because you have noticed a legitimate, nondiscriminatory reason for a 

denial (such as an applicant’s credit weakness) that no discrimination occurred unless it is 

clear that, at the time of the denial, the institution actually based the denial on that reason. 

b.	 Perform follow-up file reviews and comparative analyses, as necessary, to determine the 

accuracy and credibility of the institution’s explanations. 

c.	 Refer to Evaluating Responses to Evidence of Disparate Treatment in the Appendix for 

guidance as to common types of responses. 

d.	 Refer to the Disproportionate Adverse Impact Violations portion of the Special Analyses 

section of the Appendix for guidance on evaluating the institution's responses to apparent 

disparate impact. 

Step 4: If, after completing Steps 1 - 3 above, you conclude that the institution has failed to 

adequately demonstrate that one or more apparent violations had a legitimate 

nondiscriminatory basis or were otherwise lawful, prepare a documented list or discussion 

of violations, or a draft examination report, as prescribed by agency directives. 

Step 5: Consult with agency supervisory staff regarding whether (a) any violations should 

be referred to the Departments of Justice or Housing and Urban Development and (b) 

enforcement action should be undertaken by your agency. 

CFPB	 Manual V.2 (October 2012) Procedures 44 
 

INTERAGENCY FAIR LENDING EXAMINATION
 

PROCEDURES 

APPENDIX
 

CFPB Manual V.2 (October 2012) Procedures 1 
 

 

 

 

3 

TABLE OF CONTENTS 

INTRODUCTION 

I.	 COMPLIANCE MANAGEMENT ANALYSIS CHECKLIST 4
 

A.	 Preventive Measures 4
 

B.	 Corrective Measures 10
 

II.	 CONSIDERING AUTOMATED UNDERWRITING AND CREDIT
 

SCORING 11
 

A.	 Structure and Organization of the Scoring System 11
 

B.	 Adverse Action Disclosure Notices 12
 

C.	 Disparate Treatment in the Application of Credit Scoring Programs 12
 

D.	 Disparate Impact and Credit Scoring Algorithms 13
 

E.	 Credit Scoring Systems That Include Age 13
 

F.	 Examination for Empirical Derivation and Statistical Soundness 13
 

III.	 EVALUATING RESPONSES TO EVIDENCE OF DISPARATE 

TREATMENT 14
 

A.	 Responses to Comparative Evidence of Disparate Treatment 14
 

B.	 Responses to Overt Evidence of Disparate Treatment 18
 

IV.	 FAIR LENDING SAMPLE SIZE TABLES 20
 

Table A: Underwriting (Accept/Deny) Comparisons 20
 

Table B: Terms and Conditions Comparisons 20
 

V.	 IDENTIFYING MARGINAL TRANSACTIONS 22
 

A.	 Marginal Denials 22
 

B.	 Marginal Approvals 23
 

VI.	 POTENTIAL SCOPING INFORMATION 24
 

A.	 Internal Agency Documents and Records 24
 

B.	 Information from the Institution 24
 

VII.	 SPECIAL ANALYSES 27
 

A.	 Disproportionate Adverse Impact Violations 27
 

B.	 Discriminatory Pre-application Screening 30
 

C.	 Possible Discriminatory Marketing 30
 

VIII.	 USING SELF-TESTS AND SELF-EXAMINATIONS TO
 

STREAMLINE THE EXAMINATION 32
 

CFPB	 Manual V.2 (October 2012) Procedures 2
 
 

 

 

Introduction 

This Appendix offers a full range of information that might conceivably be brought to bear in an 

examination. In that sense, it is a menu of resources to be considered and selected from, depending on 

the nature and scope of the examination being conducted. 

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Interagency Fair Lending Procedures
 

I. Compliance Management Analysis Checklist 

This checklist is for use in conjunction with Part II of these procedures as a device for examiners 

to evaluate the strength of an institution’s compliance program in terms of its capacity to prevent 

and to identify and self-correct fair lending violations in connection with the products or issues 

selected for analysis. The checklist is not intended to be an absolute test of an institution’s 

compliance management program. Programs containing all or most of the features described in 

the list may nonetheless be flawed for other reasons; conversely, a compliance program that 

encompasses only a portion of the factors listed below may nonetheless adequately support a 

strong program under appropriate circumstances. In short, the examiner must exercise his or her 

best judgment in utilizing this list and in assessing the overall quality of an institution’s efforts to 

ensure fair lending compliance. 

If the transactions within the proposed scope are covered by a listed preventive measure, and the 

answer is “Yes,” check the box in the left column. You may then reduce the intensity (mainly 

the sample size) of the planned comparative file review to the degree that the preventive 

measures cover transactions within the proposed scope. Document your findings in sufficient 

detail to justify any resulting reduction in the intensity of the examination. 

You are not required to learn whether preventive measures apply to specific products outside the 

proposed scope. However, if the information you have obtained shows that the measure is a 

general practice of the institution, and thus applies to all loan products, check the box in the 

second column in order to assist future examination planning. 

A. Preventive Measures 

Determine whether policies and procedures exist that tend to prevent illegal disparate treatment 

in the transactions you plan to examine. There is no legal or agency requirement for institutions 

to conduct these activities. The absence of any of these policies and practices is never, by itself, 

a violation. 

CFPB Manual V.2 (October 2012) Procedures 4 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YES NO NA 

Interagency Fair Lending Procedures
 

1. 

a. Principal policy issues 

• Are underwriting practices clear, objective and generally 

consistent with industry standards? 

• Is pricing within reasonably confined ranges with guidance 

linking variations to risk and/or cost factors? 

• Does management monitor the nature and frequency of 

exceptions to its standards? 

• Are denial reasons accurately and promptly communicated to 

unsuccessful applicants? 

• Are there clear and objective standards for referring applicants 

to (i) subsidiaries, affiliates, or other lending channels within the 

institution, (ii) classifying applicants as “prime” or subprime” 

borrowers, or (iii) deciding what kinds of alternative loan 

products should be offered or recommended to applicants? 

• Are loan officers required to document any deviation from the 

rate sheet? 

• Does management monitor consumer complaints alleging 

discrimination in loan pricing or underwriting? 

b. Do training, application-processing aids, and other guidance 

correctly and adequately describe: 

• Prohibited bases under ECOA, Regulation B, and the Fair 

Housing Act? 

• Other substantive credit access requirements of Regulation B 

(e.g., spousal signatures, improper inquiries, protected income)? 

c. Is it specifically communicated to employees that they must 

not, on a prohibited basis: 

• Refuse to deal with individuals inquiring about credit? 

• Discourage inquiries or applicants by delays, discourtesy, or 

other means. 

• Provide different, incomplete, or misleading information about 

the availability of loans, application requirements, and 

processing and approval standards or procedures (including 

selectively informing applicants about certain loan products 

while failing to inform them of alternatives)? 

• Encourage or more vigorously assist only certain inquirers or 

applicants? 

• Refer credit seekers to other institutions, more costly loan 

products, or potentially onerous features? 

• Refer credit seekers to nontraditional products (i.e., negative 

Lending Practices and Standards 

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amortization, “interest only,” “payment option” adjustable rate 

mortgages) when they could have qualified for traditional 

mortgages. 

• Waive or grant exceptions to application procedures or credit 

standards? 

• State a willingness to negotiate? 

• Use different procedures or standards to evaluate applications? 

• Use different procedures to obtain and evaluate appraisals? 

• Provide certain applicants opportunities to correct or explain 

adverse or inadequate information, or to provide additional 

information? 

• Accept alternative proofs or creditworthiness? 

• Require co-signers? 

• Offer or authorize loan modifications? 

• Suggest or permit loan assumptions? 

• Impose late charges, reinstatement fees, etc.? 

• Initiate collection or foreclosure? 

d. Has the institution taken specific initiatives to prevent the 

following practices? 

• Basing credit decisions on assumptions derived from racial,
 

gender, and other stereotypes, rather than facts?
 

• Seeking consumers from a particular racial, ethnic, or religious 

group, or of a particular gender, to the exclusion of other types 

of consumers, on the basis of how “comfortable” the employee 

may feel in dealing with those different from him/her? 

• Limiting the exchange of credit-related information or the 

institution’s efforts to qualify an applicant from a prohibited 

basis group. 

• Drawing the institution’s CRA assessment area by
 

unreasonably excluding minority areas?
 

• Targeting certain borrowers or areas with less advantageous 

products? 

e. Does the institution have procedures to ensure that it does not: 

• State racial or ethnic limitations in advertisements? 

• Employ words or use photos in advertisements that convey
 

racial or ethnic limitations or preferences?
 

•	 Place advertisement that a reasonable person would regard as 

indicating minority consumers are less desirable? 

• Advertise only in media serving predominately minority or 

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nonminority areas of the market? 

• Conduct other forms of marketing differentially in minority or
 

nonminority areas of the market?
 

• Market only through brokers known to serve one racial or
 

ethnic group in the market?
 

• Use a prohibited basis in any prescreened solicitation? 

• Provide financial incentives for loan officers to place applicants
 

in non-traditional products or higher-risk products?
 

2.	 Compliance Audit Function: Does the Institution Attempt to Detect Prohibited 

Disparate Treatment by Self-Test or Self-Evaluation? 

NOTE: A self-test is any program, practice, or study that is designed and specifically used to 

assess the institution’s compliance with the ECOA and the Fair Housing Act. It creates data or 

factual information that is not otherwise available and cannot be derived from loan, 

application, or other records related to credit transactions (12 CFR 202.15(b)(1)1 and 24 CFR 

100.141). The report, results, and many other records associated with a self-test are privileged 

unless an institution voluntarily discloses the report or results or otherwise forfeits the 

privilege. See 12 CFR 202.15(b)(2) and 24 CFR 100.142(a) for a complete listing of the types 

of information covered by the privilege. A self-evaluation, while generally having the same 

purpose as a self-test, does not create any new data or factual information, but uses data readily 

available in loan or application files and other records used in credit transactions and, 

therefore, does not meet the self-test definition. See Using Self-Tests and Self-Evaluations to 

Streamline the Examination in this Appendix for more information about self-tests and selfevaluations. 

1 In December 2011, the Consumer Financial Protection Bureau restated the Federal Reserve’s implementing 

regulation at 12 CFR Part 1002 (76 Fed. Reg. 79442)(December 21, 2011). 

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While you may request the results of self-evaluations, you should not request the results of selftests or any of the information listed in 12 CFR 202.15(b)(2) and 24 CFR 100.142(a). If an 

institution discloses the self-test report or results to its regulator, it will lose the privilege. The 

following items are intended to obtain information about the institution’s approach to self-testing 

and self-evaluation, not the findings. Complete the checklist below for each self-evaluation and 

each self-test, where the institution voluntarily discloses the report or results. Evaluating the 

results of self-evaluations and voluntarily disclosed self-tests is described in Using Self-tests 

Self-Evaluations to Streamline the Examination in this Appendix. 

a. Are the transactions reviewed by an independent analyst who: 

• Is directed to report objective results? 

• Has an adequate level of expertise? 

• Produces written conclusions? 

b. Does the institution’s approach for self-testing or self-evaluation call for: 

• Attempting to explain major patterns shown in the HMDA or other loan 

data?
 

• Determining whether actual practices and standards differ from stated
 

ones and basing the evaluation on the actual practices?
 

• Evaluating whether the reasons cited for denial are supported by facts
 

relied on by the decision maker at the time of the decision?
 

• Comparing the treatment of prohibited basis group applicants to control
 

group applicants?
 

• Obtaining explanations from decision makers for any unfavorable
 

treatment of the prohibited basis group that departed from policy or
 

customary practice?
 

• Covering significant decision points in the loan process where disparate
 

treatment or discouragement might occur, including:
 

o The approve/deny decision? 

o Pricing? 

o Other terms and conditions? 

• Covering at least as many transactions as examiners would independently, 

if using the Fair Lending Sample Size Tables for a product with the
 

application volumes of the product to be evaluated?
 

• Maintaining information concerning personal characteristics collected as
 

part of a self-test separately from application or loan files?
 

• Timely analysis of the data? 

• Taking appropriate and timely corrective action? 

c. In the institution’s plan for comparing the treatment of prohibited basis
 

group applicants with that of control group applicants:
 

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• Are control and prohibited basis groups based on a prohibited basis found 

in ECOA or the FHAct and defined clearly to isolate that prohibited basis 

for analysis? 

• Are appropriate data to be obtained to document treatment of applicants 

and the relative qualifications vis-à-vis the requirement in question? 

• Will the data to be obtained reflect the data on which decisions were 

based?
 

• Does the plan call for comparing the denied applicants’ qualifications 

related to the stated reason for denial with the corresponding 

qualifications for approved applicants? 

• Are comparisons designed to identify instances in which prohibited basis 

group applicants were treated less favorably than control group applicants 

who were no better qualified? 

• Is the evaluation designed to determine whether control and prohibited 

basis group applicants were treated differently in the processes by which 

the institution helped applicants overcome obstacles and by which their 

qualifications were enhanced? 

• Are responses and explanations to be obtained for any apparent 

disparate treatment on a prohibited basis or other apparent violations 

of credit rights? 

• Are reasons cited by credit decision makers to justify or explain instances 

of apparent disparate treatment to be verified? 

d. For self-tests under ECOA that involved the collection of applicant 

personal characteristics, did the institution: 

• Develop a written plan that describes or identifies the: 

o	 Specific purpose of the self-test? 

o	 Methodology to be used? 

o	 Geographic area(s) to be covered? 

o	 Type(s) of credit transactions to be reviewed? 

o	 Entity that will conduct the test and analyze the data? 

o	 Timing of the test, including start and end dates or the duration of 

the self-test 

o	 Other related self-test data that is not privileged? 

• Disclose at the time applicant characteristic information is requested, that: 

o	 The applicant will not be required to provide the information? 

o	 The creditor is requesting the information to monitor its
 

compliance with ECOA?
 

o	 Federal law prohibits the creditor from discriminating on the 

basis of this information or on the basis of an applicant’s decision 

not to furnish the information? 

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o	 If applicable, certain information will be collected based on 

visual observation or surname if not provided by the applicant? 

B. Corrective Measures 

a. Determine whether the institution has provisions to take appropriate 

corrective action and provide adequate relief to victims for any violations 

in the transactions you plan to review. 

• Who is to receive the results of a self-evaluation or voluntarily disclosed 

self-test? 

• What decision process is supposed to follow delivery of the information? 

• Is feedback to be given to staff whose actions are reviewed? 

• What types of corrective action may occur? 

• Are consumers to be: 

o	 Offered credit if they were improperly denied? 

o	 Compensated for any damages, both out of pocket and 

compensatory?
 

o	 Notified of their legal rights? 

b. Other corrective action: 

• Are institutional policies or procedures that may have contributed to the 

discrimination to be corrected? 

• Are employees involved to be trained and/or disciplined? 

• Is the need for community outreach programs and/or changes in 

marketing strategy or loan products to better serve minority segments of 

the institution’s market to be considered? 

• Are audit and oversight systems to be improved in order to ensure there is 

not recurrence of any identified discrimination? 

COMMENTS 

[Click&type] 

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II. Considering Automated Underwriting and Credit Scoring 

These procedures are designed to help you in drawing and supporting fair lending conclusions in 

situations involving automated underwriting or credit scoring risk factors. 

A. Structure and Organization of the Scoring System 

Determine the utilization of credit scoring at the institution including: 

1.	 For each customized credit scoring model or scorecard for any product, or for any credit 

scoring model used in connection with a product held in portfolio, identify and obtain: 

a.	 The number and inter-relationship of each model or scorecard applied to a particular 

product. 

b.	 The purposes for which each scorecard is employed (e.g., approval decision, set
 

credit limits, set pricing, determine processing requirements, etc.).
 

c.	 The developer of each scorecard used (e.g., in-house department, affiliate,
 

independent vendor name) and describe the development population utilized. 

d.	 The types of monitoring reports generated (including front-end, back-end, account 

management, and any disparate impact analyses), the frequency of generation, and 

recent copies of each. 

e.	 All policies applicable to the use of credit scoring. 

f.	 Training materials and programs on credit scoring for employees, agents, and brokers 

involved in any aspect of retail lending. 

g.	 Any action taken to revalidate or re-calibrate any model or scorecard used during the 

exam period and the reason(s) why. 

h.	 The number of all high-side and low-side overrides for each type of override 

occurring during the exam period and any guidance given to employees on their
 

ability to override.
 

i.	 All cutoffs used for each scorecard throughout the examination period and the
 

reasons for the cutoffs and any change made during the exam period.
 

j.	 All variables scored by each product’s scorecard(s) and the values that each variable 

may take. 

k.	 The method used to select for disclosure those adverse action reasons arising from 

application of the model or scorecard. 

2.	 For each judgmental underwriting system that includes as an underwriting criterion a 

standard credit bureau or secondary market credit score identify: 

a.	 The vendor of each credit score and any vendor recommendation or guidance on the 

usage of the score relied upon by the institution; 

b.	 The institution’s basis for using the particular bureau or secondary market score and 

the cutoff standards for each product’s underwriting system, and the reasons for any 

changes to the same during the exam period; 

c.	 The number of exceptions or overrides made to the credit score component of the 

underwriting criteria and the basis for those exceptions or overrides, including any 

guidance given to employees on their ability to depart from credit score underwriting 

standards, and; 

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d.	 Types of monitoring reports generated on the judgmental system or its credit scoring 

component (including front-end, back-end, differential processing, and disparate 

impact analysis), and the frequency of generation and recent copies of each. 

B. Adverse Action Disclosure Notices 

Determine the methodology used to select the reasons why adverse action was taken on a credit 

application denied on the basis of the applicant’s credit score. Compare the methodology used to 

the examples recited in the Commentary to Regulation B and decide acceptability against that 

standard. Identify any consumer requests for reconsideration of credit score denial reasons and 

review the action taken by management for consistency across applicant groups. 

Where a credit score is used to differentiate application processing and an applicant is denied for 

failure to attain a judgmental underwriting standard that would not be applied if the applicant 

had received a better credit score (thereby being considered in a different – presumably less 

stringent – application processing group), ensure that the adverse action notice also discloses the 

bases on which the applicant failed to attain the credit score required for consideration in the less 

stringent processing group. 

C. Disparate Treatment in the Application of Credit Scoring Programs 

1.	 Determine what controls and policies management has implemented to ensure that the 

institution’s credit scoring models or credit score criteria are not applied in a 

discriminatory manner, in particular: 

a.	 Examine institution guidance on using the credit scoring system, on handling 

overrides, and on processing applicants and how well that guidance is understood and 

observed by the targeted employees and monitored for compliance by management; 

and 

b.	 Examine institution policies that permit overrides or that provide for different 

processing or underwriting requirements based on geographic identifiers or 

borrower score ranges to assure that they do not treat protected group applicants 

differently than other similarly situated applicants. 

2.	 Evaluate whether any of the bases for granting credit to control group applicants who are 

low-side overrides are applicable to any prohibited basis denials whose credit score was 

equal to or greater than the lowest score among the low-side overrides. If such cases are 

identified, obtain and evaluate management’s reason for why such different treatment is 

not a fair lending violation. 

3.	 Evaluate whether any of the bases for denying credit to any prohibited basis applicants 

who are high side overrides are applicable to any control group approvals whose credit 

score was equal to or less than the highest score among the prohibited basis high-side 

overrides. If such cases are identified, obtain and evaluate management’s reason for why 

such different treatment is not a fair lending violation. 

4.	 If credit scores are used to segment applicants into groups that receive different 

processing or are required to meet additional underwriting requirements (e.g., “tiered risk 

underwriting”), perform a comparative file review, or confirm the results and adequacy 

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of management’s comparative file review, that evaluates whether all applicants within 

each group are treated equally. 

D.	 Disparate Impact and Credit Scoring Algorithms 

Consult with agency supervisory staff to assess potential disparate treatment issues relating to 

the credit scoring algorithm. 

E.	 Credit Scoring Systems That Include Age 

Regulation B expressly requires the initial validation and periodic revalidation of a credit scoring 

system that considers age. There are two ways a credit scoring system can consider age: 1) the 

system can be split into different scorecards depending on the age of the applicant and 2) age 

may be directly scored as a variable. Both features may be present in some systems. Regulation 

B requires that all credit scoring systems that consider age in either of these ways must be 

validated (in the language of the regulation, empirically derived, demonstrably and statistically 

sound (EDDSS)). 

1.	 Age-Split Scorecards: If a system is split into only two cards and one card covers a wide 

age range that encompasses elderly applicants (applicants 62 or older), the system is 

treated as considering, but not scoring, age. Typically, the younger scorecard in an agesplit system is used for applicants under a specific age between 25 and 30. It deemphasizes factors such as the number of trade lines and the length of employment and 

increases the negative weight of any derogatory information on the credit report. Systems 

such as these do not raise the issue of assigning a negative factor or value to the age of an 

elderly applicant. However, if age is directly scored as a variable (whether or not the 

system is age-split) or if elderly applicants are included in a card with a narrow age range 

in an age-split system, the system is treated as scoring age. 

2.	 Scorecards that Score Age: If a scorecard scores age directly, in addition to meeting the 

EDDSS requirement, the creditor must ensure that the age of an elderly applicant is not 

assigned a negative factor or value. (See the staff commentary about 12 CFR 202.2(p) 

and 202.6(b)(2)). A negative factor or value means utilizing a factor, value, or weight 

that is less favorable than the creditor’s experience warrants or is less favorable than the 

factor, value, or weight assigned to the most favored age group below the age of 62 (12 

CFR 202.2(v)). 

F.	 Examination for Empirical Derivation and Statistical 

Soundness 

Regulation B requires credit scoring systems that use age to be empirically derived and 

demonstrably and statistically sound. This means that they must fulfill the requirements of 12 

CFR Section 202.2(p)(1)(i)(iv). Obtain documentation provided by the developer of the system 

and consult your agency’s most recent guidance for making that determination. 

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III. Evaluating Responses to Evidence of Disparate Treatment 

A. Responses to Comparative Evidence of Disparate Treatment 

The following are responses that an institution may offer – separately or in combination – to 

attempt to explain that the appearance of illegal disparate treatment is misleading and that no 

violation has in fact occurred. The responses, if true, may rebut the appearance of disparate 

treatment. You must evaluate the validity and credibility of the responses. 

1.	 The institution’s personnel were unaware of the prohibited basis identity of the 

applicant(s). 

If the institution claims to have been unaware of the prohibited basis identity (race, etc.) of 

an applicant or neighborhood, ask it to show that the application in question was processed in 

such a way that the institution’s staff could not have learned the prohibited basis identity of 

the applicant. 

If the product is one for which the institution maintains prohibited basis monitoring 

information, assume that all employees could have taken those facts into account. Assume 

the same when there was face-to-face contact between any employee and the consumer. 

If there are other facts about the application from which an ordinary person would have 

recognized the applicant’s prohibited basis identity (for example, the surname is an easily 

recognizable Hispanic one), assume that the institution’s staff drew the same conclusions. If the 

racial character of a community is in question, ask the institution to provide persuasive evidence 

why its staff would not know the racial character of any community in its service area. 

2.	 The difference in treatment was justified by differences in the applicants (applicants not 

“similarly situated”). 

Ask the institution to account for the difference in treatment by pointing out a specific 

difference between the applicants’ qualifications or some factor not captured in the 

application, but that legitimately makes one applicant more or less attractive to the institution 

or some nonprohibited factor related to the processing of their applications. The difference 

identified by the institution must be one that is important enough to justify the difference in 

treatment in question, not a meaningless difference. 

The factors commonly cited to show that applicants are not similarly situated fall into two 

groups: those that can be evaluated by how consistently they are handled in other 

transactions, and those that cannot be evaluated in that way. 

a.	 Verifying “not similarly situated” explanations by consistency 

The appearance of disparate treatment remains if a factor cited by the institution to justify 

favorable treatment for a control group applicant also exists for an otherwise similar 

prohibited basis applicant who was treated unfavorably. Similarly, the appearance of 

disparate treatment remains if a factor cited by the institution to justify unfavorable 

treatment for a prohibited basis applicant also exists for a control group applicant that got 

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favorable treatment. If this is not so, ask the institution to document that the factor cited 

in its explanation was used consistently for control group and prohibited basis applicants. 

Among the responses that should be evaluated this way are: 

	 Consumer relationship. Ask the institution to document that a consumer
 

relationship was also sometimes considered to the benefit of prohibited basis
 

applicants and/or that its absence worked against control group consumers. 

	 “Loan not saleable or insurable.” If file review is still in progress, be alert for 

loans approved despite the claimed fatal problem. At a minimum, ask the 

institution to be able to produce the text of the secondary market or insurer’s 

requirement in question. 

	 Difference in standards or procedures between branches or underwriters. 

Ask the institution to provide transactions documenting that each of the two 

branches or underwriters applied its standards or procedures consistently to both 

prohibited basis and control group applications it processed and that each served 

similar proportions of the prohibited basis group. 

	 Difference in applying the same standard (difference in “strictness”) between 

underwriters, branches, etc. Ask the institution to provide transactions 

documenting that the stricter employee, branch, etc., was strict for both prohibited 

basis and control group applicants and that the other was lenient for both and that 

each served similar proportions of the prohibited basis group. The best evidence 

of this would be prohibited basis applicants who received favorable treatment 

from the lenient branch and control group applicants who received less favorable 

treatment from the “strict” branch. 

	 Standards or procedures changed during period reviewed. Ask the institution 

to provide transactions documenting that during each period the standards were 

applied consistently to both prohibited basis and control group applicants. 

	 Employee misunderstood standard or procedure. Ask the institution to 

provide transactions documenting that the misunderstanding influenced both 

prohibited basis and control group applications. If that is not available, find no 

violation if the misunderstanding is a reasonable mistake. 

b. Evaluating “not similarly situated” explanations by other means. 

If consistency cannot be evaluated, consider an explanation favorably even without 

examples of its consistent use if: 

	 The factor is documented to exist in (or be absent from) the transactions, as
 

claimed by the institution.
 

	 The factor is one a prudent institution would consider and is consistent with the 

institution’s policies and procedures. 

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	 File review found no evidence that the factor is applied selectively on a prohibited 

basis (in other words, the institution’s explanation is “not inconsistent with 

available information”). 

	 The institution’s description of the transaction is generally consistent and 

reasonable.
 

Some factors that may be impossible to compare for consistency are: 

	 Unusual underwriting standard. Ask the institution to show that the standard is 

prudent. If the standard is prudent and not inconsistent with other information, 

accept this explanation even though there is no documentation that it is used 

consistently. 

	 “Close calls.” The institution may claim that underwriters’ opposite decisions on 

similar applicants reflect legitimate discretion that you should not second guess. 

That is not an acceptable explanation for identical applicants with different 

results, but is acceptable when the applicants have differing strengths and 

weaknesses that different underwriters might reasonably weigh differently. 

However, do not accept the explanation if other files reveal that these “strengths” 

or “weaknesses” are counted or ignored selectively on a prohibited basis. 

	 “Character loan.” Expect the institution to identify a specific history or specific 

facts that make the applicant treated favorably a better risk than those treated less 

favorably. 

	 “Accommodation loan.” There are many legitimate reasons that may make a 

transaction appealing to an institution apart from the familiar qualifications 

demanded by the secondary market and insurers. For example, a consumer may 

be related to or referred by an important consumer, be a political or entertainment 

figure who would bring prestige to the institution, be an employee of an important 

business consumer, etc. It is not illegal discrimination to make a loan to an 

otherwise unqualified control group applicant who has such attributes while 

denying a loan to an otherwise similar prohibited basis applicant without them. 

However, be skeptical when the institution cites reasons for “accommodations” 

that an ordinary prudent institution would not value. 

 “Gut feeling.” Be skeptical when institutions justify an approval or denial by a 

general perception or reaction to the consumer. Such a perception or reaction may 

be linked to a racial or other stereotype that legally must not influence credit 

decisions. Ask whether any specific event or fact generated the reaction. Often, 

the institution can cite something specific that made him or her confident or 

uncomfortable about the consumer. There is no discrimination if it is credible that 

the institution indeed considered such a factor and did not apply it selectively on a 

prohibited basis. 

c.	 Follow up consumer contacts 

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If the institution’s explanation of the handling of a particular transaction is based on 

consumer traits, actions, or desires not evident from the file, consider obtaining agency 

authorization to contact the consumer to verify the institution’s description. Such 

contacts need not be limited to possible victims of discrimination, but can include control 

group applicants or other witnesses. 

3.	 The different results stemmed from an inadvertent error. 

If the institution claims an identified error such as miscalculation or misunderstanding 

caused the favorable or unfavorable result in question, evaluate whether the facts support the 

assertion that such an event occurred. 

If the institution claims an “unidentified error” caused the favorable or unfavorable result 

in question, expect the institution to provide evidence that discrimination is inconsistent with 

its demonstrated conduct, and therefore that discrimination is the less logical interpretation of 

the situation. Consider the context (as described below). 

4.	 The apparent disparate treatment on a prohibited basis is a misleading portion of a larger 

pattern of random inconsistencies. 

Ask the institution to provide evidence that the unfavorable treatment is not limited to the 

prohibited basis group and that the favorable treatment is not limited to the control group. 

Without such examples, do not accept an institution’s unsupported claim that otherwise 

inexplicable differences in treatment are distributed randomly. 

If the institution can document that similarly situated prohibited basis applicants received the 

favorable treatment in question approximately as frequently and in comparable degree as 

the control group applicants, conclude there is no violation. 

NOTE: Transactions are relevant to “random inconsistency” only if they are “similarly 

situated” to those apparently treated unequally. 

5.	 Loan terms and conditions. 

The same analyses described in the preceding sections with regard to decisions to approve or 

deny loans also apply to pricing differences. Risks and costs are legitimate considerations in 

setting prices and other terms and conditions of loan products. However, generalized 

reference by the institution to “cost factors” is insufficient to explain pricing differences. 

If the institution claims that specific borrowers received different terms or conditions 

because of cost or risk considerations, ask the institution to be able to identify specific risk 

or cost differences between them. 

If the institution claims that specific borrowers received different terms or conditions 

because they were not similarly situated as negotiators, consider whether application 

records might provide relevant evidence. If the records are not helpful, consider seeking 

authorization to contact consumers to learn whether the institution in fact behaved 

comparably toward prohibited basis and control group consumers. The contacts would be to 

learn such information as the institution’s opening quote of terms to the consumer and the 

progress of the negotiations. 

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If the institution responds that an average price difference between the control and prohibited 

basis groups is based on cost or risk factors, ask it to identify specific risk or cost differences 

between individual control group applicants with the lowest rates and prohibited basis group 

applicants with the highest that are significant enough to justify the pricing differences 

between them. If the distinguishing factors cited by the institution are legitimate and 

verifiable as described in the sections above, remove those applications from the average 

price calculation. If the average prices for the remaining control group and prohibited basis 

group members still differ more than minimally, consult with agency supervisory staff about 

further analysis. Findings or violations based on disparate treatment or disparate impact 

regarding cost or risk factors should be discussed with agency supervisory staff. 

B. Responses to Overt Evidence of Disparate Treatment 

1. Descriptive references vs. lending considerations. 

A reference to race, gender, etc., does not constitute a violation if it is merely descriptive – 

for example, “the applicant was young.” In contrast, when the reference reveals that the 

prohibited factor influenced the institution’s decisions and/or consumer behavior, treat the 

situation as an apparent violation to which the institution must respond. 

2. Personal opinions vs. lending considerations. 

If an employee involved with credit availability states unfavorable views regarding a racial 

group, gender, etc., but does not explicitly relate those views to credit decisions, review that 

employee’s credit decisions for possible disparate treatment of the prohibited basis group 

described unfavorably. If there are no instances of apparent disparate treatment, treat the 

employee’s views as permissible private opinions. Inform the institution that such views 

create a risk of future violations. 

3. Stereotypes related to credit decisions. 

There is an apparent violation when a prohibited factor influences a credit decision through a 

stereotype related to creditworthiness, even if the action based on the stereotype seems wellintended – for example, a loan denial because “a single woman could not maintain a large 

house.” If the stereotyped beliefs are offered as “explanations” for unfavorable treatment, 

regard such unfavorable treatment as apparent illegal disparate treatment. If the stereotype is 

only a general observation unrelated to particular transactions, review that employee’s credit 

decisions for possible disparate treatment of the prohibited basis group in question. Inform 

the institution that such views create a risk of future violations. 

4. Indirect reference to a prohibited factor. 

If negative views related to creditworthiness are described in nonprohibited terms, consider 

whether the terms would commonly be understood as surrogates for prohibited terms. If so, 

treat the situation as if explicit prohibited basis terms were used. For example, an 

institution’s statement that “It’s too risky to lend north of 110th Street” might be reasonably 

interpreted as a refusal to lend because of race if that portion of the institution’s lending area 

north of 110th Street were predominantly black and the area south white. 

5. Lawful use of a prohibited factor 

a. Special Purpose Credit Program (SPCP). 

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If an institution claims that its use of a prohibited factor is lawful because it is operating 

an SPCP, ask the institution to document that its program conforms to the requirements 

of Regulation B. An SPCP must be defined in a written plan that existed before the 

institution made any decisions on loan applications under the program. The written plan 

must: 

	 Demonstrate that the program will benefit persons who would otherwise be
 

denied credit or receive credit on less favorable terms.
 

	 State the time period the program will be in effect or when it will be re-evaluated. 

No provision of an SPCP should deprive people who are not part of the target group of 

rights or opportunities they otherwise would have. Qualified programs operating on an 

otherwise-prohibited basis will not be cited as a violation. 

NOTE: Advise the institution that an agency finding that a program is a lawful SPCP is 

not absolute security against legal challenge by private parties. Suggest that an institution 

concerned about legal challenge from other quarters use exclusions or limitations that are 

not prohibited by ECOA or the FHAct, such as “first-time home buyer.” 

b. Second review program. 

Such programs are permissible if they do no more than ensure that lending standards are 

applied fairly and uniformly to all applicants. For example, it is permissible to review the 

proposed denial of applicants who are members of a prohibited basis group by 

comparing their applications to the approved applications of similarly qualified 

individuals who are in the control group to determine if the applications were evaluated 

consistently. 

Ask the institution to demonstrate that the program is a safety net that merely attempts to 

prevent discrimination, and does not involve underwriting terms or practices that are 

preferential on a prohibited basis. 

Statements indicating that the mission of the program is to apply different standards or 

efforts on behalf of a particular racial or other group constitute overt evidence of 

disparate treatment. Similarly, there is an apparent violation if comparative analysis of 

applicants who are processed through the second review and those who are not discloses 

dual standards related to the prohibited basis. 

c.	 Affirmative marketing/advertising program: 

Affirmative advertising and marketing efforts that do not involve application of different 

lending standards are permissible under both the ECOA and the FHAct. For example, 

special outreach to a minority community would be permissible. 

CFPB	 Manual V.2 (October 2012) Procedures 19 
 

 

 

 

 

 

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IV. Fair Lending Sample Size Tables 

Table A: Underwriting (Accept/Deny) Comparisons 

Sample 1 Sample 2 

Prohibited Basis Denials Control Group Approvals 

Number of 

Denials or 5 - 50 51 - 150 > 150 20 - 50 51 – 250 > 250 

Approvals 

Minimum to 

review: All 51 75 20 51 100 

Maximum 

to review: 50 100 150 

5x prohibited 

basis sample 

(up to 50) 

5x prohibited 

basis sample 

(up to 125) 

5x prohibited 

basis sample 

(up to 300) 

Table B: Terms and Conditions Comparisons 

Sample 1 Sample 2 

Prohibited Basis Approvals Control Group Approvals 

Number of 

Approvals 5-25 26 - 100 > 100 20 -50 51 – 250 > 250 

Minimum to 

review: All 26 50 20 40 60 

Maximum 

to review: 25 50 75 

5x prohibited 

basis sample 

(up to 50) 

5x prohibited 

basis sample 

(up to 75) 

5x prohibited 

basis sample 

(up to 100) 

See Explanatory Notes on following page. 

CFPB Manual V.2 (October 2012) Procedures 20 
 

 

 

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Explanatory Notes to Sample Size Tables 

1.	 Examiners should not follow Table B when conducting a pricing review that involves a 

regression analysis. Consult with agency supervisory staff for specific protocol in these 

cases. 

2.	 When performing both underwriting and terms and conditions comparisons, use the same 

control group approval sample for both tasks. 

3.	 If there are fewer than five prohibited basis denials or 20 control group approvals, refer to 

“Sample Size” instructions in the procedures. 

4.	 “Minimum” and “maximum” sample sizes: select a sample size between the minimum and 

maximum numbers identified above. Examiners should base the size of their review on the 

level of risk identified during the preplanning and scoping procedures. Once the sample size 

has been determined, select individual transactions judgmentally. Refer to procedures. 

5.	 If two prohibited basis groups (e.g., black and Hispanic) are being compared against one 

control group, select a control group that is five times greater than the larger prohibited basis 

group sample, up to the maximum. 

6.	 Where the institution’s discrimination risk profile identifies significant discrepancies in 

withdrawal/incomplete activity between control and prohibited basis groups or where the 

number of marginal prohibited basis group files available for sampling is small, an examiner 

may consider supplementing samples by applying the following rules: 

•	 If prohibited basis group withdrawals/incompletes occur after the applicant has 

received an offer of credit that includes pricing terms, this is a reporting error under 

Regulation C (the institution should have reported the application as approved, but 

not accepted) and therefore these applications should be included as prohibited basis 

group approvals in a terms and conditions comparative file analysis. 

•	 If prohibited basis group incompletes occur due to lack of an applicant response with 

respect to an item that would give rise to a denial reason, then include them as denials 

for that reason when conducting an underwriting comparative file analysis. 

CFPB	 Manual V.2 (October 2012) Procedures 21 
 

 

 

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V. Identifying Marginal Transactions 

These procedures are intended to assist an examiner in identifying denied and approved 

applications that were not either clearly qualified or unqualified, i.e., marginal transactions. 

A. Marginal Denials 

Denied applications with any or all the following characteristics are “marginal.” Such denials are 

compared to marginal approved applications. Marginal denied applications include those that: 

•	 Were close to satisfying the requirement that the adverse action notice said was the reason 

for denial. 

•	 Were denied by the institution’s rigid interpretation of inconsequential processing 

requirements. 

•	 Were denied quickly for a reason that normally would take a longer time for an underwriter 

to evaluate. 

•	 Involved an unfavorable subjective evaluation of facts that another person might reasonably 

have interpreted more favorably (for example, whether late payments actually showed a 

“pattern” or whether an explanation for a break in employment was “credible”). 

•	 Resulted from the institution’s failure to take reasonable steps to obtain necessary 

information. 

•	 Received unfavorable treatment as the result of a departure from customary practices or 

stated policies. For example, if it is the institution’s stated policy to request an explanation of 

derogatory credit information, a failure to do so for a prohibited basis applicant would be a 

departure from customary practices or stated policies even if the derogatory information 

seems to be egregious. 

•	 Were similar to an approved control group applicant who received unusual consideration or 

service, but were not provided such consideration or service. 

•	 Received unfavorable treatment (for example, were denied or given various conditions or 

more processing obstacles), but appeared fully to meet the institution’s stated requirements 

for favorable treatment (for example, approval on the terms sought). 

•	 Received unfavorable treatment related to a policy or practice that was vague, and/or the file 

lacked documentation on the applicant’s qualifications related to the reason for denial or 

other factor. 

•	 Met common secondary market or industry standards even though failing to meet the 

institution’s more rigid standards. 

•	 Had a strength that a prudent institution might believe outweighed the weaknesses cited as 

the basis for denial. 

CFPB	 Manual V.2 (October 2012) Procedures 22 
 

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•	 Had a history of previously meeting a monthly housing obligation equivalent to or higher 

than the proposed debt. 

•	 Were denied for an apparently “serious” deficiency that might easily have been overcome. 

For example, an applicant’s total debt ratio of 50 percent might appear grossly to exceed the 

institutions guideline of 36 percent, but this may in fact be easily corrected if the application 

lists assets to pay off sufficient nonhousing debts to reduce the ratio to the guideline, or if the 

institution were to count excluded part-time earnings described in the application. 

B. Marginal Approvals 

Approved applications with any or all of the following characteristics are “marginal.” Such 

approvals are compared to marginal denied approved applications. Marginal approvals include 

those: 

•	 Whose qualifications satisfied the institution’s stated standard, but very narrowly. 

•	 That bypassed stated processing requirements (such as verifications or deadlines). 

o For which stated creditworthiness requirements were relaxed or waived. 

•	 That, if the institution’s own standards are not clear, fell short of common secondary market 

or industry lending standards. 

•	 That a prudent conservative institution might have denied. 

•	 Whose qualifications were raised to a qualifying level by assistance, proposals, 

counteroffers, favorable characterizations, or questionable qualifications, etc. 

•	 That in any way received unusual service or consideration that facilitated obtaining the 

credit. 

CFPB	 Manual V.2 (October 2012) Procedures 23 
 

 

 

 

 

 

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VI. Potential Scoping Information 

As part of the scoping process described in Part I of the procedures, you will need to gather 

documents and information to sufficiently identify their focal points for review. Below is a list of 

suggested information that you may wish to gather internally, as well as from the institution itself. 

A. Internal Agency Documents and Records 

1.	 Previous examination reports and related work papers for the most recent 

Compliance/CRA and Safety and Soundness Examinations. 

2.	 Complaint Information. 

3.	 Demographic data for the institution’s community. 

Comment: The examiner should obtain the most recent agency demographic data for 

information on the characteristics of the institution’s assessment/market areas. 

B. Information from the Institution 

Comment: Prior to beginning a compliance examination, the examiner should request the 

institution to provide the information outlined below. This request should be made far 

enough in advance of the on-site phase of the examination to facilitate compliance by the 

institution. In some institutions, the examiner may not be able to review some of this 

information until the on-site examination. The examiner should generally request only 

those items that correspond to the product(s) and time period(s) being examined. 

1.	 Institution’s Compliance Program. (For examinations that will include analysis of the 

institution’s compliance program.) 

a.	 Organization charts identifying those individuals who have lending responsibilities or 

compliance, HMDA, or CRA responsibilities, together with job descriptions for each 

position. 

b.	 Lists of any pending litigation or administrative proceedings concerning fair lending 

matters. 

c.	 Results of self-evaluations or self-tests (where the institution chooses to share the selftest results), and copies of audit or compliance reviews of the institution’s program for 

compliance with fair lending laws and regulations, including both internal and 

independent audits. 

NOTE: The request should advise the institution that it is not required to disclose the 

report or results of any self-tests of the type protected under amendments to ECOA and 

the FHAct programs. 

d.	 Complaint file. 

e.	 Any written or printed statements describing the institution’s fair lending policies and/or 

procedures. 

CFPB	 Manual V.2 (October 2012) Procedures 24 
 

 

 

 

 

 

 

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f.	 Training materials related to fair lending issues including records of attendance. 

g.	 Records detailing policy exceptions or overrides, exception reporting, and monitoring 

processes. 

2.	 Lending Policies / Loan Volume 

a.	 Internal underwriting guidelines and lending policies for all consumer and commercial 

loan products. 

Comment: If guidelines or policies differ by branch or other geographic location, request 

copies of each variation. 

b.	 A description of any credit scoring system(s) in use now or during the exam period. 

Comment: Inquire as to whether a vendor or in-house system is used; the date of the last 

verification; the factors relied on to construct any in-house system; and, if applicable, any 

judgmental criteria used in conjunction with the scoring system. 

c.	 Pricing policies for each loan product, and for both direct and indirect loans. 

Comment: The institution should be specifically asked whether its pricing policies for 

any loan products include the use of “overages”. The request should also ask whether the 

institution offers any “subprime” loan products or otherwise uses any form of riskbased pricing. A similar inquiry should be made regarding the use of any cost-based 

pricing. If any of these three forms are or have been in use since the last exam, the 

institution should provide pricing policy and practice details for each affected product, 

including the institution’s criteria for differentiating between each risk or cost level and 

any policies regarding overages. Regarding indirect lending, the institution should be 

asked to provide any forms of agreement (including compensation) with brokers/dealers, 

together with a description of the roles that both the institution and the dealer/broker play 

in each stage of the lending process. 

d.	 A description of each form of compensation plan for all lending personnel and managers. 

e.	 Advertising copy for all loan products. 

f.	 The most recent HMDA LAR, including unreported data if available. 

Comment: The integrity of the institution’s HMDA LAR data should be verified prior to 

the pre-examination analysis. 

g.	 Any existing loan registers for each non-HMDA loan product. 

Comment: Loan registers for the three-month period preceding the date of the 

examination, together with any available lists of declined loan applicants for the same 

period should be requested. Registers or lists should contain, to the extent available, the 

complete name and address of loan applicants and applicable loan terms, including loan 

amount, interest rate, fees, repayment schedule, and collateral codes. 

CFPB	 Manual V.2 (October 2012) Procedures 25 
 

 

 

 

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h.	 A description of any application or loan-level databases maintained, including a 

description of all data fields within the database or that can be linked at the loan level. 

i.	 Forms used in the application and credit evaluation process for each loan product. 

Comment: At a minimum, this request should include all types of credit applications, 

forms requesting financial information, underwriter worksheets, any form used for the 

collection of monitoring information, and any quality control or second-review forms or 

worksheets. 

j. Lists of service providers. 

Comment: Service providers may include: brokers, realtors, real estate developers, 

appraisers, underwriters, home improvement contractors, and private mortgage insurance 

companies. Request the full name and address and geographic area served by each 

provider. Also request documentation of any fair lending requirements imposed on, or 

commitments required of, any of the institution’s service providers. 

k. Addresses of any Internet site(s). 

Comment: Internet “home pages” or similar sites that an institution may have on the 

Internet may provide information concerning the availability of credit, or means for 

obtaining it. All such information must comply with the nondiscrimination requirements 

of the fair lending laws. In view of the increasing capability to conduct transactions on 

the Internet, it is extremely important for examiners to review an institution’s Internet 

sites to ensure that all of the information or procedures set forth therein are in compliance 

with any applicable provisions of the fair lending statutes and regulations. 

3.	 Community Information 

a.	 Demographic information prepared or used by the institution. 

b.	 Any fair lending complaints received and institution responses thereto. 

CFPB	 Manual V.2 (October 2012) Procedures 26 
 

 

 

 

 

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VII. Special Analyses 

These procedures are intended to assist examiners who encounter disproportionate adverse 

impact violations, discriminatory pre-application screening and possible discriminatory 

marketing. 

A. Disproportionate Adverse Impact Violations 

When all five conditions below exist, consult within your agency to determine whether to 

present the situation to the institution and solicit the institution’s response. Note that condition 5 

can be satisfied by either of two alternatives. 

The contacts between examiners and institutions described in this section are informationgathering contacts within the context of the examination and are not intended to serve as the 

formal notices and opportunities for response that an agency’s enforcement process might 

provide. Also, the five conditions are not intended as authoritative statements of the legal 

elements of a disproportionate adverse impact proof of discrimination; they are paraphrases 

intended to give you practical guidance on situations that call for more scrutiny and on what 

additional information is relevant. 

NOTE: Even if it appears likely that a policy or criterion causes a disproportionate adverse 

impact on a prohibited basis (condition 3), consult agency supervisory staff if the policy or 

criterion is obviously related to predicting creditworthiness and is used in a way that is 

commensurate with its relationship to creditworthiness or is obviously related to some other 

basic aspect of prudent lending, and there appears to be no equally effective alternative for it. 

Examples are reliance on credit reports or use of debt-to-income ratio in a way that appears 

consistent with industry standards and with a prudent evaluation of credit risk. 

Conditions 

1.	 A specific policy or criterion is involved. 

The policy or criterion suspected of producing a disproportionate adverse impact on a 

prohibited basis should be clear enough that the nature of action to correct the situation can 

be determined. 

NOTE: Gross HMDA denial or approval rate disparities are not appropriate for 

disproportionate adverse impact analysis because they typically cannot be attributed to a 

specific policy or criterion. 

2.	 The policy or criterion on its stated terms is neutral for prohibited bases. 

3.	 The policy or criterion falls disproportionately on applicants or borrowers in a prohibited 

basis group. 

The difference between the rate at which prohibited basis group members are harmed or 

excluded by the policy or criterion and the rate for control group members must be large 

enough that it is unlikely that it could have occurred by chance. If there is reason to suspect a 

significant disproportionate adverse impact may exist, consult with agency supervisory staff, 

as appropriate. 

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4.	 There is a causal relationship between the policy or criterion and the adverse result. 

The link between the policy or criterion and the harmful or exclusionary effect must not be 

speculative. It must be clear that changing or terminating the policy or criterion would reduce 

the disproportion in the adverse result. 

5.	 Either a or b: 

a.	 The policy or criterion has no clear rationale, appears to exist merely for convenience 

or to avoid a minimal expense, or is far removed from common sense or standard 

industry underwriting considerations or lending practices. 

The legal doctrine of disproportionate adverse impact provides that the policy or criterion 

that causes the impact must be justified by “business necessity” if the institution is to avoid 

a violation. There is very little authoritative legal interpretation of that term with regard to 

lending, but that should not stop examiners from making the preliminary inquiries called 

for in these procedures. For example, the rationale is generally not clear for basing credit 

decisions on factors such as location of residence, income level (per se rather than relative 

to debt), and accounts with a finance company. If prohibited basis group applicants were 

denied loans more frequently than control group applicants because they failed an 

institution’s minimum income requirement, it would appear that the first four conditions 

plus 5a existed; therefore, the examiners should consult within your agency about 

obtaining the institution’s response, as described in the next section below. 

b.	 Alternatively, even if there is a sound justification for the policy, it appears that there 

may be an equally effective alternative for accomplishing the same objective with a 

smaller disproportionate adverse impact. 

The law does not require an institution to abandon a policy or criterion that is clearly the 

most effective method of accomplishing a legitimate business objective. However, if an 

alternative that is approximately equally effective is available that would cause a less 

severe impact, the policy or criterion in question will be a violation. 

At any stage of the analysis of possible disproportionate adverse impact, if there appears 

to be such an alternative, and the first four conditions exist, consult within the agency 

how to evaluate whether the alternative would be equally effective and would cause a 

less severe impact. If the conclusion is that it would, solicit a response from the 

institution, as described in the next section. 

CFPB	 Manual V.2 (October 2012) Procedures 28 
 

 

 

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Obtaining the institution’s response 

If the first four conditions plus either 5a or 5b appear to exist, consult with agency supervisory 

staff about whether and how to inform the institution of the situation and solicit the institution’s 

business justification. The communication with the institution may include the following: 

•	 The specific neutral policy or criterion that appears to cause a disproportionate adverse 

impact. 

•	 How the examiners learned about the policy. 

•	 How widely the examiners understand it to be implemented. 

•	 How strictly they understand it to be applied. 

•	 The prohibited basis on which the impact occurs. 

•	 The magnitude of the impact. 

•	 The nature of the injury to individuals. 

•	 The data from which the impact was computed. 

The communication should request that the institution provide any information supporting the 

business justification for the policy and request that the institution describe any alternatives it 

considered before adopting the policy or criterion at issue. 

Evaluating and following up on the response 

The analyses of “business necessity” and “less discriminatory alternative” tend to converge 

because of the close relationship of the questions of what purpose the policy or criterion serves 

and whether it is the most effective means to accomplish that purpose. 

Evaluate whether the institution’s response persuasively contradicts the existence of the 

significant disparity or establishes a business justification. Consult with agency supervisory staff 

as appropriate. 

CFPB	 Manual V.2 (October 2012) Procedures 29 
 

 

 

 

 

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B. Discriminatory Pre-application Screening 

Obtain an explanation for any: 

•	 Withdrawals by applicants in prohibited basis groups without documentation of 

consumer intent to withdraw. 

•	 Denials of applicants in prohibited basis groups without any documentation of applicant 

qualifications; or 

•	 On a prohibited basis, selectively quoting unfavorable terms (for example, high fees or 

down payment requirements) to prospective applicants, or quoting unfavorable terms to 

all prospective applicants but waiving such terms for control group applicants. (Evidence 

of this might be found in withdrawn or incomplete files.) 

•	 Delays between application and action dates on a prohibited basis. 

If the institution cannot explain the situations, examiners should consider obtaining authorization 

from their agency to contact the consumers to verify the institution’s description of the 

transactions. Information from the consumer may help determine whether a violation occurred. 

In some instances, such as possible “prescreening” of applicants by institution personnel, the 

results of the procedures discussed so far, including interviews with consumers, may be 

inconclusive in determining whether a violation has occurred. In those cases, examiners should, 

if authorized by their agency, consult with agency supervisory staff regarding the possible use of 

“testers” who would pose as apparently similarly situated applicants, differing only as to race or 

other applicable prohibited basis characteristic, to determine and compare how the institution 

treats them in the application process. 

C. Possible Discriminatory Marketing 

1.	 Obtain full documentation of the nature and extent, together with management’s 

explanation, of any: 

•	 Prohibited basis limitations stated in advertisements. 

•	 Code words in advertisements that convey prohibited limitations. 

•	 Advertising patterns or practices that a reasonable person would believe indicate 

prohibited basis consumers are less desirable or are only eligible for certain products. 

2.	 Obtain full documentation as to the nature and extent, together with management’s 

explanation, for any situation in which the institution, despite the availability of other 

options in the market: 

•	 Advertises only in media serving either minority or nonminority areas of the market. 

•	 Markets through brokers or other agents that the institution knows, or could reasonably 

be expected to know, to serve only one racial or ethnic group in the market. 

CFPB	 Manual V.2 (October 2012) Procedures 30 
 

 

 

 

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•	 Utilizes mailing or other distribution lists or other marketing techniques for prescreened 

or other offerings of residential loan products* that: 

	 Explicitly exclude groups of prospective borrowers on a prohibited basis; 

	 Exclude geographies (e.g., census tracts, ZIP codes, etc.) within the institution’s 

marketing area that have demonstrably higher percentages of minority group 

residents than does the remainder of the marketing area, but which have income 

and other credit-related characteristics similar to the geographies that were 

targeted for marketing; or 

	 Offer different products to such geographies, especially if subprime products are 

primarily marketed to racial or ethnic minorities. 

*NOTE: Pre-screened solicitation of potential applicants on a prohibited basis 

does not violate ECOA. Such solicitations are, however, covered by the FHAct. 

Consequently, analysis of this form of potential marketing discrimination should 

be limited to residential loan products. 

3.	 Evaluate management’s response particularly with regard to the credibility of any 

nondiscriminatory reasons offered as explanations for any of the foregoing practices. 

Refer to the Evaluating Responses to Evidence of Disparate Treatment section in this 

Appendix for guidance. 

CFPB	 Manual V.2 (October 2012) Procedures 31 
 

 

 

 

 

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VIII.	 Using Self-Tests and Self-Examinations to Streamline the 

Examination 

Institutions may find it advantageous to conduct self-tests or self-evaluations to measure or 

monitor their compliance with ECOA and Regulation B. A self-test is any program, practice, or 

study that is designed and specifically used to assess the institution’s compliance with fair 

lending laws that creates data not available or derived from loan, application, or other records 

related to credit transactions (12 CFR 202.15(b)(1) and 24 CFR 100.140-100.148). For example, 

using testers to determine whether there is disparate treatment in the pre-application stage of 

credit shopping may constitute a self-test. The information set forth in 12 CFR 202.15(b)(2) and 

24 CFR 100.142(a) is privileged unless an institution voluntarily discloses the report or results or 

otherwise forfeits the privilege. A self-evaluation, while generally having the same purpose as a 

self-test, does not create any new data or factual information, but uses data readily available in 

loan or application files and other records used in credit transactions and, therefore, does not 

meet the self-test definition. 

Examiners should not request any information privileged under 12 CFR 202.15(b)(2) and 24 

CFR 100.142(a), related to self-tests. If the institution discloses the results of any self-tests, or 

has performed any self-evaluations, and examiners can confirm the reliability and 

appropriateness of the self-tests or -evaluations (or even parts of them), they need not repeat 

those tasks. 

NOTE: When the term self-evaluation is used below, it is meant to include self-tests where the 

institution has voluntarily disclosed the report or results. 

If the institution has performed a self-evaluation of any of the product(s) selected for 

examination, obtain a copy thereof and proceed through the remaining steps of this section on 

Streamlining the Examination. 

Determine whether the research and analysis of the planned examination would duplicate the 

institution’s own efforts. If the answers to Questions A and B below are both Yes, each 

successive Yes answer to Questions C through L indicates that the institution’s work up to that 

point can serve as a basis for eliminating examination steps. 

If the answer to either Question A or B2 is No, the self-evaluation cannot serve as a basis for 

eliminating examination steps. However, you should still consider the self-evaluation to the 

degree possible in light of the remaining questions and communicate the findings to the 

institution so that it can improve its self-evaluation process. 

CFPB	 Manual V.2 (October 2012) Procedures 32 
 

 

 

 

 

 

 

 

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A. Did the transactions covered by the self-evaluation occur not longer than two years 

ago prior to the examination? If the self-evaluation covered more than two years 

prior to the examination, incorporate only results from transactions in the most recent 

two years. 

B. Did it cover the same product, prohibited basis, decision center, and stage of the 

lending process (for example, underwriting, setting of loan terms) as the planned 

examination? 

C. Did the self-evaluation include comparative file review? 

NOTE: One type of “comparative file review” is statistical modeling to determine 

whether similar control group and prohibited basis group applicants were treated 

similarly. If an institution offers self-evaluation results based on a statistical model, 

consult appropriately within your agency. 

D. Were control and prohibited basis groups defined accurately and consistently with 

ECOA and/or the FHAct? 

E. Were the transactions selected for the self-evaluation chosen so as to focus on 

marginal applicants or, in the alternative, selected randomly? 

F.	 Were the data analyzed (whether abstracted from files or obtained from electronic 

databases) accurate? Were those data actually relied on by the credit decision makers 

at the time of the decisions? 

To answer these two questions and Question G for the institution’s control group sample 

and each of its prohibited basis group samples, request to review 10 percent (but not 

more than 50 for each group) of the transactions covered by the self-evaluation. For 

example, if the institution’s self-evaluation reviewed 250 control group and 75 prohibited 

basis transactions, plan to verify the data for 25 control group and seven prohibited basis 

transactions. 

G. Did the 10 percent sample reviewed for Question F also show that consumer 

assistance and institution judgment that assisted or enabled applicants to qualify were 

recorded systematically and accurately and were compared for differences on any 

prohibited bases? 

H. Were prohibited basis group applicants’ qualifications related to the underwriting 

factor in question compared to corresponding qualifications of control group 

approvals? Specifically, for self-evaluations of approve/deny decisions, were the 

denied applicants’ qualifications related to the stated reason for denial compared to 

the corresponding qualifications for approved applicants? 

I.	 Did the self-evaluation sample cover at least as many transactions at the initial stage 

of review as examiners would initially have reviewed using the sampling guidance in 

these procedures? 

If the institution’s samples are significantly smaller than those in the sampling guidance 

but its methodology otherwise is sound, review additional transactions until the numbers 

CFPB	 Manual V.2 (October 2012) Procedures 33 
 

 

Interagency Fair Lending Procedures
 

of reviewed control group and prohibited basis group transactions equal the minimums 

for the initial stage of review in the sampling guidance. 

J.	 Did the self-evaluation identify instances in which prohibited basis group applicants 

were treated less favorably than control group applicants who were no better 

qualified? 

K. Were explanations solicited for such instances from the persons responsible for the 

decisions? 

L.	 Were the reasons cited by credit decision makers to justify or explain instances of 

apparent disparate treatment supported by legitimate, persuasive facts or reasoning? 

If the questions above are answered Yes, incorporate the findings of the self-evaluation (whether 

supporting compliance or violations) into the examination findings. Indicate that those findings 

are based on verified data from the institution’s self-evaluation. In addition, consult 

appropriately within your agency regarding whether or not to conduct corroborative file analyses 

in addition to those performed by the institution. 

If not all of the questions in the section above are answered Yes, resume the examination 

procedures at the point where the institution’s reliable work would not be duplicated. In other 

words, use the reliable portion of the self-evaluation and correspondingly reduce independent 

comparative file review by examiners. For example, if the institution conducted a comparative 

file review that compared applicants’ qualifications without taking account of the reasons they 

were denied, the examiners could use the qualification data abstracted by the institution (if 

accurate), but would have to construct independent comparisons structured around the reasons 

for denial. 

CFPB	 Manual V.2 (October 2012) Procedures 34 
 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations HMDA 

Home Mortgage Disclosure Act1

The Home Mortgage Disclosure Act (HMDA) was enacted by the Congress in 1975 and is 

implemented by Regulation C (12 CFR Part 1003).2 The period of 1988 through 1992 saw 

substantial changes to HMDA. Especially significant were the amendments to the act resulting 

from the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). 

Coverage was expanded in the FIRREA amendments to include many independent nondepository 

mortgage lenders, in addition to the previously covered banks, savings associations, and credit 

unions. Coverage of independent mortgage bankers was further expanded effective January 1, 

1993, with the implementation of amendments contained in the Federal Deposit Insurance 

Corporation Improvement Act of 1991 (FDICIA). For a more detailed discussion of the history of 

HMDA, see the FFIEC’s website at www.ffiec.gov/hmda/history2.htm. 

HMDA grew out of public concern over credit shortages in certain urban neighborhoods. The 

Congress believed that some financial institutions had contributed to the decline of some 

geographic areas by their failure to provide adequate home financing to qualified applicants on 

reasonable terms and conditions. Thus, one purpose of HMDA and Regulation C is to provide 

the public with information that will help show whether financial institutions are serving the 

housing credit needs of the neighborhoods and communities in which they are located. A second 

purpose is to aid public officials in targeting public investments from the private sector to areas 

where they are needed. Finally, the FIRREA amendments of 1989 require the collection and 

disclosure of data about applicant and borrower characteristics to assist in identifying possible 

discriminatory lending patterns and enforcing antidiscrimination statutes. 

As the name implies, HMDA is a disclosure law that relies upon public scrutiny for its 

effectiveness. It does not prohibit any specific activity of lenders, and it does not establish a 

quota system of mortgage loans to be made in any Metropolitan Statistical Area (MSA) or other 

geographic area as defined by the Office of Management and Budget. 

Financial institutions must report data regarding loan originations, applications, and loan 

purchases, as well as requests under a preapproval program (as defined in 12 CFR 1003.2) if the 

preapproval request is denied or results in the origination of a home purchase loan. HMDA 

requires lenders to report the ethnicity, race, gender, and gross income of mortgage applicants 

and borrowers. Lenders must also report information regarding the pricing of the loan and 

whether the loan is subject to the Home Ownership and Equity Protection Act, 15 U.S.C. 1639. 

Additionally, lenders must identify the type of purchaser for mortgage loans that they sell. The 

Dodd-Frank Act requires that the CFPB amend Regulation C to require the reporting of 

1 These reflect FFIEC-approved procedures. 

2 Dodd-Frank Act, Pub. L. No. 111-203, Secs. 1001–1100H, 124 Stat. 1955, 1955-2113 (2010), granted HMDA rulemaking, 

supervision, and enforcement authority to the Consumer Financial Protection Bureau (CFPB). Before the CFPB, the Federal 

Reserve Board had rulemaking authority for Regulation C. In December 2011, the CFPB restated the Federal Reserve’s 

implementing regulation at 12 CFR 1003 (76 Fed. Reg. 78465)(December 19, 2011). 

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additional data fields. Financial institutions will be required to comply with the additional 

reporting requirements after those amendments are finalized. 

Regulation C requires institutions to report lending data to their supervisory agencies on a loanby-loan and application-by-application basis by way of a “register” reporting format. The 

supervisory agencies, through the Federal Financial Institutions Examination Council (FFIEC), 

compile this information in the form of individual disclosure statements for each institution, and 

in the form of aggregate reports for all covered institutions within each MSA. In addition, the 

FFIEC produces other aggregate reports that show lending patterns by median age of homes and 

by the central city or non-central city location of the property. The public may obtain the 

individual disclosures and aggregate reports from the FFIEC or from central depositories located 

in each MSA. Individual disclosure statements may also be obtained from financial institutions. 

Applicability 

The regulation covers two categories of financial institutions. The first category is a “depository 

institution,” which the regulation defines as a bank, savings association, or a credit union that 

meets the following criteria: 

•	 On the preceding December 31, had assets in excess of the annually published asset 

threshold; 

•	 On the preceding December 31, had a home or branch office in an MSA; 

•	 In the preceding calendar year, originated at least one first-lien home purchase loan (or a 

refinancing of such loan) on a one-to-four-family dwelling; and 

•	 Meets one of the following criteria: 

(1) the institution is federally insured or regulated; 

(2) the mortgage loan referred to is federally guaranteed, insured, or supplemented; or 

(3) the institution intended to sell the loan to Fannie Mae or Freddie Mac. 

The second category is a for-profit, nondepository “mortgage lending institution.” A 

nondepository mortgage lending institution is covered if: 

•	 In the preceding calendar year, it originated home purchase loans (including refinancings of 

home purchase loans) that either: (1) equaled ten percent or more of its loan origination 

volume, measured in dollars; or (2) equaled $25 million or more; 

•	 On the preceding December 31, had a home or branch office in an MSA3

; and 

3 The institution may or may not have a physical presence in the MSA per 12 CFR 1003.2 of Regulation C. 

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•	 Either: (1) on the preceding December 31, had total assets of more than $10 million, counting 

the assets of any parent corporation; or (2) in the preceding calendar year, originated at least 

100 home purchase loans, or refinancings of home purchase loans. 

For purposes of this discussion and the examination procedures, the term “financial institution” 

will signify both a depository and a nondepository institution. 

The definition of mortgage lending institution changed over time. It now covers mortgage 

lending subsidiaries and independent mortgage companies. Mortgage lending subsidiaries are 

treated as distinct entities from their “parent,” and must file separate reports with their parent’s 

supervisory agency. 

The CFPB may exempt from Regulation C state-chartered or state-licensed financial institutions 

if they are covered by a substantially similar state law that contains adequate provision for 

enforcement by the state. As of January 1, 2009, no exemptions are in effect. 

Compilation of Loan Data 

For each calendar year, a financial institution must report data regarding its applications, 

originations, and purchases of home purchase loans, home improvement loans, and refinancings. 

Loans secured by real estate that are neither refinancings nor made for home purchase or home 

improvements are not reported. Data must also be given for loan applications that did not result in 

originations: applications approved by the institution but not accepted by the applicant, denied, 

withdrawn, or closed for incompleteness. Required reporting also includes certain denials of 

requests for preapproval of a home purchase loan under a program in which a lender issues a 

written commitment to lend to a creditworthy borrower up to a specific amount for a specific time. 

Loan Information 

For each application or loan, institutions are required to identify the purpose (home purchase, 

home improvement, or refinancing), lien status, and whether the property relating to the loan or 

loan application is to be owner-occupied as a principal dwelling. As defined by Regulation C, a 

home purchase loan is a loan secured by a dwelling and made for the purpose of purchasing that 

(or another) dwelling. A dwelling is a residential structure that may or may not be attached to 

real property, located in a state, the District of Columbia or the Commonwealth of Puerto Rico. It 

includes an individual condominium or cooperative unit, a mobile or manufactured home, and a 

multifamily structure such as an apartment building. A home improvement loan is defined by the 

regulation as one that is at least in part for the purpose of repairing, rehabilitating, remodeling or 

improving a dwelling or the real property on which the dwelling is located. Home improvement 

loans not secured by a dwelling should be reported only if the institution classifies the loan as a 

home improvement loan, and dwelling secured home improvement loans should be reported 

without regard to classification. Finally, a refinancing is defined as a transaction in which a new 

obligation satisfies and replaces an existing obligation by the same borrower. For coverage 

purposes (i.e., to determine whether or not an institution is covered by HMDA), the existing 

obligation must be a home purchase loan and both the new and existing obligation must be 

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secured by first liens on dwellings. For reporting purposes, both the existing obligation and the 

new obligations must be secured by liens on dwellings. 

In addition, the regulation requires financial institutions to identify the following general loan 

types: conventional, FHA-insured, VA-guaranteed, and FSA/RHS guaranteed. Institutions must 

report the property type as a one-to-four family dwelling, multifamily dwelling, or manufactured 

housing. The amount of the loan or loan application, application date, action date, and the type of 

action taken must also be reported. 

Property Location 

Certain geographic location information must be reported by financial institutions for loans on, 

and applications for, properties in any MSA where the institution has a home or branch office.4 

This geographic data is optional for loans on properties located outside these MSAs or outside 

any MSA, except in the case of large financial institutions subject to additional data reporting 

requirements under the Community Reinvestment Act (CRA). The geographic information 

consists of the MSA or MD number, state and county codes, and the census tract number of the 

property to which the loan or loan application relates. 

Large institutions subject to both the CRA and HMDA must collect and report geographic 

information for all loans and applications (whether located in an MSA or not), not just for 

loans and applications relating to property in MSAs where the institution has a home or 

branch office.5 Under the CRA, a large institution is a bank or savings association that has 

assets of $1 billion or more. 

Applicant Information 

In addition, institutions must report data regarding the ethnicity, race, sex, and annual income of 

applicants for applications and originated loans; reporting these data is optional for purchased 

loans. Information regarding the ethnicity, race, and the sex of the borrower or applicant must be 

requested by the lender, including for applications made entirely by telephone, mail, or Internet. 

If the information is not provided by the applicant and if the application is submitted in person, 

the lender is required to note the information on the basis of visual observation or surname. 

Regulation C contains a model form that can be used for the collection of data on ethnicity, race, 

and sex. Alternatively, the form used to obtain monitoring information under 12 CFR 1002.13 of 

Regulation B (Equal Credit Opportunity) may be used. 

If an institution originates or purchases a loan and then sells it in the same calendar year, it must 

report the type of entity that purchased the loan. Except in the case of large secondary market 

purchasers such as Fannie Mae and Freddie Mac, the exact purchaser need not be identified. For 

example, an institution may indicate that it had sold a loan to a bank, without identifying the 

particular bank. 

4 In the case of an MSA divided into Metropolitan Divisions (MDs), the relevant unit for this purpose is the MD. 

5 In a county with less than 30,000 in population, the institution may enter NA. 

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Pricing-Related Data 

Institutions must report the rate spread between the annual percentage rate (APR) and the 

average prime offer rate for a comparable transaction as of the date the interest rate is set, if the 

spread is equal to or greater than 1.5 percentage points for first-lien loans, or equal to or greater 

than 3.5 percentage points for subordinate-lien loans. The rate-spread reporting is required only 

on originations of home purchase loans, dwelling-secured home improvement loans, and 

refinancings. The following are excluded from the rate-spread reporting requirement: (1) 

applications that are incomplete, withdrawn, denied, or approved but not accepted; (2) purchased 

loans; (3) home-improvement loans not secured by a dwelling; (4) assumptions; (5) home equity 

lines of credit; and (6) loans not subject to Regulation Z. To determine the applicable rate spread, 

the financial institution may use the table published on the FFIEC’s website 

(www.ffiec.gov/hmda) entitled “Average Prime Offer Rates Tables.” 

Lenders must also report whether the loan is subject to the Home Ownership and Equity 

Protection Act (HOEPA), 15 U.S.C. 1639. A loan becomes subject to HOEPA when the APR or 

the points and fees on the loan exceed the HOEPA triggers. (Additional information on HOEPA 

coverage is found in the FFIEC Truth in Lending Act and HOEPA examination procedures.) 

Lenders must also report the lien status of the loan or application (first lien, subordinate lien, or 

not secured by a lien on a dwelling). 

Optional Data 

Finally, under HMDA financial institutions may report the reasons for denying a loan 

application.6 Institutions may also choose to report certain requests for pre-approval that are 

approved by the institution but not accepted by the applicant and home equity lines of credit 

made in whole or in part for the purpose of home improvement or home purchase. 

Excluded Data 

A financial institution should not report loan data for: 

•	 Loans originated or purchased by the institution acting as trustee or in some other fiduciary 

capacity; 

•	 Loans on unimproved land; 

•	 Temporary financing (such as bridge or construction loans); 

•	 The purchase of an interest in a pool of loans (such as mortgage-participation certificates); 

6 Financial institutions regulated by the OCC, including subsidiaries of national banks and savings associations, are required to 

provide reasons for denials. Credit unions regulated by the NCUA are also required to provide reasons for denial. These 

requirements are imposed by the respective prudential regulator for these institutions pursuant to laws within their jurisdiction. 

Apparent violations of these requirements should be referred to the applicable prudential regulator. 

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•	 The purchase of mortgage loan servicing rights; or 

•	 Loans originated prior to the current reporting year and acquired as part of a merger or 

acquisition or acquisition of all the assets and liabilities of a branch office. 

Reporting Format 

Financial institutions are required to record data regarding each application for, and each 

origination and purchase of, home purchase loans, home improvement loans, and refinancings on 

a Loan/Application Register, also known as the HMDA-LAR. Financial institutions are also 

required to record data regarding requests under a preapproval program (as defined in 12 CFR 

1003.2), but only if the preapproval request is denied or results in the origination of a home 

purchase loan. Transactions are to be reported for the year in which final action was taken. If a 

loan application is pending at the end of the calendar year, it will be reported on the HMDALAR for the following year, when the final disposition is made. Loans originated or purchased 

during the calendar year must be reported for the calendar year of origination even if they were 

subsequently sold. 

The HMDA-LAR is accompanied by a listing of codes to be used for each entry on the form. 

Detailed instructions and guidance on the requirements for the register are contained in 

Appendix A to Regulation C. Additional information is available in the FFIEC publication, “A 

Guide to HMDA Reporting: Getting it Right!” and on the FFIEC website. 

Financial institutions must record data on their HMDA-LAR within 30 calendar days of the end 

of the calendar quarter in which final action was taken. Financial institutions, however, have 

flexibility in determining how to maintain the HMDA-LAR since the entries need not be grouped 

in any prescribed fashion. For example, an institution could record home purchase loans on one 

HMDA-LAR and home improvement loans on another; alternatively, both types of loans could 

be reported on one register. Similarly, separate registers may be kept at each branch office, or a 

single register may be maintained at a centralized location for the entire institution. These 

separate registers must be combined into one consolidated register when submitted to the 

relevant supervisory agency. 

For each calendar year, a financial institution must submit to its supervisory agency its HMDALAR, accompanied by a Transmittal Sheet. Unless it has 25 or fewer reportable transactions, an 

institution is required to submit its data in automated form. For registers submitted in paper form, 

two copies must be mailed to the institution’s supervisory agency. For both automated and hardcopy submissions, the layout of the register that is used must conform exactly to that of the 

register published by the Consumer Financial Protection Bureau as Appendix A to Regulation C. 

The HMDA-LAR must be submitted to the financial institution’s regulatory agency by March 1 

following the calendar year covered by the data. The FFIEC then will produce a disclosure 

statement for each institution, cross-tabulating the individual loan data in various groupings, as 

well as an aggregate report for each MSA. The FFIEC posts these disclosure statements at 

www.ffiec.gov/hmda. Disclosure statements are no longer mailed to financial institutions. 

CFPB	 Manual V.2 (October 2012) HMDA 6 
 

 

 

 

 

 

 

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Disclosure 

As the result of amendments to HMDA incorporated within the Housing and Community 

Development Act of 1992, an institution must make its disclosure statement available to the 

public at its home office within three business days after it is posted on the FFIEC website. An 

institution must also either (1) make its disclosure statement available to the public in at least one 

branch office in each additional MSA or MD where it has offices within 10 business days of its 

posting on the FFIEC website, or (2) post the address for requests in each branch office in each 

additional MSA or MD where it has offices, and send the disclosure statement within 15 calendar 

days after receiving a written request. 

Also, an institution must make its loan application register available to the public after deleting 

the following fields: application or loan number, date application received, and date of action 

taken. These deletions are required to protect the privacy interests of applicants and borrowers. 

The modified HMDA-LAR for a given year must be publicly available by March 31 of the 

following year for requests received on or before March 1, and within 30 days for requests 

received after March 1. 

The FFIEC also produces aggregate tables to illustrate the lending activity of all covered financial 

institutions in each MSA or MD. These tables and the individual disclosure statements are 

available on the FFIEC website, www.ffiec.gov/hmda, and through central depositories, such as 

libraries, in each MSA or MD. A list of the depositories is also available on the FFIEC website. 

A financial institution must retain its full (unmodified) HMDA-LAR for at least three years for 

examination purposes. It must also be prepared to make each modified HMDA-LAR available 

for three years and each FFIEC disclosure statement available for five years. Institutions may 

impose reasonable fees for costs incurred in providing or producing the data for public release. 

Finally, institutions must post a notice at their home office and at each branch in an MSA, to 

advise the public of the availability of the disclosure statements. 

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Enforcement 

As set forth in Section 305 of HMDA (12 U.S.C. 2804),7 compliance with the act and regulation is 

enforced by the CFPB, Office of the Comptroller of the Currency, the Board of Governors of the 

Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union 

Administration, and the U.S. Department of Housing and Urban Development. Administrative 

sanctions, including civil money penalties, may be imposed by the supervisory agencies. 

An error in compiling or recording loan data is not a violation of the act or the regulation if it 

was unintentional and occurred despite the maintenance of procedures reasonably adopted to 

avoid such errors. 

REFERENCES 

Laws 

12 U.S.C. 2801 et seq. Home Mortgage Disclosure Act 

Regulations 

Consumer Financial Protection Bureau Regulations (12 CFR) 

Part 1003 Home Mortgage Disclosure (Regulation C) 

7 As amended by Dodd-Frank Act, Sec. 1094, 124 Stat. 2097-2101 (2010). 

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Home Mortgage 

Disclosure Act1 

Examination Objectives 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

•	 To appraise the quality of the financial institution’s compliance risk management system to 

ensure compliance with the Home Mortgage Disclosure Act (HMDA) and Regulation C. 

•	 To determine the reliance that can be placed on the financial institution’s compliance risk 

management system, including internal controls, policies, procedures, and compliance review 

and audit functions for the Home Mortgage Disclosure Act and Regulation C. 

• To determine the accuracy and timeliness of the financial institution’s submitted HMDA-LAR. 

•	 To initiate corrective action when policies or internal controls are deficient, or when 

violations of law or regulation are identified. 

Examination Procedures 

A. Initial Procedures 

1.	 If the financial institution is a depository institution, determine whether it is subject to the 

requirements of HMDA and Regulation C by checking if the regulatory criteria addressed 

in 12 CFR 1003.2 are met. 

[Click&type] 

2.	 If the financial institution is a for-profit nondepository mortgage-lending institution, 

determine whether it is subject to the requirements of HMDA and Regulation C by 

checking if the regulatory criteria addressed in 12 CFR 1003.2 are met. 

[Click&type] 

3.	 If there were any mergers or acquisitions since January 1, of the preceding calendar year, 

determine whether all required HMDA data for the acquired financial institutions were 

reported separately or in consolidation. Examination procedures that follow concerning 

accuracy and disclosure also apply to an acquired financial institution’s data, even if 

separately reported. Use the following rules to decide if transactions by either institution 

during the year of the merger must be reported. 

a.	 If neither institution was required to report under HMDA that year the merged 

institution does not have to report transactions that occurred during the year of the 

merger. Data collection should begin on January 1, of the following calendar year. 

1 These reflect FFIEC-approved procedures. 

CFPB	 Manual V.2 (October 2012) Procedures 1 
 

 

 

 

 

 

 

 

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b.	 If a reporting institution merged with a non-reporting institution, and the reporting 

institution is the surviving institution, for the year of the merger, data collection is 

required for the reporting institution’s transactions; data collection is optional for the 

transactions handled in offices of the previously exempt non-reporting institution. 

c.	 If a reporting institution merged with a non-reporting institution, and the nonreporting institution is the surviving institution, or a new institution is formed, for the 

year of the merger, data collection is required for the reporting institution for 

transactions that occurred prior to the merger; data collection is optional for 

transactions that occurred after the merger date. 

d.	 If both institutions were HMDA reporters, data collection is required for the entire 

year of the merger. The merged institution may file either a consolidated submission 

or separate submissions. 

[Click&type] 

NOTE: If HMDA and Regulation C are applicable, then the following examination procedures 

should be performed separately for the financial institution and any of its majority-owned 

mortgage subsidiaries. Complete a separate checklist for each institution subject to HMDA and 

Regulation C. Also, when determining whether a financial institution is subject to HMDA, the 

examiner should remain cognizant of any newly created MSAs and changes in MSA boundaries, 

including counties that may have been added or deleted from an MSA, thus causing a financial 

institution either to become a new HMDA reporter or no longer be a HMDA reporter. Refer to 

the FFIEC’s website and to the booklet, “A Guide to HMDA Reporting: Getting It Right!” This 

can be a source of reference, as it lists counties in an MSA by state. 

B. Evaluation of Compliance Management 

Examiners should obtain information necessary to make a reasonable assessment regarding the 

institution’s ability to collect data regarding applications for, and originations and purchases of, 

home purchase loans, home improvement loans, and refinancings for each calendar year in 

accordance with the requirements of the HMDA and Regulation C. 

Examiners should determine, through a review of written policies, internal controls, the HMDA 

Loan Application Register (HMDA-LAR), and discussions with management, whether the 

financial institution adopted and implemented comprehensive procedures to ensure adequate 

compilation of home mortgage disclosure information in accordance with 12 CFR 1003.4(a)-(e). 

During your review of the financial institution’s system for maintaining compliance with HMDA 

and Regulation C obtain and review policies and procedures along with any applicable audit and 

compliance program materials to determine whether: 

1.	 Policies and procedures as well as training are adequate, on an ongoing basis, to ensure 

compliance with the Home Mortgage Disclosure Act and Regulation C. 

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2.	 Internal review procedures and audit schedules comprehensively cover all of the pertinent 

regulatory requirements associated with HMDA and Regulation C. 

3.	 The audits or internal analysis performed include a reasonable amount of transactional 

analysis, written reports that detail findings and recommendations for corrective actions. 

4.	 Internal reviews include any regulatory changes that may have occurred since the prior 

examination. 

5.	 The financial institution has assigned one or more individuals responsibility for oversight, 

data update, and data entry, along with timeliness of the financial institution’s data 

submission. Also determine whether the Board of Directors is informed of the results of 

all analyses. 

6.	 The individuals who have been assigned responsibility for data entry receive appropriate 

training in the completion of the HMDA-LAR and receive copies of Regulation C, 

Instructions for Completion of the HMDA-LAR (Appendix A), the Staff Commentary to 

Regulation C, and the FFIEC’s “Guide to HMDA Reporting: Getting it Right!” in a 

timely manner. 

7.	 The institution has ensured effective corrective action in response to previously identified 

deficiencies. 

8.	 The financial institution performs HMDA-LAR volume analysis from year-to-year to 

detect increases or decreases in activity for possible omissions of data. 

9.	 The financial institution maintains documentation for those loans it packages and sells to 

other institutions. 

[Click&type] 

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C. Evaluation of Policies and Procedures 

Evaluate whether the institution’s informal procedures and internal controls are adequate to 

ensure compliance with HMDA and Regulation C. Consider the following: 

1.	 Whether the individual(s) assigned responsibility for the institution’s compliance with 

HMDA and Regulation C possess(es) an adequate level of knowledge and has established 

a method for staying abreast of changes to laws and regulations. 

2.	 If the institution ensures that individuals assigned compliance responsibilities receive 

adequate training to ensure compliance with the requirements of the regulation. 

3.	 Whether the individuals assigned responsibility for the institution’s compliance with 

HMDA and Regulation C know whom to contact, at the financial institution or their 

supervisory agency, if they have questions not answered by the written materials. 

4.	 If the institution has established and implemented adequate controls to ensure that
 

separation of duties exists (e.g., data entry, review, oversight, and approval). 

5.	 Any internal reports or records documenting policies and procedures revisions as well as 

any informal self-assessment of the institution’s compliance with the regulation. 

6.	 If the institution offers preapprovals, whether the institution’s preapproval program meets 

the specifications detailed in the HMDA regulation. If so, whether the institution’s 

policies and procedures provide adequate guidance for the reporting of preapproval 

requests that are approved or denied in accordance with the regulation. 

7.	 Whether the institution’s policies and procedures address the reporting of (1) nondwelling secured loans that are originated in whole or in part for home improvement and 

classified as such by the institution; and (2) dwelling-secured loans that are originated in 

whole or in part for home improvement, whether or not classified as such. 

8.	 Whether the institution established a method for determining and reporting the lien status 

for all originated loans and applications. 

9.	 Whether the institution’s policies and procedures contain guidance for collecting
 

ethnicity, race, and sex for all loan applications, including applications made by
 

telephone, mail, and Internet.
 

10. Whether the institution’s policies and procedures address the collection of the rate spread 

(difference between the APR and the average prime offer rate for a comparable 

transaction as of the date the interest rate is set) and whether the institution has 

established a system for tracking rate lock dates and calculating the rate spread. 

11. Whether the institution’s policies and procedures address how to determine if a loan is 

subject to the Home Ownership and Equity Protection Act and the reporting of 

applications involving manufactured home loans. 

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12. Whether the HMDA-LAR is updated within 30 days after the end of each calendar 

quarter. 

13. Whether data are collected at all branches, and if so, whether the appropriate personnel 

are sufficiently trained to ensure that all branches are reporting data under the same 

guidelines. 

14. Whether the financial institution’s loan officers, including loan officers in the commercial 

loan department who may handle loan applications reportable under HMDA (including 

loans and applications for multi-family or mixed-use properties and small business 

refinances secured by residential real estate), are informed of the reporting requirements 

necessary to assemble the information. 

15. Whether the Board of Directors has established an independent review of the policies, 

procedures, and HMDA data to ensure compliance and accuracy, and is advised each 

year of the accuracy and timeliness of the financial institution’s data submissions. 

16. What procedures the institution has put in place to comply with the requirement to submit 

data in machine-readable form and whether the institution has some mechanism in place 

to ensure the accuracy of the data that are submitted in machine-readable form. 

17. Whether the financial institution’s loan officers are familiar with the disclosure, reporting 

and retention requirements associated with the loan application registers and the FFIEC 

public disclosure statements. 

18. Whether the financial institution’s loan officers are familiar with the disclosure 

statements that will be produced from the data. 

19. Whether the financial institution’s loan officers are aware that civil money penalties may 

be imposed when an institution has submitted erroneous data and has not established 

adequate procedures to ensure the accuracy of the data. 

20. Whether the financial institution’s loan officers are aware that correction and 

resubmission of erroneous data may be required when data are incorrectly reported for at 

least 5 percent of the loan application records. 

[Click&type] 

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D. Transaction Testing 

Verify that the financial institution accurately compiled home mortgage disclosure information 

on a register in the format prescribed in Appendix A, by testing a sample of loans and 

applications. 

The review of the HMDA-LAR, for submitted data, should include a sample of the applications 

represented on the HMDA-LAR to verify the accuracy of each entry. A sample of the current 

year’s data should also be reviewed. The samples may include the following: 

1.	 Approved and denied transactions subject to HMDA; 

2.	 Housing-related purchased loans; 

3.	 Withdrawn housing-related loan applications. 

E. Disclosure and Reporting 

1.	 Determine whether the financial institution: 

a.	 Submits its HMDA-LAR to the appropriate supervisory agency no later than March 1 

following the calendar year for which the data are compiled and maintains its 

HMDA-LAR for at least three years thereafter. 

NOTE: Financial institutions that report 25 or fewer entries on their HMDA-LAR may 

collect and report HMDA data in a paper form. Any financial institution opting to 

submit its data in such a manner must send two copies that are typed or computer 

printed. They must use the format of the HMDA-LAR, but need not use the form itself. 

b.	 Makes its FFIEC disclosure statement available to the public at its home office no 

later than three business days after receiving its statement from the FFIEC (which 

effectively occurs when the FFIEC posts its disclosure statement on the FFIEC 

website and provides notice of that fact to the institution). 

c.	 Either 

(1) makes its FFIEC disclosure statement available to the public in at least one branch 

office in each additional MSA or MD where the financial institution has offices 

within 10 business days after receiving the disclosure statement from the FFIEC 

(which effectively occurs when the FFIEC posts the disclosure statement on the 

FFIEC website and provides notice of that fact to the institution); or 

(2) posts the address for sending written requests for the disclosure statement in the 

lobby of each branch office in additional MSAs or MDs where the institution has 

offices and mails or delivers a copy of the disclosure statement within 15 calendar 

days of receiving the written request. 

CFPB	 Manual V.2 (October 2012) Procedures 6 
 

 

 

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d.	 Makes its modified HMDA-LAR (loan application number, date application received, 

and date action taken excluded from the data) available to the public by March 31, for 

requests received on or before March 1, and within 30 days for requests received after 

March 1. 

e.	 Maintains its modified HMDA-LAR for three years and its disclosure statement for 

five years and has policies and procedures to ensure its modified HMDA-LAR and 

disclosure statement are available to the public during those terms. 

f.	 Makes available the modified HMDA-LAR and disclosure statement for inspection 

and copying during the hours the office is normally open to the public for business. 

If it imposes a fee for costs incurred in providing or reproducing the data, the fee is 

reasonable. 

g.	 Posts a general notice about the availability of its HMDA data in the lobby of its 

home office and of each branch office located in an MSA. 

h.	 Provides promptly upon request the location of the institution’s offices where the 

statement is available for inspection and copying, or includes the location in the 

lobby notice. 

[Click&type] 

2.	 If the financial institution has a subsidiary covered by HMDA, determine that the 

subsidiary completed a separate HMDA-LAR and either submitted it directly or through 

its parent to the parent’s supervisory agency. 

[Click&type] 

3.	 Determine that the HMDA-LAR transmittal sheet is accurately completed and that an 

officer of the financial institution signed and certified to the accuracy of the data 

contained in their register. See Appendix A. 

NOTE: If the HMDA-LAR was submitted via the Internet, this signature should be 

retained on file at the institution. 

[Click&type] 

4.	 Review the financial institution’s last disclosure statement, HMDA-LAR, modified 

HMDA-LAR, and any applicable correspondence, such as notices of noncompliance. 

Determine what errors occurred during the previous reporting period. If errors did occur, 

determine what steps the financial institution took to correct and prevent such errors in 

the future. 

[Click&type] 

5.	 Determine if the financial institution has the necessary tools to compile the geographic 

information. 

CFPB	 Manual V.2 (October 2012) Procedures 7 
 

 

 

 

 

CFPB 

Examination Procedures HMDA 

a.	 Determine if the financial institution uses the U.S. Census Bureau’s Census Tract 

Street Address Lookup Resources for 2010, the Census Bureau’s 2000 Census Tract 

Outline Maps,2 LandView 6 equivalent materials available from the Census Bureau 

or from a private publisher, or an automated geocoding system in order to obtain the 

proper census tract numbers. 

b.	 If the financial institution relies on outside assistance to obtain the census tract 

numbers (for example, private “geocoding” services or real estate appraisals), verify 

that adequate procedures are in place to ensure that the census tract numbers are 

obtained in instances where they are not provided by the outside source. For 

example, if the financial institution usually uses property appraisals to determine 

census tract numbers, it must have procedures to obtain this information if an 

appraisal is not received; such as in cases where a loan application is denied before an 

appraisal is made. 

c.	 Verify that the financial institution has taken steps to ensure that the provider of 

outside services is using the appropriate 2000 Census Bureau data. 

d.	 Verify that the financial institution uses current MSA and MD definitions to 

determine the appropriate MSA and MD numbers and boundaries. MSA definitions 

and numbers (and state and county codes) are available from the supervisory agency, 

the Office of Management and Budget, or the FFIEC’s publication “A Guide to 

HMDA Reporting: Getting it Right!” 

[Click&type] 

6.	 For banks required to report data on small-business, small-farm, and community 

development lending under the CRA, verify that they also collect accurate data on 

property located outside MSAs or MDs in which the institution has a home or branch 

office, or outside any MSAs or MDs. 

[Click&type] 

Once the 2010 versions are available, the financial institution should use the latest versions. 

CFPB	 Manual V.2 (October 2012) Procedures 8 

2 
 

 

 

CFPB 

Examination Procedures HMDA 

Examination Conclusions 

1.	 Summarize the findings, supervisory concerns, and regulatory violations. 

[Click&type] 

2.	 For the violations noted, determine the root cause by identifying weaknesses in internal 

controls, audit and compliance reviews, training, management oversight, or other factors; 

also, determine whether the violation(s) are repetitive or systemic. 

[Click&type] 

3.	 Identify action needed to correct violations and weaknesses in the institution’s compliance 

system. 

[Click&type] 

4.	 Discuss findings with the institution’s management and obtain a commitment for corrective 

action. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 9 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes No 

CFPB 

Examination Checklist HMDA 

Home Mortgage 

Disclosure Act1
 

Applicability 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

Depository Institutions 

1.	 Is the depository institution a bank or credit union that originated in the
 

preceding calendar year at least one home purchase loan (or refinancing of a
 

home purchase loan) secured by a first lien on a one-to-four family dwelling?
 

(12 CFR 1003.2)
 

2. Does the depository institution meet at least one of the criteria below? 

a.	 The depository institution is a federally insured or regulated institution 

(12 CFR 1003.2);
 

b.	 The depository institution originated a mortgage loan (reference checklist
 

question #1) that was insured, guaranteed, or supplemented by a federal
 

agency (12 CFR 1003.2); or
 

c.	 The depository institution originated a mortgage loan (reference checklist
 

question #1) intending to sell it to Fannie Mae or Freddie Mac (12 CFR
 

1003.2). 

3.	 Did the depository institution have either a home or branch office in an MSA
 

on December 31, of the preceding calendar year? (12 CFR 1003.2)
 

4.	 On the preceding December 31, did the depository institution have assets in 

excess of the asset threshold that is adjusted annually and published annually
 

by the Consumer Financial Protection Bureau? (12 CFR 1003.2)
 

If the answers to checklist questions #1 through #4 are “Yes,” then the depository institution is 

subject to the requirements of HMDA and Regulation C, and the examiner should complete the 

remaining portion of the checklist. 

1 These reflect FFIEC-approved procedures. 

CFPB	 Manual V.2 (October 2012) Checklist 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes No 

 

CFPB 

Examination Checklist HMDA 

For-Profit Non-depository Mortgage-Lending Institutions 

5.	 In the preceding calendar year, did the for-profit nondepository mortgagelending institution either: 

a.	 Originate home purchase loans or refinancings of home purchase loans that
 

equaled at least 10 percent of its total loan-origination volume, measured in
 

dollars? (12 CFR 1003.2) or
 

b.	 Originate home purchase loans or refinancings of home purchase loans that
 

equaled at least $25 million? (12 CFR 1003.2)
 

6.	 Did the for-profit nondepository mortgage-lending institution have a home or 

branch office2 in an MSA as of December 31, of the previous year? (12 CFR 

1003.2) and 

7.	 Does the for-profit nondepository mortgage-lending institution meet at least one 

of the criteria below? (12 CFR 1003.2) 

a.	 The for-profit nondepository mortgage-lending institution had total assets
 

(when combined with the assets of the parent corporation, if any) exceeding
 

$10 million on the previous December 31; or 

b.	 The for-profit nondepository mortgage-lending institution originated at least 

100 home purchase loans (including refinancings of home purchase loans)
 

in the preceding calendar year.
 

If the answers to questions #5 through #7 are “Yes,” then the for-profit nondepository 

mortgage-lending institution is subject to the requirements of HMDA and Regulation C. 

Subsidiaries 

8.	 If one financial institution has a majority interest in another financial institution, 

and both institutions are subject to HMDA and Regulation C, then the examiner 

should complete a separate checklist for each institution beginning with question 

#9. If only one of the institutions is subject to Regulation C and HMDA, the 

examiner should use the remaining portion of this checklist for that institution. 

The examiner should note to which financial institution the remaining checklist 

questions apply. 

Compilation of Loan Data 

9.	 Does the financial institution collect the following data in accordance with 

12 CFR 1003.4(a) and Appendix A? 

2 A nondepository institution is deemed to have a branch office in an MSA or MD if, in the preceding calendar year, it received 

applications for, originated, or purchased five or more home purchase loans, home improvement loans, or refinancings in that 

MSA or MD. 

CFPB	 Manual V.2 (October 2012) Checklist 2 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes No 

CFPB 

Examination Checklist HMDA 

a.	 An identifying number (that does not include the applicant’s name or social 

security number) for the loan or loan application, and the date the 

application was received? (12 CFR 1003.4(a)(1)) 

b. The type of the loan or application? (12 CFR 1003.4(a)(2)) 

c. The purpose of the loan or application? (12 CFR 1003.4(a)(3)) 

d.	 Whether the application is for a preapproval and whether it resulted in a 

denial or an origination. (12 CFR 1003.4(a)(4)) 

e.	 The property type to which the loan or application relates? (12 CFR 

1003.4(a)(5)) 

f.	 The owner-occupancy status of the property to which the loan or application 

relates? (12 CFR 1003.4(a)(6)) 

g.	 The loan amount or the amount requested on the application? (12 CFR 

1003.4(a)(7)) 

h. The type of action taken? (12 CFR 1003.4(a)(8)) 

i. The date such action was taken? (12 CFR 1003.4(a)(8)) 

j.	 The location of the property to which the loan or application relates by (12 

CFR 1003.4(a)(9)): 

i. MSA or MD number (5 digits)? 

ii. State (2 digits)? 

iii. County (3 digits)? 

iv. Census tract number (6 digits)? 

k.	 The ethnicity and race of the applicant or borrower? (12 CFR 

1003.4(a)(10)) 

l.	 The ethnicity and race of the co-applicant or co-borrower? (12 CFR 

1003.4(a)(10)) 

m. The sex of the applicant or borrower? (12 CFR 1003.4(a)(10)) 

n. The sex of the co-applicant or co-borrower? (12 CFR 1003.4(a)(10)) 

o.	 The gross annual income relied on in processing the applicant’s request? 

(12 CFR 1003.4(a)(10)) 

CFPB	 Manual V.2 (October 2012) Checklist 3 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB 

Examination Checklist HMDA 

Yes No 

NOTE: Collection of data concerning ethnicity, race, and sex is mandatory for all 

transactions unless the financial institution purchased the loans or the borrower is not a 

natural person (a corporation or partnership). Data on annual income is mandatory for all 

transactions unless the financial institution purchased the loan, the borrower is not a natural 

person, the loan is for a multifamily dwelling, income was not relied upon in the credit 

decision, or the loan is to an employee. 

p.	 The type of entity purchasing a loan that the financial institution originates
 

or purchases and then sells within the same calendar year? (12 CFR
 

1003.4(a)(11))
 

q.	 For originated loans subject to Regulation Z, the difference between the 

loan’s APR and the average prime offer rate for a comparable transaction as
 

of the date the interest is set, if that difference is equal to or greater than 1.5 

percentage points for first lien loans or equal to or greater than 3.5 

percentage points for subordinate lien loans on a dwelling. (12 CFR
 

1003.4(a)(12))
 

r. Whether the loan is subject to HOEPA? (12 CFR 1003.4(a)(13)) 

s. The lien status of the loan or application? (12 CFR 1003.4(a)(14)) 

t.	 Does the financial institution provide the reasons for denial of an 

application? (12 CFR 1003.4(c)(1)) If yes, are the reasons accurate?
 

u.	 Is the HMDA-LAR updated within 30 calendar days after the end of the
 

quarter in which final action is taken? (12 CFR 1003.4(a))
 

10. Does the institution request ethnicity, race, and sex data for all telephone, mail 

and Internet applications in accordance with Appendix B? (12 CFR 

1003.4(b)(1)) 

11. For applications taken face-to-face, does the financial institution note data 

concerning ethnicity, race, and sex on the basis of visual observation or 

surname if the applicant chooses not to provide this information? (12 CFR 

1003.4(b)(1)) 

NOTE: If the applicant fails to provide this information in mail, telephone, or
 

Internet applications, the ethnicity, race, and sex are not recorded; instead, an 

applicable code number is provided (ethnicity 3, race 6, and sex 3; NA should 

not be used for these three situations). 

CFPB	 Manual V.2 (October 2012) Checklist 4 
 

 

 

 

 

 

CFPB 

Examination Checklist HMDA 

Yes No 

a. Loans originated or purchased by the financial institution acting in a 

fiduciary capacity (such as trustee)? 

b. Loans on unimproved land? 

c. Temporary financing (such as a bridge or construction loan)? 

d. Purchase of an interest in a pool of loans (such as mortgage-participation 

certificates, mortgage-backed securities, or real estate mortgage investment 

conduits)? 

e. Purchase solely of the right to service loans? 

f. Loans originated prior to the current reporting year and acquired as part of a 

merger or acquisition or as part of the acquisition of all assets and liabilities 

of a branch office? 

g. A refinancing if, under the loan agreement, the financial institution is 

unconditionally obligated to refinance the obligation, or is obligated to 

refinance the obligation subject to conditions under the borrower’s control? 

(Appendix A, I.A.5a) 

Disclosure and Reporting 

12. Is the loan or applicant data presented in the format prescribed in Appendix A 

of the regulation? (12 CFR 1003.4(a)) 

13. Has the institution reported all applications for, originations of, and purchases 

of home-purchase loans, home-improvement loans, and refinancings? (12 CFR 

1003.4(a)) 

14. Has the financial institution refrained from reporting: (12 CFR 1003.4(d)) 

15. Did the financial institution submit its completed HMDA-LAR to the 

appropriate supervisory agency in automated machine-readable format by 

March 1 following the calendar year for which the data are compiled? (12 CFR 

1003.5(a)) 

NOTE: Financial institutions that report 25 or fewer entries on their HMDA-LAR may collect 

and report their HMDA data in a paper form. Any financial institution opting to submit its data 

in such a manner must send two copies that are typed or computer printed. The institution must 

use the format of the HMDA-LAR, but need not use the form itself. 

16. Has an officer of the financial institution signed the HMDA-LAR transmittal 

sheet certifying the accuracy of the data contained in the register? (Appendix A) 

17. Is the transmittal sheet accurately completed? (Appendix A) 

18. Has the financial institution maintained its HMDA-LAR in its records for at 

least three years? (12 CFR 1003.5(a)) 

CFPB Manual V.2 (October 2012) Checklist 5 
 

 

CFPB 

Examination Checklist HMDA 

Yes No 

 

 

 

 

 

 

 

 

19. Has the financial institution made its FFIEC prepared disclosure statement: 

a. Available to the public at its home office no later than three business days 

after receiving it from the FFIEC (which effectively occurs when the FFIEC 

posts its disclosure statement on the FFIEC website and provides notice of 

that fact to the institution)? and

b. Available within 10 business days in at least one branch office in each 

additional MSA or MD where the financial institution has offices or posted 

the address for sending written requests in the lobby of each branch office 

in other MSAs or MDs where the institution has offices and delivered a 

copy of the disclosure statement within 15 calendar days of receiving a 

written request? (12 CFR 1003.5(b)) 

20. Has the financial institution made its modified HMDA-LAR (loan application 

number, date application received, and date action taken excluded from the 

data) for the preceding calendar year available to the public, by March 31 for 

requests received on or before March 1, and within 30 days for requests 

received after March 1? (12 CFR 1003.5(c)) 

21. Has the financial institution maintained its modified HMDA-LAR for three 

years? Does the financial institution have policies and procedures to ensure its 

modified HMDA-LAR is available to the public during that term? (12 CFR 

1003.5(d)) 

22. Has the financial institution maintained its disclosure statement for five years? 

(12 CFR 1003.5(d)) 

23. Does the financial institution have policies and procedures to ensure its 

disclosure statement is available to the public during that term? (12 CFR 

1003.5(d)) 

24. Does the financial institution make available the modified HMDA-LAR and 

disclosure statement for inspection and copying during the hours the office is 

normally open to the public for business? If it imposes a fee for costs incurred 

in providing or reproducing the data, is it reasonable? (12 CFR 1003.5(d)) 

25. Has the financial institution posted a general notice about the availability of its 

disclosure statement in the lobby of its home office and in each branch office 

located in an MSA? (12 CFR 1003.5(e)) 

26. Does the institution provide promptly upon request the location of the 

institution’s offices where the statement is available for inspection and copying, 

or include the location in the lobby notice? (12 CFR 1003.5(e)) 

CFPB Manual V.2 (October 2012) Checklist 6 
 

CFPB 

Examination Checklist HMDA 

 

 

 

 

 

Yes No 

 

 

27. Did errors occur in the previous reporting period? (Review the financial 

institution’s last disclosure statement, HMDA-LAR, modified HMDA-LAR, 

and any applicable correspondence from the regulatory agency, such as notices 

of noncompliance.) 

28. If errors did occur, has the financial institution taken appropriate steps to 

correct and prevent such errors in the future? 

a. Have individuals who are responsible for all data-entry: 

i. Received appropriate training in the completion of the HMDA-LAR? 

ii. Been provided copies of Regulation C, including the instructions for 

completion of the HMDA-LAR, and the “A Guide to HMDA Reporting: 

Getting it Right!?” 

iii. Know whom to contact, at the financial institution or the institution’s 

supervisory agency, if they have questions not answered by the written 

materials? 

b. Are the financial institution’s loan officers including loan officers in the 

commercial loan department who may handle loan applications for HMDA 

reportable loans (such as multi-family or mixed-use properties and small 

business refinances secured by residential real estate): 

i. Informed of the reporting requirements so they can assemble the 

necessary information, and do they understand the importance of 

accuracy? 

ii. Familiar with the disclosure statements that are produced from the data 

and cognizant of the ramifications for the financial institution if the data 

are wrong? 

iii. Maintain appropriate documentation of the information entered on the 

HMDA-LAR? 

c. If data are collected at more than one branch, are the appropriate personnel 

sufficiently trained to ensure that all branches report data using the same 

guidelines? 

d. Does the financial institution have internal control processes to ensure that 

the persons who capture and code the data are doing so accurately and 

consistently? 

e. Does the financial institution have controls established to ensure separation 

of duties (e.g., data entry, review, oversight approval, etc.)? 

CFPB Manual V.2 (October 2012) Checklist 7 
 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations TILA 

Truth in Lending Act1 

The Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., was enacted on May 29, 1968, as title 

I of the Consumer Credit Protection Act (Pub. L. 90-321). The TILA, implemented by 

Regulation Z (12 CFR 1026), became effective July 1, 1969. 

The TILA was first amended in 1970 to prohibit unsolicited credit cards. Additional major 

amendments to the TILA and Regulation Z were made by the Fair Credit Billing Act of 1974, the 

Consumer Leasing Act of 1976, the Truth in Lending Simplification and Reform Act of 1980, 

the Fair Credit and Charge Card Disclosure Act of 1988, the Home Equity Loan Consumer 

Protection Act of 1988. 

Regulation Z also was amended to implement section 1204 of the Competitive Equality Banking 

Act of 1987, and in 1988, to include adjustable rate mortgage loan disclosure requirements. All 

consumer leasing provisions were deleted from Regulation Z in 1981 and transferred to 

Regulation M (12 CFR 1013). 

The Home Ownership and Equity Protection Act of 1994 amended the TILA. The law imposed 

new disclosure requirements and substantive limitations on certain closed-end mortgage loans 

bearing rates or fees above a certain percentage or amount. The law also included new disclosure 

requirements to assist consumers in comparing the costs and other material considerations 

involved in a reverse mortgage transaction and authorized the Federal Reserve Board to prohibit 

specific acts and practices in connection with mortgage transactions. 

The TILA amendments of 1995 dealt primarily with tolerances for real estate secured credit. 

Regulation Z was amended on September 14, 1996 to incorporate changes to the TILA. 

Specifically, the revisions limit lenders’ liability for disclosure errors in real estate secured loans 

consummated after September 30, 1995. The Economic Growth and Regulatory Paperwork 

Reduction Act of 1996 further amended the TILA. The amendments were made to simplify and 

improve disclosures related to credit transactions. 

The Electronic Signatures in Global and National Commerce Act (the E-Sign Act), 15 U.S.C. 

7001 et seq., was enacted in 2000 and did not require implementing regulations. On November 9, 

2007, the amendments to Regulation Z and the official staff commentary were issued to simplify 

the regulation and provide guidance on the electronic delivery of disclosures consistent with the 

E-Sign Act. 

In July 2008, Regulation Z was amended to protect consumers in the mortgage market from 

unfair, abusive, or deceptive lending and servicing practices. Specifically, the change applied 

protections to a newly defined category of “higher-priced mortgages” that includes virtually all 

closed-end subprime loans secured by a consumer’s principal dwelling. The revisions also 

applied new protections to mortgage loans secured by a dwelling, regardless of loan price, and 

required the delivery of early disclosures for more types of transactions. The revisions also 

1 These reflect FFIEC-approved procedures. 

CFPB Manual V.2 (October 2012) TILA 1 
 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations TILA 

banned several advertising practices deemed deceptive or misleading. The Mortgage Disclosure 

Improvement Act of 2008 (MDIA) broadened and added to the requirements of the Board’s July 

2008 final rule by requiring early truth-in-lending disclosures for more types of transactions and 

by adding a waiting period between the time when disclosures are given and consummation of 

the transaction. In 2009, Regulation Z was amended to address those provisions. The MDIA also 

requires disclosure of payment examples if the loan’s interest rate or payments can change, as 

well as disclosure of a statement that there is no guarantee the consumer will be able to refinance 

in the future. In 2010, Regulation Z was amended to address these provisions, which became 

effective on January 30, 2011. 

In December 2008, the Board adopted two final rules pertaining to open-end (not home-secured) 

credit. The first rule involved Regulation Z revisions and made comprehensive changes applicable 

to several disclosures required for: applications and solicitations, new accounts, periodic 

statements, change in terms notifications, and advertisements. The second was a rule published 

under the Federal Trade Commission (FTC) Act and was issued jointly with the Office of Thrift 

Supervision and the National Credit Union Administration. It sought to protect consumers from 

unfair acts or practices with respect to consumer credit card accounts. Before these rules became 

effective, however, the Credit Card Accountability Responsibility and Disclosure Act of 2009 

(Credit CARD Act) amended the TILA and established a number of new requirements for openend consumer credit plans. Several provisions of the Credit CARD Act are similar to provisions in 

the Board’s December 2008 TILA revisions and the joint FTC Act rule, but other portions of the 

Credit CARD Act address practices or mandate disclosures that were not addressed in these rules. 

In light of the Credit CARD Act, the Board, NCUA, and OTS withdrew the substantive 

requirements of the joint FTC Act rule. On July 1, 2010, compliance with the provisions of the 

Board’s rule that were not impacted by the Credit CARD Act became effective. 

The Credit CARD Act provisions became effective in three stages. The provisions effective first 

(August 20, 2009) required creditors to increase the amount of notice consumers receive before the 

rate on a credit card account is increased or a significant change is made to the account’s terms. 

These amendments also allowed consumers to reject such increases and changes by informing the 

creditor before the increase or change goes into effect. The provisions effective next (February 22, 

2010) involved rules regarding interest rate increases, over-the-limit transactions, and student 

cards. Finally, the provisions effective last (August 22, 2010) addressed the reasonableness and 

proportionality of penalty fees and charges and re-evaluation of rate increases. 

In 2009, Regulation Z was amended following the passage of the Higher Education Opportunity 

Act (HEOA) by adding disclosure and timing requirements that apply to lenders making private 

education loans. 

In 2009, the Helping Families Save Their Homes Act amended the TILA to establish a new 

requirement for notifying consumers of the sale or transfer of their mortgage loans. The 

purchaser or assignee that acquires the loan must provide the required disclosures no later than 

30 days after the date on which it acquired the loan. 

In 2010, the Board further amended Regulation Z to prohibit payment to a loan originator that is 

based on the terms or conditions of the loan, other than the amount of credit extended. The 

CFPB Manual V.2 (October 2012) TILA 2 
 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations TILA 

amendment applies to mortgage brokers and the companies that employ them, as well as to 

mortgage loan officers employed by depository institutions and other lenders. In addition, the 

amendment prohibits a loan originator from directing or “steering” a consumer to a loan that is 

not in the consumer’s interest to increase the loan originator’s compensation. Separately, the 

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the 

TILA to include several provisions that protect the integrity of the appraisal process when a 

consumer’s home is securing the loan. The rule also requires that appraisers receive customary 

and reasonable payments for their services. The appraiser and loan originator compensation 

requirements became effective on April 1, 2011. 

The Dodd-Frank Act granted rulemaking authority under the TILA to the Consumer Financial 

Protection Bureau (CFPB).

2 

Format of Regulation Z 

The disclosure rules creditors must follow differ depending on whether the creditor is offering 

open-end credit, such as credit cards or home-equity lines, or closed-end credit, such as car loans 

or mortgages. 

Subpart A (sections 1026.1 through 1026.4) of the regulation provides general information that 

applies to open-end and closed-end credit transactions. It sets forth definitions and stipulates 

which transactions are covered and which are exempt from the regulation. It also contains the 

rules for determining which fees are finance charges. 

Subpart B (sections 1026.5 through 1026.16) relates to open-end credit. It contains rules on 

account-opening disclosures and periodic statements. It also describes special rules that apply to 

credit card transactions, treatment of payments and credit balances, procedures for resolving credit 

billing errors, annual percentage rate calculations, rescission requirements, and advertising. 

Subpart C (sections 1026.17 through 1026.24) relates to closed-end credit. It contains rules on 

disclosures, treatment of credit balances, annual percentage rate calculations, rescission 

requirements, and advertising. 

Subpart D (sections 1026.25 through 1026.30) contain rules on oral disclosures, disclosures 

in languages other than English, record retention, effect on state laws, state exemptions, and 

rate limitations. 

Subpart E (sections 1026.31 through 1026.45) contains special rules for certain mortgage 

transactions. It contains rules on certain disclosures and provides limitations for closed-end loans 

that have rates or fees above specified amounts and disclosure requirements for home equity 

plans. It contains requirements for reverse mortgage transactions. It provides for additional 

prohibitions for specific acts and practices in connection with an extension of credit secured by a 

dwelling. Finally, it contains rules on valuation independence requirements. 

2 Dodd-Frank Act §§1002(12)(O), 1022(b), 1024(b)-(c), and 1025(b)-(c); 12 U.S.C. §§5481(12)(O), 5512, 5514(b)­

(c), and 5515(b)-(c). 

CFPB Manual V.2 (October 2012) TILA 3 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations TILA 

Subpart F (sections 1026.46 through 1026.48) relates to private education loans. It contains rules 

on disclosures, limitations on changes in terms after approval, the right to cancel the loan, and 

limitations on co-branding in the marketing of private education loans. 

Subpart G (sections 1026.51 through 1026.60) relates to credit card accounts under an open-end 

(not home-secured) consumer credit plan (except for § 1026.57(c), which applies to all open-end 

credit plans). This subpart contains rules regarding credit and charge card application and 

solicitation disclosures. It also contains rules on evaluation of a consumer’s ability to make the 

required payments under the terms of an account, limits the fees that a consumer can be required to 

pay, and contains rules on allocation of payments in excess of the minimum payment. It also sets 

forth certain limitations on the imposition of finance charges as the result of a loss of a grace 

period, and on increases in annual percentage rates, fees, and charges for credit card accounts, 

including the reevaluation of rate increases. This subpart prohibits the assessment of fees or 

charges for over-the-limit transactions unless the consumer affirmatively consents to the creditor’s 

payment of over-the-limit transactions. This subpart also sets forth rules for reporting and 

marketing of college student open-end credit. Finally, it sets forth requirements for the Internet 

posting of credit card accounts under an open-end (not home-secured) consumer credit plan. 

Several appendices contain information such as the procedures for determinations about state 

laws, state exemptions and issuance of official interpretations, special rules for certain kinds of 

credit plans, and the rules for computing annual percentage rates in closed-end credit transactions 

and total-annual-loan-cost rates for reverse mortgage transactions. 

Official staff interpretations of the regulation are published in a commentary. Good faith 

compliance with the commentary protects creditors from civil liability under the TILA. In 

addition, the commentary includes more detailed information on disclosures or other actions 

required of creditors. It is virtually impossible to comply with Regulation Z without reference to 

and reliance on the commentary. 

NOTE: The following narrative does not discuss all the sections of Regulation Z, but rather 

highlights only certain sections of the regulation and the TILA. 

CFPB Manual V.2 (October 2012) TILA 4 
 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations TILA 

Subpart A – General 

Purpose of the TILA and Regulation Z 

The TILA is intended to ensure that credit terms are disclosed in a meaningful way so consumers 

can compare credit terms more readily and knowledgeably. Before its enactment, consumers 

were faced with a bewildering array of credit terms and rates. It was difficult to compare loans 

because they were seldom presented in the same format. Now, all creditors must use the same 

credit terminology and expressions of rates. In addition to providing a uniform system for 

disclosures, the act: 

•	 Protects consumers against inaccurate and unfair credit billing and credit card practices; 

•	 Provides consumers with rescission rights; 

•	 Provides for rate caps on certain dwelling-secured loans; 

•	 Imposes limitations on home equity lines of credit and certain closed-end home mortgages; 

and 

•	 Delineates and prohibits unfair or deceptive mortgage lending practices. 

The TILA and Regulation Z do not, however, tell financial institutions how much interest they 

may charge or whether they must grant a consumer a loan. 

Summary of Coverage Considerations – 

Sections 1026.1 & 1026.2 

Lenders must carefully consider several factors when deciding whether a loan requires Truth in 

Lending disclosures or is subject to other Regulation Z requirements. The coverage 

considerations under Regulation Z are addressed in more detail in the commentary to Regulation 

Z. For example, broad coverage considerations are included under section 1026.1(c) of the 

regulation and relevant definitions appear in section 1026.2. 

Exempt Transactions – Section 1026.3 

The following transactions are exempt from Regulation Z: 

•	 Credit extended primarily for a business, commercial, or agricultural purpose; 

•	 Credit extended to other than a natural person (including credit to government agencies or 

instrumentalities); 

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•	 Credit in excess of $50 thousand not secured by real property or by personal property used or 

expected to be used as the principal dwelling of the consumer;3 

•	 Public utility credit; 

•	 Credit extended by a broker-dealer registered with the Securities and Exchange Commission 

(SEC) or the Commodity Futures Trading Commission (CFTC), involving securities or 

commodities accounts; 

•	 Home fuel budget plans not subject to a finance charge; and 

•	 Certain student loan programs. 

However, when a credit card is involved, generally exempt credit (e.g., business purpose credit) 

is subject to the requirements that govern the issuance of credit cards and liability for their 

unauthorized use. Credit cards must not be issued on an unsolicited basis and, if a credit card is 

lost or stolen, the cardholder must not be held liable for more than $50 for the unauthorized use 

of the card. (Comment 3-1) 

When determining whether credit is for consumer purposes, the creditor must evaluate all of the 

following: 

•	 Any statement obtained from the consumer describing the purpose of the proceeds. 

o	 For example, a statement that the proceeds will be used for a vacation trip would indicate 

a consumer purpose. 

o	 If the loan has a mixed-purpose (e.g., proceeds will be used to buy a car that will be used 

for personal and business purposes), the lender must look to the primary purpose of the 

loan to decide whether disclosures are necessary. A statement of purpose from the 

consumer will help the lender make that decision. 

o	 A checked box indicating that the loan is for a business purpose, absent any 

documentation showing the intended use of the proceeds could be insufficient evidence 

that the loan did not have a consumer purpose. 

•	 The consumer’s primary occupation and how it relates to the use of the proceeds. The higher 

the correlation between the consumer’s occupation and the property purchased from the loan 

proceeds, the greater the likelihood that the loan has a business purpose. For example, 

proceeds used to purchase dental supplies for a dentist would indicate a business purpose. 

3 The Dodd-Frank Act requires that this threshold be adjusted annually by any annual percentage increase in the 

Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Accordingly, based on the annual 

percentage increase in the CPI-W as of June 1, 2011, the exemption threshold increased from $50,000 to $51,800, 

effective January 1, 2012. 

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•	 Personal management of the assets purchased from proceeds. The lower the degree of the 

borrower’s personal involvement in the management of the investment or enterprise 

purchased by the loan proceeds, the less likely the loan will have a business purpose. For 

example, money borrowed to purchase stock in an automobile company by an individual who 

does not work for that company would indicate a personal investment and a consumer 

purpose. 

•	 The size of the transaction. The larger the size of the transaction, the more likely the loan will 

have a business purpose. For example, if the loan is for a $5,000,000 real estate transaction, 

that might indicate a business purpose. 

•	 The amount of income derived from the property acquired by the loan proceeds relative to 

the borrower’s total income. The lesser the income derived from the acquired property, the 

more likely the loan will have a consumer purpose. For example, if the borrower has an 

annual salary of $100,000 and receives about $500 in annual dividends from the acquired 

property, that would indicate a consumer purpose. 

All five factors must be evaluated before the lender can conclude that disclosures are not 

necessary. Normally, no one factor, by itself, is sufficient reason to determine the applicability of 

Regulation Z. In any event, the financial institution may routinely furnish disclosures to the 

consumer. Disclosure under such circumstances does not control whether the transaction is 

covered, but can assure protection to the financial institution and compliance with the law. 

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Determination of Finance Charge and Annual 

Percentage Rate (“APR”) 

Finance Charge (Open-End and Closed-End Credit) – 

Section 1026.4 

The finance charge is a measure of the cost of consumer credit represented in dollars and cents. 

Along with APR disclosures, the disclosure of the finance charge is central to the uniform credit 

cost disclosure envisioned by the TILA. 

The finance charge does not include any charge of a type payable in a comparable cash 

transaction. Examples of charges payable in a comparable cash transaction may include taxes, 

title, license fees, or registration fees paid in connection with an automobile purchase. 

Finance charges include any charges or fees payable directly or indirectly by the consumer and 

imposed directly or indirectly by the financial institution either as an incident to or as a condition 

of an extension of consumer credit. The finance charge on a loan always includes any interest 

charges and often, other charges. Regulation Z includes examples, applicable both to open-end 

and closed-end credit transactions, of what must, must not, or need not be included in the 

disclosed finance charge (§1026.4(b)). 

Accuracy Tolerances (Closed-End Credit) – 

Sections 1026.18(d) & 1026.23(g) 

Regulation Z provides finance charge tolerances for legal accuracy that should not be confused 

with those provided in the TILA for reimbursement under regulatory agency orders. As with 

disclosed APRs, if a disclosed finance charge were legally accurate, it would not be subject to 

reimbursement. 

Under the TILA and Regulation Z, finance charge disclosures for open-end credit must be 

accurate since there is no tolerance for finance charge errors. However, both the TILA and 

Regulation Z permit various finance charge accuracy tolerances for closed-end credit. 

Tolerances for the finance charge in a closed-end transaction, other than a mortgage loan, are 

generally $5 if the amount financed is less than or equal to $1,000 and $10 if the amount 

financed exceeds $1,000. Tolerances for certain transactions consummated on or after September 

30, 1995 are noted below. 

•	 Credit secured by real property or a dwelling (closed-end credit only): 

o	 The disclosed finance charge is considered accurate if it is not understated by more than 

$100. 

o	 Overstatements are not violations. 

•	 Rescission rights after the three-business-day rescission period (closed-end credit only): 

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o	 The disclosed finance charge is considered accurate if it does not vary from the actual 

finance charge by more than one-half of 1 percent of the credit extended or $100, 

whichever is greater. 

o	 The disclosed finance charge is considered accurate if it does not vary from the actual 

finance charge by more than 1 percent of the credit extended for the initial and 

subsequent refinancings of residential mortgage transactions when the new loan is made 

at a different financial institution. (This excludes high cost mortgage loans subject to 

section 1026.32, transactions in which there are new advances, and new consolidations.) 

•	 Rescission rights in foreclosure: 

o	 The disclosed finance charge is considered accurate if it does not vary from the actual 

finance charge by more than $35. 

o	 Overstatements are not considered violations. 

o	 The consumer can rescind if a mortgage broker fee that should have been included in the 

finance charge was not included. 

NOTE: Normally, the finance charge tolerance for a rescindable transaction is either 0.5 

percent of the credit transaction or, for certain refinancings, 1 percent of the credit 

transaction. However, in the event of a foreclosure, the consumer may exercise the right of 

rescission if the disclosed finance charge is understated by more than $35. 

See the “Finance Charge Tolerances” charts within these examination procedures for help in 

determining appropriate finance charge tolerances. 

Calculating the Finance Charge (Closed-End Credit) 

One of the more complex tasks under Regulation Z is determining whether a charge associated 

with an extension of credit must be included in, or excluded from, the disclosed finance charge. 

The finance charge initially includes any charge that is, or will be, connected with a specific 

loan. Charges imposed by third parties are finance charges if the financial institution requires use 

of the third party. Charges imposed by settlement or closing agents are finance charges if the 

bank requires the specific service that gave rise to the charge and the charge is not otherwise 

excluded. The “Finance Charge Tolerances” charts within this document briefly summarize the 

rules that must be considered. 

Prepaid Finance Charges – Section 1026.18(b)(3) 

A prepaid finance charge is any finance charge paid separately to the financial institution or to a 

third party, in cash or by check before or at closing, settlement, or consummation of a 

transaction, or withheld from the proceeds of the credit at any time. 

Prepaid finance charges effectively reduce the amount of funds available for the consumer’s use; 

usually before or at the time the transaction is consummated. 

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Examples of finance charges frequently prepaid by consumers are borrower’s points, loan 

origination fees, real estate construction inspection fees, odd days’ interest (interest attributable 

to part of the first payment period when that period is longer than a regular payment period), 

mortgage guarantee insurance fees paid to the Federal Housing Administration, private mortgage 

insurance (PMI) paid to such companies as the Mortgage Guaranty Insurance Company (MGIC), 

and, in non-real-estate transactions, credit report fees. 

Precomputed Finance Charges 

A precomputed finance charge includes, for example, interest added to the note amount that is 

computed by the add-on, discount, or simple interest methods. If reflected in the face amount of 

the debt instrument as part of the consumer’s obligation, finance charges that are not viewed as 

prepaid finance charges are treated as precomputed finance charges that are earned over the life 

of the loan. 

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Finance Charge Chart 

FINANCE CHARGE = DOLLAR COST OF CONSUMER CREDIT: It includes any charge payable directly or indirectly by 

the consumer and imposed directly or indirectly by the creditor as a condition of or incident to the extension of credit. 

CHARGES ALWAYS 

INCLUDED 

CHARGES INCLUDED 

UNLESS CONDITIONS 

ARE MET 

CONDITIONS 

(Any loan) 

CHARGES NOT 

INCLUDED 

(Residential mortgage 

transactions and loans secured 

by real estate) 

CHARGES NEVER 

INCLUDED 

Charges payable in a comparable 

cash transaction 

Fees for unanticipated late 

payments 

Overdraft fees not agreed to in 

writing 

Seller’s points 

Participation or membership fees 

Discount offered by the seller to 

induce payment by cash or other 

means not involving the use of a 

credit card 

Interest forfeited as a result of 

interest reduction required by law 

Charges absorbed by the creditor as 

a cost of doing business 

Interest 

Transaction fees 

Loan origination fees 

Consumer points 

Credit guarantee insurance 

premiums 

Charges imposed on the creditor for 

purchasing the loan, which are 

passed on to the consumer 

Discounts for inducing payment by 

means other than credit 

Mortgage broker fees 

Other examples: Fee for preparing 

TILA disclosures; real estate 

construction loan inspection fees; 

fees for post-consummation tax or 

flood service policy; required credit 

life insurance charges 

Premiums for credit life, A&H, or 

loss of income insurance 

Debt cancellation fees 

Premiums for property or liability 

insurance 

Premiums for vendor’s single 

interest (VSI) insurance 

Security interest charges (filing 

fees), insurance in lieu of filing fees 

and certain notary fees 

Charges imposed by third parties 

Charges imposed by third-party 

closing agents 

Appraisal and credit report fees 

Insurance not required, disclosures 

are made, and consumer authorizes 

Coverage not required, disclosures 

are made, and consumer authorizes 

Consumer selects insurance 

company and disclosures are made 

Insurer waives right of subrogation, 

consumer selects insurance 

company, and disclosures are made 

The fee is for lien purposes, 

prescribed by law, payable to a third 

public official and is itemized and 

disclosed 

Use of the third party is not required 

to obtain loan and creditor does not 

retain the charge 

Creditor does not require and does 

not retain the fee for the particular 

service 

Application fees, if charged to all 

applicants, are not finance charges 

Application fees may include 

appraisal or credit report fees 

Fees for title insurance, title examination, 

property survey, etc 

Fees for preparing loan documents, 

mortgages, and other settlement documents 

Amounts required to be paid into escrow, if 

not otherwise included in the finance 

charge 

Notary fees 

Pre-consummation flood and pest 

inspection fees 

Appraisal and credit report fees 

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Instructions for the Finance Charge Chart 

The finance charge initially includes any charge that is, or will be, connected with a specific 

loan. Charges imposed by third parties are finance charges if the creditor requires use of the third 

party. Charges imposed on the consumer by a settlement agent are finance charges only if the 

creditor requires the particular services for which the settlement agent is charging the borrower 

and the charge is not otherwise excluded from the finance charge. 

Immediately below the finance charge definition, the chart presents five captions applicable to 

determining whether a loan related charge is a finance charge. 

The first caption is charges always included. This category focuses on specific charges given in 

the regulation or commentary as examples of finance charges. 

The second caption, charges included unless conditions are met, focuses on charges that must be 

included in the finance charge unless the creditor meets specific disclosure or other conditions to 

exclude the charges from the finance charge. 

The third caption, conditions, focuses on the conditions that need to be met if the charges 

identified to the left of the conditions are permitted to be excluded from the finance charge. 

Although most charges under the second caption may be included in the finance charge at the 

creditor’s option, third-party charges and application fees (listed last under the third caption) 

must be excluded from the finance charge if the relevant conditions are met. However, inclusion 

of appraisal and credit report charges as part of the application fee is optional. 

The fourth caption, charges not included, identifies fees or charges that are not included in the 

finance charge under conditions identified by the caption. If the credit transaction is secured by 

real property or the loan is a residential mortgage transaction, the charges identified in the 

column, if they are bona fide and reasonable in amount, must be excluded from the finance 

charge. For example, if a consumer loan is secured by a vacant lot or commercial real estate, any 

appraisal fees connected with the loan must not be included in the finance charge. 

The fifth caption, charges never included, lists specific charges provided by the regulation as 

examples of those that automatically are not finance charges (e.g., fees for unanticipated late 

payments). 

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Annual Percentage Rate Definition – Section 1026.22 

(Closed-End Credit) 

Credit costs may vary depending on the interest rate, the amount of the loan and other charges, 

the timing and amounts of advances, and the repayment schedule. The APR, which must be 

disclosed in nearly all consumer credit transactions, is designed to take into account all relevant 

factors and to provide a uniform measure for comparing the cost of various credit transactions. 

The APR is a measure of the cost of credit, expressed as a nominal yearly rate. It relates the 

amount and timing of value received by the consumer to the amount and timing of payments made. 

The disclosure of the APR is central to the uniform credit cost disclosure envisioned by the TILA. 

The value of a closed-end credit APR must be disclosed as a single rate only, whether the loan 

has a single interest rate, a variable interest rate, a discounted variable interest rate, or graduated 

payments based on separate interest rates (step rates), and it must appear with the segregated 

disclosures. Segregated disclosures are grouped together and do not contain any information not 

directly related to the disclosures required under section 1026.18. 

Since an APR measures the total cost of credit, including costs such as transaction charges or 

premiums for credit guarantee insurance, it is not an “interest” rate, as that term is generally 

used. APR calculations do not rely on definitions of interest in state law and often include 

charges, such as a commitment fee paid by the consumer, that are not viewed by some state 

usury statutes as interest. Conversely, an APR might not include a charge, such as a credit report 

fee in a real property transaction, which some state laws might view as interest for usury 

purposes. Furthermore, measuring the timing of value received and of payments made, which is 

essential if APR calculations are to be accurate, must be consistent with parameters under 

Regulation Z. 

The APR is often considered to be the finance charge expressed as a percentage. However, two 

loans could require the same finance charge and still have different APRs because of differing 

values of the amount financed or of payment schedules. For example, the APR is 12 percent on a 

loan with an amount financed of $5,000 and 36 equal monthly payments of $166.07 each. It is 

13.26 percent on a loan with an amount financed of $4,500 and 35 equal monthly payments of 

$152.18 each and final payment of $152.22. In both cases the finance charge is $978.52. The 

APRs on these example loans are not the same because an APR does not only reflect the finance 

charge. It relates the amount and timing of value received by the consumer to the amount and 

timing of payments made. 

The APR is a function of: 

•	 The amount financed, which is not necessarily equivalent to the loan amount. For example, if 

the consumer must pay at closing a separate 1 percent loan origination fee (prepaid finance 

charge) on a $100,000 residential mortgage loan, the loan amount is $100,000, but the 

amount financed would be $100,000 less the $1,000 loan fee, or $99,000. 

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•	 The finance charge, which is not necessarily equivalent to the total interest amount (interest is 

not defined by Regulation Z, but rather is defined by state or other federal law). For example: 

○	 If the consumer must pay a $25 credit report fee for an auto loan, the fee must be 

included in the finance charge. The finance charge in that case is the sum of the interest 

on the loan (i.e., interest generated by the application of a percentage rate against the loan 

amount) plus the $25 credit report fee. 

○	 If the consumer must pay a $25 credit report fee for a home improvement loan secured by 

real property, the credit report fee must be excluded from the finance charge. The finance 

charge in that case would be only the interest on the loan. 

•	 The payment schedule, which does not necessarily include only principal and interest (P + I) 

payments. For example: 

○	 If the consumer borrows $2,500 for a vacation trip at 14 percent simple interest per 

annum and repays that amount with 25 equal monthly payments beginning one month 

from consummation of the transaction, the monthly P + I payment will be $115.87, if all 

months are considered equal, and the amount financed would be $2,500. If the 

consumer’s payments are increased by $2.00 a month to pay a non-financed $50 loan fee 

during the life of the loan, the amount financed would remain at $2,500 but the payment 

schedule would be increased to $117.87 a month, the finance charge would increase by 

$50, and there would be a corresponding increase in the APR. This would be the case 

whether or not state law defines the $50 loan fee as interest. 

○	 If the loan above has 55 days to the first payment and the consumer prepays interest at 

consummation ($24.31 to cover the first 25 days), the amount financed would be $2,500 ­

$24.31, or $2,475.69. Although the amount financed has been reduced to reflect the 

consumer’s reduced use of available funds at consummation, the time interval during 

which the consumer has use of the $2,475.69, 55 days to the first payment, has not 

changed. Since the first payment period exceeds the limitations of the regulation’s minor 

irregularities provisions (see §1026.17(c)(4)), it may not be treated as regular. In 

calculating the APR, the first payment period must not be reduced by 25 days (i.e., the 

first payment period may not be treated as one month). 

Financial institutions may, if permitted by state or other law, precompute interest by applying a 

rate against a loan balance using a simple interest, add-on, discount or some other method, and 

may earn interest using a simple interest accrual system, the Rule of 78’s (if permitted by law) or 

some other method. Unless the financial institution’s internal interest earnings and accrual 

methods involve a simple interest rate based on a 360-day year that is applied over actual days 

(even that is important only for determining the accuracy of the payment schedule), it is not 

relevant in calculating an APR, since an APR is not an interest rate (as that term is commonly 

used under state or other law). Since the APR normally need not rely on the internal accrual 

systems of a bank, it always may be computed after the loan terms have been agreed upon (as 

long as it is disclosed before actual consummation of the transaction). 

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Special Requirements for Calculating the Finance Charge and APR 

Proper calculation of the finance charge and APR are of primary importance. The regulation 

requires that the terms “finance charge” and “annual percentage rate” be disclosed more 

conspicuously than any other required disclosure, subject to limited exceptions. The finance 

charge and APR, more than any other disclosures, enable consumers to understand the cost of the 

credit and to comparison shop for credit. A creditor’s failure to disclose those values accurately 

can result in significant monetary damages to the creditor, either from a class action lawsuit or 

from a regulatory agency’s order to reimburse consumers for violations of law. 

If an APR or finance charge is disclosed incorrectly, the error is not, in itself, a violation of the 

regulation if: 

•	 The error resulted from a corresponding error in a calculation tool used in good faith by the 

financial institution. 

•	 Upon discovery of the error, the financial institution promptly discontinues use of that 

calculation tool for disclosure purposes. 

•	 The financial institution notifies the CFPB in writing of the error in the calculation tool. 

When a financial institution claims a calculation tool was used in good faith, the financial 

institution assumes a reasonable degree of responsibility for ensuring that the tool in question 

provides the accuracy required by the regulation. For example, the financial institution might 

verify the results obtained using the tool by comparing those results to the figures obtained by 

using another calculation tool. The financial institution might also verify that the tool, if it is 

designed to operate under the actuarial method, produces figures similar to those provided by the 

examples in appendix J to the regulation. The calculation tool should be checked for accuracy 

before it is first used and periodically thereafter. 

Subpart B – Open-End Credit 

Time of Disclosures (Periodic Statements) – 

Section 1026.5(b) 

For credit card accounts under an open-end (not home-secured) consumer credit plan, creditors 

must adopt reasonable procedures designed to ensure that periodic statements are mailed or 

delivered at least 21 days prior to the payment due date disclosed on the periodic statement and 

that payments are not treated as late for any purpose if they are received within 21 days after 

mailing or delivery of the statement. In addition, for all open-end consumer credit accounts with 

grace periods, creditors must adopt reasonable procedures designed to ensure that periodic 

statements are mailed or delivered at least 21 days prior to the date on which a grace period (if 

any) expires and that finance charges are not imposed as a result of the loss of a grace period if a 

payment is received within 21 days after mailing or delivery of a statement. For purposes of this 

requirement, a “grace period” is defined as a period within which any credit extended may be 

repaid without incurring a finance charge due to a periodic interest rate. For non-credit card 

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open-end consumer plans without a grace period, creditors must adopt reasonable policies and 

procedures designed to ensure that periodic statements are mailed or delivered at least 14 days 

prior to the date on which the required minimum periodic payment is due. Moreover, the creditor 

must adopt reasonable policies and procedures to ensure that it does not treat as late a required 

minimum periodic payment received by the creditor within 14 days after it has mailed or 

delivered the periodic statement. 

Subsequent Disclosures (Open-End Credit) – 

Section 1026.9 

For open-end, not home-secured credit, the following applies: 

Creditors are required to provide consumers with 45 days’ advance written notice of rate 

increases and other significant changes to the terms of their credit card account agreements. The 

list of “significant changes” includes most fees and other terms that a consumer should be aware 

of before use of the account. Examples of such fees and terms include: 

•	 Penalty fees; 

•	 Transaction fees; 

•	 Fees imposed for the issuance or availability of the open-end plan; 

•	 Grace period; and 

• Balance computation method. 

Changes that do not require advance notice include:
 

•	 Reductions of finance charges;
 

•	 Termination of account privileges resulting from an agreement involving a court proceeding;
 

•	 The change is an increase in an APR upon expiration of a specified period of time previously 

disclosed in writing; 

•	 The change applies to increases in variable APRs that change according to an index not 

under the card issuer’s control; and 

•	 Rate increases due to the completion of, or failure of a consumer to comply with, the terms of 

a workout or temporary hardship arrangement, if those terms are disclosed prior to 

commencement of the arrangement. 

A creditor may suspend account privileges, terminate an account, or lower the credit limit 

without notice. However, a creditor that lowers the credit limit may not impose an over limit fee 

or penalty rate as a result of exceeding the new credit limit without a 45-day advance notice that 

the credit limit has been reduced. 

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For significant changes in terms (with the exception of rate changes, increases in the minimum 

payment, certain changes in the balance computation method, and when the change results from 

the consumer’s failure to make a required minimum periodic payment within 60 days after the 

due date), a creditor must also provide consumers the right to reject the change. If the consumer 

does reject the change prior to the effective date, the creditor may not apply the change to the 

account (§1026.9(h)(2)(i)). 

In addition, when a consumer rejects a change or increase, the creditor must not: 

•	 Impose a fee or charge or treat the account as in default solely as a result of the rejection; or 

•	 Require repayment of the balance on the account using a method that is less beneficial to the 

consumer than one of the following methods: (1) the method of repayment prior to the 

rejection; (2) an amortization period of not less than five years from the date of rejection; or 

(3) a minimum periodic payment that includes a percentage of the balance that is not more 

than twice the percentage included prior to the date of rejection. 

Finance Charge (Open-End Credit) – Sections 1026.6(a)(1) 

& 1026.6(b)(3) 

Each finance charge imposed must be individually itemized. The aggregate total amount of the 

finance charge need not be disclosed. 

Determining the Balance and Computing the Finance Charge 

The examiner must know how to compute the balance to which the periodic rate is applied. 

Common methods used are the previous balance method, the daily balance method, and the 

average daily balance method, which are described as follows: 

•	 Previous balance method. The balance on which the periodic finance charge is computed is 

based on the balance outstanding at the start of the billing cycle. The periodic rate is 

multiplied by this balance to compute the finance charge. 

•	 Daily balance method. A daily periodic rate is applied to either the balance on each day in the 

cycle or the sum of the balances on each of the days in the cycle. If a daily periodic rate is 

multiplied by the balance on each day in the billing cycle, the finance charge is the sum of 

the products. If the daily periodic rate is multiplied by the sum of all the daily balances, the 

result is the finance charge. 

•	 Average daily balance method. The average daily balance is the sum of the daily balances 

(either including or excluding current transactions) divided by the number of days in the 

billing cycle. A periodic rate is then multiplied by the average daily balance to determine the 

finance charge. If the periodic rate is a daily one, the product of the rate multiplied by the 

average balance is multiplied by the number of days in the cycle. 

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In addition to those common methods, financial institutions have other ways of calculating the 

balance to which the periodic rate is applied. By reading the financial institution’s explanation, 

the examiner should be able to calculate the balance to which the periodic rate was applied. In 

some cases, the examiner may need to obtain additional information from the financial institution 

to verify the explanation disclosed. Any inability to understand the disclosed explanation should 

be discussed with management, who should be reminded of Regulation Z’s requirement that 

disclosures be clear and conspicuous. 

When a balance is determined without first deducting all credits and payments made during the 

billing cycle, that fact and the amount of the credits and payments must be disclosed. 

If the financial institution uses the daily balance method and applies a single daily periodic rate, 

disclosure of the balance to which the rate was applied may be stated as any of the following: 

•	 A balance for each day in the billing cycle. The daily periodic rate is multiplied by the 

balance on each day and the sum of the products is the finance charge. 

•	 A balance for each day in the billing cycle on which the balance in the account changes. The 

finance charge is figured by the same method as discussed previously, but the statement 

shows the balance only for those days on which the balance changed. 

•	 The sum of the daily balances during the billing cycle. The balance on which the finance 

charge is computed is the sum of all the daily balances in the billing cycle. The daily periodic 

rate is multiplied by that balance to determine the finance charge. 

•	 The average daily balance during the billing cycle. If this is stated, the financial institution 

may, at its option, explain that the average daily balance is or can be multiplied by the 

number of days in the billing cycle and the periodic rate applied to the product to determine 

the amount of interest. 

If the financial institution uses the daily balance method, but applies two or more daily 

periodic rates, the sum of the daily balances may not be used. Acceptable ways of disclosing 

the balances include: 

•	 A balance for each day in the billing cycle; 

•	 A balance for each day in the billing cycle on which the balance in the account changes; or 

•	 Two or more average daily balances. If the average daily balances are stated, the financial 

institution may, at its option, explain that interest is or may be determined by 1) multiplying 

each of the average daily balances by the number of days in the billing cycle (or if the daily 

rate varied during the cycle), 2) by multiplying each of the results by the applicable daily 

periodic rate, and 3) adding these products together. 

In explaining the method used to find the balance on which the finance charge is computed, the 

financial institution need not reveal how it allocates payments or credits. That information may be 

disclosed as additional information, but all required information must be clear and conspicuous. 

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NOTE: Section 1026.54 prohibits a credit card issuer from calculating finance charges based on 

balances for days in previous billing cycles as a result of the loss of a grace period (a practice 

sometimes referred to as “double-cycle billing”). 

Finance Charge Resulting from Two or More Periodic Rates 

Some financial institutions use more than one periodic rate in computing the finance charge. For 

example, one rate may apply to balances up to a certain amount and another rate to balances 

more than that amount. If two or more periodic rates apply, the financial institution must disclose 

all rates and conditions. The range of balances to which each rate applies also must be disclosed. 

It is not necessary, however, to break the finance charge into separate components based on the 

different rates. 

Annual Percentage Rate (Open-End Credit) 

The disclosed APR on an open-end credit account is accurate if it is within one-eighth of one 

percentage point of the APR calculated under Regulation Z. 

Determination of APR – Section 1026.14 

The basic method for determining the APR in open-end credit transactions involves multiplying 

each periodic rate by the number of periods in a year. This method is used in all types of openend disclosures, including: 

• The corresponding APR in the initial disclosures; 

• The corresponding APR on periodic statements; 

• The APR in early disclosures for credit card accounts; 

• The APR in early disclosures for home-equity plans; 

• The APR in advertising; and 

• The APR in oral disclosures. 

The corresponding APR is prospective and it does not involve any particular finance charge or 

periodic balance. 

A second method of calculating the APR is the quotient method. At a creditor’s option, the 

quotient method may be disclosed on periodic statements for home-equity plans subject to 

section 1026.40 (“HELOCs”).4

 The quotient method reflects the annualized equivalent of the 

4 If a creditor does not disclose the effective (or quotient method) APR on a HELOC periodic statement, it must 

instead disclose the charges (fees and interest) imposed as provided in section 1026.7(a). However, an annual 

percentage rate that differs from the rate that would otherwise apply and is offered only for a promotional period 

need not be disclosed except in periods in which the offered rate is actually applied under section 1026.7(a)(4). 

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rate that was actually applied during a cycle. This rate, also known as the effective APR, will 

differ from the corresponding APR if the creditor applies minimum, fixed, or transaction charges 

to the account during the cycle. (§1026.14(c)) 

Brief Outline for Open-End Credit APR Calculations on Periodic Statements 

NOTE: Assume monthly billing cycles for each of the calculations below. 

I.	 Basic method for determining the APR in an open-end credit transaction. This is the 

corresponding APR. (§1026.14(b)) 

A. Monthly rate x 12 = APR 

II.	 Optional effective APR that may be disclosed on home-equity line of credit (HELOC) 

periodic statements 

A. APR when only periodic rates are imposed (§1026.14(c)(1)) 

1.	 Monthly rate x 12 = APR
 

Or
 

2.	 (Total finance charge / sum of the balances) x 12 = APR 

B. APR when minimum or fixed charge, but not transaction charge imposed. 

(§1026.14(c)(2)) 

1. (Total finance charge / amount of applicable balance5

) x 12 = APR6 

C. APR when the finance charge includes a charge related to a specific transaction (such 

as a cash advance fee), even if the total finance charge also includes any other 

minimum, fixed, or other charge not calculated using a periodic rate. (1026.14(c)(3)) 

1.	 (Total finance charge / (all balances + other amounts on which a finance charge 

was imposed during the billing cycle without duplication7

) x 12 = APR8 

5 The APR cannot be determined with this formula if the applicable balance is zero. (§1026.14(c)(2)) 

6 Loan fees, points, or similar finance charges that relate to the opening, renewing, or continuing of the account must 

not be included in the calculation of the APR.
 7 The sum of the balances may include the average daily balance, adjusted balance, or previous balance method.
 

When a portion of the finance charge is determined by application of one or more daily periodic rates, the sum of the 

balances also means the average of daily balances. See Appendix F to Regulation Z.
 

8 Cannot be less than the highest periodic rate applied, expressed as an APR (in other words. the largest rate 

determined by multiplying each periodic rate imposed during the billing cycle by the number of periods in a year).
 

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D. APR when the finance charge imposed during the billing cycle includes a minimum 

or fixed charge that does not exceed $.50 for a monthly or longer billing cycles (or 

pro rata part of $.50 for a billing cycle shorter than monthly). (§1026.14(c)(4)) 

1.	 Monthly rate x 12 = APR 

E. APR calculation when daily periodic rates are applicable if only the periodic rate is 

imposed or when a minimum or fixed charge (but not a transactional charge is 

imposed. (§1026.14(d)) 

1.	 (Total finance charge / average daily balance) x 12 = APR 

Or 

2.	 (Total finance charge / sum of daily balances) x 365 = APR 

Timely Settlement of Estates – Section 1026.11(c) 

Issuers are required to establish procedures to ensure that any administrator of an estate can 

resolve the outstanding credit card balance of a deceased account holder in a timely manner. If 

an administrator requests the amount of the balance: 

•	 The issuer is prohibited from imposing additional fees on the account; 

•	 The issuer is required to disclose the amount of the balance to the administrator in a timely 

manner (safe harbor of 30 days); and 

•	 If the balance is paid in full within 30 days after disclosure of the balance, the issuer must 

waive or rebate any trailing or residual interest charges that accrued on the balance following 

the disclosure. 

Minimum Payments – Section 1026.7(b)(12) 

For credit card accounts under an open-end credit plan, card issuers generally must disclose on 

periodic statements an estimate of the amount of time and the total cost (principal and interest) 

involved in paying the balance in full by making only the minimum payments, and an estimate of 

the monthly payment amount required to pay off the balance in 36 months and the total cost 

(principal and interest) of repaying the balance in 36 months. Card issuers also must disclose a 

minimum payment warning, and an estimate of the total interest that a consumer would save if 

that consumer repaid the balance in 36 months, instead of making minimum payments. 

Loan fees, points, or similar finance charges that relate to the opening, renewing, or continuing of the account must 

not be included in the calculation of the APR. 

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Subpart C – Closed-End Credit 

Finance Charge (Closed-End Credit) – Section 1026.17(a) 

The aggregate total amount of the finance charge must be disclosed. Each finance charge imposed 

need not be individually itemized and must not be itemized with the segregated disclosures. 

Annual Percentage Rate (Closed-End Credit) – 

Section 1026.22 

Accuracy Tolerances 

The disclosed APR on a closed-end transaction is accurate for: 

•	 Regular transactions (which include any single advance transaction with equal payments and 

equal payment periods, or an irregular first payment period and/or a first or last irregular 

payment), if it is within one-eighth of 1 percentage point of the APR calculated under 

Regulation Z (§1026.22(a)(2)). 

•	 Irregular transactions (which include multiple advance transactions and other transactions not 

considered regular), if it is within one-quarter of 1 percentage point of the APR calculated 

under Regulation Z (§1026.22(a)(3)). 

•	 Mortgage transactions, if it is within one-eighth of 1 percentage point for regular transactions 

or one-quarter of 1 percentage point for irregular transactions or if: 

i.	 The rate results from the disclosed finance charge, and the disclosed finance is considered 

accurate under sections 1026.18(d)(1) or 1026.23(g) or (h) (§1026.22(a)(4)); or 

ii.	 The disclosed finance charge is calculated incorrectly but is considered accurate under 

sections 1026.18(d)(1) or 1026.23(g) or (h) and either: 

(A) the finance charge is understated and the disclosed APR is also understated but is 

closer to the actual APR than the APR that would be considered accurate under 

section 1026.22(a)(4); or 

(B) the disclosed finance charge is overstated and the disclosed APR is also 

overstated but is closer to the actual APR than the APR that would be considered 

accurate under section 1026.22(a)(4). 

For example, in an irregular transaction subject to a tolerance of 1⁄4th of 1 percentage 

point, if the actual APR is 9.00% and a $75 omission from the finance charge 

corresponds to a rate of 8.50% that is considered accurate under section 1026.22(a)(4), a 

disclosed APR of 8.65% is considered accurate under section 1026.22(a)(5). However, a 

disclosed APR below 8.50% or above 9.25% would not be considered accurate. 

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Construction Loans – Section 1026.17(c)(6) & Appendix D 

Construction and certain other multiple advance loans pose special problems in computing the 

finance charge and APR. In many instances, the amount and dates of advances are not 

predictable with certainty since they depend on the progress of the work. Regulation Z provides 

that the APR and finance charge for such loans may be estimated for disclosure. 

At its option, the financial institution may rely on the representations of other parties to acquire 

necessary information (for example, it might look to the consumer for the dates of advances). In 

addition, if either the amounts or dates of advances are unknown (even if some of them are 

known), the financial institution may, at its option, use appendix D to the regulation to make 

calculations and disclosures. The finance charge and payment schedule obtained through 

appendix D may be used with volume one of the CFPB’s APR tables or with any other 

appropriate computation tool to determine the APR. If the financial institution elects not to use 

appendix D, or if appendix D cannot be applied to a loan (e.g., appendix D does not apply to a 

combined construction-permanent loan if the payments for the permanent loan begin during the 

construction period), the financial institution must make its estimates under section 

1026.17(c)(2) and calculate the APR using multiple advance formulas. 

On loans involving a series of advances under an agreement to extend credit up to a certain 

amount, a financial institution may treat all of the advances as a single transaction or disclose 

each advance as a separate transaction. If advances are disclosed separately, disclosures must 

be provided before each advance occurs, with the disclosures for the first advance provided 

before consummation. 

In a transaction that finances the construction of a dwelling that may or will be permanently 

financed by the same financial institution, the construction-permanent financing phases may be 

disclosed in one of three ways listed below. 

•	 As a single transaction, with one disclosure combining both phases. 

•	 As two separate transactions, with one disclosure for each phase. 

•	 As more than two transactions, with one disclosure for each advance and one for the 

permanent financing phase. 

If two or more disclosures are furnished, buyer’s points or similar amounts imposed on the 

consumer may be allocated among the transactions in any manner the financial institution 

chooses, as long as the charges are not applied more than once. In addition, if the financial 

institution chooses to give two sets of disclosures and the consumer is obligated for both 

construction and permanent phases at the outset, both sets of disclosures must be given to the 

consumer initially, before consummation of each transaction occurs. 

If the creditor requires interest reserves for construction loans, special appendix D rules apply 

that can make the disclosure calculations quite complicated. The amount of interest reserves 

included in the commitment amount must not be treated as a prepaid finance charge. 

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If the lender uses appendix D for construction-only loans with required interest reserves, the 

lender must estimate construction interest using the interest reserve formula in appendix D. The 

lender’s own interest reserve values must be completely disregarded for disclosure purposes. 

If the lender uses appendix D for combination construction-permanent loans, the calculations can 

be much more complex. Appendix D is used to estimate the construction interest, which is then 

measured against the lender’s contractual interest reserves. 

If the interest reserve portion of the lender’s contractual commitment amount exceeds the 

amount of construction interest estimated under appendix D, the excess value is considered part 

of the amount financed if the lender has contracted to disburse those amounts whether they 

ultimately are needed to pay for accrued construction interest. If the lender will not disburse the 

excess amount if it is not needed to pay for accrued construction interest, the excess amount must 

be ignored for disclosure purposes. 

Calculating the Annual Percentage Rate – Section 1026.22 

The APR must be determined under one of the following: 

•	 The actuarial method, which is defined by Regulation Z and explained in appendix J to the 

regulation. 

•	 The U.S. Rule, which is permitted by Regulation Z and briefly explained in appendix J to the 

regulation. The U.S. Rule is an accrual method that seems to have first surfaced officially in 

an early nineteenth century United States Supreme Court case, Story v. Livingston, 38 U.S. 

359 (1839). 

Whichever method is used by the financial institution, the rate calculated will be accurate if it is 

able to “amortize” the amount financed while it generates the finance charge under the accrual 

method selected. Financial institutions also may rely on minor irregularities and accuracy 

tolerances in the regulation, both of which effectively permit somewhat imprecise, but still legal, 

APRs to be disclosed. 

360-Day and 365-Day Years – Section 1026.17(c)(3) 

Confusion often arises over whether to use the 360-day or 365-day year in computing interest, 

particularly when the finance charge is computed by applying a daily rate to an unpaid balance. 

Many single payment loans or loans payable on demand are in this category. There are also loans 

in this category that call for periodic installment payments. Regulation Z does not require the use 

of one method of interest computation in preference to another (although state law may). It does, 

however, permit financial institutions to disregard the fact that months have different numbers of 

days when calculating and making disclosures. This means financial institutions may base their 

disclosures on calculation tools that assume all months have an equal number of days, even if 

their practice is to take account of the variations in months to collect interest. 

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For example, a financial institution may calculate disclosures using a financial calculator based 

on a 360-day year with 30-day months, when, in fact, it collects interest by applying a factor of 

1/365 of the annual interest rate to actual days. 

Disclosure violations may occur, however, when a financial institution applies a daily interest 

factor based on a 360-day year to the actual number of days between payments. In those 

situations, the financial institution must disclose the higher values of the finance charge, the 

APR, and the payment schedule resulting from this practice. 

For example, a 12 percent simple interest rate divided by 360 days results in a daily rate of 

.033333 percent. If no charges are imposed except interest, and the amount financed is the same 

as the loan amount, applying the daily rate on a daily basis for a 365-day year on a $10,000 one 

year, single payment, unsecured loan results in an APR of 12.17 percent (.033333% x 365 = 

12.17%), and a finance charge of $1,216.67. There would be a violation if the APR were 

disclosed as 12 percent or if the finance charge were disclosed as $1,200 (12% x $10,000). 

However, if there are no other charges except interest, the application of a 360-day year daily 

rate over 365 days on a regular loan would not result in an APR in excess of the one eighth of 

one percentage point APR tolerance unless the nominal interest rate is greater than 9 percent. For 

irregular loans, with one-quarter of 1 percentage point APR tolerance, the nominal interest rate 

would have to be greater than 18 percent to exceed the tolerance. 

Variable Rate Information – Section 1026.18(f) & 

Commentary to Section 1026.17(c) 

If the terms of the legal obligation allow the financial institution, after consummation of the 

transaction, to increase the APR, the financial institution must furnish the consumer with certain 

information on variable rates. Graduated payment mortgages and step-rate transactions without a 

variable rate feature are not considered variable rate transactions. In addition, variable rate 

disclosures are not applicable to rate increases resulting from delinquency, default, assumption, 

acceleration, or transfer of the collateral. 

Some of the more important transaction-specific variable rate disclosure requirements follow. 

•	 Disclosures for variable rate loans must be given for the full term of the transaction and must 

be based on the terms in effect at the time of consummation. 

•	 If the variable rate transaction includes either a seller buy-down that is reflected in a contract 

or a consumer buy-down, the disclosed APR should be a composite rate based on the lower 

rate for the buy-down period and the rate that is the basis for the variable rate feature for the 

remainder of the term. 

•	 If the initial rate is not determined by the index or formula used to make later interest rate 

adjustments, as in a discounted variable rate transaction, the disclosed APR must reflect a 

composite rate based on the initial rate for as long as it is applied and, for the remainder of 

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the term, the rate that would have been applied using the index or formula at the time of 

consummation (i.e., the fully indexed rate). 

○	 If a loan contains a rate or payment cap that would prevent the initial rate or payment, at 

the time of the adjustment, from changing to the fully indexed rate, the effect of that rate 

or payment cap needs to be reflected in the disclosures. 

○	 The index at consummation need not be used if the contract provides a delay in the 

implementation of changes in an index value (e.g., the contract indicates that future rate 

changes are based on the index value in effect for some specified period, like 45 days 

before the change date). Instead, the financial institution may use any rate from the date 

of consummation back to the beginning of the specified period (e.g., during the previous 

45-day period). 

•	 If the initial interest rate is set according to the index or formula used for later adjustments, 

but is set at a value as of a date before consummation, disclosures should be based on the 

initial interest rate, even though the index may have changed by the consummation date. 

For variable-rate loans that are not secured by the consumer’s principal dwelling or that are 

secured by the consumer’s principal dwelling but have a term of one year or less, creditors must 

disclose the circumstances under which the rate may increase, any limitations on the increase, the 

effect of an increase, and an example of the payment terms that would result from an increase. 

(§1026.18(f)(1)) 

For variable-rate consumer loans secured by the consumer’s principal dwelling and having a 

maturity of more than one year, creditors must state that the loan has a variable-rate feature and 

that the disclosures were previously given. (§1026.18(f)(2)) Extensive disclosures about the loan 

program are provided when consumers apply for such a loan (§1026.19(b)), and throughout the 

loan term when the rate or payment amount is changed (§1026.20(c)). 

Payment Schedule – Section 1026.18(g) 

The disclosed payment schedule must reflect all components of the finance charge. It includes all 

payments scheduled to repay loan principal, interest on the loan, and any other finance charge 

payable by the consumer after consummation of the transaction. 

However, any finance charge paid separately before or at consummation (e.g., odd days’ interest) 

is not part of the payment schedule. It is a prepaid finance charge that must be reflected as a 

reduction in the value of the amount financed. 

At the creditor’s option, the payment schedule may include amounts beyond the amount financed 

and finance charge (e.g., certain insurance premiums or real estate escrow amounts such as taxes 

added to payments). However, when calculating the APR, the creditor must disregard such amounts. 

If the obligation is a renewable balloon payment instrument that unconditionally obligates the 

financial institution to renew the short-term loan at the consumer’s option or to renew the loan 

subject to conditions within the consumer’s control, the payment schedule must be disclosed 

CFPB	 Manual V.2 (October 2012) TILA 27 
 

 

 

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using the longer term of the renewal period or periods. The long-term loan must be disclosed 

with a variable rate feature. 

If there are no renewal conditions or if the financial institution guarantees to renew the obligation 

in a refinancing, the payment schedule must be disclosed using the shorter balloon payment term. 

The short-term loan must be disclosed as a fixed rate loan, unless it contains a variable rate 

feature during the initial loan term. 

Amount Financed – Section 1026.18(b) 

Definition – The amount financed is the net amount of credit extended for the consumer’s use. It 

should not be assumed that the amount financed under the regulation is equivalent to the note 

amount, proceeds, or principal amount of the loan. The amount financed normally equals the 

total of payments less the finance charge. 

To calculate the amount financed, all amounts and charges connected with the transaction, either 

paid separately or included in the note amount, must first be identified. Any prepaid, 

precomputed, or other finance charge must then be determined. 

The amount financed must not include any finance charges. If finance charges have been 

included in the obligation (either prepaid or precomputed), they must be subtracted from the face 

amount of the obligation when determining the amount financed. The resulting value must be 

reduced further by an amount equal to any prepaid finance charge paid separately. The final 

resulting value is the amount financed. 

When calculating the amount financed, finance charges (whether in the note amount or paid 

separately) should not be subtracted more than once from the total amount of an obligation. 

Charges not in the note amount and not included in the finance charge (e.g., an appraisal fee paid 

separately in cash on a real estate loan) are not required to be disclosed under Regulation Z and 

must not be included in the amount financed. 

In a multiple advance construction loan, proceeds placed in a temporary escrow account and 

awaiting disbursement in draws to the developer are not considered part of the amount financed 

until actually disbursed. Thus, if the entire commitment amount is disbursed into the lender’s 

escrow account, the lender must not base disclosures on the assumption that all funds were 

disbursed immediately, even if the lender pays interest on the escrowed funds. 

Required Deposit – Section 1026.18(r) 

A required deposit, with certain exceptions, is one that the financial institution requires the 

consumer to maintain as a condition of the specific credit transaction. It can include a 

compensating balance or a deposit balance that secures the loan. The effect of a required deposit 

is not reflected in the APR. Also, a required deposit is not a finance charge since it is eventually 

released to the consumer. A deposit that earns at least 5 percent per year need not be considered 

a required deposit. 

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Calculating the Amount Financed 

A consumer signs a note secured by real property in the amount of $5,435. The note amount 

includes $5,000 in proceeds disbursed to the consumer, $400 in precomputed interest, $25 paid 

to a credit reporting agency for a credit report, and a $10 service charge. Additionally, the 

consumer pays a $50 loan fee separately in cash at consummation. The consumer has no other 

debt with the financial institution. The amount financed is $4,975. 

The amount financed may be calculated by first subtracting all finance charges included in the 

note amount ($5,435 - $400 - $10 = $5,025). The $25 credit report fee is not a finance charge 

because the loan is secured by real property. The $5,025 is further reduced by the amount of 

prepaid finance charges paid separately, for an amount financed of $5,025 - $50 = $4,975. The 

answer is the same whether finance charges included in the obligation are considered prepaid or 

precomputed finance charges. 

The financial institution may treat the $10 service charge as an addition to the loan amount and 

not as a prepaid finance charge. If it does, the loan principal would be $5,000. The $5,000 loan 

principal does not include either the $400 or the $10 precomputed finance charge in the note. 

The loan principal is increased by other amounts that are financed which are not part of the 

finance charge (the $25 credit report fee) and reduced by any prepaid finance charges (the $50 

loan fee, not the $10 service charge) to arrive at the amount financed of $5,000 + $25 - $50 = 

$4,975. 

Other Calculations 

The financial institution may treat the $10 service charge as a prepaid finance charge. If it does, 

the loan principal would be $5,010. The $5,010 loan principal does not include the $400 

precomputed finance charge. The loan principal is increased by other amounts that are financed 

which are not part of the finance charge (the $25 credit report fee) and reduced by any prepaid 

finance charges (the $50 loan fee and the $10 service charge withheld from loan proceeds) to 

arrive at the same amount financed of $5,010 + $25 - $50- $10 = $4,975. 

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Closed-End Credit: Accuracy and Reimbursement Tolerances for
 

UNDERSTATED FINANCE CHARGES
 

Is the loan secured by real estate or a 

dwelling? 

No Yes 

Ye No 

Is the disclosed FC 

understated by more than 

$5? 

No Yes 

Is the amount financed greater 

than $1,000? 

No Yes 

Is the disclosed FC 

understated by more than 

$10? 

Is the disclosed FC understated 

by more than $100 (or $200 if 

the loan originated before 

9/30/95)? 

No Yes 

FC violation No violation FC violation 

No violation FC Violation 

Is the loan 

term greater 

than 10 

years? 

No Yes 

Is the loan a 

regular loan? 

No Yes 

Is the disclosed FC plus the FC 

reimbursement tolerance (based 

on a one-quarter of 1 percentage 

point APR tolerance) less than 

the correct FC? 

Ye No 

Is the disclosed FC plus the FC 

reimbursement tolerance (based 

on a one-eighth of 1 percentage 

point APR tolerance) less than 

the correct FC? 

No Yes 

No reimbursement 

Subject to 

reimbursement 

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Closed-End Credit: Accuracy Tolerances for
 

OVERSTATED FINANCE CHARGES
 

Is the loan secured by real estate or a 

dwelling? 

No Yes 

Is the amount financed greater 

than $1,000? 

No Yes 

Is the disclosed FC less 

$10 greater than the 

correct FC? 

Is the disclosed FC less 

$5 greater than the 

correct FC? 

No Yes 

No 

violation 

FC violation 

No Yes 

No violation FC violation 

No violation 

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Closed-End Credit: Accuracy Tolerances for
 

OVERSTATED APRs
 

APR Violation No violation 

No Yes 

Was the finance charge disclosure error the cause 

of the APR disclosure error? 

APR Violation 

Yes No

Is the finance charge disclosed greater than 

the correct finance charge? 

Is this a “regular” loan? 

No Yes 

Is the disclosed APR greater than the correct 

APR by more than one-eighth of one percentage 

point? 

Is the disclosed APR greater than the correct 

APR by more than one-quarter of one 

percentage point? 

No No 

No violation 

Yes Yes 

Is the loan secured by real estate or a dwelling? 

No Yes 

APR Violation 

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Closed-End Credit: Accuracy and Reimbursement Tolerances for
 

UNDERSTATED APRs
 

Is the loan a “regular” loan? 

No Yes 

Is the disclosed APR understated by 

more than one-quarter of one percentage 

point? 

Is the disclosed APR understated by 

more than one-eighth of one 

percentage point? 

Ye No 

No violation 

No Yes 

Is the loan secured by real estate or a dwelling? 

No Ye 

APR violation 

No Yes 

Is the finance charge understated by more than: 

• $100 if the loan originated on or after 9/30/95?

• $200 if the loan originated before 9/30/95?

APR violation 

Was the finance charge disclosure error the cause of 

the APR disclosure error? 

No Yes 

APR violation No violation 

Is the loan term greater than 10 years? 

No Yes 

Is the loan a “regular” loan? 

Is the disclosed APR understated by 

more than one-quarter of one percentage 

point? 

No Ye 

Is the disclosed APR understated by 

more than one-eighth of one percentage 

point? 

Yes No No Yes 

No reimbursement 

Subject to reimbursement 

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Refinancings – Section 1026.20 

When an obligation is satisfied and replaced by a new obligation to the original financial 

institution (or a holder or servicer of the original obligation) and is undertaken by the same 

consumer, it must be treated as a refinancing for which a complete set of new disclosures must 

be furnished. A refinancing may involve the consolidation of several existing obligations, 

disbursement of new money to the consumer, or the rescheduling of payments under an existing 

obligation. In any form, the new obligation must completely replace the earlier one to be 

considered a refinancing under the regulation. The finance charge on the new disclosure must 

include any unearned portion of the old finance charge that is not credited to the existing 

obligation. (§1026.20(a)) 

The following transactions are not considered refinancings even if the existing obligation is 

satisfied and replaced by a new obligation undertaken by the same consumer: 

•	 A renewal of an obligation with a single payment of principal and interest or with periodic 

interest payments and a final payment of principal with no change in the original terms. 

•	 An APR reduction with a corresponding change in the payment schedule. 

•	 An agreement involving a court proceeding. 

•	 Changes in credit terms arising from the consumer’s default or delinquency. 

•	 The renewal of optional insurance purchased by the consumer and added to an existing 

transaction, if required disclosures were provided for the initial purchase of the insurance. 

However, even if it is not accomplished by the cancellation of the old obligation and substitution 

of a new one, a new transaction subject to new disclosures results if the financial institution: 

•	 Increases the rate based on a variable rate feature that was not previously disclosed; or 

•	 Adds a variable rate feature to the obligation. 

If, at the time a loan is renewed, the rate is increased, the increase is not considered a variable 

rate feature. It is the cost of renewal, similar to a flat fee, as long as the new rate remains fixed 

during the remaining life of the loan. If the original debt is not canceled in connection with such 

a renewal, the regulation does not require new disclosures. Also, changing the index of a variable 

rate transaction to a comparable index is not considered adding a variable rate feature to the 

obligation. 

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Advertising – Sections 1026.16 & 1026.24 

The regulation requires that loan product advertisements provide accurate and balanced 

information, in a clear and conspicuous manner, about rates, monthly payments, and other loan 

features. The advertising rules ban several deceptive or misleading advertising practices, 

including representations that a rate or payment is “fixed” when in fact it can change. 

Advertising Rules for Open-End Plans – Section 1026.16 

If an advertisement for credit states specific credit terms, it must state only those terms that 

actually are or will be arranged or offered by the creditor. If any finance charges or other charges 

are set forth in an advertisement, the advertisement must also clearly and conspicuously state the 

following: 

•	 Any minimum, fixed, transaction, activity or similar charge that is a finance charge under 

section 1026.4 that could be imposed; 

•	 Any periodic rate that may be applied expressed as an APR as determined under section 

1026.14(b). If the plan provides for a variable periodic rate, that fact must be disclosed; and 

•	 Any membership or participation fee that could be imposed. 

If any finance charges or other charge or payment terms are set forth, affirmatively or negatively, 

in an advertisement for a home-equity plan subject to the requirements of section 1026.40, the 

advertisement also must clearly and conspicuously set forth the following: 

•	 Any loan fee that is a percentage of the credit limit under the plan and an estimate of any 

other fees imposed for opening the plan, stated as a single dollar amount or a reasonable 

range; 

•	 Any periodic rate used to compute the finance charge, expressed as an APR as determined 

under section 1026.14(b); and 

•	 The maximum APR that may be imposed in a variable-rate plan. 

Regulation Z’s open-end home-equity plan advertising rules include a clear and conspicuous 

standard for home-equity plan advertisements, consistent with the approach taken in the 

advertising rules for consumer leases under Regulation M. Commentary provisions clarify how 

the clear and conspicuous standard applies to advertisements of home-equity plans with 

promotional rates or payments, and to Internet, television, and oral advertisements of homeequity plans. The regulation allows alternative disclosures for television and radio 

advertisements for home-equity plans. The regulation also requires that advertisements 

adequately disclose not only promotional plan terms, but also the rates or payments that will 

apply over the term of the plan. 

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Regulation Z also contains provisions implementing the Bankruptcy Abuse Prevention and 

Consumer Protection Act of 2005, which requires disclosure of the tax implications of certain 

home-equity plans. 

Closed-End Advertising – Section 1026.24 

If an advertisement for credit states specific credit terms, it must state only those terms that 

actually are or will be arranged or offered by the creditor. 

Disclosures required by this section must be made “clearly and conspicuously.” To meet this 

standard in general, credit terms need not be printed in a certain type size nor appear in any 

particular place in the advertisement. For advertisements for credit secured by a dwelling, a clear 

and conspicuous disclosure means that the required information is disclosed with equal 

prominence and in close proximity to the advertised rates or payments triggering the required 

disclosures. 

If an advertisement states a rate of finance charge, it must state the rate as an “annual percentage 

rate,” using that term. If the APR may be increased after consummation, the advertisement must 

state that fact. 

If an advertisement is for credit not secured by a dwelling, the advertisement must not state any 

other rate, except that a simple annual rate or periodic rate that is applied to an unpaid balance 

may be stated in conjunction with, but not more conspicuously than, the APR. 

If an advertisement is for credit secured by a dwelling, the advertisement must not state any other 

rate, except that a simple annual rate that is applied to an unpaid balance may be stated in 

conjunction with, but not more conspicuously than, the APR. That is, an advertisement for credit 

secured by a dwelling may not state a periodic rate, other than a simple annual rate, that is 

applied to an unpaid balance.

 “Triggering terms” - The following are triggering terms that require additional disclosures: 

•	 The amount or percentage of any down payment; 

•	 The number of payments or period of repayment; 

•	 The amount of any payment; and 

•	 The amount of any finance charge. 

An advertisement stating a triggering term must also state the following terms as applicable: 

•	 The amount or percentage of any down payment; 

•	 The terms of repayment, which reflect the repayment obligations over the full term of the 

loan, including any balloon payment; and 

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•	 The “annual percentage rate,” using that term, and, if the rate may be increased after 

consummation, that fact. 

For any advertisement secured by a dwelling, other than television or radio advertisements, that 

states a simple annual rate of interest and more than one simple annual rate of interest will apply 

over the term of the advertised loan, the advertisement must state in a clear and conspicuous 

manner: 

•	 Each simple rate of interest that will apply. In variable-rate transactions, a rate determined by 

adding an index and margin must be disclosed based on a reasonably current index and 

margin. 

•	 The period of time during which each simple annual rate of interest will apply. 

•	 The APR for the loan. 

The regulation prohibits the following seven deceptive or misleading acts or practices in 

advertisements for closed-end mortgage loans: 

•	 Stating that rates or payments for loans are “fixed” when those rates or payments can vary 

without adequately disclosing that the interest rate or payment amounts are “fixed” only for a 

limited period of time, rather than for the full term of the loan; 

•	 Making comparisons between actual or hypothetical credit payments or rates and any 

payment or rate available under the advertised product that are not available for the full term 

of the loan, with certain exceptions for advertisements for variable rate products; 

•	 Characterizing the products offered as “government loan programs,” “government-supported 

loans,” or otherwise endorsed or sponsored by a federal or state government entity even 

though the advertised products are not government-supported or -sponsored loans; 

•	 Displaying the name of the consumer’s current mortgage lender, unless the advertisement 

also prominently discloses that the advertisement is from a mortgage lender not affiliated 

with the consumer’s current lender; 

•	 Making claims of debt elimination if the product advertised would merely replace one debt 

obligation with another; 

•	 Creating a false impression that the mortgage broker or lender is a “counselor” for the 

consumer; and 

•	 In foreign-language advertisements, providing certain information, such as a low 

introductory “teaser” rate, in a foreign language, while providing required disclosures only in 

English. 

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Subpart D – Miscellaneous 

Civil Liability - TILA Sections 130 and 131 

If a creditor fails to comply with any requirements of the TILA, other than with the advertising 

provisions of chapter 3, it may be held liable to the consumer for 

•	 actual damage, and. 

•	 cost of any successful legal action together with reasonable attorney’s fees. 

The creditor also may be held liable for any of the following: 

•	 In an individual action, twice the amount of the finance charge involved. 

•	 In an individual action relating to an open-end credit transaction that is not secured by real 

property or a dwelling, twice the amount of the finance charge involved, with a minimum of 

$500 and a maximum of $5,000 or such higher amount as may be appropriate in the case of 

an established pattern or practice of such failure. 

•	 In an individual action relating to a closed-end credit transaction secured by real property or 

a dwelling, not less than $400 and not more than $4,000. 

•	 In a class action, such amount as the court may allow (with no minimum recovery for each 

class member). However, the total amount of recovery in any class actions arising out of the 

same failure to comply by the same creditor cannot be more than $500,0009

 or 1 percent of 

the creditor’s net worth, whichever is less. 

A creditor that fails to comply with section 129 of TILA, 15 U.S.C. §1639, (requirements for 

certain mortgages which include high-cost mortgage loans under 1026.32(a)) may be held liable 

to the consumer for all finance charges and fees paid by the consumer unless the creditor 

demonstrates that the failure was not material. Generally, civil actions that may be brought 

against a creditor may be maintained against any assignee of the creditor only if the violation is 

apparent on the face of the disclosure statement or other documents assigned, except where the 

assignment was involuntary. For high-cost mortgage loans (under section 1026.32(a)), any 

subsequent purchaser or assignee is subject to all claims and defenses that the consumer could 

assert against the creditor, unless the assignee demonstrates that it could not reasonably have 

determined that the loan was a high-cost mortgage loan subject to section 1026.32. 

In specified circumstances, the creditor or assignee has no liability if it corrects identified errors 

within 60 days of discovering the errors and prior to the institution of a civil action or the receipt 

of written notice of the error from the obligor. Additionally, a creditor and assignee will not be 

9 Effective January 21, 2013, this dollar figure changes to $1,000,000. See Pub. L. 111-203, approved July 21, 2010; 124 Stat. 

2153, §1416. (http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf); 

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liable for bona fide errors that occurred despite the maintenance of procedures reasonably 

adapted to avoid any such error. 

Refer to Sections 130 and 131 of TILA for more information. 

Criminal Liability – TILA Section 112 

Anyone who willingly and knowingly fails to comply with any requirement of the TILA will be 

fined not more than $5,000 or imprisoned not more than one year, or both. 

Administrative Actions – TILA Section 108 

The TILA authorizes federal regulatory agencies to require financial institutions to make 

monetary and other adjustments to the consumers’ accounts when the true finance charge or APR 

exceeds the disclosed finance charge or APR by more than a specified accuracy tolerance. That 

authorization extends to unintentional errors, including isolated violations (e.g., an error that 

occurred only once or errors, often without a common cause, that occurred infrequently and 

randomly). 

Under certain circumstances, the TILA requires federal regulatory agencies to order financial 

institutions to reimburse consumers when understatement of the APR or finance charge involves: 

•	 Patterns or practices of violations (e.g., errors that occurred, often with a common cause, 

consistently or frequently, reflecting a pattern with a specific type or types of consumer 

credit). 

•	 Gross negligence. 

•	 Willful noncompliance intended to mislead the person to whom the credit was extended. 

Any proceeding that may be brought by a regulatory agency against a creditor may be 

maintained against any assignee of the creditor if the violation is apparent on the face of the 

disclosure statement or other documents assigned, except where the assignment was involuntary 

under section 131 (15 U.S.C. 1641). 

Relationship to State Law – TILA Section 111 

State laws providing rights, responsibilities, or procedures for consumers or financial institutions 

for consumer credit contracts may be: 

•	 Preempted by federal law; 

•	 Not preempted by federal law; or 

•	 Substituted in lieu of the TILA and Regulation Z requirements. 

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State law provisions are preempted to the extent that they contradict the requirements in the 

following chapters of the TILA and the implementing sections of Regulation Z: 

•	 Chapter 1, “General Provisions,” which contains definitions and acceptable methods for 

determining finance charges and annual percentage rates. 

•	 Chapter 2, “Credit Transactions,” which contains disclosure requirements, rescission rights, 

and certain credit card provisions. 

•	 Chapter 3, “Credit Advertising,” which contains consumer credit advertising rules and APR 

oral disclosure requirements. 

For example, a state law would be preempted if it required a bank to use the terms “nominal 

annual interest rate” in lieu of “annual percentage rate.” 

Conversely, state law provisions are generally not preempted under federal law if they call for, 

without contradicting chapters 1, 2, or 3 of the TILA or the implementing sections of Regulation 

Z, either of the following: 

•	 Disclosure of information not otherwise required. A state law that requires disclosure of the 

minimum periodic payment for open-end credit, for example, would not be preempted 

because it does not contradict federal law. 

•	 Disclosures more detailed than those required. A state law that requires itemization of the 

amount financed, for example, would not be preempted, unless it contradicts federal law by 

requiring the itemization to appear with the disclosure of the amount financed in the 

segregated closed-end credit disclosures. 

The relationship between state law and chapter 4 of the TILA (“Credit Billing”) involves two 

parts. The first part is concerned with sections 161 (correction of billing errors) and 162 

(regulation of credit reports) of the act; the second part addresses the remaining sections of 

chapter 4. 

State law provisions are preempted if they differ from the rights, responsibilities, or procedures 

contained in sections 161 or 162. An exception is made, however, for state law that allows a 

consumer to inquire about an account and requires the bank to respond to such inquiry beyond 

the time limits provided by federal law. Such a state law would not be preempted for the extra 

time period. 

State law provisions are preempted if they result in violations of sections 163 through 171 of 

chapter 4. For example, a state law that allows the card issuer to offset the consumer’s creditcard indebtedness against funds held by the card issuer would be preempted, since it would 

violate 12 CFR 1026.12(d). Conversely, a state law that requires periodic statements to be sent 

more than 14 days before the end of a free-ride period would not be preempted, since no 

violation of federal law is involved. 

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A bank, state, or other interested party may ask the CFPB to determine whether state law 

contradicts chapters 1 through 3 of the TILA or Regulation Z. They also may ask if the state law is 

different from, or would result in violations of, chapter 4 of the TILA and the implementing 

provisions of Regulation Z. If the CFPB determines that a disclosure required by state law (other 

than a requirement relating to the finance charge, APR, or the disclosures required under section 

1026.32) is substantially the same in meaning as a disclosure required under the act or Regulation 

Z, generally creditors in that state may make the state disclosure in lieu of the federal disclosure. 

Subpart E – Special Rules for Certain Home 

Mortgage Transactions 

General Rules – Section 1026.31 

The requirements and limitations of this subpart are in addition to and not in lieu of those 

contained in other subparts of Regulation Z. The disclosures for high cost and reverse mortgage 

transactions must be made clearly and conspicuously in writing, in a form that the consumer may 

keep and in compliance with specific timing requirements. 

Credit Subject to – Section 1026.32 

The requirements of this section apply to a consumer credit transaction secured by the 

consumer’s principal dwelling, in which either: 

•	 The APR at consummation will exceed by more than 8 percentage points for first-lien 

mortgage loans, or by more than 10 percentage points for subordinate-lien mortgage loans, 

the yield on Treasury securities having comparable periods of maturity to the loan’s maturity 

(as of the 15th day of the month immediately preceding the month in which the application 

for the extension of credit is received by the creditor); or 

•	 The total points and fees (see definition below) payable by the consumer at or before loan 

closing will exceed the greater of eight percent of the total loan amount or $611 for the 

calendar year 2012. This dollar amount is adjusted annually based on changes in the 

Consumer Price Index. See staff commentary to 1026.32(a)(1)(ii) for a historical list of dollar 

amount adjustments. (§1026.32(a)(1)) 

Exemptions to the Requirements of 1026.32: 

•	 Residential mortgage transactions (generally purchase money mortgages); 

•	 Reverse mortgage transactions subject to section 1026.33; or 

•	 Open-end credit plans subject to Subpart B of Regulation Z. 

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Points and fees include the following: 

•	 All items required to be disclosed under section 1026.4(a) and (b), except interest or the 

time-price differential; 

•	 All compensation paid to mortgage brokers; and 

•	 All items listed in section 1026.4(c)(7), other than amounts held for future taxes, unless all of 

the following conditions are met: 

○	 The charge is reasonable; 

○	 The creditor receives no direct or indirect compensation in connection with the charge; 

and 

○	 The charge is not paid to an affiliate of the creditor; and 

•	 Premiums or other charges paid at or before closing whether paid in cash or financed, for 

optional credit life, accident, health, or loss-of-income insurance, and other debt-protection 

or debt cancellation products written in connection with the credit transaction. 

(§1026.32(b)(1)) 

Prohibited Acts or Practices in Connection with Credit 

Subject to Section 1026.32 – Section 1026.34 

Among other requirements, a creditor extending mortgage credit subject to section 1026.32 

(“high-cost” mortgage loans) must not make such loans based on the value of the consumer’s 

collateral without regard to the consumer’s repayment ability as of consummation, including 

mortgage-related obligations (§1026.34(a)(4)). 

•	 Mortgage-related obligations are expected property taxes, premiums for mortgage-related 

insurance required by the creditor, and similar expenses (§1026.34(a)(4)(i)). 

•	 A creditor must also verify amounts of income or assets that it relies on to determine 

repayment ability using tax returns, payroll receipts, financial institution records, or other 

third-party documents that provide reasonably reliable evidence of the consumer’s income or 

assets (§1026.34(a)(4)(ii)). 

•	 A creditor must also verify the consumer’s current obligations. (§1026.34(a)(4)(ii)(C)) 

A presumption of compliance is available for some transactions, but only if the creditor: 

•	 Verifies the consumer’s repayment ability as required; 

•	 Determines the consumer’s repayment ability using the largest payment of principal and 

interest scheduled in the first seven years following consummation and taking into account 

current obligations and mortgage-related obligations; and 

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•	 Assesses the consumer’s repayment ability taking into account either the ratio of total debts 

to income or the income the consumer will have after paying debt obligations 

(§1026.34(a)(4)(iii)). 

For high-cost mortgage loans, the regulation prohibits the imposition of prepayment penalties 

under certain circumstances, and in no case may a penalty be imposed after two years following 

consummation. 

The regulation prohibits prepayment penalties at any time for high-cost mortgage if: 

•	 Other applicable law (e.g., state law) prohibits such penalty; 

•	 The penalty applies where the source of the prepayment funds is a refinancing by the same 

mortgage lender or an affiliate; 

•	 The consumer’s mortgage payment can change during the first four years of the loan term 

(applicable only to loans originated on or after October 1, 2009); or, 

•	 The consumer’s total monthly debt payments (at consummation), including amounts owed 

under the mortgage, exceed 50 percent of the consumer’s monthly gross income. 

The regulation prohibits creditors from structuring a home-secured loan as an open-end plan to 

evade these requirements. 

Reverse Mortgages – Section 1026.33 

A reverse mortgage is a non-recourse transaction secured by the consumer’s principal dwelling 

which ties repayment (other than upon default) to the homeowner’s death or permanent move 

from, or transfer of the title of, the home. 

Higher-Priced Mortgage Loans – Section 1026.35 

A mortgage loan subject to section 1026.35 (“higher-priced mortgage loan”) is a consumer 

credit transaction secured by the consumer’s principal dwelling with an APR that exceeds the 

average prime offer rate for a comparable transaction as of the date the interest rate is set by: 

•	 1.5 or more percentage points for loans secured by a first lien on a dwelling, or 

•	 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling. 

Average prime offer rate means an APR that is derived from average interest rates, points, and 

other loan pricing terms currently offered to consumers by a representative sample of creditors 

for mortgage transactions that have low-risk pricing characteristics. The CFPB publishes average 

prime offer rates for a broad range of types of transactions in a table updated at least weekly, as 

well as the methodology it uses to derive these rates. These rates are available on the website of 

the Federal Financial Institutions Examination Council. 

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A higher-priced mortgage loan does not include: 

•	 a transaction to finance the initial construction of a dwelling, 

•	 a temporary “bridge” loan with a term of 12 months or less, 

•	 a reverse mortgage subject to section 1026.33, or 

•	 a home equity line of credit subject to section 1026.40. 

Additionally, creditors extending higher-priced mortgages must verify a consumer’s ability to 

pay, consistent with the requirements for high-cost mortgages under section 1026.34, referenced 

above. (§1026.35(b)) 

The regulation prohibits prepayment penalties at any time for higher-priced mortgage loans if: 

•	 Other applicable law (e.g., state law) prohibits such penalty; 

•	 The penalty will apply after the two-year period following consummation; 

•	 The source of the prepayment funds is a refinancing by the same mortgage lender or an 

affiliate; or, 

•	 The consumer’s mortgage payment can change during the first four years of the loan term. 

The regulation prohibits creditors from structuring a home-secured loan as an open-end plan to 

evade these requirements. 

With few exceptions, a creditor may not extend a higher-priced mortgage loan, including a highcost mortgage loan that also meets the definition of a higher-priced mortgage loan, secured by a 

first lien on a principal dwelling unless an escrow account is established before consummation 

for payment of property taxes and premiums for mortgage-related insurance required by the 

creditor. The exceptions involve loans secured by shares in a cooperative or condominium units 

where the condominium association has an obligation to maintain a master insurance policy. 

Additionally, a “jumbo” loan secured by a first lien is not subject to the escrow requirement 

unless its APR rate exceeds the average prime offer rate for a comparable transaction as of the 

date the interest rate is set by 2.5 or more percentage points. A “jumbo” loan is a transaction with 

a principal obligation at consummation that exceeds the limit in effect for the maximum principal 

obligation eligible for purchase by Freddie Mac. (§1026.35(b)(3)(v)) 

A creditor may allow a consumer to cancel the escrow account one year after consummation if a 

consumer’s written cancellation request is received no earlier than 365 days after consummation. 

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Prohibited Acts or Practices in Connection with Credit 

Secured by a Consumer’s Dwelling – Section 1026.36 

Loan Servicing Practices 

Companies that service mortgage loans are prohibited from engaging in certain practices, such as 

pyramiding late fees. In addition, servicers are required to credit consumers’ loan payments as of 

the date of receipt and provide a payoff statement within a reasonable time of request. 

Specifically, for a consumer credit transaction secured by a consumer’s principal dwelling, a 

loan servicer cannot: 

•	 Fail, with limited exception, to credit a payment to the consumer’s loan account as of the date 

of receipt; 

•	 Impose on the consumer any late fee or delinquency charge in connection with a timely 

payment made in full, when the only delinquency is attributable to late fees or delinquency 

charges assessed on an earlier payment; or 

•	 Fail to provide, within a reasonable time after receiving a request from the consumer or person 

acting on behalf of the consumer, an accurate statement of the total outstanding balance that 

would be required to satisfy the consumer’s obligations in full as of a specific date. 

Loan Originator Compensation 

To protect borrowers in the residential mortgage market, certain unfair practices relating to 

compensation of mortgage brokers and other loan originators are prohibited. 

The term ‘‘loan originator’’ means, with respect to a particular transaction, a person who for 

compensation or other monetary gain, or in expectation of compensation or other monetary gain, 

arranges, negotiates, or otherwise obtains an extension of consumer credit for another person. 

Loan originators include mortgage broker companies, including those companies that close loans 

in their own names in table-funded transactions, and loan officers and other employees of 

creditors that originate loans. Creditors are not considered to be loan originators unless they use 

table funding, otherwise fail to provide the funds for the transaction out of the creditor’s own 

resources (including a bona fide warehouse line of credit), or function as a mortgage broker in 

the transaction. 

Loan originators cannot: 

•	 Receive, and no person can pay directly or indirectly, compensation based on a loan’s terms 

or conditions other than the loan amount (and then only provided that such compensation is 

based on a fixed percentage of the loan amount); 

•	 Receive compensation, directly or indirectly, from a creditor or another party for a loan when 

a consumer directly pays the loan originator’s compensation; or 

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•	 Direct or “steer” a consumer to a loan t`hat is not in a consumer’s interest to increase the loan 

originator’s compensation. 

NOTE: In addition to the requirements that loan originators cannot receive compensation from a 

creditor or another party when a consumer directly pays the loan originator, 1026.36(d)(2)(ii) 

prohibits a person from compensating a loan originator when that person “knows or has reason to 

know” that the consumer has paid compensation to the loan originator. 

A loan originator can obtain a “safe harbor” for compliance with the anti-steering requirement 

(but not the compensation provisions) by obtaining loan options from a significant number of the 

creditors with which the loan originator regularly does business and, for each loan type in which 

the consumer has expressed interest, presenting the consumer with loan options for which the 

loan originator believes in good faith the consumer likely qualifies, that include all of the 

following: 

1)	 The loan with the lowest interest rate; 

2)	 The loan with the lowest interest rate without any risky features (such as prepayment 

penalties, negative amortization, or a balloon payment in the first seven years); and 

3)	 The loan with the lowest total dollar amount for origination points or fees and discount 

points. 

The loan originator compensation provisions do not apply to open-end home-equity lines of 

credit or to loans secured by a consumer’s interest in a time-share plan. 

Notification of Sale or Transfer of Mortgage Loans – 

Section 1026.39 

Notice of new owner – No later than 30 calendar days after the date on which a mortgage loan is 

acquired by or otherwise sold, assigned, or otherwise transferred10 to a third party, the “covered 

person”11 shall notify the consumer clearly and conspicuously in writing, in a form that the 

consumer may keep, of such transfer and include: 

•	 Identification of the loan that was sold, assigned, or otherwise transferred; 

•	 Name, address, and telephone number of the covered person ; 

10 The date of transfer to the covered person may, at the covered person’s option, be either the date of acquisition 

recognized in the books and records of the acquiring party or the date of transfer recognized in the books and 

records of the transferring party. 

11 A “covered person” means any person, as defined in 12 CFR 1026.2(a)(22), that becomes the owner of an existing 

mortgage loan by acquiring legal title to the debt obligation, whether through a purchase, assignment, or other 

transfer, and who acquires more than one mortgage loan in any 12-month period. For purposes of this section, a 

servicer of a mortgage loan shall not be treated as the owner of the obligation if the servicer holds title to the loan or 

it is assigned to the servicer solely for the administrative convenience of the servicer in servicing the obligation. See 

12 CFR 1026.39(a)(1). 

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•	 Date of transfer; 

•	 Name, address, and telephone number of an agent or party having authority, on behalf of the 

covered person, to receive notice of the right to rescind and resolve issues concerning the 

consumer’s payments on the mortgage loan; 

•	 Location where transfer of ownership of the debt to the covered person is or may be recorded 

in public records or, alternatively, that the transfer of ownership has not been recorded in 

public records at the time the disclosure is provided; and 

•	 At the option of the covered person, any other information regarding the transaction. 

This notice of sale or transfer must be provided for any consumer credit transaction that is 

secured by the principal dwelling of a consumer. Thus, it applies to both closed-end mortgage 

loans and open-end home equity lines of credit. This notification is required of the covered 

person even if the loan servicer remains the same. 

Regulation Z also establishes special rules regarding the delivery of the notice when there is 

more than one covered person. In a joint acquisition of a loan, the covered persons must provide 

a single disclosure that lists the contact information for all covered persons. However, if one of 

the covered persons is authorized to receive a notice of rescission and to resolve issues 

concerning the consumer’s payments, the disclosure may state contact information only for that 

covered person. In addition, if the multiple covered persons each acquire a partial interest in the 

loan pursuant to separate and unrelated agreements, they may provide either a single notice or 

separate notices. Finally, if a covered person acquires a loan and subsequently transfers it to 

another covered person, a single notice may be provided on behalf of both of them, as long as the 

notice satisfies the timing and content requirements with respect to each of them. 

In addition, there are three exceptions to the notice requirement to provide the notice of sale or 

transfer: 

•	 The covered person sells, assigns, or otherwise transfers legal title to the mortgage loan on 

or before the 30th calendar day following the date of transfer on which it acquired the 

mortgage loan; 

•	 The mortgage loan is transferred to the covered person in connection with a repurchase 

agreement that obligates the transferring party to repurchase the mortgage loan (unless the 

transferring party does not repurchase the mortgage loan); or 

•	 The covered person acquires only a partial interest in the mortgage loan and the agent or 

party authorized to receive the consumer’s rescission notice and resolve issues concerning 

the consumer’s payments on the mortgage loan does not change as a result of that transfer. 

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Valuation Independence – Section 1026.42 

Regulation Z seeks to ensure that real estate appraisers, and others preparing valuations, are free 

to use their independent professional judgment in assigning home values without influence or 

pressure from those with interests in the transactions. Regulation Z also seeks to ensure that 

appraisers receive customary and reasonable payments for their services. Regulation Z’s 

valuation rules apply to creditors and settlement services providers for consumer credit 

transactions secured by the consumer’s principal dwelling (“covered transaction”) and includes 

several provisions that protect the integrity of the appraisal process when a consumer’s principal 

dwelling is securing the loan. In general, the rule prohibits “covered persons” from engaging in 

coercion, bribery, and other similar actions designed to cause anyone who prepares a valuation to 

base the value of the property on factors other than the person’s independent judgment.12 More 

specifically, Regulation Z: 

•	 Prohibits coercion and other similar actions designed to cause appraisers to base the 

appraised value of properties on factors other than their independent judgment; 

•	 Prohibits appraisers and appraisal management companies hired by lenders from having 

financial or other interests in the properties or the credit transactions; 

•	 Prohibits creditors from extending credit based on appraisals if they know beforehand of 

violations involving appraiser coercion or conflicts of interest, unless the creditors determine 

that the values of the properties are not materially misstated; 

•	 Prohibits a person that prepares a valuation from materially misrepresenting the value of the 

consumer’s principal dwelling, and prohibits a covered person other than the person that 

prepares valuations from materially altering a valuation. A misrepresentation or alteration is 

material if it is likely to significantly affect the value assigned to the consumer’s principal 

dwelling; 

•	 Prohibits any covered person from falsifying a valuation or inducing a misrepresentation, 

falsification, or alteration of value; 

•	 Requires that creditors or settlement service providers that have information about appraiser 

misconduct file reports with the appropriate state licensing authorities if the misconduct is 

material (i.e., likely to significantly affect the value assigned to the consumer’s principal 

dwelling; and 

12 This section applies to any consumer credit transaction secured by the consumer's principal dwelling. A ``covered 

person'' means a creditor with respect to a covered transaction or a person that provides ``settlement services,'' as 

defined in 12 U.S.C. 2602(3) and implementing regulations, in connection with a covered transaction. A ``covered 

transaction'' means an extension of consumer credit that is or will be secured by the consumer's principal dwelling, 

as defined in 12 CFR 1026.2(a)(19). 

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•	 Requires the payment of reasonable and customary compensation to appraisers who are not 

employees of the creditors or of the appraisal management companies hired by the creditors. 

Subpart F – Special Rules for Private Education 

Loans 

Special Disclosure Requirements for Private Education 

Loans – Section 1026.46 

The disclosures required under Subpart F apply only to private education loans. Except where 

specifically provided otherwise, the requirements and limitations of Subpart F are in addition to 

the requirements of the other subparts of Regulation Z. 

A private education loan means an extension of credit that: 

•	 Is not made, insured, or guaranteed under title IV of the Higher Education Act of 1965; 

•	 Is extended to a consumer expressly, in whole or part, for postsecondary educational 

expenses, regardless of whether the loan is provided by the educational institution that the 

student attends; and 

•	 Does not include open-end credit or any loan that is secured by real property or a dwelling. 

A private education loan does not include an extension of credit in which the covered 

educational institution is the creditor if: 

•	 The term of the extension of credit is 90 days or less, or 

•	 An interest rate will not be applied to the credit balance and the term of the extension of 

credit is one year or less, even if the credit is payable in more than four installments. 

Content of Disclosures – Section 1026.47 

Disclosure Requirements 

This section establishes the content that a creditor must include in its disclosures to a consumer 

at three different stages in the private education loan origination process: 

1)	 Application or Solicitation Disclosures – With any application or solicitation; 

2)	 Approval Disclosures – With any notice of approval of the private education loan; and 

3)	 Final Disclosures – After the consumer accepts the loan. In addition, section 1026.48(d) 

requires that the disclosures must be provided at least three business days prior to 

disbursement of the loan funds. 

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Rights of the Consumer 

The creditor must disclose that, if approved for the loan, the consumer has the right to accept the 

loan on the terms approved for up to 30 calendar days. The disclosure must inform the consumer 

that the rate and terms of the loan will not change during this period, except for changes to the 

rate based on adjustments to the index used for the loan and other changes permitted by law. The 

creditor must disclose that the consumer also has the right to cancel the loan, without penalty, 

until midnight of the third business day following the date on which the consumer receives the 

final disclosures. 

Limitations on Private Educational Loans – 

Section 1026.48 

This section contains rules and limitations on private education loans, including: 

1)	 A prohibition on co-branding in the marketing of private education loans; 

2)	 Rules governing the 30-day acceptance period and three business-day cancellation period and 

prohibition on disbursement of loan proceeds until the cancellation period has expired; 

3)	 The requirement that the creditor obtain a self-certification form from the consumer before 

consummation; and 

4)	 The requirement that creditors in preferred lender arrangements provide certain information 

to covered educational institutions. 

Co-Branding Prohibited 

Regulation Z prohibits creditors from using the name, emblem, mascot, or logo of a covered 

institution (or other words, pictures, or symbols readily identified with a covered institution) in 

the marketing of private education loans in a way that implies endorsement by the educational 

institution. Marketing that refers to an educational institution does not imply endorsement if the 

marketing includes a clear and conspicuous disclosure that is equally prominent and closely 

proximate to the reference to the institution that the educational institution does not endorse the 

creditor’s loans, and that the creditor is not affiliated with the educational institution. There is 

also an exception in cases where the educational institution actually does endorse the creditor’s 

loans, but the marketing must make a clear and conspicuous disclosure that is equally prominent 

and closely proximate to the reference to the institution that the creditor, and not the educational 

institution, is making the loan. 

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Subpart G - Special Rules Applicable To Credit Card 

Accounts and Open-End Credit Offered To College 

Students 

Evaluation of the Consumer’s Ability to Pay – 

Section 1026.51 

Regulation Z requires credit card issuers to consider a consumer’s independent ability to pay 

before opening a new credit card account or increasing the credit limit for an existing credit card 

account. Additionally, the rule provides specific requirements that must be met before opening a 

new credit card account or increasing the credit limit on an existing account when the consumer 

is under the age of 21. 

When evaluating a consumer’s ability to pay, credit card issuers must perform a review of a 

consumer’s independent income or assets and current obligations. Creditors are permitted, 

however, to rely on information provided by the consumer. The rule does not require issuers to 

verify a consumer’s statements; a creditor may base its determination of ability to repay on facts 

and circumstances known to the card issuer (Comment 51(a)(1)(i)-2). A card issuer may also 

consider information obtained through any empirically derived, demonstrably and statistically 

sound model that reasonably estimates a consumer’s income or assets. 

The rule also requires that issuers consider at least one of the following: 

•	 The ratio of debt obligations to income; 

•	 The ratio of debt obligations to assets; or 

•	 The income the consumer will have after paying debt obligations (i.e., residual income). 

The rule also provides that it would be unreasonable for an issuer not to review any information 

about a consumer’s income, assets, or current obligations, or to issue a credit card to a consumer 

who does not have any income or assets. 

Because credit card accounts typically require consumers to make a minimum monthly payment 

that is a percentage of the total balance (plus, in some cases, accrued interest and fees), creditors 

are required to consider the consumer’s ability to make the required minimum payments. Card 

issuers must also establish and maintain reasonable written policies and procedures to consider a 

consumer’s income or assets and current obligations. Because the minimum payment is unknown 

at account opening, the rule requires that creditors use a reasonable method to estimate a 

consumer’s minimum payment. The regulation provides a safe harbor for issuers to estimate the 

required minimum periodic payment if the card issuer: 

1.	 Assumes utilization, from the first day of the billing cycle, of the full credit line that the 

issuer is considering offering to the consumer; and 

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2.	 Uses a minimum payment formula employed by the issuer for the product the issuer is 

considering offering to the consumer or, in the case of an existing account, the minimum 

payment formula that currently applies to that account, provided that: 

(a) If the minimum payment formula includes interest charges, the card issuer estimates 

those charges using an interest rate that the issuer is considering offering to the consumer 

for purchases or, in the case of an existing account, the interest rate that currently applies 

to purchases; and 

(b) If the applicable minimum payment formula includes mandatory fees, the card issuer 

must assume that such fees have been charged to the account. 

Specific Requirements for Underage Consumers – 

Section 1026.51(b)(1) 

Regulation Z prohibits the issuance of a credit card to a consumer who has not attained the age of 

21 unless the consumer has submitted a written application and the creditor has: 

•	 Information indicating that the underage consumer has an independent ability to make the 

required minimum payments on the account; or 

•	 The signature of a cosigner, guarantor, or joint applicant who has attained the age of 21, who 

has the means to repay debts incurred by the underage consumer in connection with the 

account, and who assumes joint liability for all debts or secondary liability for any debts 

incurred before the underage consumer attains 21 years of age. 

If the account is opened based on a cosigner’s ability to pay, the issuer must also obtain written 

consent from the cosigner before increasing the credit limit. 

Limitations of Fees – Section 1026.52 

Limitations on Fees During First Year After Account Opening – 

Section 1026.52(a) 

During the first year after account opening, issuers are prohibited from requiring consumers to 

pay fees (other than fees for late payments, returned payments, and exceeding the credit limit) 

that in the aggregate exceed 25 percent of the initial credit limit in effect when the account is 

opened. An account is considered open no earlier than the date on which the account may first be 

used by the consumer to engage in transactions. 

NOTE: On September 23, 2011, a federal district court issued a preliminary injunction affecting 

§ 1026.52(a). See First Premier Bank, et al. v. United States Consumer Financial Protection 

Bureau, et al., 819 F. Supp. 2d 906 (D.S.D. Sept. 23, 2011). In light of this litigation, the CFPB 

has proposed amendments to Regulation Z, withdrawing a provision of the rule that includes fees 

assessed to consumers prior to account opening in the 25 percent limitation. The Agencies will 

not count fees paid prior to account opening toward the 25 percent limitation. 

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Limitations on Penalty Fees – Section 1026.52(b) 

TILA requires that penalty fees imposed by card issuers be reasonable and proportional to the 

violation of the account terms. Among other things, the regulation prohibits credit card issuers 

from charging a penalty fee of more than $25 for paying late or otherwise violating the account’s 

terms for the first violation (or $35 for an additional violation of the same type during the same 

billing cycle or one of the next six billing cycles) unless the issuer determines that a higher fee 

represents a reasonable proportion of the costs it incurs as a result of that type of violation and 

reevaluates that determination at least once every 12 months. 

Credit card issuers are banned from charging penalty fees that exceed the dollar amount 

associated with the consumer’s violation of the terms or other requirements of the credit card 

account. For example, card issuers are no longer permitted to charge a $39 fee when a consumer 

is late making a $20 minimum payment. Instead, in this example, the fee cannot exceed $20. The 

regulation also bans imposition of penalty fees when there is no dollar amount associated with 

the violation, such as “inactivity” fees based on the consumer’s failure to use the account to 

make new purchases. It also prohibits issuers from charging multiple penalty fees based on a 

single late payment or other violation of the account terms. 

Payment Allocation – Section 1026.53 

When different rates apply to different balances on a credit card account, issuers are generally 

required to allocate payments in excess of the minimum payment first to the balance with the 

highest APR and any remaining portion to the other balances in descending order based on the 

applicable APR. 

For deferred interest programs, however, issuers must allocate excess payments first to the 

deferred interest balance during the last two billing cycles of the deferred interest period. In 

addition, during a deferred interest period, issuers are permitted (but not required) to allocate 

excess payments in the manner requested by the consumer. 

For accounts with secured balances, issuers are permitted (but not required) to allocate excess 

payments to the secured balance if requested by the consumer. 

Double-Cycle Billing and Partial Grace Period – 

Section 1026.54 

Issuers are generally prohibited from imposing finance charges on balances for days in previous 

billing cycles as a result of the loss of a grace period. In addition, when a consumer pays some, 

but not all, of a balance prior to the expiration of a grace period, an issuer is prohibited from 

imposing finance charges on the portion of the balance that has been repaid. 

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Restrictions on Applying Increased Rates to Existing 

Balances and Increasing Certain Fees and Charges – 

Section 1026.55 

Unless an exception applies, a card issuer must not increase an annual percentage rate or a fee or 

charge required to be disclosed under sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) on a 

credit card account. There are some general exceptions to the prohibition against applying 

increased rates to existing balances and increasing certain fees or charges: 

•	 A temporary or promotional rate or temporary fee or charge that lasts at least six months, and 

that is required to be disclosed under sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii), 

provided that the card issuer complied with applicable disclosure requirements. Fees and 

charges required to be disclosed under sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) are 

periodic fees for issuance or availability of an open-end plan (such as an annual fee); a fixed 

finance charge (and any minimum interest charge) that exceeds $1; or a charge for required 

insurance, debt cancellation, or debt suspension; 

•	 The rate is increased due to the operation of an index available to the general public and not 

under the card issuer’s control (i.e., the rate is a variable rate); 

•	 The minimum payment has not been received within 60 days after the due date, provided that 

the card issuer complied with applicable disclosure requirements and adheres to certain 

requirements when a series of on time payments are received; 

•	 The consumer successfully completes or fails to comply with the terms of a workout 

arrangement, provided that card issuer complied with applicable disclosure requirements and 

adheres to certain requirements upon the completion or failure of the arrangement; and 

•	 The APR on an existing balance or a fee or charge required to be disclosed under sections 

1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) has been reduced pursuant to the Servicemembers 

Civil Relief Act (SCRA) or a similar federal or state statute or regulation. The creditor is 

permitted to increase the rate, fee, or charge once the SCRA ceases to apply, but only to the 

rate, fee, or charge that applied prior to the reduction. 

Regulation Z’s limitations on the application of increased rates and certain fees and charges to 

existing balances continue to apply when the account is closed, acquired by another institution 

through a merger or the sale of a credit card portfolio, or when the balance is transferred to 

another credit account issued by the same creditor (or its affiliate or subsidiary). 

Issuers are generally prevented from increasing the APR applicable to new transactions or a fee or 

charge subject to sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first year after an 

account is opened. After the first year, issuers are permitted to increase the APRs that apply to new 

transactions or a fee or charge subject to sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) so long 

as the creditor complies with the regulation’s 45-day advance notice requirement (§1026.9). 

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Regulation Z’s limitations on the application of increased rates to existing balances and 

limitations on the increase of certain fees or charges apply upon cessation of a waiver or rebate 

of interest, fees, or charges if the issuer promotes the waiver or rebate. 

Fees for Transactions that Exceed the Credit Limit – 

Section 1026.56 

Consumer consent requirement – Regulation Z requires an issuer to obtain a consumer’s express 

consent (or opt in) before the issuer may impose any fees on a consumer’s credit card account for 

making an extension of credit that exceeds the account’s credit limit. Prior to providing such 

consent, the consumer must be notified by the issuer of any fees that may be assessed for an 

over-the-limit transaction. If the consumer consents, the issuer is also required to provide written 

confirmation (or electronic confirmation if the consumer agrees) of the consumer’s consent and a 

notice of the consumer’s right to revoke that consent on the front page of any periodic statement 

that reflects the imposition of an over-the-limit fee. 

Prior to obtaining a consumer’s consent to the payment of over-the-limit transactions, the issuer 

must provide the consumer with a notice disclosing, among other things, the dollar amount of 

any charges that will be assessed for an over-the-limit transaction, as well as any increased rate 

that may apply if the consumer exceeds the credit limit. Issuers are prevented from assessing any 

over-the-limit fee or charge on an account unless the consumer consents to the payment of 

transactions that exceed the credit limit. 

Prohibited practices – Even if the consumer has affirmatively consented to the issuer’s payment 

of over-the-limit transactions, Regulation Z prohibits certain issuer practices in connection with 

the assessment of over-the-limit fees or charges. An issuer can only charge one over-the-limit fee 

or charge per billing cycle. In addition, an issuer cannot impose an over-the-limit fee on the 

account for the same transaction in more than three billing cycles. Furthermore, fees may not be 

imposed for the same transaction in the second or third billing cycle unless the consumer has 

failed to reduce the account balance below the credit limit by the payment due date in that cycle. 

Regulation Z also prohibits unfair or deceptive acts or practices in connection with the 

manipulation of credit limits in order to increase over-the-limit fees or other penalty charges. 

Specifically, issuers are prohibited from engaging in three practices: 

•	 Assessing an over-the-limit fee because the creditor failed to promptly replenish the 

consumer’s available credit; 

•	 Conditioning the amount of available credit on the consumer’s consent to the payment of 

over-the-limit transactions (e.g., opting in to an over-the-limit service to obtain a higher 

credit limit); and 

•	 Imposing any over-the-limit fee if the credit limit is exceeded solely because of the issuer’s 

assessment of accrued interest charges or fees on the consumer’s account. 

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Special Rules for Marketing to Students – Section 1026.57 

Regulation Z establishes several requirements related to the marketing of credit cards and other 

open-end consumer credit plans to students at an institution of higher education. The regulation 

limits a creditor’s ability to offer a college student any tangible item to induce the student to 

apply for or participate in an open-end consumer credit plan offered by the creditor. Specifically, 

Regulation Z prohibits a card issuer from offering tangible items as an inducement: 

•	 On the campus of an institution of higher education; 

•	 Near the campus of an institution of higher education; or 

•	 At an event sponsored by or related to an institution of higher education 

A tangible item means physical items, such as gift cards, t-shirts, or magazine subscriptions, but 

does not include non-physical items such as discounts, reward points, or promotional credit 

terms. With respect to offers “near” the campus, the commentary to the regulation states that a 

location that is within 1,000 feet of the border of the campus is considered near the campus. 

Regulation Z also requires card issuers to submit an annual report to the CFPB containing the terms 

and conditions of business, marketing, or promotional agreements with an institution of higher 

education or an alumni organization or foundation affiliated with an institution of higher education. 

Online Disclosure of Credit Card Agreements – 

Section 1026.58 

The regulation requires that issuers post credit card agreements on their websites and to submit 

those agreements to the CFPB for posting on a website maintained by the CFPB. There are three 

exceptions for when issuers are not required to provide statements to the CFPB: 

•	 The issuer has fewer than 10,000 open credit card accounts; or 

•	 The agreement currently is not offered to the public and the agreement is used only for one or 

more private label credit card plans with credit cards usable only at a single merchant or 

group of affiliated merchants and that involves fewer than 10,000 open accounts; or 

•	 The agreement currently is not offered to the public and the agreement is for one or more 

plans offered to test a new product offered only to a limited group of consumers for a limited 

time that involves fewer than 10,000 open accounts. 

Reevaluation of Rate Increases – Section 1026.59 

For any rate increase imposed on or after January 1, 2009, that requires 45 days advance notice, 

the regulation requires card issuers to review the account no less frequently than once each six 

months and, if appropriate based on that review, reduce the annual percentage rate. The 

requirement to reevaluate rate increases applies both to increases in annual percentage rates 

based on consumer-specific factors, such as changes in the consumer’s creditworthiness, and to 

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increases in annual percentage rates imposed based on factors that are not specific to the 

consumer, such as changes in market conditions or the issuer’s cost of funds. If based on its 

review a card issuer is required to reduce the rate applicable to an account, the final regulation 

requires that the rate be reduced within 45 days after completion of the evaluation. 

This review must consider either the same factors on which the increase was originally based or 

the factors the card issuer currently considers in determining the annual percentage rate 

applicable to similar new credit card accounts. 

Specific Defenses – TILA Section 108 

Defense Against Civil, Criminal, and Administrative Actions 

A financial institution in violation of TILA may avoid liability by: 

•	 Discovering the error before an action is brought against the financial institution, or before 

the consumer notifies the financial institution, in writing, of the error. 

•	 Notifying the consumer of the error within 60 days of discovery. 

•	 Making the necessary adjustments to the consumer’s account, also within 60 days of 

discovery. (The consumer will pay no more than the lesser of the finance charge actually 

disclosed or the dollar equivalent of the APR actually disclosed.) 

The above three actions also may allow the financial institution to avoid a regulatory order to 

reimburse the customer. 

An error is “discovered” if it is: 

•	 Discussed in a final, written report of examination. 

•	 Identified through the financial institution’s own procedures. 

•	 An inaccurately disclosed APR or finance charge included in a regulatory agency notification 

to the financial institution. 

When a disclosure error occurs, the financial institution is not required to re-disclose after a loan 

has been consummated or an account has been opened. If the financial institution corrects a 

disclosure error by merely re-disclosing required information accurately, without adjusting the 

consumer’s account, the financial institution may still be subject to civil liability and an order to 

reimburse from its regulator. 

The circumstances under which a financial institution may avoid liability under the TILA do not 

apply to violations of the Fair Credit Billing Act (chapter 4 of the TILA). 

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Additional Defenses Against Civil Actions 

The financial institution may avoid liability in a civil action if it shows by a preponderance of 

evidence that the violation was not intentional and resulted from a bona fide error that occurred 

despite the maintenance of procedures to avoid the error. 

A bona fide error may include a clerical, calculation, computer malfunction, programming, or 

printing error. It does not include an error of legal judgment. 

Showing that a violation occurred unintentionally could be difficult if the financial institution is 

unable to produce evidence that explicitly indicates it has an internal controls program designed 

to ensure compliance. The financial institution’s demonstrated commitment to compliance and 

its adoption of policies and procedures to detect errors before disclosures are furnished to 

consumers could strengthen its defense. 

Statute of Limitations – TILA Sections 108 and 130 

Civil actions may be brought within one year after the violation occurred. For private education 

loans, civil actions may be brought within one year from the date on which the first regular 

payment of principal and interest is due. After that time, and if allowed by state law, the 

consumer may still assert the violation as a defense if a financial institution were to bring an 

action to collect the consumer’s debt. 

Criminal actions are not subject to the TILA one-year statute of limitations. 

Regulatory administrative enforcement actions also are not subject to the one-year statute of 

limitations. However, enforcement actions under the policy guide involving erroneously 

disclosed APRs and finance charges are subject to time limitations by the TILA. Those 

limitations range from the date of the last regulatory examination of the financial institution, to 

as far back as 1969, depending on when loans were made, when violations were identified, 

whether the violations were repeat violations, and other factors. 

There is no time limitation on willful violations intended to mislead the consumer. A summary of 

the various time limitations follows. 

•	 For open-end credit, reimbursement applies to violations not older than two years. 

•	 For closed-end credit, reimbursement is generally directed for loans with violations occurring 

since the immediately preceding examination. 

Rescission Rights (Open-End and Closed-End Credit) – 

Sections 1026.15 & 1026.23 

TILA provides that for certain transactions secured by the consumer’s principal dwelling, a 

consumer has three business days after becoming obligated on the debt to rescind the transaction. 

The right of rescission allows consumer(s) time to reexamine their credit agreements and cost 

disclosures and to reconsider whether they want to place their homes at risk by offering it as 

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security for the credit. A higher-priced mortgage loan (whether or not it is a HOEPA loan) 

having a prepayment penalty that does not conform to the prepayment penalty limitations 

(§§1026.32(c) and (d) and §1026.35(b)(2)) is also subject to a three-year right of rescission. 

Transactions exempt from the right of rescission include residential mortgage transactions 

(§1026.2(a)(24)) and refinancings or consolidations with the original creditor where no “new 

money” is advanced. 

If a transaction is rescindable, consumers must be given a notice explaining that the creditor has 

a security interest in the consumer’s home, that the consumer may rescind, how the consumer 

may rescind, the effects of rescission, and the date the rescission period expires. 

To rescind a transaction, a consumer must notify the creditor in writing by midnight of the third 

business day after the latest of three events: 

• Consummation of the transaction, 

• Delivery of material TILA disclosures, or 

• Receipt13 of the required notice of the right to rescind. 

For purposes of rescission, business day means every calendar day except Sundays and the legal 

public holidays (§1026.2(a)(6)). The term “material disclosures” is defined in section 

1026.23(a)(3) to mean the required disclosures of the APR, the finance charge, the amount 

financed, the total of payments, the payment schedule, and the disclosures and limitations 

referred to in section 1026.32(c) and (d). 

The creditor may not disburse any monies (except into an escrow account) and may not provide 

services or materials until the three-day rescission period has elapsed and the creditor is 

reasonably satisfied that the consumer has not rescinded. If the consumer rescinds the 

transaction, the creditor must refund all amounts paid by the consumer (even amounts disbursed 

to third parties) and terminate its security interest in the consumer’s home. 

A consumer may waive the three-day rescission period and receive immediate access to loan 

proceeds if the consumer has a “bona fide personal financial emergency.” The consumer must 

give the creditor a signed and dated waiver statement that describes the emergency, specifically 

waives the right, and bears the signatures of all consumers entitled to rescind the transaction. The 

consumer provides the explanation for the bona fide personal financial emergency, but the 

creditor decides the sufficiency of the emergency. 

13 12 CFR 1026.15(b) and 1026.23(b)(1) were amended to include the electronic delivery of the notice of the right to 

rescind. If a paper notice of the right to rescind is used, a creditor must deliver two copies of the notice to each 

consumer entitled to rescind. However, under the final rule on electronic delivery of disclosures if the notice is in 

electronic form, in accordance with the consumer consent and other applicable provisions of the E-Sign Act, only 

one copy to each customer is required. 

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If the required rescission notice or material TILA disclosures are not delivered or if they are 

inaccurate, the consumer’s right to rescind may be extended from three days after becoming 

obligated on a loan to up to three years. 

REFERENCES 

Laws 

15 USC 1601 et seq. 

15 USC 1666 et seq. 

15 USC 7001 et seq. 

Regulations 

Truth in Lending Act (TILA) 

Fair Credit Billing Act 

Electronic Signatures in Global and National Commerce Act 

Consumer Financial Protection Bureau Regulation (12 CFR) 

Part 1026 Truth in Lending (Regulation Z) 

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CFPB 

Examination Procedures TILA 

Truth in Lending1 

Examination Objectives 

1.	 To appraise the quality of the financial 

institution's compliance management system for the Truth in Lending Act and Regulation Z. 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

2.	 To determine the reliance that can be placed on the financial institution's compliance 

management system, including internal controls and procedures performed by the person(s) 

responsible for monitoring the financial institution's compliance review function for the 

Truth In Lending Act and Regulation Z. 

3.	 To determine the financial institution's compliance with the Truth In Lending Act and 

Regulation Z. 

4.	 To initiate corrective action when policies or internal controls are deficient, or when 

violations of law or regulation are identified. 

5.	 To determine whether the institution will be required to make adjustments to consumer 

accounts under the restitution provisions of the Truth in Lending Act. 

1 These reflect FFIEC-approved procedures. 

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General Procedures 

1.	 Obtain information pertinent to the area of examination from the financial institution's 

compliance management system program (historical examination findings, complaint 

information, and significant findings from compliance review and audit). 

2.	 Through discussions with management and review of the following documents, 

determine whether the financial institution's internal controls are adequate to ensure 

compliance in the area under review. Identify procedures used daily to detect 

errors/violations promptly. Also, review the procedures used to ensure compliance when 

changes occur (e.g., changes in interest rates, service charges, computation methods, and 

software programs). 

•	 Organizational charts. 

•	 Process flowcharts. 

•	 Policies and procedures. 

•	 Loan documentation and disclosures. 

•	 Checklists/worksheets and review documents. 

•	 Computer programs. 

3.	 Review compliance review and audit workpapers and determine whether: 

a.	 The procedures used address all regulatory provisions (see Transactional Testing 

section). 

b.	 Steps are taken to follow up on previously identified deficiencies. 

c.	 The procedures used include samples that cover all product types and decision 

centers. 

d.	 The work performed is accurate (through a review of some transactions). 

e.	 Significant deficiencies, and the root cause of the deficiencies, are included in reports 

to management/board. 

f.	 Corrective actions are timely and appropriate. 

g.	 The area is reviewed at an appropriate interval. 

4.	 Review the financial institution's record retention practices to determine whether 

evidence of compliance (for other than the advertising requirements) is retained for at 

least two years after the disclosures were required to be made or other action was 

required to be taken. (§1026.25) 

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Disclosure Forms 

5.	 Determine if the financial institution has changed any TILA disclosure forms or if there 

are forms that have not been previously reviewed for accuracy. If so: 

Verify the accuracy of each disclosure by reviewing the following: 

•	 Credit card application/solicitation disclosures (§1026.60(b)-(e)). 

•	 HELOC disclosures (§1026.40(d) and (e)). 

•	 Initial disclosures (§1026.6) and, if applicable, additional HELOC disclosures 

(§1026.40). 

•	 Periodic statement disclosures (§1026.7) 

•	 Statement of billing rights and change in terms notice (§1026.9(a),(b),(c) or (g)). 

•	 Note and/or contract forms (including those furnished to dealers). 

•	 Notice of Right to Rescind/Cancel (§§1026.15(b), 1026.23(b)(1)) and 

1026.47(c)(4). 

•	 Standard closed-end credit disclosures (§§1026.17(a) and 1026.18). 

•	 ARM disclosures (§1026.19(b)). 

•	 High-cost mortgage disclosures (§1026.32(c)). 

•	 Reverse mortgage disclosures (§1026.33(b)). 

•	 Private education loan disclosures (§1026.47). 

Closed-End Credit Disclosure Forms Review Procedures 

a.	 Determine that the disclosures are clear, conspicuous, and grouped together or 

segregated as required, in a form the consumer may keep. The terms “Finance 

Charge” and “Annual Percentage Rate” and corresponding rates or amounts should be 

more conspicuous than other terms, except for the creditor’s identity. For private 

student loans the term “Annual Percentage Rate” and corresponding rate must be less 

conspicuous than the term “finance charge” and the corresponding amount, as well as 

less conspicuous than the interest rate, the notice of the right to cancel and creditor’s 

identity. (§§1026.17(a), 1026.47(b), and (c)) 

b.	 Determine the disclosures include the following as applicable. (§1026.18) 

1.	 Identity of the creditor 

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2.	 Brief description of the finance charge 

3.	 Brief description of the APR 

4.	 Variable rate information (§1026.18(f)(1) or (2)) 

5.	 Payment schedule 

6.	 Brief description of the total of payments 

7.	 Demand feature 

8.	 Description of total sales price in a credit sale 

9.	 Prepayment penalties or rebates 

10. Late payment amount or percentage 

11. Description for security interest 

12. Insurance conditions for finance charge exclusions (§1026.4(d)) 

13. Statement referring to the contract 

14. Statement regarding assumption of the note 

15. Statement regarding required deposits. 

c.	 Determine that the creditor discloses the number, amounts, and timing of payments 

scheduled to repay the obligation (other than for a transaction that is subject to section 

1026.18(s)2

. (§1026.18(g)) 

d.	 For a closed-end transaction secured by real property or a dwelling (other than a 

transaction secured by a consumer’s interest in a time-share plan described in 11 

U.S.C. 101(53D)), determine that the creditor discloses the following information 

about the interest rate and payments, as applicable (§1026.18(s)): 

Interest Rates 

1.	 For a fixed-rate mortgage, the interest rate at consummation. 

(§1026.18(s)(2)(i)(A)) 

2.	 For an adjustable-rate or step-rate mortgage (§1026.18(s)(2)(i)(B)): 

i.	 The interest rate at consummation and the period of time until the first interest 

rate adjustment may occur, labeled as the “introductory rate and monthly 

2 For example, home construction loans that are secured by real property or a dwelling are subject to section 

1026.18(s) and not section 1026.18 (g). See comment App. D-6 of Regulation Z. 

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payment”; NOTE: As set forth in comment 18(s)-1,if periodic payments are 

not due monthly, the creditor should use the appropriate term, such as 

“quarterly” or “annually.” 

ii.	 The maximum interest rate that may apply during the first five years after the 

date on which the first regular periodic payment will be due and the earliest 

date on which that rate may apply, labeled as “maximum during first five 

years”; and 

iii.	 The maximum interest rate that may apply during the life of the loan and the 

earliest date on which that rate may apply, labeled as “maximum ever.” 

3.	 For a loan that provides for payment increases occurring without regard to an 

interest rate adjustment 3 (as described in section 1026.18(s)(3)(i)(B)), the interest 

rate in effect at the time the first such payment increase is scheduled to occur and 

the date on which the increase will occur, labeled as “first adjustment” if the loan 

is an adjustable-rate mortgage or, otherwise, labeled as “first increase.”4 

(§1026.18(s)(2)(i)(C)) 

4.	 For a negative amortization loan5 (§1026.18(s)(2)(ii)): 

i.	 The interest rate at consummation and, if it will adjust after consummation, 

the length of time until it will adjust, and the label “introductory” or “intro”; 

ii.	 The maximum interest rate that could apply when the consumer must begin 

making fully amortizing payments under the terms of the legal obligation; 

iii.	 If the minimum required payment will increase before the consumer must 

begin making fully amortizing payments, the maximum interest rate that could 

apply at the time of the first payment increase and the date the increase is 

scheduled to occur; and 

iv.	 If a second increase in the minimum required payment may occur before the 

consumer must begin making fully amortizing payments, the maximum 

interest rate that could apply at the time of the second payment increase and 

the date the increase is scheduled to occur. 

5.	 For an amortizing adjustable-rate mortgage, if the interest rate at consummation 

is less than the fully indexed rate, the following (placed in a box directly beneath 

3 Note: this category includes interest-only loans, as set forth in comment 1026.18(s)(2)(i)(C)-1. 

4 Because model forms and clauses published by the CFPB are safe harbors, this rate may also be labeled 

“Maximum Ever,” pursuant to section 1026.18(s)(2)(i)((B)(3). 

5 The term “negative amortization loan” means a loan, other than a reverse mortgage subject to section 1026.33 that 

provides for a minimum periodic payment that covers only a portion of the accrued interest, resulting in negative 

amortization. section 1026.18(s)(7)(v) 

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the table required by paragraph 18 (s)(1) of the regulation, in a format 

substantially similar to Model Clause H–4(I) in the regulation’s Appendix H): 

i.	 The interest rate that applies at consummation and the period of time for 

which it applies; 

ii.	 A statement that, even if market rates do not change, the interest rate will 

increase at the first adjustment and a designation of the place in sequence of 

the month or year, as applicable, of such rate adjustment (e.g., “in the third 

year”); and 

iii.	 The fully-indexed rate. 

Payments for Amortizing Loans 

1.	 Principal and interest payments. If all periodic payments will be applied to 

accrued interest and principal, for each interest rate disclosed under section 

1026.18(s)(2)(i) (§1026.18(s)(3)(i)): 

i.	 The corresponding periodic principal and interest payment, labeled as 

“principal and interest;” 

ii.	 If the periodic payment may increase without regard to an interest rate 

adjustment, the payment that corresponds to the first such increase and the 

earliest date on which the increase could occur; 

iii.	 If an escrow account is established , an estimate of the amount of taxes and 

insurance, including any mortgage insurance payable with each periodic 

payment; and 

iv.	 The sum of the amounts disclosed under sections 1026.18(s)(3)(i)(A) and (C) 

or (s)(3)(i)(B) and (C), as applicable, labeled as “total estimated monthly 

payment.” 

2.	 Interest-only payments. If the loan is an interest-only loan, for each interest rate 

disclosed under section 1026.18(s)(2)(i), the corresponding periodic payment and 

(§1026.18(s)(3)(ii)): 

i.	 If the payment will be applied to only accrued interest, the amount applied to 

interest, labeled as “interest payment,” and a statement that none of the 

payment is being applied to principal; 

ii.	 If the payment will be applied to accrued interest and principal, an itemization 

of the amount of the first such payment applied to accrued interest and to 

principal, labeled as “interest payment” and “principal payment,” respectively; 

iii.	 The escrow information described in section 1026.18(s)(3)(i)(C); and 

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iv.	 The sum of all amounts required to be disclosed under sections 

1026.18(s)(3)(ii)(A) and (C) or (s)(3)(ii)(B) and (C), as applicable, labeled as 

“total estimated monthly payment.” 

3.	 Payments for negative amortization loans. If the loan is a negative amortization 

loan (§1026.18(s)(4)): 

i.	 The minimum periodic payment required until the first payment increase or 

interest rate increase, corresponding to the interest rate disclosed under section 

1026.18(s)(2)(ii)(A); 

ii.	 The minimum periodic payment that would be due at the first payment 

increase and the second, if any, corresponding to the interest rates described in 

section 1026.18(s)(2)(ii)(C) and (D); 

iii.	 A statement that the minimum payment pays only some interest, does not 

repay any principal, and will cause the loan amount to increase; 

iv.	 The fully amortizing periodic payment amount at the earliest time when such 

a payment must be made, corresponding to the interest rate disclosed under 

section 1026.18 (s)(2)(ii)(B); and 

v.	 If applicable, in addition to the payments in sections 1026.18(s)(4)(i) and (ii), 

for each interest rate disclosed under section 1026.18(s)(2)(ii), the amount of 

the fully amortizing periodic payment, labeled as the “full payment option,” 

and a statement that these payments pay all principal and all accrued interest. 

NOTE: The information in sections 1026.18(s)(2)–(4) must be disclosed in the 

form of a table with no more than five columns, and with headings and format 

substantially similar to Model Clause H–4(E), H–4(F), H–4(G), or H–4(H) in 

Appendix H of the regulation. The table should contain only the information 

required in sections 1026.18 (s)(2)–(4), be placed in a prominent location, and be 

in a minimum 10-point font. (§1026.18(s)(1)) 

4.	 Balloon payments. For loans with balloon payments (defined as a payment that is 

more than two times a regular periodic payment) (§1026.18(s)(5)): 

i.	 Except as provided below, the balloon payment is disclosed separately from 

other periodic payments disclosed in the table (i.e., is outside the table and in 

a manner substantially similar to Model Clause H–4(J) in Appendix H to the 

regulation); 

ii.	 If the balloon payment is scheduled to occur at the same time as another 

payment required to be disclosed in the table, the balloon payment must be 

disclosed in the table. 

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e.	 For a closed-end transaction secured by real property or a dwelling (other than a 

transaction secured by a consumer’s interest in a time-share plan described in 11 

U.S.C. 101(53D)), that is a negative amortization loan, determine that the following 

information is disclosed (in close proximity to the table required in section 

1026.18(s)(1), with headings, content, and format substantially similar to Model 

Clause H–4(G) in Appendix H to this part) (§1026.18(s)(6)): 

i.	 The maximum interest rate, the shortest period of time in which such interest 

rate could be reached, the amount of estimated taxes and insurance included in 

each payment disclosed, and a statement that the loan offers payment options, 

two of which are shown; and 

ii.	 The dollar amount of the increase in the loan’s principal balance if the 

consumer makes only the minimum required payments for the maximum 

possible time and the earliest date on which the consumer must begin making 

fully amortizing payments, assuming that the maximum interest rate is 

reached at the earliest possible time. 

f.	 For a closed end transaction secured by real property or a dwelling, (other than a 

transaction secured by a consumer’s interest in a time-share plan described in 11 

U.S.C. 101(53D)), determine that the creditor disclosed a statement that there is no 

guarantee the consumer can refinance the transaction to lower the interest rate or 

periodic payments. (§1026.18(t)(1)) 

NOTE: The statement required by section 1026.18(t)(1) should be in a form 

substantially similar to Model Clause H–4(K) in Appendix H to the regulation. 

(§1026.18(t)(2)) 

g.	 Determine all variable rate loans with a maturity greater than one year secured by a 

principal dwelling are given the following disclosures at the time of application. 

(§1026.19) 

1.	 Consumer Handbook on Adjustable Rate Mortgages or substitute 

2.	 Statement that interest rate payments and or terms can change 

3.	 The index/formula and a source of information 

4.	 Explanation of the interest rate/payment determination and margin 

5.	 Statement that the consumer should ask for the current interest rate and margin 

6.	 Statement that the interest rate is discounted, if applicable 

7.	 Frequency of interest rate and payment changes 

8.	 Rules relating to all changes 

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9.	 Either a historical example based on 15 years, or the initial rate and payment with 

a statement that the periodic payment may substantially increase or decrease 

together with a maximum interest rate and payment 

10. Explanation of how to compute the loan payment, giving an example 

11. Demand feature, if applicable 

12. Statement of content and timing of adjustment notices 

13. Statement that other variable rate loan program disclosures are available, if 

applicable 

h.	 Determine that the disclosures required for high-cost mortgage transactions 

(§1026.32) clearly and conspicuously include the items below. (§1026.32(c), see 

Form H-16 in Appendix H) 

1.	 The required statement “you are not required to complete this agreement merely 

because you have received these disclosures or have signed a loan application. If 

you obtain this loan, the lender will have a mortgage on your home. You could 

lose your home, and any money you have put into it, if you do not meet your 

obligations under the loan.” 

2.	 The APR. 

3.	 Amount of the regular monthly (or other periodic) payment and the amount of any 

balloon payment. The regular payment should include amounts for voluntary 

items, such as credit life insurance or debt-cancellation coverage, only if the 

consumer has previously agreed to the amount (See staff commentary to 

32(c)(3)). 

4.	 Statement that the interest rate may increase, and the amount of the single 

maximum monthly payment, based on the maximum interest rate allowed under 

the contract, if applicable. 

5.	 For a mortgage refinancing, the total amount borrowed, as reflected by the face 

amount of the note; and where the amount borrowed includes premiums or other 

charges for optional credit insurance or debt-cancellation coverage, that fact shall 

be stated (grouped together with the amount borrowed). 

i.	 For any closed-end mortgage loan (credit transaction that is secured by the principal 

dwelling of a consumer) that was sold, assigned, or otherwise transferred to the 

covered person, determine that the covered person notifies the borrower clearly and 

conspicuously in writing, in a form that the consumer may keep of such transfer, 

including (§1026.39): 

1. An identification of the loan that was sold, assigned, or otherwise transferred; 

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2.	 The name, address, and telephone number of the covered person who owns the 

mortgage loan; 

3.	 The date of transfer (either the date of acquisition recognized in the books and 

records of the covered person or that of the transferring party) identified by the 

covered person; 

4.	 The name, address, and telephone number of an agent or party having authority, 

on behalf of the covered person, to receive notice of the right to rescind and 

resolve issues concerning the consumer’s payments on the mortgage loan; 

5.	 Where transfer of ownership of the debt to the covered person is or may be 

recorded in public records or, alternatively, that the transfer of ownership has not 

been recorded in public records at the time the disclosure is provided; and, 

6.	 At the option of the covered person, any other relevant information regarding the 

transaction. 

7.	 If there are multiple covered persons, contact information for each of them, unless 

one of them has been authorized to receive the consumer’s notice of the right to 

rescind and resolve issues concerning the consumer’s payments on the loan. 

NOTE: This notice of sale or transfer must be provided for any consumer credit 

transaction that is secured by the principal dwelling of a consumer. This notification 

is required of the covered person even if the loan servicer remains the same. In 

addition, if more than one consumer is liable on the obligation, the covered person 

may mail or deliver the disclosure notice to any consumer who is primarily liable. 

And, if an acquisition involves multiple covered persons who each acquire a partial 

interest in the loan pursuant to separate and unrelated agreements, each covered 

person has a duty to ensure that disclosures related to its acquisition are accurate and 

provided in a timely manner unless an exception in section 1026.39(c) applies. The 

parties may, but are not required to, provide a single notice that satisfies the timing 

and content requirements applicable to each covered person. (Commentary 

1026.39(b)(5) – 2) 

j.	 For private education loans subject to Subpart F, ensure that the required disclosures 

are accurate (§1026.47) and contain the following information: 

1.	 Application or solicitation disclosures disclose the following: 

a.	 Interest rate, including: 

i.	 Rate or range, and if the rate depends in part on a determination of the 

borrower’s creditworthiness or other factors, a statement to that effect; 

ii.	 Whether rate is fixed or variable; 

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iii.	 If rate may increase after consummation, any limitations, or lack thereof, 

and if the limitation is imposed by law, that fact. Also, the creditor must 

state that the consumer’s actual rate may be higher or lower that that 

disclosed, if applicable; and 

iv.	 Whether the rate will typically be higher if the loan is not co-signed or 

guaranteed. 

b.	 Fees and default or late payment costs. 

c.	 Repayment terms, including: 

i.	 Term of the loan, which is the period during which regularly scheduled 

payments of principal and interest will be due. 

ii.	 Deferral options, or if consumer does not have the option to defer, that 

fact. 

iii.	 For each available deferral option applicable, information as to: 

1.	 Whether interest will accrue during deferral period; and 

2.	 If interest accrues, whether payment of interest may be deferred and 

added to the principal balance; and 

iv.	 A statement that, if the consumer files bankruptcy, the consumer may still 

be required to repay the loan. 

d.	 Cost estimates, based on an example of the total cost of the loan, calculated 

using: 

i.	 The highest interest rate and including all applicable finance charges, 

ii.	 An amount financed of $10,000, or $5,000, if the creditor offers loans less 

than $10,000; and 

iii.	 Calculated for each payment option. 

e.	 Eligibility (e.g., any age or school enrollment eligibility requirements). 

f.	 Alternatives to private education loans, including: 

i.	 A statement that the consumer may qualify for Federal student loans, 

ii.	 The interest rates available for each program available under title IV of the 

Higher Education Act of 1965, and whether the rate is variable or fixed; 

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iii.	 A statement that the consumer may obtain additional information 

regarding student federal financial assistance from his school or U.S. 

Department of Education, including an appropriate website; and 

iv.	 A statement that a covered educational institution may have school 

specific educational loan benefits and terms not detailed in the loan 

disclosure forms. 

g.	 A statement that if the loan is approved, that the loan will be available for 30 

days and the terms will not change, except for changes to the interest rate in 

the case of a variable rate and other changes permitted by law. 

h.	 A statement that before consummation, the borrower must complete a selfcertification form obtained from the student’s institution of higher education. 

2.	 For approval disclosures, the following information is required under section 

1026.47(b): 

a.	 Interest rate, information, including: 

i.	 Interest rate applicable to the loan 

ii.	 Whether the interest rate is variable or fixed; and 

iii.	 If the interest rate may increase after consummation, any limitations on the 

rate adjustments, or lack thereof. 

b.	 Fees and default or late payment costs, including: 

i.	 An itemization of the fees or range of fees required to obtain the loan; and 

ii.	 Any fees, changes to the interest rate, and adjustments to principal based 

on the consumer’s defaults or late payments. 

c.	 Repayment terms, including: 

i.	 Principal amount; 

ii.	 Term of the loan; 

iii.	 A description of the payment deferral option chosen by the consumer, if 

applicable, and any other payment deferral options that the consumer may 

elect at a later time; 

iv.	 Any payments required while the student is enrolled at the educational 

institution, based on the deferral option chosen by the consumer; 

v.	 Amount of any unpaid interest that will accrue while the student is 

enrolled in school, based upon the deferral option chosen by the consumer; 

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vi.	 A statement that if the consumer files for bankruptcy, that the consumer 

may still be required to pay back the loan; 

vii.	 An estimate of the total amount of payments calculated based upon: 

1.	 The interest rate applicable to the loan (compliance with section 

1026.18(h) constitutes compliance with this requirement); 

2.	 The maximum possible rate of interest for the loan, or, if a maximum 

rate cannot be determined, a rate of 25%. 

3.	 If a maximum rate cannot be determined, the estimate of the total 

amount for repayment must include a statement that there is no 

maximum rate and that the total amount for repayment disclosed is an 

estimate. 

viii.	 The maximum monthly payment based on the maximum rate of interest 

for the loan, or, if a maximum rate of interest cannot be determined, a 

rated of 25%. If a maximum cannot be determined, a statement that there 

is no maximum rate and that the monthly payment amount disclosed is an 

estimate and will be higher if the applicable interest rate increases. 

d.	 Alternatives to private education loans, including: 

i.	 A statement that the consumer may qualify for Federal student loans, 

ii.	 The interest rates available for each program available under title IV of the 

Higher Education Act of 1965, and whether the rate is variable or fixed; 

and 

iii.	 A statement that the consumer may obtain additional information
 

regarding student federal financial assistance from his school or U.S. 

Department of Education, including an appropriate website.
 

e.	 A statement that the consumer may accept the terms of the loan until the 

acceptance period under section 1026.48(c)(1) has expired. The statement 

must include: 

i.	 The specific date on which the acceptance period expires, based on the 

date upon which the consumer receives the disclosures required under this 

subsection for the loan; 

ii.	 The method or methods by which the consumer may communicate the 

acceptance (written, oral, or by electronic means; and 

iii.	 A statement that except for changes to the interest rate and other changes 

permitted by law, the rates and the terms of the loan may not be changed 

by the creditor during the 30-day acceptance period. 

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3.	 After the consumer has accepted the loan in accordance with section 

1026.48(c)(1), final disclosures must disclose the information required under 

section 1026.47(c) and the following: 

a.	 Interest rate, including: 

i.	 Interest rate applicable to the loan 

ii.	 Whether the interest rate is variable or fixed; and 

iii.	 If the interest rate may increase after consummation, any limitations on the 

rate adjustments, or lack thereof. 

b.	 Fees and default or late payment costs, including: 

i.	 An itemization of the fees or range of fees required to obtain the loan; and 

ii.	 Any fees, changes to the interest rate, and adjustments to principal based 

on the consumer’s defaults or late payments. 

c.	 Repayment terms, including: 

i.	 Principal amount; 

ii.	 Term of the loan; 

iii.	 A description of the payment deferral option chosen by the consumer, if 

applicable, and any other payment deferral options that the consumer may 

elect at a later time; 

iv.	 Any payments required while the student is enrolled at the educational 

institution, based on the deferral option chosen by the consumer; 

v.	 Amount of any unpaid interest that will accrue while the student is 

enrolled in school, based upon the deferral option chosen by the consumer; 

vi.	 A statement that if the consumer files for bankruptcy, that the consumer 

may still be required to pay back the loan; 

vii.	 An estimate of the total amount of payments calculated based upon: 

1.	 The interest rate applicable to the loan (compliance with section 

1026.18(h) constitutes compliance with this requirement); 

2.	 The maximum possible rate of interest for the loan, or, if a maximum 

rate cannot be determined, a rate of 25 percent; 

3.	 If a maximum rate cannot be determined, the estimate of the total 

amount for repayment must include a statement that there is no 

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maximum rate and that the total amount for repayment disclosed is an 

estimate. 

viii.	 The maximum monthly payment based on the maximum rate of interest 

for the loan, or, if a maximum rate of interest cannot be determined, a 

rated of 25 percent. If a maximum cannot be determined, a statement that 

there is no maximum rate and that the monthly payment amount disclosed 

is an estimate and will be higher if the applicable interest rate increases. 

d.	 In a text more conspicuous than any other required disclosure, except for the 

finance charge, the interest rate, and the creditor’s identify the following 

disclosures: 

i.	 A statement that the consumer has the right to cancel the loan, without 

penalty, at any time before the midnight of the third business day 

following the date on which the consumer receives the final loan 

disclosures. The statement must include the specific date on which the 

cancellation period expires and that the consumer may cancel by that date. 

(§1026.47(c)(4)(i)) 

ii.	 A statement that the loan proceeds will not be disbursed until the 

cancellation period expires. (§1026.47(c)(4)(ii)) 

iii.	 The method or methods by which the consumer may cancel; 

(§1026.47(c)(4)(ii)) and 

iv.	 If the creditor permits cancellation by mail, the statement specifying that 

the consumer’s mailed request will be deemed timely if placed in the mail 

not later than the cancellation date specified on the disclosures. 

(§1026.47(c)(4)(ii)) 

Open-End Credit Forms Review Procedures 

a.	 Determine that the creditor made the disclosures clearly and conspicuously. 

(§1026.5(a)) 

b.	 Determine that the creditor made the applicable disclosures in writing, in a form that 

the consumer may keep, except (§1026.5(a)(1)(ii)): 

1.	 The following disclosures need not be written: Disclosures under section 

1026.6(b)(3) of charges that are imposed as part of an open-end (not homesecured) plan that are not required to be disclosed under section 1026.6(b)(2) and 

related disclosures of charges under section 1026.9(c)(2)(iii)(B); disclosures 

under section 1026.9(c)(2)(vi); disclosures under Section1026.9(d) when a 

finance charge is imposed at the time of the transaction; and disclosures under 

section 1026.56(b)(1)(i). 

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2.	 The following disclosures need not be in a retainable form: Disclosures that need 

not be written under paragraph 1026.5(a)(1)(ii)(A) of this section; the alternative 

summary billing-rights statement under section 1026.9(a)(2); the credit and 

charge card renewal disclosures required under section 1026.9(e); the payment 

requirements under section 1026.10(b), except as provided in section 

1026.7(b)(13); ; home-equity disclosures under section 1026.40(d); and 

disclosures for credit and charge card applications and solicitations under section 

1026.60. 

3.	 The disclosures required by this subpart may be provided to the consumer in 

electronic form, subject to compliance with the consumer consent and other 

applicable provisions of the Electronic Signatures in Global and National 

Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq. ). The disclosures required 

by sections 1026.60, 1026.40, and 1026.16 may be provided to the consumer in 

electronic form without regard to the consumer consent or other provisions of the 

E-Sign Act in the circumstances set forth in those sections. 

c.	 Determine that the terminology used in providing the disclosures required by section 

1026.5 is consistent. (§1026.5(a)(2)(i)) 

d.	 Determine that, for home-equity plans subject to section 1026.40, the terms finance 

charge and annual percentage rate (APR), when required to be disclosed with a 

corresponding amount or percentage rate, shall be more conspicuous than any other 

required disclosure. The terms need not be more conspicuous when used for periodic 

statement disclosures under section 1026.7(a)(4) and for advertisements under section 

1026.16. (§1026.5(a)(2)(ii)) 

e.	 Determine that, if disclosures are required to be presented in a tabular format pursuant 

to section 1026.5(a)(3), that the term penalty APR shall be used, as applicable. 

(§1026.5(a)(2)(iii)) 

NOTE: The term penalty APR need not be used in reference to the annual percentage 

rate that applies with the loss of a promotional rate, assuming the annual percentage 

rate that applies is not greater than the annual percentage rate that would have applied 

at the end of the promotional period; or if the annual percentage rate that applies with 

the loss of a promotional rate is a variable rate, the annual percentage rate is 

calculated using the same index and margin as would have been used to calculate the 

annual percentage rate that would have applied at the end of the promotional period. 

If credit insurance or debt cancellation or debt suspension coverage is required as part 

of the plan, the term required shall be used and the program shall be identified by its 

name. If an annual percentage rate is required to be presented in a tabular format 

pursuant to paragraph (a)(3)(i) or (a)(3)(iii) of this section, the term fixed, or a similar 

term, may not be used to describe such rate unless the creditor also specifies a time 

period that the rate will be fixed and the rate will not increase during that period, or if 

no such time period is provided, the rate will not increase while the plan is open. 

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Credit and Charge Card Application and Solicitation 

Disclosures – Section 1026.60 

a.	 Determine that the credit card solicitation or application disclosures were made 

clearly and conspicuously on or with a solicitation or an application. (§1026.60) 

b.	 For the disclosures in sections 1026.60(b)(1) through (5) (except for (b)(1)(iv)(B) and 

(b)(7) through (15), determine that the creditor made the disclosures required for 

sections 1026.60(c), (d)(2), (e)(1) and (f) in the form of a table with headings, 

content, and format substantially similar to the applicable tables found in G-10 in 

Appendix G. (§1026.60(a)(2)(i)) 

c.	 Determine that the table required by section 1026.60(a)(2)(i) contains only the 

information required or permitted by that section. If the creditor provides other 

information, determine that such information appears outside the table. 

(§1026.60(a)(2)(ii)) 

d.	 Determine that the disclosures required by section 1026.60(b)(1)(iv)(B), 

(b)(1)(iv)(C), and (b)(6) are placed directly beneath the table required by section 

1026.60(a)(2)(i). (§1026.60(a)(2)(iii)) 

e.	 When a tabular format is required, determine that the following disclosures are 

disclosed in bold text (§1026.60(a)(2)(iv)): 

i. Annual percentage rate required to be disclosed pursuant to paragraph (b)(1) of 

this section, 

ii. Introductory rate required to be disclosed pursuant to paragraph (b)(1)(ii) of this 

section, 

iii. Rate that will apply after a premium initial rate expires required to be disclosed 

under paragraph (b)(1)(iii) of this section, and 

iv. Fee or percentage amounts or maximum limits on fee amounts required to be 

disclosed pursuant to paragraphs (b)(2), (b)(4), (b)(8) through (b)(13). 

NOTE: Bold text shall not be used for the amount of any periodic fee disclosed 

pursuant to paragraph (b)(2) of this section that is not an annualized amount; and 

other APRs or fee amounts disclosed in the table. (§1026.60(a)(2)(iv)) 

f.	 Determine that the card issuer discloses, on or with an solicitation or application: 

(§1026.60(b)) 

1.	 Annual percentage rate. Each periodic rate that may be used to compute the 

finance charge on an outstanding balance for purchases, a cash advance, or a 

balance transfer, expressed as an annual percentage rate. When more than one rate 

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applies for a category of transactions, determine that the range of balances to 

which each rate is applicable is also disclosed. (§1026.60(b)(1)) 

NOTE: The APR for purchases disclosed pursuant to section 1026.60(b)(1) shall 

be in at least 16-point type, except for the following: Oral disclosures of the 

annual percentage rate for purchases; or a penalty rate that may apply upon the 

occurrence of one or more specific events. 

i.	 Variable rate information. If a rate is a variable rate, determine that the card 

issuer discloses the fact that the rate may vary and how the rate is determined. 

Determine that the card issuer identifies the type of index or formula that is 

used in setting the rate. Determine that the value of the index and the amount 

of the margin that are used to calculate the variable rate are not disclosed in 

the table. Determine further that any applicable limitations on rate increases 

are not included in the table. (§1026.60(b)(1)(i)) 

ii.	 Discounted initial rate. If the initial rate is an introductory rate, determine that 

the card issuer discloses in the table the introductory rate, the time period 

during which the introductory rate will remain in effect, and the term 

“introductory” or “intro” in immediate proximity to the introductory rate. 

Determine further that the card issuer discloses, as applicable, either the 

variable or fixed rate that would otherwise apply to the account. 

(§1026.60(b)(1)(ii)) 

iii.	 Premium initial rate. If the initial rate is temporary and is higher than the rate 

that will apply after the temporary rate expires, determine that the card issuer 

discloses the premium initial rate and the time period during which the 

premium initial rate will remain in effect. Determine that the premium initial 

rate for purchases is in at least 16-point type. Determine that the issuer 

discloses in the table the rate that will apply after the premium initial rate 

expires, in at least 16-point type. (§1026.60(b)(1)(iii)) 

iv.	 Penalty rates. Except as for provided introductory rate or employee 

preferential rate requirements (discussed below), if a rate may increase as a 

penalty for one or more events specified in the account agreement, such as a 

late payment or an extension of credit that exceeds the credit limit, determine 

that the card issuer discloses the increased rate that may apply, a brief 

description of the event or events that may result in the increased rate, and a 

brief description of how long the increased rate will remain in effect. 

(§1026.60(b)(1)(iv)(A)) 

v.	 Introductory rate. If the issuer discloses an introductory rate in the table or in 

any written or electronic promotional materials accompanying applications or 

solicitations (and subject to paragraph (c) or (e) of section 1026.60), 

determine that the issuer briefly discloses, directly beneath the table, the 

circumstances, if any, under which the introductory rate may be revoked, and 

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the type of rate that will apply after the introductory rate is revoked. 

(§1026.60(b)(1)(iv)(B)) 

vi.	 Employee preferential rates. If the issuer discloses in the table a preferential 

APR for which only employees of the card issuer, employees of a third party, 

or other individuals with similar affiliations with the card issuer or third party 

are eligible, determine that the issuer briefly discloses directly beneath the 

table the circumstances under which such preferential rate may be revoked 

and the rate that will apply after such preferential rate is revoked. 

(§1026.60(b)(1)(iv)(C)) 

vii.	 Rates that depend on consumer's creditworthiness. If a rate cannot be 

determined at the time disclosures are given because the rate depends, at least 

in part, on a later determination of the consumer's creditworthiness, determine 

that the card issuer discloses the specific rates or the range of rates that could 

apply and a statement that the rate for which the consumer may qualify at 

account opening will depend on the consumer's creditworthiness, and other 

factors if applicable. (§1026.60(b)(1)(v)) 

NOTE: If the rate that depends, at least in part, on a later determination of the 

consumer's creditworthiness is a penalty rate, as described in (b)(1)(iv), the 

card issuer at its option may disclose the highest rate that could apply, instead 

of disclosing the specific rates or the range of rates that could apply. 

(§1026.60(b)(1)(v)) 

viii.	 APRs that vary by state. Determine that the card issuer does not list annual 

percentage rates for multiple states in the table. Note, however, that issuers 

imposing annual percentage rates that vary by state may, at the issuer's option, 

disclose in the table: the specific annual percentage rate applicable to the 

consumer's account; or the range of the annual percentage rates, if the 

disclosure includes a statement that the annual percentage rate varies by state 

and refers the consumer to a disclosure provided with the table where the 

annual percentage rate applicable to the consumer's account is disclosed. 

(§1026.60(b)(1)(vi)) 

2.	 Fees for issuance or availability. Determine that the card issuer discloses any 

annual or other periodic fee, expressed as an annualized amount, or any other fee 

that may be imposed for the issuance or availability of a credit or charge card, 

including any fee based on account activity or inactivity. (§1026.60(b)(2)) 

3.	 Fixed finance charge; minimum interest charge. Determine that the creditor 

discloses any fixed finance charge that could be imposed during a billing cycle, as 

well as a brief description of that charge. Determine that the creditor discloses any 

minimum interest charge if it exceeds $1.00 that could be imposed during a 

billing cycle, and a brief description of the charge. (§1026.60(b)(3)) 

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4.	 Transaction charge. Determine that the creditor discloses any transaction charge 

imposed for the use of the card for purchases. (§1026.60(b)(4)) 

5.	 Grace period. Determine that the issuer discloses the date by which or the period 

within which any credit extended for purchases may be repaid without incurring a 

finance charge due to a periodic interest rate and any conditions on the 

availability of the grace period. If no grace period is provided, determine that this 

fact is disclosed. In disclosing in the tabular format a grace period that applies to 

all types of purchases, determine that the issuer uses the phrase “How to Avoid 

Paying Interest on Purchases” as the heading for the row describing the grace 

period. If a grace period is not offered on all types of purchases, in disclosing this 

fact in the tabular format, determine that the issuer uses the phrase “Paying 

Interest” as the heading for the row describing this fact. 

NOTE: If the length of the grace period varies, the card issuer may disclose the 

range of days, the minimum number of days, or the average number of days in the 

grace period, if the disclosure is identified as a range, minimum, or average. 

(§1026.60(b)(5)) 

6.	 Balance computation method. Determine that the creditor disclosed the name of 

the balance computation method that is used to determine the balance on which 

the finance charge is computed, or an explanation of the method used if it is not 

listed. In determining which balance computation method to disclose, the creditor 

should have assumed that the credit extended will not be repaid within any grace 

period. (§1026.60(b)(6)) 

NOTE: Disclosures required by section 1026.60(b)(6) must be placed directly 

beneath the table. 

7.	 Statement on charge card payments. Determine that the creditor discloses a 

statement that charges incurred by use of the charge card are due when the 

periodic statement is received. (§1026.60(b)(7)) 

8.	 Cash advance fee. Determine that the creditor disclosed any fee imposed for an 

extension of credit in the form of cash or its equivalent. (§1026.60(b)(8)) 

9.	 Late payment fee. Determine that the creditor disclosed any fee imposed for a late 

payment. (§1026.60(b)(9)) 

10. Over-the-limit fee. Determine that the creditor disclosed any fee imposed for 

exceeding the credit limit. (§1026.60(b)(10)) 

11. Balance transfer fee. Determine that the creditor disclosed any fee imposed to 

transfer a balance. (§1026.60(b)(11)) 

12. Returned payment fee. Determine that the creditor disclosed any fee imposed for a 

returned payment. (§1026.60(b)(12)) 

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13. Required insurance, debt cancellation, or debt suspension coverage. Determine 

that the fee imposed required insurance, debt cancellation or suspension coverage 

is disclosed if the insurance, debt cancellation or coverage is required as part of 

the plan. (§1026.60(b)(13)) 

14. Available credit. Determine whether total of required fees for the issuance or 

availability of credit and/or security deposit debited to the account at account 

opening equal or exceed 15 percent of minimum credit limit for the account. If so, 

determine that the creditor disclosed, as applicable, the available credit remaining 

after the fees and/or security deposit are debited to the account. (§1026.60(b)(14)) 

15. Website reference. For issuers of credit cards that are not charge cards, determine 

that the creditor disclosed a reference to the website established by the Consumer 

Financial Protection Bureau (CFPB) and a statement that the consumers may 

obtain on the website information about shopping for and using credit cards. 

(§1026.60(b)(15)) 

Requirements for Home Equity Plans – Section 1026.40 

a.	 Determine that the following home equity disclosures were made clearly and 

conspicuously, at the time of application. (§1026.40) 

1.	 Home equity brochure 

2.	 Statement that the consumer should retain a copy of the disclosure 

3.	 Statement of the time the specific terms are available 

4.	 Statement that terms are subject to change before the plan opens 

5.	 Statement that the consumer may receive a full refund of all fees 

6.	 Statement that the consumer's dwelling secures the credit 

7.	 Statement that the consumer could lose the dwelling 

8.	 Creditors right to change, freeze, or terminate the account 

9.	 Statement that information about conditions for adverse action are available upon 

request 

10. Payment terms including the length of the draw and repayment periods, how the 

minimum payment is determined, the timing of payments, and an example based 

on $10,000 and a recent APR 

11. A recent APR imposed under the plan and a statement that the rate does not 

include costs other than interest (fixed rate plans only) 

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12. Itemization of all fees paid to creditor 

13. Estimate of any fees payable to third parties to open the account and a statement 

that the consumer may receive a good faith itemization of third-party fees 

14. Statement regarding negative amortization, as applicable 

15. Transaction requirements 

16. Statement that the consumer should consult a tax advisor regarding the
 

deductibility of interest and charges under the plan 

17. For variable rate home equity plans, disclose the following: 

i.	 That the APR, payment, or term may change 

ii.	 The APR excludes costs other than interest 

iii.	 Identify the index and its source 

iv.	 How the APR will be determined 

v.	 Statement that the consumer should request information on the current index 

value, margin, discount, premium, or APR 

vi.	 Statement that the initial rate is discounted and the duration of the discount, if 

applicable 

vii.	 Frequency of APR changes 

viii.	 Rules relating to changes in the index, APR, and payment amount 

ix.	 Lifetime rate cap and any annual caps, or a statement that there is no annual 

limitation 

x.	 The minimum payment requirement, using the maximum APR, and when the 

maximum APR may be imposed 

xi.	 A historical example, based on a $10,000 balance, reflecting all significant 

plan terms 

xii.	 Statement that rate information will be provided on or with each periodic 

statement. 

b.	 For home-equity plans subject to section 1026.40, determine that the terms finance 

charge and annual percentage rate, when required to be disclosed with a 

corresponding amount or percentage rate, are more conspicuous than any other 

required disclosure. 

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NOTE: The terms need not be more conspicuous when used for periodic statement 

disclosures under section 1026.7(a)(4) and for advertisements under section 1026.16. 

(§1026.5(a)(2)(ii)) 

Account Opening Initial Disclosures – Section 1026.6 

a.	 The following requirements apply only to home-equity plans subject to the 

requirements of section 1026.40. Determine that the creditor discloses, as applicable 

(§1026.6(a)): 

1.	 Finance charge. The circumstances under which a finance charge will be imposed 

and an explanation of how it will be determined, including: a statement of when 

finance charges begin to accrue, and an explanation of whether or not any time 

period exists within which any credit extended may be repaid without incurring a 

finance charge; a disclosure of each periodic rate that may be used to compute the 

finance charge, the range of balances to which it is applicable, and the 

corresponding annual percentage rate; an explanation of the method used to 

determine the balance on which the finance charge may be computed; and, an 

explanation of how the amount of any finance charge will be determined, 

including a description of how any finance charge other than the periodic rate will 

be determined. (§1026.6(a)(1)) 

If a creditor offers a variable-rate plan, determine that the creditor discloses: the 

circumstances under which the rate(s) may increase; any limitations on the 

increase; and the effect(s) of an increase. When different periodic rates apply to 

different types of transactions, determine that the types of transactions to which 

the periodic rates shall apply shall also be disclosed. (§1026.6(a)(1)) 

2.	 Other charges. The amount of any charge other than a finance charge that may be 

imposed as part of the plan, or an explanation of how the charge will be 

determined. (§1026.6(a)(2)) 

3.	 Home-equity plan information. The following disclosures , as applicable 

(§1026.6(a)(3)): 

i.	 A statement of the conditions under which the creditor may take certain 

action, as described in section 1026.40(d)(4)(i), such as terminating the plan 

or changing the terms. 

ii.	 The payment information described in section 1026.40(d)(5)(i) and (ii) for 

both the draw period and any repayment period. 

iii.	 A statement that negative amortization may occur as described in section 

1026.40(d)(9). 

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Examination Procedures TILA 

iv.	 A statement of any transaction requirements as described in section
 

1026.40(d)(10).
 

v.	 A statement regarding the tax implications as described in section
 

1026.40(d)(11).
 

vi.	 A statement that the annual percentage rate imposed under the plan does not 

include costs other than interest as described in section 1026.40(d)(6) and 

(d)(12)(ii). 

vii.	 The variable-rate disclosures described in section 1026.40(d)(12)(viii), 

(d)(12)(x), (d)(12)(xi), and (d)(12)(xii), as well as the disclosure described in 

section 1026.40(d)(5)(iii), unless the disclosures provided with the application 

were in a form the consumer could keep and included a representative 

payment example for the category of payment option chosen by the consumer. 

4.	 Security interests. The fact that the creditor has or will acquire a security interest 

in the property purchased under the plan, or in other property identified by item or 

type. (§1026.6(a)(4)) 

5.	 Statement of billing rights. A statement that outlines the consumer's rights and the 

creditor's responsibilities under sections 1026.12(c) and 1026.13 and that is 

substantially similar to the statement found in Model Form G–3 or, at the 

creditor's option, G–3(A), in Appendix G to this part. (§1026.6(a)(5)) 

b.	 For open-end (not home-secured) plans determine that the creditor provided the 

account-opening disclosures specified in section 1026.6(b)(2)(i) through (b)(2)(v) 

(except for section 1026.6 (b)(2)(i)(D)(2) and section 1026.6 (b)(2)(vii) through 

(b)(2)(xiv) in the form of a table with the headings, content, and format substantially 

similar to any of the applicable tables in G–17 in Appendix G. (§1026.6(b)(1)) 

c.	 For open-end (not home-secured) plans, determine that the following disclosures are 

disclosed in bold text (§1026.6(b)(1)(i)): 

1.	 Any APR required to be disclosed pursuant to section 1026.6(b)(2)(i); 

2.	 Any introductory rate permitted to be disclosed pursuant to paragraph (b)(2)(i)(B) 

or required to be disclosed under paragraph (b)(2)(i)(F) of this section; 

3.	 Any rate that will apply after a premium initial rate expires permitted to be 

disclosed pursuant to paragraph (b)(2)(i)(C) or required to be disclosed pursuant 

to paragraph (b)(2)(i)(F); and 

4.	 Any fee or percentage amounts or maximum limits on fee amounts disclosed 

pursuant to paragraphs (b)(2)(ii), (b)(2)(iv), (b)(2)(vii) through (b)(2)(xii). 

CFPB	 Manual V.2 (October 2012) Procedures 24 
 

 

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d.	 Determine that bold text is not used for: The amount of any periodic fee disclosed 

pursuant to paragraph (b)(2) of this section that is not an annualized amount; and 

other annual percentage rates or fee amounts disclosed in the table. (§1026.6(b)(1)(i)) 

e.	 Determine that only the information required or permitted by section 1026.6 (b)(2)(i) 

through (b)(2)(v) (except for (b)(2)(i)(D)(2)) and (b)(2)(vii) through (b)(2)(xiv) are 

provided in the table. Disclosures required by paragraphs (b)(2)(i)(D)(2), 

(b)(2)(i)(D)(3), (b)(2)(vi) and (b)(2)(xv) of this section shall be placed directly below 

the table required by section 1026.6(b)(1). (§1026.6(b)(1)(ii)) 

NOTE: Disclosures required by section 1026.6(b)(3) through (b)(5) that are not 

otherwise required to be in the table and other information may be presented with the 

account agreement or account-opening disclosure statement, provided such 

information appears outside the required table. 

f.	 For creditors that impose fees referred to in section 1026.6(b)(2)(vii) through 

(b)(2)(xi) that vary by state and that provide the disclosures required by section 

1026.6(b) in person at the time the open-end (not home-secured) plan is established in 

connection with financing the purchase of goods or services determine that the 

creditor discloses in the account-opening table either: 

1.	 The specific fee applicable to the consumer's account, or 

2.	 The range of fees, a statement that the amount of the fee varies by state, and a 

reference to the account agreement or other disclosure provided with the accountopening table where the amount of the fee applicable to the consumer's account is 

disclosed. (§1026.6(b)(1)(iii)) 

NOTE: A creditor is not permitted to list fees for multiple states in the accountopening summary table (§1026.6(b)(1)(iii)). 

3.	 If the amount of any fee required to be disclosed under this section is determined 

on the basis of a percentage of another amount, the percentage used and the 

identification of the amount against which the percentage is applied may be 

disclosed instead of the amount of the fee. (§1026.6(b)(1)(iv)) 

g.	 The following requirements apply to open-end (not home-secured). Determine that 

the creditor discloses in the appropriate format, as applicable: 

1.	 Annual percentage rate. Each periodic rate that may be used to compute the 

finance charge on an outstanding balance for purchases, a cash advance, or a 

balance transfer, expressed as an APR. When more than one rate applies for a 

category of transactions, determine that the creditor discloses the range of 

balances to which each rate is applicable. Ensure that the APR for purchases 

disclosed pursuant to this paragraph is in at least 16-point type, except for a 

penalty rate that may apply upon the occurrence of one or more specific events. 

(§1026.6(b)(2)(i)) 

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2.	 Variable rate information. If the rate is a variable rate, determine that the creditor 

also disclosed the fact that the rate may vary and how the rate is determined (i.e., 

identify the type of index or formula used in setting the rate). 

(§1026.6(b)(2)(i)(A)) 

3.	 Discounted initial rate. If the initial rate is an introductory rate, determine that the 

creditor disclosed that the rate would otherwise apply to the account. Where the 

rate is not tied to an index or formula, determine that the creditor disclosed the 

rate that will apply after the introductory rate expires. For a variable rate account, 

determine that the creditor disclosed a rate based on the applicable index or 

formula in accordance with the accuracy requirements. (§1026.6(b)(2)(i)(B)) 

4.	 Premium initial rate. If the initial rate is temporary and is higher than the rate that 

will apply after the temporary rate expires, determine that the creditor disclosed 

the premium initial rate. Determine that the premium rate for purchases is in at 

least 16-point type. (§1026.6(b)(2)(i)(C)) 

5.	 Penalty rates. Except for introductory rates and employee preferential rates 

(discussed below), if the rate is a penalty rate, determine that the creditor 

disclosed as part of the APR disclosure the increased rate that may apply, a brief 

description of the event or events that may result in the increased rate, and a brief 

description of how long the increased rate will remain in effect. 

(§1026.6(b)(2)(i)(D)(1)) 

6.	 Introductory rates. If the creditor discloses in the table an introductory rate, as 

that term is defined in section 1026.16(g)(2)(ii), determine that the creditor briefly 

disclosed directly beneath the table the circumstances under which the 

introductory rate may be revoked, and the rate that will apply after the 

introductory rate is revoked. (§1026.6(b)(2)(i)(D)(2)) 

7.	 Employee preferential rates. If the creditor discloses in the table a preferential 

APR for which only employees of the creditor, employees of a third party, or 

other individuals with similar affiliations with the creditor or third party are 

eligible, determine that the creditor briefly disclosed directly beneath the table the 

circumstances under which the preferential rate may be revoked, and the rate that 

will apply after the preferential rate is revoked. (§1026.6(b)(2)(i)(D)(3)) 

8.	 Point of sale where APRs vary by state or based on creditworthiness. If the 

creditor imposes an APR that varies by state or based on the consumer’s 

creditworthiness and provides required disclosures in person at the time the openend (not home-secured) plan is established in connection with financing the 

purchase of goods or services, determine that the creditor discloses either 

(§1026.6(b)(2)(i)(E)): 

i.	 The specific APR applicable to the consumer’s account, or 

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ii.	 The range of the APRs, if the disclosure includes a statement that the APR 

varies by state or will be determined based on the consumer’s 

creditworthiness and refers the consumer to the account agreement or other 

disclosure provided with the account-opening table where the AP applicable 

to the consumer’s account is disclosed. Determine that the creditor does not 

list APRs for multiple states in the account opening table. 

9.	 Credit card accounts under an open-end (not home-secured) consumer credit 

plan. Determine that the issuer discloses in the table (§1026.6(b)(2)(i)(F)): 

i.	 Any introductory rate, and 

ii.	 Any rate that would apply upon expiration of a premium initial rate. 

10. Fees for issuance or availability. Determine that the credit disclosed any annual 

or periodic fee that may be imposed for the issuance or availability of an open-end 

plan (including any fee based on account activity or inactivity); how frequently 

the fee will be imposed; and the annualized amount of the fee. (§1026.6(b)(2)(ii)) 

11. Fixed finance charge and minimum interest charge. Determine that the creditor 

disclosed any fixed finance charge and any minimum interest charge if it exceeds 

$1.00 that could be imposed during a billing cycle, and a brief description of the 

charge. (§1026.6(b)(2)(iii)) 

12. Determine that the creditor disclosed any non-periodic fee that relates to opening 

the plan. A creditor must disclose that the fee is a one-time fee. 

(§1026.6(b)(2)(ii)(B)) 

13. Transaction charges. Determine that the creditor discloses any transaction charge 

imposed by the creditor for use of the open-end plan for purchases. 

(§1026.6(b)(2)(iv)) 

14. Grace period. The date by which or the period within which any credit extended 

may be repaid without incurring a finance charge due to a periodic interest rate 

and any conditions on the availability of the grace period. If no grace period is 

provided, that fact must be disclosed. If the length of the grace period varies, the 

creditor may disclose the range of days, the minimum number of days, or the 

average number of the days in the grace period, if the disclosure is identified as a 

range, minimum, or average. In disclosing in the tabular format a grace period 

that applies to all features on the account, the phrase “How to Avoid Paying 

Interest” shall be used as the heading for the row describing the grace period. If a 

grace period is not offered on all features of the account, in disclosing this fact in 

the tabular format, the phrase “Paying Interest” shall be used as the heading for 

the row describing this fact. (§1026.6(b)(2)(v)) 

15. Balance computation method. Determine that the creditor disclosed in the account 

opening disclosures the name of the balance computation method that is used to 

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determine the balance on which the finance charge is computed for each feature, 

or an explanation of the method used if it is not listed, along with a statement that 

an explanation of the methods required by section 1026.6(b)(4)(i)(D). In 

determining which balance computation method to disclose, the creditor should 

have assumed that the credit extended will not be repaid within any grace period. 

(§1026.6(b)(2)(vi)) 

16. Cash advance fee. Determine that the creditor disclosed any fee imposed for an 

extension of credit in the form of cash or its equivalent. (§1026.6(b)(2)(vii)) 

17. Late payment fee. Determine that the creditor disclosed any fee imposed for a late 

payment. (§1026.6(b)(2)(viii)) 

18. Over-the-limit fee. Determine that the creditor disclosed any fee imposed for 

exceeding the credit limit. (§1026.6(b)(2)(ix)) 

19. Balance transfer fee. Determine that the creditor disclosed any fee imposed to 

transfer a balance. (§1026.6(b)(2)(x)) 

20. Returned payment fee. Determine that the creditor disclosed any fee imposed for a 

returned payment. (§1026.6(b)(2)(xi)) 

21. Required insurance, debt cancellation, or debt suspension coverage. Determine 

that the fee imposed for required insurance, debt cancellation or suspension 

coverage is disclosed if the insurance, debt cancellation or coverage is required as 

part of the plan. Creditors must also cross reference additional information about 

the insurance or coverage as applicable. (§1026.6(b)(2)(xii)) 

22. Available credit. Determine whether total of required fees for the issuance or 

availability of credit and/or security deposit debited to the account at account 

opening equal or exceed 15 percent of the credit limit for the account. If so, 

determine that the creditor disclosed, as applicable, the available credit remaining 

after the fees and/or security deposit are debited to the account. 

(§1026.6(b)(2)(xiii)) 

23. Website reference. For issuers of credit cards that are not charge cards, determine 

that the creditor disclosed a reference to the website established by the CFPB and 

a statement that the consumers may obtain on the website information about 

shopping for and using credit cards. (§1026.6(b)(2)(xiv)) 

24. Billing error rights reference. Determine that the creditor disclosed a statement 

that information about consumers’ right to dispute transactions is included in the 

account-opening disclosures. (§1026.6(b)(2)(xv)) 

25. Charges and finance charges. For charges imposed as part of open-end (not 

home-secured) plan, the circumstances under which the charge may be imposed, 

including the amount of the charge or explanation of how the charge is 

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determined. For finance charges, a statement of when finance charges begin to 

accrue, including an explanation of whether or not any time period exists within 

which any credit extended may be repaid without incurring a finance charge. If 

such a time period is provided, a creditor may, at its option and without 

disclosure, impose no finance charge when payment is received after the time 

period's expiration. (§1026.6(b)(3)(i)) 

26. Disclosure of rates for open-end (not home-secured) plans. Determine that the 

creditor disclosed, as applicable, for each periodic rate that may be used to 

calculate interest (§1026.6(b)(4)(i)): 

i. The rate (expressed as a periodic rate and a corresponding APR), 

ii.	 The range of balances to which the rate is applicable, 

iii.	 The type of transaction to which the periodic rate applies, 

iv.	 An explanation of the method used to determine the balance to which the rate 

is applied. 

27. Variable-rate Accounts. For interest rate changes that are tied to increases in an 

index or formula (variable-rate accounts) determine that the following are 

specifically set forth in the account agreement (§1026.6(b)(4)(ii)): 

i. The fact that the annual percentage rate may increase. 

ii. How the rate is determined, including the margin. 

iii. The circumstances under which the rate may increase. 

iv. The frequency with which the rate may increase. 

v. Any limitation on the amount the rate may change. 

vi. The effect(s) of an increase. 

vii. Except as specified in paragraph (b)(4)(ii)(H) of this section, a rate is accurate 

if it is a rate as of a specified date and this rate was in effect within the last 30 

days before the disclosures are provided. 

27. Rate changes not due to index or formula. For interest rate changes that are 

specifically set forth in the account agreement and not tied to increases in an 

index or formula, determine that the creditor discloses (§1026.6(b)(4)(iii)): 

i.	 The initial rate (expressed as a periodic rate and a corresponding APR) 

ii.	 How long the initial rate will remain in effect and the specific events that 

cause the initial rate to change. 

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iii.	 The rate (expressed as a periodic rate and a corresponding APR) that will 

apply when the initial rate is no longer in effect and any limitation on the time 

period the new rate will remain in effect. 

iv.	 The balances to which the new rate will apply. 

v.	 The balances to which the current rate at the time of the change will apply. 

28. Voluntary credit insurance, debt cancellation, or debt suspension. Determine that 

the creditor disclosed the applicable disclosures if the creditor offers optional 

credit insurance, or debt cancellation or debt suspension coverage. 

(§1026.6(b)(5)(i)) 

29. Security interests. Determine that the creditor disclosed the fact that the creditor 

has or will acquire a security interest in the property purchased under the plan, or 

in other property identified by item or type. (§1026.6(b)(5)(ii)) 

30. Statement of billing rights. Determine that the creditor disclosed a statement that 

outlines the consumer’s rights and the creditor’s responsibilities. 

(§1026.6(b)(5)(iii)) 

Periodic Statement Disclosures – Section 1026.7 

a.	 Rules affecting home-equity plans. For home-equity plans subject to the requirements 

of section 1026.40, determine that the creditor disclosed on the periodic statement 

items 1 through 10 below (§1026.7(a)): 

NOTE: The requirements of section 1026.7(a) apply only to home-equity plans 

subject to the requirements of section 1026.40. Alternatively, a creditor subject to the 

rules affecting home-equity plans may, at its option, comply with any of the 

requirements of section 1026.7(b); however, any creditor that chooses not to provide 

a disclosure under section 1026.7(a)(7) must comply with section 1026.7(b)(6). 

1.	 Previous balance. The account balance outstanding at the beginning of the billing 

cycle. (§1026.7(a)(1)) 

2.	 Identification of transactions. An identification of each credit transaction in 

accordance with section 1026.8. (§1026.7(a)(2)) 

3.	 Credits. Any credit to the account during the billing cycle, including the amount 

and the date of crediting. The date need not be provided if a delay in accounting 

does not result in any finance or other charge. (§1026.7(a)(3)) 

4.	 Periodic rates. Each periodic rate that may be used to compute the finance 

charge, the range of balances to which it is applicable, and the corresponding 

annual percentage rate. If different periodic rates apply to different types of 

transactions, the types of transactions to which the periodic rates apply shall also 

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be disclosed. For variable-rate plans, the fact that the periodic rate(s) may vary. 

(§1026.7(a)(4)) 

NOTE: If no finance charge is imposed when the outstanding balance is less than 

a certain amount, the creditor is not required to disclose that fact, or the balance 

below which no finance charge will be imposed 

NOTE: Further, an annual percentage rate that differs from the rate that would 

otherwise apply and is offered only for a promotional period need not be 

disclosed except in periods in which the offered rate is actually applied. 

5.	 Balance on which finance charge computed. The amount of the balance to which 

a periodic rate was applied and an explanation of how that balance was 

determined. When a balance is determined without first deducting all credits and 

payments made during the billing cycle, the fact and the amount of the credits and 

payments shall be disclosed. (§1026.7(a)(5)) 

6.	 Amount of finance charge and other charges. (§1026.7(a)(6)) 

i.	 Finance charges. The amount of any finance charge debited or added to the 

account during the billing cycle, using the term finance charge. Determine 

that the components of the finance charge are individually itemized and 

identified to show the amount(s) due to the application of any periodic rates 

and the amounts(s) of any other type of finance charge. 

NOTE: If there is more than one periodic rate, the amount of the finance 

charge attributable to each rate need not be separately itemized and identified. 

(§1026.7(a)(6)(i)) 

ii.	 Other charges. The amounts, itemized and identified by type, of any charges 

other than finance charges debited to the account during the billing cycle. 

(§1026.7(a)(6)(ii)) 

NOTE: Creditors may comply with paragraphs (a)(6) of section 1026.7, or 

with paragraph (b)(6) of section 1026.7, at their option. 

7.	 Annual percentage rate. At a creditor's option, when a finance charge is imposed 

during the billing cycle, the annual percentage rate(s) determined under section 

1026.14(c) using the term annual percentage rate. (§1026.7(a)(7)) 

8.	 Grace period. The date by which or the time period within which the new balance 

or any portion of the new balance must be paid to avoid additional finance 

charges. (§1026.7(a)(8)) 

9.	 Address for notice of billing errors. The address to be used for notice of billing 

errors. Alternatively, the address may be provided on the billing rights statement 

permitted by section 1026.9(a)(2). (§1026.7(a)(9)) 

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10. Closing date of billing cycle; new balance. The closing date of the billing cycle 

and the account balance outstanding on that date. (§1026.7(a)(10)) 

b.	 Rules affecting open-end (not home-secured) plans. The requirements of paragraph 

(b) of this section (1 through 14 below) apply only to plans other than home-equity 

plans subject to the requirements of section 1026.40. For applicable plans, determine 

that the creditor discloses on the periodic statement (§1026.7(b)): 

1.	 Previous balance. The account balance outstanding at the beginning of the billing 

cycle. (§1026.7(b)(1)) 

2.	 Identification of transactions. An identification of each credit transaction in 

accordance with section 1026.8. (§1026.7(b)(2)) 

3.	 Credits. Any credit to the account during the billing cycle, including the amount 

and the date of crediting. The date need not be provided if a delay in crediting 

does not result in any finance or other charge. (§1026.7(b)(3)) 

4.	 Periodic rates. Each periodic rate that may be used to compute the interest charge 

expressed as an annual percentage rate and using the term Annual Percentage 

Rate, along with the range of balances to which it is applicable. (§1026.7(b)(4)) 

NOTE: If no interest charge is imposed when the outstanding balance is less than 

a certain amount, the creditor is not required to disclose that fact, or the balance 

below which no interest charge will be imposed. The types of transactions to 

which the periodic rates apply shall also be disclosed. For variable-rate plans, the 

fact that the APR may vary; and 

A promotional rate, as that term is defined in section 1026.16(g)(2)(i), is required 

to be disclosed only in periods in which the offered rate is actually applied. 

5.	 Balance on which finance charge computed. The amount of the balance to which 

a periodic rate was applied and an explanation of how that balance was 

determined, using the term Balance Subject to Interest Rate. (§1026.7(b)(5)) 

6.	 Charges imposed. The amounts of any charges imposed as part of a plan as stated 

in section 1026.6(b)(3), grouped together, in proximity to transactions identified 

under paragraph (b)(2) of this section, substantially similar to Sample G–18(A) in 

Appendix G to this part. (§1026.7(b)(6)) 

i.	 Interest. Finance charges attributable to periodic interest rates, using the term 

Interest Charge, must be grouped together under the heading Interest 

Charged, itemized and totaled by type of transaction, and a total of finance 

charges attributable to periodic interest rates, using the term Total Interest, 

must be disclosed for the statement period and calendar year to date, using a 

format substantially similar to Sample G–18(A). 

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ii.	 Fees. Charges imposed as part of the plan other than charges attributable to 

periodic interest rates must be grouped together under the heading Fees, 

identified consistent with the feature or type, and itemized, and a total of 

charges, using the term Fees, must be disclosed for the statement period and 

calendar year to date, using a format substantially similar to Sample G–18(A). 

7.	 Change-in-terms and increased penalty rate summary for open-end (not homesecured) plans. Creditors that provide a change-in-terms notice required by 

section 1026.9(c), or a rate increase notice required by section 1026.9(g), on or 

with the periodic statement, must disclose the information in sections 

1026.9(c)(2)(iv)(A) and (c)(2)(iv)(B) (if applicable) or section 1026.9(g)(3)(i) on 

the periodic statement in accordance with the format requirements in section 

1026.9(c)(2)(iv)(D), and section 1026.9(g)(3)(ii). See Forms G–18(F) and G– 

18(G). (§1026.7(b)(7)) 

8.	 Grace period. The date by which or the time period within which the new balance 

or any portion of the new balance must be paid to avoid additional finance 

charges. If such a time period is provided, a creditor may, at its option and 

without disclosure, impose no finance charge if payment is received after the time 

period's expiration. (§1026.7(b)(8)) 

9.	 Address for notice of billing errors. The address to be used for notice of billing 

errors. Alternatively, the address may be provided on the billing rights statement 

permitted by section 1026.9(a)(2). (§1026.7(b)(9)) 

10. Closing date of billing cycle; new balance. The closing date of the billing cycle 

and the account balance outstanding on that date disclosed in accordance with 

section 1026.7(b)(13). (§1026.7(b)(10)) 

11. Due date; late payment costs. With the exception of periodic statements provided 

solely for charge cards and periodic statements provided for a charged-off account 

where payment of the entire account balance is due immediately, determine that 

the creditor disclosed (in accordance with section 1026.7(b)(13)) for a credit card 

account under an open-end (not home-secured) consumer credit plan: 

i.	 The due date for a payment (the due date must be the same day of the month 

for each billing cycle). (§1026.7(b)(11)(i)(A)) 

ii.	 The amount of any late payment fee and any increased periodic rate(s) 

(expressed as an annual percentage rate(s)) that may be imposed on the 

account as a result of a late payment. If a range of late payment fees may be 

assessed, verify that the card issuer either states a range of fees or the highest 

fee and an indication that the fee imposed could be lower. 

(§1026.7(b)(11)(i)(B)) 

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NOTE: If the rate may be increased for more than one feature or balance, the card 

issuer may state the range of rates or the highest rate that could apply and at the 

issuer’s option an indication that the rate imposed could be lower. 

NOTE: Further, with the exception of the negative or no amortization disclosures 

required by section 1026.7(b)(12)(ii), the repayment disclosures in section 

1026.7(b)(12) (as listed in step 12 below) are not required for: 

i. Charge card accounts that require payment of outstanding balances in full at 

the end of each billing cycle; 

ii. A billing cycle immediately following two consecutive billing cycles in which 

the consumer paid the entire balance in full, had a zero outstanding balance or 

had a credit balance; and 

iii. A billing cycle where paying the minimum payment due for that billing cycle 

will pay the entire outstanding balance on the account for that billing cycle. 

12. Given those exceptions above, determine that the card issuer disclosed on the 

periodic statement section 1026.7(b)(12): 

i.	 The following statement with a bold heading: “Minimum Payment 

Warning: If you make only the minimum payment each period, you will pay 

more in interest and it will take you longer to pay off your balance” 

(§1026.7(b)(12)(i)(A)); 

ii.	 The minimum payment repayment estimate, as described in Appendix M1 to 

this part. NOTE: If the minimum payment repayment estimate is less than two 

years, determine that the card issuer disclosed the estimate in months. 

Otherwise, the estimate must be disclosed in years and rounded to the nearest 

whole year (§1026.7(b)(12)(i)(B)); 

iii.	 The minimum payment total cost estimate, as described in Appendix M1 to 

this part, rounded to the nearest whole dollar or to the nearest cent, at the card 

issuer’s option (§1026.7(b)(12)(i)(C)); 

iv.	 A statement that the minimum payment repayment estimate and the minimum 

payment total cost estimate are based on the current outstanding balance 

shown on the periodic statement. A statement that the minimum payment 

repayment estimate and the minimum payment total cost estimate are based 

on the assumption that only minimum payments are made and no other 

amounts are added to the balance (§1026.7(b)(12)(i)(D)); 

v.	 A toll-free telephone number where the consumer may obtain from the card 

issuer information about credit counseling services (§1026.7(b)(12)(i)(E)); 

and 

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vi. The disclosures required for section 1026.7(b)(12)(i)(F)(1): 

a.	 The estimated monthly payment for repayment in 36 months, as described 

in Appendix M1 to this part. The estimated monthly payment for 

repayment in 36 months must be rounded to the nearest whole dollar or to 

the nearest cent, at the card issuer's option (§1026.7(b)(12)(i)(F)(1)(i)); 

b.	 A statement that the card issuer estimates that the consumer will repay the 

outstanding balance shown on the periodic statement in three years if the 

consumer pays the estimated monthly payment for three years 

(§1026.7(b)(12)(i)(F)(1)(ii)); 

c.	 The total cost estimate for repayment in 36 months, as described in 

Appendix M1 to this part. The total cost estimate for repayment in 36 

months must be rounded to the nearest whole dollar or to the nearest cent, 

at the card issuer's option (§1026.7(b)(12)(i)(F)(1)(iii)); and 

d.	 The savings estimate for repayment in 36 months, as described in 

Appendix M1 to this part. The savings estimate for repayment in 36 

months must be rounded to the nearest whole dollar or to the nearest cent, 

at the card issuer's option (§1026.7(b)(12)(i)(F)(1)(iv)). 

NOTE: The disclosures (a through d above) required for section 

1026.7(b)(12)(i)(F)(1) do not apply to a periodic statement in any of the following 

circumstances: 

a.	 The minimum payment repayment estimate that is disclosed on the periodic
 

statement pursuant to paragraph (b)(12)(i)(B) of this section after rounding is
 

three years or less;
 

b.	 The estimated monthly payment for repayment in 36 months, as described in 

Appendix M1 to this part, rounded to the nearest whole dollar or nearest cent 

that is calculated for a particular billing cycle is less than the minimum payment 

required for the plan for that billing cycle; and 

c.	 A billing cycle where an account has both a balance in a revolving feature 

where the required minimum payments for this feature will not amortize that 

balance in a fixed amount of time specified in the account agreement and a 

balance in a fixed repayment feature where the required minimum payment for 

this fixed repayment feature will amortize that balance in a fixed amount of time 

specified in the account agreement which is less than 36 months. 

vii.	 If negative or no amortization occurs when calculating the minimum payment 

estimate as described in Appendix M1, determine that the card issuer provides 

the following disclosures on each periodic statement instead of the disclosures 

set forth in section 1026.7(b)(12)(i) (§1026.7(b)(12)(ii)): 

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a. “Minimum Payment Warning: Even if you make no more charges 

using this card, if you make only the minimum payment each month we 

estimate you will never pay off the balance shown on this statement 

because your payment will be less than the interest charged each month” 

(§1026.7(b)(12)(ii)(A)); 

b. “If you make more than the minimum payment each period, you will pay 

less in interest and pay off your balance sooner” (§1026.7(b)(12)(ii)(B)); 

c.	 The estimated monthly payment for repayment in 36 months rounded to 

the nearest whole dollar or to the nearest cent, at the creditor’s option 

(§1026.7(b)(12)(ii)(C)); 

d.	 A statement that the card issuer estimates that the consumer will repay the 

outstanding balance shown on the periodic statement in three years if the 

consumer pays the estimated monthly payment each month for three years 

(§1026.7(b)(12)(ii)(D)); and 

e.	 A toll-free telephone number where the consumer may obtain from the 

card issuer information about credit counseling services consistent with 

section 1026.7(b)(12)(iv) (§1026.7(b)(12)(ii)(E)). 

viii.	 Verify that the items required to be disclosed, as addressed in the procedures 

in step 12 above (required by section 1026.7(b)(12)) are disclosed in 

accordance with the format requirements of section 1026.7(b)(13) and are 

substantially similar to the samples provided in Appendix G of Regulation Z. 

ix.	 Determine that a card issuer provides (to the extent available from the United 

States Trustee or a bankruptcy administrator) through the disclosed toll-free 

telephone number the name, street address, telephone number, and website 

address for at least three organizations that have been approved by the United 

States Trustee or a bankruptcy administrator to provide credit counseling 

services in either the state in which the billing address for the account is 

located or the state specified by the consumer. (§1026.7(b)(12)(iv)(A)) 

x.	 Determine that the card issuer at least annually updates the credit counseling 

information it discloses for consistency with the information available from 

the United States Trustee or a bankruptcy administrator. 

(§1026.7(b)(12)(iv)(B)) 

13. Determine that the card issuer provided periodic statement disclosures according 

to the following format requirements (§1026.7(b)(13)): 

i.	 The due date is disclosed on the front of the first page of the periodic 

statement and that the amount of the late payment fee and the APR(s) are 

stated in close proximity thereto. 

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ii. The ending balance and the repayment disclosures (required by paragraph 

(b)(12) of section 1026.7 are disclosed closely proximate to the minimum 

payment due. 

iii. The due date, late payment fee and APR, ending balance, minimum payment 

due, and repayment disclosures are grouped together. 

NOTE: Sample G-18(D) in Appendix G of Regulation Z sets forth an example of 

how these terms may be grouped. 

14. For accounts with an outstanding balance subject to a deferred interest or similar 

program, determine that the creditor disclosed the date by which that outstanding 

balance must be paid in full in order to avoid the obligation to pay finance charges 

on such balance on the front of any page of each periodic statement issued during 

the deferred interest period beginning with the first periodic statement issued 

during the deferred interest period that reflects the deferred interest or similar 

transaction. The disclosure provided pursuant to this paragraph must be 

substantially similar to Sample G–18(H) in Appendix G to this part. 

(§1026.7(b)(14)) 

Subsequent Disclosure Requirements – Section 1026.9 

a.	 Determine whether the creditor mailed or delivered the billing rights statement at 

least once per calendar year, at intervals of not less than 6 months or more than 18 

months, customers and whether the institution used the short form notice with each 

periodic statement. (§1026.9(a)(1)) 

NOTE: As an alternative to the annual billing rights statement (§1026.9(a)(1)), the 

creditor may mail or deliver, on or with each periodic statement, a statement 

substantially similar to Model Form G–4 or Model Form G–4(A) in Appendix G to 

this part, as applicable. Creditors offering home-equity plans subject to the 

requirements of section 1026.40 may use either Model Form, at their option. 

(§1026.9(a)(2)) 

b.	 If, 30 days after mailing or delivering the account-opening disclosures under sections 

1026.6(a)(1) or (b)(3)(ii)(A), the creditor adds a credit feature or furnishes a credit 

access device (other than as a renewal, resupply, or the original issuance of a credit 

card, or except with regard to checks that access a credit card account) on the same 

finance charge terms, determine that the creditor discloses, before the consumer uses 

the feature or device for the first time, that it is for use in obtaining credit under the 

terms previously disclosed. (§1026.9(b)(1)) 

c.	 Determine that, except with regard to checks that access a credit card account, 

whenever a credit feature is added or a credit access device is mailed or delivered to 

the consumer, and the finance charge terms for the feature or device differ from 

disclosures previously given, the disclosures required by sections 1026.6(a)(1) or 

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(b)(3)(ii)(A) that are applicable to the added feature or device are given before the 

consumer uses the feature or device for the first time. (§1026.9(b)(2)) 

d.	 Checks that access a credit card account. For open-end plans not subject to the 

requirements of section 1026.40, if checks that can be used to access a credit card 

account are provided more than 30 days after account-opening disclosures under 

section 1026.6(b) are mailed or delivered, or are provided within 30 days of the 

account-opening disclosures and the finance charge terms for the checks differ from 

the finance charge terms previously disclosed, determine that the creditor discloses on 

the front of the page containing the checks the following terms in the form of a table 

with the headings, content, and form substantially similar to Sample G–19 in 

Appendix G to this part (§1026.9(b)(3)): 

1. If a promotional rate applies to the checks, determine that the creditor discloses: 

i.	 The promotional rate and the time period during which the promotional rate 

will remain in effect (§1026.9(b)(3)(i)(A)(1)); 

ii.	 The type of rate that will apply (such as whether the purchase or cash advance 

rate applies) after the promotional rate expires, and the annual percentage rate 

that will apply after the promotional rate expires. For a variable-rate account, 

a creditor must disclose an annual percentage rate based on the applicable 

index or formula in accordance with the accuracy requirements set forth in 

paragraph (b)(3)(ii) of this section (§1026.9(b)(3)(i)(A)(2)); and 

iii.	 The date, if any, by which the consumer must use the checks in order to 

qualify for the promotional rate. If the creditor will honor checks used after 

such date but will apply an annual percentage rate other than the promotional 

rate, the creditor must disclose this fact and the type of annual percentage rate 

that will apply if the consumer uses the checks after such date 

(§1026.9(b)(3)(i)(A)(3)). 

2.	 If any APR required to be disclosed pursuant to section 1026.9(b)(3)(i) is a 

variable rate, determine that the creditor also disclosed the fact that the rate may 

vary and how the rate is determined. Determine that the creditor identified the 

type of index or formula used in setting the rate. Determine that the creditor does 

not disclose the value of the index and the amount of the margin that are used to 

calculate the variable rate in the table and that any applicable limitations on rate 

increases are not included in the table (§1026.9(b)(3)(iii)). 

3.	 If no promotional rate applies to the checks, determine that the creditor discloses: 

i.	 The type of rate that will apply to the checks and the applicable annual 

percentage rate. For a variable-rate account, a creditor must disclose an annual 

percentage rate based on the applicable index or formula in accordance with 

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the accuracy requirements set forth in section 1026.9(b)(3)(ii). 

(§1026.9(b)(3)(i)(B)(1)) 

4.	 Determine that the creditor discloses: 

i.	 Any transaction fees applicable to the checks disclosed under section 

1026.6(b)(2)(iv). (§1026.9(b)(3)(i)(C)) 

ii.	 Whether or not a grace period is given within which any credit extended by 

use of the checks may be repaid without incurring a finance charge due to a 

periodic interest rate. When disclosing whether there is a grace period, the 

phrase “How to Avoid Paying Interest on Check Transactions” shall be used 

as the row heading when a grace period applies to credit extended by the use 

of the checks. When disclosing the fact that no grace period exists for credit 

extended by use of the checks, the phrase “Paying Interest” shall be used as 

the row heading. (§1026.9(b)(3)(i)(D)) 

NOTE: The disclosures in section 1026.9(b)(3)(i) must be accurate as of the time 

the disclosures are mailed or delivered. A variable APR is accurate if it was in 

effect within 60 days of when the disclosures are mailed or delivered. 

(1026.9(b)(3)(ii)) 

e.	 Determine, for home-equity plans subject to the requirements of section 1026.40: 

1.	 Whenever any term required to be disclosed under section 1026.6(a) is changed or 

the required minimum periodic payment is increased, the creditor mailed or 

delivered written notice of the change at least 15 days prior to the effective date of 

the change. If the consumer agreed to the change, determine that notice was 

provided before the change went into effect. (§1026.9(c)(1)(i)) 

2.	 If the creditor prohibits additional extensions of credit or reduces the credit limit 

that the creditor mailed or delivered notice of the action not later than three 

business days after such action is taken. The notice must contain the specific 

reasons for the action. (§1026.9(c)(1)(iii)) 

NOTE: Notice is not required when the change involves a reduction of any 

component of a finance charge or other charge or when the change results from an 

agreement involving a court proceeding. (§1026.9(c)(1)(ii)) 

f.	 For plans other than home-equity plans subject to the requirements of section 

1026.40, except as provided in sections 1026.9(c)(2)(i)(B), (c)(2)(iii) and (c)(2)(v), 

when a significant change in account terms as described in section 1026.9(c)(2)(ii) is 

made, determine that the creditor provides a written notice of the change at least 45 

days prior to the effective date of the change to each consumer who may be affected. 

(§1026.9(c)(2)(i)(A)) 

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g.	 The 45-day timing requirement, however, does not apply if the consumer has agreed 

to a particular change as described in section 1026.9(c)(2)(i)(B). For these instances, 

however, determine that the creditor provided a notice in accordance with the timing 

requirements of section 1026.9(c)(2)(i)(B). (§1026.9(c)(2)(i)(A)) 

h.	 For open-end (not home-secured) plans, determine that increases in the rate 

applicable to a consumer’s account due to delinquency, default or as a penalty 

described in section 1026.9(g) that are not due to a change in the contractual terms of 

the consumer’s account are disclosed pursuant to section 1026.9(g) instead of section 

1026.9(c)(2). (§1026.9(c)(2)(i)(A)) 

i.	 When a notice of change in terms is required, determine that it is mailed or delivered 

no later than the effective date of the change, if the consumer agrees to the particular 

change. section 1026.9(c)(2)(i)(B) applies only when a consumer substitutes 

collateral or when the creditor can advance additional credit only if a change 

relatively unique to that consumer is made, such as the consumer’s providing 

additional security or paying an increased minimum payment amount. 

(§1026.9(c)(2)(i)(B)) 

NOTE: The 45-day timing requirements discussed in step f above does not apply in 

certain narrow circumstances, as described in section 1026.9(c)(2)(i)(B). The 

following are not considered agreements between the consumer and the creditor for 

purposes of section 1026.9(c)(2)(i)(B): 

1.	 The consumer’s general acceptance of the creditor’s contract reservation of the 

right to change terms; 

2.	 The consumer’s use of the account (which might imply acceptance of its terms 

under state law); 

3.	 The consumer’s acceptance of a unilateral term change that is not particular to 

that consumer, but rather is of general applicability to consumers with that type of 

account; and, 

4.	 The consumer’s request to reopen a closed account or to upgrade an existing 

account to another account offered by the creditor with different credit or other 

features. (§1026.9(c)(2)(i)(B)) 

j.	 The 45-day advance notice requirement applies to changes to the following terms 

(§1026.9(c)(2)(ii)): 

1.	 APR increase, including each periodic rate that may be used to compute the 

finance charge on outstanding balances for purchases, a cash advance, or a 

balance transfer (such rates may include any discounted initial rate, premium 

initial rate, or penalty rate that may be applied to the account); 

i. Variable-rate information; 

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ii. Discounted or premium initial rates; 

iii. Penalty rates; 

2.	 Fees for issuance or availability, including any fee based upon account activity or 

inactivity; 

3.	 Fixed finance charge or minimum interest charge, if it exceeds $1.00; 

4.	 Transaction charge for purchases; 

5.	 Grace period; 

6.	 Balance computation method; 

7.	 Cash advance fee; 

8.	 Late payment fee; 

9.	 Over-the-limit fee; 

10. Balance transfer fee; 

11. Returned payment fee; 

12. Required insurance, debt cancellation, or debt suspension coverage; and 

13. Increase in required minimum periodic payment, or the acquisition of a security 

interest. 

k.	 Except as provided in section 1026.9(c)(2)(vi), if a creditor increases any component 

of a charge, or introduces a new charge, required to be disclosed under section 

1026.6(b)(3) that is not a significant change in account terms as described in 

paragraph (c)(2)(ii) of this section, determine that the creditor either 

(§1026.9(c)(2)(iii)): 

1.	 Complies with the requirements of section 1026.9(c)(2)(i), or 

2.	 Provides notice of the amount of the charge before the consumer agrees to or 

becomes obligated to pay the charge, at a time and in a manner that a consumer 

would be likely to notice the disclosure of the charge, either in writing or orally. 

l.	 Ensure that the written change-in-terms notice contains the following disclosures 

(§1026.9(c)(2)(iv)(A)): 

1.	 A summary of the changes made to terms required by sections 1026.6(b)(1) and 

(b)(2) or section 1026.6(b)(4), a description of any increase in the required 

minimum payment, and a description of any security interests being acquired by 

the creditor. 

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2.	 A statement that changes are being made to the account. 

3.	 For accounts other than credit card accounts under an open-end (not homesecured) consumer credit plan subject to section 1026.9(c)(2)(iv)(B), a statement 

indicating that the consumer has the right to opt out of the changes, if applicable, 

and a reference to the opt-out right provided in the notice, if applicable. 

4.	 The date the changes will become effective. 

5.	 If applicable, a statement that the consumer may find additional information about 

the summarized changes, and other changes, in the notice. 

6.	 In the case of a rate change, other than a penalty rate, a statement that if a penalty 

rate currently applies to the consumer’s account, the new rate described in the 

notice will not apply to the consumer’s account until the consumer’s account 

balances are no longer subject to the penalty rate. 

7.	 If the change in terms being disclosed is an increase in the APR, the balances to 

which the increased rate will apply. If applicable, creditors should disclose a 

statement identifying the balances to which the current rate will apply as of the 

effective date of the change. 

8.	 If the change in terms being disclosed is an increase in an annual percentage rate 

for a credit card account under an open-end (not home-secured) consumer credit 

plan, a statement of no more than four principal reasons for the rate increase, 

listed in their order of importance. 

NOTE: The disclosed reasons must accurately describe the principal factors actually 

considered by the card issuer in increasing the rate. (Commentary §1026.9(c)(2)(iv) - 11) 

m. In addition to the disclosures in section 1026.9(c)(2)(iv)(A), if a card issuer makes a 

significant change in account terms on a credit card account under an open-end (not 

home-secured) consumer credit plan, determine that the creditor provides the 

following information on the notice provided pursuant to section 1026.9(c)(2)(i) 

(§1026.9(c)(2)(iv)(B)): 

NOTE: This information is not required to be provided in the case of an increase in the 

required minimum periodic payment, an increase in a fee as a result of a reevaluation of 

a determination made under section 1026.52(b)(1)(i) or an adjustment to the safe 

harbors in section 1026.52(b)(1)(ii) to reflect changes in the Consumer Price Index, a 

change in an annual percentage rate applicable to a consumer’s account, an increase in 

a fee previously reduced consistent with 50 U.S.C. app. 527 (Servicemembers Civil 

Relief Act) or similar Federal or State statute or regulation if the amount of the 

increased fee does not exceed the amount of that fee prior to the reduction, or when the 

change results from the creditor not receiving the consumer’s required minimum 

periodic payment within 60 days after the due date for that payment. 

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1.	 A statement that the consumer has the right to reject the change or changes prior 

to the effective date of the changes, unless the consumer fails to make a required 

minimum periodic payment within 60 days after the due date for that payment; 

2.	 Instructions for rejecting the change or changes, and a toll-free telephone number 

that the consumer may use to notify the creditor of the rejection; and 

3.	 If applicable, a statement that if the consumer rejects the change or changes, the 

consumer’s ability to use the account for further advances will be terminated or 

suspended. 

n.	 Changes resulting from failure to make minimum periodic payment within 60 days 

from due date for credit card accounts under an open-end (not home-secured) 

consumer credit plan. For a credit card account under an open-end (not homesecured) consumer credit plan (§1026.9(c)(2)(iv)(C)): 

1.	 If the significant change required to be disclosed pursuant to section 

1026.9(c)(2)(i) of this section is an increase in an annual percentage rate or a fee 

or charge required to be disclosed under sections 1026.6(b)(2)(ii), (b)(2)(iii), or 

(b)(2)(xii) based on the consumer’s failure to make a minimum periodic payment 

within 60 days from the due date for that payment, determine that the notice 

provided pursuant to paragraph (c)(2)(i) of this section states that the increase will 

cease to apply to transactions that occurred prior to or within 14 days of provision 

of the notice, if the creditor receives six consecutive required minimum periodic 

payments on or before the payment due date, beginning with the first payment due 

following the effective date of the increase. 

2.	 If the significant change required to be disclosed pursuant to section 

1026.9(c)(2)(i) is an increase in a fee or charge required to be disclosed under 

sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) based on the consumer’s failure 

to make a minimum periodic payment within 60 days from the due date for that 

payment, determine that the notice provided pursuant to section 1026.9(c)(2)(i) 

also states the reason for the increase. 

o.	 Determine that the summary of changes described in section 1026.9(c)(2)(iv)(A)(1) is 

in a tabular format (except for a summary of any increase in the required minimum 

periodic payment, a summary of a term required to be disclosed under section 

1026.6(b)(4) that is not required to be disclosed under section 1026.6(b)(1) and 

(b)(2), or a description of any security interest being acquired by the creditor), with 

headings and format substantially similar to any of the account-opening tables found 

in G–17 in Appendix G. Determine that the table discloses the changed term and 

information relevant to the change, if that relevant information is required by section 

1026.6(b)(1) and (b)(2). Determine that the new terms are described in the same level 

of detail as required when disclosing the terms under section 1026.6(b)(2). 

(§1026.9(c)(2)(iv)(D)(1)) 

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p.	 If a notice required by section 1026.9(c)(2)(i) (change in terms) is included on or with 

a periodic statement, determine that the information described in section 

1026.6(c)(2)(iv)(A)(1) is disclosed on the front of any page of the statement. 

Determine that the summary of changes described in section 1026.9(c)(2)(iv)(A)(1) 

immediately follows the information described in section 1026.9(c)(2)(iv)(A)(2) 

through section 1026.9(c)(2)(iv)(A)(7) and, if applicable, sections 

1026.9(c)(2)(iv)(A)(8), 1026.9(c)(2)(iv)(B), and 1026.9(c)(2)(iv)(C), and is 

substantially similar to the format shown in Sample G-20 or G-21 in Appendix G to 

this part. (§1026.9(c)(2)(iv)(D)(2)) 

q.	 If a notice required by section 1026.9(c)(2)(i) is not included on or with a periodic 

statement, determine that the information described in section 1026.9(c)(2)(iv)(A)(1) 

is disclosed on the front of the first page of the notice or segregated on a separate 

page from other information given with the notice. (§1026.9(c)(2)(iv)(D)(3)) 

NOTE: The summary of changes required to be in a table pursuant to paragraph 

(c)(2)(iv)(A)(1) of this section may be on more than one page, and may use both the 

front and reverse sides, so long as the table begins on the front of the first page of the 

notice and there is a reference on the first page indicating that the table continues on 

the following page. 

r.	 Determine that the summary of changes described in section 1026.9(c)(2)(iv)(A)(1) 

immediately follows the information described in section 1026.9(c)(2)(iv)(A)(2) 

through section 1026.9(c)(2)(iv)(A)(7) and, if applicable, sections 

1026.9(c)(2)(iv)(A)(8), (c)(2)(iv)(B), and (c)(2)(iv)(C), of this section, and is 

substantially similar to the format shown in Sample G-20 or G-21 in Appendix G to 

this part. (§1026.9(c)(2)(iv)(D)(3)) 

s.	 For open-end plans (other than home equity plans subject to the requirements of 

section 1026.40), note that a creditor is not required to provide notice under this 

section if (§1026.9(c)(2)(v)): 

1.	 The change involves: 

i.	 Charges for documentary evidence; 

ii.	 A reduction of any component of a finance or other charge; 

iii.	 A suspension of future credit privileges (except as provided in section 

1026.9(c)(2)(vi) of this section) or termination of an account or plan; 

iv.	 When the change results from an agreement involving a court proceeding; 

v.	 When the change is an extension of the grace period; or 

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vi.	 The change is applicable only to checks that access a credit card account and 

the changed terms are disclosed on or with the checks in accordance with 

section 1026.9(b)(3) (§1026.9(c)(2)(v)(A)); 

2.	 The change is an increase in an APR upon the expiration of a specified period of 

time, provided that (§1026.9(c)(2)(v)(B)): 

i.	 Prior to commencement of that period, the creditor disclosed in writing to the 

consumer, in a clear and conspicuous manner, the length of the period and the 

APR or fee that would apply after expiration of the period; 

ii.	 The disclosure of the length of the period and the APR or fee that would apply 

after expiration of the period are set forth in close proximity and in equal 

prominence to the first listing of the disclosure of the rate or fee that applies 

during the specified period of time; and 

iii.	 The APR or fee that applies after that period does not exceed the rate 

disclosed pursuant to section 1026.9(c)(2)(v)(B)(1) or, if the rate disclosed 

pursuant to section 1026.9(c)(2)(v)(B)(1) was a variable rate, the rate 

following any such increase is a variable rate determined by the same formula 

(index and margin) that was used to calculate the variable rate disclosed 

pursuant to section 1026.9(c)(2)(v)(B)(1); 

3.	 The change is an increase in a variable APR in accordance with a credit card or 

other account agreement that provides for changes in the rate according to 

operation of an index that is not under the control of the creditor and is available 

to the general public (§1026.9(c)(2)(v)(C)); or 

4.	 The change is an increase in an APR, a fee or charge required to be disclosed 

under sections 1026.6(b)(2)(ii), (b)(2)(iii), (b)(2)(viii), (b)(2)(ix) or (b)(2)(xii), or 

the required minimum periodic payment due to the completion of a workout or 

temporary hardship arrangement by the consumer or the consumer’s failure to 

comply with the terms of such an arrangement, provided that 

(§1026.9(c)(2)(v)(D)): 

i.	 The APR or fee or charge applicable to a category of transactions or the 

required minimum periodic payment following any such increase does not 

exceed the rate or fee or charge or required minimum periodic payment that 

applied to that category of transactions prior to commencement of the 

arrangement or, if the rate that applied to a category of transactions prior to 

the commencement of the workout or temporary hardship arrangement was a 

variable rate, the rate following any such increase is a variable rate determined 

by the same formula (index and margin) that applied to the category of 

transactions prior to commencement of the workout or temporary hardship 

arrangement; and 

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ii.	 The creditor has provided the consumer, prior to the commencement of such 

arrangement, with a clear and conspicuous disclosure of the terms of the 

arrangement (including any increases due to such completion or failure). This 

disclosure must generally be provided in writing. However, a creditor may 

provide the disclosure of the terms of the arrangement orally by telephone, 

provided that the creditor mails or delivers a written disclosure of the terms of 

the arrangement to the consumer as soon as reasonably practicable after the 

oral disclosure is provided. 

t.	 For open-end plans that are not subject to the requirements of section 1026.40, if a 

creditor decreases the credit limit on the account, determine that advance notice of the 

decrease is provided before an over-the-limit fee or a penalty rate can be imposed 

solely as a result of the consumer exceeding the newly decreased credit limit. 

Determine that notice is provided in writing or orally at least 45 days prior to 

imposing the over-the-limit fee or penalty rate and that it states that the credit limit on 

the account has been or will be decreased. (§1026.9(c)(2)(vi)) 

u.	 Determine that the disclosures contained in section 1026.60(b)(1) through (b)(7) are 

provided if the account is renewed and (1) the card issuer imposes an annual or other 

periodic fee for the renewal or (2) the card issuer has changed or amended any term 

of the account required to be disclosed under section 1026.6(b)(1) and (b)(2) that has 

not previously been disclosed to the consumer. Additionally, the disclosure provided 

upon renewal must disclose how and when the cardholder may terminate the credit to 

avoid paying the renewal fee, if any. (§1026.9(e)) 

v.	 For plans other than home-equity plans subject to the requirements of section 1026.40 

(except as provided in section 1026.9(g)(4)), determine that the creditor provides a 

written notice to each consumer who may be affected when (§1026.9(g)(1)): 

1.	 A rate is increased due to the consumer's delinquency or default; or 

2.	 A rate is increased as a penalty for one or more events specified in the account 

agreement, such as making a late payment or obtaining an extension of credit that 

exceeds the credit limit. 

w.	 Whenever any notice is required to be given pursuant to paragraph (g)(1) of this 

section, determine that the creditor provided written notice of the increase in rates at 

least 45 days prior to the effective date of the increase. The notice must be provided 

after the occurrence of the events described in section 1026.9(g)(1)(i) and (g)(1)(ii) 

that trigger the imposition of the rate increase. (§1026.9(g)(2)) 

x.	 If a creditor is increasing the rate due to delinquency or default or as a penalty, 

determine that the creditor provided the following information on the notice sent 

pursuant to section 1026.9(g)(1) (§1026.9(g)(3)(i)(A)): 

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1.	 A statement that the delinquency or default rate or penalty rate, as applicable, has 

been triggered; 

2.	 The date on which the delinquency or default rate or penalty rate will apply; 

3.	 The circumstances under which the delinquency or default rate or penalty rate, as 

applicable, will cease to apply to the consumer's account, or that the delinquency 

or default rate or penalty rate will remain in effect for a potentially indefinite time 

period; 

4.	 A statement indicating to which balances the delinquency or default rate or 

penalty rate will be applied; 

5.	 If applicable, a description of any balances to which the current rate will continue 

to apply as of the effective date of the rate increase, unless a consumer fails to 

make a minimum periodic payment within 60 days from the due date for that 

payment; and 

6.	 For a credit card account under an open-end (not home-secured) consumer credit 

plan, a statement of no more than four principal reasons for the rate increase, 

listed in their order of importance. 

NOTE: The disclosed reasons must accurately describe the principal factors actually 

considered by the card issuer in increasing the rate. (Commentary §1026.9(g) - 7) 

y.	 For a credit card account under an open-end (not home-secured) consumer credit 

plan, if the rate increase required to be disclosed pursuant to paragraph (g)(1) of this 

section is an increase pursuant to section 1026.55(b)(4) based on the consumer’s 

failure to make a minimum periodic payment within 60 days from the due date for 

that payment, determine that the notice provided pursuant to paragraph (g)(1) of this 

section also states that the increase will cease to apply to transactions that occurred 

prior to or within 14 days of provision of the notice, if the creditor receives six 

consecutive required minimum periodic payments on or before the payment due date, 

beginning with the first payment due following the effective date of the increase. 

(§1026.9(g)(3)(i)(B)) 

z.	 If a notice required by section 1026.9(g)(1) (Increase in rates due to delinquency or 

default or as a penalty) is included on or with a periodic statement, determine that the 

disclosure described in paragraph (g)(3)(i) is in the form of a table and provided on 

the front of any page of the periodic statement, above the notice described in 

paragraph (c)(2)(iv) of this section if that notice is provided on the same statement. 

(§1026.9(g)(3)(ii)(A)) 

aa. If a notice required by section 1026.9(g)(1) (increase in rates) is not included on or 

with a periodic statement, determine that the information described in section 

1026.9(g)(3)(i) is disclosed on the front of the first page of the notice. Ensure that 

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only information related to the increase in the rate to a penalty rate is included with 

the notice. 

NOTE: This notice may be combined with a notice described in sections 

1026.9(c)(2)(iv) or (g)(4) (A statement indicating to which balances the delinquency 

or default rate or penalty rate will be applied) of this section. (§1026.9(g)(3)(ii)(B)) 

bb. Exception for Decreases in the Credit Limit – If a creditor does not provide the 45-

day notice under section 1026.9(g)(1) prior to increasing the rate for obtaining an 

extension of credit that exceeds the credit limit, determine that the creditor provides at 

least 45 days in advance of imposing the penalty rate a notice, in writing, that 

includes (§1026.9(g)(4)): 

1.	 A statement that the credit limit on the account has or will be decreased. 

2.	 The date on which the penalty rate will apply, if the outstanding balance exceeds 

the credit limit as of that date; 

3.	 A statement that the penalty rate will not be imposed on that date, if the
 

outstanding balance does not exceed the credit limit as of that date;
 

4.	 The circumstances under which the penalty rate, if applied, will cease to apply to 

the account, or that the penalty rate, if applied, will remain in effect for a 

potentially indefinite period of time; 

5.	 A statement indicating to which balances the penalty rate may be applied; and 

6.	 If applicable, a description of any balances to which the current rate will continue 

to apply as of the effective date of the rate increase, unless the consumer fails to 

make a minimum periodic payment within 60 days from the due date for that 

payment. 

In addition to this notice, determine that the creditor does not increase the 

applicable rate to the penalty rate if the outstanding balance does not exceed the 

credit limit on the date set forth in the notice. (§1026.9(g)(4)(ii)) 

cc. If a notice provided pursuant to section 1026.9(g)(4)(i) is included on or with a 

periodic statement, determine that the information described in section 

1026.9(g)(4)(i) is in the form of a table and provided on the front of any page of the 

periodic statement (§1026.9(g)(4)(iii)(A)); or, 

dd. If a notice required by section 1026.9(g)(4)(i) is not included on or with a periodic 

statement, determine that the information described in section 1026.9(g)(4)(i) is 

disclosed on the front of the first page of the notice. Determine that only information 

related to the reduction in credit limit is included with the notice, except that this 

notice may be combined with a notice described in sections 1026.9(c)(2)(iv) or (g)(1). 

(§1026.9(g)(4)(iii)(B)) 

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ee. When the consumer is given the right to reject a significant change to an account term 

prior to the effective date of the change, determine whether the consumer was given 

the option to reject the change by notifying the creditor of the rejection before the 

effective date of the change. (§1026.9(h)(1)) 

ff. If the creditor was notified of the rejection of a significant change to an account term, 

determine that the creditor did not: 

1.	 Apply the charge to the account; 

2.	 Impose a fee or charge or treat the account as in default solely as a result of the 

rejection; or 

3.	 Require repayment of the balance on the account using a method that is LESS 

beneficial to the consumer than one of the following methods: 

a.	 The method of repayment for the account on the date on which the creditor 

was notified of the rejection; 

b.	 An amortization period of not less than five years, beginning no earlier than 

the date on which the creditor was notified of the rejection; or 

c.	 A required minimum periodic payment that includes a percentage of the 

balance that is equal to no more than twice the percentage required on the 

date on which the creditor was notified of the rejection. (§1026.9(h)(2)) 

NOTE: These requirements do not apply if the creditor has not received the 

consumer’s required minimum periodic payment within 60 days after the due date for 

that payment and the creditor has provided timely change in terms disclosures. 

(§1026.9(h)(3)) 

gg. Determine that a statement of the maximum interest rate that may be imposed during 

the term of the obligation is made for any dwelling-secured loan in which the APR 

may increase during the plan. (§1026.30(b)) 

hh. For any open-end mortgage loan (credit transaction that is secured by the principal 

dwelling of a consumer) that was sold, assigned, or otherwise transferred to the 

covered person, determine that the covered person notifies the borrower in writing of 

such transfer, including (§1026.39): 

1.	 An identification of the loan that was sold, assigned, or otherwise transferred; 

2.	 The name, address, and telephone number of the covered person who owns the 

mortgage loan; 

3.	 The date of transfer (either the date of acquisition recognized in the books and 

records of the covered person or that of the transferring party) identified by the 

covered person; 

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4.	 The name, address, and telephone number of an agent or party having authority, 

on behalf of the covered person, to receive notice of the right to rescind and 

resolve issues concerning the consumer’s payments on the mortgage loan; 

5.	 Where transfer of ownership of the debt to the covered person is or may be 

recorded in public records or, alternatively, that the transfer of ownership has not 

been recorded in public records at the time the disclosure is provided; and 

6.	 At the option of the covered person, any other relevant information regarding the 

transaction. 

7.	 If there are multiple covered persons, contact information for each of them, unless 

one of them has been authorized to receive the consumer’s notice of the right to 

rescind and resolve issues concerning the consumer’s payments on the loan. 

(§§1026.39(d)-(e)) 

NOTE: This notice of sale or transfer must be provided for any consumer credit 

transaction that is secured by the principal dwelling of a consumer. This 

notification is required by the covered person even if the loan servicer remains the 

same. In addition, if more than one consumer is liable on the obligation, the 

covered person may mail or deliver the disclosure notice to any consumer who is 

primarily liable. And, if an acquisition involves multiple covered persons who 

each acquire a partial interest in the loan pursuant to separate and unrelated 

agreements, each covered person has a duty to ensure that disclosures related to 

its acquisition are accurate and provided in a timely manner unless an exception 

in 1026.39(c) applies. The parties may, but are not required to, provide a single 

notice that satisfies the timing and content requirements applicable to each 

covered person. (Commentary §1026.39(b)(5) – 2) 

Disclosure Requirements for Over-the-Limit Transactions – 

Section 1026.56 

a.	 Determine that the oral, written or electronic “opt-in” notice includes all of the 

following applicable items (and not any information not specified in or otherwise 

permitted) (§1026.56(e)(1)): 

1.	 Fees – The dollar amount of any fees or charges assessed by the card issuer on a 

consumer’s account for an over-the-limit transaction; 

2.	 APR(s) – Any increased periodic rate(s) (expressed as an APR(s)) that may be 

imposed on the account as a result of an over-the-limit transaction; and 

3.	 Disclosure of opt-in right – An explanation of the consumer’s right to 

affirmatively consent to the card issuer’s payment of over-the-limit transactions, 

including the method(s) by which the consumer may consent. 

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b.	 Determine that the written notice informing the consumer of the right to revoke 

consent following the assessment of an over-the-limit fee or charge describes that 

right, including the method(s) by which the consumer may revoke consent. 

(§1026.56(e)(2)) 

Reverse Mortgage Forms Review Procedures (Both Openand Closed-End) 

a.	 Determine that the disclosures required for reverse mortgage transactions are 

substantially similar to the model form in Appendix K and include the items below 

(§1026.33): 

1.	 A statement that the consumer is not obligated to complete the reverse mortgage 

transaction merely because he or she has received the disclosures or signed an 

application. 

2.	 A good faith projection of the total cost of the credit expressed as a table of “total 

annual loan cost rates” including payments to the consumer, additional creditor 

compensation, limitations on consumer liability, assumed annual appreciation, 

and the assumed loan period. 

3.	 An itemization of loan terms, charges, the age of the youngest borrower, and the 

appraised property value. 

4.	 An explanation of the table of total annual loan costs rates. 

NOTE: Forms that include or involve current transactions, such as change in terms 

notices, periodic billing statements, rescission notices, and billing error communications, 

are verified for accuracy when the file review worksheets are completed. 

Timing Requirements 

6.	 Review financial institution policies, procedures, and systems to determine, either 

separately or when completing the actual file review, whether the applicable disclosures 

listed below are furnished when required by Regulation Z. Take into account products 

that have different features, such as closed-end loans or credit card accounts that are fixed 

or variable rate. 

a.	 Credit card application and solicitation disclosures – On or with the application 

(§1026.60(b)) 

b.	 HELOC disclosures – At the time the application is provided or within three business 

days under certain circumstances. (§1026.40(b)) 

c.	 Open-end credit initial disclosures – Before the first transaction is made under the 

plan. (§1026.5(b)(1)) 

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d. Card Holder Agreement – Verify that the card issuer sends to the cardholder or 

otherwise make available to the cardholder a copy of the cardholder’s agreement in 

electronic or paper form no later than 30 days after the issuer receives the 

cardholder’s request (§1026.58(e)(1)(ii)). Determine that the issuer has adequate 

procedures for ensuring that this requirement is met. 

e. Periodic statement disclosures for open-end credit under section 1026.7 – Required if 

at the end of a billing cycle, the account has a debit or credit balance of $1 or more or 

if a finance charge has been imposed (§1026.5(b)(2)(i)). Also, the creditor must adopt 

reasonable procedures designed to ensure that periodic statements for credit card 

accounts are mailed or delivered at least 21 days prior to the payment due date and 

the date on which any grace period expires (for non-credit card open-end credit, there 

is a 21-day rule if there is a grace period and a 14-day rule if there is no grace period). 

(§1026.5(b)(2)(ii)(B)(2)) 

f. Statement of billing rights – At least once per year. (§1026.9(a)) 

g. Supplemental credit devices – Before the first transaction under the plan. 

(§1026.9(b)) 

h. Open-end credit change in significant terms as a result of a change in contractual 

terms – 45 days prior to the effective change date. (§1026.9(c)(2)) 

i. Open-end change in terms or rates due to delinquency or default or as a penalty – 45 

days prior to the effective change date. (§1026.9(g)) 

j. Finance charge imposed at time of transaction – Prior to imposing any fee. 

(§1026.9(d)) 

k. Disclosures upon renewal of credit or charge card – 30 days or one billing cycle, 

whichever is less before the delivery of the periodic statement on which the renewal 

fee is charged, or at least 30 days prior to the scheduled renewal date if the creditor 

has changed or amended any term required to be disclosed under section 1026.6(b)(1) 

and (b)(2) that has not previously been disclosed to the consumer. (§1026.9(e)) 

l. Change in credit account insurance provider – Certain information 30 days before the 

change in provider occurs and certain information 30 days after the change in 

provider occurs. The institution may provide a combined disclosure 30 days before 

the change in provider occurs. (§1026.9(f)) 

m. Closed-end credit disclosures – Before consummation. (§1026.17(b)) 

n.	 For disclosures for dwelling-secured transactions subject to RESPA (other than openend), multiple timing requirements apply. Determine whether the creditor provides 

early disclosures within three business days after receiving the consumer’s written 

application. The creditor is required to deliver or mail the early disclosures no later 

than three business days after receiving the consumer’s application and at least seven 

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business days before consummation (§§1026.19(a)(1)(i) and 1026.19(a)(2)(i)). If the 

APR stated in the early disclosures is not considered accurate under section 1026.22 

when compared to the APR at consummation, determine whether the creditor 

provided corrected disclosures of all changed terms, including the APR, that the 

consumer received no later than the third business day before consummation. 

(§1026.19(a)(2)(ii)) 

o.	 Disclosures for transactions subject to section 1026.32 – Three business days prior to 

consummation. If such disclosures became inaccurate due to a change by the creditor, 

ensure that the creditor provided new, accurate disclosures no later than three 

business days prior to consummation. (§1026.31(c)(1)) 

p.	 Disclosures for reverse mortgages – Three days prior to consummation of a closedend credit transaction or prior to the first transaction under an open-end credit plan. 

(§1026.31(c)(2)) 

q.	 Disclosures for adjustable-rate mortgages – At least once each year during which an 

interest rate adjustment is implemented without an accompanying payment change, 

and at least 25, but no more than 120 calendar days before a new payment amount is 

due, or in accordance with other variable-rate subsequent-disclosure regulations 

issued by a supervisory agency. (§1026.20(c)) 

r.	 Notice of new creditor (§1026.39) – On or before the 30th calendar day following the 

acquisition. 

s.	 For private education loans subject to Subpart F (§1026.46), determine that: 

1.	 Application or solicitation disclosures were provided on or with any application 

or solicitation (§1026.46(d)(1)(i)); 

2.	 Approval disclosures were provided before consummation on or with any notice 

of approval provided to the consumer (§1026.46(d)(2)); and 

3.	 Final disclosures were provided after the consumer accepts the loan and at least 

three business days prior to disbursing the private education loan funds. 

(§1026.46(d)(3)) 

t.	 Determine that the issuer provides a written over-the-limit notice prior to the 

assessment of any over-the-limit fee or charge on a consumer’s account. 

(§1026.56(d)(1)(i)) 

u.	 Determine that, if a consumer consents to the card issuer’s payment of any over-thelimit transaction by oral or electronic means, the card issuer provides the required 

written notice immediately prior to obtaining that consent. (§1026.56(d)(1)(ii)) 

v.	 Determine that the notice confirming the consumer’s consent is provided no later than 

the first periodic statement sent after the consumer has consented to the card issuer’s 

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payment of over-the-limit transactions. The creditor must not assess an over-the-limit 

fee on the consumer’s account without first providing written confirmation. 

(§1026.56(d)(2)) 

w.	 Determine that the notice providing the consumer notice in writing of the right to 

revoke consent following the assessment of an over-the-limit fee or charge is 

provided on the front of any page of each periodic statement that reflects the 

assessment of an over-the-limit fee or charge on a consumer’s account. 

(§1026.56(d)(3)) 

x.	 For home-equity plans subject to the requirements of section 1026.40, whenever any 

term required to be disclosed under section 1026.6(a) is changed or the required 

minimum periodic payment is increased, determine that the creditor mails or delivers 

written notice of the change to each consumer who may be affected. Determine that 

the notice is mailed or delivered at least 15 days prior to the effective date of the 

change. If the change has been agreed to by the consumer, determine that the notice is 

given before the effective date of the change. (§1026.9(c)(1)(i)) 

y.	 Notice to restrict credit. For home-equity plans subject to the requirements of section 

1026.40, if the creditor prohibits additional extensions of credit or reduces the credit 

limit pursuant to section 1026.40(f)(3)(i) or (f)(3)(vi), determine that the creditor 

mails or delivers written notice of the action to each consumer who will be affected 

not later than three business days after the action is taken and contains specific 

reasons for the action. If the creditor requires the consumer to request reinstatement 

of credit privileges, determine that the notice states that fact. (§1026.9(c)(1)(iii)) 

Electronic Disclosures 

7.	 Assess compliance for an institution’s electronic disclosure requirements. 

E-Sign Act 

a.	 Disclosures may be provided to the consumer in electronic form, subject to 

compliance with the consumer consent and other applicable provisions of the 

Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 

7001 et seq.). The E-Sign Act does not mandate that institutions or consumers use or 

accept electronic records or signatures. It permits institutions to satisfy any statutory 

or regulatory requirements by providing the information electronically after obtaining 

the consumer’s affirmative consent. Before consent can be given, consumers must be 

provided with the following information: 

1.	 Any right or option to have the information provided in paper or non-electronic 

form; 

2.	 The right to withdraw the consent to receive information electronically and the 

consequences, including fees, of doing so; 

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3.	 The scope of the consent (for example, whether the consent applies only to a 

particular transaction or to identified categories of records that may be provided 

during the course of the parties' relationship); 

4.	 The procedures to withdraw consent and to update information needed to contact 

the consumer electronically; and 

5.	 The methods by which a consumer may obtain, upon request, a paper copy of an 

electronic record after consent has been given to receive the information 

electronically and whether any fee will be charged. 

b.	 The consumer must consent electronically or confirm consent electronically in a 

manner that “reasonably demonstrates that the consumer can access information in 

the electronic form that will be used to provide the information that is the subject of 

the consent.” After the consent, if an institution changes the hardware or software 

requirements such that a consumer may be prevented from accessing and retaining 

information electronically, the institution must notify the consumer of the new 

requirements and must allow the consumer to withdraw consent without charge. 

c.	 If the financial institution makes its disclosures available to consumers in electronic 

form, determine that the forms comply with the appropriate sections – §1026.5(a)(1); 

§1026.15(b); §1026.16(c); §1026.17(a)(1); §1026.17(g); §1026.19(c); 

§1026.23(b)(1); §1026.24(d); §1026.31(b); §1026.40(a)(3); and §1026.60(a)(2)(v). 

d.	 Card issuers may provide credit card agreements in electronic form under Section 

1026.58(d) and (e) without regard to the consumer notice and consent requirements of 

section 101(c) of the E-Sign Act. (§1026.58(f)) 

Annual Report to the CFPB – Section 1026.57 

a.	 If the card issuer was a party to one or more college credit card agreements in effect 

at any time during a calendar year, verify that the card issuer submits to the CFPB an 

annual report regarding those agreements in the form and manner prescribed by the 

CFPB. (§1026.57(d)(1)) 

NOTE: A college credit card agreement is any business, marketing, or promotional 

agreement between a card issuer and an institution of higher education (or an 

affiliated alumni organization or foundation) in connection with which credit cards 

are issued to college students at that institution of higher education. (§1026.57(a)(5)) 

b. The annual report to the CFPB must include the following (§1026.57(d)(2)): 

1.	 Identifying information about the card issuer and the agreements submitted, 

including the issuer’s name, address, and identifying number (such as an RSSD 

ID number or tax identification number); 

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2.	 A copy of any college credit card agreement to which the card issuer was a party 

that was in effect at any time during the period covered by the report; 

3.	 A copy of any memorandum of understanding in effect at any time during the 

period covered by the report between the card issuer and an institution of higher 

education or affiliated organization that directly or indirectly relates to the college 

credit card agreement or that controls or directs any obligations or distribution of 

benefits between any such entities; 

4.	 The total dollar amount of any payments pursuant to a college credit card 

agreement from the card issuer to an institution of higher education or affiliated 

organization during the period covered by the report, and the method or formula 

used to determine such amounts; 

5.	 The total number of credit card accounts opened pursuant to any college credit 

card agreement during the period covered by the report; and 

6.	 The total number of credit card accounts opened pursuant to any such agreement 

that were open at the end of the period covered by the report. 

c.	 If the card issuer is subject to reporting, determine if the card issuer submits its annual 

report for each calendar year to the CFPB by the first business day on or after March 

31 of the following calendar year. (§1026.57(d)(3)) 

The Submission of Agreements to the CFPB – 

Section 1026.58(c) 

a.	 For card issuers that issue credit cards under a credit card account under an open-end 

(not home-secured) consumer credit plan, determine that the card issuer makes 

quarterly submissions to the CFPB in the form and manner specified by the CFPB 

that contain: 

1.	 Identifying information about the card issuer and the agreements submitted, 

including the issuer’s name, address, and identifying number (such as an RSSD 

ID number or tax identification number) (1026.58(c)(1)(i)); 

2.	 The credit card agreements that the card issuer offered to the public as of the last 

business day of the preceding calendar quarter that the card issuer has not 

previously submitted to the CFPB (1026.58(c)(1)(ii)); 

3.	 Any credit card agreement previously submitted to the CFPB that was amended 

during the preceding calendar quarter and that the card issuer offered to the public 

as of the last business day of the preceding calendar quarter as described in 

section 1026.58(c)(3) (1026.58(c)(1)(iii)); and 

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4.	 Notification regarding any credit card agreement previously submitted to the 

CFPB that the issuer is withdrawing, as described in section 1026.58(c)(4), (c)(5), 

(c)(6), and (c)(7) (1026.58(c)(1)(iv)). 

b.	 Verify that quarterly submissions were sent to the CFPB no later than the first 

business day on or after January 31, April 30, July 31, and October 31, of each year. 

(§1026.58(c)(1)) 

c.	 If a credit card agreement that previously has been submitted to the CFPB is 

amended, verify that the card issuer submits the entire amended agreement to the 

CFPB, in the form and manner specified by the CFPB, by the first quarterly 

submission deadline after the last day of the calendar quarter in which the change 

became effective. (§1026.58(c)(3)) 

NOTE: If a credit card agreement has been submitted to the CFPB, the agreement has 

not been amended and the card issuer continues to offer the agreement to the public, 

no additional submission regarding that agreement is required. 

d.	 If a card issuer no longer offers to the public a credit card agreement that previously 

has been submitted to the CFPB, ensure that the card issuer notifies the CFPB by the 

first quarterly submission deadline after the last day of the calendar quarter in which 

the issuer ceased to offer the agreement. (§1026.58(c)(4)) 

NOTE: A card issuer is not required to submit any credit card agreements to the 

CFPB if the card issuer had fewer than 10,000 open credit card accounts as of the last 

business day of the calendar quarter. (§1026.58(c)(5)(i)) 

e.	 If an issuer that previously qualified for the de minimis exception ceases to qualify, 

determine that the card issuer begins making quarterly submissions to the CFPB no 

later than the first quarterly submission deadline after the date as of which the issuer 

ceased to qualify. (§1026.58(c)(5)(ii)) 

f.	 If a card issuer that did not previously qualify for the de minimis exception qualifies 

for the de minimis exception, determine that the card issuer continues to make 

quarterly submissions to the CFPB until the issuer notifies the CFPB that the card 

issuer is withdrawing all agreements it previously submitted to the CFPB. 

(§1026.58(c)(5)(iii)) 

g.	 A card issuer is not required to submit to the CFPB a credit card agreement if, as of 

the last business day of the calendar quarter, the agreement is offered for accounts 

under one or more private label credit card plans each of which has fewer than 10,000 

open accounts and is not offered to the public other than for accounts under such a 

plan. (§1026.58(c)(6)(i)) 

NOTE: A private label credit card is one that is usable only at a single merchant or 

affiliated group of merchants. A private label credit card plan is all private label credit 

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card accounts issued by a particular issuer with credit cards usable at the same single 

merchant or affiliated group of merchants. (§1026.58(b)(8)) 

h. If an agreement that previously qualified for the private label credit card exception 

ceases to qualify, determine that the card issuer submits the agreement to the CFPB 

no later than the first quarterly submission deadline after the date as of which the 

agreement ceased to qualify. (§1026.58(c)(6)(ii)) 

i. If an agreement that did not previously qualify for the private label credit card 

exception qualifies for the exception, determine that the card issuer continues to make 

quarterly submissions to the CFPB with respect to that agreement until the issuer 

notifies the CFPB that the agreement is being withdrawn. (§1026.58(c)(6)(iii)) 

NOTE: A card issuer is not required to submit to the CFPB a credit card agreement if, 

as of the last business day of the calendar quarter, the agreement is offered as part of a 

product test offered to only a limited group of consumers for a limited period of time, 

is used for fewer than 10,000 open accounts, and is not offered to the public other 

than in connection with such a product test. (§1026.58(c)(7)(i)) 

j. If an agreement that previously qualified for the product testing exception ceases to 

qualify, determine that the card issuer submits the agreement to the CFPB no later 

than the first quarterly submission deadline after the date as of which the agreement 

ceased to qualify. (§1026.58(c)(7)(ii)) 

k. If an agreement that did not previously qualify for the product testing exception 

qualifies for the exception, determine that the card issuer continues to make quarterly 

submissions to the CFPB with respect to that agreement until the issuer notifies the 

CFPB that the agreement is being withdrawn. (§1026.58(c)(7)(iii)) 

l. Verify that each agreement contains the provisions of the agreement and the pricing 

information in effect as of the last business day of the preceding calendar quarter. 

(§1026.58(c)(8)(i)(A)) 

m. Verify that agreements do not include any personally identifiable information relating 

to any cardholder, such as name, address, telephone number, or account number. 

(§1026.58(c)(8)(i)(B)) 

n.	 Verify that agreements are presented in a clear and legible font. 

(§1026.58(c)(8)(i)(D)) 

o.	 Verify that pricing information is set forth in a single addendum to the agreement that 

contains only the pricing information. (§1026.58(c)(8)(ii)(A)) 

NOTE: With respect to information other than the pricing information that may vary 

between cardholders depending on creditworthiness, state of residence, or other 

factors, issuers may, but are not required to, include that information in a single 

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addendum (the optional variable terms addendum) to the agreement separate from the 

pricing addendum (§1026.58(c)(8)(iii)). 

p. If pricing information varies from one cardholder to another depending on the 

cardholder’s creditworthiness or state of residence or other factors, verify that the 

pricing information is disclosed either by setting forth all the possible variations (such 

as purchase APRs of 13 percent, 15 percent, 17 percent, and 19 percent) or by 

providing a range of possible variations (such as purchase APRs ranging from 13 

percent to 19 percent). (§1026.58(c)(8)(ii)(B)) 

q. If a rate included in the pricing information is a variable rate, verify that the issuer 

identifies the index or formula used in setting the rate and the margin. 

(§1026.58(c)(8)(ii)(C)) 

r. If rates vary from one cardholder to another, verify that the issuer discloses such rates 

by providing the index and the possible margins (such as the prime rate plus 5 

percent, 8 percent, 10 percent, or 12 percent) or range of margins (such as the prime 

rate plus from 5 to 12 percent). (§1026.58(c)(8)(ii)(C)) 

NOTE: The value of the rate and the value of the index are not required to be 

disclosed. 

s. Determine that issuers do not provide provisions of the agreement or pricing 

information in the form of change-in-terms notices or riders (other than the pricing 

information addendum and the optional variable terms addendum). 

(§1026.58(c)(8)(iv)) 

t. Determine that changes in provisions or pricing information are integrated into the 

text of the agreement, the pricing information addendum or the optional variable 

terms addendum, as appropriate. (§1026.58(c)(8)(iv)) 

The Posting of Agreements Offered to the Public – Section 

1026.58(d) 

a.	 Determine that the card issuer posts and maintains on its publicly available website 

the credit card agreements that the issuer is required to submit to the CFPB under 

section 1026.58(c). (§1026.58(d)(1)) 

b.	 With respect to an agreement offered solely for accounts under one or more private 

label credit card plans (and the issuer does not post and maintain the agreements on 

its publicly available website), determine that the issuer posts and maintains the 

agreement on the publicly available website of at least one of the merchants where 

cards issued under each private label credit card plan with 10,000 or more open 

accounts may be used. (§1026.58(d)(1)) 

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c.	 Verify that agreements posted pursuant to section 1026.58(d) conform to the form 

and content requirements for agreements submitted to the CFPB specified in section 

1026.58(c)(8). (§1026.58(d)(2)) 

d.	 Determine that agreements are posted in an electronic format that is readily usable by 

the general public. (§1026.58(d)(3)) 

e.	 Verify that agreements are placed in a location on its website that is prominent and 

readily accessible by the public and accessible without submission of personally 

identifiable information. (§1026.58(d)(3)) 

f.	 Determine that the card issuer updates the agreements posted on its website at least as 

frequently as the quarterly schedule required for submission of agreements to the 

CFPB under section 1026.58(c). (§1026.58(d)(4)) 

NOTE: If the issuer chooses to update the agreements on its website more frequently, 

the agreements posted on the issuer’s website may contain the provisions of the 

agreement and the pricing information in effect as of a date other than the last 

business day of the preceding calendar quarter. 

The Posting of Agreements for “Open” Accounts – 

Section 1026.58(e) 

a.	 With respect to any open (i.e., the cardholder can obtain extensions or there is an 

outstanding balance on the account that has not been charged off) credit card account, 

determine that the card issuer either: 

1.	 Posts and maintains the cardholder’s agreement on its website; or 

2.	 Promptly provides a copy of the cardholder’s agreement to the cardholder upon 

the cardholder’s request. 

b.	 If the card issuer makes an agreement available upon request, ensure that the issuer 

provides the cardholder with the ability to request a copy of the agreement both by: 

1.	 Using the issuer’s website, such as by clicking on a clearly identified box to make 

the request (§1026.58(e)(1)(ii)), and 

2.	 Calling a readily available telephone line the number for which is displayed on 

the issuer’s website and clearly identified as to purpose. (§1026.58(e)(1)(ii) and 

(e)(2)) 

c.	 If an issuer does not maintain a website from which cardholders can access specific 

information about their individual accounts determine that the issuer makes 

agreements available upon request by providing the cardholder with the ability to 

request a copy of the agreement by calling a readily available telephone line the 

number for which is (§1026.58(e)(2)): 

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1.	 Displayed on the issuer’s website and clearly identified as to purpose; or 

2.	 Included on each periodic statement sent to the cardholder and clearly identified 

as to purpose. 

d.	 Verify that the card issuer sends to the cardholder or otherwise make available to the 

cardholder a copy of the cardholder’s agreement in electronic or paper form no later 

than 30 days after the issuer receives the cardholder’s request. (§1026.58(e)(1)(ii)) 

e.	 Determine that agreements posted on the card issuer’s website or made available 

upon the cardholder’s request conform to the form and content requirements for 

agreements submitted to the CFPB specified in section 1026.58(c)(8). 

(§1026.58(e)(3)(i)) 

f.	 If the card issuer posts an agreement on its website or otherwise provides an 

agreement to a cardholder electronically, verify that the agreement is posted or 

provided in an electronic format that is readily usable by the general public and is 

placed in a location that is prominent and readily accessible to the cardholder. 

(§1026.58(e)(3)(ii)) 

g.	 If agreements posted or otherwise provided contain personally identifiable 

information relating to the cardholder, such as name, address, telephone number, or 

account number, ensure that the issuer takes appropriate measures to make the 

agreement accessible only to the cardholder or other authorized persons. 

(§1026.58(e)(3)(iii)) 

h.	 Determine that agreements posted or otherwise provided set forth the specific 

provisions and pricing information applicable to the particular cardholder. 

(§1026.58(e)(3)(iv)) 

i.	 Determine that provisions and pricing information are complete and accurate as of a 

date no more than 60 days prior to (§1026.58(e)(3)(iv)): 

1.	 The date on which the agreement is posted on the card issuer’s website under 

section 1026.58(e)(1)(i); 

2.	 The date the cardholder’s request is received under section 1026.58(e)(1)(ii) or 

(e)(2). 

NOTE: Card issuers may provide credit card agreements in electronic form under 

section 1026.58(d) and (e) without regard to the consumer notice and consent 

requirements of section 101(c) of the Electronic Signatures in Global and National 

Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). (§1026.58(f)) 

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Advertising (Open- and Closed-End) 

8.	 For open- and closed-end loans, sample advertising copy, including any electronic 

advertising, since the previous examination and verify that the terms of credit are 

accurate, clear, balanced, and conspicuous. If triggering terms are used, determine that 

the required disclosures are made (§§1026.16 and 1026.24). 

a.	 For advertisements for closed-end credit: 

1.	 If a rate of finance charge was stated, determine that it was stated as an APR. 

2.	 If an APR will increase after consummation, verify that a statement to that fact is 

made. 

3.	 Determine whether there are deceptive or misleading statements or practices. 

b.	 Determine that the creditor does not offer college students any tangible item to induce 

such students to apply for or open an open-end consumer credit plan offered by such 

creditor, if such offer is made: 

1.	 On the campus of an institution of higher education; 

2.	 Near the campus of an institution of higher education; or 

3.	 At an event sponsored by or related to an institution of higher education. 

(§1026.57(c)) 

c.	 If an open-end credit advertisement refers to an APR as “fixed” (or similar term), 

determine 1) that the advertisement also specifies a time period that the rate will be 

fixed and 2) that the rate will not increase during that period. (§1026.16(f)) 

d.	 If an open-end credit advertisement used the word “fixed” or a similar word and no 

time period is specified in which the rate will be fixed, determine that the rate will not 

increase while the plan is open. (§1026.16(f)) 

e.	 For any advertisement of an open-end (not home-secured) plan, if an APR or fee that 

may be applied to the account is an introductory rate or introductory fee, determine 

that the term introductory or intro is in immediate proximity to each listing of the 

introductory rate or introductory fee in a written or electronic advertisement. 

(§1026.16(g)(3)) 

f.	 For any advertisement of an open-end (not home-secured) plan, if any APR or fee 

that may be applied to the account is a promotional rate under section 

1026.16(g)(2)(i) or any fee that may be applied to the account is a promotional fee 

under section 1026.16(g)(2)(iv), determine that the following information is stated in 

a clear and conspicuous manner in the advertisement (§1026.16(g)(4)): 

1.	 When the promotional rate or promotional fee will end and 

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2.	 The annual percentage rate that will apply after the end of the promotional period. 

NOTE: If such rate is variable, determine that the annual percentage rate complies 

with the accuracy standards in sections 1026.60(c)(2), 1026.60(d)(3), 1026.60(e)(4), 

or 1026.16(b)(1)(ii), as applicable. If such rate cannot be determined at the time 

disclosures are given because the rate depends at least in part on a later determination 

of the consumer’s creditworthiness, determine that the advertisement discloses the 

specific rates or the range of rates that might apply. (§1026.16(g)(4)(ii)). Further, if 

the promotional rate or fee is stated in a written or electronic advertisement, 

determine that the information in sections 1026.16 (g)(4)(i), and, as applicable, 

(g)(4)(ii), or (g)(4)(iii) are also stated in a prominent location closely proximate to the 

first listing of the promotional rate or promotional fee. 

g.	 If a deferred interest offer is advertised for an open-end account not subject to Section 

1026.40, determine that the deferred interest period is stated in a clear and 

conspicuous manner in the advertisement. If the phrase “no interest” or similar term 

regarding the possible avoidance of interest obligations under the deferred interest 

program is stated, determine that the term “if paid in full” is also stated in a clear and 

conspicuous manner preceding the disclosure of the deferred interest period in the 

advertisement. If the deferred interest offer is included in a written or electronic 

advertisement, determine that the deferred interest period and, if applicable, the term 

“if paid in full” are stated in immediate proximity to each statement of “no interest,” 

“no payments,” “deferred interest,” “same as cash,” or similar term regarding interest 

or payments during the deferred interest period. (§1026.16(h)(3)) 

h.	 If any deferred interest offer is advertised for an open-end account not subject to 

Section 1026.40, determine that the (h)(4)(i) and (h)(4)(ii) language (of Section 

1026.16(h)(4) ) is stated in the advertisement and is similar to Sample G–24 in 

Appendix G. If the deferred interest offer is included in a written or electronic 

advertisement, determine that this information is stated in a prominent location 

closely proximate to the first statement of “no interest,” “no payments,” “deferred 

interest,” “same as cash,” or similar term regarding interest or payments during the 

deferred interest period. (§1026.16(h)(4)) 

NOTE: The requirements in Section 1026.16(h)(4) apply to any advertisement of an 

open-end credit plan not subject to Section 1026.40 (requirements for home equity 

plans) Section 1026.16(h)(1). However, the requirements do not apply to an envelope 

or other enclosure in which an application or solicitation is mailed, or to a banner 

advertisement or pop-up advertisement linked to an application or solicitation 

provided electronically. (§1026.16(h)(5)) 

Transactional Testing 

NOTE: When verifying APR accuracies, use the OCC's APR calculation model or other 

calculation tool acceptable to your regulatory agency. 

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Review the financial institution’s closed-end and open-end transactions to ensure accuracy 

and completeness. 

Closed-End Credit Transactional Testing Procedures 

a.	 For each type of closed-end loan being tested, determine the accuracy of the 

disclosures by comparing the disclosures to the contract and other financial institution 

documents. (§1026.17) 

b.	 Determine whether the required disclosures were made before consummation of the 

transaction and ensure the presence and accuracy of the items below, as applicable. 

(§1026.18) 

1.	 Creditor 

2. Amount financed 

3.	 Itemization of the amount financed (RESPA GFE may substitute) 

4.	 Finance charge 

5.	 APR 

6.	 Variable rate information as follows for loans not secured by a principal dwelling 

or secured by a principal dwelling with terms of one year or less: 

a.	 Circumstances which permit rate increase 

b.	 Limitations on the increase (periodic or lifetime) 

c.	 Effect of the increase 

d.	 Hypothetical example of new payment terms that would result from an 

increase 

7.	 Payment schedule including the number, amount, and timing of payments. 

8.	 Total of payments 

9.	 Demand feature 

10. Total sale price (credit sale) 

11. Prepayment 

12. Late payment 

13. Security interest 

14. Insurance and debt cancellation 

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15. Certain security interest charges 

16. Contract reference 

17. Assumption policy 

18. Required deposit 

19. Interest rate and payment summary for mortgage transactions 

20. No-guarantee-to-refinance statement 

c.	 Determine for adjustable rate mortgage loans with maturities of more than one year 

that the required early and subsequent disclosures are complete, accurate, and timely. 

Early disclosures required by section 1026.19(a) should be verified during the closedend credit forms review. Subsequent disclosures should include the items below, as 

applicable. (§1026.20(c)) 

1.	 Current and prior interest rates 

2.	 Index values used to determine current and prior interest rates 

3.	 Extent to which the creditor has foregone an increase in the interest rate 

4.	 Contractual effects of the adjustment (new payment and loan balance) 

5.	 Payment required to avoid negative amortization. 

NOTE: The accuracy of the adjusted interest rates and indexes should be verified by 

comparing them with the contract and early disclosures. Refer to the Additional 

Variable Rate Testing section of these examination procedures. 

d.	 Determine, for each type of closed-end rescindable loan being tested, the appropriate 

number of copies of the rescission notice are provided to each person whose 

ownership interest is or will be subject to the security interest. The creditor must 

deliver two copies of the notice of right to rescind to each consumer entitled to 

rescind. The rescission notice must disclose the items below. (§1026.23(b)(1)) 

1.	 Security interest taken in the consumer's principal dwelling 

2.	 Consumer's right to rescind the transaction 

3.	 How to exercise the right to rescind, with a form for that purpose, designating the 

address of the creditor's place of business 

4.	 Effects of rescission 

5.	 Date the rescission period expires. 

e.	 Ensure funding was delayed until the rescission period expired. (§1026.23(c)) 

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f.	 Determine if the consumer has waived the three-day right to rescind since the 

previous examination. If applicable, test rescission waivers. (§1026.23(e)) 

g.	 Determine whether the maximum interest rate in the contract is disclosed for any 

consumer credit contract secured by a dwelling if the APR may increase after 

consummation. (§1026.30(a)) 

h.	 For private student loans with a right to cancel, review cancellation requests to 

determine if they were properly handled. (§1026.47(c)) 

Certain Home Mortgage Transactions Subject to Subpart E 

a.	 Determine whether the financial institution originates consumer credit transactions 

subject to Subpart E of Regulation Z; specifically, certain closed-end home mortgages 

(high-cost mortgages (§1026.32), reverse mortgages (§1026.33), and “higher-priced 

mortgage loans” (§1026.35). (Examiners may use the attached worksheet as an aid for 

identifying and reviewing high-cost mortgages.) 

b.	 In addition to reviewing high-cost mortgages and reverse mortgages for compliance 

with requirements in other subparts of Regulation Z (for example, disclosure timing 

requirements under section 1026.19(a)), review such mortgages to ensure the 

following: 

1.	 Required disclosures are provided to consumers in addition to, not in lieu of, the 

disclosures contained in other subparts of Regulation Z. (§1026.31(a)) 

2.	 Disclosures are clear and conspicuous, in writing, and in a form that the consumer 

may keep. (§1026.31(b)) 

3.	 Disclosures are furnished at least three business days prior to consummation of a 

mortgage transaction covered by section 1026.32 or a closed-end reverse 

mortgage transaction (or at least three business days prior to the first transaction 

under an open-end reverse mortgage). (§1026.31(c)) 

4.	 Disclosures reflect the terms of the legal obligation between the parties. 

(§1026.31(d)) 

5.	 If the transaction involves more than one creditor, that only one creditor provided 

the disclosures. Where the obligation involves multiple consumers, ensure that the 

disclosures were provided to any consumer who is primarily liable on the 

obligation. Further, for rescindable transactions, verify that the disclosures were 

provided to each consumer who has the right to rescind. (§1026.31(e)) 

6.	 The APR is accurately calculated and disclosed in accordance with the 

requirements and within the tolerances allowed in section 1026.22. (§1026.31(g)) 

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c.	 For high-cost mortgages (§1026.32), ensure that, in addition to other required 

disclosures, the creditor discloses the following at least three business days prior to 

consummation (See model disclosure at App. H-16): 

1.	 Notice containing the prescribed language. (§1026.32(c)(1)) 

2.	 The APR. (§1026.32(c)(2)) 

3.	 Amount of regular loan payment and the amount of any balloon payment. The 

disclosed regular payment should be treated as accurate if it is based on an 

amount borrowed that is deemed accurate under section 1026.32(c)(5). 

(§1026.32(c)(3)) 

4.	 For variable rate loans, a statement that the interest rate and monthly payment 

may increase, and the amount of the single maximum monthly payment allowed 

under the contract. (§1026.32(c)(4)) 

5.	 For a mortgage refinancing, the total amount the consumer will borrow (the face 

amount of the note) and if this amount includes premiums or other charges for 

optional credit insurance or debt-cancellation coverage, that fact is stated. This 

disclosure should be treated as accurate if within $100 of the actual amount 

borrowed. (§1026.32(c)(5)) 

6.	 A new disclosure is required if, subsequent to providing the additional disclosure 

but prior to consummation, there are changes in any terms that make the 

disclosures inaccurate. For example, if a consumer purchases optional credit 

insurance and, as a result, the monthly payment differs from the payment 

previously disclosed, re-disclosure is required and a new three-day waiting period 

applies. (§1026.31(c)(1)(i)) 

7.	 If a creditor provides new disclosures by telephone when the consumer initiates a 

change in terms, then at consummation (§1026.31(c)(1)(ii)) : The creditor must 

provide new written disclosures and both parties must sign a statement that these 

new disclosures were provided by telephone at least three days prior to 

consummation. 

8.	 If a consumer waives the right to a three-day waiting period to meet a bona fide 

personal financial emergency, the consumer’s waiver must be a dated written 

statement (not a pre-printed form) describing the emergency and bearing the 

signature of all entitled to the waiting period (a consumer can waive only after 

receiving the required disclosures and prior to consummation). 

(§1026.31(c)(1)(iii)) 

d.	 High-cost mortgage transactions (§1026.32) may not include any of the following 

loan terms: 

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1.	 Balloon payment (if term is less than five years, with exceptions). 

(§1026.32(d)(1)(i) and (ii))
 

2.	 Negative amortization. (§1026.32(d)(2)) 

3.	 Advance payments from the proceeds of more than 2 periodic payments. 

(§1026.32(d)(3))
 

4.	 Increased interest rate after default. (§1026.32(d)(4)) 

5.	 A rebate of interest, arising from a loan acceleration due to default, calculated by 

a method less favorable than the actuarial method. (§1026.32(d)(5)) 

6.	 Prepayment penalty, unless: 

•	 it will not apply after the two-year period following consummation; 

•	 it will not apply if the source of prepayment funds is a refinancing by the 

creditor or an affiliate of the creditor; 

•	 the consumer’s total monthly debt payments (including amounts owed under 

mortgage), at consummation, is 50 percent or less of the consumer’s monthly 

gross income (as verified in accordance with section 1026.34(a)(4)(ii)); and, 

•	 The amount of the periodic payment of principal or interest or both may not 

change during the four-year period following consummation. 

(§§1026.32(d)(6) and 1026.32(d)(7)) 

7.	 A due-on-demand clause permitting the creditor to terminate the loan in advance 

of maturity and accelerate the balance, with certain exceptions. (§1026.32(d)(8)) 

e.	 The creditor is not engaged in the following acts and practices for high-cost 

mortgages: 

1.	 Home improvement contracts – Paying a contractor under a home improvement 

contract from the proceeds of a mortgage unless certain conditions are met. 

(§1026.34(a)(1)) 

2.	 Notice to assignee – Selling or otherwise assigning a high-cost mortgage without 

furnishing the required statement to the purchaser or assignee. (§1026.34(a)(2)) 

3.	 Refinancing within one year of extending credit – Within one year of making a 

high-cost mortgage (§1026.32), a creditor may not refinance any high-cost 

mortgage to the same borrower into another high-cost mortgage that is not in the 

borrower’s interest. This also applies to assignees that hold or service the highcost mortgage. Commentary to 34(a)(3) has examples applying the refinancing 

prohibition and addressing “borrower’s interest.” (§1026.34(a)(3)) 

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f.	 For higher-priced mortgage loans (§1026.35), ensure that the loan terms do not 

provide for a prepayment penalty, unless: 

1.	 The penalty is otherwise permitted by law, including section 1026.32(d)(6); 

2.	 The penalty will not apply after the two-year period following consummation 

(§1026.35(b)(2)(ii)(A)); 

3.	 The penalty will not apply if the source of prepayment funds is a refinancing by 

the creditor or an affiliate of the creditor section 1026.35(b)(2)(ii)(B); and 

4.	 The amount of the periodic payment of principal or interest or both may not 

change during the four-year period following consummation. 

(§1026.35(b)(2)(ii)(C)) 

g.	 For higher-priced mortgage loans secured by a first lien on a principal dwelling 

escrow accounts are established before consummation for property taxes and 

premiums for mortgage-related insurance required by the creditor. (§1026.35(b)(3)(i)) 

h.	 For both high-cost (§1026.32) and higher-priced mortgages (§1026.35), review for 

the following: 

1.	 Ensure the subject loans are not being extended based on the consumer’s 

collateral without regard to repayment ability, including the consumer’s current 

and expected income, current obligations, mortgage related obligations, assets 

other than collateral, and employment. (§1026.35(b)(1)) 

2.	 Review underwriting standards. 

3.	 Ensure the creditor bases its determination of repayment ability on current or 

reasonably expected income from employment or other sources, or assets other 

than the collateral, or both. 

4.	 Determine that a creditor verifies amounts of income or assets that it relies on to 

determine repayment ability, including expected income or assets, by the 

consumer’s Internal Revenue Service Form W-2, tax returns, payroll receipts, 

financial institution records, or other third-party documents that provide 

reasonably reliable evidence of the consumer’s income or assets. 

5.	 To establish whether a presumption of compliance applies, determine whether a 

creditor verifies the consumer’s current obligations by: 

i.	 Verifying repayment ability as described above; 

ii.	 Determining the consumer’s repayment ability by using the largest payment of 

principal and interest in the first seven years following consummation, taking 

into account current and mortgage-related obligations; and 

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iii.	 Assessing the consumer’s repayment ability taking into account at least one of 

the following: the ratio of total debt obligations to income, or the income the 

consumer will have after paying debt obligations. 

6.	 Evasion of requirements: Ensure that the creditor does not structure a high-cost or 

higher-priced mortgage loan as an open-end plan (“spurious open-end credit”) to 

evade the requirements of Regulation Z. See staff commentary to 34(b) for factors 

to be considered. (§1026.35(b)(4)) 

i.	 Servicing Practices: The following are prohibited acts or practices in connection with 

credit secured by a consumer’s principal dwelling (§1026.36(c)): 

i.	 Failed to credit a conforming payment to the consumer’s loan account as 

of the date of receipt, where the delay in crediting resulted in a charge to 

the consumer or in the reporting of negative information to a credit 

reporting agency except as provided in section 1026.36(c)(2). 

(§1026.36(c)(1)(i)); 

ii.	 Imposed on the consumer any late fee or delinquency charge in connection 

with a payment, when the only delinquency was attributable to late fees or 

delinquency charges assessed on an earlier payment, and the payment is 

otherwise a full payment for the applicable period and is paid on its due 

date or within any applicable grace period (§1026.36(c)(1)(ii)); or, 

iii.	 Failed to provide, within a reasonable time after receiving a request from 

the consumer or person acting on behalf of the consumer, an accurate 

statement of the total outstanding balance that would be required to satisfy 

the consumer’s obligations in full as of a specific date. 

(§1026.36(c)(1)(iii)) A reasonable time under most circumstances would 

be to provide the statement within five business days, unless refinance 

application volume is unusually high. (§1026.36(c)(1)(iii)-1) 

Prohibited Payments to Loan Originators6 

a.	 Determine that, in connection with a consumer credit transaction secured by a 

dwelling,7

 no loan originator receives and no person pays to a loan originator, directly 

6

The term ‘‘loan originator’’ means, with respect to a particular transaction, a person who for compensation or other 

monetary gain, or in expectation of compensation or other monetary gain, arranges, negotiates, or otherwise obtains 

an extension of consumer credit for another person. The term ‘‘loan originator’’ includes an employee of the 

creditor if the employee meets this definition. The term ‘‘loan originator’’ includes the creditor only if the creditor 

does not provide the funds for the transaction at consummation out of the creditor’s own resources, including 

drawing on a bona fide warehouse line of credit, or out of deposits held by the creditor. A mortgage broker with 

respect to a particular transaction is any loan originator that is not an employee of the creditor. See 12 CFR 

Sec.1026.36 (a)(1)&(2) 

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or indirectly, compensation8 that is based on any of the transaction’s terms or 

conditions. (§1026.36(d)(1)(i)) 

NOTE: This prohibition does not apply if the loan originator receives compensation 

directly from a consumer in a consumer credit transaction secured by a dwelling. 

Additionally, the amount of credit extended is not deemed to be a transaction term or 

condition, provided compensation received by or paid to a loan originator, directly or 

indirectly, is based on a fixed percentage of the amount of credit extended. Such 

compensation may be subject to a minimum or maximum dollar amount. 

b.	 If any loan originator receives compensation directly from a consumer in a consumer 

credit transaction secured by a dwelling, determine that (§1026.36(d)(2)): 

1.	 No loan originator receives compensation, directly or indirectly, from any person 

other than the consumer in connection with the transaction (§1026.36(d)(2)(i)); and 

2.	 No person who knows or has reason to know of the consumer-paid compensation 

to the loan originator (other than the consumer) pays any compensation to a loan 

originator, directly or indirectly, in connection with the transaction. 

(§1026.36(d)(2)(ii)) 

Prohibition on Steering 

a.	 Determine that, in connection with a consumer credit transaction secured by a 

dwelling, a loan originator does not direct or “steer” a consumer to consummate a 

transaction based on the fact that the originator will receive greater compensation 

from the creditor in that transaction than in other transactions the originator offered or 

could have offered to the consumer, unless the consummated transaction is in the 

consumer’s interest. (§1026.36(e)(1)) 

NOTE: The rule provides a safe harbor to facilitate compliance with the prohibition 

on steering in section 1026.36(e)(1). The loan originator is deemed to comply with 

the anti-steering prohibition if the consumer is presented with loan options that meet 

all of the following conditions for each type of transaction in which the consumer 

expressed an interest:9 

7 Sections. 1026.36(d) and (e) do not apply to a home-equity line of credit subject to Sec.1026.40 or to a loan that is 

secured by a consumer’s interest in a timeshare plan described in 11 U.S.C. 101(53D). (§1026.36(f)) 

8 Compensation includes salaries, commissions, and any financial or similar incentive, such as an annual or periodic 

bonus. (commentary §1026 36(d)(1)-1) 

9 The term ‘‘type of transaction’’ refers to whether: (i) A loan has an APR that cannot increase after consummation; 

(ii) A loan has an APR that may increase after consummation; or (iii) A loan is a reverse mortgage. (§1026.36(e)(2)) 

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1.	 The loan originator obtains loan options from a significant number of the creditors 

with which the originator regularly does business and, for each type of transaction 

in which the consumer expressed an interest, presents the consumer with loan 

options that include (§1026.36(e)(3)(i)): 

i. The loan with the lowest interest rate; 

ii.	 The loan with the lowest interest rate without negative amortization, a 

prepayment penalty, interest-only payments, a balloon payment in the first 

seven years of the life of the loan, a demand feature, shared equity, or shared 

appreciation; or, in the case of a reverse mortgage, a loan without a 

prepayment penalty, or shared equity or shared appreciation; and 

iii.	 The loan with the lowest total dollar amount for origination points or fees and 

discount points. 

2.	 The loan originator has a good faith belief that the options (presented to the 

consumer that are set forth, above) are loans for which the consumer likely 

qualifies. (§1026.36(e)(3)(ii)) 

3.	 For each type of transaction, if the originator presents to the consumer more than 

three loans, the originator highlights the loans that satisfy options 1.i, 1.ii, and 

1.iii above. (§1026.36(e)(3)(iii)) 

NOTE: If the requirements set forth in Section 1026.36(e) are met, the loan originator 

can, without steering, present fewer than three loans. (§1026.36(e)(4)) 

Valuation Independence 

a.	 Determine that the covered person did not attempt to directly or indirectly cause the 

value assigned to the consumer's principal dwelling to be based on any factor other 

than the independent judgment of a person that prepares valuations. Examples of such 

attempts include (§1026.42(c)): 

1.	 Seeking to influence a person that prepares a valuation to report a minimum or 

maximum value for the consumer's principal dwelling; 

2.	 Withholding or threatening to withhold timely payment to a person that prepares a 

valuation or performs valuation management functions because the person does 

not value the consumer's principal dwelling at or above a certain amount; 

3.	 Implying to a person that prepares valuations that current or future retention of the 

person depends on the amount at which the person estimates the value of the 

consumer's principal dwelling; 

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4.	 Excluding a person that prepares a valuation from consideration for future 

engagement because the person reports a value for the consumer's principal 

dwelling that does not meet or exceed a predetermined threshold; and 

5.	 Conditioning the compensation paid to a person that prepares a valuation on 

consummation of the covered transaction. 

b.	 Determine that the valuation does not materially misrepresent the value of the 

consumer's principal dwelling. (§1026.42(c)(2)(i)) 

NOTE: A misrepresentation is material if it is likely to significantly affect the value 

assigned to the consumer's principal dwelling. A bona fide error shall not be a 

misrepresentation. 

c.	 Determine that a valuation was not falsified or materially altered. (§1026.42(c)(2)(ii)) 

NOTE: An alteration is material if it is likely to significantly affect the value assigned 

to the consumer's principal dwelling. 

d.	 Determine that the covered person does not induce a person to materially 

misrepresent or falsify the value of a consumer’s principal dwelling (in violation of 

section 1026.42(c)(2)(i) or (ii)). (§1026.42(c)(2)(iii)) 

e.	 Prohibition on conflicts of interest. To the extent applicable, determine that the person 

who prepared the valuations or performed the valuation management functions for a 

covered transaction did not have a direct or indirect interest, financial or otherwise, in 

the property or transaction for which the valuation is or will be performed. 

(§1026.42(d)(1)(i)) 

NOTE: No person violates this section solely because that the person is an employee 

or affiliate of the creditor, or provides a settlement service in addition to preparing 

valuations or performing valuation management functions, or based solely on the fact 

that the person's affiliate performs another settlement service, as long as the 

conditions discussed below ((f), (g), and (h)) are met If they are not met, whether the 

conflicts of interest provisions are violated by the above persons or entities depends 

on all of the facts and circumstances. In other words, the conditions in (f), (g), and (h) 

are a safe harbor, but not required. 

f.	 For any consumer credit transaction secured by the consumer’s principal dwelling in 

which the creditor had assets of more than $250 million as of December 31st for both 

of the past two calendar years, determine that a person subject to section 

1026.42(d)(1)(i) who is employed by or affiliated with the creditor does not have a 

conflict of interest in violation of section 1026.42(d)(1)(i) based solely on the person's 

employment or affiliate relationship with the creditor if (§1026.42(d)(2)): 

1. The compensation of the person preparing a valuation or performing valuation 

management functions is not based on the value arrived at in any valuation; 

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2.	 The person preparing a valuation or performing valuation management functions 

reports to a person who is not part of the creditor's loan production function, as 

defined in section 1026.42(d)(5)(i), and whose compensation is not based on the 

closing of the transaction to which the valuation relates; and 

3.	 No employee, officer or director in the creditor's loan production function, as 

defined in section 1026.42(d)(5)(i), is directly or indirectly involved in selecting, 

retaining, recommending or influencing the selection of the person to prepare a 

valuation or perform valuation management functions, or to be included in or 

excluded from a list of approved persons who prepare valuations or perform 

valuation management functions. 

g.	 For any covered transaction in which the creditor had assets of $250 million or less as 

of December 31st for either of the past two calendar years, determine that a person 

subject to section 1026.42(d)(1)(i) who is employed by or affiliated with the creditor 

does not have a conflict of interest in violation of section 1026.42(d)(1)(i) based 

solely on the person's employment or affiliate relationship with the creditor if 

(§1026.42(d)(3)): 

1.	 The compensation of the person preparing a valuation or performing valuation 

management functions is not based the value arrived at in any valuation; and 

2.	 The creditor requires that any employee, officer or director of the creditor who 

orders, performs, or reviews a valuation for a covered transaction abstain from 

participating in any decision to approve, not approve, or set the terms of that 

transaction. 

h.	 For any covered transaction, determine that a person who prepares a valuation or 

performs valuation management functions in addition to performing another 

settlement service for the transaction, or whose affiliate performs another settlement 

service for the transaction, does not have a conflict of interest in violation of section 

1026.42(d)(1)(i) as a result of the person or the person's affiliate performing another 

settlement service for the transaction if (§1026.42(d)(4)): 

1.	 The creditor had assets of more than $250 million as of December 31st for both of 

the past two calendar years and the conditions in paragraph (d)(2)(i)-(iii) are met; 

or 

2.	 The creditor had assets of $250 million or less as of December 31st for either of 

the past two calendar years and the conditions in paragraph (d)(3)(i)-(ii) are met. 

i.	 If the creditor did know at or before consummation of a violation of sections 

1026.42(c) or (d) in connection with a valuation, determine that the creditor did not 

extend credit based on the valuation, unless the creditor documented that it acted with 

reasonable diligence to determine that the valuation did not materially misstate or 

misrepresent the value of the consumer's principal dwelling. (§1026.42(e)) 

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NOTE: For purposes of section 1026.42(e), a valuation materially misstates or 

misrepresents the value of the consumer's principal dwelling if the valuation contains 

a misstatement or misrepresentation that affects the credit decision or the terms on 

which credit is extended. 

j.	 Customary and reasonable compensation. For any covered transaction, determine that 

the creditor and its agents compensated a fee appraiser for performing appraisal 

services at a rate that is customary and reasonable for comparable appraisal services 

performed in the geographic market of the property being appraised. (§1026.42(f)(1)) 

NOTE: For purposes of section 1026.42(f), “agents” of the creditor do not include 

any fee appraiser as defined in section 1026.42(f)(4)(i). An “agent” could be an 

appraisal management company to which the creditor has outsourced the valuation 

function. 

k.	 If the creditor reasonably believes an appraiser has not complied with the Uniform 

Standards of Professional Appraisal Practice or ethical or professional requirements 

for appraisers under applicable state or federal statutes or regulations, determine that 

the creditor referred the matter within a reasonable period of time to the appropriate 

state agency if the failure to comply is material. (§1026.42(g)(1)) 

NOTE: For purposes of section 1026.42(g), a failure to comply is material if it is 

likely to significantly affect the value assigned to the consumer's principal dwelling. 

Open-End Credit Transactional Testing Procedures 

a.	 For each open-end credit product tested, determine the accuracy of the disclosures by 

comparing the disclosure with the contract and other financial institution documents. 

(§1026.5(c)) 

b.	 Review the financial institution's policies, procedures, and practices to determine 

whether it provides appropriate disclosures for creditor-initiated direct mail 

applications and solicitations to open charge card accounts, telephone applications 

and solicitations to open charge card accounts, and applications and solicitations 

made available to the general public to open charge card accounts. (§1026.60(b), (c), 

and (d)) 

c.	 Determine for all home equity plans with a variable rate that the APR is based on an 

independent index. Further, ensure home equity plans are terminated or terms 

changed only if certain conditions exist. (§1026.40(f)) 

d.	 Determine that, if any consumer rejected a home equity plan because a disclosed term 

changed before the plan was opened, all fees were refunded. Verify that nonrefundable fees were not imposed until three business days after the consumer 

received the required disclosures and brochure. (§1026.40(g) and (h)) 

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e.	 Review consecutive periodic billing statements for each major type of open-end 

credit activity offered (overdraft and home-equity lines of credit, credit card 

programs, etc.). Determine whether disclosures were calculated accurately and are 

consistent with the initial disclosure statement furnished in connection with the 

accounts (or any subsequent change in terms notice) and the underlying contractual 

terms governing the plan(s). 

f.	 Determine whether the consumer was given notice of the right to reject the significant 

change, with the exception of: 

1.	 An increase in the required minimum periodic payment (§1026.9(c)(2)(iv)(B)), 

2.	 A change in the APR (§1026.9(c)(2)(iv)(B)), 

3.	 A change in the balance computation method necessary to comply with section 

1026.54, which sets forth certain limitations on the imposition of finance charges 

as a result of a loss of a grace period, or 

4.	 Increase in fee pursuant to evaluation under section 1026.52 or adjustment to safe 

harbors 

5.	 Increase in fees previously reduced under SCRA 

6.	 When the change results from the creditor not receiving the required minimum 

periodic payment within 60 days after the due date for that payment. 

(§1026.9(c)(2)(iv)(B)) 

g.	 Determine that the creditor did not increase the rate applicable to the consumer’s 

account to the penalty rate if the outstanding balance did not exceed the credit limit 

on the date set forth in the notice. (§1026.9(g)(4)) 

h.	 Determine, for each type of open-end rescindable loan being tested, the appropriate 

number of copies of the rescission notice are provided to each person whose 

ownership interest is or will be subject to the security interest and perform the 

procedures 12, 13, and 14 under Closed-End Credit section. (§1026.15(b), (c) and (e)) 

i.	 Additional variable rate testing: Verify that when accounts were opened or loans were 

consummated that loan contract terms were recorded correctly in the financial 

institution's calculation systems (e.g., its computer). Determine the accuracy of the 

following recorded information: 

1.	 Index value, 

2.	 Margin and method of calculating rate changes, 

3.	 Rounding method, and 

4.	 Adjustment caps (periodic and lifetime). 

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j.	 Using a sample of periodic disclosures for open-end variable rate accounts (e.g., 

home equity accounts) and closed-end rate change notices for adjustable rate 

mortgage loans: 

1.	 Compare the rate-change date and rate on the credit obligation to the actual ratechange date and rate imposed. 

2.	 Determine that the index disclosed and imposed is based on the terms of the 

contract (example: the weekly average of one-year Treasury constant maturities, 

taken as of 45 days before the change date). (§§1026.7(a) and 1026.20(c)(2)) 

3.	 Determine that the new interest rate is correctly disclosed by adding the correct 

index value with the margin stated in the note, plus or minus any contractual 

fractional adjustment. (§§1026.7(g) and 1026.20 (c)(1)) 

4.	 Determine that the new payment disclosed (§1026.20(c)(4)) was based on an 

interest rate and loan balance in effect at least 25 days before the payment change 

date (consistent with the contract). (§1026.20(c)) 

Crediting a Consumer’s Account – Section 1026.10 

a.	 Ensure that the creditor credits payment to a consumer’s account as of the date of 

receipt, except when a delay in crediting does not result in a finance charge or other 

charge. (§1026.10(a)) 

b.	 If a creditor specifies requirements for payments, determine that they are reasonable 

and enable most consumers to make conforming payments. (§1026.10(b)) 

c.	 Except as provided by section 1026.10(b)(4)(ii), if a creditor specifies, on or with the 

periodic statement, requirements for the consumer to follow in making payments as 

permitted under section 1026.10, but accepts a payment that does not conform to the 

requirements, determine that the payment is credited within five days of receipt. 

(§1026.10(b)(4)(i)) 

d.	 If the creditor promotes a method for making payments, determine that the creditor 

considers such payments conforming payments in accordance with section 1026.10(b) 

and that they are credited to the consumer’s account as of the date of receipt, except 

when a delay in crediting does not result in a finance charge or other charge. 

(§1026.10(b)(4)(ii)) 

e.	 If the creditor sets a cut-off time for payments to be received by mail, by electronic 

means, by telephone, or in person, verify that the cut-off time is 5 p.m. or later on the 

payment due date at the location specified by the creditor for the receipt of such 

payments. (§1026.10(b)(2)(ii)) 

f.	 For in-person payments on a credit card account under an open-end (not homesecured) consumer credit plan at a financial institution branch or office that accepts 

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such payments, a card issuer shall not impose a cut-off time earlier than the close of 

business for any such payments made in person at any branch or office of the card 

issuer at which such payments are accepted. However, a card issuer may impose a 

cut-off time earlier than 5 p.m. for such payments, if the close of business of the 

branch or office is earlier than 5 p.m. (§1026.10(b)(3)(i)) 

g.	 If a creditor fails to credit a payment as required and imposes a finance or other 

charge, ensure that the creditor credits the charge(s) to the consumer’s account during 

the next billing cycle. (§1026.10(c)) 

h.	 If (due to a weekend or holiday, for example) a creditor does not receive or accept 

payments by mail on the due date for payments, determine that the creditor treats as 

timely a payment received on the next business day. (§1026.10(d)(1)) 

NOTE: If a creditor accepts or receives payments made on the due date by a method 

other than mail, such as electronic or telephone payments, the creditor is not required 

to treat a payment made by that method on the next business day as timely. 

i.	 For credit card accounts under an open-end (not home-secured) consumer credit plan, 

determine that the creditor does not impose a separate fee to allow consumers to make 

a payment by any method, such as mail, electronic, or telephone payments, unless 

such payment method involves an expedited service by a customer service 

representative of the creditor. (§1026.10(e)) 

NOTE: For purposes of section 1026.10(e), the term “creditor” includes a third party 

that collects, receives, or processes payments on behalf of a creditor. 

j.	 If a card issuer makes a material change in the address for receiving payments or 

procedures for handling payments, and such change causes a material delay in the 

crediting of a payment to a consumer’s account during the 60-day period following 

the date on which such change took effect, ensure that the card issuer does not impose 

any late fee or finance charge for a late payment on the credit card account during the 

60-day period following the date on which the change took effect. (§1026.10(f)) 

Treatment of Credit Balances, Account Termination – 

Section 1026.11 

a.	 Determine institution's treatment of credit balances. Specifically, if the account's 

credit balance is in excess of $1, the institution must take the actions listed below. 

(§1026.11) 

1.	 Credit the amount to the consumer's account; and 

2.	 Either: 

i.	 Refund any part of the remaining credit balance within seven business days 

from receiving a written request from the consumer; or 

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ii. If no written request is received and the credit remains for more than six 

months, make a good faith effort to refund the amount of the credit to the 

consumer by cash, check, money order, or credit to a deposit account of the 

consumer. No further action is required if the consumer’s current location is 

not known to the creditor and cannot be traced through the consumer’s last 

known address or telephone number. 

b. Determine that institution has not terminated an account prior to its expiration date 

solely because the consumer did not incur a finance charge. However, a creditor is not 

prohibited from closing an account that, for three consecutive months, no credit has 

been extended (such as by purchase, cash advance, or balance transfer) and the 

account has had no outstanding balance. (§1026.11(b)) 

c. Determine that, for credit card accounts under an open-end (not home-secured) 

consumer credit plan, the card issuer has adopted reasonable written policies and 

procedures designed to ensure that an administrator of an estate of a deceased account 

holder can determine the amount of and pay any balance on the account in a timely 

manner. (§1026.11(c)(1)(i)) 

NOTE: This does not apply to the account of a deceased consumer if a joint account 

holder remains on the account. 

d. Ensure that, upon request by the administrator of an estate, the card issuer provides 

the administrator with the amount of the balance on a deceased consumer’s account in 

a timely manner. (§1026.11(c)(2)(i)) 

NOTE: Providing the amount of the balance on the account within 30 days of 

receiving the request is deemed to be timely. 

e. Verify that, after receiving a request from the administrator of an estate for the 

amount of the balance on a deceased consumer’s account, the card issuer does not 

impose any fees on the account (such as a late fee, annual fee, or over the-limit fee) or 

increase any annual percentage rate, except as provided by section 1026.55(b)(2) (i.e., 

due to the operation of an index). (§1026.11(c)(3)(i)) 

f. Determine that, if payment in full of the disclosed balance, pursuant to section 

1026.11(c)(2), is received within 30 days after disclosure, the card issuer waives or 

rebates any additional finance charge due to a periodic interest rate. 

(§1026.11(c)(3)(ii)) 

Special Credit Card Provisions and Billing Error Resolution 

– Sections 1026.12 and 13 

a.	 Review a sample of billing error resolution files and a sample of consumers who have 

asserted a claim or defense against the financial institution for a credit card dispute 

regarding property or services. Verify the following (§§1026.12 and 1026.13): 

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1.	 Credit cards are issued only upon request; 

2.	 Liability for unauthorized credit card use is limited to $50; 

3.	 Disputed amounts are not reported delinquent unless remaining unpaid after 

the dispute has been settled; 

4.	 Offsetting credit card indebtedness is prohibited; and 

5.	 Errors are resolved within two complete billing cycles. 

Ability to Make the Required Minimum Payments – 

Section 1026.51 

a.	 Determine that the card issuer does not open a credit card account for a consumer 

under an open-end (not home-secured) consumer credit plan, or increase any credit 

limit applicable to such account, unless the card issuer considers the independent 

ability of the consumer to make the required minimum periodic payments under the 

terms of the account based on the consumer’s income or assets and current 

obligations. (§1026.51(a)(1)(i)) 

b.	 Verify that the card issuer establishes and maintains reasonable written policies and 

procedures to consider a consumer’s independent income or assets and current 

obligations. Reasonable policies and procedures to consider a consumer’s ability to 

make the required payments include a consideration of at least one of the following: 

(§1026.51(a)(1)(ii)) 

1.	 The ratio of debt obligations to income; 

2.	 The ratio of debt obligations to assets; or 

3.	 The income the consumer will have after paying debt obligations. 

c.	 Confirm that the card issuer does not issue a credit card to a consumer who does not 

have any income or assets, and that the credit does not issue a credit card without 

reviewing any information about a consumer’s income, assets, or current obligations. 

(§1026.51(a)(1)(ii)) 

NOTE: A card issuer may consider the consumer’s income or assets based on 

information provided by the consumer, in connection with the credit card account or 

any other financial relationship the card issuer or its affiliates has with the consumer, 

subject to any applicable information-sharing rules, and information obtained through 

third parties, subject to any applicable information-sharing rules. A card issuer may 

also consider information obtained through any empirically derived, demonstrably 

and statistically sound model that reasonably estimates a consumer’s income or 

assets. (See Regulation Z Commentary (§1026.51(a)-1-4))) 

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d.	 Determine that the card issuer uses a reasonable method for estimating the minimum 

periodic payments the consumer would be required to pay under the terms of the 

account. (§1026.51(a)(2)(i)) 

e.	 A card issuer's estimate of the minimum periodic payment is compliant (i.e., receives 

the benefit of a safe harbor) if it uses the following method (§1026.51(a)(2)(ii)): 

1.	 The card issuer assumes utilization, from the first day of the billing cycle, of the 

full credit line that the issuer is considering offering to the consumer; and 

2.	 The card issuer uses a minimum payment formula employed by the issuer for the 

product the issuer is considering offering to the consumer or, in the case of an 

existing account, the minimum payment formula that currently applies to that 

account, provided that: 

i.	 If the applicable minimum payment formula includes interest charges, the 

card issuer estimates those charges using an interest rate that the issuer is 

considering offering to the consumer for purchases or, in the case of an 

existing account, the interest rate that currently applies to purchases; and 

ii.	 If the applicable minimum payment formula includes mandatory fees, the card 

issuer must assume that such fees have been charged to the account. 

f.	 Rules affecting young consumers: If the card issuer opens a credit card account under 

an open-end (not home-secured) consumer credit plan for a consumer less than 21 

years old, verify that the issuer requires that such consumers: 

1.	 Submit a written application; and 

2.	 Possess an independent ability to make the required minimum periodic payments 

on the proposed extension of credit in connection with the account under section 

1026.51(b)(1)(i)) or provide a signed agreement of a cosigner, guarantor, or joint 

applicant who is at least 21 years old who has the ability to make the required 

minimum periodic payments on such debts, and be either jointly liable with the 

consumer for any debt on the account, or secondarily liable for any debt on the 

account incurred by the consumer before the consumer has attained the age of 21 

pursuant to section 1026.51(b)(1)(ii)(A) and (B). 

g.	 If a credit card account has been opened for a consumer less than 21 years old with a 

cosigner, guarantor, or joint applicant pursuant to section 1026.51(b)(1)(ii), determine 

that the issuer does not increase the credit limit on such account before the consumer 

attains the age of 21 unless the cosigner, guarantor, or joint accountholder who 

assumed liability at account opening agrees in writing to assume liability on the 

increase. (§1026.51(b)(2)) 

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Limitations on Fees – Section 1026.52 

a.	 During the first year after the opening of a credit card account under an open-end (not 

home-secured) consumer credit plan, determine whether the card issuer required the 

consumer to pay covered fees in excess of the 25 percent of the credit limit in effect 

when the account is opened. (§1026.52(a)(1)) 

NOTE: On September 23, 2011 a federal district court issued a preliminary injunction 

affecting § 1026.52(a). See First Premier Bank, et al. v. United States Consumer 

Financial Protection Bureau, et al., 819 F. Supp. 2d 906, 2011 WL 4458785 (D.S.D. 

Sept. 23, 2011). In light of this litigation, the CFPB has proposed amendments to 

regulation Z, withdrawing this provision of the rule. The Agencies will not count fees 

paid prior to account opening toward the 25 percent limitation. 

NOTE: An account is considered opened no earlier than the date on which the 

account may first be used by the consumer to engage in transactions. 

Covered fees include fees (Comment 1026.52(a)(2)-1): 

1. For the issuance or availability of credit, including any fees based on account 

activity or inactivity; 

2. For insurance, debt cancellation or debt suspension coverage, if the insurance or 

debt cancellation or suspension coverage is required by the terms of the account; 

3. The consumer is required to pay to engage in transactions using the account, such 

as: 

i. Cash advance fees; 

ii. Balance transfer fees; 

iii. Foreign transaction fees; and 

iv. Fees for using the account for purchases. 

4. Fees the consumer is required to pay for violating the terms of the account, except 

to the extent they are specifically excluded (see below); 

5. Fixed finance charges; and 

6. Minimum charges imposed if a charge would otherwise have been determined by 

applying a periodic interest rate to a balance except for the fact that such charge is 

smaller than the minimum. 

NOTE: Section 1026.52(a) does not authorize the imposition or payment of fees or 

charges otherwise prohibited by law. (§1026.52(a)(3) 

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b.	 Fees not covered by this limitation include: (§1026.52(a)(2)(i) 

1. Late payment fees, over-the-limit fees, and returned-payment fees; or 

2. Fees that the consumer is not required to pay with respect to the account, such as: 

i. An expedited payment fee; 

ii. Fees for optional services like travel insurance; 

iii. Fees for reissuing a lost or stolen card; or 

iv. Statement reproduction fees. 

c.	 Review penetration rates of various optional services to determine if they are truly 

optional and therefore not covered by the 25 percent limitation. 

d.	 Ensure that the card issuer does not impose a fee for violating the terms or other 

requirements of a credit card account under an open-end (not home-secured) 

consumer credit plan unless the dollar amount of the fee is consistent with sections 

1026.52(b)(1) and (b)(2). (§1026.52(b)) 

e.	 Determine that a card issuer imposes a fee for violating the terms or other 

requirements of a credit card account under an open-end (not home-secured) 

consumer credit plan only if the dollar amount of the fee is consistent with either 

section 1026.52(b)(1)(i) or section 1026.52(b)(1)(ii). (§1026.52(b)(1)) 

f.	 Cost determination. A card issuer may impose a fee for a particular violation (e.g., 

late payment) if the card issuer has determined that the fee represents a reasonable 

proportion of the total costs incurred by the issuer as a result of that type of violation. 

If a card issuer is relying on a cost determination instead of the safe harbors (see 

below), review (§1026.52(b)(1)(i)): 

1.	 The number of violations of a particular type experienced by the card issuer 

during a prior period of reasonable length (e.g., a 12-month period). 

2.	 The costs incurred by the card issuer during that period as a result of those 

violations. Losses and associated costs (including the cost of holding reserves 

against potential losses and the cost of funding delinquent accounts) must be 

excluded from this analysis. 

3.	 If used by the card issuer when making its determination: 

i.	 The number of fees imposed by the card issuer as a result of the type of 

violation during the period that the issuer reasonably estimates it will be 

unable to collect. 

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ii.	 Reasonable estimates for an upcoming period of changes in the number of 

violations of the relevant type, the resulting costs, and the number of fees that 

the card issuer will be unable to collect. 

4.	 If applicable, whether the items in paragraph 1-3 have been reevaluated by the 

card issuer at least once during the prior 12 months. If as a result of the 

reevaluation the card issuer determines that a lower fee represents a reasonable 

proportion of the total costs incurred by the card issuer as a result of that type of 

violation, determine that the card issuer begins imposing the lower fee within 45 

days after completing the reevaluation. 

NOTE: If as a result of the reevaluation the card issuer determines that a higher 

fee represents a reasonable proportion of the total costs incurred by the card issuer 

as a result of that type of violation, the card issuer may begin imposing the higher 

fee after complying with the notice requirements in section 1026.9. 

(§1026.52(b)(1)(i)) 

g.	 Safe harbors. A card issuer may impose a fee for violating the terms or other 

requirements of the account if the dollar amount of the fee does not exceed, as 

applicable (§§1026.52(b)(1)(ii)(A)-(C)): 

1.	 $25.00, 

2.	 $35.00 if the card issuer previously imposed a fee pursuant to section 

1026.52(b)(1)(ii)(A) for a violation of the same type that occurred during the 

same billing cycle or one of the next six billing cycles or 

3.	 Three percent of the delinquent balance on a charge card account that requires 

payment of outstanding balances in full at the end of each billing cycle if the card 

issuer has not received the required payment for two or more consecutive billing 

cycles. 

NOTE: The dollar amounts in paragraphs 1 and 2 above will be adjusted annually 

by the CFPB to the extent that changes in the Consumer Price Index warrant an 

increase or decrease of a whole dollar. 

h.	 Determine that the card issuer does not impose a fee for violating the terms or other 

requirements of a credit card account under an open-end (not home-secured) 

consumer credit plan that exceeds the dollar amount associated with the violation. 

(§1026.52(b)(2)(i)(A)) 

i.	 Determine that a card issuer does not impose a fee for violating the terms or other 

requirements of a credit card account under an open end (not home-secured) 

consumer credit plan when there is no dollar amount associated with the violation. 

For purposes of section 1026.52(b)(2)(i), there is no dollar amount associated with the 

following violations (§1026.52(b)(2)(i)(B)): 

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1.	 Transactions that the card issuer declines to authorize; 

2.	 Account inactivity; and 

3.	 The closure or termination of an account. 

j.	 Determine that the card issuer does not impose more than one fee for violating the 

terms or other requirements of a credit card account under an open-end (not homesecured) consumer credit plan based on a single event or transaction. 

(§1026.52(b)(2)(ii)) 

Allocation of Payments – Section 1026.53 

a.	 Determine whether, when a consumer makes a payment in excess of the required 

minimum periodic payment, the card issuer allocates the excess amount: 

1.	 First to the balance with the highest APR, and 

2.	 Any remaining portion to the other balances in descending order based on the 

applicable APR. 

b.	 For balances on a credit card account subject to a deferred interest or similar program, 

determine whether the card issuer allocated any amount paid by the consumer in 

excess of the required minimum periodic payment: 

1.	 Consistent with the general requirement discussed in (a) above, except that, 

during the two billing cycles immediately preceding expiration of the deferred 

interest period, the excess amount must have been allocated first to the balance 

subject to the deferred interest or similar program and any remaining portion 

allocated to any other balances consistent with section 1026.53(a) 

(§1026.53(b)(1)(i)), or 

2.	 In the manner requested by the consumer (§1026.53(b)(1)(ii)). 

c.	 When a balance on a credit card account is secured, the card issuer may at its option 

allocate any amount paid by the consumer in excess of the required minimum 

periodic payment to that balance if requested by the consumer. (§1026.53(b)(2)) 

Loss of a Grace Period – Section 1026.54 

a.	 Determine whether the card issuer imposed finance charges as a result of the loss of a 

grace period on a credit card account under an open-end (not home-secured) 

consumer credit plan based on: 

1.	 Balances for days in billing cycles that precede the most recent billing cycle, a 

prohibited practice; or 

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2.	 Any portion of a balance subject to a grace period that was repaid prior to the 

expiration of the grace period. (§1026.54). 

b.	 With respect to the prohibition in a.2 above, issuers are not required to follow any 

specific methodology, but an issuer is in compliance if it applies the consumer’s 

payment to the balance subject to the grace period and calculates interest charges on 

the amount of the balance that remains unpaid. (Comment 1026.54(a)(1)-5) 

Exceptions: This rule does not apply to adjustments to the finance charge as a result 

of: 

1.	 The resolution of a dispute under section 1026.12, unauthorized use, or section 

1026.13, billing error; or 

2.	 The return of a payment. 

Limitations on Increasing Annual Percentage Rates, Fees, 

and Charges – Section 1026.55 

a.	 With respect to a credit card account under an open-end (not home-secured) 

consumer credit plan, determine that the card issuer did not increase an APR or fee or 

charge required to be disclosed under sections 1026.6(b)(2)(ii) (fee for issuance or 

availability (e.g., an annual fee)), (b)(2)(iii) (fixed finance charge or minimum 

interest charge), or (b)(2)(xii) (fee for required insurance, debt cancellation, or debt 

suspension coverage), unless as permitted by one of the six exceptions: 

1.	 Temporary rate, fee, or charge exception; 

2.	 Variable rate exception; 

3.	 Advance notice exception; 

4.	 Delinquency exception; 

5.	 Workout and temporary hardship arrangement; and 

6.	 Servicemembers Civil Relief Act exception (§1026.55(a)-(b)). 

b.	 To assess whether the temporary rate, fee, or charge exception applies
 

(§1026.55(b)(1)), determine whether:
 

1.	 The card issuer increased the APR, fee, or charge upon the expiration of a 

specified period of six months or longer and 

2.	 Prior to the commencement of that period, the card issuer disclosed in writing to 

the consumer, in a clear and conspicuous manner, the length of the period and the 

APR, fee, or charge that would apply after expiration of the period. 

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c.	 If the temporary rate exception applies, determine that the card issuer: 

1.	 Did not apply an APR, fee, or charge to transactions that occurred prior to the 

period that exceeds the APR, fee, or charge that applied to those transactions prior 

to the period; 

2.	 Provided the required notice, but did not apply an APR, fee, or charge (to 

transactions that occurred within 14 days after provision of the notice) that 

exceeds the APR, fee, or charge that applied to that category of transactions prior 

to provision of the notice; and 

3.	 Did not apply an annual percentage rate to transactions that occurred during the 

period that exceeds the increased APR, fee, or charge. 

d.	 If the variable rate exception applies (§1026.55(b)(2)), determine that the card issuer 

did not increase an APR unless: 

1.	 The increase in the APR is due to an increase in the index; and 

2.	 The annual percentage rate varies according to an index that is not under the card 

issuer’s control and is available to the general public. 

NOTE: For purposes of qualifying under this exception, an index is considered 

under the card issuer’s control if the card issuer applies a minimum rate or floor 

below which the rate cannot decrease. However, because there is no disadvantage 

to consumers, issuers are not prevented from setting a maximum rate or ceiling. 

(Comment 1026.55(b)(2) – 2ii) 

e.	 If the advance notice exception applies (§1026.55(b)(3)), determine that the card 

issuer: 

1.	 Did not apply that increased APR, fee, or charge to transactions that occurred 

prior to provision of the notice; 

2.	 Did not apply the increased APR, fee, or charge to transactions that occurred prior 

to or within 14 days after provision of the notice; and 

3.	 Did not increase the APR, fee, or charge during the first year after the account is 

opened. 

f.	 If the delinquency exception applies (§1026.55(b)(4)), determine that the card issuer: 

1.	 Disclosed in a clear and conspicuous manner in the required notice a statement of 

the reason for the increase, and 

2.	 Will cease the increase if the card issuer receives six consecutive required 

minimum periodic payments on or before the payment due date, beginning with 

the first payment due following the effective date of the increase. 

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g.	 If the delinquency exception applies and the card issuer received six consecutive 

required minimum periodic payments on or before the payment due date beginning 

with the first payment due following the effective date of the increase, determine that 

the card issuer reduces any APR, fee, or charge (increased pursuant to the 

delinquency exception) to the original APR, fee, or charge that applied prior to the 

increase with respect to transactions that occurred prior to or within 14 days after 

provision of the required notice. 

h.	 If the workout and temporary hardship arrangement exception applies 

(§1026.55(b)(5)), determine that: 

1.	 Prior to commencement of the arrangement (except as provided in section 

1026.9(c)(2)(v)(D)) the card issuer provided the consumer with a clear and 

conspicuous written disclosure of the terms of the arrangement (including any 

increases due to the completion or failure of the arrangement); and 

2.	 Upon the completion or failure of the arrangement, the card issuer did not apply 

to any transactions that occurred prior to commencement of the arrangement an 

APR, fee, or charge that exceeds the APR, fee, or charge that applied to those 

transactions prior to commencement of the arrangement. 

i.	 If the Servicemembers Civil Relief Act exception applies (§1026.55(b)(6)), determine 

that the card issuer increased the APR, fee, or charge only after 50 U.S.C. app. 527 or 

a similar Federal or State statute or regulation no longer applied. Further, determine 

that the issuer did not apply to any transactions that occurred prior to the decrease an 

APR, fee, or charge that exceeded the APR, fee, or charge that applied to those 

transactions prior to the decrease. 

j.	 For protected balances (§1026.55(c)), determine that the card issuer did not require 

repayment using a method that is less beneficial to the consumer than one of the 

following methods: 

1.	 The method of repayment for the account before the effective date of the increase; 

2.	 An amortization period of not less than five years, beginning no earlier than the 

effective date of the increase; or 

3.	 A required minimum periodic payment that includes a percentage of the balance 

that is equal to no more than twice the percentage required before the effective 

date of the increase. 

k.	 If a card issuer promotes the waiver or rebate of finance charges due to a periodic 

interest rate or fees or charges (§§1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii)) and 

applies the waiver or rebate to a credit card account under an open-end (not homesecured) consumer credit plan, any cessation of the waiver or rebate on that account 

constitutes an increase in an annual percentage rate, fee, or charge for purposes of 

section 1026.55. 

CFPB	 Manual V.2 (October 2012) Procedures 88 
 

 

 

 

 

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Examination Procedures TILA 

Requirements for Over-the-Limit Transactions – 

Section 1026.56 

a.	 Joint Relationships. Determine that, if two or more consumers are jointly liable on a 

credit card account under an open-end (not home-secured) consumer credit plan, the 

card issuer treats the affirmative consent of any of the joint consumers as affirmative 

consent for that account. Similarly, determine that the card issuer treats a revocation 

of consent by any of the joint consumers as revocation of consent for that account. 

(§1026.56(f)) 

b.	 Notwithstanding a consumer’s affirmative consent to a card issuer’s payment of over-

-

the-limit transactions, determine that the card issuer does not (§1026.56(j)): 

1.	 Impose more than one over-the-limit fee or charge on a consumer’s credit card 

account per billing cycle, and, in any event, only if the credit limit was exceeded 

during the billing cycle. In addition, the card issuer may not impose an over-the

limit fee or charge on the consumer’s credit card account for more than three 

billing cycles for the same over-the-limit transaction where the consumer has not 

reduced the account balance below the credit limit by the payment due date for 

either of the last two billing cycles. 

NOTE: There is an exception to the latter prohibition if another over-the-limit 

transaction occurred in the last two billing cycles 

2.	 Impose an over-the-limit fee or charge solely because of the card issuer’s failure 

to promptly replenish the consumer’s available credit following the crediting of 

the consumer’s payment following the crediting of the consumer's payment under 

section 1026.10. 

3.	 Condition the amount of a consumer’s credit limit on the consumer affirmatively 

consenting to the card issuer’s payment of over-the-limit transactions if the card 

issuer assesses a fee or charge for such service. 

4.	 Impose an over-the-limit fee or charge for a billing cycle if a consumer exceeds a 

credit limit solely because of fees or interest charged by the card issuer (defined 

as charges imposed as part of the plan under section 1026.6(b)(3)) to the 

consumer’s account during that billing cycle. 

Reevaluation of Rate Increases – Section 1026.59 

a.	 If a card issuer increases an APR that applies to a credit card account under an openend (not home-secured) consumer credit plan, based on the credit risk of the 

consumer, market conditions, or other factors, or increased such a rate on or after 

January 1, 2009, and 45 days’ advance notice of the rate increase is required pursuant 

to section 1026.9(c)(2) or (g), determine that the card issuer (§1026.59(a)(1)): 

CFPB	 Manual V.2 (October 2012) Procedures 89 
 

 

 

 

 

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Examination Procedures TILA 

1.	 Evaluates the factors described in section 1026.59(d); and 

2.	 Based on its review of such factors, reduces the APR applicable to the consumer’s 

account, as appropriate. 

b.	 If a card issuer is required to reduce the rate applicable to an account pursuant to 

section 1026.59(a)(1), determine that the card issuer reduces the rate not later than 45 

days after completion of the evaluation described in section 1026.59(a)(1). 

(§1026.59(a)(2)(i)) 

NOTE: Any reduction in an APR required pursuant to section 1026.59(a)(1) of this 

section shall apply to (§1026.59(a)(2)(ii)): 

1.	 Any outstanding balances to which the increased rate described in section
 

1026.59(a)(1) has been applied; and 

2.	 New transactions that occur after the effective date of the rate reduction that 

would otherwise have been subject to the increased rate. 

c.	 Determine that the card issuer has reasonable written policies and procedures in place 

to conduct the review described in section 1026.59(a). (§1026.59(b)) 

d.	 Determine that a card issuer that is subject to section 1026.59(a) conducts the review 

described in section 1026.59(a)(1) not less frequently than once every six months 

after the rate increase. (§1026.59(c)) 

e.	 Except as provided in section 1026.59(d)(2), determine that the card issuer reviews 

either (§1026.59(d)(1)): 

1.	 The factors on which the increase in an APR was originally based; or 

2.	 The factors that the card issuer currently considers when determining the APRs 

applicable to similar new credit card accounts under an open-end (not homesecured) consumer credit plan. 

f.	 For rate increases imposed between January 1, 2009 and February 21, 2010, 

determine that an issuer considered the factors described in section 1026.59(d)(1)(ii) 

when conducting the first two reviews required under section 1026.59(a), unless the 

rate increase subject to section 1026.59(a) was based solely upon factors specific to 

the consumer, such as a decline in the consumer’s credit risk, the consumer’s 

delinquency or default, or a violation of the terms of the account. (§1026.59(d)(2)) 

g.	 If an issuer increases a rate applicable to a consumer’s account pursuant to section 

1026.55(b)(4) based on the card issuer not receiving the consumer’s required 

minimum periodic payment within 60 days after the due date, note that the issuer is 

not required to perform the review described in section 1026.59(a) prior to the sixth 

payment due date after the effective date of the increase. However, if the APR 

applicable to the consumer’s account is not reduced pursuant to section 

CFPB	 Manual V.2 (October 2012) Procedures 90 
 

 

 

 

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Examination Procedures TILA 

1026.55(b)(4)(ii), determine that the card issuer performs the review described in 

section 1026.59(a). Determine that the first such review occurs no later than six 

months after the sixth payment due following the effective date of the rate increase. 

(§1026.59(e)) 

h.	 The obligation to review factors described in sections 1026.59(a) and (d) ceases to 

apply (§1026.59(f)): 

1.	 If the issuer reduces the APR applicable to a credit card account under an openend (not home-secured) consumer credit plan to the rate applicable immediately 

prior to the increase, or, if the rate applicable immediately prior to the increase 

was a variable rate, to a variable rate determined by the same formula (index and 

margin) that was used to calculate the rate applicable immediately prior to the 

increase; or 

2.	 If the issuer reduces the APR to a rate that is lower than the rate described in 

§1026.59(f)(1) of this section. 

i.	 Except as provided in section 1026.59(g)(2), section 1026.59 applies to credit card 

accounts that have been acquired by the card issuer from another card issuer. 

(§1026.59(g)) 

j.	 Determine that a card issuer that complies with this section by reviewing the factors 

described in section 1026.59(d)(1)(i) reviews the factors considered by the card issuer 

from which it acquired the accounts in connection with the rate increase. 

(§1026.59(g)(1)) 

k.	 If, not later than six months after the acquisition of such accounts, a card issuer 

reviews all of the credit card accounts it acquires in accordance with the factors that it 

currently considers in determining the rates applicable to its similar new credit card 

accounts (§1026.59(g)(2)): 

1.	 Except as provided in section 1026.59(g)(2)(iii), determine that the card issuer 

conducts reviews described in section 1026.59(a) for rate increases that are 

imposed as a result of its review under this paragraph. 

2.	 Except as provided in section 1026.59(g)(2)(iii), note that the card issuer is not 

required to conduct reviews in accordance with section 1026.59(a) for any rate 

increases made prior to the card issuer’s acquisition of such accounts. 

3.	 Note that if as a result of the card issuer’s review, an account is subject to, or 

continues to be subject to, an increased rate as a penalty, or due to the consumer’s 

delinquency or default, the requirements of section 1026.59(a) apply. 

Servicemembers Civil Relief Act exception: Note that the requirements of Section 

1026.59 do not apply to increases in an APR that was previously decreased pursuant 

CFPB	 Manual V.2 (October 2012) Procedures 91 
 

 

 

 

 

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Examination Procedures TILA 

to the Servicemembers Civil Relief Act (50 U.S.C. app. 527), provided that such a 

rate increase is made in accordance with section 1026.55(b)(6). (§1026.59(h)(1)) 

Charged off accounts exception: Note that the requirements of section 1026.59 do not 

apply to accounts that the card issuer has charged off in accordance with loan-loss 

provisions. (§1026.59(h)(2)) 

NOTE: Appendix G to part 1026 is amended by revising Forms G-10(B), G-10(C), 

G- 10(E), G-17(B), G-17(C), G-18(B), G-18(D), G-18(F), G-18(G), G-20, G-21, G22, G- 25(A), and G-25(B). 

Administrative Enforcement 

10. If there is noncompliance involving understated finance charges or understated APRs 

subject to reimbursement under the FFIEC Policy Guide on Reimbursement (policy 

guide): 

a.	 Document the date on which the administrative enforcement of the TILA policy 

statement would apply for reimbursement purposes by determining the date of the 

preceding examination. 

b.	 If the noncompliance involves indirect (third-party paper) disclosure errors and 

affected consumers have not been reimbursed. 

c.	 Prepare comments, discussing the need for improved internal controls to be included 

in the report of examination. 

d.	 Notify your supervisory office for follow up with the regulator that has primary 

responsibility for the original creditor. 

e.	 If the noncompliance involves direct credit: 

1.	 Make an initial determination whether the violation is a pattern or practice. 

2.	 Calculate the reimbursement for the loans or accounts in an expanded sample of 

the identified population. 

3.	 Estimate the total impact on the population based on the expanded sample. 

4.	 Inform management that reimbursement may be necessary under the law and the 

policy guide, and discuss all substantive facts including the sample loans and 

calculations. 

5.	 Inform management of the financial institution's options under section 130 of the 

TILA for avoiding civil liability and of its option under the policy guide and 

section 108 (e)(6) of the TILA for avoiding a regulatory agency's order to 

reimburse affected borrowers. 

CFPB	 Manual V.2 (October 2012) Procedures 92 
 

 

 

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Examination Procedures TILA 

HIGH-COST MORTGAGE (Section 1026.32) WORKSHEET 

Borrower’s Name Loan Number: 

COVERAGE 

Yes No 

Is the loan secured by the consumer’s principal dwelling? 

[§1026.2(a)(19), §1026.32(a)(1)] 

If the answer is No, STOP HERE 

Is the loan for the following purpose?

 1. Residential Mortgage Transaction – [§1026.2(a)(24)]

 2. Reverse Mortgage Transaction – [§1026.33]

 3. Open-End Credit Plan – Subpart B

 [note prohibition against structuring loans as open-end

 plans to evade §1026.32 – [§1026.34(b)] 

If the answer is Yes to Box 1, 2, or 3, STOP HERE. If No, continue to Test 1. 

CFPB Manual V.2 (October 2012) Procedures 93 
 

 

 

 

 

 

 

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Examination Procedures TILA 

TEST 1 – CALCULATION OF APR 

A. Disclosed APR 

B. Treasury Security Yield of Comparable Maturity 

Obtain the Treasury Constant Maturities Yield from the FRB’s 

Statistical Release, H-15 – Selected Interest Rates (the “Business” links 

will display daily yields). Use the yield that has the most comparable 

maturity to the loan term and is from the 15th day of the month that 

immediately precedes the month of the application. If the 15th is not a 

business day, use the yield for the business day immediately preceding 

the 15th. If the loan term is exactly halfway between two published 

security maturities, use the lower of the two yields.) NOTE: Creditors 

may use the FRB’s Selected Interest Rates or the actual auction results. 

See Staff Commentary to Regulation Z for further details. 

[§ 1026.32(a)(1)(i)] 

http://www.federalreserve.gov/releases/H15/data.htm 

C. Treasury Security Yield of Comparable Maturity (Box B) 

Plus: 8 percentage points for first-lien loan; or

 10 percentage points for subordinate-lien loan 

Yes No 

D. Is Box A greater than Box C? 

If Yes, the transaction is a High-Cost Mortgage. If No, continue to Test 2, Points 

and Fees. 

CFPB Manual V.2 (October 2012) Procedures 94 
 

 

 

 

 

 

 

 

 

 

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Examination Procedures TILA 

HIGH-COST MORTGAGE (Section 1026.32) WORKSHEET 

TEST 2 – CALCULATION OF POINTS AND FEES 

STEP 1: Identify all Charges Paid by the Consumer at or before Loan Closing 

A. Finance Charges – Section 1026.4(a) and (b) (Interest, including per-diem 

interest, and time price differential are excluded from these amounts.) 

Fee Subtotals 

Loan Points 

Mortgage Broker Fee 

Loan Service Fees

 Required Closing Agent/Third-Party Fees 

Required Credit Insurance

 Private Mortgage Insurance 

Life of Loan Charges (flood, taxes, etc.) 

Any Other Fees Considered Finance Charges 

Subtotal 

B. Certain Non-Finance Charges Under Section 1026.4(c)(7) – Include fees paid by 

consumers only if the amount of the fee is unreasonable or if the creditor receives direct or 

indirect compensation from the charge or the charge is paid to an affiliate of the bank. (See 

the example in section 1026.32(b)(1)(ii) of the commentary for further explanation.) 

Title Examination 

Title Insurance 

Property Survey 

Document Preparation Charge

 Credit Report 

Appraisal 

Fee for “Initial” Flood Hazard Determination 

Pest Inspection 

Any Other Fees Not Considered Finance Charges 

Subtotal 

C. Premiums or Other Charges for Optional Credit Life, Accident, 

Health, or Loss-of-Income Insurance, or Debt-Cancellation 

Coverage 

D. Total Points & Fees: Add Subtotals for A, B, C 

CFPB Manual V.2 (October 2012) Procedures 95 
 

 

 

 

 

 

 

 

 

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Examination Procedures TILA 

HIGH-COST MORTGAGE (Section 1026.32) WORKSHEET 

TEST 2 – CALCULATION OF POINTS AND FEES (continued) 

STEP 2: Determine the Total Loan Amount for Cost Calculation 

(§1026.32(a)(1)(ii)) 

A. Determine the Amount Financed (§1026.18(b)) 

Principal Loan Amount

 Plus: Other Amounts Financed by the Lender (not

 already included in the principal and not part of the

 finance charge) 

Less: Prepaid Finance Charges (§1026.2(a)(23))

 Equals: Amount Financed 

B. Deduct costs included in the points and fees under sections 

1026.32(b)(1)(iii) and (iv) (Step 1, Box B and Box C) that 

are financed by the creditor 

C. Total Loan Amount (Step 2, Box A minus Box B) 

TEST 2 – CALCULATION OF POINTS AND FEES (continued) 

STEP 3: Perform High-Fee Cost Calculation 

A. Eight Percent of the Total Loan Amount (Step 2, Box C) 

B. Annual Adjustment Amount – (§1026.32(a)(1)(ii)) 

2012: $611 

(use the dollar amount corresponding to the year of the 

loan’s origination) 

C. Total Points & Fees (Step 1, Box D) 

Yes No 

In Step 3, does Box C exceed the greater of Box A or Box B? 

If Yes, the transaction is a High-Cost Mortgage. If No, the transaction is not a 

High-Cost Mortgage under Test 2, Points and Fees. 

CFPB Manual V.2 (October 2012) Procedures 96 
 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations RESPA 

Real Estate Settlement Procedures Act1 

The Real Estate Settlement Procedures Act of 1974 (RESPA) (12 U.S.C. 2601 et seq.) (the 

“Act”) became effective on June 20, 1975. The Act requires lenders, mortgage brokers, or 

servicers of home loans to provide borrowers with pertinent and timely disclosures regarding 

the nature and costs of the real estate settlement process. The Act also protects borrowers 

against certain abusive practices, such as kickbacks, and places limitations upon the use of 

escrow accounts. The Department of Housing and Urban Development (HUD) originally 

promulgated Regulation X which implements RESPA. The CFPB has now restated 

Regulation X (12 CFR Part 1024). The National Affordable Housing Act of 1990 amended 

RESPA to require detailed disclosures concerning the transfer, sale, or assignment of 

mortgage servicing. It also requires disclosures for mortgage escrow accounts at closing and 

annually thereafter, itemizing the charges to be paid by the borrower and what is paid out of 

the account by the servicer. 

In October 1992, Congress amended RESPA to cover subordinate lien loans. HUD, however, 

decided not to enforce these provisions until Regulation X was amended to cover these loans. 

On February 10, 1994, Regulation X was amended to extend coverage to subordinate lien 

loans. The amendments were effective August 9, 1994. Exemptions from coverage of RESPA 

and Regulation X, set forth in 12 CFR 1024.5(b), were effective March 14, 1994. Technical 

corrections and amendments to the rule were issued on March 30, 1994, and July 22, 1994. 

On June 7, 1996, HUD amended Regulation X, but some of those amendments never took 

effect; others took effect January 14, 1997. Congress, when it enacted the Economic Growth 

and Regulatory Paperwork Reduction Act of 1996,2 further amended RESPA to clarify certain 

definitions including “controlled business arrangement,” which was changed to “affiliated 

business arrangement.” The changes also reduced the disclosures under the mortgage 

servicing provisions of RESPA. 

In 2008, HUD issued a RESPA Reform Rule (73 Fed. Reg. 68204, Nov. 17, 2008) that 

included substantive and technical changes to the existing RESPA regulations and different 

implementation dates for various provisions. Substantive changes included a standard Good 

Faith Estimate form and a revised HUD-1 Settlement Statement that are required as of January 

1, 2010. Technical changes, including streamlined mortgage servicing disclosure language, 

elimination of outdated escrow account provisions, and a provision permitting an “average 

charge” to be listed on the Good Faith Estimate and HUD-1 Settlement Statement, took effect 

on January 16, 2009. In addition, HUD clarified that all disclosures required by RESPA are 

permitted to be provided electronically, in accordance with the Electronic Signatures in Global 

and National Commerce Act (ESIGN). 

1 These reflect FFIEC-approved procedures. 

2 Pub. L. 104-208, Div. A., Title II § 2103 (c), Sept. 30, 1996. 

CFPB Manual V.2 (October 2012) RESPA 1 
 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations RESPA 

The Dodd-Frank Act granted rule-making authority under RESPA to the Consumer Financial 

Protection Bureau (CFPB) and, with respect to entities under its jurisdiction, granted authority to 

the CFPB to supervise for and enforce compliance with RESPA and its implementing 

regulations.3 In December 2011, the CFPB restated HUD’s implementing regulation at 12 CFR 

Part 1024 (76 Fed. Reg. 78978) (December 20, 2011). 

Coverage – 12 CFR 1024.5(a) 

RESPA is applicable to all “federally related mortgage loans,” which are defined as: 

Loans (other than temporary loans), including refinancings secured by a first or subordinate 

lien on residential real property upon which either: 

•	 A one-to-four family structure is located or is to be constructed using proceeds of the 

loan (including individual units of condominiums and cooperatives) or 

•	 A manufactured home is located or is to be constructed using proceeds of the loan and to 

which one of the following applies: 

o	 Loans made by a lender,

4 5 creditor, dealer;6 

o	 Loans made or insured by an agency of the federal government; 

o	 Loans made in connection with a housing or urban development program administered by 

an agency of the federal government; 

o	 Loans made and intended to be sold by the originating lender or creditor to FNMA, 

GNMA, or FHLMC (or its successor);7 

o	 Loans that are the subject of a home equity conversion mortgage or reverse mortgage 

issued by a lender or creditor subject to the regulation; or 

3 Dodd-Frank Act Secs. 1002(12)(M), 1024(b)-(c), and 1025(b)-(c); 12 U.S.C. Secs. 5481(12)(M), 5514(b)-(c), and 5515(b)-(c) . 

4 A lender includes financial institutions either regulated by, or whose deposits or accounts are insured by any agency of the 

federal government. 

5 A creditor is defined in Sec. 103(f) of the Consumer Credit Protection Act (15 U.S.C. Sec. 1602(f)). RESPA covers any creditor 

that makes or invests in residential real estate loans aggregating more than $1,000,000 per year. 

6 Dealer is defined in Regulation X to mean a seller, contractor, or supplier of goods or services. Dealer loans are covered by 

RESPA if the obligations are to be assigned before the first payment is due to any lender or creditor otherwise subject to the 

regulation. 

7 FNMA - Federal National Mortgage Association; GNMA - Government National Mortgage Association; FHLMC - Federal 

Home Loan Mortgage Corporation. 

CFPB	 Manual V.2 (October 2012) RESPA 2 
 

 

 

CFPB Consumer 

Laws and Regulations RESPA 

o	 Installment sales contracts, land contracts, or contracts for deeds on otherwise 

qualifying residential property if the contract is funded in whole or in part by proceeds 

of a loan made by a lender, dealer or creditor subject to the regulation. 

Exemptions – 12 CFR 1024.5(b) 

The following transactions are exempt from coverage: 

•	 A loan on property of 25 acres or more (whether or not a dwelling is located on the property). 

•	 A loan primarily for business, commercial or agricultural purposes (definition identical to 

Regulation Z, 12 CFR 1026.3(a)(1)). 

•	 A temporary loan, such as a construction loan. (The exemption does not apply if the loan is 

used as, or may be converted to, permanent financing by the same financial institution or is 

used to finance transfer of title to the first user of the property.) If the lender issues a 

commitment for permanent financing, it is covered by the regulation. 

•	 Any construction loan with a term of two years or more is covered by the regulation, 

unless it is made to a bona fide contractor. “Bridge” or “swing” loans are not covered by 

the regulation. 

•	 A loan secured by vacant or unimproved property where no proceeds of the loan will be used 

to construct a one-to-four family residential structure. If the proceeds will be used to locate a 

manufactured home or construct a structure within two years from the date of settlement, the 

loan is covered. 

•	 An assumption, unless the mortgage instruments require lender approval for the assumption 

and the lender approves the assumption. 

•	 A renewal or modification where the original obligation (note) is still in effect but modified. 

•	 A bona fide transfer of a loan obligation in the secondary market. (However, the mortgage 

servicing transfer disclosure requirements of 12 CFR 1024.21 still apply.) Mortgage broker 

transactions that are table funded (the loan is funded by a contemporaneous advance of loan 

funds and an assignment of the loan to the person advancing the funds) are not secondary 

market transactions and therefore are covered by RESPA. 

CFPB	 Manual V.2 (October 2012) RESPA 3 
 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations RESPA 

Requirements 

Special Information Booklet – 12 CFR 1024.6 

A loan originator8 is required to provide the borrower with a copy of the Special Information 

Booklet at the time a written application is submitted, or no later than three business days after 

the application is received. If the application is denied before the end of the three-business-day 

period, the loan originator is not required to provide the booklet. If the borrower uses a 

mortgage broker, the broker rather than the lender, must provide the booklet. 

The booklet does not need to be provided for refinancing transactions, closed-end 

subordinate lien mortgage loans and reverse mortgage transactions, or for any other 

federally related mortgage loan not intended for the purchase of a one-to-four family 

residential property. 

A loan originator that complies with Regulation Z (12 CFR 1026.40) for open-end home 

equity plans is deemed to have complied with this section. 

Good Faith Estimate (GFE) of Settlement Costs – 

12 CFR 1024.7 Standard GFE Required 

As of January 1, 2010, a loan originator is required to provide a consumer with the standard 

GFE form that is designed to allow borrowers to shop for a mortgage loan by comparing 

settlement costs and loan terms. (See GFE form at Appendix C to 12 CFR Part 1024.) 

Overview of the Standard GFE 

The first page of the GFE includes a summary of loan terms and a summary of estimated 

settlement charges. It also includes information about key dates such as when the interest rate for 

the loan quoted in the GFE expires and when the estimate for the settlement charges expires. The 

second page discloses settlement charges as subtotals for 11 categories of costs. The third page 

provides a table explaining which charges can change at settlement, a trade-off table showing the 

relationship between the interest rate and settlement charges, and a shopping chart to compare 

the costs and terms of loans offered by different originators. 

GFE Application Requirements 

•	 The loan originator must provide the standard GFE to the borrower within three business 

days of receipt of an application for a mortgage loan. A loan originator is not required to 

provide a GFE if before the end of the three-business-day period, the application is denied or 

the borrower withdraws the application. 

8 The RESPA Reform Rule added the definition of “loan originator” to the list of defined terms in the RESPA regulations. 

A “loan originator” is defined as a lender or mortgage broker. 

CFPB	 Manual V.2 (October 2012) RESPA 4 
 

 

 

 

CFPB Consumer 

Laws and Regulations RESPA 

•	 An application can be in writing or electronically submitted, including a written record of an 

oral application. 

•	 A loan originator determines what information it needs to collect from a borrower and which 

of the collected information it will use in order to issue a GFE. Under the regulations, an 

“application” includes at least the following six pieces of information: 

1.	 the borrower’s name; 

2.	 the borrower’s gross monthly income; 

3.	 the borrower’s Social Security number (e.g., to enable the loan originator to obtain a 

credit report); 

4.	 the property address; 

5.	 an estimate of the value of the property; and 

6.	 the mortgage loan amount sought. In addition, a loan originator may require the 

submission of any other information it deems necessary. 

A loan originator will be presumed to have relied on such information prior to issuing a GFE 

and cannot base a revision of a GFE on that information unless it changes or is later found to 

be inaccurate. 

•	 While the loan originator may require the borrower to submit additional information beyond 

the six pieces of information listed above in order to issue a GFE, it cannot require, as a 

condition of providing the GFE, the submission of supplemental documentation to verify the 

information provided by the borrower on the application. However, a loan originator is not 

prohibited from using its own sources to verify the information provided by the borrower 

prior to issuing the GFE. The loan originator can require borrowers to provide verification 

information after the GFE has been issued in order to complete final underwriting. 

•	 For dealer loans, the loan originator is responsible for providing the GFE directly or ensuring 

that the dealer provides the GFE. 

•	 For mortgage brokered loans, either the lender or the mortgage broker must provide a GFE 

within three business days after a mortgage broker receives either an application or 

information sufficient to complete an application. The lender is responsible for ascertaining 

whether the GFE has been provided. If the mortgage broker has provided the GFE to the 

applicant, the lender is not required to provide an additional GFE. 

•	 A loan originator is prohibited from charging a borrower any fee in order to obtain a GFE 

unless the fee is limited to the cost of a credit report. 

CFPB	 Manual V.2 (October 2012) RESPA 5 
 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations RESPA 

GFE Not Required for Open End Lines of Credit – 12 CFR 1024.7(h) 

A loan originator that complies with Regulation Z (12 CFR 1026.40) for open-end home 

equity plans is deemed to have complied with Section 1024.7. 

Availability of GFE Terms – 12 CFR 1024.7(c) 

Regulation X does not establish a minimum period of availability for which the interest rate 

must be honored. The loan originator must determine the expiration date for the interest rate 

of the loan stated on the GFE. In contrast, Regulation X requires that the estimated settlement 

charges and loan terms listed on the GFE be honored by the loan originator for at least10 

business days from the date the GFE is provided. The period of availability for the 

estimated settlement charges and loan terms as well as the period of availability for the interest 

rate of the loan stated on the GFE must be listed on the GFE in the “important dates” 

section of the form. 

After the expiration date for the interest rate of the loan stated on the GFE, the interest rate and 

the other rate related charges, including the charge or credit for the interest rate chosen, the 

adjusted origination charges and the per diem interest can change until the interest rate is locked. 

Key GFE Form Contents – 12 CFR 1024.7(d) 

The loan originator must ensure that the required GFE form is completed in accordance with 

the Instructions set forth in Appendix C of 12 CFR Part 1024. 

First Page of GFE 

•	 The first page of the GFE discloses identifying information such as the name and address of 

the “loan originator” which includes the lender or the mortgage broker originating the loan. 

The “purpose” section indicates what the GFE is about and directs the borrower to the Truth 

in Lending disclosures and HUD’s website for more information. The borrower is informed 

that only the borrower can shop for the best loan and that the borrower should compare loan 

offers using the shopping chart on the third page of the GFE. 

•	 The “important dates” section requires the loan originator to state the expiration date for the 

interest rate for the loan provided in the GFE as well as the expiration date for the estimate of 

other settlement charges and the loan terms not dependent upon the interest rate. 

•	 While the interest rate stated on the GFE is not required to be honored for any specific period 

of time, the estimate for the other settlement charges and other loan terms must be honored 

for at least 10 business days from when the GFE is provided. 

•	 In addition, the form must state how many calendar days within which the borrower must 

go to settlement once the interest rate is locked (rate lock period). The form also requires 

disclosure of how many days prior to settlement the interest rate would have to be locked, 

if applicable. 

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•	 The “summary of your loan” section requires disclosure of the loan amount; loan term; initial 

interest rate; initial monthly payment for principal, interest and any mortgage insurance; 

whether the interest rate can rise, and if so, the maximum rate to which it can rise over the 

life of the loan, and the period of time after which the interest rate can first change; whether 

the loan balance can rise if the payments are made on time and if so, the maximum amount to 

which it can rise over the life of the loan; whether the monthly amount owed for principal, 

interest and any mortgage insurance can rise even if payments are made on time, and if so, 

the maximum amount to which the monthly amount owed can ever rise over the life of the 

loan; whether the loan has a prepayment penalty, and if so, the maximum amount it could be; 

and whether the loan has a balloon payment, and if so, the amount of such payment and in 

how many years it will be due. 

•	 The “escrow account information” section requires the loan originator to indicate whether the 

loan does or does not have an escrow account to pay property taxes or other property related 

charges. In addition, this section also requires the disclosure of the monthly amount owed for 

principal, interest and any mortgage insurance. 

•	 The bottom of the first page includes subtotals for the adjusted origination charges and 

charges for all other settlement charges listed on page two, along with the total estimated 

settlement charges. 

Second Page of GFE 

The second page of the GFE requires disclosure of all settlement charges. It provides for the 

estimate of total settlement costs in eleven categories discussed below. The adjusted 

origination charges are disclosed in “Block A” and all other settlement charges are disclosed in 

“Block B.” The amounts in the blocks are to be added to arrive at the “total estimated 

settlement charges” which is required to be listed at the bottom of the page. 

Disclosure of Adjusted Origination Charge (Block A) 

Block A addresses disclosure of origination charges, which include all lender and mortgage 

broker charges. The “adjusted origination charge” results from the subtraction of a “credit” 

from the “origination charge” or the addition of a “charge” to the origination charge. 

•	 Block 1 – the origination charges, which includes lender processing and underwriting fees 

and any fees paid to a mortgage broker. 

Origination Charge Note: This block requires the disclosure of all charges that all loan 

originators involved in the transaction will receive for originating the loan (excluding any 

charges for points). A loan originator may not separately charge any additional fees for getting 

the loan such as application, processing or underwriting fees. The amount in Block 1 is subject 

to zero tolerance, i.e., the amount cannot change at settlement. 

•	 Block 2 – a “credit” or “charge” for the interest rate chosen. 

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Credit or Charge for the Interest Rate Chosen Note: 

Transaction Involving a Mortgage Broker: For a transaction involving a mortgage broker,9 

Block 2 requires disclosure of a “credit” or charge (points) for the specific interest rate chosen. 

The credit or charge for the specific interest rate chosen is the net payment to the mortgage 

broker (i.e., the sum of all payments to the mortgage broker from the lender, including payments 

based on the loan amount, a flat rate or any other compensation, and in a table funded 

transaction, the loan amount less the price paid for the loan by the lender.) 

When the net payment to the mortgage broker from the lender is positive, there is a “credit” to the 

borrower and it is entered as a negative amount. For example, if the lender pays a yield spread 

premium to a mortgage broker for the loan set forth in the GFE, the payment must be 

disclosed as a “credit” to the borrower for the particular interest rate listed on the GFE 

(reflected on the GFE at Block 2, checkbox 2). The term “yield spread premium” is not 

featured on the GFE or the HUD-1 Settlement Statement. 

Points paid by the borrower for the interest rate chosen must be disclosed as a “charge” 

(reflected on the GFE at Block 2, third checkbox). A loan cannot include both a charge (points) 

and a credit (yield spread premium). 

Transaction Not Involving a Mortgage Broker. For a transaction without a mortgage 

broker, a lender may choose not to separately disclose any credit or charge for the interest rate 

chosen for the loan in the GFE. If the lender does not include any credit or charge in Block 2, 

it must check the first checkbox in Block 2 indicating that “The credit or charge for the interest 

rate you have chosen is included in ‘our origination charge’ above.” Only one of the boxes in 

Block 2 may be checked, as a credit and charge cannot occur together in the same transaction. 

Disclosure of Charges for All Other Settlement Services (Block B) 

Block B is the sum of charges for all settlement services other than the origination charges. 

•	 Block 3 – required services by providers selected by the lender such as appraisal and flood 

certification fees; 

•	 Block 4 – title service fees and the cost of lender’s title insurance; 

•	 Block 5 – owner’s title insurance; 

•	 Block 6 – other required services for which the consumer may shop; 

9 The RESPA Reform Rule changed the definition of “mortgage broker” to mean a person or entity (not an employee of a 

lender) that renders origination services and serves as an intermediary between a lender and a borrower in a transaction 

involving a federally related mortgage loan, including such person or entity that closes the loan in its own name and table 

funds the transaction. The definition will also apply to a loan correspondent approved under 24 CFR 202.8 for Federal 

Housing Administration (FHA programs). The definition would also include an “exclusive agent” who is not an employee of 

the lender. 

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•	 Block 7 – government recording charges; 

•	 Block 8 – transfer tax charges; 

•	 Block 9 – initial deposit for escrow account; 

•	 Block 10 – daily interest charges; 

•	 Block 11 – homeowner’s insurance charges. 

Third Page of GFE 

The third page of the GFE includes the following information: 

•	 A tolerance chart identifying the charges that can change at settlement (see discussion on 

tolerances below); 

•	 A trade-off table that requires the loan originator to provide information on the loan 

described in the GFE and at the loan originator’s option, information about alternative loans 

(one with lower settlement charges but a higher interest rate and one with a lower interest 

rate but higher settlement charges); 

•	 A shopping chart that allows the consumer to fill in loan terms and settlement charges from 

other lenders or brokers to use to compare loans; and 

•	 Language indicating that some lenders may sell the loan after settlement but that any fees the 

lender receives in the future cannot change the borrower’s loan or the settlement charges. 

Tolerances on Settlement Costs – 12 CFR 1024.7(e) and (i) 

The RESPA Reform Rule established “tolerances” or limits on the amount actual settlement 

charges can vary at closing from the amounts stated on the GFE. The rule established three 

categories of settlement charges and each category has different tolerances. If, at settlement, the 

charges exceed the charges listed on the GFE by more than the permitted tolerances, the loan 

originator may cure the tolerance violation by reimbursing to the borrower the amount by 

which the tolerance was exceeded, at settlement or within 30 calendar days after settlement. 

Tolerance Categories 

•	 Zero tolerance category. This category of fees is subject to a zero tolerance standard. The 

fees estimated on the GFE may not be exceeded at closing. These fees include: 

o	 The loan originator’s own origination charge, including processing and underwriting 

fees; 

o	 The credit or charge for the interest rate chosen (i.e., yield spread premium or discount 

points) while the interest rate is locked; 

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o	 The adjusted origination charge while the interest rate is locked; and 

o	 State/local property transfer taxes. 

•	 Ten percent tolerance category. For this category of fees, while each individual fee may 

increase or decrease, the sum of the charges at settlement may not be greater than10 percent 

above the sum of the amounts included on the GFE. This category includes fees for: 

o	 Loan originator required settlement services, where the loan originator selects the thirdparty settlement service provider; 

o	 Loan originator required services, title services, required title insurance and owner’s title 

insurance when the borrower selects a third-party provider identified by the loan 

originator; and 

o	 Government recording charges. 

•	 No tolerance category. The final category of fees is not subject to any tolerance restriction. 

The amounts charged for the following settlement services included on the GFE can change at 

settlement and the amount of the change is not limited: 

o	 Loan originator required services where the borrower selects his or her own third-party 

provider; 

o	 Title services, lender’s title insurance, and owner’s title insurance when the borrower 

selects his or her own provider; 

o	 Initial escrow deposit; 

o	 Daily interest charges; and homeowner’s insurance. 

Identification of Third-Party Settlement Service Providers 

When the loan originator permits a borrower to shop for one or more required third-party 

settlement services and select the settlement service provider for such required services, the 

loan originator must list in the relevant block on page two of the GFE the settlement service 

and the estimated charge to be paid to the provider of each required service. In addition, the 

loan originator must provide the borrower with a written list of settlement service providers 

for those required services on a separate sheet of paper at the time the GFE is provided. 

Binding GFE – 12 CFR 1024.7(f) 

The loan originator is bound, within the tolerances provided, to the settlement charges and 

terms listed on the GFE provided to the borrower, unless a new GFE is provided prior to 

settlement (see discussion below on changed circumstances). This also means that if a lender 

accepts a GFE issued by a mortgage broker, the lender is subject to the loan terms and 

settlement charges listed in the GFE, unless a new GFE is issued prior to settlement. 

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Changed Circumstances – 12 CFR 1024.2(b), 1024.7(f)(1) 

and (f)(2) 

Changed circumstances are defined as: 

•	 Acts of God, war, disaster, or other emergency; 

•	 Information particular to the borrower or transaction that was relied on in providing the 

GFE that changes or is found to be inaccurate after the GFE has been provided; 

•	 New information particular to the borrower or transaction that was not relied on in 

providing the GFE; or 

•	 Other circumstances that are particular to the borrower or transaction, including boundary 

disputes, the need for flood insurance, or environmental problems. 

Changed circumstances do not include the borrower’s name, the borrower’s monthly income, the 

property address, an estimate of the value of the property, the mortgage loan amount sought, and 

any information contained in any credit report obtained by the loan originator prior to providing 

the GFE, unless the information changes or is found to be inaccurate after the GFE has been 

provided. In addition, market price fluctuations by themselves do not constitute changed 

circumstances. 

Changed circumstances affecting settlement costs are those circumstances that result in increased 

costs for settlement services such that the charges at settlement would exceed the tolerances or 

limits on those charges established by the regulations. 

Changed circumstances affecting the loan are those circumstances that affect the borrower’s 

eligibility for the loan. For example, if underwriting and verification indicate that the borrower is 

ineligible for the loan provided in the GFE, the loan originator would no longer be bound by the 

original GFE. In such cases, if a new GFE is to be provided, the loan originator must do so 

within three business days of receiving information sufficient to establish changed 

circumstances. The loan originator must document the reason that a new GFE was provided and 

must retain documentation of any reasons for providing a new GFE for no less than three years 

after settlement. 

None of the information collected by the loan originator prior to issuing the GFE may later become 

the basis for a “changed circumstance” upon which it may offer a revised GFE, unless: 1) it can 

demonstrate that there was a change in the particular information; or 2) that the information was 

inaccurate; or 3) that it did not rely on that particular information in issuing the GFE. A loan 

originator has the burden of demonstrating nonreliance on the collected information, but may do so 

through various means including through a documented record in the underwriting file or an 

established policy of relying on a more limited set of information in providing GFEs. 

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If a loan originator issues a revised GFE based on information previously collected in issuing the 

original GFE and “changed circumstances,” it must document the reasons for issuing the revised 

GFE, such as its nonreliance on such information or the inaccuracy of such information. 

Borrower Requested Changes – 12 CFR 1024.7(f)(3) 

If a borrower requests changes to the mortgage loan identified in the GFE that change the 

settlement charges or the terms of the loan, the loan originator may provide a revised GFE to the 

borrower. If a revised GFE is provided, the loan originator must do so within three business 

days of the borrower’s request. 

Expiration of Original GFE – 12 CFR 1024.7(f)(4) 

If a borrower does not express an intent to continue with an application within 10 business 

days after the GFE is provided, or such longer time provided by the loan originator, the loan 

originator is no longer bound by the GFE. 

Interest Rate Dependent Charges and Terms – 

12 CFR 1024.7(f)(5) 

If the interest rate has not been locked by the borrower, or a locked interest rate has expired, 

all interest rate-dependent charges on the GFE are subject to change. The charges that may 

change include the charge or credit for the interest rate chosen, the adjusted origination 

charges, per diem interest, and loan terms related to the interest rate. However, the loan 

originator’s origination charge (listed in Block 1 of page 2 of the GFE) is not subject to change, 

even if the interest rate floats, unless there is another changed circumstance or borrowerrequested change. 

If the borrower later locks the interest rate, a new GFE must be provided showing the revised 

interest rate dependent charges and terms. All other charges and terms must remain the same 

as on the original GFE, unless changed circumstances or borrower-requested changes result in 

increased costs for settlement services or affect the borrower’s eligibility for the specific 

loan terms identified in the original GFE. 

New Home Purchases – 12 CFR 1024.7(f)(6) 

In transactions involving new home purchases, where settlement is expected to occur more than 

60 calendar days from the time a GFE is provided, the loan originator may provide the GFE 

to the borrower with a clear and conspicuous disclosure stating that at any time up until 60 

calendar days prior to closing, the loan originator may issue a revised GFE. If the loan originator 

does not provide such a disclosure, it cannot issue a revised GFE except as otherwise provided in 

Regulation X. 

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Volume-Based Discounts 

The RESPA Reform Rule did not formally address the legality of volume-based discounts. 

However, HUD indicated in the preamble to the rule that discounts negotiated between loan 

originators and other settlement service providers, where the discount is ultimately passed on to 

the borrower in full, is not, depending on the circumstances of a particular transaction, a 

violation of Section 8 of RESPA.

10 

Uniform Settlement Statement 

(HUD-1 OR HUD-1A) – 12 CFR 1024.8 

Section 4 of RESPA requires the person conducting the settlement (settlement agent) to provide 

the borrower with a HUD-1 Settlement Statement at or before settlement that clearly 

itemizes all charges imposed on the buyer and the seller in connection with the settlement. 

The RESPA Reform rule included a revised HUD-1/1A Settlement Statement form that is 

required as of January 1, 2010. The HUD-1 is used for transactions in which there is a borrower 

and seller. For transactions in which there is a borrower and no seller (refinancings and 

subordinate lien loans), the HUD-1 may be completed by using the borrower’s side of the 

settlement statement. Alternatively, the HUD-1A may be used. 

However, no settlement statement is required for home equity plans subject to the Truth in 

Lending Act and Regulation Z. Appendix A to 12 CFR Part 1024 contains the instructions 

for completing the forms. 

Key RESPA Reform Enhancements to the HUD-1/1A 

Settlement Statement 

While the RESPA Reform Rule did not include any substantive changes to the first page of the 

HUD-1/1A form, there were changes to the second page of the form to facilitate comparison 

between the HUD-1/1A and the GFE. Each designated line on the second page of the 

revised HUD-1/1A includes a reference to the relevant line from the GFE. 

With respect to disclosure of “no cost” loans where “no cost” refers only to the loan 

originator’s fees (see Section L, subsection 800 of the HUD-1 form), the amounts shown for 

the “origination charge” and the “credit or charge for the interest rate chosen” should offset, so 

that the “adjusted origination charge” is zero. 

In the case of a “no cost” loan where “no cost” encompasses loan originator and third-party 

fees, all third-party fees must be itemized and listed in the borrower’s column on the HUD1/1A. These itemized charges must be offset with a negative adjusted origination charge 

(Line 803) and recorded in the columns. 

10 73 Fed. Reg. 68204, 68232 (November 17, 2008). 

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To further facilitate comparability between the forms, the revised HUD-1 includes a new third 

page (second page of the HUD-1A) that allows borrowers to compare the loan terms and 

settlement charges listed on the GFE with the terms and charges listed on the closing statement. 

The first half of the third page includes a comparison chart that sets forth the settlement 

charges from the GFE and the settlement charges from the HUD-1 to allow the borrower to 

easily determine whether the settlement charges exceed the charges stated on the GFE. If any 

charges at settlement exceed the charges listed on the GFE by more than the permitted 

tolerances, the loan originator may cure the tolerance violation by reimbursing to the borrower 

the amount by which the tolerance was exceeded. A borrower will be deemed to have 

received timely reimbursement if the financial institution delivers or places the payment in the 

mail within 30 calendar days after settlement. 

Inadvertent or technical errors on the settlement statement are not deemed to be a violation 

of Section 4 of RESPA if a revised HUD-1/1A is provided to the borrower within 30 

calendar days after settlement. 

The second half of the third page sets forth the loan terms for the loan received at settlement 

in a format that reflects the summary of loan terms on the first page of the GFE, but with 

additional loan related information that would be available at closing. The note at the bottom 

of the page indicates that the borrower should contact the lender if the borrower has questions 

about the settlement charges or loan terms listed on the form. 

Section 1024.8(b) and the instructions for completing the HUD-1/1A Settlement Statement 

provide that the loan originator shall transmit sufficient information to the settlement agent to 

allow the settlement agent to complete the “loan terms” section. The loan originator must 

provide the information in a format that permits the settlement agent to enter the information 

in the appropriate spaces on the HUD-1/1A, without having to refer to the loan documents. 

Average Charge Permitted 

As of January 16, 2009, an average charge may be stated on the HUD-1/1A if such 

average charge is computed in accordance with 12 CFR 1024.8(b)(2). All settlement 

service providers, including loan originators, are permitted to list the average charge for a 

settlement service on the HUD-1/1A Settlement Statement (and on the GFE) rather than 

the exact cost for that service. 

The method of determining the average charge is left up to the settlement service provider. 

The average charge may be used as the charge for any third-party vendor charge, not for the 

provider’s own internal charges. The average charge also cannot be used where the charge is 

based on the loan amount or the value of the property. 

The average charge may be used for any third-party settlement service, provided that the total 

amounts received from borrowers for that service for a particular class of transactions do not 

exceed the total amounts paid to providers of that service for that class of transactions. A class 

of transactions may be defined based on the period of time, type of loan and geographic area. 

If an average charge is used in any class of transactions defined by the loan originator, then 

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the loan originator must use the same average charge for every transaction within that class. 

The average charge must be recalculated at least every six months. 

A settlement service provider that uses an average charge for a particular service must maintain 

all documents that were used to calculate the average charge for at least three years after any 

settlement in which the average charge was used. 

Printing and Duplication of the Settlement Statement – 

12 CFR 1024.9 

Financial institutions have numerous options for layout and format in reproducing the HUD-1 

and HUD-1A that do not require prior CFPB approval such as size of pages; tint or color of 

pages; size and style of type or print; spacing; printing on separate pages, front and back of a 

single page or on one continuous page; use of multi-copy tear-out sets; printing on rolls for 

computer purposes; addition of signature lines; and translation into any language. Other 

changes may be made only with the approval of the CFPB. 

One-Day Advance Inspection of the Settlement Statement 

– 12 CFR 1024.10 

Upon request by the borrower, the HUD-1 or HUD-1A must be completed and made available 

for inspection during the business day immediately preceding the day of settlement, setting 

forth those items known at that time by the person conducting the closing. 

Delivery – 12 CFR 1024.10(a) and (b) 

The completed HUD-1 or HUD-1A must be mailed or delivered to the borrower, the seller (if 

there is one), the lender (if the lender is not the settlement agent), and/or their agents at or before 

settlement. However, the borrower may waive the right of delivery by executing a written 

waiver at or before settlement. The HUD-1 or HUD-1A shall be mailed or delivered as soon as 

practicable after settlement if the borrower or borrower’s agent does not attend the settlement. 

Retention – 12 CFR 1024.10(e) 

A lender must retain each completed HUD-1 or HUD-1A and related documents for five 

years after settlement, unless the lender disposes of its interest in the mortgage and does 

not service the mortgage. If the loan is transferred, the lender shall provide a copy of the 

HUD-1 or HUD-1A to the owner or servicer of the mortgage as part of the transfer. The 

owner or servicer shall retain the HUD-1 or HUD-1A for the remainder of the five-year period. 

Prohibition of Fees for Preparing Federal Disclosures – 

12 CFR 1024.12 

For loans subject to RESPA, no fee may be charged for preparing the Settlement Statement 

or the Escrow Account statement or any disclosures required by the Truth in Lending Act. 

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Prohibition Against Kickbacks and Unearned Fees – 

12 CFR 1024.14 

Any person who accepts or receives a fee, kickback, or thing of value (payments, commissions, 

gifts, tangible item or special privileges) for the referral of settlement business is in violation of 

Section 8(a) of RESPA. Any person who gives or accepts any portion, split, or percentage of a 

charge for real estate settlement services, other than for services actually performed, is in 

violation of Section 8(b) of RESPA. Appendix B of Regulation X provides guidance on the 

meaning and coverage of the prohibition against kickbacks and unearned fees. 

RESPA Section 8(b) is not violated when a single party charges and retains a settlement service 

fee, and that fee is unearned or excessive. 

Examiners should consult with Supervision Headquarters to determine whether practices that 

involve unearned settlement service fees – whether split among parties, or charged and retained 

by a single settlement service provider – constitute unfair, deceptive, or abusive acts or practices. 

Such situations might arise, for example, where a settlement service provider fails to disclose 

fees or charges, or misleads the consumer about or misrepresents the amount, purpose or nature 

of fees being charged to a consumer. 

Penalties and Liabilities 

Civil and criminal liability is provided for violating the prohibition against kickbacks and 

unearned fees including: 

•	 Civil liability to the parties affected, equal to three times the amount of any charge paid for 

such settlement service. 

•	 The possibility that the costs associated with any court proceeding together with reasonable 

attorney’s fees could be recovered. 

•	 A fine of not more than $10,000 or imprisonment for not more than one year or both. 

Affiliated Business Arrangements – 12 CFR 1024.15 

If a loan originator has either an affiliate relationship or a direct or beneficial ownership 

interest of more than one percent in a provider of settlement services and the loan originator 

directly or indirectly refers business to the provider it is an affiliated business arrangement. 

An affiliated business arrangement is not a violation of Section 8 of RESPA and of 12 CFR 

1024.14 of Regulation X if the following conditions are satisfied. 

Prior to the referral, the person making each referral has provided to each person whose 

business is referred an Affiliated Business Arrangement Disclosure Statement (Appendix D of 

Regulation X). This disclosure shall specify the following: 

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•	 The nature of the relationship (explaining the ownership and financial interest) between 

the provider and the loan originator; and 

•	 The estimated charge or range of charges generally made by such provider. 

This disclosure must be provided on a separate piece of paper either at the time of loan 

application, or with the GFE, or at the time of the referral. 

The loan originator may not require the use of such a provider, with the following exceptions: 

the institution may require a buyer, borrower, or seller to pay for the services of an attorney, credit 

reporting agency, or real estate appraiser chosen by the institution to represent its interest. The 

loan originator may only receive a return on ownership or franchise interest or payment 

otherwise permitted by RESPA. 

Title Companies – 12 CFR 1024.16 

Sellers that hold legal title to the property being sold are prohibited from requiring 

borrowers, either directly or indirectly, as a condition to selling the property, to use a 

particular title company. 

Civil liability for violating the provision that a financial institution (seller) cannot require a 

borrower to use a particular title company is an amount equal to three times all charges 

made for such title insurance. 

Escrow Accounts – 12 CFR 1024.17 

On October 26, 1994, HUD issued its final rule changing the accounting method for escrow 

accounts, which was originally effective April 24, 1995. The rule establishes a national 

standard accounting method, known as aggregate accounting. Existing escrow accounts were 

allowed a three-year phase-in period to convert to the aggregate accounting method. The final 

rule also established formats and procedures for initial and annual escrow account 

statements. (The 2008 RESPA Reform Rule eliminated provisions in 12 CFR 1024.17 that 

related to the phase-in period for aggregate accounting, effective January 16, 2009.) 

The amount of escrow funds that can be collected at settlement or upon creation of an escrow 

account is restricted to an amount sufficient to pay charges, such as taxes and insurance, that 

are attributable to the period from the date such payments were last paid until the initial 

payment date. Throughout the life of an escrow account, the servicer may charge the 

borrower a monthly sum equal to 1/12 of the total annual escrow payments that the 

servicer reasonably anticipates paying from the account. In addition, the servicer may 

add an amount to maintain a cushion no greater than 1/6 of the estimated total annual 

payments from the account. 

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Escrow Account Analysis – 12 CFR 1024.17(c)(2) and (3) 

and 12 CFR 1024.17(k) 

Before establishing an escrow account, a servicer must conduct an analysis to determine the 

periodic payments and the amount to be deposited. The servicer shall use an escrow 

disbursement date that is on or before the deadline to avoid a penalty and may make annual 

lump sum payments to take advantage of a discount. 

Transfer of Servicing – 12 CFR 1024.17(e) 

If the new servicer changes either the monthly payment amount or the accounting method 

used by the old servicer, then it must provide the borrower with an initial escrow account 

statement within 60 days of the date of transfer. When the new servicer provides an initial 

escrow account statement, it shall use the effective date of the transfer of servicing to establish 

the new escrow account computation year. In addition, if the new servicer retains the monthly 

payments and accounting method used by the old servicer, then the new servicer may 

continue to use the same computation year established by the old servicer or it may choose a 

different one, using a short year statement. 

Shortages, Surpluses, and Deficiency Requirements – 

12 CFR 1024.17(f) 

The servicer shall conduct an annual escrow account analysis to determine whether a 

surplus, shortage, or deficiency exists as defined under 12 CFR 1024.17(b). 

If the escrow account analysis discloses a surplus, the servicer shall, within 30 days from the date 

of the analysis, refund the surplus to the borrower if the surplus is greater than or equal to $50. 

If the surplus is less than $50, the servicer may refund such amount to the borrower, or credit 

such amount against the next year’s escrow payments. These provisions apply as long as the 

borrower’s mortgage payment is current at the time of the escrow account analysis. 

If the escrow account analysis discloses a shortage of less than one month’s escrow 

payments, then the servicer has three possible courses of action: 

•	 The servicer may allow the shortage to exist and do nothing to change it; 

•	 The servicer may require the borrower to repay the shortage amount within 30 days; or 

•	 The servicer may require the borrower to repay the shortage amount in equal monthly 

payments over at least a 12-month period. 

If the shortage is more than or equal to one month’s escrow payment, then the servicer has 

two possible courses of action: 

•	 The servicer may allow the shortage to exist and do nothing to change it; or 

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•	 The servicer may require the borrower to repay the shortage in equal monthly payments over 

at least a 12-month period. 

If the escrow account analysis discloses a deficiency, then the servicer may require the 

borrower to pay additional monthly deposits to the account to eliminate the deficiency. 

If the deficiency is less than one month’s escrow account payment, then the servicer; 

•	 May allow the deficiency to exist and do nothing to change it; 

•	 May require the borrower to repay the deficiency within 30 days; or 

•	 May require the borrower to repay the deficiency in two or more equal monthly payments. 

If the deficiency is greater than or equal to one month’s escrow payment, the servicer may 

allow the deficiency to exist and do nothing to change it, or require the borrower to repay the 

deficiency in two or more equal monthly payments. 

These provisions apply as long as the borrower’s mortgage payment is current at the time of 

the escrow account analysis. 

A servicer must notify the borrower at least once during the escrow account computation year 

if a shortage or deficiency exists in the account. 

Initial Escrow Account Statement – 12 CFR 1024.17(g) 

After analyzing each escrow account, the servicer must submit an initial escrow account 

statement to the borrower at settlement or within 45 calendar days of settlement for escrow 

accounts that are established as a condition of the loan. 

The initial escrow account statement must include the monthly mortgage payment; the 

portion going to escrow; itemize estimated taxes, insurance premiums, and other charges; 

the anticipated disbursement dates of those charges; the amount of the cushion; and a trial 

running balance. 

Annual Escrow Account Statement – 12 CFR 1024.17(i) 

A servicer shall submit to the borrower an annual statement for each escrow account within 

30 days of the completion of the computation year. The servicer must conduct an escrow account 

analysis before submitting an annual escrow account statement to the borrower. 

The annual escrow account statements must contain the account history; projections for the next 

year; current mortgage payment and portion going to escrow; amount of past year’s monthly 

mortgage payment and portion that went into the escrow account; total amount paid into the 

escrow account during the past year; amount paid from the account for taxes, insurance 

premiums, and other charges; balance at the end of the period; explanation of how the 

CFPB	 Manual V.2 (October 2012) RESPA 19 
 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations RESPA 

surplus, shortage, or deficiency is being handled; and, if applicable, the reasons why the 

estimated low monthly balance was not reached. 

Short-Year Statements – 12 CFR 1024.17(i)(4) 

Short-year statements can be issued to end the escrow account computation year and 

establish the beginning date of the new computation year. Short-year statements may be 

provided upon the transfer of servicing and are required upon loan payoff. The statement is 

due to the borrower within 60 days after receiving the pay-off funds. 

Timely Payments – 12 CFR 1024.17(k) 

The servicer shall pay escrow disbursements by the disbursement date. In calculating the 

disbursement date, the servicer must use a date on or before the deadline to avoid a penalty 

and may make annual lump sum payments to take advantage of a discount. 

Recordkeeping – 12 CFR 1024.17(l) 

Each servicer shall keep records that are easily retrievable, reflecting the servicer’s handling of 

each borrower’s escrow account. The servicer shall maintain the records for each escrow 

account for at least five years after the servicer last serviced the account. 

Mortgage Servicing Transfer Disclosures – 

12 CFR 1024.21 

The disclosures related to the transfer of mortgage servicing are required for first mortgage 

liens, including all refinancing transactions. Subordinate lien loans and open-end lines of 

credit (home equity plans), that are covered under the TILA and Regulation Z are exempt 

from this section. 

A financial institution that receives an application for a federally related mortgage loan is 

required to provide the servicing disclosure statement to the borrower within three business 

days after receipt of the application. The 2008 RESPA Reform Rule included a technical 

revision to the mortgage servicing disclosure statement in Appendix MS-1 to Regulation X, 

effective January 16, 2009. The rule streamlined the initial servicing disclosure statement 

language to be consistent with statutory changes. 

When a federally related mortgage loan is assigned, sold or transferred, the transferor 

(present servicer) must provide a disclosure at least 15 days before the effective date of the 

transfer. A transfer of servicing notice from the transferee (new servicer) must be provided 

not more than 15 days after the effective date of the transfer. Both notices may be combined 

into one notice if delivered to the borrower at least 15 days before the effective date of the 

transfer. The disclosure must include: 

• The effective date of the transfer. 

CFPB Manual V.2 (October 2012) RESPA 20 
 

 

 

 

 

 

 

 

 

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Laws and Regulations RESPA 

•	 The name, address for consumer inquiries, and toll-free or collect-call telephone number of 

the transferee servicer. 

•	 A toll-free or collect-call telephone number for an employee by the transferor servicer that 

can be contacted by the borrower to answer servicing questions. 

•	 The date on which the transferor servicer will cease accepting payments relating to the loan 

and the date on which the transferee servicer will begin to accept such payments. The dates 

must either be the same or consecutive dates. 

•	 Any information concerning the effect of the transfer on the availability of optional insurance 

and any action the borrower must take to maintain coverage. 

•	 A statement that the transfer does not affect the terms or conditions of the mortgage (except 

as related to servicing). 

•	 A statement of the borrower’s rights in connection with complaint resolution. 

During the 60-day period beginning on the date of transfer, no late fee can be imposed on a 

borrower who has made the payment to the wrong servicer. 

The following transfers are not considered an assignment, sale, or transfer of mortgage loan 

servicing for purposes of this requirement if there is no change in the payee, address to 

which payment must be delivered, account number, or amount of payment due: 

•	 Transfers between affiliates; 

•	 Transfers resulting from mergers or acquisitions of service or subservicers; and 

•	 Transfers between master servicers, when the subservicer remains the same. 

Servicers Must Respond to Borrower’s Inquiries – 

12 CFR 1024.21(e) 

A financial institution servicer must respond to a borrower’s qualified written request for 

information relating to the servicing of the loan and take appropriate action within established 

time frames after receipt of the inquiry. Generally, the financial institution must provide 

written acknowledgment within 20 business days, and take certain specified actions within 60 

business days of receipt of such inquiry. The written inquiry must include the name and 

account number of the borrower and the reasons the borrower believes the account is in error. 

During the 60 business day period following receipt of a qualified written request from a 

borrower relating to a payment, a financial institution may not provide adverse information 

regarding any payment that is the subject of the qualified written request to any consumer 

reporting agency. 

CFPB	 Manual V.2 (October 2012) RESPA 21 
 

 

 

 

 

 

 

 

 

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Laws and Regulations RESPA 

Relationship to State Law – 12 CFR 1024.21(h) and 

12 U.S.C. 2616 

Financial institutions complying with the mortgage servicing transfer disclosure 

requirements of RESPA are considered to have complied with any state law or regulation 

requiring notice to a borrower at the time of application or transfer of a mortgage. 

Other state laws shall not be affected by the act, except to the extent that they are inconsistent 

and then only to the extent of the inconsistency. The Secretary of Housing and Urban 

Development is authorized, after consulting with the appropriate federal agencies, to 

determine whether such inconsistencies exist. 

Penalties and Liabilities – 12 CFR 1024.21(f) 

Failure to comply with any provision of 12 CFR 1024.21 will result in actual damages, and 

where there is a pattern or practice of noncompliance, any additional damages in an amount 

not to exceed $1,000. In class action cases, each borrower may receive actual damages and 

additional damages, as the court allows, up to $1,000 for each member of the class, except that 

the total amount of damages in any class action may not exceed the lesser of $500,000 or one 

percent of the net worth of the servicer. In addition, costs of the action and attorney fees may 

be awarded in any successful action. 

REFERENCES 

Laws 

12 U.S.C. 2601 et seq. Real Estate Settlement Procedures Act 

Regulations 

Consumer Financial Protection Bureau Regulation (12 CFR) 

Part 1024 Real Estate Settlement Procedures Act (Regulation X) 

CFPB Manual V.2 (October 2012) RESPA 22 
 

 

 

 

 

 

CFPB 

Examination Procedures RESPA 

Real Estate Settlement 

Procedures Act1 

Examination Objectives 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

•	 To determine if the financial institution has established procedures to ensure compliance with 

the Real Estate Settlement Procedures Act (RESPA). 

•	 To determine that the financial institution does not engage in any practices prohibited by 

RESPA, such as kickbacks, payment or receipt of referral fees or unearned fees, or excessive 

escrow assessments. 

•	 To determine if the Special Information Booklet, Good Faith Estimate, Uniform Settlement 

Statement (Form HUD-1 or HUD 1A), mortgage servicing transfer disclosures, and other 

required disclosures are in a form that complies with Regulation X, are properly completed, 

and provided to borrowers within prescribed time periods. 

•	 To determine if the institution is submitting the required initial and annual escrow account 

statements to borrowers as applicable, and complying with established limitations on escrow 

account arrangements. 

•	 To determine whether the institution is responding to borrower inquiries for information 

relating to the servicing of their loans in compliance with the provisions of RESPA. 

Examination Procedures 

If the financial institution has loans covered by the act, determine whether the institution’s 

policies, practices, and procedures are in compliance. 

1. Review the types of loans covered by RESPA and applicable exemptions. 

[Click&type] 

2. Review the Special Information Booklet, good faith estimate (GFE) form, Uniform 

Settlement Statement form (HUD-1 or HUD-1A), mortgage servicing transfer disclosure 

forms, and affiliated business arrangement disclosure form for compliance with the 

requirements of Regulation X. Review standardized and model forms in the appendices to 

the regulation. 

[Click&type] 

1 These reflect FFIEC-approved procedures. 

CFPB Manual V.2 (October 2012) Procedures 1 
 

 

 

 

CFPB 

Examination Procedures RESPA 

3. If electronic disclosures are provided, determine whether the institution has policies and 

procedures to provide electronic delivery in accordance with the Electronic Signatures in 

Global and National Commerce Act (ESIGN). 

[Click&type] 

4. Review written loan policies and operating procedures in connection with federally 

related mortgage loans and discuss them with institution personnel. Determine whether 

the financial institution has policies and procedures that address the following: 

•	 The information that will be collected from applicants in connection with issuing a 

GFE, and what information will be relied on to issue a GFE. 

•	 Provision of a revised GFE in the event of changed circumstances. 

•	 Provision of a revised GFE for transactions involving new home purchases. 

•	 To cure a tolerance violation by reimbursing the borrower the amount by which the 

tolerance was exceeded within 30 calendar days from date of settlement. 

•	 To cure a technical or inadvertent error on the HUD-1/1A by providing a revised 

settlement statement to the borrower within 30 calendar days of settlement. 

[Click&type] 

5. Interview mortgage lending personnel to determine: 

•	 Identity of persons or entities referring federally related mortgage loan business; 

•	 The nature of services provided by referral sources, if any; 

•	 Settlement service providers used by the institution; 

•	 When the Special Information Booklet is given; 

•	 The timing of the good faith estimate and how fee information is determined; 

•	 Any providers whose services are required by the institution; 

•	 How borrower inquiries regarding loan servicing are handled and within what time 

frames; and 

•	 Whether escrow arrangements exist on mortgage loans. 

[Click&type] 

6. Assess the overall level of knowledge and understanding of mortgage lending personnel. 

[Click&type] 

Special Information Booklet – 12 CFR 1024.6 

7. Determine through discussion with management and review of credit files whether the 

Special Information Booklet, if required, is provided within three business days after the 

financial institution or broker receives a written application for a loan (12 CFR 

1024.6(a)(1)). 

CFPB Manual V.2 (October 2012) Procedures 2 
 

 

 

 

 

 

 

 

 

CFPB 

Examination Procedures RESPA 

[Click&type] 

Good Faith Estimate – 12 CFR 1024.7 

8. Determine whether the financial institution provides a good faith estimate of charges for 

settlement services, if required, within three business days after receipt of a written 

application (12 CFR 1024.7(a)). 

[Click&type] 

9. Review the Good Faith Estimate to determine if it appears exactly as set forth in 

Appendix C to Part 1024. 

[Click&type] 

10. Review a sample of loan files that include GFEs to determine the following: 

•	 Whether the financial institution followed GFE application requirements. 

•	 If the institution provided a revised GFE to the applicant due to changed 

circumstances, determine whether institution followed regulatory requirements for 

issuing a revised GFE due to changed circumstances. 

•	 Whether the GFE was completed as required in the regulations and instructions (12 

CFR 1024.7 and Appendix C to 12 CFR Part 1024) and whether it included the 

following information: 

o	 Interest rate expiration date; 

o	 Settlement charges expiration date; 

o	 Rate lock period; 

o	 Number of days before settlement the interest rate must be locked, if applicable; 

o	 Summary of loan information; 

o	 Escrow account information; 

o	 Estimates for settlement charges; and 

o	 Left hand column on trade-off table completed for loan in the GFE. 

•	 Whether, for no cost loans, all third-party fees paid by the financial institution are 

itemized and listed in the appropriate blocks on the second page of the GFE. 

•	 Whether a separate sheet was provided with the GFE that identifies the settlement 

service providers for the services listed on the GFE. 

[Click&type] 

CFPB Manual V.2 (October 2012) Procedures 3 
 

 

 

CFPB 

Examination Procedures RESPA 

Uniform Settlement Statement Form (HUD-1 and HUD-1A) – 

12 CFR 1024.8 

11. Using the same sample of loan files as used for the review of the GFE, review the 

Uniform Settlement Statement (HUD-1 or HUD-1A, as appropriate) (12 CFR 1024.8 and 

Appendix A to 12 CFR Part 1024) to determine whether: 

•	 Charges are properly itemized in accordance with the instructions for completion of 

the HUD-1 or HUD-1A (Appendix A to 12 CFR Part 1024). 

•	 All charges paid by the borrower and the seller are itemized and include the name of 

the recipient (12 CFR 1024.8(b), Appendix A). 

•	 Average charges for settlement services are calculated in accordance with 12 

CFR 1024.8(b)(2). 

•	 Charges required by the financial institution but paid outside of closing are itemized 

on the settlement statement, marked as “paid outside of closing” or “P.O.C.,” but not 

included in cost totals (12 CFR 1024.8(b); Appendix A). 

[Click&type] 

12. If the financial institution conducts the settlement, determine whether: 

•	 The borrower, upon request, is allowed to inspect the HUD-1 or HUD-1A at least one 

business day prior to settlement (12 CFR 1024.10(a)). 

•	 The HUD-1 or HUD-1A is provided to the borrower and seller at or before settlement 

(except where the borrower has waived the right to delivery and in the case of exempt 

transactions) (12 CFR 1024.10(b)). 

•	 In cases where the right to delivery is waived or the transaction is exempt, the HUD1/1A is mailed as soon as practicable after settlement (12 CFR 1024.10(b),(c), and 

(d)). 

[Click&type] 

13. Determine whether, in the case of an inadvertent or technical error on the HUD-1/1A, the 

financial institution provides a revised HUD-1/1A to the borrower within 30 calendar 

days after settlement (12 CFR 1024.8(c)). 

[Click&type] 

14. Review the HUD-1 or HUD-1A form prepared in connection with each GFE reviewed to 

determine if the amount stated for any itemized service exceeds the amount shown on the 

GFE for that service. If the amount stated on the HUD-1 exceeds the amount shown on 

the GFE and such overcharge violates the tolerance for that category of settlement 

services, determine whether the financial institution cured the tolerance violation by 

reimbursing to the borrower the amount by which the tolerance was exceeded, at 

settlement or within 30 calendar days from date of settlement (12 CFR 1024.7(i)). 

[Click&type] 

CFPB Manual V.2 (October 2012) Procedures 4 
 

 

 

CFPB 

Examination Procedures RESPA 

15. Determine whether HUD-1 and HUD-1A forms are retained for five years. If the 

financial institution disposes of its interest in the mortgage and does not service the loan, 

determine whether the HUD-1 or HUD-1A form is transferred to the new asset owner 

with the loan file (12 CFR 1024.10(e)). 

[Click&type] 

Mortgage Servicing Transfer Disclosure – 12 CFR 1024.21 

16. Determine whether the disclosure form is substantially in conformity with the model 

disclosure in Appendix MS-1 to 12 CFR Part 1024. 

[Click&type] 

17. Determine that the mortgage servicing transfer disclosure was provided to the applicant 

within three business days after receipt of the application (12 CFR 1024.21(c)). 

[Click&type] 

18. Determine that the disclosure states whether the loan may be assigned, sold, or 

transferred while the loan is outstanding (12 CFR 1024.21(b)(2)). 

[Click&type] 

Notice to Borrower of Transfer of Mortgage Servicing – 12 CFR 1024.21 

19. Determine whether the institution has transferred or received mortgage servicing rights. 

[Click&type] 

20. If it has transferred servicing rights, determine whether notice to the borrower was given 

at least 15 days prior to the transfer (12 CFR 1024.21(d)(2)). 

[Click&type] 

21. If it has received servicing rights, determine whether notice was given to the borrower 

within 15 days after the transfer (12 CFR 1024.21(d)(2)). 

[Click&type] 

CFPB Manual V.2 (October 2012) Procedures 5 
 

 

 

 

CFPB 

Examination Procedures RESPA 

22. Determine whether the notice by transferor and transferee includes the following 

information (12 CFR 1024.21(d)(3)). Sample language for the notice of transfer is 

contained in Appendix MS-2 to 12 CFR Part 1024. 

•	 The effective date of the transfer; 

•	 A statement that the transfer does not affect the terms or conditions of the mortgage, 

other than terms directly related to its servicing; 

•	 The name, consumer inquiry addresses (including, at the option of the servicer, a 

separate address where qualified written requests must be sent), and a toll-free or 

collect call telephone number for an employee or department of the transferee 

servicer; 

•	 A toll-free or collect call telephone number for an employee or department of the 

transferor servicer that can be contacted by the borrower for answers to servicing 

transfer inquiries; 

•	 The date on which the present servicer will cease accepting payments and the date the 

new servicer will begin accepting payments relating to the transferred loan; 

•	 Any information concerning the effect of the transfer on the availability or terms of 

optional insurance and any action the borrower must take to maintain coverage; and 

•	 A statement of the borrower’s rights in connection with complaint resolution 

(Appendix MS-2 to 12 CFR Part 1024.) 

[Click&type] 

Responsibilities of Servicer – 12 CFR 1024.21 

23. Through a review of late notices or otherwise if the transferor servicer received payment, 

determine that no late fees have been imposed and that no payments have been treated as 

late within 60 days following a transfer of servicing (12 CFR 1024.21(d)(5)). 

[Click&type] 

CFPB Manual V.2 (October 2012) Procedures 6 
 

 

 

 

 

 

 

CFPB 

Examination Procedures RESPA 

24. Determine that the institution, as loan servicer for mortgage loans and refinancings 

subject to RESPA, responds to borrower inquiries relating to these loans as prescribed in 

the regulation, including: 

Provides the notice of receipt of inquiry for qualified written requests from borrowers 

within 20 business days (unless the action requested is taken within that period and the 

borrower is notified in writing of that action) (12 CFR 1024.21(e)(1)). 

Provides written notification of the corrections taken on the account, or statement of the 

reasons the account is correct or explanation why the information requested is 

unavailable not later than 60 business days after receipt of the qualified written request 

from the borrower (12 CFR 1024.21(e)(3)). 

Determine that the institution does not provide information to any consumer reporting 

agency regarding overdue payment when investigating a qualified written request from 

borrower regarding disputed payments during this 60- business-day period (12 CFR 

1024.21(e)(4)(i)). 

[Click&type] 

No Fees for RESPA Disclosures – 12 CFR 1024.12 

25. Determine whether the financial institution charges a fee specifically for preparing and 

distributing the HUD-1 forms, escrow statements or documents required under the Truth 

in Lending Act (12 CFR 1024.12). 

•	 If any fee is charged before providing a GFE, determine whether such fee is limited to 

the cost of a credit report (12 CFR 1024.7(a)(4)). 

[Click&type] 

Purchase of Title Insurance – 12 CFR 1024.16 

26. When the financial institution owns the property being sold, determine whether it requires 

that title insurance be purchased from a particular company (12 CFR 1024.16). 

[Click&type] 

Payment or Receipt of Referral or Unearned Fees – 12 CFR 1024.14 

27. Determine if management is aware of the prohibition against payment and receipt of any 

fee, kickback, or thing of value in return for the referral of settlement services business. 

(RESPA Section 8; 12 CFR 1024.14). 

[Click&type] 

28. Determine if management is aware of the prohibition against unearned fees where a 

charge for settlement services is divided between two or more parties. 

[Click&type] 

CFPB Manual V.2 (October 2012) Procedures 7 
 

 

 

 

 

 

 

CFPB 

Examination Procedures RESPA 

29. Through interviews with institution management and personnel, file reviews, review of 

good faith estimates, and HUD-1 and HUD-1A, determine if federally related mortgage 

loan transactions are referred to the institution by brokers, affiliates, or other parties. 

Identify those parties. Also, identify persons or entities to which the institution refers 

settlement services business in connection with a federally related mortgage 

transaction. 

•	 Identify the types of services rendered by the broker, affiliate, or service provider. 

•	 By a review of the institution’s general ledger or otherwise, determine if fees were 

paid to the institution or any parties identified. 

•	 Confirm that any fees paid or received by the institution meet the requirements of 12 

CFR 1024.14(g) and are not kickbacks or referral fees, but are for goods or facilities 

actually furnished or services actually performed. This includes payments to an 

affiliate or the affiliate’s employees. 

•	 In cases where a fee is split between the institution and one or more other parties, 

confirm that the fee met the requirements of Section 1024.14 and that each party 

actually performed services for that fee. This includes payments to an affiliate or the 

affiliate’s employees. 

•	 In all cases where there is an unearned fee (whether split between parties or not), 

determine whether the institution may have misled the consumer about or 

misrepresented the nature, purpose, or amount of a fee, or failed to properly disclose a 

fee to the consumer. In such cases, consult with Headquarters to discuss whether there 

may be a basis for a UDAAP claim (for unfair, deceptive, or abusive acts or 

practices). 

[Click&type] 

Affiliated Business Arrangements – 12 CFR 1024.15 

30. Determine from the HUD-1 or HUD-1A and from interviews with institution 

management if the institution referred a borrower to a settlement service provider. 

[Click&type] 

31. If the financial institution referred a borrower to an affiliated settlement service provider, 

determine whether the Affiliated Business Arrangement disclosure statement (Appendix 

D to Part 1024) was provided as required by 12 CFR 1024.15(b)(1). 

[Click&type] 

32. Other than an attorney, credit reporting agency, or appraiser representing the lender, if the 

financial institution referred a borrower to a settlement service provider, determine 

whether the institution required the use of the provider (12 CFR 1024.15(b)(2)). 

CFPB Manual V.2 (October 2012) Procedures 8 
 

 

 

 

 

 

CFPB 

Examination Procedures RESPA 

[Click&type] 

Escrow Accounts – 12 CFR 1024.17 

If the institution maintains escrow accounts in connection with a federally related 

mortgage loan, complete the following procedures. 

33. Determine whether the institution performed an initial escrow analysis (12 

CFR 1024.17(c)(2)) and provided the initial escrow statement required by 12 CFR 

1024.17(g). The statement must contain the following: 

•	 Amount of monthly payment 

•	 Portion of the monthly payment being placed in escrow 

•	 Charges to be paid from the escrow account during the first 12 months 

•	 Disbursement dates 

•	 Amount of cushion 

[Click&type] 

34. Determine if the statement was given to the borrower at settlement or within 45 days after 

the escrow account was established. This statement may be incorporated into the HUD-1 

statement (12 CFR 1024.17(g)(1) and (2)). 

[Click&type] 

35. Determine whether the institution performs an annual analysis of the escrow account (12 

CFR 1024.17(c)(3) and (7), and 1024.17(i)). 

[Click&type] 

36. Determine whether the annual escrow account statement is provided to the borrower 

within 30 days of the end of the computation year (12 CFR 1024.17(i)). 

[Click&type] 

37. Determine if the annual escrow statement contains the following: 

•	 Amount of monthly mortgage payment and portion that were placed in escrow; 

•	 Amount of past year’s monthly mortgage payment and portion that went into escrow; 

•	 Total amount paid into escrow during the past computation year; 

•	 Total amount paid out of escrow account during same period for taxes, insurance, and 

other charges; 

•	 Balance in the escrow account at the end of the period; 

•	 How a surplus, shortage, or deficiency is to be paid/handled; and 

•	 If applicable, the reason why estimated low monthly balance was not reached (12 

CFR 1024.17(i)(1)). 

CFPB Manual V.2 (October 2012) Procedures 9 
 

 

CFPB 

Examination Procedures RESPA 

[Click&type] 

38. Determine whether monthly escrow payments following settlement are within the limits 

of 12 CFR 1024.17(c). 

[Click&type] 

Examiner Conclusions 

1. Summarize the findings, supervisory concerns and regulatory violations. 

[Click&type] 

2. For the violations noted, determine the root cause by identifying weaknesses in internal 

controls, audit and compliance reviews, training, management oversight, or other factors. 

Determine whether the violation(s) are repetitive or systemic. 

[Click&type] 

3. Identify action needed to correct violations and weaknesses in the institution’s 

compliance system. 

[Click&type] 

4. Discuss findings with the institution’s management and, if necessary, obtain a 

commitment for corrective action. 

[Click&type] 

Examiner’s Summary, Recommendations, and Comments 

[Click&type] 

CFPB Manual V.2 (October 2012) Procedures 10 
 

 

 

 

 

 

YES NO 

1.	 Are written loan policies in connection with federally related mortgage loans 

in compliance with Regulation X? 

2.	 Does the institution have established operating procedures that address the 

requirements of Regulation X? 

3.	 Are mortgage lending personnel knowledgeable of the requirements of RESPA 

and Regulation X? 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB 

Examination Checklist RESPA 

Real Estate Settlement 

Procedures Act1

Special Information Booklet – 12 CFR 1024.6 

4.	 For applicable transactions, is the Special Information Booklet provided within 

three business days after the financial institution or broker receives or prepares 

a written application for a loan? 

Good Faith Estimate – 12 CFR 1024.7 

5.	 Does the financial institution use the standard/required Good Faith Estimate 

form (GFE)? 

6.	 Is a GFE of charges for settlement services, if required, provided within three 

business days after an application is received or prepared? 

7.	 Does the GFE appear in the exact form as in Appendix C to Regulation X? 

a. Does the GFE contain the following required elements: 

i.	 Interest rate expiration date? 

ii. Settlement charges expiration date? 

iii. Rate lock period? 

iv.	 Number of days before settlement the interest rate must be locked, 

if applicable? 

v. Summary of loan information? 

vi. Escrow account information? 

vii. Estimates for settlement charges? 

viii. Left hand column on trade-off table completed for loan in the GFE? 

1 These reflect FFIEC-approved procedures. 

CFPB	 Manual V.2 (October 2012) Checklist 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB 

Examination Checklist RESPA 

YES NO
 

b.	 For all loans, are all third-party fees, including those paid by the financial 

institution in the case of no cost loans, itemized and listed in the 

appropriate blocks on the second page of the GFE? 

c.	 Did the financial institution provide a separate sheet that identifies the 

settlement service providers for the services listed? 

Affiliated Business Arrangements – 12 CFR 1024.15 

8.	 Does the financial institution refer borrowers to settlement service providers? 

9.	 If the institution refers borrowers to affiliated settlement service providers, is 

the Affiliated Business Disclosure statement provided to each borrower as set 

forth in Appendix D to Part 1024? 

10.	 Other than an attorney, credit reporting agency, or appraiser representing the 

lender, does the financial institution require the use of an affiliate? 

Uniform Settlement Statement Form (HUD-1 and HUD-1A) 

– 12 CFR 1024.8 

11.	 Does the financial institution use the current Uniform Settlement Statement 

(HUD-1 or HUD-1A) as appropriate? 

12.	 Does the HUD-1 or HUD-1A contain the following: 

a.	 Charges properly itemized for both borrower and seller in accordance with 

the instructions for completion of the HUD-1 or HUD-1A? 

b.	 All charges paid to one other than the lender itemized and the recipient 

named? 

c.	 Charges required by the financial institution but paid outside of closing, 

itemized on the settlement statement, marked as “paid outside of closing” 

or “P.O.C.,” but not included in totals? 

d.	 Where an average charge was listed for a settlement service, was the 

charge calculated in accordance with requirements set forth in 12 CFR 

Section 1024.8(b)(2)? 

13.	 From a review of the HUD-1 or HUD-1/A prepared in connection with each 

GFE reviewed, are amounts shown on the GFE the same as the fees actually 

paid by the borrower? 

14.	 If a charge stated on the HUD-1/1A exceeds the charges stated on the GFE by 

more than the permitted tolerance, does the financial institution cure the 

tolerance violation by reimbursing the borrower the amount by which the 

tolerance was exceeded at settlement, or by delivering or placing the payment 

in the mail within 30 calendar days after settlement? 

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Examination Checklist RESPA 

YES NO 

15.	 If the financial institution conducts settlement: 

a.	 Is the borrower, upon request, allowed to inspect the HUD-1 or HUD-1A 

at least one day prior to settlement? 

b.	 Is the HUD-1 or HUD-1A provided to the borrower and seller at
 

settlement?
 

c.	 In cases where the right to delivery is waived or the transaction is exempt, 

is the statement mailed as soon as possible after settlement? 

16.	 In the case of an inadvertent or technical error on the HUD-1/1A, does the 

institution provide a revised HUD-1/1A to the borrower within 30 calendar 

days after settlement? 

17.	 If the financial institution retains its interest in the mortgage and/or services, is 

the HUD-1 or HUD-1A form retained for five years? 

18.	 If the financial institution disposes of its interest in the mortgage and does not 

service the loan, is the HUD-1/1A transferred to the new asset owner with the 

loan file? 

Mortgage Servicing Transfer Disclosure – 12 CFR 1024.21 

19.	 Does the mortgage servicing transfer disclosure form language substantially 

conform to the model disclosure in Appendix MS-1 to Part 1024? 

20.	 Does the lender provide the mortgage servicing transfer disclosure within three 

business days after receipt of the application? 

21.	 Does the disclosure state whether the loan may be assigned or transferred 

while outstanding? 

Notice to Borrower of Transfer of Mortgage Servicing – 

12 CFR 1024.21 

22.	 If the institution has transferred servicing rights, was notice to the borrower 

given at least 15 days prior to the transfer? 

23.	 If the institution has received servicing rights, was notice given the borrower 

within 15 days after the transfer? 

24.	 Does the notice by transferor and transferee include the following information 

as contained in Appendix MS-2 to Part 1024: 

a.	 The effective date of the transfer? 

b.	 The new servicer's name, address, and toll-free or collect call telephone 

number of the transferor servicer? 

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CFPB 

Examination Checklist RESPA 

c.	 A toll-free or collect call telephone number of the present servicer to
 

answer inquiries relating to the transfer?
 

d.	 The date on which the present servicer will cease accepting payments and 

the date the new servicer will begin accepting payments relating to the 

transferred loan? 

e.	 Any information concerning the effect of the transfer on the availability of 

terms of optional insurance and any action the borrower must take to 

maintain coverage? 

f.	 A statement that the transfer does not affect the terms or conditions of the 

mortgage, other than terms directly related to its servicing? 

g.	 A statement of the borrower’s rights in connection with complaint
 

resolution?
 

Responding to Borrower Inquiries – 12 CFR 1024.21 

25.	 Have late fees been imposed within 60 days following a transfer of servicing 

or were payments treated as late when received by transferor rather than 

transferee? 

26.	 Does the institution respond to borrower inquiries relating to servicing of 

RESPA covered mortgage loans and refinancings as prescribed in the 

regulation? 

Specifically, does the institution: 

a.	 Provide a written response acknowledging receipt of a qualified written 

request from a borrower for information relating to the servicing of the 

loan within 20 business days? 

b.	 If not, has the action requested by the borrower been taken within the 20-

business day period? 

c.	 Within 60 business days after the receipt of a qualified written request, 

does the institution make appropriate corrections in the account of the 

borrower and provide a written notification of the correction (including in 

the notice the name and the telephone number of a representative of the 

institution who can provide assistance)? 

or 

Provide the borrower with a written explanation: 

i.	 Stating the reasons the account is correct (including the name and 

telephone number of a representative of the institution who can provide 

assistance)? 

or 

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YES NO 

 

 

CFPB 

Examination Checklist RESPA 

ii.	 Explaining why the information requested is unavailable or cannot be

obtained by the institution (including the name and telephone number

of a representative of the institution who can provide assistance)? 

27.	 Does the institution provide information regarding an overdue payment to any 

consumer reporting agency during the 60-day period beginning on the date the

institution received any qualified written request relating to a dispute regarding

the borrower's payments? 

Escrow Accounts – 12 CFR 1024.17 

28.	 Does the institution perform an escrow analysis at the creation of the escrow 

account? 

29.	 Is the initial escrow statement given to the borrower at settlement or within 45 

days after the escrow account is established? 

30.	 For continuing escrow arrangements, is an annual escrow statement provided 

to the borrower at least once every 12 months? 

31.	 Does the initial escrow statement itemize: 

a. Amount of monthly mortgage payment? 

b. Portion of the monthly payment being placed in escrow? 

c. Charges to be paid from the escrow account during the first 12 months? 

d. Disbursement date? 

e.	 Amount of cushion? 

32.	 Is the annual escrow statement provided within 30 days of the completion of 

the escrow account computation year? 

33.	 Does the annual escrow statement itemize: 

a. Current mortgage payment and portion going to escrow? 

b. Amount of last year’s mortgage payment and portion that went to escrow? 

c.	 Total amount paid into the escrow account during the past computation 

year? 

d.	 Total amount paid from the escrow account during the year for taxes, 

insurance premiums, and other charges?
 

e. Balance in the escrow account at the end of the period? 

f. Explanation of how any surplus is being handled? 

g.	 Explanation of how any shortage or deficiency is to be paid by the
 

borrower?
 

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Examination Checklist RESPA 

h.	 If applicable, the reason(s) why the estimated low monthly balance was not

reached? 

34.	 Are monthly escrow payments following settlement no larger than 1/12 of the 

amount expected to be paid for taxes, insurance premiums, and other charges 

in the following 12 months, plus 1/6 of that amount? 

35.	 Does the servicer notify the borrower at least annually of any shortage or 

deficiency in the escrow account? 

36.	 Does the institution make payments from the escrow account for taxes, 

insurance premiums and other charges in a timely manner as they become due?

No Fees for RESPA Disclosures – 12 CFR 1024.12 

37.	 Does the financial institution charge a fee specifically for preparing and 

distributing the HUD-1 forms, escrow statements or documents required under 

the Truth in Lending Act? 

a.	 If a fee is charged for a GFE, is the fee limited to the cost of a credit report 

(12 CFR 1024.7(a)(4))? 

Purchase of Title Insurance – 12 CFR 1024.16 

38.	 When the financial institution owns the property being sold, does it require 

that title insurance is required from a particular company? 

Payment or Receipt of Referral or Unearned Fees – 

12 CFR 1024.14 

39.	 Is institution management aware of the prohibitions against payment or receipt 

of kickbacks and unearned fees? 

40.	 Are federally related mortgage loan transactions referred by brokers, affiliates, 

or other parties? 

or 

Does the institution refer settlement services business to brokers, affiliates, or 

other parties? 

41.	 If a referral occurred as described in Item 40 above, did any party give and did 

any party receive a fee, kickback, or thing of value (payment, commission, 

gift, tangible item, or special privilege) in return for that referral? 

42.	 Is institution management aware of the prohibition against unearned fees 

where a charge for settlement services is divided between two or more parties? 

43.	 Did the institution split a settlement service fee with another party? 

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r 

CFPB 

Examination Checklist RESPA 

44.	 If the institution split a settlement service fee with one or more other parties, 

did all parties actually perform settlement services for that fee? 

45.	 In any settlement transaction, did the institution mislead the consumer about o

misrepresent the nature, purpose, or amount of a fee charged to the consumer, 

or fail to properly disclose a fee? 

Comments 

[Click&type] 

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CFPB Consumer 

Laws and Regulations HPA 

Homeowners Protection Act (PMI Cancellation Act)1

The Homeowners Protection Act of 1998 (HPA or PMI Cancellation Act, or Act) was signed 

into law on July 29, 1998, became effective on July 29, 1999, and was later amended on 

December 27, 2000, to provide technical corrections and clarification. The “PMI Cancellation 

Act” addresses homeowners’ difficulties in canceling private mortgage insurance (PMI)

2 

coverage. It establishes provisions for canceling and terminating PMI, sets disclosure and 

notification requirements, and requires the return of unearned premiums. 

The Dodd-Frank Act granted authority to the Consumer Financial Protection Bureau to supervise 

for and enforce compliance with the Homeowners Protection Act with respect to entities within 

its jurisdiction.

3 

PMI is insurance that protects lenders from the risk of default and foreclosure. PMI allows 

prospective buyers who cannot, or choose not to, provide significant down payments to obtain 

mortgage financing at affordable rates. It is used extensively to facilitate “high-ratio” loans 

(generally, loans in which the loan to value (LTV) ratio exceeds 80 percent). With PMI, the 

lender can recover costs associated with the resale of foreclosed property, and accrued interest 

payments or fixed costs, such as taxes or insurance policies, paid prior to resale. 

Excessive PMI coverage provides little extra protection for a lender and does not benefit the 

borrower. In some instances, homeowners have experienced problems in canceling PMI. At 

other times, lenders may have agreed to terminate coverage when the borrower’s equity reached 

20 percent, but the policies and procedures used for canceling or terminating PMI coverage 

varied widely among lenders. Prior to the Act, homeowners had limited recourse when lenders 

refused to cancel their PMI coverage. Even homeowners in the few states that had laws 

pertaining to PMI cancellation or termination noted difficulties in canceling or terminating 

their PMI policies. The Act now protects homeowners by prohibiting life of loan PMI 

coverage for borrower-paid PMI products and establishing uniform procedures for the 

cancellation and termination of PMI policies. 

Scope and Effective Date 

The Act applies primarily to “residential mortgage transactions,” defined as mortgage loan 

transactions consummated on or after July 29, 1999, to finance the acquisition, initial 

1 These reflect FFIEC-approved procedures. 

2 The HPA does not apply to mortgage insurance made available under the National Housing Act, title 38 of the United States 

Code, or title V of the Housing Act of 1949. This includes mortgage insurance on loans made by the Federal Housing 

Administration and guarantees on mortgage loans made by the Veterans Administration. 

3 Dodd-Frank Act, Secs. 1002(12)(G), 1024(b)-(c), and 1025(b)-(c); 12 U.S.C. Secs. 5481(12)(G), 5514(c), and 5515(c). 

CFPB Manual V.2 (October 2012) HPA 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations HPA 

construction or refinancing4 of a single-family dwelling that serves as a borrower’s principal 

residence.5 The Act also includes provisions for annual written disclosures for “residential 

mortgages,” defined as mortgages, loans or other evidences of a security interest created for a 

single-family dwelling that is the principal residence of the borrower (12 U.S.C. 4901(14) and 

(15)). A condominium, townhouse, cooperative or mobile home is considered to be a singlefamily dwelling covered by the Act. 

The Act’s requirements vary depending on whether a mortgage is: 

•	 A “residential mortgage” or a “residential mortgage transaction;” 

•	 Defined as high risk (either by the lender in the case of nonconforming loans, or Fannie Mae 

and Freddie Mac in the case of conforming loans); 

•	 Financed under a fixed rate or an adjustable rate; or 

•	 Covered by borrower-paid private mortgage insurance (BPMI) or lender-paid private 

mortgage insurance (LPMI).6 

Cancellation and Termination of PMI for Non-High Risk 

Residential Mortgage Transactions 

Borrower Requested Cancellation 

A borrower may initiate cancellation of PMI coverage by submitting a written request to the 

servicer. The servicer must take action to cancel PMI when the cancellation date occurs, which is 

when the principal balance of the loan reaches (based on actual payments) or is first scheduled to 

reach 80 percent of the “original value,”7 irrespective of the outstanding balance, based upon the 

initial amortization schedule (in the case of a fixed rate loan) or amortization schedule then in 

effect (in the case of an adjustable rate loan),8 or any date thereafter that: 

4 For purposes of these procedures, “refinancing” means the refinancing of loans any portion of which was to provide financing 

for the acquisition or initial construction of a single-family dwelling that serves as a borrower’s principal residence. See 15 U.SC. 

1601 et. seq. and 12 CFR 1026.20. 

5 For purposes of these procedures, junior mortgages that provide financing for the acquisition, initial construction or refinancing 

of a single-family dwelling that serves as a borrower’s primary residence are covered. 

6 All sections of these procedures and manual apply to BPMI. For LPMI, relevant sections begin under the heading that follows 

thereafter. 

7 “Original value” is defined as the lesser of the sales price of the secured property as reflected in the purchase contract or, the 

appraised value at the time of loan consummation. In the case of a refinancing, the term means the appraised value relied upon by 

the lender to approve the refinance transaction. 

8 The HPA includes as an adjustable rate mortgage, a balloon loan that “contains a conditional right to refinance or modify the 

unamortized principal at the maturity date.” Therefore, if a balloon loan contains a conditional right to refinance, the initial 

disclosure for an adjustable rate mortgage would be used even if the interest rate is fixed. 

CFPB Manual V.2 (October 2012) HPA 2 
 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations HPA 

•	 The borrower submits a written cancellation request; 

•	 The borrower has a good payment history;9 

•	 The borrower is current;10 and 

•	 The borrower satisfies any requirement of the mortgage holder for: (i) evidence of a 

type established in advance that the value of the property has not declined below the 

original value; and (ii) certification that the borrower’s equity in the property is not 

subject to a subordinate lien (12 U.S.C. 4902(a)(4)). 

Once PMI is canceled, the servicer may not require further PMI payments or premiums more 

than 30 days after the later of: 

(i)	 the date on which the written request was received, or 

(ii)	 the date on which the borrower satisfied the evidence and certification requirements of 

the mortgage holder described previously (12 U.S.C. 4902(e)(1)). 

Automatic Termination 

The Act requires a servicer to automatically terminate PMI for residential mortgage transactions 

on the date that: 

•	 The principal balance of the mortgage is first scheduled to reach 78 percent of the original 

value of the secured property (based solely on the initial amortization schedule in the case of 

a fixed rate loan or on the amortization schedule then in effect in the case of an adjustable 

rate loan, irrespective of the outstanding balance) if the borrower is current; or 

•	 If the borrower is not current on that date, on the first day of the first month following the 

date that the borrower becomes current (12 U.S.C. 4902(b)). 

If PMI is terminated, the servicer may not require further payments or premiums of PMI more 

than 30 days after the termination date or the date following the termination date on which 

the borrower becomes current on the payments, whichever is sooner (12 U.S.C. 4902(e)(2)). 

There is no provision in the automatic termination section of the Act, as there is with the 

borrower- requested PMI cancellation section that protects the lender against declines in 

property value or subordinate liens. The automatic termination provisions make no reference to 

good payment history (as prescribed in the borrower-requested provisions), but state only that 

the borrower must be current on mortgage payments (12 U.S.C. 4902(b)). 

9 A borrower has a good payment history if the borrower: (1) has not made a payment that was 60 days or more past due within 

the first 12 months of the last two years prior to the later of the cancellation date, or the date that the borrower request 

cancellation; or (2) has not made a payment that was 30 days or more past due within the 12 months prior to the later of the 

cancellation date or the date that the borrower requests cancellation. 

10 The HPA does not define “current.” 

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Laws and Regulations HPA 

Final Termination 

If PMI coverage on a residential mortgage transaction was not canceled at the borrower’s 

request or by the automatic termination provision, the servicer must terminate PMI coverage 

by the first day of the month immediately following the date that is the midpoint of the loan’s 

amortization period if, on that date, the borrower is current on the payments required by the 

terms of the mortgage. (If the borrower is not current on that date, PMI should be terminated 

when the borrower does become current.) 

The midpoint of the amortization period is halfway through the period between the first day 

of the amortization period established at consummation and ending when the mortgage is 

scheduled to be amortized. The servicer may not require further payments or premiums of 

PMI more than 30 days after PMI is terminated (12 U.S.C. 4902(e)(3)). 

Loan Modifications 

If a borrower and mortgage holder agree to modify the terms and conditions of a loan 

pursuant to a residential mortgage transaction, the cancellation, termination or final termination 

dates shall be recalculated to reflect the modification (12 U.S.C. 4902(d)). 

Exclusions 

The Act’s cancellation and termination provisions do not apply to residential mortgage 

transactions for which Lender Paid Mortgage Insurance (LPMI) is required (12 U.S.C. 4905(b)). 

Return of Unearned Premiums 

The servicer must return all unearned PMI premiums to the borrower within 45 days after 

cancellation or termination of PMI coverage. Within 30 days after notification by the servicer 

of cancellation or termination of PMI coverage, a mortgage insurer must return to the servicer 

any amount of unearned premiums it is holding to permit the servicer to return such 

premiums to the borrower (12 U.S.C. 4902(f)). 

Accrued Obligations for Premium Payments 

The cancellation or termination of PMI does not affect the rights of any lender, servicer or 

mortgage insurer to enforce any obligation of a borrower for payments of premiums that 

accrued before the cancellation or termination occurred (12 U.S.C. 4902 (h)). 

Exceptions to Cancellation and Termination Provisions for 

High Risk Residential Mortgage Transactions 

The borrower-requested cancellation at 80 percent LTV and the automatic termination at 78 

percent LTV requirements of the Act do not apply to “high risk” loans. However, high risk loans 

are subject to final termination and are divided into two categories – conforming (Fannie 

Mae/Freddie Mac-defined high-risk loans) and nonconforming (lender-defined high-risk loans) 

(12 U.S.C. 4902(g)(1)). 

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Laws and Regulations HPA 

Conforming Loans (Fannie Mae/Freddie Mac-Defined 

High Risk Loans) 

Conforming loans are those loans with an original principal balance not exceeding Freddie 

Mac’s and Fannie Mae’s conforming loan limits.11 Fannie Mae and Freddie Mac are authorized 

under the Act to establish a category of residential mortgage transactions that are not subject 

to the Act’s requirements for borrower-requested cancellation or automatic termination, 

because of the high risk associated with them.12 They are, however, subject to the final 

termination provision of the Act. As such, PMI on a conforming high risk loan must be 

terminated by the first day of the month following the date that is the midpoint of the loan’s 

initial amortization schedule (in the case of a fixed rate loan) or amortization schedule then in 

effect (in the case of an adjustable rate loan) if, on that date, the borrower is current on the 

loan. (If the borrower is not current on that date, PMI should be terminated when the borrower 

does become current.) 

Nonconforming Loans (Lender-Defined High Risk Loans) 

Nonconforming loans are those residential mortgage transactions that have an original principal 

balance exceeding Freddie Mac’s and Fannie Mae’s conforming loan limits. Lender-defined 

high risk loans are not subject to the Act’s requirements for borrower-requested cancellation or 

automatic termination. However, if a residential mortgage transaction is a lender-defined high 

risk loan, PMI must be terminated on the date on which the principal balance of the mortgage, 

based solely on the initial amortization schedule (in the case of a fixed rate loan) or the 

amortization schedule then in effect (in the case of an adjustable rate loan) for that mortgage 

and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to 

reach 77 percent of the original value of the property securing the loan. 

Like conforming loans that are determined to be high risk by Freddie Mac and Fannie Mae, a 

residential mortgage transaction that is a lender-defined high risk loan is subject to the final 

termination provision of the Act. 

Notices 

The lender must provide written initial disclosures at consummation for all high-risk residential 

mortgage transactions (as defined by the lender or Fannie Mae or Freddie Mac), that in no 

case will PMI be required beyond the midpoint of the amortization period of the loan, if the 

loan is current. The Act does not require a more specific notice as to the 77 percent LTV 

termination standards for lender defined high-risk loans. 

11 The limit was $322,700 in 2003. 

12 Fannie Mae and Freddie Mac have not defined high-risk loans as of the date of this publication. 

CFPB Manual V.2 (October 2012) HPA 5 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations HPA 

Basic Disclosure and Notice Requirements Applicable to 

Residential Mortgage Transactions and Residential 

Mortgages 

The Act requires the lender in a residential mortgage transaction to provide to the borrower, at 

the time of consummation, certain disclosures that describe the borrower’s rights for PMI 

cancellation and termination. A borrower may not be charged for any disclosure required by the 

Act. Initial disclosures vary, based upon whether the transaction is a fixed rate mortgage, 

adjustable rate mortgage or high-risk loan. The Act also requires that the borrower be 

provided with certain annual and other notices concerning PMI cancellation and termination. 

Residential mortgages are subject to certain annual disclosure requirements. 

Initial Disclosures for Fixed Rate Residential Mortgage Transactions 

When PMI is required for non-high risk fixed rate mortgages, the lender must provide to the 

borrower at the time the transaction is consummated: (i) a written initial amortization schedule, 

and (ii) a written notice that discloses: 

•	 The borrower’s right to request cancellation of PMI, and, based on the initial amortization 

schedule, the date the loan balance is scheduled to reach 80 percent of the original value of 

the property; 

•	 The borrower’s right to request cancellation on an earlier date, if actual payments bring the 

loan balance to 80 percent of the original value of the property sooner than the date based on 

the initial amortization schedule; 

•	 That PMI will automatically terminate when the LTV ratio reaches 78 percent of the original 

value of the property and the specific date that is projected to occur (based on the initial 

amortization schedule); and 

•	 The Act provides for exemptions to the cancellation and automatic termination provisions for 

high-risk mortgages and whether these exemptions apply to the borrower’s loan (12 U.S.C. 

4903(a)(1)(A)). 

Initial Disclosures for Adjustable Rate Residential Mortgage 

Transactions 

When PMI is required for non-high risk adjustable rate mortgages, the lender must provide 

to the borrower, at the time the transaction is consummated, a written notice that discloses: 

•	 The borrower’s right to request cancellation of PMI on: 

(i)	 the date the loan balance is first scheduled to reach 80 percent of the original value 

of the property based on the amortization schedule then in effect, or 

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CFPB Consumer 

Laws and Regulations HPA 

(ii)	 the date the balance actually reaches 80 percent of the original value of the property 

based on actual payments. 

The notice must also state that the servicer will notify the borrower when either (i) or (ii) occurs; 

•	 That PMI will automatically terminate when the loan balance is first scheduled to reach 78 

percent of the original value of the property based on the amortization schedule then in 

effect. The notice must also state that the borrower will be notified when PMI is terminated 

(or that termination will occur when the borrower becomes current on payments); and 

•	 That there are exemptions to the cancellation and automatic termination provisions for high 

risk mortgages and whether such exemptions apply to the borrower’s loan (12 U.S.C. 

4903(a)(1)(B)). 

Initial Disclosures for High Risk Residential Mortgage Transactions 

When PMI is required for high risk residential mortgage transactions, the lender must provide 

to the borrower a written notice stating that PMI will not be required beyond the date that is the 

midpoint of the loan’s amortization period if, on that date, the borrower is current on the 

payments as required by the terms of the loan. The lender must provide this notice at 

consummation. The lender need not provide disclosure of the termination at 77 percent LTV 

for lender-defined high-risk mortgages (12 U.S.C. 4903(a)(2)). 

Annual Disclosures for Residential Mortgage Transactions 

For all residential mortgage transactions, including high risk mortgages for which PMI is 

required, the servicer must provide the borrower with an annual written statement that sets 

forth the rights of the borrower to PMI cancellation and termination and the address and 

telephone number that the borrower may use to contact the servicer to determine whether the 

borrower may cancel PMI (12 U.S.C. 4903(a)(3)). 

Disclosures for Existing Residential Mortgages 

When PMI was required for a residential mortgage consummated before July 29, 1999, the 

servicer must provide to the borrower an annual written statement that: 

•	 States that PMI may be canceled with the consent of the lender or in accordance with state 

law; and 

•	 Provides the servicer’s address and telephone number, so that the borrower may contact the 

servicer to determine whether the borrower may cancel PMI (12 U.S.C. 4903(b)). 

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CFPB Consumer 

Laws and Regulations HPA 

Notification Upon Cancellation or Termination of PMI 

Relating to Residential Mortgage Transactions 

General 

The servicer must, not later than 30 days after PMI relating to a residential mortgage 

transaction is cancelled or terminated, notify the borrower in writing that:

13 

•	 PMI has terminated and the borrower no longer has PMI; and 

•	 No further premiums, payments, or other fees are due or payable by the borrower in 

connection with PMI (12 U.S.C. 4904(a)). 

Notice of Grounds/Timing 

If a servicer determines that a borrower in a residential mortgage transaction does not qualify 

for PMI cancellation or automatic termination, the servicer must provide the borrower with a 

written notice of the grounds relied on for that determination. If an appraisal was used in 

making the determination, the servicer must give the appraisal results to the borrower. If a 

borrower does not qualify for cancellation, the notice must be provided not later than 30 days 

following the later of: 

(i)	 the date the borrower’s request for cancellation is received; or 

(ii)	 the date on which the borrower satisfies any evidence and certification requirements of 

the mortgage holder. If the borrower does not meet the requirements for automatic 

termination, the notice must be provided not later than 30 days following the scheduled 

termination date (12 U.S.C. 4904(b)). 

Disclosure Requirements for Lender-Paid 

Mortgage Insurance 

Definitions 

Borrower paid mortgage insurance (BPMI) means PMI that is required for a residential 

mortgage transaction, the payments for which are made by the borrower. 

Lender-paid mortgage insurance (LPMI) means PMI that is required for a residential 

mortgage transaction, the payments for which are made by a person other than the borrower. 

13 For adjustable rate mortgages, the initial notice to borrowers must state that the servicer will notify the borrower when the 

cancellation and automatic termination dates are reached (12 U.S.C. 4903(a)(1)(B)). Servicers should take care that the 

appropriate notices are made to borrowers when those dates are reached. 

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CFPB Consumer 

Laws and Regulations HPA 

Loan commitment means a prospective lender’s written confirmation of its approval, including 

any applicable closing conditions, of the application of a prospective borrower for a 

residential mortgage loan (12 U.S.C. 4905(a)). 

Initial Notice 

In the case of LPMI required for a residential mortgage transaction, the Act requires that the 

lender provide a written notice to the borrower not later than the date on which a loan 

commitment is made. The written notice must advise the borrower of the differences between 

LPMI and BPMI by notifying the borrower that LPMI: 

•	 Differs from BPMI because it cannot be cancelled by the borrower or automatically 

terminated as provided under the Act; 

•	 Usually results in a mortgage having a higher interest rate than it would in the case of 

BPMI; and 

•	 Terminates only when the mortgage is refinanced, (as that term is defined in the Truth in 

Lending Act, 15 U.S.C. 1601 et seq., and Regulation Z, 12 CFR 1026.20), paid off, or 

otherwise terminated. 

The notice must also provide: 

•	 That LPMI and BPMI have both benefits and disadvantages; 

•	 A generic analysis of the costs and benefits of a mortgage in the case of LPMI versus BPMI 

over a 10-year period, assuming prevailing interest and property appreciation rates; and 

•	 That LPMI may be tax-deductible for federal income taxes, if the borrower itemizes expenses 

for that purpose (12 U.S.C. 4905(c)(1)). 

Notice at Termination Date 

Not later than 30 days after the termination date that would apply in the case of BPMI, the 

servicer shall provide to the borrower a written notice indicating that the borrower may wish to 

review financing options that could eliminate the requirement for LPMI in connection with the 

mortgage (12 U.S.C. 4905(c)(2)). 

Fees for Disclosures 

As stated previously, no fee or other cost may be imposed on a borrower for the 

disclosures or notifications required to be given to a borrower by lenders or servicers under the 

Act (12 U.S.C. 4906). 

CFPB Manual V.2 (October 2012) HPA 9 
 

 

 

 

 

CFPB Consumer 

Laws and Regulations HPA 

Civil Liability 

Liability Dependent upon Type of Action 

Servicers, lenders, and mortgage insurers that violate the Act are liable to borrowers as follows: 

•	 Individual Action 

In the case of individual borrowers: 

(i)	 Actual damages (including interest accruing on such damages); 

(ii)	 Statutory damages not to exceed $2,000; 

(iii)	 Costs of the action; and 

(iv)	 Reasonable attorney fees. 

• Class Action 

In the case of a class action suit against a defendant that is subject to Section 10 of the 

Act, (i.e., regulated by the federal banking agencies, NCUA or the Farm Credit 

Administration): 

(i)	 Such statutory damages as the court may allow up to the lesser of $500,000 or 1 

percent of the liable party’s net worth; 

(ii)	 Costs of the action; and 

(iii)	 Reasonable attorney fees. 

In the case of a class action suit against a defendant that is not subject to Section 10 of the 

Act, (i.e., not regulated by the federal banking agencies, NCUA, or the Farm Credit 

Administration): 

(i)	 Actual damages (including interest accruing on such damages); 

(ii)	 Statutory damages up to $1,000 per class member but not to exceed the lesser of (i) 

$500,000 or (ii) 1 percent of the liable party’s gross revenues; 

(iii)	 Costs of the action; and 

(iv)	 Reasonable attorney fees (12 U.S.C. 4907(a)) 

Statute of Limitation 

A borrower must bring an action under the Act within two years after the borrower discovers 

the violation (12 U.S.C. 4907(b)). 

CFPB Manual V.2 (October 2012) HPA 10 
 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations HPA 

Mortgage Servicer Liability Limitation 

A servicer shall not be liable for its failure to comply with the requirements of the Act if the 

servicer’s failure to comply is due to the mortgage insurer’s or lender’s failure to comply with 

the Act (12 U.S.C. 4907(c)). 

Enforcement 

The Dodd-Frank Act directs the CFPB to enforce Federal consumer financial laws and 

specifically enumerates HPA as one of those laws.14 

HPA also directs the federal banking agencies to enforce the Act under 12 U.S.C. 1818 or any 

other authority conferred upon the agencies by law. Under HOPA the agencies shall: 

•	 Notify applicable lenders or servicers of any failure to comply with the Act; 

•	 Require the lender or servicer, as applicable, to correct the borrower’s account to reflect the 

date on which PMI should have been canceled or terminated under the Act; and 

•	 Require the lender or servicer, as applicable, to return unearned PMI premiums to a borrower 

who paid premiums after the date on which the borrower’s obligation to pay PMI premiums 

ceased under the Act (12 U.S.C. 4909). 

REFERENCES 

Laws 

12 U.S.C. 4901 et seq. Homeowners Protection Act 

14 CFPA, Secs. 1002(12)(G), 1024(c), and 1025(c); 12 U.S.C. Secs. 5481(12)(G), 5514(c), and 5515(c). 

CFPB Manual V.2 (October 2012) HPA 11 
 

 

 

 

 

CFPB 

Examination Procedures HPA 

Homeowners Protection Act 

Examination Objectives1 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

•	 To determine the financial institution’s 

compliance with the Homeowners Protection Act of 1998 (HPA), as amended. 

•	 To assess the quality of the financial institution’s policies and procedures for implementing 

the HPA. 

•	 To determine the reliance that can be placed on the financial institution’s internal controls 

and procedures for monitoring the institution’s compliance with the HPA. 

•	 To initiate corrective action when violations of HPA are identified, or when policies or 

internal controls are deficient. 

Examination Procedures 

1.	 Through discussions with management and review of available information, determine if 

the institution’s internal controls are adequate to ensure compliance with the HPA. 

Consider the following: 

a.	 Organization charts; 

b.	 Process flowcharts; 

c.	 Policies and procedures; 

d.	 Loan documentation; 

e.	 Checklists; 

f.	 Training; and 

g.	 Computer program documentation. 

[Click&type] 

1 These reflect FFIEC-approved procedures. 

CFPB	 Manual V.2 (October 2012) Procedures 1 
 

 

 

 

 

CFPB 

Examination Procedures HPA 

2.	 Review any compliance audit material, including work papers and reports, to determine 

whether: 

a.	 The institution's procedures address all applicable provisions of HPA; 

b.	 Steps are taken to followup on previously identified deficiencies; 

c.	 The procedures used include samples covering all product types and decision centers; 

d.	 The compliance audit work performed is accurate; 

e.	 Significant deficiencies and their causes are included in reports to management 

and/or to the Board of Directors; 

f.	 Corrective action is taken in a timely and appropriate manner; and 

g.	 The frequency of compliance review is appropriate. 

[Click&type] 

3.	 Review sample transactions, disclosure and notification forms, and the financial 

institution’s policies and procedures to ensure the institution provides: 

a.	 Initial Disclosures for 

(i) fixed rate mortgages, 

(ii) adjustable rate mortgages, 

(iii) high risk loans, and 

(iv) lender paid mortgage insurance; 

b.	 Annual Notices for 

(i) fixed and adjustable rate mortgages and high risk loans, and 

(ii) existing residential mortgages; and 

c.	 Notices of 

(i) cancellation, 

(ii) termination, 

(iii) grounds for not canceling PMI, 

(iv) grounds for not terminating PMI, 

(v) cancellation date for adjustable rate mortgages, and 

(vi) termination date for lender paid mortgage insurance.
 

(Refer to Appendix A for required content of the disclosure and notices.)
 

[Click&type] 

4.	 Using the above sample and bank policies and procedures, determine that borrowers are 

not charged for any required disclosures or notifications 

(12 U.S.C. 4906). 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 2 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB 

Examination Procedures HPA 

5.	 Obtain and review a sample of recent written requests from borrowers to cancel their 

private mortgage insurance (PMI) on “non-high risk” residential mortgage 

transactions. Verify that the insurance was cancelled on either: 

a.	 The date on which the principal balance of the loan was first scheduled to reach 80 

percent of the original value of the property based on the initial amortization schedule 

(in the case of a fixed rate loan) or amortization schedule then in effect (in the case 

of an adjustable rate loan); or 

b.	 The date on which the principal balance of the loan actually reached 80 percent of 

the original value of the property based on actual payments, in accordance with the 

applicable provisions in 12 U.S.C. 4902(a)of HPA (i.e., good payment history, 

current payments and, if required by the lender, evidence that the value of the 

mortgaged property did not decline, and certification that the borrower’s equity 

was unencumbered by a subordinate lien) (12 U.S.C. 4902(a)). 

[Click&type] 

6.	 Obtain and review a sample of “non-high risk” PMI residential mortgage transactions 

where the borrower did not request cancellation. Select loans from the sample that 

have reached a 78 percent or lower LTV ratio based on the original value of the 

property and that are not current. Verify that PMI was terminated, based on the initial 

amortization schedule (in the case of a fixed rate loan) or the amortization schedule 

then in effect (in the case of an adjustable rate loan) on the date that the principal 

balance of the loan was first scheduled to reach 78 percent of the original value of the 

mortgaged property (if the borrower was current) or on the first day of the first month 

after the date that the borrower became current (12 U.S.C. 4902(b)). 

[Click&type] 

7.	 Obtain a sample of PMI-covered residential mortgage transactions (including high-risk 

loans, if any) that are at or beyond the midpoint of their amortization period. 

Determine whether PMI was terminated by the first day of the following month if the 

loan was current. If the loan was not current at the midpoint, determine that PMI was 

terminated by the first day of the month following the day the loan became current. If, 

at the time of the examination, a loan at the midpoint is not current, determine whether 

the financial institution is monitoring the loan and has systems in place to ensure that 

PMI is terminated when the borrower becomes current (12 U.S.C. 4902(c) and 12 

U.S.C. 4902(g)(2)). 

[Click&type] 

8.	 Obtain a sample of any lender defined “high risk” PMI residential mortgage 

transactions that have a 77 percent or lower LTV based on the original value of the 

property. Verify that PMI was cancelled, based on the initial amortization schedule (in 

the case of a fixed rate loan) or the amortization schedule then in effect (in the case of 

an adjustable rate loan), on the date that the principal balance of the loan was 

scheduled to reach 77 percent of the original value of the mortgaged property (12 

U.S.C. 4902(g)(1)(B)). 

CFPB	 Manual V.2 (October 2012) Procedures 3 
 

 

 

CFPB 

Examination Procedures HPA 

[Click&type] 

9.	 Obtain a sample of loans that have had PMI cancelled or terminated (the samples obtained 

above can be used). For PMI loans cancelled upon the borrowers’ requests, determine that 

the financial institution did not require any PMI payment(s) beyond 30 days of the 

borrower satisfying the evidence and certification requirements to cancel PMI (12 U.S.C. 

4902(e)(1). For the PMI loans that received automatic termination or final termination, 

determine that the financial institution did not require any PMI payment(s) beyond 30 

days of termination (12 U.S.C. 4902(e)(2) and 12 U.S.C. 4902(e)(3)). 

[Click&type] 

10.	 Using the samples in steps 5, 6, and 7, determine if the financial institution returned 

unearned premiums, if any, to the borrower within 45 days after cancellation or 

termination (12 U.S.C. 4902(f)(1)). 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 4 
 

 

 

CFPB 

Examination Procedures HPA 

Conclusions 

1.	 Summarize all violations and internal deficiencies. 

[Click&type] 

2.	 If the violation(s) and internal deficiencies noted above represent(s) a pattern or practice, 

determine the root cause by identifying weaknesses in internal controls, compliance 

review, training, management oversight, or other factors. 

[Click&type] 

3.	 Identify action needed to correct violations and weaknesses in the institution’s compliance 

system, as appropriate. 

[Click&type] 

4.	 Discuss findings with the institution’s management and obtain a commitment for 

corrective action. 

[Click&type] 

5.	 Determine if enforcement action is appropriate. If so, contact appropriate agency 

personnel for guidance. Section 10(c) of the Act contains a provision requiring restitution 

of unearned PMI premiums. 

[Click&type] 

Examiner’s Summary, Recommendations, and Comments 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 5 
 

 

CFPB 

Examination Procedures HPA 

Appendix A 

Homeowners Protection Act 

This appendix provides guidance about the timing and required content of disclosures and 

notices to be made in connection with the Act. 

1. Initial disclosures at consummation for fixed rate residential mortgage transactions must 

include: 

a.	 A written amortization schedule (12 U.S.C. 4903(a)(1)(A)(i)). 

b. A notice that the borrower may submit a written request to cancel PMI as of the date 

that, based on the initial amortization schedule, the principal balance is first scheduled to 

reach 80percent of the original value of the mortgaged property, irrespective of the 

outstanding balance of the mortgage, or such earlier date that, based on actual payments, 

the principal balance actually reaches 80percent of the original value of the mortgaged 

property and the borrower has a good payment history and has satisfied the lender’s 

requirements that the value of the mortgaged property has not declined and is 

unencumbered by subordinate liens (12 U.S.C. 4903(a)(1)(A)(ii)(I) and (II)). 

c.	 The specific date, based on the initial amortization schedule, the loan balance is 

scheduled to reach 80percent of the original value of the mortgaged property (12 U.S.C. 

4903(a)(1)(A)(ii)(I)). 

d. A notice that PMI will automatically terminate on the date that, based on the 

amortization schedule and irrespective of the outstanding balance of the mortgage, the 

principal balance is first scheduled to reach 78percent of the original value of the 

mortgaged property if the loan is current (12 U.S.C. 4903(a)(1)(A)(ii)(III)). 

e.	 The specific date the loan balance is scheduled to reach 78percent LTV (12 U.S.C. 

4903(a)(1)(A)(ii)(III)). 

f.	 Notice that exemptions to the right to cancel and automatic termination exist for highrisk loans and whether such exemptions apply (12 U.S.C. 4903(a)(1)(A)(ii)(IV)). 

CFPB	 Manual V.2 (October 2012) Procedures 6 
 

 

 

 

 

 

CFPB 

Examination Procedures HPA 

2. Initial disclosures at consummation for adjustable rate residential mortgage transactions 

must include a notice that: 

a.	 The borrower may submit a written request to cancel PMI as of the date that, based on 

the amortization schedule(s) and irrespective of the outstanding balance of the mortgage, 

the principal balance is first scheduled to reach 80percent of the original value of the 

mortgaged property or such earlier date that, based on actual payments, the principal 

balance actually reaches 80percent of the original value of the mortgaged property and 

the borrower has a good payment history and has satisfied the lender requirements that 

the value of the mortgaged property has not declined and is unencumbered by 

subordinate liens (12 U.S.C. 4903(a)(1)(B)(i)). 

b. The servicer will notify the borrower when the cancellation date is reached, i.e., when 

the loan balance represents 80percent of the original value of the mortgaged property (12 

U.S.C. 4903(a)(1)(B)(i)). 

c.	 PMI will automatically terminate when the loan balance is first scheduled to reach 

78percent of the original value of the mortgaged property irrespective of the outstanding 

balance of the mortgage and the loan is current (12 U.S.C. 4903(a)(1)(B)(ii)). 

d. On the termination date, the borrower will be notified of the termination or the fact that 

PMI will be terminated when the loan is brought current (12 U.S.C. 4903(a)(1)(B)(ii)). 

e.	 Exemptions to the right to cancel and automatic termination exist for high-risk loans and 

whether such exemptions apply (12 U.S.C. 4903(a)(1)(B)(iii)). 

3. Lender has established standards regarding the type of evidence it requires borrowers to 

provide to demonstrate that the value of the mortgage property has not declined and they are 

provided when a request for cancellation occurs (12 U.S.C. 4902(a)(3)(A)). 

4. Lender provides written initial disclosures at consummation for high-risk residential 

mortgage transactions (as defined by the lender or Fannie Mae or Freddie Mac), that PMI 

will not be required beyond the midpoint of the amortization period of the loan, if the loan is 

current (12 U.S.C. 4903(a)(2)). 

5. When the financial institution acts as servicer for residential mortgage transactions, it 

provides an annual written statement to the borrowers explaining their rights to cancel or 

terminate PMI and an address and telephone number to contact the servicer to determine 

whether they may cancel PMI (12 U.S.C. 4903(a)(3)). 

NOTE: This disclosure may be included on RESPA’s annual escrow account disclosure or 

IRS interest payment disclosures. 

6. When the financial institution acts as servicer, it provides an annual written statement to 

each borrower who entered into a residential mortgage prior to July 29, 1999, that includes: 

CFPB	 Manual V.2 (October 2012) Procedures 7 
 

 

 

 

 

 

CFPB 

Examination Procedures HPA 

a.	 A statement that PMI may, under certain circumstances, be canceled by the borrower 

with the consent of the lender or in accordance with applicable state law (12 U.S.C. 

4903(b)(1)). 

b. An address and telephone number that the borrower may use to contact the servicer to 

determine whether the borrower may cancel the PMI (12 U.S.C. 4903(b)(2)). 

NOTE: This disclosure may be included on RESPA’s annual escrow account disclosure 

or IRS interest payment disclosure. 

7. When the financial institution acts as servicer for residential mortgage transactions, it 

provides borrowers written notices within 30 days after the date of cancellation or 

termination of PMI that the borrower no longer has PMI and that no further PMI payments 

or related fees are due (12 U.S.C. 4904(a)). 

8. When the financial institution services residential mortgage transactions, it returns all 

unearned PMI premiums to the borrower within 45 days of either termination upon the 

borrower’s request or automatic termination under the HPA (12 U.S.C. 4902(e)). 

9. When the financial institution acts as servicer for residential mortgage transactions, it 

provides borrowers written notices of the grounds it relied on (including the results of any 

appraisal) to deny a borrower’s request for PMI cancellation, no later than 30 days after the 

date the request is received, or the date on which the borrower satisfies any evidence and 

certification requirements established by the lender, whichever is later (12 U.S.C. 4904(b)(1) 

and 12 U.S.C. 4904(b)(2)(A)). 

10. When the financial institution acts as servicer for residential mortgage transactions, it 

provides borrowers written notices of the grounds it relied on (including the results of any 

appraisal) for refusing to automatically terminate PMI not later than 30 days after the 

scheduled termination date (12 U.S.C. 4904(b)(2)(B)). 

NOTE: The scheduled termination date is reached when, based on the initial amortization 

schedule (in the case of a fixed rate loan) or the amortization schedule(s) (in the case of an 

adjustable rate loan), the principal balance of the loan is first scheduled to reach 78percent 

of the original value of mortgaged property, assuming the borrower is current on that date or 

the earliest date thereafter on which the borrower becomes current. 

11. When the financial institution acts as a servicer for adjustable rate residential mortgage 

transactions, the financial institution notifies borrowers that the cancellation date has been 

reached (12 U.S.C. 4903(a)(1)(B)(i)). 

12. When the financial institution acts as a servicer for adjustable rate residential mortgage 

transactions, the financial institution notifies the borrowers on the termination date that PMI 

has been cancelled or will be cancelled as soon as the borrower is current on loan payments 

(12 U.S.C. 4903(a)(1)(B)(ii)). 

CFPB	 Manual V.2 (October 2012) Procedures 8 
 

 

 

 

 

 

CFPB 

Examination Procedures HPA 

13. When the financial institution requires “Lender Paid Mortgage Insurance” (LPMI) for 

residential mortgage transactions, it provides a written notice to a prospective borrower on 

or before the loan commitment date that includes: 

a.	 A statement that LPMI differs from borrower paid mortgage insurance (BPMI) in that 

the borrower may not cancel LPMI, while BPMI is subject to cancellation and 

automatic termination under the HPA (12 U.S.C. 4905(c)(1)(A)). 

b. A statement that LPMI usually results in a mortgage with a higher interest rate than 

BPMI (12 U.S.C. 4905(c)(1)(B)(i)). 

c.	 A statement that LPMI only terminates when the transaction is refinanced, paid off, or 

otherwise terminated (12 U.S.C. 4905(c)(1)(B)(ii)). 

d. A statement that LPMI and BPMI both have benefits and disadvantages and a generic

analysis reflecting the differing costs and benefits of each over a 10-year period, 

assuming prevailing interest and property appreciation rates (12 U.S.C. 4905(c)(1)(C)). 

e.	 A statement that LPMI may be tax-deductible for federal income taxes if the borrower

itemizes expenses for that purpose (12 U.S.C. 4905(c)(1)(D)). 

14. When the lender requires LPMI for residential mortgage transactions and the financial 

institution acts as servicer, it notifies the borrower in writing within 30 days of the 

termination date that would have applied if it were a BPMI transaction that the borrower 

may wish to review financing options that could eliminate the requirement for PMI (12 

U.S.C. 4905(c)(2)). 

15. The financial institution prohibits borrower-paid fees for the disclosures and notifications 

required under the HPA (12 U.S.C. 4906). 

CFPB	 Manual V.2 (October 2012) Procedures 9 
 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations Consumer Leasing 

Consumer Leasing Act1 

For consumers, leasing is an alternative to buying property either with cash or on credit. A lease 

is a contract between a lessor (the property owner) and a lessee (the property user) for the use of 

property subject to stated terms and limitations for a specified period and at a specified payment. 

The Consumer Leasing Act (15 U.S.C. 1667 et seq.) (CLA) was passed in 1976 to assure that 

meaningful and accurate disclosure of lease terms is provided to consumers before entering into 

a contract. It applies to consumer leases of personal property. With this information, consumers 

can more easily compare one lease with another, as well as compare the cost of leasing with the 

cost of buying on credit or the opportunity cost of paying cash. In addition, the CLA puts limits 

on balloon payments sometimes due at the end of a lease and regulates advertising. 

Originally, the CLA was part of the Truth in Lending Act and was implemented by Regulation Z. 

When Regulation Z was revised in 1981, Regulation M was issued and contained those 

provisions that govern consumer leases. 

The Electronic Signatures in Global and National Commerce Act (the E-Sign Act), 15 U.S.C. 7001 

et seq., was enacted in 2000 and did not require implementing regulations. On November 9, 2007, 

amendments to Regulation M and the official staff commentary were issued to simply the regulation 

and provide guidance on the electronic delivery of disclosures consistent with the E-Sign Act.2 

The Dodd-Frank Act granted rulemaking authority under the CLA to the Consumer Financial 

Protection Bureau (CFPB) and, with respect to entities under its jurisdiction, granted authority to 

the CFPB to supervise for and enforce compliance with the CLA and its implementing 

regulations.3 In December 2011, the CFPB restated the Federal Reserve’s implementing 

regulation at 12 CFR Part 1013 (76 Fed. Reg. 78500)(December 19, 2011). 

Today, a relatively small number of banks engage in consumer leasing. The trend seems to be for 

leasing to be carried out through specialized bank subsidiaries, vehicle finance companies, other 

finance companies, or directly by retailers. 

1 These reflect FFIEC-approved procedures. 

2 72 Fed. Reg. 63456, November 9, 2007. These amendments took effect December 10, 2007, with a mandatory compliance date 

of October 1, 2008. 

3 Dodd-Frank Act, Secs. 1002(12)(B), 1024(b)-(c), and 1025(b)-(c); 12 USC §§ 5481(12)(B), 5514(c), and 5515(c). Section 

1029 of the Dodd-Frank Act generally excludes from this transfer of authority, subject to certain exceptions, any rulemaking 

authority over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and 

servicing of motor vehicles, or both. 

CFPB Manual V.2 (October 2012) CLA 1 
 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations Consumer Leasing 

Key Definitions 

The definition of certain terms is necessary to understand the requirements imposed by the CLA. 

These terms include lease, lessor, lessee, consumer lease, open-end lease, closed-end lease, 

realized value, residual value, gross capitalized cost, capitalized cost reduction, and adjusted 

capitalized cost. 

Lessee 

A lessee is a natural person who enters into or is offered a consumer lease. 

Lessor 

A lessor is a natural person or organization who regularly leases, offers to lease, or arranges for 

the lease of personal property under a consumer lease. A person who leases or offers to lease 

more than five times in the preceding or current calendar year meets this definition. 

Consumer Lease 

A consumer lease is a contract between a lessor and a lessee: 

•	 For the use of personal property by an individual (natural person); 

•	 To be used primarily for personal, family, or household purposes; 

•	 For a period of more than four months (week-to-week and month-to-month leases do not 

meet this criterion, even though they may be extended beyond four months); and 

•	 With a total contractual cost of no more than the threshold amount specified in Appendix C 

at 12 CFR 1013.2(e)-9.4  

Specifically excluded from coverage are leases that are: 

•	 For business, agricultural or made to an organization or government; 

•	 For real property; 

•	 For personal property which are incidental to the lease of real property, subject to certain 

conditions; and 

•	 For credit sales, as defined in Regulation Z 12 CFR 1026.2(a)(16). 

4 Appendix C states that a consumer lease is exempt from these requirements if the total contractual obligation exceeds the 

threshold amount in effect at the time of consummation. The threshold amount for the period January 1, 2012 through December 

31, 2012 is $51,800. See Appendix C for the threshold amounts for different time periods. 

CFPB	 Manual V.2 (October 2012) CLA 2 
 

 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations Consumer Leasing 

A lease meeting all of these criteria is covered by the CLA and Regulation M. If any one of these 

criteria is not met, for example, if the leased property is used primarily for business purposes or 

if the total contractual cost exceeds the amount specified in 12 CFR 1013.2(e)-9, the CLA and 

Regulation M do not apply. 

Consumer leases fall into one of two categories: closed end and open end. Since the information 

required to be disclosed to the consumer will vary with the kind of lease, it is important to note 

the difference between them. However, to properly understand the difference, realized value and 

residual value must first be defined. 

Realized Value 

The realized value is the price received by the lessor of the leased property at disposition, the 

highest offer for disposition of the leased property, or the fair market value of the leased property 

at the end of the lease term. 

Residual Value 

The residual value is the value of the leased property at the end of the lease, as estimated or 

assigned at consummation of the lease by the lessor. 

Open-End Lease 

An open-end lease is a lease in which the amount owed at the end of the lease term is based on the 

difference between the residual value of the leased property and its realized value. The consumer 

may pay all or part of the difference if the realized value is less than the residual value or he may 

get a refund if the realized value is greater than the residual value at scheduled termination. 

Closed-End Lease 

A closed-end lease is a lease other than an open-end lease. This type of lease allows the 

consumer to “walk away” at the end of the contract period, with no further payment obligation – 

unless the property has been damaged or has sustained abnormal wear and tear. 

Gross Capitalized Cost 

The gross capitalized cost is the amount agreed upon by the lessor and lessee as the value of the 

leased property, plus any items that are capitalized or amortized during the lease term. These items 

may include taxes, insurance, service agreements, and any outstanding prior credit or lease balance. 

Capitalized Cost Reduction 

This term means the total amount of any rebate, cash payment, net trade-in allowance, and 

noncash credit that reduces the gross capitalized cost. 

Adjusted Capitalized Cost 

This is the gross capitalized cost less the capitalized cost reduction and the amount used by the 

lessor in calculating the base periodic payment. 

CFPB Manual V.2 (October 2012) CLA 3 
 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations Consumer Leasing 

General Disclosure Requirements 

Lessors are required by federal law to provide the consumer with leasing cost information and 

other disclosures in a format similar to the model disclosure forms found in Appendix A to the 

regulation. Certain pieces of this information must be kept together and must be segregated from 

other lease information. All of the information stated must be accurate, clear and conspicuous, 

and provided in writing in a form that the consumer may keep. 

The institution may provide the general disclosures required by 12 CFR 1013 to the lessee in 

electronic form, subject to compliance with the consumer consent and other applicable 

provisions of the E-Sign Act. The E-Sign Act does not mandate that institutions or consumers 

use or accept electronic records or signatures. It permits institutions to satisfy any statutory or 

regulatory requirements by providing the information electronically after obtaining the 

consumer’s affirmative consent. The institution must provide consumers with the following 

information before consumers can give consent: 

•	 Any right or option to have the information provided in paper or non-electronic form; 

•	 The right to withdraw the consent to receive information electronically and the 

consequences, including fees, of doing so; 

•	 The scope of the consent (for example, whether the consent applies only to a particular 

transaction or to identified categories of records that may be provided during the course of 

the parties’ relationship); 

•	 The procedures to withdraw consent and to update information needed to contact the 

consumer electronically; and 

•	 The methods by which a consumer may obtain, after consent and upon request, a paper copy 

of an electronic record after consent has been given to receive the information electronically 

and whether any fee will be charged. 

The consumer must consent electronically or confirm consent electronically in a manner that 

“reasonably demonstrates that the consumer can access information in the electronic form that 

will be used to provide the information that is the subject of the consent.” 

After the consent, if an institution changes the hardware or software requirements such that a 

consumer may be prevented from accessing and retaining information electronically, the 

institution must notify the consumer of the new requirements and must allow the consumer to 

withdraw consent without charge. 

Institutions must provide disclosures in the following circumstances. (Advertisement 

requirements are discussed in the advertising section.) 

CFPB	 Manual V.2 (October 2012) CLA 4 
 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations Consumer Leasing 

Prior to or Due at Lease Signing 

A dated disclosure must be given to the consumer before signing the lease and must contain all 

of the information detailed in Section 4 of the regulation. 

Renegotiations and Extensions 

New disclosures also must be provided when a consumer renegotiates, or extends a lease, subject 

to certain exceptions. 

Multiple Lessors/Lessees 

In the event of multiple lessors, one lessor on behalf of all the lessors may make the required 

disclosures. If the lease involves more than one lessee, the required disclosures should be given 

to any lessee who is primarily liable. 

Advertising 

Advertisements concerning consumer leases must also comply with certain disclosure 

requirements. All advertisements must be accurate. If an advertisement includes any reference to 

certain “trigger terms” — the amount of any payment, statement of a capitalized cost reduction 

(e.g., down payment), or other payment required prior to or at lease signing or delivery, or that 

no such payment is required — then the ad must also state the following: 

•	 That the transaction is for a lease; 

•	 The total amount due prior to or at lease signing or delivery; 

•	 The number, amounts and due dates or periods of the scheduled payments; 

•	 A statement of whether or not a security deposit is required; and 

•	 A statement that an extra charge may be imposed at the end of the lease term where the 

lessee’s liability (if any) is based on the difference between the residual value of the leased 

property and its realized value at the end of the lease term (12 CFR 1013.7(d)(2)). 

An advertisement for an open-end lease also must include a statement that extra charges may be 

imposed at the end of the lease based on the difference between the residual value and the 

realized value at the end of the lease term. 

If lessors give a percentage rate in an advertisement, the rate cannot be more prominent than any 

of the other required disclosures. They must also include a statement that “this percentage may 

not measure the overall cost of financing this lease.” The lessor cannot use the term “annual 

percentage rate,” “annual lease rate,” or any equivalent term. 

Some fees (license, registration, taxes, and inspection fees) may vary by state or locality. An 

advertisement may exclude these third-party fees from the disclosure of a periodic payment or total 

amount due at lease signing or delivery, provided the ad states that these have been excluded. 

CFPB	 Manual V.2 (October 2012) CLA 5 
 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations Consumer Leasing 

Otherwise, an ad may include these fees in the periodic payment or total amount due, provided it 

states that the fees are based on a particular state or locality and indicates that the fees may vary. 

For an advertisement accessed by the consumer in electronic form, the required disclosures may 

be provided to the consumer in electronic form in the advertisement, without regard to the 

consumer consent or other provisions of the E-Sign Act. An electronic advertisement (such as an 

advertisement on an Internet website) that provides a table or schedule of the required 

disclosures is considered a single advertisement if the advertisement clearly refers the consumer 

to the location where the additional required information begins. For example, in an electronic 

advertisement, a term triggering additional disclosures may be accompanied by a link that 

directly connects the consumer to the additional disclosures. 

Limits on Balloon Payments 

In order to limit balloon payments that may be required of the consumer, certain sections of the 

regulation call for reasonable calculations and estimates. These provisions protect the consumer 

at early termination of a lease, at the end of the lease term, or in delinquency, default, or late 

payment status. The provisions limit the lessee’s liability at the end of the lease term and set 

reasonableness standards for wear and use charges, early termination charges, and penalties or 

fees for delinquency. 

Penalties and Liability 

Criminal and civil liability provisions of the Truth in Lending Act also apply to the CLA. 

Actions alleging failure to disclose the required information, or otherwise comply with the CLA, 

must be brought within one year of the termination of the lease agreement. 

Record Retention 

Lessors are required to maintain evidence of compliance with the requirements imposed by 

Regulation M, other than the advertising requirements under Section 7 of the regulation, for a 

period of not less than two years after the date of disclosures are required to be made or an action 

is required to be taken. 

REFERENCES 

Laws 

15 U.S.C. 1667 et seq. Consumer Leasing Act 

15 U.S.C. 7001 et seq. Electronic Signatures in Global and National Commerce Act 

Regulations 

Consumer Financial Protection Bureau Regulation (12 CFR) 

Part 1013 Consumer Leasing (Regulation M) 

CFPB Manual V.2 (October 2012) CLA 6 
 

 

 

 

CFPB 

Examination Procedures Consumer Leasing 

Consumer Leasing Act1 

Examination Objectives 

•	 To assess the quality of the institution’s 

compliance management system for the Consumer Leasing Act. 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

•	 To determine that lessees of personal property are given meaningful and accurate disclosures 

of lease terms. 

•	 To determine if the limits of liability are clearly indicated to the lessees and correctly 

enforced by the institution. 

•	 To ensure that the financial institution provides accurate disclosures of its leasing terms in all 

advertising. 

Examination Procedures 

General Disclosure Requirements 

A.	 Review the institution’s procedures for providing disclosures to ensure that there are 

adequate controls and procedures to effect compliance. 

[Click&type] 

B.	 Review the disclosures provided by the institution. 

1.	 Are the disclosures clear and conspicuous and provided in writing in a form the 

consumer may keep? For disclosures provided electronically (other than for advertising 

requirements), are the disclosures in electronic form provided in compliance with the 

consumer consent and other applicable provisions of the Electronic Signatures in Global 

and National Commerce Act (E-Sign Act)?2 For an advertisement accessed by the 

consumer in electronic form, are the disclosures required by 12 CFR 1013.7 provided to 

the consumer in electronic form in the advertisement? (12 CFR 1013.3(a)) 

2.	 Are the disclosures given in a dated statement and in the prescribed format? (12 

CFR 1013.3(a)(1)) 

3.	 Is the information required by 12 CFR 1013.4(b) through (f), (g)(2), (h)(3), (i)(1), (j), 

and (m)(1) segregated and in a form substantially similar to the model in Appendix A? 

(12 CFR 1013.3(a)(2)) 

4. Are the disclosures timely? (12 CFR 1013.3(a)(3)) 

5. If the lease involves more than one lessee, are the disclosures provided to any lessee 

1 These reflect FFIEC-approved procedures. 

2 The final amendment to Regulation M on the electronic delivery of disclosures, consistent with the requirements of the E-Sign 

Act, became effective December 10, 2007, and required mandatory compliance by October 1, 2008. 

CFPB	 Manual V.2 (October 2012) Procedures 1 
 

 

 

 

 

 

CFPB 

Examination Procedures Consumer Leasing 

who is primarily liable? (12 CFR 1013.3(c)) 

6.	 If additional information is provided, is it provided in a manner such that it does not 

mislead or confuse the lessee? (12 CFR 1013.3(b)) 

7.	 Are all estimates clearly identified and reasonable? (12 CFR 1013.3(d)) 

8.	 Are the disclosures accurate and do the disclosures contain the information required by 

12 CFR 1013.4(a) through (t)? (12 CFR 1013.4) 

9.	 Are disclosures given to lessees when they “renegotiate” or “extend” their leases? (12 

CFR 1013.5) 

[Click&type] 

Lessee Liability 

A.	 Review the lease estimates and calculations to ensure that there is not any unreasonable 

balloon payment expected of the lessee in the following circumstances: 

1.	 At early termination: 

 Does the lessor disclose the conditions under which the lease may be terminated 

early and the amount and method of determining the amount of any early 

termination charges? (12 CFR 1013.4(g)(1)) 

 Are any early termination charges reasonable? (12 CFR 1013.4(g)(1), (q)) 

2.	 At end of lease term, for wear and use: 

 If the lessor sets standards for wear and use of the leased vehicle are the amounts 

or method of determining any charge for excess mileage disclosed? (12 CFR 

1013.4(h)(3)) 

 Are standards for wear and use reasonable? (12 CFR 1013.4(h)(2)) 

3.	 At end of lease term (for open-end leases): 

 Does the lessor disclose the limitations on the lessee’s liabilities at the end of the 

lease term? (12 CFR 1013.4(m)(2)) 

	 Are the lessee and lessor permitted to make a mutually agreeable final 

adjustment regarding excess liability? (12 CFR 1013.4(m)(3)) 

4.	 In delinquency, default or late payment: 

 Does the lessor disclose penalties or other charges for delinquency, default or 

late payments? (12 CFR 1013.4(q)) 

 Are the penalties or other charges reasonable? (12 CFR 1013.4(q)) 

[Click&type] 

Advertising 

A.	 Review advertising policies and procedures used by the institution to ensure that there are 

adequate controls and procedures to effect compliance. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 2 
 

 

 

 

CFPB 

Examination Procedures Consumer Leasing 

B.	 Review a sample of the institution’s advertisements. Determine the following: 

1.	 Do the advertisements advertise terms that are usually and customarily available? 

(12 CFR 1013.7(a)) 

2.	 Are the disclosures contained in the advertisements clear and conspicuous? (12 

CFR 1013.7(b)) 

3.	 Do catalogs, multiple page advertisements and electronic advertisements comply 

with the page reference requirements? (12 CFR 1013.7(c)) 

4.	 When triggering terms are used, do the advertisements contain the additional 

required information? (12 CFR 1013.7(d)) 

5.	 Do merchandise tags that use triggering terms refer to a sign or display that 

contains the additional required disclosures? (12 CFR 1013.7(e)) 

6.	 If television or radio advertisements use triggering terms, if they do not contain 

the additional terms required by 12 CFR 1013.7(d)(2), do they use alternative 

disclosure methods (direct consumers to a toll-free number or written 

advertisement)? (12 CFR 1013.7(f)) 

[Click&type] 

Miscellaneous 

A.	 Are records and other evidence of compliance (other than for advertising requirements 

under 12 CFR 1013.7) retained for a period of no less than two (2) years? (12 

CFR 1013.8) 

[Click&type] 

Examiner’s Summary, Recommendations, and Comments 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 3 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YES NO 

CFPB 

Examination Checklist Consumer Leasing 

Consumer Leasing Act1
 Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

1.	 Does the institution engage in consumer leasing or purchase consumer 

leases from lessors? (12 CFR 1013.2(h)) 

(If no, there is no need to do further work on Consumer Leasing. If yes, 

complete the following checklist, answering yes (Y) or no (N) for each item.) 

2.	 Are the disclosures made prior to consummation of the lease, that is, at the 

time a binding order is made or the lease is signed? (12 CFR 1013.3(a)(3)) 

3.	 Are the disclosures clear and conspicuous and provided in writing in a 

form the consumer may keep? (12 CFR 1013.3(a)) 

4.	 Are disclosures in electronic form provided in compliance with the 

consumer consent and other applicable provisions of the Electronic 

Signature in Global and National Commerce Act (E-Sign Act)? (12 CFR 

1013.3(a)) 

5.	 For an advertisement accessed by the consumer in electronic form, are the 

disclosures required by 12 CFR 1013.7 provided to the consumer in 

electronic form in the advertisement? (12 CFR 1013.3(a)) 

6.	 Are the disclosures given in a dated statement and (i) made either in a 

separate statement that identifies the consumer lease transaction, (ii) in the 

contract or (iii) other document evidencing the lease? (12 CFR 

1013.3(a)(1)) 

7.	 Is the information required by 12 CFR 1013.4(b) through (f), (g)(2), (h)(3), 

(i)(1), (j), and (m)(1) segregated and in a form substantially similar to the 

model in Appendix A? (12 CFR 1013.3(a)(2)) 

8.	 If the lease involves more than one lessee, are the disclosures provided to 

any lessee who is primarily liable? (12 CFR 1013.3(c)) 

9.	 If additional information is provided, is it provided in a manner such that it 

does not mislead or confuse the lessee? (12 CFR 1013.3(b)) 

10. Are disclosures provided to at least one lessee where there are multiple 

lessees and by at least one lessor when there are multiple lessors? (12 CFR 

1013.3(c)) 

11. Are all estimates clearly identified and reasonable? (12 CFR 1013.3(d)) 

1 These reflect FFIEC-approved procedures. 

CFPB	 Manual V.2 (October 2012) Checklist 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YES NO 

CFPB 

Examination Checklist Consumer Leasing 

12. Are the following disclosures made in the lease? 

A. Description of property; (12 CFR 1013.4(a)) 

B. Amount due at lease signing or delivery; (12 CFR 1013.4(b)) 

C. Payment schedule and total amount of periodic payments; (12 CFR
 

1013.4(c))
 

D. Other charges; (12 CFR 1013.4(d)) 

E. Total of payments; (12 CFR 1013.4(e)) 

F. Regarding payment calculations: 

i.	 Gross capitalized cost; (12 CFR 1013.4(f)(1)) 

ii.	 Capitalized cost reduction; (12 CFR 1013.4(f)(2)) 

iii.	 Adjusted capitalized cost; (12 CFR 1013.4(f)(3)) 

iv.	 Residual value; (12 CFR 1013.4(f)(4)) 

v.	 Depreciation and any amortized amounts; (12 CFR 1013.4(f)(5)) 

vi.	 Rent charge; (12 CFR 1013.4(f)(6)) 

vii. Total of base periodic payments; (12 CFR 1013.4(f)(7)) 

viii. Lease payments; (12 CFR 1013.4(f)(8)) 

ix.	 Basic periodic payment; (12 CFR 1013.4(f)(9)) 

x.	 Itemization of other charges; (12 CFR 1013.4(f)(10)) 

xi.	 Total periodic payment. (12 CFR 1013.4(f)(11)) 

G. Regarding early termination: 

i.	 Conditions under which the lessee or lessor may terminate the
 

lease prior to the end of the lease term; (12 CFR 1013.4(g)(1))
 

ii.	 The amount or description of the method for determining the 

amount of any penalty or other charges for early termination; (12 

CFR 1013.4(g)(1)) 

iii.	 In a form substantially similar to the sample; (12 CFR
 

1013.4(g)(2))
 

H. Regarding notice of wear and use: 

i.	 A statement specifying whether the lessor or the lessee is 

responsible for maintaining or servicing the leased property, with 

a description of the responsibility; (12 CFR 1013.4(h)(1)) 

CFPB	 Manual V.2 (October 2012) Checklist 2 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YES NO 

 

CFPB 

Examination Checklist Consumer Leasing 

ii.	 A statement of the lessor’s standards for wear and use, which 

must be reasonable; (12 CFR 1013.4(h)(2)) 

iii.	 In a form substantially similar to the sample. (12 CFR 

1013.4(h)(3)) 

I.	 Purchase option; (12 CFR 1013.4(i)) 

J.	 Statement referencing other non-segregated disclosures; (12 CFR 

1013.4(j)) 

K. Liability between residual and realized values; (12 CFR 1013.4(k)) 

L.	 Right of appraisal; (12 CFR 1013.4(l)) 

M. For open-end leases: 

i.	 The rent and other charges paid by lessee; (12 CFR 1013.4(m)(1)) 

ii.	 Liability at end of lease term based on residual value and any 

excess liability; (12 CFR 1013.4 (m) and (m)(2)) 

iii.	 Mutually agreeable final adjustment. (12 CFR 1013.4(m)(3)) 

N. Fees and taxes; (12 CFR 1013.4(n)) 

O. Regarding insurance: 

i.	 Are the types and amounts of insurance that the lessee is required 

to have disclosed? (12 CFR 1013.4(o)) 

ii.	 If the lessor provides insurance, are the types, amounts, and cost 

also disclosed? (12 CFR 1013.4(o)(1)) 

P.	 Warranties or guarantees; (12 CFR 1013.4 (p)) 

Q. Penalties and other charges for late payments, delinquency, or default; 

(12 CFR 1013.4(q)) 

R. Security interest other than a security deposit; (12 CFR 1013.4(r)) 

S.	 Regarding any information on rate: 

i.	 Does the lessor use the term “annual percentage rate,” “annual 

lease rate,” or any equivalent term in the lease disclosure? (12 

CFR 1013.4(s)) 

ii.	 If so, does a statement that “this percentage may not measure the 

overall cost of financing this lease” accompany the rate? (12 CFR 

1013.4(s)) 

13. Are disclosures given to lessees when they “renegotiate” or “extend” their 

leases? (12 CFR 1013.5) 

CFPB	 Manual V.2 (October 2012) Checklist 3 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YES NO 

CFPB 

Examination Checklist Consumer Leasing 

14. Does the institution advertise its leasing program? If so: 

A. Do the advertisements advertise terms that are usually and customarily
 

available? (12 CFR 1013.7(a))
 

B. Are the advertisements clear and conspicuous? (12 CFR 1013.7(b)) 

i.	 Are any affirmative or negative references to a charge that is part 

of the disclosure required under paragraph (d)(2)(ii) less 

prominent than the disclosure (except for the statement of a 

periodic payment? (12 CFR 1013.7(b)(1)) 

ii.	 Are the advertisements of lease rates less prominent than any
 

disclosure required by 12 CFR 1013.4 (except the notice of the
 

limitations on rate)? (12 CFR 1013.7(b)(2))
 

C. Do catalogs and multiple page advertisements and electronic 

advertisements comply with the page reference requirements? (12 CFR
 

1013.7(c))
 

D. If any triggering terms are used, are all the following disclosures made:
 

(12 CFR 1013.7(d)(2))
 

i.	 That the transaction advertised is a lease; 

ii.	 The total amount due prior to or at consummation or by delivery, 

if delivery occurs after consummation; 

iii.	 The number, amounts, and due dates or periods of scheduled 

payments under the lease;
 

iv.	 A statement of whether or not a security deposit is required; 

v.	 A statement that an extra charge may be imposed at the end of the 

lease term where the lessee’s liability (if any) is based on the 

difference between the residual value of the leased property and 

its realized value at the end of the lease term. 

15. Do merchandise tags that use triggering terms refer to a sign or display that 

contains the additional required disclosures? (12 CFR 1013.7(e)) 

16. Do television or radio advertisements that do not contain the additional 

information required by 12 CFR 1013.4(d) direct consumers to a toll-free 

number or written advertisement for additional information when 

triggering terms are used? (12 CFR 1013.7) 

CFPB	 Manual V.2 (October 2012) Checklist 4 
 

 

 

 

 

 

 

 

 

 

 

YES NO 

CFPB 

Examination Checklist Consumer Leasing 

A. Is the toll-free number listed along with a reference that the number
 

may be used by the consumer to obtain the information? (12 CFR
 

1013.7(f)(1)(i))
 

B. Does the written advertisement that is in general circulation in the
 

community served by the station include the name and date of the 

publication, and is it published beginning at least three days before and 

ending at least 10 days after broadcast? (12 CFR 1013.7(f)(1)(ii))
 

C. Has the toll-free telephone number been available for no fewer than ten 

days, beginning on the date of broadcast? (12 CFR 1013.7(f)(2)(i))
 

D. Does the lessor provide the information required by paragraph (d)(2)
 

over the toll-free number, orally or in writing upon request? (12 CFR
 

1013.7(f)(2)(ii))
 

17. Are records and other evidence of compliance retained for a period of no 

less than two (2) years as required by the CLA? (12 CFR 1013.8) 

Comments 

[Click&type] 

CFPB Manual V.2 (October 2012) Checklist 5 
 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulation SAFE Act 

Secure and Fair Enforcement for 

Mortgage Licensing Act1 

The Secure and Fair Enforcement for Mortgage Licensing Act of 20082 (SAFE Act) was enacted 

on July 30, 2008, and mandates a nationwide licensing and registration system for residential 

mortgage loan originators (MLOs).3 

The SAFE Act prohibits individuals from engaging in the business of a residential mortgage loan 

originator without first obtaining and maintaining annually: 

•	 For individuals who are employees of covered financial institution, registration as a 

registered mortgage loan originator and a unique identifier (federal registration), or 

•	 For all other individuals, a state license and registration as a state-licensed mortgage loan 

originator, and a unique identifier (state licensing/registration). 

The SAFE Act requires that federal registration and state licensing and registration be 

accomplished through the same online registration system, the Nationwide Mortgage Licensing 

System and Registry (Registry). 

The objectives of the SAFE Act include aggregating and improving the flow of information to 

and between regulators; providing increased accountability and tracking of MLOs; enhancing 

consumer protections; supporting anti-fraud measures; and providing consumers with easily 

accessible information at no charge regarding the employment history of and publicly 

adjudicated disciplinary and enforcement actions against MLOs.

4 

1 These reflect FFIEC-approved procedures. 

2 See 12 U.S.C. Sec. 5101–5116, Title V of the Housing and Economic Recovery Act of 2008 (Pub. L. 110–289, 122 Stat. 2654, 

12 U.S.C. 5101 et seq.) as amended by Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 

Act) (Pub. L. No. 111–203, 124 Stat. 1376). 

3 More specifically, the SAFE Act required the Office of the Comptroller of the Currency (OCC), Board of Governors of the 

Federal Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS), and 

National Credit Union Administration (NCUA), with the Farm Credit Administration (FCA) and through the Federal Financial 

Institutions Examination Council (FFIEC), to develop and maintain a federal system for registering MLOs employed by covered 

financial institutions. 

4 SAFE Act Sec. 1502. 

CFPB	 Manual V.2 (October 2012) SAFE 1 
 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulation SAFE Act 

On July 28, 2010, the OCC, Board, FDIC, OTS, NCUA, and FCA (collectively the Agencies) 

published substantively similar regulations implementing the SAFE Act federal registration 

requirements for the institutions they supervise and the institutions’ MLO employees (SAFE 

Act regulation).5 

On July 21, 2011, Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act 

(Dodd-Frank Act) transferred rule-making authority for the SAFE Act from the Agencies to the 

Consumer Financial Protection Bureau (CFPB).

6

 On December 19, 2011, the CFPB restated the 

implementing SAFE Act regulations to 12 CFR 1007 (76 Federal Register 78483), establishing a 

new Regulation G, SAFE Mortgage Licensing Act–Federal Registration of Residential Mortgage 

Loan Originators.7 

These examination procedures lay out the background and requirements of the SAFE Act and 

the SAFE Act regulation concerning federal registration. 

Definitions – 12 CFR 1007.102 

Annual renewal period means November 1st through December 31st of each year. 

Administrative or clerical tasks means the receipt, collection, and distribution of information 

common for the processing or underwriting of a loan in the residential mortgage industry and 

communication with a consumer to obtain information necessary for the processing or 

underwriting of a residential mortgage loan. 

Covered financial institution means any national bank, federal branch or agency of a foreign 

bank, member bank, insured state non-member bank, (including state-licensed insured branches 

of foreign banks), savings association, or certain of their subsidiaries; branch or agency of a 

foreign bank or commercial lending company owned or controlled by a foreign bank; Farm 

5 75 Fed. Reg. 44656 (July 28, 2010). The interagency Federal Register notice may be found at 

http://edocket.access.gpo.gov/2010/pdf/2010-18148.pdf. See also the revised Federal Register Preamble (Aug. 23, 2010), 

available at http://edocket.access.gpo.gov/2010/pdf/C1-2010-18148.pdf (revising footnote numbering from the original release). 

CFPB’s SAFE Act regulations for federally regulated institutions subject to its supervisory responsibilities are at 12 CFR Part 1007, 

followed by its rule for State compliance and Bureau registration at 12 CFR Part 1008. 76 Fed. Reg. 78483 (Dec. 19, 2011). 

6 On July 21, 2011, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the 

CFPB assumed: (1) responsibility for developing and maintaining the federal registration system (including rule-making 

authority), (2) supervisory and enforcement authority for SAFE Act compliance for entities under the CFPB’s jurisdiction, and 

(3) authority to oversee state compliance with SAFE Act requirements that had previously been under HUD’s authority. Refer to 

Dodd-Frank Act Secs. 1025, 1061, and 1100. In addition, the Dodd-Frank Act merged functions of the OTS into the OCC, FDIC, 

and Board. 

7 The SAFE Act also authorized the U.S. Department of Housing and Urban Development (HUD) to monitor and enforce states’ 

compliance with the statute’s requirements for state licensing and registration, and HUD issued rules setting minimum standards 

for state licensing and registration. 76 Fed. Reg. 38464 (June 30, 2011). The Dodd-Frank Act transferred that authority from 

HUD to the CFPB. The CFPB thereafter published Regulation H, SAFE Mortgage Licensing Act – State Compliance and Bureau 

Registration System, 12 CFR Part 1008, based on HUD’s regulation. 76 Fed. Reg. 78483, Dec. 19, 2011. These examination 

procedures do not cover the state registration requirements. 

CFPB Manual V.2 (October 2012) SAFE 2 
 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulation SAFE Act 

Credit System institution; or federally insured credit union, including certain non-federally 

insured credit unions.8 

Employee is not defined in the SAFE Act or SAFE Act regulation. However, the regulation’s 

preamble explains that the meaning of “employee” under the SAFE Act regulation is consistent 

with the common-law right-to-control test. For example, the results of this test generally 

determine whether an institution files an Internal Revenue Service Form W-2 or Form 1099 for 

an individual.9 

Mortgage loan originator or MLO means an individual who (1) takes a residential mortgage 

loan application and (2) offers or negotiates terms of a residential mortgage loan for 

compensation or gain. The term mortgage loan originator does not include: 

•	 An individual who performs purely administrative or clerical tasks on behalf of an individual 

who is an MLO; 

•	 An individual who only performs real estate brokerage activities (as defined in 12 U.S.C. 

Section 5102(3)(D)) and is licensed or registered as a real estate broker in accordance with 

applicable state law, unless the individual is compensated by a lender, a mortgage broker, or 

other MLO or by any agent of such lender, mortgage broker, or other MLO, and meets the 

MLO definition; or 

•	 An individual or entity solely involved in extensions of credit related to time-share plans, as 

that term is defined in 11 U.S.C. Section 101(53D). 

Appendix A to the SAFE Act regulation provides examples of activities of taking a loan 

application and offering or negotiating loan terms that fall within or outside of the definition of 

MLOs for federal registration purposes. 

Registry means the Nationwide Mortgage Licensing System and Registry, or NMLS system, 

developed and maintained by the Conference of State Bank Supervisors and the American 

Association of Residential Mortgage Regulators for the state licensing and registration of statelicensed MLOs, and through which federal MLO registrations must be accomplished.10 

8 12 CFR Secs. 1007.101(c), 1007.102. 

9 See 75 Fed. Reg. at 44664 for a discussion of the meaning of “employee” as used in the SAFE Act regulation. Covered 

financial institutions that are credit unions sometimes rely upon volunteers to originate mortgage loans. The right-to-control test 

under the common law agency doctrine likewise applies to these credit unions. Credit union management establishes the policies, 

procedures, and practices that volunteers use in performing their functions. Therefore, these volunteers qualify as employees of 

the covered financial institution for purposes of the SAFE Act regulation. 

10 See the Nationwide Mortgage and Licensing System and Registry website at: 

http://mortgage.nationwidelicensingsystem.org/fedreg/Pages/default.aspx. System information on federal registration can be 

found under the Federal Registration tab at that site. 

CFPB	 Manual V.2 (October 2012) SAFE 3 
 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulation SAFE Act 

Registered mortgage loan originator or registrant means any individual who (1) meets the 

MLO definition; (2) is an employee of a covered financial institution; (3) is registered pursuant 

to the regulation with the Registry; and (4) maintains a unique identifier through the Registry. 

Residential mortgage loan means any loan primarily for personal, family, or household use that 

is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a 

dwelling (as defined in Section 103(v) of the Truth in Lending Act, 15 U.S.C. Section 1602(v)) 

or residential real estate upon which is constructed or intended to be constructed a dwelling 

(including manufactured homes) and includes refinancings, reverse mortgages, home equity lines 

of credit, and other first and additional lien loans. 

Unique identifier means a number or other identifier that: (1) permanently identifies a registered 

MLO; (2) is assigned by protocols established by the Registry and the Bureau to facilitate 

electronic tracking of MLOs, as well as uniform identification of, and public access to, the 

employment history of and the publicly adjudicated disciplinary and enforcement actions against 

MLOs; and (3) must not be used for purposes other than those set forth under the SAFE Act. 

De Minimis Exception – 12 CFR 1007.101(c)(2) 

The SAFE Act regulation provides an exception to the MLO registration requirements for any 

employee of a covered financial institution who has never been registered or licensed through the 

Registry as an MLO if during the past 12 months the employee acted as an MLO for five or 

fewer residential mortgage loans. 

When an institution relies on the de minimis exception in lieu of registration, the MLO employee 

must register prior to originating the sixth residential mortgage loan within 12 months. Covered 

financial institutions are prohibited from engaging in any acts or practices to evade the 

registration requirement. 

Mortgage Loan Originator (MLO)
 

Registration Requirements – 12 CFR 1007.103
 

Each MLO employee of a covered financial institution must register with the Registry,

11 obtain a 

“unique identifier,” maintain the registration by updating certain information within 30 days of 

specified changes, and annually renew the registration during the annual renewal period. 

11 The SAFE Act rule implementing federal registration took effect on October 1, 2010. It provided a registration period from 

January 31, 2011, to July 29, 2011, for MLOs who are employees of covered financial institutions to register. After July 29, 

2011, those employees must meet the registration requirements before they may originate residential mortgage loans. 

CFPB Manual V.2 (October 2012) SAFE 4 
 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

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Initial Registration – 12 CFR 1007.103(a) 

Each employee of a federally regulated institution who is an MLO must submit to the Registry 

the following: 

•	 identifying information, including name, home address, social security number, gender, date 

of birth, and principal business location; 

•	 financial-services-related employment history for the prior 10 years; 

•	 disclosure of specified criminal, civil, judicial, or state, federal, or foreign financial authority 

regulatory actions against the employee; and 

•	 fingerprints, for purposes of a Federal Bureau of Investigation background check. 

The employee must attest to the correctness of the information submitted to the Registry; must 

authorize the Registry and the institution to obtain information related to any administrative, 

civil, or criminal action to which the employee is a party; and must authorize the Registry to 

make certain information available to the public. 

Maintaining Registration – 12 CFR 1007.103(b) 

Renewal 

An MLO must renew his or her registration during the annual renewal period by confirming and 

updating his or her registration records. This requirement does not apply to an MLO who 

completed his or her initial registration less than six months prior to the end of the annual renewal 

period. Any registration that is not renewed during this period will become inactive, and the 

individual cannot act as an MLO at a covered financial institution until the registration 

requirements are met. Individuals who fail to update their registrations during this two-month 

renewal period may renew their registration at any time and need not wait until the start of the next 

annual renewal period. 

Updates to Registration 

An MLO must update his or her registration within 30 days for specified significant changes, 

including name changes, employment termination, and reportable changes to legal or 

regulatory actions. 

Previously Registered Employees – Change of Employment 

The regulations provide streamlined registration requirements for an MLO employee previously 

registered or licensed through the Registry who maintained this registration or license and who 

changes employment. Such an employee must update certain information, provide the required 

attestation and authorizations, and submit new fingerprints unless the employee has fingerprints 

on file with the Registry that are less than three years old. There is no grace period in this 

situation. An employee must update his or her Registry record before acting as a loan originator 

for the new employer. 

CFPB	 Manual V.2 (October 2012) SAFE 5 
 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulation SAFE Act 

Previously Registered Employees – Mergers, Acquisitions, or Reorganizations 

A registered or licensed MLO whose employment changes as the result of a merger, acquisition, 

or reorganization has 60 days from the effective date of a merger, acquisition, or reorganization 

to update information in the Registry. 

Financial Institution Requirements for MLO Registration, 

Renewal, and Changes to Information – 

12 CFR 1007.103(e) 

Required Financial Institution Information – 12 CFR 1007.103(e)(1)(i) 

In connection with the registration of one or more MLOs, financial institutions and certain of 

their subsidiaries must submit certain required information to the Registry: 

•	 contact information; 

•	 Employer Tax Identification Number; 

•	 Research Statistics Supervision and Discount (RSSD) number issued by the Board; 

•	 primary Federal regulator; 

•	 primary point of contact for the Registry; 

•	 individuals with authority to enter information into the Registry; and 

•	 if a subsidiary of a financial institution, indication of that fact and the RSSD number of the 

parent institution, as applicable. 

Once registered, the institution will receive an NMLS identification number for the institution to 

use in attesting to MLO employment and for other Safe Act-related purposes. 

Attestation – 12 CFR 1007.103(e)(1)(ii) 

An individual with authority to enter information in the Registry must verify his or her identity 

and attest that he or she has that authority, that the information is correct, and that the institution 

will keep the information current.12 

12 An institution may designate one or more individuals to serve as the system administrator(s) who may submit required 

information to the Registry on behalf of employees and attest to their authority to submit information, the accuracy of 

information submitted, and that the institution will keep information current and submit updates on a timely basis. System 

administrators generally may not be MLOs; however, an institution is exempt from this regulatory requirement if it has 10 or 

fewer full-time employees and is not a subsidiary. 

CFPB	 Manual V.2 (October 2012) SAFE 6 
 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulation SAFE Act 

Registration – 12 CFR 1007.104(b) 

A covered financial institution must require an MLO employee to register with the Registry, 

maintain this registration, and obtain a unique identifier. A covered financial institution must 

also confirm each MLO’s employment status once the MLO submits registration information to 

the Registry and before the registration is activated. 

Within 30 days of the date an MLO ceases to be an employee of the institution, the institution 

must notify the Registry of that fact along with the date the MLO ceased being an employee, so 

that consumers searching for an MLO in the publicly available consumer access portal will know 

that the MLO no longer has a relationship with the institution. 

Renewal and Updates – 12 CFR 1007.103(e)(1)(iii) and (iv) 

A covered financial institution must update the information it submitted to the Registry during 

the annual registration renewal period and must confirm the registration information provided by 

MLO employees during this period. 

An institution must update the required institution information provided to the Registry within 30 

days of any change in such information. 

Policies and Procedures – 12 CFR 1007.104 

Covered financial institutions that have one or more MLO employees must adopt and follow 

written policies and procedures to carry out their SAFE Act responsibilities.13 The requirement 

to adopt and follow policies and procedures applies to all covered financial institutions that 

employ individual MLOs, where MLOs act within the scope of their employment, and regardless 

of the application of any de minimis exception to their employees. In addition, covered financial 

institutions must conduct annual independent compliance tests to ensure compliance with the 

regulation. The policies and procedures must be appropriate to the nature, size, complexity, and 

scope of the institution’s mortgage lending activities and apply only to those employees acting 

within the scope of their employment at the institution. The policies and procedures must: 

•	 Establish a process for identifying which employees of covered financial institutions must be 

registered; 

•	 Require that all employees who are MLOs be informed of the registration requirements of the 

SAFE Act and SAFE Act regulation and instructed on how to comply; 

•	 Establish procedures to comply with the SAFE Act regulation's unique identifier requirements; 

•	 Establish reasonable procedures for confirming the adequacy and accuracy of MLO employee 

registrations, including updates and renewals, by comparisons with its own records; 

13 The Registry and the Agencies do not screen or approve registrations received from employees of Agency-related institutions. 

CFPB	 Manual V.2 (October 2012) SAFE 7 
 

 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulation SAFE Act 

•	 Establish reasonable procedures and tracking systems for monitoring compliance with 

registration and renewal requirements and procedures; 

•	 Provide for annual independent testing for compliance with the SAFE Act regulation by 

institution personnel or an outside party; 

•	 Provide for appropriate action if an employee fails to comply with the registration requirements 

of the SAFE Act regulations or the institution’s related policies and procedures, including 

prohibiting such employees from acting as MLOs or other appropriate disciplinary actions; 

•	 Establish a process for reviewing employee criminal history background reports received 

pursuant to the regulation, taking appropriate action consistent with applicable federal law14 

and implementing regulations with respect to the reports, and maintaining records of the 

reports and actions taken with respect to applicable employees;15 and 

•	 Establish procedures designed to ensure that any third party with which the institution has 

arrangements related to mortgage loan origination has policies and procedures to comply 

with the SAFE Act and SAFE Act regulation, including appropriate licensing and/or 

registration of individuals acting as MLOs.16 

Unique Identifier – 12 CFR 1007.105 

When an MLO registers with the Registry, he or she receives a unique identifier — a series of 

numeric characters assigned for life. The unique identifiers allow MLOs to be tracked if they 

move between state and federal jurisdictions and/or change employers, and help consumers to 

find certain information about a particular MLO when they search on the Registry’s consumer 

access portal. The MLO information that is publicly available on the consumer access portal will 

ultimately include federal and state registrations and licenses held, the MLO’s employment 

history, and publicly adjudicated disciplinary and enforcement actions, if any. 

To make sure that consumers have access to an MLO’s unique identifier before committing to a 

mortgage loan transaction, an MLO must provide the unique identifier upon request (orally or in 

14 Including Sec. 19 of the Federal Deposit Insurance Act (FDI Act); (12 U.S.C. 1829); Sec. 5.65(d) of the Farm Credit Act of 

1971 (12 U.S.C. 2277a-14(d)); or Sec. 206 of the Federal Credit Union Act (12 U.S.C. 1786(i)). 

15 Sec. 19 of the FDI Act (12 U.S.C. 1829) prohibits, without the prior written consent of the FDIC, insured depository 

institutions from employing a person who has been convicted of any criminal offense involving dishonesty, breach of trust, or 

money laundering or has entered into a pretrial diversion or similar program in connection with a prosecution for such offense. 

See the FDIC Statement of Policy for Section 19 of the FDI Act, 63 Fed. Reg. 66184 (Dec. 1, 1998; amended May 10, 2011), 

available at: http://www fdic.gov/regulations/laws/rules/5000-1300 html. 

16 See FFIEC Statement on Risk Management of Outsourced Technology Service (November 28, 2000) for guidance on the 

assessment, selection, contract review, and monitoring of a third party that provides services to a regulated institution. See also 

FDIC Guidance for Managing Third-Party Risk (FIL-44-08); OCC Bulletin 2001-47, Third-Party Relationships (Nov. 1, 2001); 

OTS Thrift Bulletin 82a, Third-Party Arrangements (Sept. 1, 2004); NCUA Letter to Credit Unions: 01-CU-20, Due Diligence 

Over Third-Party Service Providers (Nov. 2001), 07-CU-13, Supervisory Letter-Evaluating Third-Party Relationships 

(December 2007), 08-CU-09, Evaluating Third-Party Relationships Questionnaire (Apr. 2008). 

CFPB	 Manual V.2 (October 2012) SAFE 8 
 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulation SAFE Act 

writing), before acting as an MLO (orally or in writing), and in any initial written 

communication (paper or electronic) from the MLO to the consumer (such as a commitment 

letter, good faith estimate, or disclosure statement). MLO unique identifiers may be used on 

written materials or promotional items distributed by the institution for general use, for example 

on loan program descriptions, advertisements, business cards, stationery, notepads, and similar 

materials; the SAFE Act regulation does not prohibit such use. 

The regulation also requires institutions to make MLO unique identifiers available to consumers 

in a practicable way. This could be achieved, for example, by: 

•	 Directing consumers to a listing of registered MLOs and corresponding unique identifiers on 

the institution’s website; 

•	 Posting the information prominently in a publicly accessible place, such as a branch office 

lobby or lending office reception area; and/or 

•	 Establishing a process to ensure that institution personnel provide MLO unique identifiers 

when requested by consumers from employees other than the MLO. 

Relation to Other Laws 

TILA, GSE, and HUD Requirements 

Title XIV, Section 1402 of the Dodd-Frank Act amended the Truth in Lending Act (TILA) to 

require (1) MLOs to include on all loan documents any unique identifier of the MLO provided 

by the NMLS, and (2) the CFPB to issue implementing regulations requiring depository 

institutions to establish and maintain procedures reasonably designed to assure and monitor 

compliance with the SAFE Act’s federal registration requirements.17 

In 2009, the Federal Housing Finance Agency directed government-sponsored enterprises 

(GSEs) Fannie Mae and Freddie Mac to require mortgage loan applications to include the 

MLO’s unique identifier.18 The GSEs announced that for federally regulated institutions, the 

unique identifier information is required for all applications on or after July 29, 2011.19 

On January 5, 2011, HUD issued a mortgagee letter requiring the collection of NMLS unique 

identifiers for all individuals and entities participating in the origination of Federal Housing 

Administration (FHA) loans.20 The mortgagee letter also requires all FHA-approved mortgagees 

17 See Pub. L. No. 111-203 (July 21, 2010), available at 

http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf (p. 2139). 

18 See the FHFA news release at http://www fhfa.gov/webfiles/400/LoanOrigIDS11509.pdf. 

19 See Fannie Mae and Freddie Mac Frequently Asked Questions at 

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/pdf/mortgageloandelreqsfaqs.pdf and 

http://www freddiemac.com/sell/secmktg/loan level faq html. 

20 See Mortgagee Letter 2011-4 at http://portal hud.gov/hudportal/documents/huddoc?id=11-04ml.pdf. 

CFPB	 Manual V.2 (October 2012) SAFE 9 
 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulation SAFE Act 

and their employees to comply with the NMLS registration requirements and “entities with 

jurisdiction over their activities” must register in accordance with the guidance set forth by NMLS. 

REFERENCES 

Laws 

12 U.S.C. 5101 et seq. Secure and Fair Enforcement for Mortgage Licensing Act of 2008, 

amended by the Dodd-Frank Act, Section 1100 

Regulations 

Consumer Financial Protection Bureau Regulations (12 CFR) 

Part 1007 Secure and Fair Enforcement for Mortgage Licensing Act: 

Federal Registration of Residential Mortgage Loan 

Originators (Regulation G) 

Part 1008 State Compliance and Bureau Registration System 

(Regulation H) 

CFPB	 Manual V.2 (October 2012) SAFE 10 
 

 

 

 

 

CFPB 

Exam Procedures SAFE Act 

Secure and Fair Enforcement for Mortgage 

Licensing Act1

Examination Objectives 

•	 To determine whether the financial institution has adopted written policies and procedures 

designed to assure compliance with the SAFE Act regulation. 

•	 To determine whether the annual independent testing of the institution’s policies and 

procedures for assuring compliance with the SAFE Act regulation has been conducted. 

•	 To determine whether any violations or deficiencies identified during the independent testing 

have been corrected and that steps have been taken to ensure they do not recur. 

Examination Procedures 

1.	 Determine whether the financial institution, or any of its subsidiaries, has one or more MLO 

employees. For those institutions without any MLO employees, these examination 

procedures do not need to be completed. (12 CFR 1007.103(a)(2)) 

[Click&Type] 

2.	 Determine for those financial institutions with MLO employees whether the institution has 

adopted written policies and procedures and conducts annual independent compliance tests to 

assure compliance with the SAFE Act regulation. If the institution has failed to adopt policies 

and procedures and to perform annual independent compliance tests, the examiners should 

address the violation in the examination report and require corrective action. (12 CFR 

1007.104) 

[Click&Type] 

3.	 Review the financial institution’s written policies and procedures and the annual independent 

compliance tests to determine whether the institution has taken appropriate steps to assure 

compliance with the SAFE Act that at a minimum: 

a.	 Establish a process for identifying which employees of the financial institution are 

required to be registered MLOs; (12 CFR 1007.104(a)) 

[Click&Type] 

b.	 Require that all employees of the financial institution who are MLOs be informed of the 

registration requirements of the SAFE Act and the SAFE Act regulation and be instructed 

on how to comply with such requirements and procedures; (12 CFR 1007.104(b)) 

[Click&Type] 

1 These reflect FFIEC-approved procedures. 

CFPB	 Manual V.2 (October 2012) Procedures 1 
 

 

 

 

CFPB 

Exam Procedures SAFE Act 

c.	 Establish procedures to comply with the unique identifier requirements in Section 105 of 

the SAFE Act regulation; (12 CFR 1007.104(c)) 

[Click&Type] 

d.	 Establish reasonable procedures for confirming the adequacy and accuracy of employee 

registrations, including updates and renewals, by comparisons with its own records; (12 

CFR 1007.104(d)) 

[Click&Type] 

e.	 Establish procedures and tracking systems for monitoring compliance with registration 

and renewal requirements and procedures; (12 CFR 1007.104(e)) 

[Click&Type] 

f.	 Provide for independent testing for compliance with the SAFE Act regulation conducted 

annually by institution personnel or by an outside party; (12 CFR 1007.104(f)) 

[Click&Type] 

g.	 Provide for appropriate action in the case of an employee who fails to comply with the 

registration requirements of the SAFE Act, the SAFE Act regulation, or the financial 

institution’s policies and procedures, including prohibiting such employees from acting 

as an MLO or other appropriate disciplinary actions; (12 CFR 1007.104(g)) 

[Click&Type] 

h.	 Establish a process for reviewing employee criminal history background reports received 

pursuant to the SAFE Act regulation, taking appropriate action consistent with applicable 

federal law, including Section 19 of the Federal Deposit Insurance Act (12 U.S.C. 

Section 1829) and implementing regulations with respect to these reports, and 

maintaining records of these reports and actions taken with respect to applicable 

employees; and (12 CFR 1007.104(h)) 

[Click&Type] 

i.	 Establish procedures designed to ensure that any third party with which the institution has 

arrangements related to mortgage loan origination has policies and procedures to comply 

with the SAFE Act, including appropriate licensing and/or registration of individuals 

acting as MLOs. (12 CFR 1007.104(i)) 

[Click&Type] 

4.	 Any significant deficiencies in the institution’s SAFE Act regulation policies and procedures 

or independent compliance tests should be documented in the workpapers and discussed in 

the examination report together with corrective actions taken. 

[Click&Type] 

CFPB	 Manual V.2 (October 2012) Procedures 2 
 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations FCRA 

Fair Credit Reporting Act1 

The Fair Credit Reporting Act (FCRA)2 became effective on April 25, 1971. The FCRA is a part 

of a group of acts contained in the Federal Consumer Credit Protection Act3 such as the Truth in 

Lending Act and the Fair Debt Collection Practices Act. 

Congress substantively amended the FCRA upon the passage of the Fair and Accurate Credit 

Transactions Act of 2003 (FACT Act).4 The FACT Act created many new responsibilities for 

consumer reporting agencies and users of consumer reports. It contained many new consumer 

disclosure requirements as well as provisions to address identity theft. In addition, it provided 

free annual consumer report rights for consumers and improved access to consumer report 

information to help increase the accuracy of data in the consumer reporting system. 

In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act 

(Dodd-Frank Act), which granted rule-making authority under FCRA (except for Section 615(e) 

(red flag guidelines and regulation) and Section 628 (disposal of records)) to the Consumer 

Financial Protection Bureau (CFPB). The Dodd-Frank Act also amended two provisions of the 

FCRA to require the disclosure of a credit score and related information when a credit score is 

used in taking an adverse action or in risk-based pricing.5 6 

On December 21, 2011, the CFPB restated FCRA regulations under its authority at 12 CFR Part 

1022 (76 Fed. Reg. 79308). 

1 These reflect FFIEC-approved procedures. 

2 15 U.S.C. Secs. 1681–1681x. 

3 15 U.S.C. Sec. 1601 et seq. 

4 Pub. L. No. 108-159, 117 Stat. 1952. 

5 Section 1029 of the Dodd-Frank Act generally excludes from this transfer of authority, subject to certain exceptions, any 

rulemaking authority over a motor vehicle dealer that is predominantly engage in the sale and servicing of motor vehicles, the 

leasing and servicing of motor vehicles, or both. 

6 The agency responsible for supervising and enforcing compliance with the provisions of the FCRA and the implementing 

regulations will depend on the person subject to the FCRA (e.g., for financial institutions, jurisdiction will depend on the size and 

charter of the institution). 

CFPB Manual V.2 (October 2012) FCRA 1 
 

 

 

CFPB Consumer 

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The FCRA contains responsibilities both for entities that are consumer reporting agencies and for 

persons that operate in any of the following capacities: 

1.	 Procurers and users of information (for example, as credit grantors, purchasers of dealer 

paper, or when opening deposit accounts); 

2.	 Furnishers and transmitters of information (by reporting information to consumer
 

reporting agencies, other third parties, or to affiliates);
 

3.	 Marketers of credit or insurance products; and 

4.	 Employers. 

Structure and Overview of Examination Modules 

The examination procedures are structured as a series of modules, grouping similar requirements 

together.7 The modules contain general information about each of the requirements: 

Module 1 Obtaining Consumer Reports 

Module 2 Obtaining Information and Sharing Among Affiliates 

Module 3 Disclosures to Consumers and Miscellaneous Requirements 

Module 4 Furnishers of Information 

Module 5 Consumer Alerts and Identity Theft Protections 

Financial institutions and other persons are subject to a number of different requirements under 

the FCRA; some are contained directly in the statute, while others are in 12 CFR 1022. 

Key Definitions 

The FCRA uses a number of definitions. Key definitions include the following: 

Adverse Action. With regard to credit transactions, the term “adverse action” has the same 

meaning as used in Section 701(d)(6) [15 U.S.C. 1691(d)(6)] of the Equal Credit Opportunity 

Act (ECOA), Regulation B, and the official staff commentary. Under the ECOA, it means a 

denial or revocation of credit, a change in the terms of an existing credit arrangement, or a 

refusal to grant credit in substantially the same amount or on terms substantially similar to those 

requested. Under the ECOA, the term does not include a refusal to extend additional credit under 

an existing credit arrangement where the applicant is delinquent or otherwise in default, or where 

such additional credit would exceed a previously established credit limit. 

7 The examination procedures do not currently contain a module on the requirements for consumer reporting agencies. 

CFPB	 Manual V.2 (October 2012) FCRA 2 
 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations FCRA 

For non-credit transactions, the term has the following additional meanings for purposes of the 

FCRA: 

1.	 a denial or cancellation of, an increase in any charge for, or a reduction or other 

adverse or unfavorable change in the terms of coverage or amount of, any insurance, 

existing or applied for, in connection with the underwriting of insurance; 

2.	 a denial of employment or any other decision for employment purposes that adversely 

affects any current or prospective employee; 

3.	 a denial or cancellation of, an increase in any charge for, or any other adverse or
 

unfavorable change in the terms of, any license or benefit described in Section 

604(a)(3)(D) (15 U.S.C. 1681b(a)(3)(D)); and
 

4.	 an action taken or determination that is: 

a.	 Made in connection with an application made by, or transaction initiated by, any 

consumer or in connection with a review of an account to determine whether the 

consumer continues to meet the terms of the account. 

b.	 Adverse to the interests of the consumer. 

Consumer. A “consumer” is defined as an individual. 

Consumer Report. A “consumer report” is any written, oral, or other communication of any 

information by a consumer reporting agency that bears on a consumer’s creditworthiness, credit 

standing, credit capacity, character, general reputation, personal characteristics, or mode of living 

that is used or expected to be used or collected, in whole or in part, for the purpose of serving as 

a factor in establishing the consumer’s eligibility for any of the following: 

1.	 credit or insurance to be used primarily for personal, family, or household purposes; 

2.	 employment purposes; or 

3.	 any other purpose authorized under Section 604 (15 U.S.C. 1681b). 

The term “consumer report” does not include any of the following: 

1.	 any report containing information solely about transactions or experiences between 

the consumer and the person making the report; 

2.	 any communication of that transaction or experience information among entities 

related by common ownership or affiliated by corporate control (for example, 

different institutions that are members of the same holding company, or subsidiary 

companies of an insured institution); 

CFPB	 Manual V.2 (October 2012) FCRA 3 
 

CFPB Consumer 

Laws and Regulations FCRA 

3.	 communication of other information among persons related by common ownership or 

affiliated by corporate control if: 

a.	 it is clearly and conspicuously disclosed to the consumer that the information may 

be communicated among such persons; and 

b.	 the consumer is given the opportunity, before the time that the information is 

communicated, to direct that the information not be communicated among such 

persons; 

4.	 any authorization or approval of a specific extension of credit directly or indirectly by 

the issuer of a credit card or similar device; 

5.	 any report in which a person who has been requested by a third party to make a 

specific extension of credit directly or indirectly to a consumer, such as a lender who 

has received a request from a broker, conveys his or her decision with respect to such 

request, if the third party advises the consumer of the name and address of the person 

to whom the request was made, and such person makes the disclosures to the 

consumer required under Section 615 (15 U.S.C. 1681m), Requirements on Users of 

Consumer Reports; or 

6.	 a communication described in subsection (o) or (y) of Section 603 (15 U.S.C. 1681a 

(o) or (y)) (which relates to certain investigative reports and certain reports to 

prospective employers). 

Consumer Reporting Agency. The term “consumer reporting agency” means any person who, for 

monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in 

the practice of assembling or evaluating consumer credit information or other information on 

consumers for the purpose of furnishing consumer reports to third parties, and who uses any means 

or facility of interstate commerce for the purpose of preparing or furnishing consumer reports. 

Credit Score. The term “credit score” means a numerical value or a categorization derived from 

a statistical tool or modeling system used by a person who makes or arranges a loan to predict 

the likelihood of certain credit behaviors, including default (and the numerical value or the 

categorization derived from such analysis may also be referred to as a “risk predictor” or “risk 

score”). The term does not include any mortgage score or rating of an automated underwriting 

system that considers one or more factors in addition to credit information, including the loan to 

value ratio, the amount of down payment, or the financial assets of a consumer; or any other 

elements of the underwriting process or underwriting decision. 

Creditor. Generally in FCRA, the terms “credit” and “creditor” have the same meanings as in 

section 702 of ECOA (15 U.S.C. 1691a). 

Employment Purposes. The term “employment purposes” when used in connection with a 

consumer report means a report used for the purpose of evaluating a consumer for employment, 

promotion, reassignment or retention as an employee. 

CFPB	 Manual V.2 (October 2012) FCRA 4 
 

 

 

CFPB Consumer 

Laws and Regulations FCRA 

Investigative Consumer Report. An “investigative consumer report” means a consumer report or 

portion thereof in which information on a consumer’s character, general reputation, personal 

characteristics, or mode of living is obtained through personal interviews with neighbors, friends, 

or associates of the consumer reported on or with others with whom he is acquainted or who may 

have knowledge concerning any such items of information. However, such information does not 

include specific factual information on a consumer’s credit record obtained directly from a 

creditor of the consumer or from a consumer reporting agency when such information was 

obtained directly from a creditor of the consumer or from the consumer. 

Person. A “person” means any individual, partnership, corporation, trust, estate, cooperative, 

association, government or governmental subdivision or agency, or other entity. 

CFPB Manual V.2 (October 2012) FCRA 5 
 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations FCRA 

Module 1 – Obtaining Consumer Reports 

Overview 

Consumer reporting agencies have a significant amount of personal information about 

consumers. This information is invaluable in assessing a consumer’s creditworthiness for a 

variety of products and services, including loan and deposit accounts, insurance, and utility 

services, among others. The FCRA governs access to this information to ensure that a 

prospective user of the information obtains it for permissible purposes and does not exploit it for 

illegitimate purposes. 

The FCRA requires any prospective user of a consumer report, for example, a lender, insurer, 

landlord, or employer, among others, to have a legally permissible purpose to obtain a report. 

Permissible Purposes of Consumer Reports – Section 604; 15 U.S.C. 1681b 

Investigative Consumer Reports – Section 606; 15 U.S.C. 1681d 

Legally Permissible Purposes. The FCRA allows a consumer reporting agency to furnish a 

consumer report for the following circumstances and no other: 

1.	 In response to a court order or Federal Grand Jury subpoena. 

2.	 In accordance with the written instructions of the consumer. 

3.	 To a person, including a financial institution, that the agency has reason to believe 

intends to use the report as information for any of the following reasons: 

a.	 In connection with a credit transaction involving the consumer (includes 

extending, reviewing, and collecting credit); 

b.	 For employment purposes;8 

c.	 In connection with the underwriting of insurance involving the consumer; 

d.	 In connection with a determination of the consumer’s eligibility for a license or 

other benefit granted by a governmental instrumentality that is required by law to 

consider an applicant’s financial responsibility; 

e.	 As a potential investor or servicer, or current insurer, in connection with a 

valuation of, or an assessment of the credit or prepayment risks associated with, 

an existing credit obligation; 

8 Use of consumer reports for employment purposes requires specific advanced authorization, disclosure notices, and, if 

applicable, adverse action notices. These issues are contained in Module 3 of the examination procedures. 

CFPB	 Manual V.2 (October 2012) FCRA 6 
 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations FCRA 

f.	 Otherwise has a legitimate business need for the information: 

i.	 In connection with a business transaction that the consumer initiates; or 

ii.	 To review an account to determine whether the consumer continues to meet 

the terms of the account. 

iii. In response to a request by the head of a State or local child support 

enforcement agency (or authorized appointee) if the person certifies various 

information to the consumer reporting agency regarding the need to obtain the 

report. (Generally, this particular purpose does not impact a person, such as a 

financial institution, that is not a consumer reporting agency.) 

Prescreened Consumer Reports. Users of consumer reports, such as financial institutions, may 

obtain prescreened consumer reports to make firm offers of credit or insurance to consumers, 

unless the consumers elected to opt out of being included on prescreened lists. The FCRA 

contains many requirements, including an opt-out notice requirement when prescreened 

consumer reports are used. In addition to defining prescreened consumer reports, Module 3 

covers these requirements. 

Investigative Consumer Reports. Section 606 contains specific requirements for use of an 

investigative consumer report. This type of consumer report contains information about a 

consumer’s character, general reputation, personal characteristics, or mode of living obtained in 

whole or in part through personal interviews with neighbors, friends, or associates of the 

consumer. If a user, such as a financial institution, procures an investigative consumer report, or 

causes the preparation of one, the user institution must meet the following requirements: 

4.	 The user clearly and accurately discloses to the consumer that it may obtain an
 

investigative consumer report. 

5.	 The disclosure contains a statement of the consumer’s right to request other
 

information about the report and a summary of the consumer’s rights under the
 

FCRA.
 

6.	 The disclosure is in writing and is mailed or otherwise delivered to the consumer not 

later than three business days after the date on which the report was first requested. 

7.	 The user procuring the report certifies to the consumer reporting agency that it has 

complied with the disclosure requirements and will comply in the event that the 

consumer requests additional disclosures about the report. 

Procedures. Given the preponderance of electronically available information and the growth of 

identity theft, a user should manage the risks associated with obtaining and using consumer 

reports. Users should employ procedures, controls, or other safeguards to ensure that they obtain 

and use consumer reports only in situations for which there are permissible purposes. 

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Module 2 – Obtaining Information and 

Sharing Among Affiliates 

Overview 

The FCRA contains many substantive compliance requirements for consumer reporting agencies 

designed to help ensure the accuracy and integrity of the consumer reporting system. As noted in 

the definitions section, a consumer reporting agency is a person that generally furnishes 

consumer reports to third parties. By their very nature, such third parties as banks, credit unions, 

and other financial institutions have a significant amount of consumer information that could 

constitute a consumer report, and thus communication of this information could cause the 

institution to become a consumer reporting agency. The FCRA contains several exceptions that 

enable parties, such as a financial institution, to communicate this type of information, within 

strict guidelines, without becoming a consumer reporting agency. 

Rather than containing strict information-sharing prohibitions, the FCRA creates a business 

disincentive such that if an entity shares consumer report information outside of the exceptions, 

then the institution is a consumer reporting agency and will be subject to the significant, 

substantive requirements of the FCRA applicable to those entities. Typically, an entity such as a 

financial institution will structure its information sharing practices within the exceptions to avoid 

becoming a consumer reporting agency. This examination module generally covers the various 

information-sharing practices within these exceptions. 

Consumer Report and Information Sharing – Section 603(d); 

15 U.S.C. 1681a(d) 

Section 603(d) defines a consumer report to include information about a consumer such as that 

which bears on a consumer’s creditworthiness, character, and capacity among other factors. 

Communication of this information may cause a person, including a financial institution, to 

become a consumer reporting agency. The statutory definition contains key exceptions to this 

definition that enable persons to share this type of information under certain circumstances, 

without becoming consumer reporting agencies. Specifically, the term “consumer report” does 

not include: 

1.	 A report containing information solely as to transactions or experiences between the 

consumer and the person making the report. A person, including a financial 

institution, may share information strictly related to its own transactions or 

experiences with a consumer (such as the consumer’s payment history, or an account 

with the institution) with any third party, without regard to affiliation, without 

becoming a consumer reporting agency. The Privacy of Consumer Financial 

Information regulations that implement the Gramm-Leach-Bliley Act (GLBA) may 

restrict this type of information sharing because it meets the definition of nonpublic 

personal information under the Privacy regulations. Therefore, sharing it with 

nonaffiliated third parties may be subject to an opt-out notice under the privacy 

regulations. In turn, the FCRA may also restrict activities that the GLBA permits. For 

example, the GLBA permits a financial institution to share a list of its customers and 

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information such as their credit scores with another financial institution to jointly 

market or sponsor other financial products or services. This communication may be a 

consumer report under the FCRA and could potentially cause the sharing financial 

institution to become a consumer reporting agency. 

2.	 Communication of such transaction or experience information among persons, 

including financial institutions related by common ownership or affiliated by
 

corporate control.
 

3.	 Communication of other information (for example, other than transaction or 

experience information) among persons related by common ownership or affiliated by 

corporate control, if it is clearly and conspicuously disclosed to the consumer that the 

information will be communicated among such entities, and before the information is 

initially communicated, the consumer is given the opportunity to opt out of the 

communication. This allows a person, such as a financial institution, to share other 

information (that is, information other than its own transaction and experience 

information) that could otherwise be a consumer report, without becoming a 

consumer reporting agency under both of the following circumstances: 

a.	 The sharing of the “other” information is done with affiliates. 

b.	 Consumers are provided with the notice and an opportunity to opt out of this 

sharing before the information is first communicated among affiliates. 

For example, “other” information can include information a consumer provides on an 

application form concerning accounts with other financial institutions. It can also 

include information a financial institution obtains from a consumer reporting agency, 

such as the consumer’s credit score. If a financial institution shares other information 

with affiliates without providing a notice and an opportunity to opt out, the financial 

institution may become a consumer reporting agency subject to all of the other 

requirements of the FCRA. 

The opt-out right required by this section must be contained in a person’s, such as a 

financial institution’s, Privacy Notice as required by GLBA and its implementing 

regulations. 

Other Exceptions 

Specific Extensions of Credit. In addition, the term consumer report does not include the 

communication of a specific extension of credit directly or indirectly by the issuer of a credit 

card or similar device. For example, this exception allows a lender to communicate an 

authorization through the credit card network to a retailer, to enable a consumer to complete a 

purchase using a credit card. 

Credit Decision to Third Party (for example, auto dealer). The term consumer report also does 

not include any report in which a person, including a financial institution, who has been 

requested by a third party to make a specific extension of credit directly or indirectly to a 

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consumer, conveys the decision with respect to the request. The third party must advise the 

consumer of the name and address of the person, such as a financial institution, to which the 

request was made, and such person makes the adverse action disclosures required by Section 615 

of the FCRA. For example, this exception allows a lender to communicate a credit decision to an 

automobile dealer who is arranging financing for a consumer purchasing an automobile and who 

requires a loan to finance the transaction. 

“Joint User” Rule. The Federal Trade Commission (FTC) staff commentary discusses another 

exception known as the “Joint User Rule.” Under this exception, users of consumer reports, 

including financial institutions, may share information if they are jointly involved in the decision 

to approve a consumer’s request for a product or service, provided that each has a permissible 

purpose to obtain a consumer report on the individual. For example, a consumer applies for a 

mortgage loan that will have a high loan-to-value ratio, and thus the lender will require private 

mortgage insurance (PMI) in order to approve the application. An outside company provides the 

PMI. The lender and the PMI company can share consumer report information about the 

consumer because both entities have permissible purposes to obtain the information and both are 

jointly involved in the decision to grant the products to the consumer. This exception applies to 

entities that are affiliated or nonaffiliated third parties. It is important to note that the GLBA will 

still apply to the sharing of nonpublic, personal information with nonaffiliated third parties; 

therefore, a person, such as a financial institution, should be aware the GLBA may still limit or 

prohibit sharing allowed under the FCRA joint user rule. 

Protection of Medical Information – Section 604(g); 15 U.S.C. 1681b(g); 

12 CFR 1022, Subpart D 

Section 604(g) generally prohibits creditors from obtaining and using medical information in 

connection with any determination of the consumer’s eligibility, or continued eligibility, for 

credit. The statute contains no prohibition on creditors obtaining or using medical information 

for other purposes that are not in connection with a determination of the consumer’s eligibility, 

or continued eligibility for credit. 

Section 604(g)(5)(A) requires the federal banking agencies and NCUA to prescribe regulations 

that permit transactions that are determined to be necessary and appropriate to protect legitimate 

operational, transactional, risk, consumer, and other needs (including administrative verification 

purposes), consistent with the Congressional intent to restrict the use of medical information for 

inappropriate purposes. On November 22, 2005, the FFIEC Agencies published final rules in the 

Federal Register (70 FR 70664). The rules contain the general prohibition on obtaining or using 

medical information, and provide exceptions for the limited circumstances when medical 

information may be used. The rules define “credit” and “creditor” as having the same meanings 

as in Section 702 of the ECOA (15 U.S.C. 1691a). On December 21, 2011, the CFPB restated 

the implementing regulation at 12 CFR Part 1022 (76 Fed. Reg. 79308). 

Obtaining and Using Unsolicited Medical Information (12 CFR 1022.30(c)). A creditor does not 

violate the prohibition on obtaining medical information if it receives the medical information 

pertaining to a consumer in connection with any determination of the consumer’s eligibility, or 

continued eligibility, for credit without specifically requesting medical information. However, 

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the creditor may only use this medical information in connection with a determination of the 

consumer’s eligibility, or continued eligibility, for credit in accordance with either the financial 

information exception or one of the specific other exceptions provided in the rules. We discuss 

these exceptions below. 

Financial Information Exception (12 CFR 1022.30(d)). The rules allow a creditor to obtain and 

use medical information pertaining to a consumer in connection with any determination of the 

consumer’s eligibility or continued eligibility for credit, so long as: 

1.	 The information is the type of information routinely used in making credit eligibility 

determinations, such as information relating to debts, expenses, income, benefits, 

assets, collateral, or the purpose of the loan, including the use of the loan proceeds. 

2.	 The creditor uses the medical information in a manner and to an extent that is no less 

favorable than it would use comparable information that is not medical information in 

a credit transaction. 

3.	 The creditor does not take the consumer’s physical, mental, or behavioral health, 

condition or history, type of treatment, or prognosis into account as part of any such 

determination. 

The financial information exception is designed in part to allow creditors to consider a 

consumer’s medical debts and expenses in the assessment of that consumer’s ability to repay the 

loan according to the loan terms. In addition, the financial information exception also allows a 

creditor to consider the dollar amount and continued eligibility for disability income, worker’s 

compensation income, or other benefits related to health or a medical condition that is relied on 

as a source of repayment. 

The creditor may use the medical information in a manner and to an extent that is no less 

favorable than it would use comparable, nonmedical information. For example, a consumer 

includes on an application for credit information about two $20,000 debts. One debt is to a 

hospital; the other is to a retailer. The creditor may use and consider the debt to the hospital in 

the same manner in which it considers the debt to the retailer, such as including the debts in the 

calculation of the consumer’s proposed debt-to-income ratio. In addition, the consumer’s 

payment history of the debt to the hospital may be considered in the same manner as the debt to 

the retailer. For example, if the creditor does not grant loans to applicants who have debts that 

are 90-days past due, the creditor could consider the past-due status of a debt to the hospital, in 

the same manner as the past-due status of a debt to the retailer. 

A creditor may use medical information in a manner that is more favorable to the consumer, 

according to its regular policies and procedures. For example, if a creditor has a routine policy of 

declining consumers who have a 90-day past due installment loan to a retailer, but does not 

decline consumers who have a 90-day past due debt to a hospital, the financial information 

exception would allow a creditor to continue this policy without violating the rules because in 

these cases, the creditor’s treatment of the debt to the hospital is more favorable to the consumer. 

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A creditor may not take the consumer’s physical, mental, or behavioral health, condition or 

history, type of treatment, or prognosis into account as part of any determination regarding the 

consumer’s eligibility, or continued eligibility for credit. The creditor may only consider the 

financial implications as discussed above, such as the status of a debt to a hospital, continued 

eligibility for disability income, etc. 

Specific Exceptions for Obtaining and Using Medical Information (12 CFR 1022.30(e)). In 

addition to the financial information exception, the rules also provide for the following nine 

specific exceptions under which a creditor can obtain and use medical information in its 

determination of the consumer’s eligibility, or continued eligibility for credit: 

1.	 To determine whether the use of a power of attorney or legal representative that is 

triggered by a medical condition or event is necessary and appropriate, or whether the 

consumer has the legal capacity to contract when a person seeks to exercise a power 

of attorney or act as a legal representative for a consumer based on an asserted 

medical condition or event. For example, if Person A is attempting to act on behalf of 

Person B under a Power of Attorney that is invoked based on a medical event, a 

creditor is allowed to obtain and use medical information to verify that Person B has 

experienced a medical condition or event such that Person A is allowed to act under 

the Power of Attorney. 

2.	 To comply with applicable requirements of local, state, or Federal laws. 

3.	 To determine, at the consumer’s request, whether the consumer qualifies for a legally 

permissible special credit program or credit-related assistance program that is: 

a.	 Designed to meet the special needs of consumers with medical conditions and 

b.	 Established and administered pursuant to a written plan that: 

i.	 Identifies the class of persons that the program is designed to benefit; and 

ii.	 Sets forth the procedures and standards for extending credit or providing other 

credit-related assistance under the program. 

4.	 To the extent necessary for purposes of fraud prevention or detection. 

5.	 In the case of credit for the purpose of financing medical products or services, to 

determine and verify the medical purpose of the loan and the use of the proceeds. 

6.	 Consistent with safe and sound banking practices, if the consumer or the consumer’s 

legal representative requests that the creditor use medical information in determining 

the consumer’s eligibility, or continued eligibility, for credit, to accommodate the 

consumer’s particular circumstances, and such request is documented by the creditor. 

For example, at the consumer’s request, a creditor may grant an exception to its 

ordinary policy to accommodate a medical condition that the consumer has 

experienced. This exception allows a creditor to consider medical information in this 

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context, but it does not require a creditor to make such an accommodation nor does it 

require a creditor to grant a loan that is unsafe or unsound. 

7.	 Consistent with safe and sound practices, to determine whether the provisions of a 

forbearance practice or program that is triggered by a medical condition or event 

apply to a consumer. For example, if a creditor has a policy of delaying foreclosure in 

cases where a consumer is experiencing a medical hardship, this exception allows the 

creditor to use medical information to determine if the policy would apply to the 

consumer. Like the exception listed in the bullet above, this exception does not 

require a creditor to grant forbearance, it merely provides an exception so that a 

creditor may consider medical information in these instances. 

8.	 To determine the consumer’s eligibility for the triggering of, or the reactivation of a 

debt cancellation contract or debt suspension agreement, if a medical condition or 

event is a triggering event for the provision of benefits under the contract or 

agreement. 

9.	 To determine the consumer’s eligibility for the triggering of, or the reactivation of a 

credit insurance product, if a medical condition or event is a triggering event for the 

provision of benefits under the product. 

Limits on redisclosure of information (12 CFR 1022.31(b)). If a creditor subject to the medical 

information rules receives medical information about a consumer from a consumer reporting 

agency or its affiliate, the creditor must not disclose that information to any other person, except 

as necessary to carry out the purpose for which the information was initially disclosed, or as 

otherwise permitted by statute, regulation, or order. 

Sharing medical information with affiliates (12 CFR 1022.32(b)). In general, the exclusions from 

the definition of “consumer report” in Section 603(d)(2) of the FCRA allow the sharing of nonmedical information among affiliates. With regard to medical information, Section 603(d) (3) of 

the FCRA provides that the exclusions in Section 603(d)(2) do not apply when a person subject 

to the medical information rules shares any of the following information with an affiliate: 

1.	 Medical information. 

2.	 An individualized list or description based on the payment transactions of the
 

consumer for medical products or services.
 

3.	 An aggregate list of identified consumers based on payment transactions for medical 

products or services. 

If a person who is subject to the medical rules shares with an affiliate the type of information 

discussed above, the exclusions from the definition of “consumer report” do not apply. 

Effectively, this means that if a person shares medical information, that person becomes a 

consumer reporting agency, subject to all of the other substantive requirements of the FCRA. 

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The rules provide exceptions to these limitations on sharing medical information with affiliates 

(12 CFR 1022.32(c)). A person, such as a bank, thrift, or credit union, may share medical 

information with its affiliates without becoming a consumer reporting agency under any of the 

following circumstances: 

1.	 In connection with the business of insurance or annuities (including the activities
 

described in Section 18B of the model Privacy of Consumer Financial and Health 

Information Regulation issued by the National Association of Insurance
 

Commissioners, as in effect on January 1, 2003).
 

2.	 For any purpose permitted without authorization under the regulations promulgated 

by the Department of Health and Human Services pursuant to the Health Insurance 

Portability and Accountability Act of 1996 (HIPAA). 

3.	 For any purpose referred to in Section 1179 of HIPAA. 

4.	 For any purpose described in Section 502(e) of the Gramm-Leach-Bliley Act. 

5.	 In connection with a determination of the consumer’s eligibility, or continued 

eligibility, for credit consistent with the financial information exceptions or specific 

exceptions. 

6.	 As otherwise permitted by order of the CFPB. 

Affiliate Marketing Opt-Out Requirement – Section 624; 15 U.S.C. 1681s-3; 

12 CFR 1022, Subpart C 

Section 624 gives a consumer the right to restrict an entity, with which it does not have a preexisting business relationship, from using certain information obtained from an affiliate to make 

solicitations to that consumer. This provision is distinct from Section 603(d)(2)(A)(iii) that gives 

a consumer the right to restrict the sharing of certain consumer information among affiliates.9 

Under Section 624, an entity may not use information received from an affiliate to market its 

products or services to a consumer, unless the consumer is given notice and a reasonable 

opportunity and a reasonable and simple method to opt out of the making of such solicitations. 

The affiliate marketing opt-out requirement applies to both transaction or experience information 

and “other” information, such as information from credit reports and credit applications. On 

November 7, 2007, the federal financial institution regulators published final regulations in the 

9 See Module 2, Section 603(d) Consumer Report and Information Sharing, for provisions pertaining to the sharing of consumer 

information. Under Section 603(d)(2)(A)(iii) of the FCRA, entities are responsible for complying with the affiliate sharing notice 

and opt-out requirement, where applicable. Thus, under the FCRA, certain consumer information will be subject to two opt-out 

notices, a sharing opt-out notice (Section 603(d)) and a marketing use opt-out notice (Section 624). These two opt-out notices 

may be consolidated. 

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Federal Register to implement this section (72 FR 62910). On December 21, 2011, the CFPB 

restated the implementing regulation at 12 CFR Part 1022 (76 Fed. Reg. 79308). 10 

Exceptions to the notice and opt-out requirements apply when an entity uses eligibility 

information in certain ways, as described later in these procedures. 

Key Definitions – 12 CFR 1022.2011 

Eligibility information (12 CFR 1022.20(b)(3)) includes not only transaction and experience 

information, but also the type of information found in consumer reports, such as information 

from third-party sources and credit scores. Eligibility information does not include aggregate 

or blind data that does not contain personal identifiers such as account numbers, names, or 

addresses.12 

Pre-existing business relationship (12 CFR 1022.20(b)(4))13 means a relationship between a 

person, such as a financial institution (or a person’s licensed agent), and a consumer based on: 

1.	 A financial contract between the person and the consumer that is in force on the date 

on which the consumer is sent a solicitation covered by the affiliate marketing 

regulation; 

2.	 The purchase, rental, or lease by the consumer of the person’s goods or services, or a 

financial transaction (including holding an active account or a policy in force, or 

having another continuing relationship) between the consumer and the person, during 

the 18-month period immediately preceding the date on which the consumer is sent a 

solicitation covered by the affiliate marketing regulation; or 

3.	 An inquiry or application by the consumer regarding a product or service offered by 

that person during the three-month period immediately preceding the date on which 

the consumer is sent a solicitation covered by the affiliate marketing regulation. 

10 See 12 CFR 1022.20(a) for the scope of entities covered by Subpart C of 12 CFR 1022. 

11 See 12 CFR 1022.20 for other definitions. 

12 Specifically, “eligibility information” is defined in the affiliate marketing regulation as “any information the communication 

of which would be a consumer report if the exclusions from the definition of “consumer report” in Section 603(d)(2)(A) of the 

[Fair Credit Reporting] Act did not apply.” 

13 See 12 CFR 1022.20(b)(4)(ii) and (iii) for examples of pre-existing business relationships and situations where no pre-existing 

business relationship exists. 

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Solicitation (12 CFR 1022.20(b)(5)) means the marketing of a product or service initiated by 

a person, such as a financial institution, to a particular consumer that is: 

1.	 Based on eligibility information communicated to that person by its affiliate; and 

2.	 Intended to encourage the consumer to purchase or obtain such product or service. 

Examples of a solicitation include a telemarketing call, direct mail, email, or other form of 

marketing communication directed to a particular consumer that is based on eligibility 

information received from an affiliate. A solicitation does not include marketing communications 

that are directed at the general public (e.g., television, general circulation magazine, and 

billboard advertisements). 

Initial Notice and Opt-Out Requirement – 12 CFR 1022.21(a), 1022.24, 

and 1022.25 

A person, such as a financial institution, and its subsidiaries generally may not use eligibility 

information about a consumer that it receives from an affiliate to make a solicitation for 

marketing purposes to the consumer, unless: 

1.	 It is clearly and conspicuously disclosed to the consumer in writing or, if the 

consumer agrees, electronically, in a concise notice that the person may use eligibility 

information about that consumer that it received from an affiliate to make 

solicitations for marketing purposes to the consumer; 

2.	 The consumer is provided a reasonable opportunity and a reasonable and simple 

method to “opt out” (that is, the consumer prohibits the person from using eligibility 

information to make solicitations for marketing purposes to the consumer);14 and 

3.	 The consumer has not opted out. 

For example, a consumer has a homeowner’s insurance policy with an insurance company. The 

insurance company shares eligibility information about the consumer with its affiliated 

depository institution. Based on that eligibility information, the depository institution wants to 

make a solicitation to the consumer about its home equity loan products. The depository 

institution does not have a pre-existing business relationship with the consumer and none of the 

other exceptions apply. The depository institution may not use eligibility information it received 

from its insurance affiliate to make solicitations to the consumer about its home equity loan 

products unless the insurance company gave the consumer a notice and opportunity to opt out 

and the consumer does not opt out. 

14 See 12 CFR 1022.24 and 1022.25 for examples of “a reasonable opportunity to opt out” and “reasonable and simple methods 

for opting out.” 

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Making Solicitations – 12 CFR 1022.21(b)15 

A person, such as a financial institution, (or a service provider acting on behalf of the person) 

makes a solicitation for marketing purposes if: 

1.	 The person receives eligibility information from an affiliate, including when the 

affiliate places that information into a common database that the person may access; 

2.	 The person uses that eligibility information to do one or more of the following: 

a.	 Identify the consumer or type of consumer to receive a solicitation; 

b.	 Establish criteria used to select the consumer to receive a solicitation; or 

c.	 Decide which of the person’s products or services to market to the consumer or 

tailor the financial institution’s solicitation to that consumer; and 

3.	 As a result of the person’s, such as a financial institution’s, use of the eligibility 

information, the consumer is provided a solicitation. 

A person, such as a financial institution, does not make a solicitation for marketing 

purposes (and therefore the affiliate marketing regulation, with its notice and opt-out 

requirements, does not apply) in the situations listed below, commonly referred to as 

“constructive sharing.” Constructive sharing occurs when a person, such as a financial 

institution, provides criteria to an affiliate to use in marketing the financial institution’s 

product and the affiliate uses the criteria to send marketing materials to the affiliate’s own 

customers that meet the criteria. In this situation, the financial institution is not using 

shared eligibility information to make solicitations. 

1.	 The person provides criteria for consumers to whom it would like its affiliate to 

market the person’s products. Then, based on this criteria, the affiliate uses eligibility 

information that the affiliate obtained in connection with its own pre-existing 

business relationship with the consumer to market the person’s products or services 

(or directs its service provider to use the eligibility information in the same manner 

and the person does not communicate with the service provider regarding that use). 

2.	 A service provider, applying the person’s criteria, uses information from an affiliate, 

such as that in a shared database, to market the person’s products or services to the 

consumer, so long as it meets certain requirements, including all of the following. 

a.	 The affiliate controls access to and use of its eligibility information by the service 

provider under a written agreement between the affiliate and the service provider. 

15 See 12 CFR 1022.21(b)(6) for examples of making solicitations. 

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b.	 The affiliate establishes, in writing, specific terms and conditions under which the 

service provider may access and use the affiliate’s eligibility information to 

market the person’s products and services (or those of affiliates generally) to the 

consumer. 

c.	 The affiliate requires the service provider, under a written agreement, to 

implement reasonable policies and procedures designed to ensure that the service 

provider uses the affiliate’s eligibility information in accordance with the terms 

and conditions established by the affiliate relating to the marketing of the person’s 

products or services. 

d.	 The affiliate is identified on or with the marketing materials provided to the 

consumer. 

e.	 The person does not directly use its affiliate’s eligibility information in the manner 

described above under “Making Solicitations (12 CFR 1022.21(b)),” item 2. 

Exceptions to Initial Notice and Opt-Out Requirements – 12 CFR 1022.21(c)16 

The initial notice and opt-out requirements do not apply to a person, such as a financial 

institution, if it uses eligibility information that it receives from an affiliate: 

1.	 To make a solicitation for marketing purposes to a consumer with whom the person 

has a pre-existing business relationship; 

2.	 To facilitate communications to an individual for whose benefit the person provides 

employee benefit or other services pursuant to a contract with an employer; 

3.	 To perform services on behalf of an affiliate (but this would not allow solicitation 

where the consumer has opted out); 

4.	 In response to a communication about the person’s products or services initiated by 

the consumer; 

5.	 In response to a consumer’s authorization or request to receive solicitations; or 

6.	 If the person’s compliance with the affiliate marketing regulation would prevent it 

from complying with State insurance laws pertaining to unfair discrimination in any 

state in which the person is lawfully doing business. 

16 See 12 CFR 1022.21(d) for examples of exceptions to the initial notice and opt-out requirement. 

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Contents of Opt-Out Notice – 12 CFR 1022.23 

A person, such as a financial institution, must provide to the consumer a reasonable and simple 

method for the consumer to opt out. The opt-out notice must be clear, conspicuous, and concise, 

and must accurately disclose specific information outlined in 12 CFR 1022.23(a), including that 

the consumer may elect to limit the use of eligibility information to make solicitations to the 

consumer. See Appendix C to the regulation for the model notices contained in the affiliate 

marketing regulation. 

Alternative contents. An affiliate that provides a consumer a broader right to opt out than that 

required by the affiliate marketing regulation may satisfy the regulatory requirements by 

providing the consumer with a clear, conspicuous, and concise notice that accurately discloses 

the consumer’s opt-out rights. 

Coordinated, consolidated, and equivalent notices. Opt-out and renewal notices may be 

coordinated and consolidated with any other notice or disclosure required under any other 

provision of law, such as the Gramm-Leach-Bliley Act (GLBA), 15 U.S.C. 6801 et seq. 

Renewal notices, which have additional required content (12 CFR 1022.27), may be 

consolidated with the annual GLBA privacy notices. 

Delivery of the Opt-Out Notice – 12 CFR 1022.21(a)(3) and 1022.2617 

An affiliate that has or previously had a pre-existing business relationship with the consumer 

must provide the notice either individually or as part of a joint notice from two or more members 

of an affiliated group of companies. The opt-out notice must be provided so that each consumer 

can reasonably be expected to receive actual notice. A consumer may not reasonably be expected 

to receive actual notice if, for example, the affiliate providing the notice sends the notice via 

email to a consumer who has not agreed to receive electronic disclosures by email from the 

affiliate providing the notice.18 

Scope of Opt-Out – 12 CFR 1022.22(a) and 1022.23(a)(2)19 

As a general rule, the consumer’s election to opt out prohibits any affiliate covered by the optout notice from using eligibility information received from another affiliate, described in the 

notice, to make solicitations to the consumer. If two or more consumers jointly obtain a product 

or service, any of the joint consumers may exercise the right to opt out. It is impermissible to 

require all joint consumers to opt out before implementing any opt-out direction. 

17See 12 CFR 1022.26(b) and (c) for examples of “reasonable expectation of actual notice” and “no reasonable expectation of 

actual notice.” 

18 For opt-out notices provided electronically, the notice may be provided in compliance with either the electronic disclosure 

provisions of 12 CFR 1022.24(b)(2) and 1022.24(b)(3) or the provisions in section 101 of the Electronic Signatures in Global and 

National Commerce Act, 15 U.S.C. 7001 et seq. 

19 See 12 CFR 1022.22(a) for examples of the scope of the opt-out notice, including examples of continuing relationships. 

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Menu of alternatives. A consumer may be given the opportunity to choose from a menu of 

alternatives when electing to prohibit solicitations, such as by: 

1.	 Electing to prohibit solicitations from certain types of affiliates covered by the opt-out 

notice but not other types of affiliates covered by the notice. 

2.	 Electing to prohibit solicitations based on certain types of eligibility information but 

not other types of eligibility information. 

3.	 Electing to prohibit solicitations by certain methods of delivery but not other methods 

of delivery. 

One of the alternatives, however, must allow the consumer to prohibit all solicitations from all 

of the affiliates that are covered by the notice. 

Continuing relationship. If the consumer establishes a continuing relationship with a person, 

such as a financial institution, or its affiliate, an opt-out notice may apply to eligibility 

information obtained from one or more continuing relationships (such as a deposit account, a 

mortgage loan, or a credit card), if the notice adequately describes the continuing relationships 

covered. The opt-out notice can also apply to future continuing relationships if the notice 

adequately describes the continuing future relationships that would be covered. 

Special rule for a notice following termination of all continuing relationships. After all 

continuing relationships with a person or its affiliate(s) are terminated, a consumer must be 

given a new opt-out notice if the consumer later establishes another continuing relationship 

with the person or its affiliate(s) and the consumer’s eligibility information is to be used to 

make a solicitation. The consumer’s decision not to opt out after receiving the new opt-out 

notice would not override a prior opt-out election that applies to eligibility information 

obtained in connection with a terminated relationship, regardless of whether the new opt-out 

notice applies to eligibility information obtained in connection with a terminated relationship. 

No continuing relationship (isolated transaction). If the consumer does not establish a 

continuing relationship with a person or its affiliate, but the person or its affiliate obtains 

eligibility information about the consumer in connection with a transaction with the consumer 

(such as an ATM cash withdrawal, purchase of traveler’s checks, or a credit application that is 

denied), an opt-out notice provided to the consumer only applies to eligibility information 

obtained in connection with that transaction. 

Time, Duration, and Renewal of Opt-Out – 12 CFR 1022.22(b) and (c) and 1022.27 

A consumer may opt out at any time. The opt-out must be effective for a period of at least five 

years beginning when the consumer’s opt-out election is received and implemented, unless the 

consumer later revokes the opt-out in writing or, if the consumer agrees, electronically. An optout period may be set at more than five years, including an opt-out that does not expire unless the 

consumer revokes it. 

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Renewal after opt-out period expires. After the opt-out period expires, a person, such as a 

financial institution, may not make solicitations based on eligibility information it receives from 

an affiliate to a consumer who previously opted out, unless: 

1.	 The consumer receives a renewal notice and opportunity to opt out, and the consumer 

does not renew the opt-out; or 

2.	 An exception to the notice and opt-out requirements applies.20 

Contents of renewal notice. The renewal notice must be clear, conspicuous, and concise, and 

must accurately disclose most of the elements of the original opt-out notice, as well as the 

following information as applicable: 

1.	 The consumer previously elected to limit the use of certain information to make
 

solicitations to the consumer.
 

2.	 The consumer’s election has expired or is about to expire. 

3.	 The consumer may elect to renew the consumer’s previous election. 

4.	 If applicable, that the consumer’s election to renew will apply for the specified period 

of time stated in the notice and that the consumer will be allowed to renew the 

election once that period expires. 

See 12 CFR 1022.27(b) for all the content requirements of a renewal notice. 

Renewal period. Each opt-out renewal must be effective for a period of at least five years. 

Affiliate who may provide the notice. The renewal notice must be provided by the affiliate that 

provided the previous opt-out notice, or its successor; or as part of a joint renewal notice from 

two or more members of an affiliated group of companies, or their successors, that jointly 

provided the previous opt-out notice. 

Timing of the renewal notice. A renewal notice may be provided to the consumer either a 

reasonable period of time before the expiration of the opt-out period21 

or any time after the 

expiration of the opt-out period but before solicitations are made to the consumer that would 

have been prohibited by the expired opt-out. 

20 See 12 CFR 1022.21(c) for exceptions. 

21 An opt-out period may not be shortened by sending a renewal notice to the consumer before expiration of the opt-out period, 

even if the consumer does not renew the opt-out. If a person provides an annual privacy notice under the Gramm-Leach-Bliley 

Act, providing a renewal notice with the last annual privacy notice provided to the consumer before expiration of the opt-out 

period is a reasonable period of time before expiration of the opt-out in all cases (12 CFR 1022.27(d)). 

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Model Forms for Opt-Out Notices – 12 CFR Part 1022, Appendix C 

Appendix C of the affiliate marketing regulation contains model forms that may be used to comply 

with the requirement for clear, conspicuous, and concise notices. The five model forms are: 

C-1 Model Form for Initial Opt-Out Notice (Single-Affiliate Notice) 

C-2 Model Form for Initial Opt-Out Notice (Joint Notice) 

C-3 Model Form for Renewal Notice (Single-Affiliate Notice) 

C-4 Model Form for Renewal Notice (Joint Notice) 

C-5 Model Form for Voluntary “No Marketing” Notice 

Use of the model forms is not required and a person may make certain changes to the language 

or format of the model forms without losing the protection from liability afforded by use of the 

model forms. These changes may not be so extensive as to affect the substance, clarity, or 

meaningful sequence of the language in the model forms. Institutions making such extensive 

revisions will lose the safe harbor that Appendix C provides. Examples of acceptable changes are 

provided in Appendix C to the regulation. 

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Module 3 – Disclosures to Consumers and 

Miscellaneous Requirements 

Overview 

The FCRA requires entities such as financial institutions to provide consumers with various 

notices and information under a variety of circumstances. This module contains examination 

responsibilities for these various areas. 

Use of Consumer Reports for Employment Purposes – Section 604(b); 

15 U.S.C. 1681b(b) 

Section 604(b) has specific requirements for persons, such as financial institutions, that obtain 

consumer reports of its employees or prospective employees prior to, and/or during, the term of 

employment. The FCRA generally requires the written permission of the consumer to procure a 

consumer report for “employment purposes.” Moreover, the person must provide to the 

consumer in writing a clear and conspicuous disclosure that it may obtain a consumer report for 

employment purposes prior to procuring a report. 

Prior to taking any adverse action involving employment that is based in whole or in part on the 

consumer report, the user generally must provide to the consumer: 

1.	 A copy of the report. 

2.	 A description in writing of the rights of the consumer under this title, as the CFPB 

prescribes under Section 609(c)(1).
 

At the time a financial institution takes adverse action in an employment situation, Section 615 

requires that it must provide the consumer with an adverse action notice described later in this 

module. 

Prescreened Consumer Reports and Opt-Out Notice – Sections 604(c) and 

615(d); 15 U.S.C. 1681b(c) and 15 U.S.C. 1681m(d); and 12 CFR 1022.54 

Sections 604(c) allow persons, including financial institutions, to obtain and use consumer 

reports on any consumer in connection with any credit or insurance transaction that the consumer 

does not initiate, to make firm offers of credit or insurance. This process, known as prescreening, 

occurs when a financial institution obtains a list from a consumer reporting agency of consumers 

who meet certain predetermined creditworthiness criteria and who have not elected to be 

excluded from such lists. 

These lists may only contain the following information: 

1.	 The name and address of a consumer. 

2.	 An identifier that is not unique to the consumer and that the person uses solely for the 

purpose of verifying the identity of the consumer. 

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3. Other information pertaining to a consumer that does not identify the relationship or 

experience of the consumer with respect to a particular creditor or other entity. 

Each name appearing on the list is considered an individual consumer report. In order to obtain 

and use these lists, persons, such as financial institutions, must make a “firm offer of credit or 

insurance” as defined in Section 603(l) to each person on the list. A person is not required to 

grant credit or insurance if the consumer is not creditworthy or insurable, or cannot furnish 

required collateral, provided that the person determines the underwriting criteria in advance, and 

applies it consistently. 

Example 1: Assume a home mortgage lender obtains a list from a consumer reporting agency of 

everyone in County X, with a current home mortgage loan and a credit score of 700. The lender 

will use this list to market a second lien home equity loan product. The lender’s other nonconsumer report criteria, in addition to those used in the prescreened list for this product, include 

a maximum total debt-to-income ratio (DTI) of 50 percent or less. The consumer reporting 

agency can screen some of the criteria but the lender must determine other criteria individually, 

such as the DTI, when consumers respond to the offer. If a consumer responds to the offer, but 

already has a DTI of 60 percent, the lender does not have to grant the loan. 

In addition, the person is allowed to obtain a full consumer report on anyone responding to the 

offer to verify that the consumer continues to meet the creditworthiness criteria. If the consumer 

no longer meets those criteria, the person does not have to grant the loan. 

Example 2: On January 1, a credit card lender obtains a list from a consumer reporting agency of 

consumers in County Y who have credit scores of 720, and no previous bankruptcy records. The 

lender mails solicitations offering a pre-approved credit card to everyone on the list on January 2. 

On January 31, a consumer responds to the offer and the lender obtains and reviews a full 

consumer report that shows a bankruptcy record was added on January 15. Since this consumer no 

longer meets the lender’s predetermined criteria, the lender is not required to issue the credit card. 

These basic requirements help prevent a person from obtaining prescreened lists without 

following through with an offer of credit or insurance. The person must maintain the criteria used 

for the product (including the criteria used to generate the prescreened report and any other 

criteria such as collateral requirements) on file for a period of three years, beginning on the date 

that the person made the offer to the consumer. 

Technical Notice and Opt-Out Requirements – Section 615(d) 

Section 615(d) contains consumer protections and technical notice requirements concerning 

prescreened offers of credit or insurance. The FCRA requires nationwide consumer reporting 

agencies to jointly operate an “opt-out” system, whereby consumers can elect to be excluded 

from prescreened lists by calling a toll-free number. 

When a person, such as a financial institution, obtains and uses these lists, it must provide 

consumers with a Prescreened Opt-Out Notice with the offer of credit or insurance. This notice 

alerts consumers that they are receiving the offer because they meet certain creditworthiness 

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criteria. The notice must also provide the toll-free telephone number operated by the nationwide 

consumer reporting agencies for consumers to call to opt out of prescreened lists. 

The FCRA contains the basic requirement to provide notices to consumers at the time the 

prescreened offers are made. The implementing regulation, 12 CFR 1022.54, contains the 

technical requirements of the notice. This regulation is applicable to anyone, including banks, 

credit unions, and saving associations, that obtains and uses prescreened consumer reports. 

Short and Long Notice – 12 CFR 1022.54(c) 

Entities must provide a “short” notice and a “long” notice of the prescreened opt-out information 

with each written solicitation made to consumers using prescreened consumer reports. They must 

also comply with specific requirements concerning the content and appearance of these notices. 

The short notice must be a clear and conspicuous, simple, and easy-to-understand statement as 

follows: 

1.	 Content. The short notice must state that the consumer has the right to opt out of 

receiving prescreened solicitations. It must provide the toll-free number and direct 

consumers to the existence and location of the long notice. It should also state the title 

of the long notice. The short notice may not contain any other information. 

2.	 Form. The short notice must be in a type size larger than the principal text on the 

same page, but it may not be smaller than 12-point type. If a person, such as a 

financial institution, provides the notice by electronic means, it must be larger than 

the type size of the principal text on the same page. 

3.	 Location. The short form must be on the front side of the first page of the principal 

promotional document in the solicitation. If provided electronically, it must be on the 

same page and in close proximity to the principal marketing message. The statement 

must be located so that it is distinct from other information, such as inside a border, 

and must be in a distinct type style, such as bolded, italicized, underlined, and/or in a 

color that contrasts with the principal text on the page, if the solicitation is provided 

in more than one color. 

The long notice must also be a clear and conspicuous, simple, and easy-to-understand statement 

as follows: 

1.	 Content. The long notice must state the information required by Section 615(d) of the 

FCRA and may not include any other information that interferes with, detracts from, 

contradicts, or otherwise undermines the purpose of the notice. 

2.	 Form. The notice must appear in the solicitation, be in a type size that is no smaller than 

the type size of the principal text on the same page, and, for solicitations provided other 

than by electronic means, the type size may not be smaller than 8-point type. The notice 

must begin with a heading in capital letters, underlined, and identifying the long notice 

as the “PRESCREEN & OPT-OUT NOTICE.” It must be in a type style that is distinct 

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from the principal type style used on the same page, such as bolded, italicized, 

underlined, and/or in a color that contrasts from the principal text, if the solicitation is 

in more than one color. The notice must be set apart from other text on the page, such 

as by including a blank line above and below the statement, and by indenting both the 

left and right margins from other text on the page. 

The model prescreened opt-out notices are contained in Appendix D to 12 CFR Part 1022. 

Appendix D contains complete sample solicitations for context. The model prescreen notice text 

is contained below: 

Sample Short Notice: 

You can choose to stop receiving “prescreened” offers of (credit or insurance) from this 

and other companies by calling toll-free (toll-free number). See PRESCREEN & OPTOUT NOTICE on other side (or other location) for more information about 

prescreened offers. 

Sample Long Notice: 

PRESCREEN & OPT-OUT NOTICE: This “prescreened” offer of (credit or insurance) 

is based on information in your credit report indicating that you meet certain criteria. 

This offer is not guaranteed if you do not meet our criteria (including providing 

acceptable property as collateral). If you do not want to receive prescreened offers of 

(credit or insurance) from this and other companies, call the consumer reporting 

agencies (or name of consumer reporting agency) toll-free, (toll-free number); or write: 

(consumer reporting agency name and mailing address). 

Truncation of Credit and Debit Card Account Numbers – Section 605(g); 

15 U.S.C. 1681c(g) 

Section 605(g) provides that persons, including financial institutions, that accept debit and credit 

cards for the transaction of business will be prohibited from issuing electronic receipts that 

contain more than the last five digits of the card number, or the card expiration date, at the point 

of sale or transaction. This requirement applies only to electronically developed receipts and 

does not apply to hand-written receipts or those developed with an imprint of the card. 

Disclosure of Credit Scores by Certain Mortgage Lenders – Section 609(g); 

15 U.S.C. 1681g(g) 

Section 609(g) requires creditors, such as financial institutions, that make or arrange mortgage 

loans using credit scores to provide the score with accompanying information to the applicants. 

Credit score 

For purposes of this section, the term “credit score” is defined as a numerical value or a 

categorization derived from a statistical tool or modeling system used by a person who makes or 

arranges a loan to predict the likelihood of certain credit behaviors, including default (and the 

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numerical value or the categorization derived from such analysis may also be referred to as a 

“risk predictor” or “risk score”). The credit score does not include either of the following: 

1.	 Any mortgage score or rating by an automated underwriting system that considers 

one or more factors in addition to credit information, such as the loan-to-value ratio, 

the amount of down payment, or the financial assets of a consumer. 

2.	 Any other elements of the underwriting process or underwriting decision. 

Covered transactions 

The disclosure requirement applies to both closed-end and open-end loans that are for consumer 

purposes and are secured by one- to four-family residential real properties, including purchase 

and refinance transactions. This requirement will not apply in circumstances that do not involve 

a consumer purpose, such as when a borrower obtains a loan secured by his or her residence to 

finance his or her small business. 

Specific required notice 

Financial institutions in covered transactions that use credit scores must provide a disclosure 

containing the following specific language, which is contained in 609(g)(1)(D): 

Notice to The Home Loan Applicant 

In connection with your application for a home loan, the lender must disclose to you 

the score that a consumer reporting agency distributed to users and the lender used in 

connection with your home loan, and the key factors affecting your credit scores. 

The credit score is a computer generated summary calculated at the time of the 

request and based on information that a consumer reporting agency or lender has on file. The 

scores are based on data about your credit history and payment patterns. Credit scores are 

important because they are used to assist the lender in determining whether you will obtain a 

loan. They may also be used to determine what interest rate you may be offered on the 

mortgage. Credit scores can change over time, depending on your conduct, how your credit 

history and payment patterns change, and how credit scoring technologies change. 

Because the score is based on information in your credit history, it is very important 

that you review the credit-related information that is being furnished to make sure it is 

accurate. Credit records may vary from one company to another. 

If you have questions about your credit score or the credit information that is 

furnished to you, contact the consumer reporting agency at the address and telephone 

number provided with this notice, or contact the lender, if the lender developed or generated 

the credit score. The consumer reporting agency plays no part in the decision to take any 

action on the loan application and is unable to provide you with specific reasons for the 

decision on a loan application. 

If you have questions concerning the terms of the loan, contact the lender. 

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The notice must include the name, address, and telephone number of each consumer reporting 

agency that provided a credit score that was used. 

Credit score and key factors disclosed 

In addition to the notice, a creditor, such as a financial institution, must also disclose the credit 

score, the range of possible scores, the date that the score was created, and the “key factors” used 

in the score calculation. “Key factors” are all relevant elements or reasons adversely affecting the 

credit score for the particular individual, listed in the order of their importance, and based on 

their effect on the credit score. The total number of factors to be disclosed must not exceed four. 

However, if one of the key factors is the number of inquiries into a consumer’s credit 

information, then the total number of factors must not exceed five. These key factors come from 

information the consumer reporting agencies supplied with any consumer report that was 

furnished containing a credit score (Section 605(d)(2)). 

This disclosure requirement applies in any application for a covered transaction, regardless of the 

final action the lender takes on the application. The FCRA requires a creditor to disclose all of 

the credit scores used in these transactions. For example, if two joint applicants apply for a 

mortgage loan to purchase a single-family residence and the lender uses both credit scores, then 

the creditor needs to disclose both. The statute specifically does not require more than one 

disclosure per loan. Therefore, if the creditor uses multiple scores, it can include all of them in 

one disclosure containing the Notice to the Home Loan Applicant. 

If a creditor uses a credit score that it did not obtain directly from a consumer reporting agency, 

but may contain some information from a consumer reporting agency, the creditor may satisfy 

this disclosure requirement by providing a score and associated key factor information that a 

consumer reporting agency supplied. For example, certain automated underwriting systems 

generate a score used in a credit decision. These systems are often populated by data obtained 

from a consumer reporting agency. If a creditor uses this automated system, it may satisfy the 

disclosure requirement by providing the applicants with a score and key factors a consumer 

reporting agency supplied based on the data, including credit score(s) imported into the 

automated underwriting system. This will provide applicants with information about their credit 

history and its role in the credit decision, in the spirit of this section of the statute. 

Timing 

With regard to the timing of the disclosure, the statute requires that the creditor provide it as soon 

as is reasonably practicable after using a credit score. 

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Adverse Action Disclosures – Section 615(a) and (b); 

15 U.S.C. 1681m(a) and (b) 

Section 615(a)-(b) requires users of consumer reports, such as creditors, to make certain 

disclosures when they: 

1.	 take adverse actions with respect to consumers, based in whole or in part on
 

information contained in a consumer report;
 

2.	 deny credit for personal, family, or household purposes or increase the charge for 

such credit based in whole or in part on information obtained from a person other 

than a consumer reporting agency bearing upon the consumer’s credit worthiness, 

credit standing, credit capacity, character, general reputation, personal characteristics, 

or mode of living or 

3.	 take certain adverse action based in whole or in part on information from an affiliate. 

The disclosure requirements are discussed separately below. 

Information Obtained From a Consumer Reporting Agency 

Section 615(a), Duties of Users Taking Adverse Actions on the Basis of Information Contained 

in Consumer Reports, provides that when adverse action is taken with respect to any consumer 

based in whole or in part on any information contained in a consumer report, the person, such as 

a financial institution, must: 

1.	 provide oral, written, or electronic notice of the adverse action to the consumer. 

2.	 provide to the consumer written or electronic disclosures of a numerical credit score 

used by such person in taking any adverse action based in whole or in part on any 

information in a consumer report and the following information: 

a.	 the range of possible credit scores under the model used; 

b.	 all of the key factors that adversely affected the credit score, which shall not 

exceed four key factors, except that if one of the key factors is the number of 

enquiries made with respect to the consumer report, the number of key factors 

shall not exceed five; 

c.	 the date on which the credit score was created; and 

d.	 the name of the person or entity that provided the credit score or credit file upon 

which the credit score was created; 

3.	 provide to the consumer orally, in writing, or electronically: 

a.	 the name, address, and telephone number of the consumer reporting agency from 

which it received the information (including a toll-free telephone number 

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established by the agency, if the consumer reporting agency maintains files on a 

nationwide basis); and 

b.	 a statement that the consumer reporting agency did not make the decision to take 

the adverse action and is unable to provide the consumer the specific reasons why 

the adverse action was taken; 

4.	 provide to the consumer an oral, written, or electronic notice of the consumer’s right 

to obtain a free copy of the consumer report from the consumer reporting agency 

within 60 days of receiving notice of the adverse action, and the consumer’s right to 

dispute the accuracy or completeness of any information in the consumer report with 

the consumer reporting agency. 

Information Obtained from Third Parties Other than Consumer Reporting Agencies 

(Including Affiliates) 

Section 615(b), Adverse Action Based on Information Obtained from Third Parties Other than 

Consumer Reporting Agencies, provides that, in general, whenever credit for personal, family, or 

household purposes involving a consumer is denied or the charge for such credit is increased 

either wholly or partly because of information obtained from a person other than a consumer 

reporting agency bearing upon the consumer’s credit worthiness, credit standing, credit capacity, 

character, general reputation, personal characteristics, or mode of living, the user of such 

information shall: 

1.	 At the time such adverse action is communicated, clearly and accurately disclose to 

the consumer his right to make a written request for the reasons for such adverse 

action within 60 days after learning of such adverse action; and 

2.	 Within a reasonable period of time after receipt of such written request from the
 

consumer, disclose the nature of the information to the consumer.
 

If the adverse action described in 615(b)(2)(B) is (i) taken based in whole or in part on 

information from a person related by common ownership or affiliated by common corporate 

control to the person taking the action, and (ii) bears on the credit worthiness, credit standing, 

credit capacity, character, general reputation, personal characteristics, or mode of living of the 

consumer, and (iii) does not include information solely as to transactions or experiences between 

the consumer and the person furnishing the information or information in a consumer report, 

then the person taking the adverse action shall: 

1.	 Notify the consumer of the action, including a statement that the consumer may 

obtain the information upon written request from the consumer received within 60 

days after transmittal of the notice required; and 

2.	 Not later than 30 days after receipt of such written request from the consumer, 

disclose to the consumer the nature of the information upon which the action is based. 

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Debt Collector Communications Concerning Identity Theft – 

Section 615(g); 15 U.S.C. 1681m(g) 

Section 615(g) has specific requirements for persons, such as financial institutions, that act as 

debt collectors, whereby they collect debts on behalf of a third party that is a creditor or other 

user of a consumer report. The requirements do not apply when a person is collecting its own 

loans. When a person is notified that any information relating to a debt that it is attempting to 

collect may be fraudulent or may be the result of identity theft, the person must notify the third 

party of this fact. In addition, if the consumer, to whom the debt purportedly relates, requests 

information about the transaction, the person must provide all of the information the consumer 

would otherwise be entitled to if the consumer wished to dispute the debt under other provisions 

of law applicable to the person. 

Risk-Based Pricing Notice – Section 615(h); 15 U.S.C. 1681m(h); 

12 CFR 1022, Subpart H 

Section 615(h) of the Fair Credit Reporting Act (FCRA) generally requires a user of consumer 

reports, such as a creditor, to provide a risk-based pricing notice to a consumer when the 

creditor, based on a consumer report, extends credit to the consumer on terms that are 

“materially less favorable” than the terms the creditor has extended to other consumers. On 

January 15, 2010, the Federal Reserve and the Federal Trade Commission (FTC) published final 

rules in the Federal Register (75 Fed. Reg. 2724) implementing this section of the FCRA. 

The risk-based pricing notice requirement is designed primarily to improve the accuracy of 

consumer reports by alerting consumers to the existence of negative information in their 

consumer reports so that the consumers can, if they choose, check their consumer reports for 

accuracy and correct any inaccurate information. This notice provision is meant to complement 

an existing provision of the FCRA, Section 615(a), whereby a creditor that denies a consumer’s 

application for credit, based in whole or in part on information in a consumer’s report, must 

provide an adverse action notice. Section 615(h), covers the situation where credit is offered on 

“materially less favorable terms,” rather than being denied. 

The Dodd-Frank Act amended Section 615(h) of the FCRA to require a person to disclose a 

consumer’s credit score and certain information relating to the credit score, if a credit score is 

used in making the credit decision. On July 15, 2011, the Federal Reserve Board and the FTC 

published final rules (effective August 15, 2011) amending the risk-based pricing regulation to 

effect the Dodd-Frank Act changes (76 FR 41602). On December 21, 2011, the CFPB restated 

the FCRA regulations at 12 CFR Part 1022. (76 Fed. Reg. 79308) 

Key Definitions – 12 CFR 1022.71 

The following definitions pertain to the rules governing the risk-based pricing regulation: 

Material terms means in general: 

a.	 for open-end credit (except as provided in (b) and (d) below), the annual percentage 

rate (APR) required to be disclosed in the account opening disclosures required under 

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Regulation Z. This does not include a temporary initial rate that is lower than the rate 

that will apply when the temporary rate expires, any penalty rate that applies upon the 

occurrence of specific events (such as a late payment), or any fixed APR option for a 

home equity line of credit; 

b.	 for credit cards (other than a credit card used to access a home equity line of credit or 

a charge card), the APR that applies for purchases. For credit cards without a 

purchase APR, “material terms” means the APR that varies based on consumer report 

information and that has the most significant financial impact on consumers; 

c.	 for closed-end credit, the APR required to be disclosed prior to consummation under 

the closed-end provisions of Regulation Z; and 

d.	 for credit that does not have an APR, the financial term that varies based on consumer 

report information and that has the most significant financial impact on consumers, 

such as an annual membership fee for a charge card. 

Materially less favorable means, generally, that the terms granted, extended, or otherwise 

provided to a consumer differ from the terms granted, extended, or otherwise provided to another 

consumer such that the cost of credit to a consumer would be significantly greater than the cost 

of credit granted, extended, or otherwise provided to the other consumer. Relevant factors in 

determining the significance of a difference in cost include the type of credit product, the term of 

the credit extension, and the extent of the difference between the material terms granted, 

extended, or otherwise provided to the two consumers. 

General requirements – 12 CFR 1022.72-73 

A person must provide to a consumer a notice (“risk-based pricing notice”) in the form and 

manner prescribed by the regulation if: 

1.	 The person uses a consumer report in connection with an application for, or a grant, 

extension, or other provision of, credit to a consumer for personal, family, or 

household purposes; and 

2.	 Based in whole or in part on the consumer report, the person grants, extends, or 

otherwise provides credit to that consumer on material terms that are materially less 

favorable than the most favorable material terms available to a substantial proportion 

of consumers from that person. 

The obligation to provide the notice applies to the creditor to whom the obligation is initially 

payable, i.e., the original creditor. This interpretation excludes brokers and other intermediaries 

who do not themselves grant, extend, or provide credit to consumers. See preamble to the final 

regulation (75 FR 2730)(January 15, 2010). 

Determination of which consumers must receive notice (12 CFR 1022.72(b)). A person may 

determine, on a case-by-case basis, whether a consumer has received material terms that are 

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materially less favorable by comparing the material terms offered to the consumer to the 

material terms offered to other consumers for a specific type of credit product. A “specific type 

of credit product” means one or more credit products with similar features that are designed for 

similar purposes. Examples include student loans, unsecured credit cards, secured credit cards, 

new automobile loans, used automobile loans, fixed-rate mortgage loans, and variable-rate 

mortgage loans. 

Because making such a direct comparison between consumers may not be operationally feasible, 

the rules provide two alternative methods, a credit score proxy method and a tiered pricing 

method, both of which are described as follows: 

1.	 Credit score proxy method (12 CFR 1022.72(b)(1)). If a person uses credit scores to 

set the material terms of credit, the person may determine a cutoff score that 

represents the point at which approximately 40 percent of its consumers have higher 

credit scores and 60 percent of its consumers have lower credit scores. The person 

may then provide a risk-based pricing notice to each consumer who has a credit score 

lower than the cutoff score. 

Credit Score Proxy Example 

The number of all, or a representative sample of, consumers to whom the 

person granted credit for a specific type of credit product 

10,000 

40 percent of consumers 4,000 

Credit scores of the 4,000 consumers with the highest credit scores 700 or 

higher 

Cutoff score 700 

Credit scores of those consumers to whom the person must provide a 

risk-based pricing notice, because the consumers’ scores are lower than 

cutoff score 

699 or 

lower 

Alternative to 40/60 cutoff. The regulation provides an alternative to the 40/60 cutoff 

discussed above for situations where more than 40 percent of consumers (e.g., 80 

percent) receive the most favorable material terms. In such situations, the person may set 

a different cutoff score based on its historical experience. The cutoff score would be set at 

a point at which the approximate percentage of consumers who historically have received 

the most favorable material terms based on their credit score would not receive a notice 

in the future. Under this alternative, the risk-based pricing notices would be provided to 

the approximate percentage of consumers who historically have been granted credit on 

material terms other than the most favorable terms. 

For example, based on a sample of credit extended in the past six months, a creditor may 

determine that approximately 80 percent of its consumers received credit at its lowest 

APR (i.e., the most favorable material terms), and 20 percent of its consumers received 

credit at a higher APR (i.e., material terms other than the most favorable). Approximately 

80 percent of the sampled consumers had a credit score at or above 750, and 20 percent 

had a credit score below 750. As a result, the card issuer could select 750 as its cutoff 

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score. Consumers who have credit scores lower than 750 would receive the risk-based 

pricing notice. See preamble to the final regulation (75 FR at 2733)(January 15, 2010). 

Recalculation. A person must recalculate the score no less than every two years. 

Specific type of product (sampling approach). A person must calculate the cutoff score by 

considering the credit scores of all, or a representative sample of, the consumers who 

have received credit for a specific type of credit product. 

New entrants or new products (secondary approach in limited circumstances). For new 

entrants into the credit business or for new products subject to risk-based pricing, a 

person may determine the cutoff score based on information from market research or 

other third-party sources for a specific type of credit product. For a newly acquired credit 

portfolio, a person may determine the cutoff score from information obtained from the 

party from which it acquired the portfolio. The person must recalculate the cutoff score 

using the scores of its own consumers within one year after it begins using a score 

derived from market research, third-party data, or the party from which it acquired the 

portfolio. If, within that one year, it has not granted credit to a sufficient number of new 

consumers, thus preventing it from having sufficient data with which to recalculate a cutoff score based on the credit scores of its own consumers, it may continue to use the 

original cutoff score until it obtains sufficient data on which to base the calculation. 

However, within two years, it must calculate its own cutoff score if it has granted credit 

to some new consumers within those two years. 

Use of multiple credit scores. For a person that generally uses two or more credit scores 

to set material credit terms, the person must determine the cutoff score using the same 

method used to evaluate multiple scores when making credit decisions (for example, 

using an average credit score). If the person does not consistently use the same method 

for evaluating multiple scores, the person must use a reasonable means. For example, the 

person may use any one of the methods that the person ordinarily uses or the average 

credit score of each consumer to calculate the credit score by a reasonable means. 

No credit score available for a consumer. If no credit score is available for a consumer, a 

person must assume that it is granting credit on materially less favorable terms and thus 

must provide a risk-based pricing notice to the consumer. 

2.	 Tiered pricing method (12 CFR 1022.72(b)(2)). If a person sets the material terms of 

credit by assigning each consumer to one of a discrete number of pricing tiers for a 

specific type of credit product, based in whole or in part on a consumer report, the 

person may provide a risk-based pricing notice to each consumer who is not assigned 

to the top pricing tier or tiers. 

If the person uses four or fewer pricing tiers, it complies by providing risk-based pricing 

notices to all consumers who do not qualify for the top, best-priced tier. If the person uses 

five or more pricing tiers, it complies by providing the notices to all consumers who do 

not qualify for the two top, best-priced tiers and any other tier that, combined with the top 

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two tiers, equals no less than the top 30 percent and no more than the top 40 percent of 

the total number of tiers. 

Tiered Pricing Example 

Four or fewer tiers 

Top tier = best 

rate 

APR Notice requirements. 

Tier 1 (top) 8% No risk-based pricing notice required. 

Tier 2 10% Risk-based pricing notice required for Tiers 2, 3, 

and 4. Tier 3 12% 

Tier 4 14% 

Five or more tiers (5 tiers) 

Top tier = best 

rate 

APR 

Tier 1 (top) 8% No risk-based pricing notice required for top 30% to 

40% of tiers. 

Top two tiers comprise 2 out of 5 (40%) of the number 

of tiers. 

Tier 2 10% 

Tier 3 12% Risk-based notices required for Tiers 3-5. 

Tier 4 14% 

Tier 5 16% 

Five or more tiers (9 tiers) 

Top tier = best 

rate 

APR 

Tier 1 (top) 8% No risk-based pricing notice required for top 30% to 

40% of tiers. 

Top three tiers comprise 3 out of 9 (33%) of the number 

of tiers. 

Tier 2 10% 

Tier 3 12% 

Tier 4 14% Risk-based notices required for Tiers 4-9. 

Tier 5 16% 

Tier 6 18% 

Tier 7 20% 

Tier 8 22% 

Tier 9 24% 

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Application to credit card issuers (12 CFR 1022.72(c)). A credit card issuer may use any of the 

methods in 12 CFR 1022.72(b) to identify consumers to whom it must provide a risk-based 

pricing notice. Alternatively, the card issuer may provide the notice when: 

1.	 a consumer applies for a credit card in connection with an application program or in 

response to a solicitation, and more than one purchase APR may apply under the 

program or solicitation, and 

2.	 based in whole or in part on a consumer report, the credit card is issued to a consumer 

with an APR that is higher than the lowest APR available in connection with the 

application or solicitation. 

The risk-based pricing requirements do not apply to a card issuer if the credit card program 

offers only a single annual APR (other than temporary initial rates or penalty rates) or if the 

issuer offers the consumer the lowest possible APR under the credit card program. 

Content of the notice (12 CFR 1022.73(a)(1)). The risk-based pricing notice must include: 

1.	 a statement that a consumer report (or credit report) includes information about the 

consumer’s credit history and the type of information included in that history; 

2.	 a statement that the consumer is encouraged to verify the accuracy of the information 

contained in the consumer report and has the right to dispute any inaccurate 

information in the report; 

3.	 the identity of each consumer reporting agency that furnished a consumer report used 

in the credit decision; 

4.	 a statement that federal law gives the consumer the right to obtain a copy of a 

consumer report from the consumer reporting agency or agencies identified in the 

notice without charge for 60 days after receipt of the notice; 

5.	 a statement informing the consumer how to obtain a consumer report from the 

consumer reporting agency or agencies identified in the notice and providing contact 

information (including a toll-free telephone number, where applicable) specified by 

the consumer reporting agency or agencies; 

6.	 a statement directing consumers to the website of the CFPB to obtain more
 

information about consumer reports;
 

7.	 if a credit score of the consumer to whom a person grants, extends, or otherwise
 

provides credit is used in setting the material terms of credit:
 

a.	 a statement that a credit score is a number that takes into account information in a 

consumer report, that the consumer‘s credit score was used to set the terms of 

credit offered, and that a credit score can change over time to reflect changes in 

the consumer‘s credit history; 

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b.	 the credit score used by the person in making the credit decision; 

c.	 the range of possible credit scores under the model used to generate the credit 

score; 

d.	 all of the key factors that adversely affected the credit score, which shall not 

exceed four key factors, except that if one of the key factors is the number of 

enquiries made with respect to the consumer report, the number of key factors 

shall not exceed five; 

e.	 the date on which the credit score was created; and 

f.	 the name of the consumer reporting agency or other person that provided the 

credit score. 

8.	 A statement that the terms offered, such as the APR, have been set based on
 

information from a consumer report; and
 

9.	 A statement that the terms offered may be less favorable than the terms offered to 

consumers with better credit histories. 

See Appendix H-1 and H-6 of the regulation for model forms for the risk-based pricing 

notice. 

Account Review (12 CFR 1022.72(d)). Generally, a person must provide an account review 

risk-based pricing notice to the consumer if the person, based in whole or in part on a 

consumer report, increases the consumer’s APR after a review of the consumer’s account, 

unless one of the exceptions in 12 CFR 1022.74 applies (for example, the creditor provides an 

adverse action notice). 

Content of account review risk-based pricing notice (12 CFR 1022.73(a)(2)). The account 

review risk-based pricing notice must include: 

1.	 a statement that a consumer report (or credit report) includes information about the 

consumer’s credit history and the type of information included in that history; 

2.	 a statement that the consumer is encouraged to verify the accuracy of the information 

contained in the consumer report and has the right to dispute any inaccurate 

information in the report; 

3.	 the identity of each consumer reporting agency that furnished a consumer report used 

in the account review; 

4.	 a statement that federal law gives the consumer the right to obtain a copy of a 

consumer report from the consumer reporting agency or agencies identified in the 

notice without charge for 60 days after receipt of the notice; 

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5.	 a statement informing the consumer how to obtain a consumer report from the 

consumer reporting agency or agencies identified in the notice and providing contact 

information (including a toll-free telephone number, where applicable) specified by 

the consumer reporting agency or agencies; 

6.	 a statement directing consumers to the website of the CFPB to obtain more
 

information about consumer reports;
 

7.	 if a credit score of the consumer whose extension of credit is under review is used in 

increasing the APR: 

a.	 a statement that a credit score is a number that takes into account information in a 

consumer report, that the consumer‘s credit score was used to set the terms of 

credit offered, and that a credit score can change over time to reflect changes in 

the consumer‘s credit history; 

b.	 the credit score used by the person in making the credit decision; 

c.	 the range of possible credit scores under the model used to generate the credit 

score; 

d.	 all of the key factors that adversely affected the credit score, which shall not 

exceed four key factors, except that if one of the key factors is the number of 

enquires made with respect to the consumer report, the number of key factors 

shall not exceed five; 

e.	 the date on which the credit score was created; and 

f.	 the name of the consumer reporting agency or other person that provided the 

credit score. 

8.	 a statement that the person has conducted a review of the account using information 

from a consumer report; and 

9.	 a statement that as a result of the review, the APR on the account has been increased 

based on information from a consumer report. 

NOTE: Items 1 through 7 for the account review risk-based pricing notice are substantially 

the same as items 1 through 7 for the risk-based pricing notice. Only the last two items in 

each list are different. 

See Appendix H-2 and H-7 of the regulation for model forms for the account review riskbased pricing notice. 

Form of the notice (12 CFR 1022.73(b)).The risk-based pricing notices and the account review 

risk-based pricing notices must be clear and conspicuous and provided to the consumer in oral, 

written, or electronic form. Persons, such as creditors, are deemed to be in compliance with the 

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disclosure requirements through use of the optional, applicable model forms, found in Appendix 

H of the regulation. 

Timing (12 CFR 1022.73(c)). The timing requirement depends on the specific type of credit 

transaction as specified below. 

1.	 For closed-end credit, a risk-based pricing notice must be provided to the consumer 

after the decision to approve a credit request is communicated to the consumer, but 

before consummation of the transaction. 

2.	 For open-end credit, the notice must be provided after the decision to grant credit is 

communicated to the consumer, but before the first transaction under the plan has 

been made. 

3.	 For account reviews, the notice must be provided at the time that the decision to 

increase the APR is communicated to the consumer. If no notice of the increase in the 

APR is provided to the consumer prior to the effective date of the APR change, the 

notice must be provided no later than five days after the effective date of the APR 

change. 

4.	 For automobile lending transactions made through an auto dealer or other party that is 

unaffiliated with the creditor, the creditor may provide a risk-based pricing notice in 

the time periods described above for closed-end credit. Alternatively, the creditor 

may arrange to have the auto dealer or other party provide a risk-based pricing notice 

to the consumer on its behalf within these time periods and maintain reasonable 

policies and procedures to verify that the auto dealer provides the notices to 

consumers within the applicable time periods. If the creditor arranges to have the auto 

dealer or other party provide a credit score disclosure exception notice, the creditor 

complies if the consumer receives a notice containing a credit score obtained by the 

dealer or other party, even if a different credit score is obtained and used by the 

creditor. (12 CFR 1022.73(c)(2)) 

5.	 For credit that is granted under an open-end credit plan to a consumer in person or by 

telephone for contemporaneous purchase of goods or services, the risk-based pricing 

notice may be provided at the earlier of: 

a.	 The time of the first mailing to the consumer after the decision is made to approve 

the credit, such as in a mailing containing the account agreement or a credit card; 

or 

b.	 Within 30 days after the decision to approve the credit. 

Multiple credit scores (12 CFR 1022.73(d)). When a person obtains or creates two or more credit 

scores and uses one of those credit scores in setting the material terms of credit (e.g., by using 

the low, middle, high, or most recent score), the risk-based pricing notice and the account review 

notice must include that credit score and the information about the credit score described in the 

notice content requirements above. 

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When a person obtains or creates two or more credit scores and uses multiple credit scores in 

setting the material terms of credit (e.g., by computing the average of all the credit scores 

obtained or created, the risk-based pricing notice and the account review notice must include one 

of those credit scores and the information about the credit score described previously in the 

notice content requirements. The notice may, at the person‘s option, include more than one credit 

score and the related information for each credit score disclosed. 

Examples. 

1.	 A person that uses consumer reports to set the material terms of credit cards granted, 

extended, or provided to consumers regularly requests credit scores from several 

consumer reporting agencies and uses the low score when determining the material 

terms it will offer to the consumer. That person must disclose the low score in the 

risk-based pricing notice and the account review notice. 

2.	 A person that uses consumer reports to set the material terms of automobile loans 

granted, extended, or provided to consumers regularly requests credit scores from 

several consumer reporting agencies, each of which it uses in an underwriting 

program in order to determine the material terms it will offer to the consumer. That 

person may choose one of these scores to include in the risk-based pricing notice and 

the account review notice. 

Exceptions – 12 CFR 1022.74 

The rules contain a number of exceptions to the risk-based pricing notice requirement, as 

follows: 

1.	 when a consumer applies for specific material terms of credit (e.g., a specific APR), 

and receives them, unless those terms were specified by the creditor using a consumer 

report after the consumer applied for the credit and after the creditor obtained the 

consumer report (12 CFR 1022.74(a)); 

2.	 when a person such as a creditor provides a notice of adverse action (12 CFR
 

1022.74(b));
 

3.	 when a person makes a firm offer of credit in a prescreened solicitation even if the 

person makes other firm offers of credit to other consumers on more favorable 

material terms (12 CFR 1022.74(c)); 

4.	 when a person generally provides a credit score disclosure to each consumer that
 

requests a loan that is or will be secured by residential real property (12 CFR
 

1022.74(d));
 

5.	 when a person generally provides a credit score disclosure to each consumer that 

requests a loan that is not or will not be secured by residential real property (12 CFR 

1022.74(e)); 

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6.	 when a person who otherwise provides credit score disclosures to consumers that
 

request loans, provides a disclosure about credit scores when no credit score is
 

available (12 CFR 1022.74(f)).
 

The specific disclosure requirements for exceptions in 12 CFR 1022.74(d)-(f) are described 

below. 

Section 1022.74(d) exception - credit score disclosure for loans secured by residential real 

property. An person is not required to provide a risk-based pricing notice to a consumer under 12 

CFR 1022.72(a) or (c) if: 

1.	 The consumer requests from an person an extension of credit that is or will be secured 

by one to four units of residential real property; and 

2.	 The person generally provides to each consumer that requests such an extension of 

credit a notice that contains the following: 

a.	 a statement that a consumer report (or credit report) is a record of the consumer’s 

credit history and includes information about whether the consumer pays his or 

her obligations on time and how much the consumer owes to creditors; 

b.	 a statement that a credit score is a number that takes into account information in a 

consumer report and that a credit score can change over time to reflect changes in 

the consumer’s credit history; 

c.	 a statement that the consumer’s credit score can affect whether the consumer can 

obtain credit and what the cost of that credit will be; 

d.	 a statement that the consumer is encouraged to verify the accuracy of the 

information contained in the consumer report and has the right to dispute any 

inaccurate information in the report; 

e.	 a statement that federal law gives the consumer the right to obtain copies of his or 

her consumer reports directly from the consumer reporting agencies, including a 

free report from each of the nationwide consumer reporting agencies once during 

any 12-month period; 

f.	 contact information for the centralized source from which consumers may obtain 

their free annual consumer reports; 

g.	 a statement directing consumers to the website of the CFPB to obtain more 

information about consumer reports; 

h.	 the information required to be disclosed to the consumer in Section 609(g) of the 

FCRA, and as described in Module 3 of these examination procedures, under 

“Disclosure of Credit Scores by Certain Mortgage Lenders (FCRA), Section 

609(g);” and 

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i.	 the distribution of credit scores among consumers who are scored under the same 

scoring model that is used to generate the consumer’s credit score. The 

distribution must: 

i.	 use the same scale as that of the credit score provided to the consumer, and 

ii.	 be presented: 

•	 in the form of a bar graph containing a minimum of six bars that illustrates the 

percentage of consumers with credit scores within the range of scores 

reflected in each bar, 

•	 by other clear and readily understandable graphical means, or 

•	 in a clear and readily understandable statement informing the consumer how his 

or her credit score compares to the scores of other consumers. 

The presentation may use a graph or statement obtained from the entity providing 

the credit score if it meets these requirements. 

Form of the notice. The 12 CFR 1022.74(d) notice must be: 

1.	 clear and conspicuous; 

2.	 provided on or with the notice required by Section 609(g) of the FCRA; 

3.	 segregated from other information provided to the consumer, except for the notice
 

required by Section 609(g) of the FCRA; and
 

4.	 provided to the consumer in writing and in a form that the consumer may keep. 

Timing. The 12 CFR 1022.74(d) notice must be provided to the consumer at the same time as the 

disclosure required by Section 609(g) of the FCRA is provided to the consumer, which must be 

provided as soon as reasonably practicable after the credit score has been obtained. In any event, 

the 12 CFR 1022.74(d) notice must be provided at or before consummation in the case of closedend credit or before the first transaction is made under an open-end credit plan. 

Content of the notice when using multiple credit scores. When a person obtains two or more 

credit scores from consumer reporting agencies in setting material terms of credit, the content of 

the 12 CFR 1022.74(d) notice varies depending upon whether the person only relies upon one of 

the credit scores or relies upon multiple credit scores. 

1.	 If a person only relies upon one of those credit scores in setting the material terms of 

credit granted, extended, or otherwise provided to a consumer (for example, by using 

the low, middle, high, or most recent score), the notice must include that credit score 

and the other information required by 12 CFR 1022.74(d). 

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2.	 If a person relies upon multiple credit scores in setting the material terms of credit 

granted, extended, or otherwise provided to a consumer (for example, by computing 

the average of all the credit scores obtained), the notice must include one of those 

credit scores and the other information required by 12 CFR 1022.74(d). 

At the person’s option, the notice may include more than one credit score, along with the 

additional information required by 12 CFR 1022.74(d) for each credit score disclosed. 

Examples. 

1.	 A person uses consumer reports to set the material terms of mortgage credit granted, 

extended, or provided to consumers and regularly requests credit scores from several 

consumer reporting agencies. It relies upon the low score when determining the 

material terms it will offer to the consumer. The person must disclose the low score in 

the 12 CFR 1022.74(d) notice. 

2.	 A person uses consumer reports to set the material terms of mortgage credit granted, 

extended, or provided to consumers and regularly requests credit scores from several 

consumer reporting agencies. The person takes an average of all of the credit scores 

obtained in order to determine the material terms it will offer to the consumer, and 

thus relies upon all of the credit scores that it receives. The person may choose one of 

these scores to include in the 12 CFR 1022.74(d) notice. 

Model form. Appendix H-3 of the regulation contains a model form of the 12 CFR 1022.74(d) 

notice that is consolidated with the notice required by Section 609(g) of the FCRA. While use of 

the model form is optional, appropriate use of Model Form H-3 is deemed to comply with the 

requirements of 12 CFR 1022.74(d). 

Section 1022.74(e) exception - credit score disclosure for loans not secured by residential real 

property. A person is not required to provide a risk-based pricing notice to a consumer under 12 

CFR 1022.72(a) or (c) if: 

1.	 the consumer requests from a person an extension of credit that is not or will not be 

secured by one to four units of residential real property; and 

2.	 the person provides to each consumer that requests such an extension of credit a
 

notice that contains the following:
 

a.	 a statement that a consumer report (or credit report) is a record of the consumer’s 

credit history and includes information about whether the consumer pays his or 

her obligations on time and how much the consumer owes to creditors; 

b.	 a statement that a credit score is a number that takes into account information in a 

consumer report and that a credit score can change over time to reflect changes in 

the consumer’s credit history; 

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c.	 a statement that the consumer’s credit score can affect whether the consumer can 

obtain credit and what the cost of that credit will be; 

d.	 a statement that the consumer is encouraged to verify the accuracy of the 

information contained in the consumer report and has the right to dispute any 

inaccurate information in the report; 

e.	 a statement that federal law gives the consumer the right to obtain copies of his or 

her consumer reports directly from the consumer reporting agencies, including a 

free report from each of the nationwide consumer reporting agencies once during 

any 12-month period; 

f.	 contact information for the centralized source from which consumers may obtain 

their free annual consumer reports; 

g.	 a statement directing consumers to the website of the CFPB to obtain more 

information about consumer reports; 

h.	 the current credit score of the consumer or the most recent credit score of the 

consumer that was previously calculated by the consumer reporting agency for a 

purpose related to the extension of credit; 

i.	 the distribution of credit scores among consumers who are scored under the same 

scoring model that is used to generate the consumer’s credit score. The 

distribution must: 

i.	 use the same scale as that of the credit score provided to the consumer; and 

ii.	 be presented: 

•	 in the form of a bar graph containing a minimum of six bars that illustrates the 

percentage of consumers with credit scores within the range of scores 

reflected in each bar; 

•	 by other clear and readily understandable graphical means; or 

•	 in a clear and readily understandable statement informing the consumer how 

his or her credit score compares to the scores of other consumers. 

The presentation may use a graph or statement obtained from the entity providing 

the credit score if it meets these requirements. 

j.	 the range of possible credit scores under the model used to generate the credit score; 

k.	 the date on which the credit score was created; and 

the name of the consumer reporting agency or other person that provided the
 

credit score.
 

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NOTE: Items a, b, c, d, e, f, g, and i for the 12 CFR 1022.74(e) notice are the same as 

items a, b, c, d, e, f, g, and i for the 12 CFR 1022.74(d) notice. 

Form of the notice. The 12 CFR 1022.74(e) notice must be: 

a.	 clear and conspicuous; 

b.	 segregated from other information provided to the consumer; and 

c.	 provided to the consumer in writing and in a form that the consumer may keep. 

Timing. The 12 CFR 1022.74(e) notice generally must be provided to the consumer as soon as 

reasonably practicable after the credit score has been obtained, but in any event at or before 

consummation in the case of closed-end credit or before the first transaction is made under an 

open-end credit plan. The notice may alternatively be provided in the following manner: 

a.	 For automobile lending transactions made through an auto dealer or other party 

that is unaffiliated with the person, such as a creditor, the person may provide a 

12 CFR 1022.74(e) notice in the time periods described above. Alternatively, the 

creditor may arrange to have the auto dealer or other party provide a 12 CFR 

1022.74(e) notice to the consumer on its behalf within these time periods and 

maintain reasonable policies and procedures to verify that the auto dealer 

provides the notice to the consumer within the applicable time periods. If the 

creditor arranges to have the auto dealer or other party provide a credit score 

disclosure exception notice, the creditor complies if the consumer receives a 

notice containing a credit score obtained by the dealer or other party, even if a 

different credit score is obtained and used by the creditor. 12 CFR 1022.73(c)(2)) 

b.	 For credit that is granted under an open-end credit plan to a consumer in person 

or by telephone for contemporaneous purchase of goods or services, the 12 CFR 

1022.74(e) notice may be provided at the earlier of: 

i. the time of the first mailing to the consumer after the decision is made to 

approve the credit, such as in a mailing containing the account agreement 

or a credit card; or 

ii. within 30 days after the decision to approve the credit 

(12 CFR 1022.73(c)(3)). 

Multiple credit scores. When a person obtains two or more credit scores from consumer 

reporting agencies in setting material terms of credit, the content of the 12 CFR 

1022.74(e) notice varies depending if the person relies upon only one of the credit scores 

or relies upon multiple credit scores. These disclosures requirements are the same as 

those for the 12 CFR 1022.74(d) notices, as described previously. 

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Model form. Appendix H-4 of the regulation contains a model form of the 12 CFR 

1022.74(e) notice. While use of the model form is optional, appropriate use of Model 

Form H-4 is deemed to comply with the requirements of 12 CFR 1022.74(e). 

Section 1022.74(f) exception - credit score not available. A person is not required to provide a 

risk-based pricing notice to a consumer under 12 CFR 1022.72(a) or (c) if the person: 

1.	 regularly obtains credit scores from a consumer reporting agency and provides credit 

score disclosures to consumers in accordance with 12 CFR 1022.74(d) or (e), but a 

credit score is not available from the consumer reporting agency from which the 

person regularly obtains credit scores for a consumer to whom the person grants, 

extends, or provides credit; 

2.	 does not obtain a credit score from another consumer reporting agency in connection 

with granting, extending, or providing credit to the consumer; and 

3.	 provides to the consumer a notice that contains the following: 

a.	 a statement that a consumer report (or credit report) includes information about 

the consumer’s credit history and the type of information included in that history; 

b.	 a statement that a credit score is a number that takes into account information in a 

consumer report and that a credit score can change over time in response to 

changes in the consumer’s credit history; 

c.	 a statement that credit scores are important because consumers with higher credit 

scores generally obtain more favorable credit terms; 

d.	 a statement that not having a credit score can affect whether the consumer can 

obtain credit and what the cost of that credit will be; 

e.	 a statement that a credit score about the consumer was not available from a 

consumer reporting agency, which must be identified by name, generally due to 

insufficient information regarding the consumer’s credit history; 

f.	 a statement that the consumer is encouraged to verify the accuracy of the 

information contained in the consumer report and has the right to dispute any 

inaccurate information in the consumer report; 

g.	 a statement that federal law gives the consumer the right to obtain copies of his or 

her consumer reports directly from the consumer reporting agencies, including a 

free consumer report from each of the nationwide consumer reporting agencies 

once during any 12-month period; 

h.	 the contact information for the centralized source from which consumers may 

obtain their free annual consumer reports; and 

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i.	 a statement directing consumers to the website of the CFPB to obtain more 

information about consumer reports. 

NOTE: Items b, f, g, h, and i for the 12 CFR 1022.74(f) notice are the same as items 

b, f, g, h, and i for the 12 CFR 1022.74(d) and (e) notices. 

Example. A person, such as a creditor, uses consumer reports to set the material terms of 

non-mortgage credit granted, extended, or provided to consumers and regularly requests 

credit scores from a particular consumer reporting agency. As required by 12 CFR 

1022.74(e), the creditor provides those credit scores and additional information to consumers. 

The consumer reporting agency provides to the creditor a consumer report on a particular 

consumer that contains one trade line, but does not provide the creditor with a credit score on 

that consumer. If the creditor does not obtain a credit score from another consumer reporting 

agency and, based in whole or in part on information in a consumer report, grants, extends, or 

provides credit to the consumer, the creditor may provide the 12 CFR 1022.74(f) notice. If, 

however, the creditor obtains a credit score from another consumer reporting agency, the 

creditor may not rely upon the 12 CFR 1022.74(f) exception, but must satisfy the 

requirements of 12 CFR 1022.74(e). 

Form of the notice. The 12 CFR 1022.74(f) notice must be: 

1.	 clear and conspicuous; 

2.	 segregated from other information provided to the consumer; and 

3.	 provided to the consumer in writing and in a form that the consumer may keep. 

Timing. The 12 CFR 1022.74(f) notice generally must be provided to the consumer as 

soon as reasonably practicable after the person has requested the credit score, but in any 

event not later than consummation of a transaction in the case of closed-end credit or 

when the first transaction is made under an open-end credit plan. The notice may 

alternatively be provided in the following manner: 

1.	 For automobile lending transactions made through an auto dealer or other party that 

is unaffiliated with the person, such as a creditor, the creditor may provide a 12 CFR 

1022.74(f) notice in the time periods described above. Alternatively, the creditor 

may arrange to have the auto dealer or other party provide a 12 CFR 1022.74(f) 

notice to the consumer on its behalf within these time periods and maintain 

reasonable policies and procedures to verify that the auto dealer provides the notice 

to the consumer within the applicable time periods. 

2.	 For credit that is granted under an open-end credit plan to a consumer in person 

or by telephone for contemporaneous purchase of goods or services, the Section 

1022.74(f) notice may be provided at the earlier of:
 

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a.	 the time of the first mailing to the consumer after the decision is made to 

approve the credit, such as in a mailing containing the account agreement or 

a credit card; or 

b.	 within 30 days after the decision to approve the credit (12 CFR 

1022.73(c)(3)). 

Model form. Appendix H-5 of the regulation contains a model form of the 12 CFR 

1022.74(f) notice. While use of the model form is optional, appropriate use of Model 

Form H-5 is deemed to comply with the requirements of 12 CFR 1022.74(f). 

Rules of Construction – 12 CFR 1022.75 

The rules clarify that, in general, only one risk-based pricing notice or one credit score disclosure 

exception notice is required to be provided per credit extension (however, an account review 

would still be required, if applicable). 

In a transaction involving two or more consumers who are granted, extended, or otherwise 

provided credit, a person must provide a risk-based pricing notice to each consumer. If the 

consumers have the same address, and the notice does not include a credit score(s), a person may 

satisfy the requirements by providing a single notice addressed to both consumers. However, if a 

notice includes a credit score(s), the person must provide a separate notice to each consumer 

whether the consumers have the same address or not. Each separate notice that includes a credit 

score(s) must contain only the credit score(s) of the consumer to whom the notice is provided, 

and not the credit score(s) of the other consumer. Similarly, for credit score disclosure exception 

notices, whether the consumers have the same address or not, the person must provide a separate 

notice to each consumer and each separate notice that includes a credit score(s) must contain 

only the credit score(s) of the consumer to whom the notice is provided. 

A purchaser or assignee of a credit contract with a consumer is not subject to the risk-based 

pricing notice requirements. 

Appendix H 

Appendix H contains seven optional model forms that may be used to comply with the 

regulatory requirements. The seven model forms are: 

1.	 H-1 Model form for risk-based pricing notice 

2.	 H-2 Model form for account review risk-based pricing notice 

3.	 H-3 Model form for credit score disclosure exception for credit secured by one to four 

units of residential real property 

4.	 H-4 Model form for credit score disclosure exception for loans not secured by
 

residential real property
 

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5.	 H-5 Model form for credit score disclosure exception for loans where credit score is 

not available 

6.	 H-6 Model form for risk-based pricing notice with credit score information 

7.	 H-7 Model form for account review risk-based pricing notice with credit score information 

Use of the model forms is not required. A person may change the forms by rearranging the format or 

by making technical modifications to the language of the forms. However, any change may not be so 

extensive as to materially affect the substance, clarity, comprehensibility, or meaningful sequence of 

the forms. Persons making such extensive revisions would lose the “safe harbor” that Appendix H 

provides. Examples of acceptable changes are provided in Appendix H to the regulation. 

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Module 4 – Duties of Users of Consumer Reports and 

Furnishers of Consumer Report Information 

Overview 

The FCRA contains many responsibilities for persons, such as financial institutions, that furnish 

information to consumer reporting agencies. These requirements generally involve ensuring the 

accuracy of the data that is placed in the consumer reporting system. This examination module 

includes reviews of the various areas associated with furnishers of information. This module will 

not apply to persons that do not furnish any information to consumer reporting agencies. 

Duties of Users of Credit Reports Regarding Address Discrepancies – 

Section 605(h); 15 U.S.C. 1681c(h); 12 CFR 1022.82 

Section 605(h)(1) requires that, when providing a consumer report to a person that requests the 

report (a user), a nationwide consumer reporting agency (NCRA) must provide a notice of 

address discrepancy to the user if the address provided by the user in its request “substantially 

differs” from the address the NCRA has in the consumer’s file. Section 605(h)(2) requires the 

federal banking agencies and the NCUA (the Agencies), and the FTC to prescribe regulations 

providing guidance regarding reasonable policies and procedures that a user of a consumer report 

should employ when such user has received a notice of address discrepancy. On November 9, 

2007, the Agencies and the FTC published final rules in the Federal Register implementing this 

section (72 FR 63718). On December 21, 2011, the CFPB restated the FCRA regulations at 12 

CFR Part 1022. (76 Fed. Reg. 79308). 

Key Definitions 

Nationwide consumer reporting agency (NCRA). Section 603(p) defines an NCRA as one 

that compiles and maintains files on consumers on a nationwide basis and regularly engages 

in the practice of assembling or evaluating and maintaining the following two pieces of 

information about consumers residing nationwide for the purpose of furnishing consumer 

reports to third parties bearing on a consumer’s credit worthiness, credit standing, or credit 

capacity: 

1.	 public record information. 

2.	 credit account information from persons who furnish that information regularly and in 

the ordinary course of business. 

Notice of address discrepancy (12 CFR 1022.82(b)). A “notice of address discrepancy” is a 

notice sent to a user by an NCRA (Section 603(p)) that informs the user of a substantial 

difference between the address for the consumer that the user provided to request the 

consumer report and the address(es) in the NCRA’s file for the consumer. 

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Requirement to form a reasonable belief – 12 CFR 1022.82(c) 

A user must develop and implement reasonable policies and procedures designed to enable the 

user to form a reasonable belief that the consumer report relates to the consumer whose report 

was requested, when the user receives a notice of address discrepancy in connection with a new 

or existing account. 

The rules provide the following examples of reasonable policies and procedures for forming a 

reasonable belief that a consumer report relates to the consumer whose report was requested: 

1.	 comparing information in the consumer report with information the user: 

a.	 has obtained and used to verify the consumer’s identity as required by the 

Customer Identification Program rules (31 CFR 1020.220); 

b.	 maintains in its records; or 

c.	 obtains from a third party; or 

2.	 verifying the information in the consumer report with the consumer. 

Requirement to furnish a consumer’s address to an NCRA – 12 CFR 1022.82(d) 

A user must develop and implement reasonable policies and procedures for furnishing to the 

NCRA an address for the consumer that the user has reasonably confirmed is accurate when the 

user does the following: 

1.	 forms a reasonable belief that the report relates to the consumer whose report was 

requested; 

2.	 establishes a continuing relationship with the consumer (i.e., in connection with a 

new account); and 

3.	 regularly, and in the ordinary course of business, furnishes information to the NCRA 

that provided the notice of address discrepancy. 

A user’s policies and procedures for furnishing a consumer’s address to an NCRA must require the 

user to furnish the confirmed address as part of the information it regularly furnishes to the NCRA 

during the reporting period when it establishes a continuing relationship with the consumer. 

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The rules also provide the following examples of how a user may reasonably confirm an address 

is accurate: 

1.	 verifying the address with the consumer whose report was requested; 

2.	 reviewing its own records; 

3.	 verifying the address through third-party sources; or 

4.	 using other reasonable means. 

Furnishers of Information: General – Section 623(e); 15 U.S.C. 1681s-2; 

12 CFR 1022, Subpart E 

Section 623(e) required the Agencies and the Federal Trade Commission (FTC) to: 

1.	 issue guidelines for use by furnishers regarding the accuracy and integrity of the
 

information about consumers that they furnish to consumer reporting agencies;
 

2.	 prescribe regulations requiring furnishers to establish reasonable policies and 

procedures for implementing the guidelines; and
 

3.	 issue regulations identifying the circumstances under which a furnisher must
 

reinvestigate disputes concerning the accuracy of information contained in a
 

consumer report based on a direct request from a consumer.
 

The Agencies and the FTC published final rules in the Federal Register (74 FR 31484) 

implementing this section of FCRA. These rules took effect July 1, 2010. On December 21, 

2011, the CFPB restated the FCRA regulations at 12 CFR Part 1022. (76 Fed Reg 79308). 

Key Definitions – 12 CFR 1022.41 

The following definitions pertain to the rules governing the furnishers of information to a 

consumer reporting agency: 

Accuracy means that the information a furnisher provides to a consumer reporting agency 

about an account or other relationship with the consumer correctly: 

1.	 reflects the terms of and liability for the account or other relationship; 

2.	 reflects the consumer’s performance and other conduct with respect to the account or 

other relationship; and 

3.	 identifies the appropriate consumer. 

Direct dispute means a dispute submitted by a consumer directly to a furnisher (including a 

furnisher that is a debt collector) concerning the accuracy of any information contained in a 

consumer report and pertaining to an account or other relationship that the furnisher has or 

had with the consumer. 

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Furnisher means an entity that furnishes information relating to consumers to one or more 

consumer reporting agencies for inclusion in a consumer report. An entity is not a furnisher 

when it: 

1.	 provides information to a consumer reporting agency solely to obtain a consumer 

report in accordance with the permissible purposes outlined in Sections 604(a) and (f) 

of the FCRA; 

2.	 is acting as a “consumer reporting agency” as defined in Section 603(f) of the FCRA; 

3.	 is a consumer to whom the furnished information pertains; or 

4.	 is a neighbor, friend, or associate of the consumer, or another individual with whom 

the consumer is acquainted or who may have knowledge about the consumer, and 

who provides information about the consumer’s character, general reputation, 

personal characteristics, or mode of living in response to a specific request from a 

consumer reporting agency. 

Identifying information means any name or number that may be used alone or in 

conjunction with any other information to identify a specific person. 

Identity theft means a fraud committed or attempted using the identifying information of 

another person without authority. 

Integrity means that the information a furnisher provides to a consumer reporting agency 

about an account or other relationship with the consumer: 

1.	 is substantiated by the furnisher’s records at the time it is furnished; 

2.	 is furnished in a form and manner that is designed to minimize the likelihood that the 

information may be incorrectly reflected in a consumer report; and 

3.	 includes the information in the furnisher’s possession about the account or other 

relationship that: 

a.	 the relevant Agency has determined that the absence of which would likely be 

materially misleading in evaluating a consumer’s creditworthiness, credit 

standing, credit capacity, character, general reputation, personal characteristics, or 

mode of living; and 

b.	 is specified in the Interagency Guidelines Concerning the Accuracy and Integrity 

of Information Furnished to Consumer Reporting Agencies (FCRA rule, 

Appendix E). Currently, the Guidelines specify the credit limit, if applicable and 

in the furnisher’s possession. 

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Duties of Furnishers to Provide Accurate Information – 

Section 623(a); 15 U.S.C. 1681s-2(a) 

Section 623(a) states that a person, including a financial institution, may, but need not, specify 

an address for receipt of notices from consumers concerning inaccurate information. If the 

person specifies such an address, then it may not furnish information relating to a consumer to 

any consumer reporting agency, if (a) the consumer notified the person, at the specified 

address, that the information is inaccurate, and (b) the information is inaccurate. If the person 

does not specify an address, then it may not furnish any information relating to a consumer to 

any consumer reporting agency if the person knows or has reasonable cause to believe that the 

information is inaccurate. 

When a person that (regularly and in the ordinary course of business) furnishes information to 

one or more consumer reporting agencies about its transactions or experiences with any 

consumer determines that any such information is not complete or accurate, the person must 

promptly notify the consumer reporting agency of that determination. The person must provide 

corrections to that information or any additional information necessary to make the information 

complete and accurate to the consumer reporting agency. Further, the person thereafter must not 

furnish any information that remains incomplete or inaccurate to the consumer reporting agency. 

If a consumer disputes the completeness or accuracy of any information a person furnishes to a 

consumer reporting agency, that person may not furnish the information to any consumer 

reporting agency without notice that the consumer disputes the information. 

Reasonable policies and procedures concerning the accuracy and integrity of 

furnished information (12 CFR 1022.42) and Interagency Guidelines (Appendix E) 

Each furnisher must establish and implement reasonable written policies and procedures 

regarding the accuracy and integrity of consumer information that it furnishes to a consumer 

reporting agency. The policies and procedures must be appropriate to the nature, size, 

complexity, and scope of each furnisher’s activities. In developing its policies and procedures, a 

furnisher must consider the Interagency Guidelines and may include its existing policies and 

procedures that are relevant and appropriate. Each furnisher must also review its policies and 

procedures periodically and update them as necessary to ensure their continued effectiveness. 

The guideline’s recommendations include the following: 

1.	 using standard data reporting formats and standard procedures for compiling and 

furnishing data, where feasible, such as electronic transmission of information about 

consumers to consumer reporting agencies; 

2.	 maintaining records for a reasonable period of time, not less than any applicable 

recordkeeping requirement, in order to substantiate the accuracy of any information 

furnished about consumers to consumer reporting agencies that is subject to a direct 

disputer; and 

3.	 training staff that participates in activities related to the furnishing of information
 

about consumers to consumer reporting agencies.
 

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Voluntary closures of accounts – Section 623(a)(4); 

15 U.S.C. 1681s-2(a)(4) 

This section requires a person, including a financial institution, who regularly and in the ordinary 

course of business furnishes information to a consumer reporting agency regarding one of its 

consumer credit accountholders, to notify the consumer reporting agency of the consumer’s 

voluntary account closure. This notice is to be furnished to the consumer reporting agency as part 

of the regularly furnished information for the period in which the account is closed. 

Notice involving delinquent accounts – Section 623(a)(5); 

15 U.S.C. 1681s-2(a)(5) 

This section requires that a person, including a financial institution, that furnishes information to 

a consumer reporting agency about a delinquent account placed for collection, charged off, or 

subjected to any similar action, must, not later than 90 days after furnishing the information to 

the consumer reporting agency, notify the consumer reporting agency of the month and year of 

the commencement of the delinquency that immediately preceded the action. 

Duties upon notice of dispute from a consumer reporting agency – 

Section 623(b); 15 U.S.C. 1681s-2(b) 

This section requires that whenever a person, such as a financial institution, receives a notice of 

dispute from a consumer reporting agency regarding the accuracy or completeness of any 

information the person provided to a consumer reporting agency pursuant to Section 611 

(Procedure in Case of Disputed Accuracy), that person must, pursuant to Section 623(b): 

1.	 conduct an investigation regarding the disputed information; 

2.	 review all relevant information the consumer reporting agency provided along with 

the notice; 

3.	 report the results of the investigation to the consumer reporting agency; 

4.	 if the investigation finds the information is incomplete or inaccurate, report those
 

results to all nationwide consumer reporting agencies to which the financial 

institution previously provided the information; and
 

5.	 if the disputed information is incomplete, inaccurate, or not verifiable by the person, 

it must promptly, for purposes of reporting to the consumer reporting agency do one 

of the following: 

a.	 modify the item of information. 

b.	 delete the item of information. 

c.	 permanently block the reporting of that item of information. 

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The person must complete the required investigations, reviews, and reports within 30 days. The 

person may extend the time period for 15 days if a consumer reporting agency receives 

additional relevant information from the consumer. 

Duties upon notice of dispute from a consumer (direct disputes) – 

Section 623(a)(8); 15 U.S.C. 1681s-2(a)(8); 12 CFR 1022.43 

General rule. A furnisher must conduct a reasonable investigation of a direct dispute (unless 

exceptions, described later, apply) if the dispute relates to: 

1.	 the consumer’s liability for a credit account or other debt with the furnisher, such as 

direct disputes relating to whether there is or has been identity theft or fraud against 

the consumer, whether there is individual or joint liability on an account, or whether 

the consumer is an authorized user of a credit account; 

2.	 the terms of a credit account or other debt with the furnisher, such as, direct disputes 

relating to the type of account, principal balance, scheduled payment amount on an 

account, or the amount of the credit limit on an open-end account; 

3.	 the consumer’s performance or other conduct concerning an account or other 

relationship with the furnisher such as, direct disputes relating to the current payment 

status, high balance, payment date, the payment amount, or the date an account was 

opened or closed; or 

4.	 any other information contained in a consumer report regarding an account or other 

relationship with the furnisher that bears on the consumer’s creditworthiness, credit 

standing, credit capacity, character, general reputation, personal characteristics, or 

mode of living. 

Exceptions. The direct dispute requirements do not apply to a furnisher if the direct dispute 

relates to: 

1.	 the consumer’s identifying information such as name(s), date of birth, Social Security 

number, telephone number(s), or address(es); 

2.	 the identity of past or present employers; 

3.	 inquiries or requests for a consumer report; 

4.	 information derived from public records, such as judgments, bankruptcies, liens, and 

other legal matters (unless the information was provided by a furnisher with an 

account or other relationship with the consumer); 

5.	 information related to fraud alerts or active duty alerts; or 

6.	 information provided to a consumer reporting agency by another furnisher. 

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The direct dispute requirements also do not apply if the furnisher has a reasonable belief that the 

direct dispute is: 

1.	 submitted by a credit repair organization; 

2.	 is prepared on behalf of the consumer by a credit repair organization; or 

3.	 is submitted on a form supplied to the consumer by a credit repair organization. 

Direct Dispute Address. A furnisher is required to investigate a direct dispute only if a consumer 

submits a dispute notice to the furnisher at: 

1.	 the address provided by a furnisher and listed on a consumer report relating to the 

consumer; 

2.	 an address clearly and conspicuously specified by the furnisher that is provided to the 

consumer in writing or electronically (if the consumer has agreed to the electronic 

delivery of information from the furnisher); or 

3.	 any business address of the furnisher if the furnisher has not provided a specific
 

address for submitting direct disputes.
 

Direct Dispute Notice Contents. A dispute notice from a consumer must include: 

1.	 sufficient information to identify the account or other relationship that is in dispute, 

such as an account number and the name, address, and telephone number of the 

consumer; 

2.	 the specific information that the consumer is disputing and an explanation of the basis 

for the dispute; and 

3.	 all supporting documentation or other information reasonably required by the 

furnisher to substantiate the basis of the dispute. This documentation may include, for 

example, a copy of the relevant portion of the consumer report that contains the 

allegedly inaccurate information; a police report; a fraud or identity theft affidavit; a 

court order; or account statements. 

Duties of a Furnisher after Receiving a Direct Dispute Notice from a Consumer. After receiving 

a dispute notice from a consumer, the furnisher must: 

1.	 conduct a reasonable investigation with respect to the disputed information; 

2.	 review all relevant information provided by the consumer with the dispute notice; 

3.	 complete its investigation of the dispute and report the results of the investigation to 

the consumer before the expiration of the period under Section 611(a)(1) of the 

FCRA (15 U.S.C. 1681i(a)(1)) within which a consumer reporting agency would be 

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required to complete its action if the consumer had elected to dispute the information 

under that section; and 

4.	 if the investigation finds that the information reported was inaccurate, promptly notify 

each consumer reporting agency to which the furnisher provided inaccurate 

information of investigation findings and provide to the consumer reporting agency 

any correction to that information that is necessary to make the information provided 

by the furnisher accurate. 

Frivolous or Irrelevant Disputes. A furnisher is not required to investigate a direct dispute if the 

furnisher has reasonably determined that the dispute is frivolous or irrelevant. A dispute qualifies 

as frivolous or irrelevant if: 

1.	 the consumer did not provide sufficient information to investigate the disputed 

information;
 

2.	 the direct dispute is substantially the same as a dispute previously submitted by or on 

behalf of the consumer and the dispute is one with respect to which the furnisher has 

already complied with the statutory or regulatory requirements. However, a direct 

dispute would not be “substantially the same” as the one previously submitted if the 

dispute includes new information required by the regulation to be provided to the 

furnisher, but that had not previously been provided to the furnisher; or 

3.	 the furnisher is not required to investigate the direct dispute because one or more of 

the exceptions listed in 12 CFR 1022.43(b) applies. 

Upon making a determination that a dispute is frivolous or irrelevant, the furnisher must notify 

the consumer of the determination not later than five business days after making the 

determination, by mail or, if authorized by the consumer for that purpose, by any other means 

available to the furnisher. The furnisher’s notice that a dispute is frivolous or irrelevant must 

include the reasons for such determination and identify any information required to investigate 

the disputed information. The notice may consist of a standardized form describing the general 

nature of such information. 

Prevention of Re-Pollution of Consumer Reports – Section 623(a)(6); 

15 U.S.C. 1681s-2(a)(6) 

Section 623(a) has specific requirements for furnishers of information, including financial 

institutions, to a consumer reporting agency that received notice from a consumer reporting 

agency that furnished information may be fraudulent as a result of identity theft. Section 605B, 

Block of Information Resulting From Identity Theft, requires consumer reporting agencies to 

notify furnishers of information, including financial institutions, that the information may be the 

result of identity theft, an identity theft report has been filed, and that a block has been requested. 

Upon receiving such notice, Section 623(a)(6) requires furnishers to establish and follow 

reasonable procedures to ensure that it does not re-report this information to the consumer 

reporting agency, thus “re-polluting” the victim’s consumer report. 

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Section 615(f), Prohibition on Sale or Transfer of Debt Caused by Identity Theft, also prohibits a 

furnisher from selling or transferring debt caused by an alleged identity theft. 

Negative Information Notice – Section 623(a)(7); 15 U.S.C. 1681s-2(a)(7); 

12 CFR 1022.1(b)(2)(ii) 

Section 623(a)(7) requires a financial institution to provide consumers with a notice either before 

it provides negative information to a nationwide consumer reporting agency, or within 30 days 

after reporting the negative information. 

Institutions may provide this disclosure on or with any notice of default, any billing statement, or 

any other materials provided to the customer, as long as the notice is clear and conspicuous. 

Institutions may also choose to provide this notice to all customers as an abundance of caution. 

However, financial institutions may not include this notice in the initial disclosures provided 

under Section 127(a) of the Truth in Lending Act. 

Key Definitions 

Negative information. For these purposes, “negative information” means any information 

concerning a customer’s delinquencies, late payments, insolvency, or any form of default. 

Nationwide consumer reporting agency. Section 603(p) of the FCRA defines a “nationwide 

consumer reporting agency” as a: 

consumer reporting agency that compiles and maintains files on consumers on a 

nationwide basis. 

It defines this type of consumer reporting agency as one that regularly assembles or evaluates, 

and maintains, each of the following regarding consumers residing nationwide for the purpose of 

furnishing consumer reports to third parties bearing on a consumer’s creditworthiness, credit 

standing, or credit capacity: 

1.	 public record information. 

2.	 credit account information from persons who furnish that information regularly and in 

the ordinary course of business. 

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Model text 

Institutions may use the following model text to comply with these requirements. The first model 

contains text an institution can use when it provides a notice before furnishing negative 

information. The second model form contains text to use when an institution provides notice 

within 30 days after reporting negative information: 

•	 Notice prior to communicating negative information (Model B-1):

 “We may report information about your account to credit bureaus. Late payments, 

missed payments, or other defaults on your account may be reflected in your credit 

report.” 

•	 Notice within 30 days after communicating negative information (Model B-2): 

“We have told a credit bureau about a late payment, missed payment, or other default on 

your account. This information may be reflected in your credit report.” 

Use of the model form(s) is not required; however, proper use of the model forms provides a 

financial institution with a safe harbor from liability. A financial institution may make certain 

changes to the language or format of the model notices without losing the safe harbor from 

liability provided by the model notices. The changes to the model notices may not be so 

extensive as to affect the substance, clarity, or meaningful sequence of the language in the model 

notices. A financial institution making extensive revisions will lose the safe harbor from liability 

that the model notices provide. Acceptable changes include: 

1.	 rearranging the order of the references to “late payment(s),” or “missed payment(s).” 

2.	 pluralizing the terms “credit bureau,” “credit report,” and “account.” 

3.	 specifying the particular type of account on which it may furnish information, such as 

“credit card account.” 

4.	 rearranging in Model Notice B-1 the phrases “information about your account” and 

“to credit bureaus” such that it would read, “We may report to credit bureaus 

information about your account.” 

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Module 5 – Consumer Alerts and Identity Theft Protections 

Overview 

The FCRA contains several provisions for both consumer reporting agencies and users of 

consumer reports, including financial institutions, that are designed to help combat identity theft. 

This module applies to persons that are not consumer reporting agencies, but are users of 

consumer reports. 

Two primary requirements exist for users of consumer reports: first, a user of a consumer report 

that contains a fraud or active duty alert must take steps to verify the identity of an individual to 

whom the consumer report relates, and second, a person must disclose certain information when 

consumers allege that they are the victims of identity theft. 

Fraud and Active Duty Alerts – Section 605A(h); 15 U.S.C. 1681c-1(h) 

Initial Fraud and Active Duty Alerts 

Consumers who suspect that they may be the victims of fraud including identity theft may 

request nationwide consumer reporting agencies to place initial fraud alerts in their consumer 

reports. These alerts must remain in a consumer’s report for no less than 90 days. In addition, 

members of the armed services who are called to active duty may also request that active duty 

alerts be placed in their consumer reports. Active duty alerts must remain in these service 

members’ files for no less than 12 months. 

Section 605A(h)(1)(B), Limitations on Use of Information for Credit Extensions, requires users 

of consumer reports, including financial institutions, to verify a consumer’s identity if a 

consumer report includes a fraud or active duty alert. Unless the user of the consumer report uses 

reasonable policies and procedures to form a reasonable belief that it knows the identity of the 

person making the request, the user may not: 

1.	 establish a new credit plan or extension credit (other than under an open-end credit 

plan) in the name of the consumer; 

2.	 issue an additional card on an existing account; or 

3.	 increase a credit limit. 

Extended Alerts 

Consumers who allege that they are the victim of an identity theft may also place an extended 

alert, which lasts seven years, on their consumer report. Extended alerts require consumers to 

submit identity theft reports and appropriate proof of identity to the nationwide consumer 

reporting agencies. 

Section 605A(h)(2)(B), Limitation on Users, requires a user that obtains a consumer report that 

contains an extended alert to contact the consumer in person or by the method the consumer lists 

in the alert prior to performing any of the three actions listed above. 

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Information Available to Victims – Section 609(e); 15 U.S.C. 1681g(e) 

Section 609(e) requires a person, such as a financial institution, to provide records of fraudulent 

transactions to victims of identity theft within 30 days after the receipt of a request for the 

records. These records include the application and business transaction records under the control 

of the person whether maintained by the person itself or another person on behalf of the 

institution (such as a service provider). 

The person should provide this information to any of the following: 

1.	 the victim; 

2.	 any federal, state, or local government law enforcement agency or officer specified by 

the victim in the request; or 

3.	 any law enforcement agency investigating the identity theft that was authorized by the 

victim to take receipt of these records. 

The victim must make the request for the records in writing and send it to the person at the 

address specified by the person for this purpose. The person may ask the victim to provide 

information, if known, regarding the date of the transaction or application, and any other 

identifying information such as an account or transaction number. 

Unless the person has a high degree of confidence that it knows the identity of the victim making 

the request for information, the person must take prudent steps to positively identify the person 

before disclosing any information. Proof of identity can include any of the following: 

1.	 a government-issued identification card; 

2.	 personally identifying information of the same type that was provided to the person 

by the unauthorized person; or 

3.	 personally identifying information that the person typically requests from new
 

applicants or for new transactions. 

At the election of the person, the victim must also provide the person with proof of an identity 

theft complaint, which may consist of a copy of a police report evidencing the claim of identity 

theft and a copy of a properly completed affidavit. The CFPB’s Identity Theft Affidavit is 

available on the CFPB’s website (consumerfinance.gov/learnmore). The version of this form 

developed by the FTC and available on the FTC’s Website (ftc.gov/idtheft) remains valid and 

sufficient for this purpose (12 CFR 1022.3(i)(3)(ii)). 

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When these conditions are met, the person must provide the information at no charge to the 

victim. However, the person is not required to provide any information if, acting in good faith, 

the person determines any of the following: 

1.	 section 609(e) does not require disclosure of the information; 

2.	 the person does not have a high degree of confidence in knowing the true identity of 

the requestor, based on the identification and/or proof provided; 

3.	 the request for information is based on a misrepresentation of fact by the requestor; or 

4.	 the information requested is Internet navigational data or similar information about a 

person’s visit to a website or online service. 

Duties Regarding the Detection, Prevention, and Mitigation of Identity 

Theft – Section 615(e); 15 U.S.C. 1681m(e) 

Section 615(e) requires the federal banking agencies and the NCUA (the Agencies) as well as the 

FTC to prescribe regulations and guidelines for entities under their enforcement authority 

regarding the detection, prevention, and mitigation of identity theft. On November 9, 2007, the 

Agencies published final rules and guidelines in the Federal Register implementing this section 

(72 FR 63718). The Agencies also have issued examination procedures for the implementing 

regulations. CFPB examiners are not expected to examine for compliance with Section 615(e)). 

If CFPB examiners become aware of potential issues in this area, the appropriate federal 

regulator should be notified. 

Duties of Card Issuers Regarding Changes of Address – Section 615(e); 

15 U.S.C. 1681m(e) 

Section 615(e)(1)(C) requires the Agencies and the FTC to prescribe regulations for debit and 

credit card issuers regarding the assessment of the validity of address changes for existing 

accounts. On November 9, 2007, the Agencies and the FTC published final rules in the Federal 

Register implementing this section (72 FR 63718). The regulations require card issuers to have 

procedures to assess the validity of an address change if the card issuer receives a notice of 

change of address for an existing account, and within a short period of time (during at least the 

first 30 days), receives a request for an additional or replacement card for the same account. The 

Agencies also have issued examination procedures for the implementing regulations. CFPB 

examiners are not expected to examine for compliance with Section 615(e)). If CFPB examiners 

become aware of potential issues in this area, the appropriate federal regulator should be notified. 

Disposal of Consumer Information – Section 628; 15 U.S.C. 1681w 

Section 628 requires the federal banking agencies to prescribe regulations for entities under their 

enforcement authority regarding the proper disposal of consumer information. On December 28, 

2004, the federal banking agencies published final rules and guidelines in the Federal Register 

implementing this section (69 FR 77610). The agencies also have issued examination procedures 

for the implementing regulations. CFPB examiners are not expected to examine for compliance 

CFPB	 Manual V.2 (October 2012) FCRA 63 
 

CFPB Consumer 

Laws and Regulations FCRA 

with Section 628. If CFPB examiners become aware of potential issues in this area, the 

appropriate federal regulator should be notified. 

REFERENCES 

Laws 

15 U.S.C. 1681 et seq. Fair Credit Reporting Act 

Regulations 

Consumer Financial Protection Bureau Regulation (12 CFR) 

Part 1022 Fair Credit Reporting (Regulation V) 

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Examination Procedures FCRA 

Fair Credit Reporting Act 

Examination Objectives1 2 

•	 To determine the covered entity’s compliance with the Fair Credit Reporting Act (FCRA) 

and implementing regulations. 

•	 To assess the quality of the covered entity’s compliance risk management system to ensure 

compliance with the FCRA, as amended. 

•	 To determine the reliance that can be placed on the covered entity’s internal controls and 

procedures for monitoring the entity’s compliance with the FCRA. 

•	 To direct corrective action when violations of law are identified, or when the covered entity’s 

policies or internal controls are deficient. 

Initial Examination Procedures 

The initial examination procedures are designed to acquaint examiners with the operations and 

processes of the entity being examined. They focus on the entity’s systems, controls, policies, 

and procedures, including audits and previous examination findings. 

The applicability of the various sections of the FCRA and the implementing regulations depends 

on an entity’s unique operations. The functional examination requirements are presented 

topically in modules 1 through 5. 

Initially, examiners should: 

1.	 Through discussions with management and review of available information, determine if the 

entity’s internal controls are adequate to ensure compliance in the FCRA area under review. 

Consider the following: 

a.	 organization charts; 

b.	 process flowcharts; 

c.	 policies and procedures; 

d.	 loan documentation; 

e.	 checklists; 

1 These reflect FFIEC-approved procedures. 

2 These procedures do not currently contain a module on the requirements for consumer reporting agencies. 

CFPB	 Manual V.2 (October 2012) Procedures 1 
 

 

 

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f.	 computer program documentation (for example, records illustrating the fields and types 

of data reported to consumer reporting agencies; automated records tracking customer 

opt-outs for FCRA affiliate information sharing; etc.). 

2.	 Review any compliance audit material, including workpapers and reports, to determine 

whether: 

a.	 the scope of the audit addresses all provisions as applicable; 

b.	 corrective actions were taken to follow up on previously identified deficiencies; 

c.	 the testing includes samples covering all product types and decision centers; 

d.	 the work performed is accurate; 

e.	 significant deficiencies and their causes are included in reports to management and/or to 

the board of directors; and 

f.	 the frequency of review is appropriate. 

3.	 Review the entity’s training materials to determine whether: 

a.	 appropriate training is provided to individuals responsible for FCRA compliance and 

operational procedures; and 

b.	 the training is comprehensive and covers the various aspects of the FCRA that apply to 

the individual entity’s operations. 

4.	 Through discussions with management, determine which portions of the examination 

modules will apply. 

5.	 Complete appropriate examination modules; document and form conclusions regarding the 

quality of the entity’s compliance management systems and compliance with FCRA. 

CFPB	 Manual V.2 (October 2012) Procedures 2 
 

 

 

 

 

 

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Module 1 – Obtaining Consumer Reports 

Permissible Purposes of Consumer Reports – Section 604; 15 U.S.C. 1681b 

Investigative Consumer Reports – Section 606; 15 U.S.C. 1681d 

1.	 Determine whether the entity obtains consumer reports. 

2.	 Determine whether the entity obtains prescreened consumer reports and/or reports for 

employment purposes. If so, complete the appropriate sections of Module 3. 

3.	 Determine whether the entity procures or causes an investigative consumer report to be 

prepared. If so, ensure that the appropriate disclosure is given to the consumer within the 

required time period. In addition, ensure that the entity certified compliance with the 

disclosure requirements to the consumer reporting agency. 

4.	 Ensure that the entity obtains consumer reports only for permissible purposes. Confirm that 

the entity certifies to the consumer reporting agency the purposes for which it will obtain 

reports. (The certification is usually contained in an entity’s contract with the consumer 

reporting agency.) 

5.	 If procedural weaknesses are noted or other risks requiring further investigation are noted, 

such as the receipt of several consumer complaints, review a sample of consumer reports 

obtained from a consumer reporting agency and determine whether the entity had permissible 

purposes to obtain the reports. For example, 

•	 obtain a copy of a billing statement or other list of consumer reports obtained by the 

entity from the consumer reporting agency for a period of time; and 

•	 compare this list, or a sample from this list to the entity’s records to ensure that there is a 

permissible purpose for the report(s) obtained. This could include any permissible 

purpose, such as the consumer applied for credit, insurance, or employment, etc. The 

entity may also obtain a report in connection with the review of an existing account. 

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Examination Procedures FCRA 

Module 2 – Obtaining Information and 

Sharing Among Affiliates 

Consumer Report and Information Sharing – Section 603(d); 

15 U.S.C. 1681a(d) 

1.	 Review the entity’s policies, procedures, and practices concerning the sharing of consumer 

information with third parties, including both affiliated and nonaffiliated third parties. 

Determine the type of information shared and with whom the information is shared. (This 

portion of the examination process may overlap with a review of the entity’s compliance with 

the Privacy of Consumer Financial Information Regulations that implement the GrammLeach-Bliley Act (GLBA). 

2.	 Determine whether the entity’s information sharing practices fall within the exceptions to the 

definition of a consumer report. If they do not, the entity could be considered a consumer 

reporting agency and subject to the FCRA requirements for consumer reporting agencies. 

3.	 If the entity shares information other than transaction and experience information with 

affiliates subject to opt-out provisions, determine whether the entity’s GLBA privacy notice 

contains tinformation regarding how to opt out, as required by the Privacy of Consumer 

Financial Information regulations. 

4.	 If procedural weaknesses or other risks requiring further investigation are noted, obtain a 

sample of opt-out rights exercised by consumers and determine if the entity honored the optout requests by not sharing “other information” about the consumers with the entity’s 

affiliates subsequent to receiving a consumer’s opt-out direction. 

Protection of Medical Information – Section 604(g); 15 U.S.C. 1681b(g); 

12 CFR 1022, Subpart D 

1.	 Review the entity’s policies, procedures, and practices concerning the collection and use of 

consumer medical information in connection with any determination of the consumer’s 

eligibility, or continued eligibility for credit. 

2.	 If the entity’s policies, procedures, and practices allow for obtaining and using consumer 

medical information in the context of a credit transaction, determine whether there are 

adequate controls in place to ensure that the information is only used subject to the financial 

information exception in the rules, or under a specific exception within the rules. 

3.	 If procedural weaknesses or other risks requiring further investigation are noted, obtain 

samples of credit transactions to determine whether the use of medical information pertaining 

to a consumer was done strictly under the financial information exception or the specific 

exceptions under the regulation. 

4.	 Determine whether the entity has adequate policies and procedures in place to limit the 

redisclosure of consumer medical information that was received from a consumer reporting 

agency or an affiliate. 

CFPB	 Manual V.2 (October 2012) Procedures 4 
 

 

 

 

 

 

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5.	 Determine whether the entity shares medical information about a consumer with affiliates. If it 

does, determine whether the sharing occurred in accordance with an exception in the rules that 

enables the entity to share the information without becoming a consumer reporting agency. 

Affiliate Marketing Opt Out – Section 624; 15 U.S.C. 1681s-3; 

12 CFR 1022 Subpart C 

1.	 Determine whether the entity receives consumer eligibility information from an affiliate. Stop 

here if it does not because Subpart C of 12 CFR 1022 does not apply. 

2.	 Determine whether the entity uses consumer eligibility information received from an affiliate 

to make a solicitation for marketing purposes that is subject to the notice and opt-out 

requirements. If it does not, stop here. 

3.	 Evaluate the entity’s policies, procedures, practices and internal controls to ensure that, 

where applicable, the consumer is provided with an appropriate notice, a reasonable 

opportunity, and a reasonable and simple method to opt out of the entity’s using eligibility 

information to make solicitations for marketing purposes to the consumer, and that the entity 

is honoring the consumer’s opt-outs. 

4.	 If compliance risk management weaknesses or other risks requiring further investigation are 

noted, obtain and review a sample of notices to ensure technical compliance and a sample of 

opt-out requests from consumers to determine if the entity is honoring the opt-out requests. 

a.	 Determine whether the opt-out notices are clear, conspicuous, and concise and contain 

the required information, including the name of the affiliate(s) providing the notice, a 

general description of the types of eligibility information that may be used to make 

solicitations to the consumer, and the duration of the opt out (12 CFR 1022.23(a)). 

b.	 Review opt-out notices that are coordinated and consolidated with any other notice or 

disclosure that is required under other provisions of law for compliance with the affiliate 

marketing regulation (12 CFR 1022.23(b)). 

c.	 Determine whether the opt-out notices and renewal notices provide the consumer a 

reasonable opportunity to opt out and a reasonable and simple method to opt out (12 CFR 

1022.24 and .25). 

d.	 Determine whether the opt-out notice and renewal notice are provided (by mail, delivery 

or electronically) so that a consumer can reasonably be expected to receive that actual 

notice (12 CFR 1022.26). 

e.	 Determine whether, after an opt-out period expires, an entity provides a consumer a 

renewal notice prior to making solicitations based on eligibility information received 

from an affiliate (12 CFR 1022.27). 

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Examination Procedures FCRA 

Module 3 – Disclosures to Consumers and Miscellaneous 

Requirements 

Use of Consumer Reports for Employment Purposes – Section 604(b); 

15 U.S.C. 1681b(b) 

1.	 Determine if the entity obtains consumer reports on current or prospective employees. 

2.	 Assess the entity’s policies and procedures to determine if appropriate disclosures are 

provided to current and prospective employees when an entity obtains consumer reports for 

employment purposes, including situations where the entity takes adverse actions based on 

consumer report information. 

3.	 If procedural weaknesses or other risks requiring further investigation are noted, review a 

sample of the disclosures to determine if they are accurate and in compliance with the 

technical FCRA requirements. 

Prescreened Consumer Reports and Opt-Out Notice –
 

Sections 604(c) and 615(d); 15 U.S.C. 1681b(c) and 15 U.S.C. 1681m(d)
 

12 CFR 1022.54
 

1.	 Determine whether the entity obtained and used prescreened consumer reports in connection 

with offers of credit and/or insurance. 

2.	 Evaluate the entity’s policies and procedures to determine if a list of the criteria used for 

prescreened offers, including all post-application criteria, is maintained in the entity’s files 

and the criteria are applied consistently when consumers respond to the offers. 

3.	 Determine if written solicitations contain the required disclosures of the consumers’ right to 

opt-out of prescreened solicitations and comply with all requirements applicable at the time 

of the offer. 

4.	 If procedural weaknesses or other risks requiring further investigation are noted, obtain and 

review a sample of approved and denied responses to the offers to ensure that criteria were 

appropriately followed. 

Truncation of Credit and Debit Card Account Numbers – Sections 605(g); 

15 U.S.C. 1681c(g) 

1.	 Determine whether the entity’s policies and procedures ensure that electronically generated 

receipts from automated teller machines and point-of-sale terminals or other machines do not 

contain more than the last five digits of the card number and do not contain the expiration dates. 

2.	 If procedural weaknesses or other risks requiring further investigation are noted, review 

samples of actual receipts to ensure compliance. 

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Disclosure of Credit Scores by Certain Mortgage Lenders – Sections 609(g); 

15 U.S.C. 1681g(g) 

1.	 Determine if the entity uses credit scores in connection with applications for closed-end or 

open-end loans secured by one- to four-family residential real property. 

2.	 Evaluate the entity’s policies and procedures to determine whether accurate disclosures are 

provided to applicants as soon as is reasonably practicable after using credit scores. 

3.	 If procedural weaknesses or other risks requiring further investigation are noted, review a 

sample of disclosures given to home loan applicants to determine technical compliance with 

the requirements. 

Adverse Action Disclosures – Sections 615(a) and (b); 

15 U.S.C. 1681m(a) and (b) 

1.	 Determine whether the policies and procedures adequately ensure that the creditor or other 

person provides the appropriate disclosures, including the consumer’s credit score as 

appropriate, when it takes adverse action against consumers based in whole or in part on 

information contained in a consumer report or specified information received from third 

parties, including affiliates. 

2.	 Review the policies and procedures of the creditor or other person for responding to requests 

for information in response to these adverse action notices. 

3.	 If procedural weaknesses or other risks requiring further investigation are noted, review a 

sample of adverse action notices to determine if they are accurate and in technical 

compliance. 

Debt Collector Communications Concerning Identity Theft – 

Sections 615(g); 15 U.S.C. 1681m(g) 

1.	 Determine whether the entity collects debts for third parties. 

2.	 Determine whether the entity has policies and procedures to ensure that the third parties are 

notified if the entity obtains any information that may indicate that the debt in question is the 

result of fraud or identity theft. 

3.	 Determine if the entity has effective policies and procedures for providing information to 

consumers to whom the fraudulent debts relate. 

4.	 If procedural weaknesses or other risks requiring further investigation are noted, review a 

sample of instances where consumers have alleged identity theft and requested information 

related to transactions to determine if all of the appropriate information was provided to the 

consumer. 

CFPB	 Manual V.2 (October 2012) Procedures 7 
 

 

 

 

 

 

 

 

 

 

 

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Examination Procedures FCRA 

Risk-Based Pricing Notice – Section 615(h); 15 U.S.C. 1681m(h); 

12 CFR 1022, Subpart H 

1.	 Determine whether the creditor (or other person) uses consumer report information in 

consumer credit decisions. 

If yes, determine whether the creditor uses such information to provide credit on terms that 

are “materially less favorable” than the most favorable material terms available to a 

substantial proportion of its consumers. Relevant factors in determining the significance of 

differences in the cost of credit include the type of credit product, the term of the credit 

extension, and the extent of the difference. 

If “yes,” the creditor is subject to the risk-based pricing regulations. 

2.	 Determine the method the creditor uses to identify consumers who must receive a risk-based 

pricing notice and whether the method complies with the regulation (12 CFR 1022.72(b)). 

a.	 For creditors that use the direct comparison method (12 CFR 1022.72(b)), determine 

whether the creditor directly compares the material terms offered to each consumer and 

the material terms offer to other consumers for a specific type of credit product. 

b.	 For creditors that use the credit score proxy method (12 CFR 1022.72(b)(1)): 

i.	 determine whether the creditor calculates the cutoff score by considering the credit 

scores of all, or a representative sample, of consumers who have received credit for 

a specific type of credit product; 

ii.	 determine whether the creditor recalculates the cutoff score no less than every two 

years; 

iii.	 for new entrants into the credit business, for new products subject to risk-based 

pricing, or for acquired credit portfolios, determine whether the creditor 

recalculates the cutoff scores within time periods specified in the regulation; 

iv.	 for creditors using more than one credit score to set material terms, determine 

whether the creditor establishes a cutoff score according to the methods specified 

in the regulation; and 

v.	 if no credit score is available for a consumer, determine whether the creditor 

provides the consumer a risk-based pricing notice. 

c.	 For creditors that use the tiered pricing method (12 CFR 1022.72(b)(2)): 

i.	 when four or fewer pricing tiers are used, determine if the creditor sends risk-based 

pricing notices to consumers who do not qualify for the top, best-priced tier; or 

ii.	 when five or more pricing tiers are used, determine if the creditor provides risk-based 

pricing notices to consumers who do not qualify for the two top, best-priced tiers and 

CFPB	 Manual V.2 (October 2012) Procedures 8 
 

 

 

 

 

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Examination Procedures FCRA 

any other tier that, combined with the top two tiers, equal no less than the top 30 

percent and no more than the top 40 percent of the total number of tiers. 

d.	 For credit card issuers: 

i.	 Determine whether the card issuer uses the direct comparison method, the credit 

score proxy method, or the tiered pricing method to identify consumers to whom it 

must provide a risk-based pricing notice. 

ii.	 If the creditor does not use the direct comparison method, the credit score proxy 

method, or the tiered pricing method, determine whether the card issuer uses the 

following method as permitted by 12 CFR 1022.72(c) to identify consumers to 

whom it must provide a risk-based pricing notice: 

a)	 a consumer applies for a credit card either in connection with an application 

program, such as a direct-mail offer or a take-one application, or in response 

to a solicitation under 12 CFR 1026.60, and more than a single possible 

purchase annual percentage rate (APR) may apply under the program or 

solicitation; and 

b)	 based in whole or in part on a consumer report, the credit card issuer provides 

a credit card to the consumer with a purchase APR that is greater than the 

lowest purchase APR available in connection with the application or 

solicitation. 

iii.	 Determine whether the card issuer provides a risk-based pricing notice to each 

consumer that is provided a credit card with a purchase APR greater than the 

lowest purchase APR available under the program or solicitation. 

3.	 Determine whether the creditor provides a risk-based pricing notice to a consumer (12 CFR 

1022.72(a)). For creditors that provide the notice, proceed to step #4. If the creditor does not 

provide a risk-based pricing notice, proceed to step #5 to determine whether an exception 

applies (12 CFR 1022.74). 

4.	 Determine whether the risk based pricing notice contains (12 CFR 1022.73(a)(1)): 

a.	 a statement that a consumer report (or credit report) includes information about the 

consumer’s credit history and the type of information included in that history; 

b.	 a statement that the terms offered, such as the APR, have been set based on information 

from a consumer report; 

c.	 statement that the terms offered may be less favorable than the terms offered to
 

consumers with better credit histories;
 

d.	 a statement that the consumer is encouraged to verify the accuracy of the information 

contained in the consumer report and has the right to dispute any inaccurate information 

in the report; 

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e.	 the identity of each consumer reporting agency that furnished a consumer report used in 

the credit decision; 

f.	 a statement that federal law gives the consumer the right to obtain a copy of a consumer 

report from the consumer reporting agency or agencies identified in the notice without 

charge for 60 days after receipt of the notice; 

g.	 a statement informing the consumer how to obtain a consumer report from the consumer 

reporting agency or agencies identified in the notice and providing contact information 

(including a toll-free telephone number, where applicable) specified by the consumer 

reporting agency or agencies; 

h.	 a statement directing consumers to the website of the Consumer Financial Protection 

Bureau (CFPB) to obtain more information about consumer reports; and 

i.	 if a credit score of the consumer to whom a person grants, extends, or otherwise provides 

credit is used in setting the material terms of credit: 

i.	 a statement that a credit score is a number that takes into account information in a 

consumer report, that the consumer's credit score was used to set the terms of 

credit offered, and that a credit score can change over time to reflect changes in 

the consumer's credit history; 

ii.	 the credit score used by the person in making the credit decision; 

iii.	 the range of possible credit scores under the model used to generate the credit 

score; 

iv.	 all of the key factors that adversely affected the credit score, which shall not 

exceed four key factors, except that if one of the key factors is the number of 

enquiries made with respect to the consumer report, the number of key factors 

shall not exceed five; 

v.	 the date on which the credit score was created; and 

vi.	 the name of the consumer reporting agency or other person that provided the 

credit score. 

Proceed to step #10. 

5.	 If the creditor does not provide a risk-based pricing notice, determine if one of the following 

situations that qualify for a regulatory exception applies (12 CFR 1022.74(a)-(f)): 

a.	 a consumer applies for specific terms of credit, and receives them, unless those terms 

were specified by the creditor using a consumer report after the consumer applied for the 

credit and after the creditor obtained the consumer report; 

b.	 a creditor provides a notice of adverse action; 

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c.	 a creditor makes a firm offer of credit in a prescreened solicitation (even if the person 

makes other firm offers of credit to other consumers on more favorable material terms); 

d.	 a creditor generally provides a credit score disclosure to each consumer that requests a 

loan that is or will be secured by residential real property (if so, proceed to step #6); 

e.	 a creditor generally provides a credit score disclosure to each consumer that requests a loan 

that is not or will not be secured by residential real property (if so, proceed to step #7); or 

f.	 a creditor, which otherwise provides credit score disclosures to consumers that request 

loans, provides a disclosure for when no credit score is available (if so, proceed to step #8). 

6.	 For creditors that choose to provide a credit score disclosure to consumers that request a loan 

that is or will be secured by residential real property, determine whether the 12 CFR 

1022.74(d) notice generally is provided to each consumer that requests such an extension of 

credit and that each notice contains: 

a.	 a statement that a consumer report (or credit report) is a record of the consumer’s credit 

history and includes information about whether the consumer pays his or her obligations 

on time and how much the consumer owes to creditors; 

b.	 a statement that a credit score is a number that takes into account information in a 

consumer report and that a credit score can change over time to reflect changes in the 

consumer’s credit history; 

c.	 a statement that the consumer’s credit score can affect whether the consumer can obtain 

credit and what the cost of that credit will be; 

d.	 a statement that the consumer is encouraged to verify the accuracy of the information 

contained in the consumer report and has the right to dispute any inaccurate information 

in the report; 

e.	 a statement that federal law gives the consumer the right to obtain copies of his or her 

consumer reports directly from the consumer reporting agencies, including a free report 

from each of the nationwide consumer reporting agencies once during any 12-month 

period; 

f.	 contact information for the centralized source from which consumers may obtain their 

free annual consumer reports; 

g.	 a statement directing consumers to the website of the CFPB to obtain more information 

about consumer reports; 

h.	 the information required to be disclosed to the consumer in Section 609(g) of the FCRA, 

and as described in Module 3 of these examination procedures, under “Disclosure of 

Credit Scores by Certain Mortgage Lenders (FCRA), Section 609(g)”; and 

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i.	 the distribution of credit scores among consumers who are scored under the same scoring 

model that is used to generate the consumer’s credit score. The distribution must: 

i.	 use the same scale as that of the credit score provided to the consumer; and 

ii.	 be presented: 

a)	 in the form of a bar graph containing a minimum of six bars that illustrates the 

percentage of consumers with credit scores within the range of scores reflected 

in each bar; 

b)	 by other clear and readily understandable graphical means; or 

c)	 in a clear and readily understandable statement informing the consumer how his 

or her credit score compares to the scores of other consumers. 

The presentation may use a graph or statement obtained from the entity providing the 

credit score if it meets these requirements. 

7.	 For creditors that choose to provide a credit score disclosure to consumers that request a loan 

that is not or will not be secured by residential real property, determine whether the 12 CFR 

1022.74(e) notice generally is provided to each consumer that requests such an extension of 

credit and that each notice contains: 

a.	 a statement that a consumer report (or credit report) is a record of the consumer’s credit 

history and includes information about whether the consumer pays his or her obligations 

on time and how much the consumer owes to creditors; 

b.	 a statement that a credit score is a number that takes into account information in a 

consumer report and that a credit score can change over time to reflect changes in the 

consumer’s credit history; 

c.	 a statement that the consumer’s credit score can affect whether the consumer can obtain 

credit and what the cost of that credit will be; 

d.	 a statement that the consumer is encouraged to verify the accuracy of the information 

contained in the consumer report and has the right to dispute any inaccurate information 

in the report; 

e.	 a statement that federal law gives the consumer the right to obtain copies of his or her 

consumer reports directly from the consumer reporting agencies, including a free report 

from each of the nationwide consumer reporting agencies once during any 12-month 

period; 

f.	 contact information for the centralized source from which consumers may obtain their 

free annual consumer reports; 

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g.	 a statement directing consumers to the website of CFPB to obtain more information about 

consumer reports; 

h.	 the current credit score of the consumer or the most recent credit score of the consumer 

that was previously calculated by the consumer reporting agency for a purpose related to 

the extension of credit; 

i.	 the distribution of credit scores among consumers who are scored under the same scoring 

model that is used to generate the consumer’s credit score. The distribution must: 

i.	 use the same scale as that of the credit score provided to the consumer; and 

ii.	 be presented: 

a)	 in the form of a bar graph containing a minimum of six bars that illustrates the 

percentage of consumers with credit scores within the range of scores reflected in 

each bar; 

b)	 by other clear and readily understandable graphical means; or 

c)	 in a clear and readily understandable statement informing the consumer how his or 

her credit score compares to the scores of other consumers. The presentation may 

use a graph or statement obtained from the entity providing the credit score if it 

meets these requirements; 

j.	 the range of possible credit scores under the model used to generate the credit score; 

k.	 the date on which the credit score was created; and 

l.	 the name of the consumer reporting agency or other person that provided the credit score. 

8.	 For creditors that otherwise provide credit score disclosures to consumers that request loans, 

determine whether the 12 CFR 1022.74(f) notice is provided to the applicable consumers in 

situations where no credit score is available for the consumer, as required by 12 CFR 

1022.74(f). Determine whether each notice contains: 

a.	 a statement that a consumer report (or credit report) includes information about the 

consumer’s credit history and the type of information included in that history; 

b.	 a statement that a credit score is a number that takes into account information in a 

consumer report and that a credit score can change over time in response to changes in 

the consumer’s credit history; 

c.	 a statement that credit scores are important because consumers with higher credit scores 

generally obtain more favorable credit terms; 

d.	 a statement that not having a credit score can affect whether the consumer can obtain 

credit and what the cost of that credit will be; 

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e.	 a statement that a credit score about the consumer was not available from a consumer 

reporting agency, which must be identified by name, generally due to insufficient 

information regarding the consumer’s credit history; 

f.	 a statement that the consumer is encouraged to verify the accuracy of the information 

contained in the consumer report and has the right to dispute any inaccurate information 

in the consumer report; 

g.	 a statement that federal law gives the consumer the right to obtain copies of his or her 

consumer reports directly from the consumer reporting agencies, including a free 

consumer report from each of the nationwide consumer reporting agencies once during 

any 12-month period; 

h.	 the contact information for the centralized source from which consumers may obtain their 

free annual consumer reports; and 

i.	 a statement directing consumers to the website of the CFPB to obtain more information 

about consumer reports. 

9.	 For creditors that provide credit score exception notices and that obtain multiple credit scores 

in setting material terms of credit, determine whether the score(s) is disclosed in a manner 

consistent with the regulation (12 CFR 1022.74(d)(4) and .74(e)(4)): 

a.	 if a creditor only relies upon one of those credit scores in setting the material terms of 

credit granted, extended, or otherwise provided to a consumer (for example, by using the 

low, middle, high, or most recent score), determine whether the notice includes that credit 

score and the other information required by 12 CFR 1022.74(d). 

b.	 if a creditor relies upon multiple credit scores in setting the material terms of credit 

granted, extended, or otherwise provided to a consumer (for example, by computing the 

average of all the credit scores obtained), determine whether the notice includes one of 

those credit scores and the other information required by 12 CFR 1022.74(d). 

10. Regardless of whether the creditor provides risk-based pricing notices or credit score 

disclosure exception notices, if the creditor increases the consumer’s APR as the result of a 

review of a consumer’s account, determine whether the creditor provided the consumer with 

an account review risk-based pricing notice (12 CFR 1022.72(d)) if an adverse action notice 

was not already provided. 

11. Determine whether the account review risk-based pricing notice contains (12 CFR 

1022.73(a)(2)): 

a.	 a statement that a consumer report (or credit report) includes information about the 

consumer’s credit history and the type of information included in that history; 

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b.	 a statement that the consumer is encouraged to verify the accuracy of the information 

contained in the consumer report and has the right to dispute any inaccurate information 

in the report; 

c.	 the identity of each consumer reporting agency that furnished a consumer report used in 

the credit decision; 

d.	 a statement that federal law gives the consumer the right to obtain a copy of a consumer 

report from the consumer reporting agency or agencies identified in the notice without 

charge for 60 days after receipt of the notice; 

e.	 a statement that informs the consumer how to obtain a consumer report from the consumer 

reporting agency or agencies identified in the notice and provides contact information 

(including a toll-free telephone number, where applicable) specified by the consumer 

reporting agency or agencies; 

f.	 a statement that directs consumers to the website of the CFPB to obtain more information 

about consumer reports; 

g.	 a statement that the creditor has conducted a review of the account using information 

from a consumer report; 

h.	 a statement that, as a result of the review, the APR on the account has been increased 

based on information from a consumer report; and 

i.	 if a credit score of the consumer whose extension of credit is under review is used in 

increasing the APR: 

i.	 a statement that a credit score is a number that takes into account information in a 

consumer report, that the consumer's credit score was used to set the terms of 

credit offered, and that a credit score can change over time to reflect changes in 

the consumer's credit history; 

ii.	 the credit score used by the person in making the credit decision; 

iii.	 the range of possible credit scores under the model used to generate the credit 

score; 

iv.	 all of the key factors that adversely affected the credit score, which shall not 

exceed four key factors, except that if one of the key factors is the number of 

enquiries made with respect to the consumer report, the number of key factors 

shall not exceed five; 

v.	 the date on which the credit score was created; and 

vi.	 the name of the consumer reporting agency or other person that provided the 

credit score. 

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12. For all notices, determine whether the notices are clear and conspicuous and comply with the 

specific format requirements for the notices (12 CFR 1022.73(b), .74(d)(2), .74(e)(2), and 

.74(f)(3)). 

13. For all notices, determine whether the notices are provided within the required time frames 

(12 CFR 1022.73(c), .74(d)(3), .74(e)(3), and .74(f)(4)), as set out as follows: 

Risk-based pricing notices and account review risk-based pricing notices 

•	 For closed-end credit, the notice generally must be provided to the consumer after the 

decision to approve a credit request is communicated to the consumer, but before 

consummation of the transaction. 

•	 For open-end credit, the notice generally must be provided after the decision to grant 

credit is communicated to the consumer, but before the first transaction under the plan 

has been made. 

•	 For account reviews, the notice generally must be provided at the time that the decision to 

increase the APR is communicated to the consumer or no later than five days after the 

effective date of the change in the APR. 

Credit score disclosures for loans secured by residential real property 

•	 The credit score disclosure for loans secured by residential real property must be 

provided to the consumer at the same time as the disclosure required by Section 609(g) of 

the FCRA is provided to the consumer. The Section 609(g) notice must be provided as 

soon as reasonably practicable after the credit score has been obtained. In any event, the 

credit score disclosure for loans secured by residential real property must be provided at 

or before consummation in the case of closed-end credit or before the first transaction is 

made under an open-end credit plan. 

Credit score disclosures for loans not secured by residential real property 

•	 The notice generally must be provided to the consumer as soon as reasonably practicable 

after the credit score has been obtained, but in any event at or before consummation in 

the case of closed-end credit or before the first transaction is made under an open-end 

credit plan. 

Credit score exception notices when no credit score is available 

•	 The notice generally must be provided to the consumer as soon as reasonably practicable 

after the creditor has requested the credit score, but in any event not later than 

consummation of a transaction in the case of closed-end credit or when the first 

transaction is made under an open-end credit plan. 

Application to certain automobile lending transactions 

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•	 For automobile lending transactions made through an auto dealer that is unaffiliated with 

the creditor, the creditor may provide a notice in the time periods described above. 

Alternatively, the creditor may arrange to have the auto dealer provide a notice to the 

consumer on its behalf within these time periods and maintain reasonable policies and 

procedures to verify that the auto dealer provides the notice to the consumer within the 

applicable time periods. If the creditor arranges to have the auto dealer provide a credit 

score disclosure for loans not secured by residential real property, the creditor complies if 

the consumer receives a notice containing a credit score obtained by the auto dealer with 

these time periods, even if a different credit score is obtained and used by the creditor. 

•	 For credit that is granted under an open-end credit plan to a consumer in person or by 

telephone for contemporaneous purchase of goods or services, the notice may be 

provided at the earlier of: 

o	 the time of the first mailing to the consumer after the decision is made to approve the 

credit, such as in a mailing containing the account agreement or a credit card; or 

o	 within 30 days after the decision to approve the credit. 

14. For all notices, determine whether the creditor follows the rules of construction pertaining to 

the number of notices provided to the consumer(s) (12 CFR 1022.75). In a transaction 

involving two or more consumers, a creditor must provide a risk-based notice to each 

consumer. If the consumers have the same address, and the notice does not include a credit 

score(s), a person may satisfy the requirements by providing a single notice addressed to both 

consumers. However, if a notice includes a credit score(s), the person must provide a 

separate notice to each consumer whether the consumers have the same address or not. Each 

separate notice that includes a credit score(s) must contain only the credit score(s) of the 

consumer to whom the notice is provided, and not the credit score(s) of the other consumer. 

Similarly, for credit score disclosure exception notices, whether the consumers have the same 

address or not, the creditor must provide a separate notice to each consumer and each 

separate notice that includes a credit score(s) must contain only the credit score(s) of the 

consumer to whom the notices is provided. 

15. For all notices, determine whether the creditor uses the model forms in Appendix H of the 

regulation. If yes, determine that it does not modify the model form so extensively as to 

affect the substance, clarity, comprehensibility, or meaningful sequence of the forms 

(Appendix H). 

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Module 4 – Duties of Users of Consumer Reports and 

Furnishers of Consumer Report Information 

Duties of Users of Credit Reports Regarding Address Discrepancies – 

Section 605(h); 15 U.S.C. 1681c(h); 12 CFR 1022.82 

1. Determine whether a user of consumer reports has policies and procedures to recognize 

notices of address discrepancy that it receives from a nationwide consumer reporting agency 

(NCRA)3 in connection with consumer reports. 

2. Determine whether a user that receives notices of address discrepancy has policies and 

procedures to form a reasonable belief that the consumer report relates to the consumer 

whose report was requested (12 CFR 1022.82(c)). 

See examples of reasonable policies and procedures “to form a reasonable belief” in 12 CFR 

1022.82(c)(2). 

3. Determine whether a user that receives notices of address discrepancy has policies and 

procedures to furnish to the NCRA an address for the consumer that the user has reasonably 

confirmed is accurate, if the user does the following: 

a.	 forms a reasonable belief that the report relates to the consumer; 

b.	 establishes a continuing relationship with the consumer; and 

c.	 regularly, and in the ordinary course of business, furnishes information to the NCRA (12 

CFR 1022.82(d)(1)). 

See examples of reasonable confirmation methods in 12 CFR 1022.82(d)(2). 

4. Determine whether the user’s policies and procedures require it to furnish the confirmed 

address as part of the information it regularly furnishes to an NCRA during the reporting 

period when it establishes a relationship with the consumer (12 CFR 1022.82(d)(3)). 

5. If procedural weaknesses or other risks requiring further information are noted, obtain a 

sample of consumer reports requested by the user from an NCRA that included notices of 

address discrepancy and determine: 

a.	 how the user established a reasonable belief that the consumer reports related to the 

consumers whose reports were requested; and 

b.	 if a consumer relationship was established: 

3 A NCRA compiles and maintains files on consumers on a nationwide basis. 

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i.	 whether the user furnished a consumer’s address that it reasonably confirmed 

to the NCRA from which it received the notice of address discrepancy; and 

ii.	 whether it furnished the address in the reporting period during which it 

established the relationship. 

6. On the basis of examination procedures completed, form a conclusion about the ability of 

user’s policies and procedures to meet regulatory requirements for the proper handling of 

address discrepancies reported by an NCRA. 

Furnishers of Information to Consumer Reporting Agencies: 

General – Section 623(e); 15 U.S.C. 1681s-2; 12 CFR 1022, Subpart E
 

•	 Notices of Disputes from a Consumer Reporting Agency – Section 623(b); 

15 U.S.C. 1681s-2(b)
 

•	 Direct Disputes from Consumers – Section 623(a)(8); 15 U.S.C. 1681s-2(a)(8); 

12 CFR 1022.43 

1.	 Determine whether the entity furnishes consumer information to a consumer reporting 

agency about an account or other relationship with a consumer. If so, the entity is subject to 

12 CFR 1022.40-1022.43. 

2.	 Determine whether the entity has established and implemented reasonable policies and 

procedures regarding the accuracy and integrity of information furnished to a consumer 

reporting agency (12 CFR 1022.42(a)). 

3.	 Determine whether the entity considered the Interagency Guidelines in Appendix E of the 

regulation when developing its policies and procedures, and incorporated the guidelines as 

appropriate (12 CFR 1022.42(b)). 

4.	 Determine whether the entity reviews its policies and procedures periodically and updates 

them as necessary to ensure their effectiveness (12 CFR 1022.42(c)). 

5.	 If procedural weaknesses are noted or other risks requiring further investigation are noted, 

such as a high number of consumer complaints regarding the accuracy of their consumer 

report information from the entity, select a sample of reported items and the corresponding 

loan or collection file to determine that the entity: 

a.	 did not report information that it knew, or had reasonable cause to believe, was 

inaccurate. Section 623(a)(1)(A) [15 U.S.C. 1681s-2(a)(1)(A)]; 

b.	 did not report information to a consumer reporting agency if it was notified by the 

consumer that the information was inaccurate and the information was, in fact, 

inaccurate. Section 623(a)(1)(B) [15 U.S.C. 1681s-2(a)(1)(B)]; 

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c.	 provided the consumer reporting agency with corrections or additional information to 

make information complete and accurate, and thereafter did not send the consumer 

reporting agency any information that remained incomplete or inaccurate. Section 

623(a)(2) [15 U.S.C. 1681s-2(a)(2)]; 

d.	 furnished a notice to a consumer reporting agency of a dispute in situations where a 

consumer disputed the completeness or accuracy of any information the entity furnished, 

and the entity continued furnishing the information to a consumer reporting agency. 

Section 623(a)(3) [15 U.S.C. 1681s-2(a)(3)]; 

e.	 notified the consumer reporting agency of a voluntary account-closing by the consumer, 

and did so as part of the information regularly furnished for the period in which the 

account was closed. Section 623(a)(4) [15 U.S.C. 1681s-2(a)(4)]; and 

f.	 notified the consumer reporting agency of the month and year of commencement of a 

delinquency that immediately preceded the action. The notification to the consumer 

reporting agency must be made within 90 days of furnishing information about a 

delinquent account that was being placed for collection, charged-off, or subjected to any 

similar action. Section 623(a)(5) [15 U.S.C. 1681s-2(a)(5)]. 

6.	 If weakness within the entity’s procedures for investigating errors are revealed, review a 

sample of notices of discputes received from a consumer reporting agency and determine 

whether the entity did the following: 

a.	 conducted an investigation with respect to the disputed information (Section 

623(b)(1)(A) [15 U.S.C. 1681s-2(b)(1)(A)];
 

b.	 reviewed all relevant information provided by the consumer reporting agency (Section 

623(b)(1)(B) [15 U.S.C. 1681s-2(b)(1)(B)]; 

c.	 reported the results of the investigation to the consumer reporting agency (Section 

623(b)(1)(C)) [15 U.S.C. 1681s-2(b)(1)(C)]; 

d.	 reported the results of the investigation to all other nationwide consumer reporting 

agencies to which the information was furnished if the investigation found that the 

reported information was inaccurate or incomplete (Section 623(b)(1)(D)) [15 U.S.C. 

1681s-2(b)(1)(D)]; and 

e.	 modified, deleted, or blocked the reporting of information that could not be verified. 

7.	 Determine whether the entity conducts reasonable investigations of direct disputes from 

consumers, including a review of all relevant information provided by the consumer (12 CFR 

1022.43(e)(1) and (2)). 

a.	 Determine whether the entity completes the investigation and reports the results to the 

consumer within the required time frame (12 CFR 1022.43(e)(3)). 

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b.	 Determine whether the entity notifies and provides corrected information to the consumer 

reporting agencies when the results of its investigation finds that inaccurate information 

was furnished to the consumer reporting agencies (12 CFR 1022.43(e)(4)). 

c.	 When the entity finds that a dispute is frivolous or irrelevant, determine whether the 

entity: 

i.	 notifies the consumer within five days after finding the dispute frivolous or 

irrelevant (12 CFR 1022.43(f)(2)); and 

ii.	 includes in the consumer notification the reasons for the findings and the information 

necessary to investigate the disputed information (12 CFR 1022.43(f)(3)). 

Prevention of Re-Pollution of Consumer Reports – Section 623(a)(6); 

15 U.S.C. 1681s-2(a)(6) 

1.	 If the entity provides information to a consumer reporting agency, review the entity’s policies 

and procedures for ensuring that items of information blocked because of an alleged identity 

theft are not re-reported to the consumer reporting agency. 

2.	 If weaknesses are noted within the entity’s policies and procedures, review a sample of 

notices from a consumer reporting agency of allegedly fraudulent information due to identity 

theft furnished by the entity, to determine whether the entity does not re-report the item to a 

consumer reporting agency. 

3.	 If procedural weaknesses or other risks requiring further investigation are noted, verify that 

the entity has not sold or transferred a debt that resulted from an alleged identity theft. 

Negative Information Notice – Section 623(a)(7); 15 U.S.C. 1681s-2(a)(7); 

12 CFR 1022.1(b)(1)(ii) 

1.	 If the entity provides negative information to a nationwide consumer reporting agency, verify 

that the entity’s policies and procedures ensure tht the approriate notices are provided to 

consumers. 

2.	 If procedural weaknesses or other risks requiring further investigation are noted, review a 

sample of notices provided to consumers to determine compliance with the technical content 

and timing requirements. 

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Module 5 – Consumer Alerts and Identity Theft Protections 

Fraud and Active Duty Alerts – Section 605A(h); 15 U.S.C. 1681c-1(h) 

1.	 Determine whether the entity has effective policies and procedures in place to verify the 

identity of consumers in situations in which consumer reports include fraud and/or active 

duty military alerts. 

2.	 Determine if the entity has effective policies and procedures in place to contact consumers in 

situations where consumer reports include extended alerts. 

3.	 If procedural weaknesses or other risks requiring further investigation are noted, review a 

sample of transactions in which consumer reports including these types of alerts were 

obtained. Verify that the entity complied with the identity verification and/or consumer 

contact requirements. 

Information Available to Victims – Section 609(e); 15 U.S.C. 1681g(e) 

1.	 Review the entity’s policies, procedures, and/or practices to determine whether identities and 

claims of fruadulent transactions are verified and whether information is properly disclosed 

to victims of identity theft and/or appropriately authorized law enforcement agents. 

2.	 If procedural weaknesses or other risks requiring further investigation are noted, review a 

sample of these types of requests to endetermine whether the entity properly verified the 

requestor’s identity prior to disclosing the information. 

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CFPB Consumer 

Laws and Regulations FDCPA 

Fair Debt Collection Practices Act1 

The Fair Debt Collection Practices Act (FDCPA)(15 U.S.C. 1692 et seq.), which became effective 

March 20, 1978, was designed to eliminate abusive, deceptive, and unfair debt collection practices. 

In addition, the federal law (15 U.S.C. 1692 et seq.) protects reputable debt collectors from unfair 

competition and encourages consistent state action to protect consumers from abuses in debt 

collection. The Dodd-Frank Act granted rulemaking authority under the FDCPA to the Consumer 

Financial Protection Bureau (CFPB)2 and, with respect to entities under its jurisdiction, granted 

authority to the CFPB to supervise for and enforce compliance with the FDCPA.

3 

Debt That Is Covered 

The FDCPA applies only to the collection of debt incurred by a consumer primarily for personal, 

family, or household purposes. It does not apply to the collection of corporate debt or to debt 

owed for business or agricultural purposes. 

Debt Collectors That Are Covered 

Under FDCPA, a “debt collector” is defined as any person who regularly collects, or attempts to 

collect, consumer debts for another person or institution or uses some name other than its own 

when collecting its own consumer debts. That definition would include, for example, an 

institution that regularly collects debts for an unrelated institution. This includes reciprocal 

service arrangements where one institution solicits the help of another in collecting a defaulted 

debt from a customer who has moved. 

Debt Collectors That Are Not Covered 

An institution is not a debt collector under the FDCPA when it collects: 

•	 Another’s debts in isolated instances. 

•	 Its own debts it originated under its own name. 

•	 Debts it originated and then sold, but continues to service (for example, mortgage and 

student loans). 

•	 Debts that were not in default when they were obtained. 

•	 Debts that were obtained as security for a commercial credit transaction (for example, 

accounts receivable financing). 

1 These reflect FFIEC-approved procedures. 

2 In December 2011, the CFPB restated the Federal Trade Commission’s implementing regulation at 12 CFR Part 1006 (76 Fed. 

Reg. 78121)(December 16, 2011). The regulation only addresses the procedures for state application for exemption from the 

provisions of the Act. 

3 Dodd-Frank Act Secs. 1002(12)(H), 1024(b)-(c), and 1025(b)-(c); 12 U.S.C. Secs. 5481(12)(H), 5514(c), and 5515(c). 

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Laws and Regulations FDCPA 

•	 Debts incidental to a bona fide fiduciary relationship or escrow arrangement (for 

example, a debt held in the institution’s trust department or mortgage loan escrow for 

taxes and insurance). 

•	 Debts regularly for other institutions to which it is related by common ownership or 

corporate control. 

Debt collectors that are not covered also include: 

•	 Officers or employees of an institution who collect debts owed to the institution in the 

institution’s name. 

•	 Legal process servers. 

Communications Connected with Debt Collection – 

15 U.S.C. 1692b and c 

For communications with a consumer or third party with the collection of a debt, the term 

“consumer” is defined to include the borrower’s spouse, parent (if the borrower is a minor), 

guardian, executor, or administrator. 

When, Where, and With Whom Communication is Permitted 

Communicating with the Consumer 

A debt collector may not communicate with a consumer at any unusual time (generally before 8 

a.m. or after 9 p.m. in the consumer’s time zone) or at any place that is inconvenient to the 

consumer, unless the consumer or a court of competent jurisdiction has already given permission 

for such contacts. A debt collector may not contact the consumer at his or her place of 

employment if the collector has reason to believe the employer prohibits such communications. 

If the debt collector knows the consumer has retained an attorney to handle the debt, and can 

easily ascertain the attorney’s name and address, all contacts must be with that attorney, unless 

the attorney is unresponsive or agrees to allow direct communication with the consumer. 

Ceasing Communication with the Consumer 

When a consumer refuses, in writing, to pay a debt or requests that the debt collector cease further 

communication, the collector must cease all further communication, except to advise the consumer 

that: 

•	 The collection effort is being stopped. 

•	 Certain specified remedies ordinarily invoked may be pursued or, if appropriate, that a 

specific remedy will be pursued. 

Mailed notices from the consumer are official when they are received by the debt collector. 

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Laws and Regulations FDCPA 

Communicating with Third Parties 

The only third parties that a debt collector may contact when trying to collect a debt are: 

•	 The consumer. 

•	 The consumer’s attorney. 

•	 A consumer reporting agency (if permitted by local law). 

•	 The creditor. 

•	 The creditor’s attorney. 

•	 The debt collector’s attorney. 

The consumer or a court of competent jurisdiction may, however, give the debt collector specific 

permission to contact other third parties. In addition, a debt collector who is unable to locate a 

consumer may ask a third party for the consumer’s home address, telephone number and place of 

employment (location information). The debt collector must give his or her name and state that 

he or she is confirming or correcting location information about the consumer. Unless 

specifically asked, the debt collector may not name the collection firm or agency or reveal that 

the consumer owes any debt. 

No third party may be contacted more than once unless the collector believes that the 

information from the first contact was wrong or incomplete and that the third party has since 

received better information, or unless the third party specifically requests additional contact. 

Contact with any third party by postcard, letter or telegram is allowed only if the envelope or 

content of the communication does not indicate the nature of the collector’s business. 

Validation of Debts – 15 U.S.C. 1692g 

The debt collector must provide the consumer with certain basic information. If that 

information was not in the initial communication and if the consumer has not paid the debt 

five days after the initial communication, the following information must be sent to the 

consumer in written form: 

•	 The amount of the debt; 

•	 The name of the creditor to whom the debt is owed; 

•	 Notice that the consumer has 30 days to dispute the debt before it is assumed to be valid; 

•	 Notice that upon such written dispute, the debt collector will send the consumer a
 

verification of the debt or a copy of any judgment; and 

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•	 Notice that if, within the 30-day period, the consumer makes a written request for the 

name and address of the original creditor, if it is different from the current creditor, the 

debt collector will provide that information. 

If, within the 30-day period, the consumer disputes in writing any portion of the debt or requests 

the name and address of the original creditor, the collector must stop all collection efforts until 

he or she mails the consumer a copy of a judgment or verification of the debt, or the name and 

address of the original creditor, as applicable. 

Prohibited Practices 

Harassing or Abusive Practices – 15 U.S.C. 1692d 

A debt collector in collecting a debt, may not harass, oppress, or abuse any person. For example, 

a debt collector may not: 

•	 Use or threaten to use violence or other criminal means to harm the physical person, 

reputation, or property of any person. 

•	 Use obscene, profane, or other language that abuses the hearer or reader. 

•	 Publish a list of consumers who allegedly refuse to pay debts, except to a consumer 

reporting agency or to persons meeting the requirements of Section 603(f) or 604(3) of 

the Act. 

•	 Advertise a debt for sale to coerce payment. 

•	 Annoy, abuse, or harass persons by calling repeatedly their telephone number or allowing 

their telephones to ring continually. 

•	 Make telephone calls without properly identifying oneself, except as allowed to obtain 

location information. 

False or Misleading Representations – 15 U.S.C. 1692e 

A debt collector, in collecting a debt, may not use any false, deceptive, or misleading 

representation. For example, a debt collector may not: 

•	 Falsely represent or imply that he or she is vouched for, bonded by, or affiliated with the 

United States or any state, including the use of any badge, uniform, or similar 

identification. 

•	 Falsely represent the character, amount, or legal status of the debt, or of any services 

rendered, or compensation he or she may receive for collecting the debt. 

•	 Falsely represent or imply that he or she is an attorney or that communications are from 

an attorney. 

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•	 Threaten to take any action which is not legal or intended. 

•	 Falsely represent or imply that nonpayment of any debt will result in the arrest or 

imprisonment of any person or the seizure, garnishment, attachment, or sale of any 

property or wages of any person, unless such action is lawful and intended by the debt 

collector or creditor. 

•	 Falsely represent or imply that the sale, referral, or other transfer of the debt will cause 

the consumer to lose a claim or a defense to payment, or become subject to any practice 

prohibited by the FDCPA. 

•	 Falsely represent or imply that the consumer committed a crime or other conduct to 

disgrace the consumer. 

•	 Communicate, or threaten to communicate, false credit information or information which 

should be known to be false, including not identifying disputed debts as such. 

•	 Use or distribute written communications made to look like or falsely represented to be 

documents authorized, issued, or approved by any court, official, or agency of the United 

States or any state if it would give a false impression of its source, authorization, or 

approval. 

•	 Use any false representation or deceptive means to collect or attempt to collect a debt or 

to obtain information about a consumer. 

•	 Fail to disclose in the initial written communication with the consumer, and the initial 

oral communication if it precedes the initial written communication, that the debt 

collector is attempting to collect a debt and that any information obtained will be used for 

that purpose. In addition, the debt collector must disclose in subsequent communications 

that the communication is from a debt collector. (These disclosures do not apply to a 

formal pleading made in connection with a legal action.) 

•	 Falsely represent or imply that accounts have been sold to innocent purchasers. 

•	 Falsely represent or imply that documents are legal process. 

•	 Use any name other than the true name of the debt collector’s business, company, or 

organization. 

•	 Falsely represent or imply that documents are not legal process or do not require action 

by the consumer. 

•	 Falsely represent or imply that he or she operates or is employed by a consumer reporting 

agency. 

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Unfair Practices – 15 U.S.C. 1692f 

A debt collector may not use unfair or unconscionable means to collect or attempt to collect a 

debt. For example, a debt collector may not: 

•	 Collect any interest, fee, charge, or expense incidental to the principal obligation unless it 

was authorized by the original debt agreement or is otherwise permitted by law. 

•	 Accept a check or other instrument post-dated by more than five days, unless he or she 

notifies the consumer, in writing, of any intention to deposit the check or instrument. 

That notice must be made not more than ten or less than three business days before the 

date of deposit. 

•	 Solicit a post-dated check or other post-dated payment instrument to use as a threat or to 

institute criminal prosecution. 

•	 Deposit or threaten to deposit a post-dated check or other post-dated payment instrument 

before the date on the check or instrument. 

•	 Cause communication charges, such as those for collect telephone calls and telegrams, to 

be made to any person by concealing the true purpose of the communication. 

•	 Take or threaten to repossess or disable property when the creditor has no enforceable 

right to the property or does not intend to do so, or if, under law, the property cannot be 

taken, repossessed, or disabled. 

•	 Use a postcard to contact a consumer about a debt. 

•	 Use any language or symbol, other than the debt collector’s address, on any envelope 

when communicating with a consumer; a debt collector may use its business name if such 

name does not indicate it is in the debt collection business. 

Multiple Debts – 15 U.S.C. 1692h 

If a consumer owes several debts that are being collected by the same debt collector, payments 

must be applied according to the consumer’s instructions. No payment may be applied to a 

disputed debt. 

Legal Actions By Debt Collectors – 15 U.S.C. 1692i 

A debt collector may file a lawsuit to enforce a security interest in real property only in the 

judicial district in which the real property is located. Other legal actions may be brought only in 

the judicial district in which the consumer lives or in which the original contract creating the debt 

was signed. 

Furnishing Certain Deceptive Forms – 15 U.S.C. 1692j 

No one may design, compile and/or furnish any form that creates the false impression that 

someone other than the creditor (for example, a debt collector) is participating in the collection 

of a debt. 

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Civil Liability 

A debt collector who fails to comply with any provision of the FDCPA is liable for: 

•	 Any actual damages sustained as a result of that failure; 

•	 Punitive damages as allowed by the court: 

○	 in an individual action, up to $1,000; or 

○	 in a class action, up to $1,000 for each named plaintiff and an award to be divided 

among all members of the class of an amount up to $500,000 or 1 percent of the debt 

collector’s net worth, whichever is less; 

•	 Costs and a reasonable attorney’s fee in any such action. 

In determining punitive damages, the court must consider the nature, frequency and persistency 

of the violations and the extent to which they were intentional. In a class action, the court must 

also consider the resources of the debt collector and the number of persons adversely affected. 

Defenses 

A debt collector is not liable for a violation if a preponderance of the evidence shows it was not 

intentional and was the result of a bona fide error that arose despite procedures reasonably designed 

to avoid any such error. The collector is also not liable if he or she, in good faith, relied on an 

advisory opinion of the CFPB or on prior advisory opinions of the Federal Trade Commission, even 

if the ruling is later amended, rescinded, or determined to be invalid for any reason. 

Jurisdiction and Statute of Limitations 

Action against debt collectors for violations of the FDCPA may be brought in any appropriate 

U.S. district court or other court of competent jurisdiction. The consumer has one year from the 

date on which the violation occurred to start such as action. 

Relation to State Law 

The FDCPA preempts state law only to the extent that a state law is inconsistent with the 

FDCPA. A state law that is more protective of the consumer is not considered inconsistent with 

the FDCPA. 

Exemption for State Regulation 

The CFPB may exempt certain classes of debt collection practices from the requirements of the 

FDCPA if it has determined that state laws impose substantially similar requirements and that 

there is adequate provision for enforcement. 

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REFERENCES 

Laws 

15 U.S.C. 1692 et seq. Fair Debt Collection Practices Act 

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CFPB 

Examination Procedures FDCPA 

Fair Debt Collection 

Practices Act1 

Examination Objectives 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

•	 To determine the adequacy of the institution's internal procedures and controls to assure consistent compliance with FDCPA. 

•	 To determine if the institution complies with the requirements of the FDCPA in collecting or 

attempting to collect third-party consumer debts. 

Examination Procedures 

The following procedures are to be completed through interviews with personnel knowledgeable 

about and directly engaged in the institution's collection activities and through reviews of any 

written collection procedures, reciprocal collection agreements, collection letters, dunning notices, envelopes, scripts used by collection personnel, validation notices, individual collection files, 

complaint files, and other relevant records. 

1.	 Determine if the institution is a debt collector under FDCPA. 

[Click&type] 

2.	 Determine if the institution has established internal procedures and controls to 

ensure compliance with the FDCPA. 

[Click&type] 

1 These reflect FFIEC-approved procedures. 

CFPB	 Manual V.2 (October 2012) Procedures 1 
 

 

 

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3.	 If the institution has acted or is acting as a debt collector under the FDCPA, 

determine if the institution has: 

a.	 Communicated with the consumer or third parties in any prohibited manner 

(15 U.S.C. 1692b and c); 

b.	 Furnished the written validation notice within the required time period and 

otherwise complied with applicable validation requirements (15 U.S.C. 

1692g); 

c.	 Used any harassing, abusive, unfair, or deceptive collection practice
 

prohibited by FDCPA (15 U.S.C. 1692d, 1692e, 1692f, and 1692j);
 

d.	 Collected any amount not expressly authorized by the debt instrument
 

creating the debt or by state law (15 U.S.C. 1692f(1));
 

e.	 Applied all payments received as instructed and, where no instruction was 

given, applied payments only to undisputed debts (15 U.S.C. 1692h); 

f.	 Filed suit in an authorized forum if the institution sued to collect the debt (15 

U.S.C. 1692i). 

[Click&type] 

Examiner’s Summary, Recommendations, and Comments 

[Click&type] 

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Electronic Fund Transfer Act1 

The Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693 et seq.) of 1978 is intended to protect 

individual consumers engaging in electronic fund transfers (EFTs). EFT services include 

transfers through automated teller machines, point-of-sale terminals, automated clearinghouse 

systems, telephone bill-payment plans in which periodic or recurring transfers are contemplated, 

and remote banking programs. The EFTA is implemented through Regulation E, which includes 

an official staff commentary. 

In 2009, the Federal Reserve Board amended Regulation E to prohibit institutions from charging 

overdraft fees for ATM and point of sale (POS) transactions unless the consumer affirmatively 

consents (74 Fed. Reg. 59033 (Nov. 17, 2009) and 75 Fed. Reg. 31665 (June 4, 2010)). The 

Board also amended Regulation E to restrict fees and expiration dates on gift cards, and to 

require that gift card terms be clearly stated. (75 Fed. Reg. 16580 (April 1, 2010)).2 

The Dodd-Frank Act transferred rule-making authority under the EFTA from the Federal 

Reserve Board to the Consumer Financial Protection Bureau (CFPB) and, with respect to entities 

under its jurisdiction, granted authority to the CFPB to supervise and enforce compliance with 

EFTA and its implementing regulations.3 In December 2011, the CFPB restated the Federal 

Reserve’s implementing regulation at 12 CFR Part 1005 (76 Fed. Reg. 81020) (December 27, 

2011). In February 2012, the CFPB amended Regulation E to provide protections, including 

disclosures and error resolution and cancellation rights, to consumers who send remittance 

transfers to other consumers or businesses in a foreign country (77 Fed. Reg. 6194 (Feb. 7, 

2012)).4 These amendments implement statutory requirements of the Dodd-Frank Act. 

1 These reflect FFIEC-approved procedures. 

2 The Board also implemented a legislative extension of time for complying with the gift card disclosure requirements until 

January 31, 2011. 75 Fed. Reg. 50683 (August 17, 2010). 

3 Dodd-Frank Act Secs. 1002(12)(C), 1024(b)-(c), and 1025(b)-(c); 12 U.S.C. Secs. 5481(12)(C), 5514(c), and 5515(c). Section 

1029 of the Dodd-Frank Act generally excludes from this transfer of authority, subject to certain exceptions, any rulemaking 

authority over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and 

servicing of motor vehicles, or both. The transfer of authority also did not include section 920 of EFTA, which concerns debit 

card interchange fees charged to merchants. Section 920 of EFTA is implemented by Board regulations at 12 CFR Part 235. 

Section 920 is not addressed here or in the accompanying examination procedures and checklist. 

4 The CFPB is working with the prudential regulators to update the examination procedures to reflect these rules, which take 

effect February 7, 2013, in a uniform manner as appropriate. 

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To help clarify the requirements of Regulation E, the following background information does not 

strictly follow the order of the regulatory text, but rather it is presented in the following order: 

I. Scope and Key Definitions (12 CFR 1005.2, 1005.3, 1005.17, 1005.20) 

II. Disclosures (12 CFR 1005.4, 1005.7, 1005.8, 1005.16, 1005.17, 1005.20) 

III. Electronic Transaction Overdraft Service Opt In (12 CFR 1005.17) 

IV. Issuance of Access Devices (12 CFR 1005.5, 1005.18) 

V. Consumer Liability and Error Resolution (12 CFR 1005.6, 1005.11) 

VI. Receipts and Periodic Statements (12 CFR 1005.9, 1005.18) 

VII. Gift Cards (12 CFR 1005.20) 

VIII. Other Requirements (12 CFR 1005.10, 1005.14, 1005.15) 

IX. Relation to Other Laws (12 CFR 1005.12) 

X. Administrative Enforcement and Record Retention (12 CFR 1005.13) 

XI. Miscellaneous (EFTA provisions not reflected in Regulation E) 

For ease of use by the examiner, however, the examination procedures and checklist follow the 

order of the regulation. 

I. Scope 

Key Definitions 

Access device is a card, code, or other means of access to a consumer’s account or a combination 

of these used by the consumer to initiate EFTs. Access devices include debit cards, personal 

identification numbers (PINs), telephone transfer and telephone bill payment codes, and other 

means to initiate an EFT to or from a consumer account (12 CFR 1005.2(a)(1) and 12 CFR Part 

1005, Supp.1, Comment 1005.2(a)-1). 

Access devices do not include either of the following: 

•	 Magnetic tape or other devices used internally by a financial institution to initiate electronic 

transfers. 

•	 A check or draft used to capture the MICR (Magnetic Ink Character Recognition) encoding 

or routing, account, and serial numbers to initiate a one-time ACH debit (Comments 

1005.2(a)-1 and -2). 

Accepted access device is an access device that a consumer: 

•	 Requests and receives, signs, or uses (or authorizes another to use) to transfer money 

between accounts or to obtain money, property, or services. 

•	 Requests to be validated even if it was issued on an unsolicited basis. 

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•	 Receives as a renewal or substitute for an accepted access device from either the financial 

institution that initially issued the device or a successor (12 CFR 1005.2(a)(2)). 

Account includes the following: 

•	 Checking, savings, or other consumer asset account held by a financial institution (directly or 

indirectly), including certain club accounts, established primarily for personal, family, or 

household purposes. 

•	 Payroll card account, established through an employer (directly or indirectly), to which 

EFTs of the consumer’s wages, salary, or other employee compensation (such as 

commissions), are made on a recurring basis. The payroll card account can be operated or 

managed by the employer, a third-party processor, a depository institution, or any other 

person. All transactions involving the transfer of funds to or from a payroll card account are 

covered by the regulation (12 CFR 1005.2(b)(2) and Comment 1005.2(b)-2). 

An account does not include: 

•	 An account held by a financial institution under a bona fide trust agreement. 

•	 An occasional or incidental credit balance in a credit plan. 

•	 Profit-sharing and pension accounts established under a bona fide trust agreement. 

•	 Escrow accounts such as for payments of real estate taxes, insurance premiums, or 

completion of repairs. 

•	 Accounts for purchasing U.S. savings bonds (12 CFR 1005.2(b)(3) and Comment1005.2(b)-3). 

A payroll card account does not include a card used: 

•	 Solely to disburse incentive-based payments (other than commissions when they represent 

the primary means through which a consumer is paid) that are unlikely to be a consumer’s 

primary source of salary or other compensation; 

•	 Solely to make disbursements unrelated to compensation, such as petty cash reimbursements 

or travel per diem payments; or 

•	 In isolated instances to which an employer typically does not make recurring payments 

(Comment 1005.2(b)-2). 

Activity means any action that results in an increase or decrease of the funds underlying a 

certificate or card, other than the imposition of a fee, or an adjustment due to an error or a 

reversal of a prior transaction. (12 CFR 1005.20(a)(7)). 

ATM operator is any person that operates an ATM at which a consumer initiates an EFT or a 

balance inquiry and that does not hold the account to or from which the transfer is made or about 

which the inquiry is made (12 CFR 1005.16(a)). 

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Dormancy fee and inactivity fee mean a fee for non-use of or inactivity on a gift certificate, store 

gift card, or general-use prepaid card. (12 CFR 1005.20(a)(5)). 

Electronic check conversion (ECK) transactions are transactions where a check, draft, or similar 

paper instrument is used as a source of information to initiate a one-time electronic fund transfer 

from a consumer’s account. The consumer must authorize the transfer. (12 CFR 1005.3(b)(2)) 

Electronic fund transfer (EFT) is a transfer of funds initiated through an electronic terminal, 

telephone, computer (including on-line banking) or magnetic tape for the purpose of ordering, 

instructing, or authorizing a financial institution to debit or credit a consumer’s account. EFTs 

include, but are not limited to, point-of-sale (POS) transfers; automated teller machine (ATM) 

transfers; direct deposits or withdrawals of funds; transfers initiated by telephone; and transfers 

resulting from debit card transactions, whether or not initiated through an electronic terminal (12 

CFR 1005.3(b)). 

Electronic terminal is an electronic device, other than a telephone call by a consumer, through 

which a consumer may initiate an EFT. The term includes, but is not limited to, point-of-sale 

terminals, automated teller machines, and cash-dispensing machines (12 CFR 1005.2(h)). 

Exclusions from gift card definition. The following cards, codes, or other devices are excluded 

and not subject to the substantive restrictions on imposing dormancy, inactivity, or service fees, 

or on expiration dates if they are: (12 CFR 1005.20(b)) 

•	 Useable solely for telephone services; 

•	 Reloadable and not marketed or labeled as a gift card or gift certificate. For purposes of this 

exception, the term “reloadable” includes a temporary non-reloadable card issued solely in 

connection with a reloadable card, code, or other device; 

•	 A loyalty, award, or promotional gift card (except that these must disclose on the card or 

device itself, information such as the date the funds expire, fee information and a toll-free 

number) (12 CFR 1005.20(a)(4) and (c)(4)); 

•	 Not marketed to the general public; 

•	 Issued in paper form only; or 

•	 Redeemable solely for admission to events or venues at a particular location or group of 

affiliated locations, or to obtain goods or services in conjunction with admission to such 

events or venues, at the event or venue or at specific locations affiliated with and in 

geographic proximity to the event or venue. 

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General-use prepaid card is a card, code, or other device: 

•	 Issued on a prepaid basis primarily for personal, family, or household purposes to a consumer 

in a specified amount, whether or not that amount may be increased or reloaded, in exchange 

for payment; and 

•	 That is redeemable upon presentation at multiple, unaffiliated merchants for goods or 

services, or that may be usable at automated teller machines. (12 CFR 1005.20(a)(3)). 

See “Exclusions from gift card definition.” 

Gift certificate is a card, code, or other device issued on a prepaid basis primarily for personal, 

family, or household purposes to a consumer in a specified amount that may not be increased or 

reloaded in exchange for payment and redeemable upon presentation at a single merchant or an 

affiliated group of merchants for goods or services. (12 CFR 1005.20(a)(1)). See “Exclusions 

from gift card definition.” 

Loyalty, award, or promotional gift card is a card, code, or other device (1) issued on a prepaid 

basis primarily for personal, family, or household purposes to a consumer in connection with a 

loyalty, award, or promotional program; (2) that is redeemable upon presentation at one or more 

merchants for goods or services, or usable at automated teller machines; and (3) that sets forth 

certain disclosures, including a statement indicating that the card, code, or other device is issued 

for loyalty, award, or promotional purposes. (12 CFR 1005.20(a)(4)) See “Exclusions from gift 

card definition.” 

Overdraft Services. A financial institution provides an overdraft service if it assesses a fee or 

charge for paying a transaction (including a check or other item) when the consumer has 

insufficient or unavailable funds in the account to pay the transaction. However, an overdraft 

service does not include payments made from the following: 

•	 A line of credit subject to Regulation Z, such as a credit card account, a home equity line of 

credit, or an overdraft line of credit; 

•	 Funds transferred from another account held individually or jointly by the consumer; or 

•	 A line of credit or other transaction from a securities or commodities account held by a 

broker-dealer registered with the Securities Exchange Commission (SEC) or the Commodity 

Futures Trading Commission (CFTC). (12 CFR 1005.17(a)) 

Preauthorized electronic fund transfer is an EFT authorized in advance to recur at substantially 

regular intervals (12 CFR 1005.2(k)). 

Service fee means a periodic fee for holding or use of a gift certificate, store gift card, or generaluse prepaid card. A periodic fee includes any fee that may be imposed on a gift certificate, store 

gift card, or general-use prepaid card from time to time for holding or using the certificate or 

card. (12 CFR 1005.20(a)(6)). For example, a service fee may include a monthly maintenance 

fee, a transaction fee, an ATM fee, a reload fee, a foreign currency transaction fee, or a balance 

inquiry fee, whether or not the fee is waived for a certain period of time or is only imposed after 

CFPB	 Manual V.2 (October 2012) EFTA 5 
 

 

 

 

 

 

 

 

 

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a certain period of time. However, a service fee does not include a one-time fee or a fee that is 

unlikely to be imposed more than once while the underlying funds are still valid, such as an 

initial issuance fee, a cash-out fee, a supplemental card fee, or a lost or stolen certificate or card 

replacement fee. (Comment 1005.20(a)(6)-1) 

Store gift card is a card, code, or other device issued on a prepaid basis primarily for personal, 

family, or household purposes to a consumer in a specified amount, whether or not that amount 

may be increased or reloaded, in exchange for payment, and redeemable upon presentation at a 

single merchant or an affiliated group of merchants for goods or services. (12 CFR 

1005.20(a)(2)). See “Exclusions from gift card definition.” 

Unauthorized electronic fund transfer is an EFT from a consumer’s account initiated by a person 

other than the consumer without authority to initiate the transfer and from which the consumer 

receives no benefit. This does not include an EFT initiated in any of the following ways: 

•	 By a person who was furnished the access device to the consumer’s account by the 

consumer, unless the consumer has notified the financial institution that transfers by that 

person are no longer authorized; 

•	 With fraudulent intent by the consumer or any person acting in concert with the consumer; or 

•	 By the financial institution or its employee (12 CFR 1005.2(m)). 

Coverage – 12 CFR 1005.3 

The requirements of Regulation E apply only to accounts for which there is an agreement for 

EFT services to or from the account between (i) the consumer and the financial institution or (ii) 

the consumer and a third party, when the account-holding financial institution has received 

notice of the agreement and the fund transfers have begun (Comment 1005.3(a)-1). 

Regulation E applies to all persons, including offices of foreign financial institutions in the 

United States, that offer EFT services to residents of any state5 and covers any account located in 

the United States through which EFTs are offered to a resident of a state, no matter where a 

particular transfer occurs or where the financial institution is chartered (Comment 1005.3(a)-3). 

Regulation E does not apply to a foreign branch of a U.S. financial institution unless the EFT 

services are offered in connection with an account in a state, as defined in 12 CFR 1005.2(l) 

(Comment 1005.3(a)-3). 

5 State means any state, territory, or possession of the United States; the District of Columbia; the Commonwealth of Puerto 

Rico; or any of their political subdivisions. 12 CFR 1005.2(l). 

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Exclusions from Coverage. Section 1005.3(c) of Regulation E describes transfers that are 

not EFTs and are therefore not covered by the EFTA and Regulation E: 

•	 Transfers of funds originated by check, draft, or similar paper instrument; 

•	 Check guarantee or authorization services that do not directly result in a debit or credit to a 

consumer’s account; 

•	 Any transfer of funds for a consumer within a system that is used primarily to transfer funds 

between financial institutions or businesses, e.g., Fedwire or other similar network; 

•	 Any transfer of funds which has as its primary purpose the purchase or sale of securities or 

commodities regulated by the SEC or the CFTC, purchased or sold through a broker-dealer 

regulated by the SEC or through a futures commission merchant regulated by the CFTC, or 

held in book-entry form by a Federal Reserve Bank or federal agency; 

•	 Intra-institutional automatic transfers under an agreement between a consumer and a 

financial institution; 

•	 Transfers initiated by telephone between a consumer and a financial institution provided the 

transfer is not a function of a written plan contemplating periodic or recurring transfers. A 

written statement available to the public, such as a brochure, that describes a service allowing 

a consumer to initiate transfers by telephone constitutes a written plan; or 

•	 Preauthorized transfers to or from accounts at financial institutions with assets of less than 

$100 million on the preceding December 31. Such preauthorized transfers, however, remain 

subject to the compulsory use prohibition under Section 913 of the EFTA and 12 CFR 

1005.10(e), as well as the civil and criminal liability provisions of Sections 915 and 916 of 

the EFTA. A small financial institution that provides EFT services besides preauthorized 

transfers must comply with the Regulation E requirements for those other services (Comment 

1005.3(c)(7)-1). For example, a small financial institution that offers ATM services must 

comply with Regulation E in regard to the issuance of debit cards, terminal receipts, periodic 

statements, and other requirements. 

Electronic Check Conversion (ECK) and Collection of Returned-Item Fees. 

Regulation E covers electronic check conversion (ECK) transactions. In an ECK transaction, a 

consumer provides a check to a payee and information from the check is used to initiate a onetime EFT from the consumer’s account. Although transfers originated by checks are not covered 

by Regulation E, an ECK is treated as an EFT and not a payment originated by check. Payees 

must obtain the consumer’s authorization for each ECK transaction. A consumer authorizes a 

one-time EFT for an ECK transaction when the consumer receives notice that the transaction will 

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or may be processed as an EFT and goes forward with the underlying transaction6 (12 CFR 

1005.3(b)(2)(i) and (ii) and Comment 1005.3(b)(2)-3). 

If a payee re-presents electronically a check that has been returned unpaid, the transaction is not 

an EFT, and Regulation E does not apply because the transaction originated by check (Comment 

1005.3(c)(1)-1)). 

However, Regulation E applies to a fee collected electronically from a consumer’s account for a 

check or EFT returned unpaid. A consumer authorizes a one-time EFT from the consumer’s 

account to pay the fee for the returned item or transfer if the person collecting the fee provides 

notice to the consumer stating the amount of the fee and that the person may electronically 

collect the fee, and the consumer goes forward with the underlying transaction7 (12 CFR 

1005.3(b)(3))). These authorization requirements do not apply to fees imposed by the accountholding financial institution for returning the check or EFT or paying the amount of an overdraft 

(Comment 1005.3(b)(3)-1)). 

II. Disclosures 

Disclosures Generally – 12 CFR 1005.4 

Required disclosures must be clear and readily understandable, in writing, and in a form the 

consumer may keep. The required disclosures may be provided to the consumer in electronic 

form, if the consumer affirmatively consents after receiving a notice that complies with the ESign Act (12 CFR 1005.4(a)(1)). 

Disclosures may be made in a language other than English, if the disclosures are made available 

in English upon the consumer’s request (12 CFR 1005.4(a)(2)). 

A financial institution has the option of disclosing additional information and combining 

disclosures required by other laws (for example, Truth in Lending disclosures) with Regulation E 

disclosures (12 CFR 1005.4(b)). 

A financial institution may combine required disclosures into a single statement if a consumer 

holds two or more accounts at the financial institution. Thus, a single periodic statement or error 

resolution notice is sufficient for multiple accounts. In addition, it is only necessary for a financial 

institution to provide one set of disclosures for a joint account (12 CFR 1005.4(c)(l) and (2)). 

Two or more financial institutions that jointly provide EFT services may contract among 

themselves to meet the requirements that the regulation imposes on any or all of them. When 

making initial disclosures (see 12 CFR 1005.7) and disclosures of a change in terms or an error 

6 For POS transactions, the notice must be posted in a prominent and conspicuous location and a copy of the notice must be 

provided to the consumer at the time of the transaction (12 CFR 1005.3(b)(2)(i) and (ii) and Comment 1005.3(b)(2)-3). 

7 For POS transactions, the notice must be posted in a prominent and conspicuous location and a copy of the notice must either 

be provided to the consumer at the time of the transaction or mailed to the consumer’s address as soon as reasonably practicable 

after the person initiates the EFT to collect the fee (12 CFR 1005.3(b)(3)). 

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resolution notice (see 12 CFR 1005.8), a financial institution in a shared system only needs to 

make disclosures that are within its knowledge and apply to its relationship with the consumer 

for whom it holds an account (12 CFR 1005.4(d)). 

Initial Disclosure of Terms and Conditions – 12 CFR 1005.7 

Financial institutions must provide initial disclosures of the terms and conditions of EFT services 

before the first EFT is made or at the time the consumer contracts for an EFT service. They must 

give a summary of various consumer rights under the regulation, including the consumer’s 

liability for unauthorized EFTs, the types of EFTs the consumer may make, limits on the 

frequency or dollar amount, fees charged by the financial institution, and the error-resolution 

procedures. Appendix A to 12 CFR Part 1005 provides model clauses that financial institutions 

may use to provide the disclosures. 

Timing of Disclosures. Financial institutions must make the required disclosures at the time 

a consumer contracts for an electronic fund transfer service or before the first electronic fund 

transfer is made involving the consumer’s account (12 CFR 1005.7(a)). 

Disclosures given by a financial institution earlier than the regulation requires (for example, 

when the consumer opens a checking account) need not be repeated when the consumer later 

authorizes an electronic check conversion or agrees with a third party to initiate preauthorized 

transfers to or from the consumer’s account, unless the terms and conditions differ from the 

previously disclosed term. This interpretation also applies to any notice provided about one-time 

EFTs from a consumer’s account initiated using information from the consumer’s check. On the 

other hand, if an agreement for EFT services to be provided by an account-holding financial 

institution is directly between the consumer and the account-holding financial institution, 

disclosures must be given in close proximity to the event requiring disclosure, for example, when 

the consumer contracts for a new service (Comment 1005.7(a)-1). 

Where a consumer authorizes a third party to debit or credit the consumer’s account, an accountholding financial institution that has not received advance notice of the transfer or transfers must 

provide the required disclosures as soon as reasonably possible after the first debit or credit is made, 

unless the financial institution has previously given the disclosures (Comment 1005.7(a)-2). 

If a consumer opens a new account permitting EFTs at a financial institution, and the consumer 

has already received Regulation E disclosures for another account at that financial institution, the 

financial institution need only disclose terms and conditions that differ from those previously 

given (Comment 1005.7(a)-3). 

If a financial institution joins an interchange or shared network system (which provides access to 

terminals operated by other financial institutions), disclosures are required for additional EFT 

services not previously available to consumers if the terms and conditions differ from those 

previously disclosed (Comment 1005.7(a)-4). 

A financial institution may provide disclosures covering all EFT services that it offers, even if 

some consumers have not arranged to use all services (Comment 1005.7(a)-5). 

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Addition of EFT Services. A financial institution must make disclosures for any new EFT 

service added to a consumer’s account if the terms and conditions are different from those 

described in the initial disclosures. ECK transactions may be a new type of transfer requiring 

new disclosures (See Appendix A-2 and Comment 1005.7(c)-1). 

Content of Disclosures. 12 CFR 1005.7(b) requires a financial institution to provide the 

following disclosures as they apply: 

•	 Liability of consumers for unauthorized electronic fund transfers. The financial 

institution must include a summary of the consumer’s liability (under 12 CFR 1005.6, state 

law, or other applicable law or agreement) for unauthorized transfers (12 CFR 1005.7(b)(1)). 

A financial institution does not need to provide the liability disclosures if it imposes no 

liability. If it later decides to impose liability, it must first provide the disclosures (Comment 

1005.7(b)(1)-1). The financial institution can choose to include advice on promptly reporting 

unauthorized transfers or the loss or theft of the access device (Comment 1005.7(b)(1)-3). 

•	 Telephone number and address. A financial institution must provide a specific telephone 

number and address, on or with the disclosure statement, for reporting a lost or stolen access 

device or a possible unauthorized transfer (Comment 1005.7(b)(2)-2). Except for the 

telephone number and address for reporting a lost or stolen access device or a possible 

unauthorized transfer, the disclosure may insert a reference to a telephone number that is 

readily available to the consumer, such as “Call your branch office. The number is shown on 

your periodic statement.” (Comment1005.7(b)(2)-2). 

•	 Business days. The financial institution’s business days (12 CFR 1005.7(b)(3)). 

•	 Types of transfers; limitations on frequency or dollar amount. Limitations on the 

frequency and dollar amount of transfers generally must be disclosed in detail (12 CFR 

1005.7(b)(4)). If the confidentiality of certain details is essential to the security of an account 

or system, these details may be withheld (but the fact that limitations exist must still be 

disclosed).8 A limitation on account activity that restricts the consumer’s ability to make 

EFTs must be disclosed even if the restriction also applies to transfers made by nonelectronic means.9

 Financial institutions are not required to list preauthorized transfers 

among the types of transfers that a consumer can make (Comment 1005.7(b)(4)-3). Financial 

institutions must disclose the fact that one-time EFTs initiated using information from a 

consumer’s check are among the types of transfers that a consumer can make (See Appendix 

A-2 and Comment 1005.7(b)(4)-4). 

8 For example, if a financial institution limits cash ATM withdrawals to $100 per day, the financial institution may disclose that 

daily withdrawal limitations apply and need not disclose that the limitations may not always be in force (such as during periods 

when its ATMs are off-line) (Comment 1005.7(b)(4)-1). 

9 For example, Regulation D (12 CFR 204) restricts the number of payments to third parties that may be made from a money 

market deposit account; a financial institution that does not execute fund transfers in excess of those limits must disclose the 

restriction as a limitation on the frequency of EFTs (Comment 1005.7(b)(4)-2). 

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• Fees. A financial institution must disclose all fees for EFTs or for the right to make EFTs (12 

CFR 1005.7(b)(5)). Other fees, for example, minimum-balance fees, stop-payment fees, 

account overdrafts, or ATM inquiry fees, may, but need not, be disclosed under Regulation E 

(see Regulation DD, 12 CFR Part 1030) (Comment 1005.7(b)(5)-1). A per-item fee for EFTs 

must be disclosed even if the same fee is imposed on non-electronic transfers. If a per-item 

fee is imposed only under certain conditions, such as when the transactions in the cycle 

exceed a certain number, those conditions must be disclosed. Itemization of the various fees 

may be on the disclosure statement or on an accompanying document referenced in the 

statement (Comment 1005.7(b)(5)-2). 

A financial institution must disclose that networks used to complete the EFT as well as an 

ATM operator, may charge a fee for an EFT or for balance inquiries (12 CFR 1005.7(b)(11)). 

• Documentation. A summary of the consumer’s right to receipts and periodic statements, as 

provided in 12 CFR 1005.9, and notices regarding preauthorized transfers as provided in 12 

CFR 1005.10(a) and 1005.10(d) (12 CFR 1005.7(b)(6)). 

• Stop payment. A summary of the consumer’s right to stop payment of a preauthorized 

electronic fund transfer and the procedure for placing a stop-payment order, as provided in 

12 CFR 1005.10(c) (12 CFR 1005.7(b)(7)). 

• Liability of institution. A summary of the financial institution’s liability to the consumer 

under Section 910 of the EFTA for failure to make or to stop certain transfers (12 CFR 

1005.7(b)(8)). 

• Confidentiality. The circumstances under which, in the ordinary course of business, the 

financial institution may provide information concerning the consumer’s account to third 

parties (12 CFR 1005.7(b)(9)). A financial institution must describe the circumstances under 

which any information relating to an account to or from which EFTs are permitted will be 

made available to third parties, not just information concerning those EFTs. Third parties 

include other subsidiaries of the same holding company (Comment 1005.7(b)(9)-1). 

• Error Resolution. The error-resolution notice must be substantially similar to Model Form 

A-3 in Appendix A of Part 1005. A financial institution may use different wording so long as 

the substance of the notice remains the same, may delete inapplicable provisions (for 

example, the requirement for written confirmation of an oral notification), and may substitute 

substantive state law requirements affording greater consumer protection than Regulation E 

(Comment 1005.7(b)(10)-1). To take advantage of the longer time periods for resolving 

errors under 12 CFR 1005.11(c)(3) (for new accounts as defined in Regulation CC, transfers 

initiated outside the United States, or transfers resulting from POS debit card transactions), a 

financial institution must have disclosed these longer time periods. Similarly, a financial 

institution relying on the exception from provisional crediting in 12 CFR 1005.11(c)(2) for 

accounts relating to extensions of credit by securities brokers and dealers (Regulation T, 12 

CFR Part 220) must disclose accordingly (Comment 1005.7(b)(10)-2). 

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Change in Terms; Error Resolution Notice – 12 CFR 1005.8 

If a financial institution contemplates a change in terms, it must mail or deliver a written or 

electronic notice to the consumer at least 21 days before the effective date of any change in a 

term or condition required to be disclosed under 12 CFR 1005.7(b) if the change would result in 

any of the following: 

• Increased fees or charges; 

• Increased liability for the consumer; 

• Fewer types of available EFTs; or 

• Stricter limitations on the frequency or dollar amounts of transfers. (12 CFR 1005.8(a)(1)). 

If an immediate change in terms or conditions is necessary to maintain or restore the security of an 

EFT system or account, the financial institution does not need to give prior notice. However, if the 

change is to be permanent, the financial institution must provide notice in writing of the change to 

the consumer on or with the next regularly scheduled periodic statement or within 30 days, unless 

disclosures would jeopardize the security of the system or account. (12 CFR 1005.8(a)(2)). 

For accounts to or from which EFTs can be made, the financial institution must mail, deliver, or 

provide electronically to the consumer at least once each calendar year, the error resolution notice 

in 12 CFR 1005 Appendix A–Model Form A-3, or one substantially similar. Alternatively, the 

financial institution may include an abbreviated error resolution notice substantially similar to the 

notice set out in Appendix A (Model Form A-3) with each periodic statement (12 CFR 1005.8(b)). 

Disclosures at Automated Teller Machines – 

12 CFR 1005.16 

An ATM operator that charges a fee is required to post notice that a fee will be imposed and 

disclose the amount of the fee. (12 CFR 1005.16(b)). Notices must be posted both (1) in a 

prominent and conspicuous location on or at the machine, and (2) on the screen or on a paper 

notice before the consumer is committed to paying a fee (12 CFR 1005.16(c)(1) and (2)). The fee 

may be imposed by the ATM operator only if: (1) the consumer is provided the required notices, 

and (2) the consumer elects to continue the transaction (12 CFR 1005.16(d)). 

The “prominent and conspicuous notice” standard applies to notice posted on or at the ATM. The 

“clear and readily understandable standard” applies to the content of the notice. The requirement 

that the notice be in a retainable format only applies to printed notices (not those on the ATM 

screen) (12 CFR 1005.16(c)). 

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These fee disclosures are not required where a network owner is not charging a fee directly to the 

consumer (i.e., some network owners charge an interchange fee to financial institutions whose 

customers use the network) (Comment 1005.7(b)(5)-3). If the network practices change such that 

the network charges the consumer directly, these fee disclosure requirements would apply to the 

network. (12 CFR 1005.7(c)). 

Overdraft Service Disclosures – 12 CFR 1005.17 

Disclosure requirements for overdraft services are addressed in Section III of this document. 

Gift Card Disclosures – 12 CFR 1005.20(c) 

Disclosures must be clear and conspicuous and generally in a written or electronic form (except 

for certain pre-purchase disclosures, which may be given orally) that the consumer may retain. 

The fees and terms and conditions of expiration that are required to be disclosed prior to 

purchase may not be changed after purchase. 

A number of disclosures must be made on the actual card. Making such disclosures in an 

accompanying terms and conditions document, on packaging surrounding a certificate or card, or 

on a sticker or other label affixed to the certificate or card does not constitute a disclosure on the 

certificate or card. Those disclosures include the following: 

•	 The existence, amount, and frequency of any dormancy, inactivity, or service fee; 

•	 The expiration date for the underlying funds (or the fact that the funds do not expire); 

•	 A toll-free telephone number and (if any) a website that the consumer may use to obtain a 

replacement certificate or card if the certificate or card expires while underlying funds are 

still available; 

•	 A statement that the certificate or card expires, but the underlying funds do not expire or 

expire later than the certificate or card, as well as a statement that the consumer may contact 

the issuer for a replacement card;10 and 

•	 A toll-free telephone number and (if any) a website that the consumer may use to obtain 

information about fees. 

Additional Disclosure Requirements Regarding Fees. In addition to the disclosure 

requirements related to dormancy, inactivity, or service fees, all other fees must be disclosed as 

well. These disclosures must be provided on or with the certificate or card and disclosed prior to 

purchase. The certificate or card must also disclose a toll-free telephone number and website, if 

one is maintained, that a consumer may use to obtain fee information or replacement certificates 

or cards. (12 CFR 1005.20(f)) 

10 This requirement does not apply to non-reloadable certificates or cards that expire seven years or more after the date of 

manufacture. 

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Disclosure Requirements for Loyalty, Award, or Promotional Gift Cards (12 

CFR 1005.20(a)(4)). To qualify for the exclusion for loyalty, award, or promotional gift 

cards, the following must be disclosed: 

•	 A statement indicating that the card, code, or other device is issued for loyalty, award, or 

promotional purposes, which must be included on the front of the card, code, or other device; 

•	 The expiration date for the underlying funds, which must be included on the front of the card, 

code, or other device; 

•	 The amount of any fees that may be imposed in connection with the card, code, or other 

device, and the conditions under which they may be imposed, which must be provided on or 

with the card, code, or other device; and 

•	 A toll-free telephone number and, if one is maintained, a website, that a consumer may use to 

obtain fee information, which must be included on the card, code, or other device. 

Amendments to Regulation E were issued on August 11, 2010. The amendments implemented 

legislation that modified the effective date of certain disclosure and card expiration requirements 

in the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 

2009 for cards produced prior to April 1, 2010. 

The disclosures and card expiration requirements are:
 

1) Disclosures required to be made prior to purchase (see 12 CFR 1005.20(c)(3));
 

2) Disclosures that must be stated on the certificate or card regarding the fees and expiration
 

dates (see 12 CFR 1005.20(d)(2), (e)(1) & (e)(3)); and 

3) Disclosures that may be provided on or with the certificate or card (see 12 CFR 1005.20(f)). 

Gift cards must comply with all other provisions of the gift card rule. 

Issuers must make the following disclosures on in-store signs, messages during customer service 

calls, websites, and general advertising: 

•	 The funds underlying the gift card do not expire; 

•	 Consumers have the right to receive a free replacement card, along with the packaging and 

materials that typically accompany the gift card; and 

•	 The issuer will charge dormancy, inactivity, or service fees only if the fee is permitted by the 

gift card rule. 

The issuer must make the disclosures via customer service call center and website until January 

31, 2013. See 12 CFR 1005.20(h). 

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III.	 Electronic Transaction Overdraft Services 

Opt In – 12 CFR 1005.17 

In recent years overdraft protection services have been extended to cover overdrafts resulting 

from non-check transactions, including ATM withdrawals, debit card transactions at point of 

sale, on-line transactions, preauthorized transfers, and ACH transactions. Generally, institutions 

charge a flat fee each time an overdraft is paid, although some institutions have a tiered fee 

structure and charge higher fees based on the amount of the negative balance at the end of the 

day or as the number of overdrafts increases. Institutions commonly charge the same amount for 

paying check and ACH overdrafts as they would if they returned the item unpaid. Some 

institutions also impose a fee for each day the account remains overdrawn. For debit card 

overdrafts, the dollar amount of the fee and multiple assessments can exceed the dollar amount 

of the overdrafts. 

In 2005, the agencies issued guidance concerning the marketing, disclosure, and implementation 

of overdraft programs.11 The guidance also covers safety and soundness considerations, and 

establishes a number of best practices financial institutions should incorporate into their 

overdraft programs. The 2009 revisions to Regulation E supersede portions of the guidance 

related to ATM and one-time debit card overdraft transactions. However, in addition to the 

revised Regulation E requirements, an institution is advised to incorporate into its overdraft 

protection programs any guidance issued by its agency. 

Section 1005.17 was added in the 2009 revision to Regulation E.12 It provides consumers with a 

choice to opt into their institution’s overdraft protection program and be charged a fee for 

overdrafts for ATM and one-time debit card transactions. It also requires disclosure of the fees 

and terms associated with the institution’s overdraft service. Before an institution may assess 

overdraft fees, the consumer must opt in, or affirmatively consent, to the overdraft service for 

ATM and one-time debit card transactions, and the consumer has an ongoing right to revoke 

consent. Institutions may not require an opt in for ATM and one-time debit transactions as a 

condition to the payment of overdrafts for checks and other transactions. The account terms, 

conditions and features must be the same for consumers who opt in and for those who do not. 

Opt-In Requirement for Overdraft Services. The financial institution may assess a 

fee for paying an ATM or one-time debit card transaction pursuant to an overdraft service only if 

it has met the following requirements: 

•	 The financial institution has provided the consumer with a written (or, if the consumer agrees, 

electronic) notice, segregated from all other information, describing the overdraft service; 

11 The agencies were the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the 

Federal Deposit Insurance Corporation, and the National Credit Union Administration. See Interagency Guidance on Overdraft 

Protection Program (70 Fed. Reg. 9127, February 24, 2005). 

12 74 Fed. Reg. 59033 (Nov. 17, 2009); 75 Fed. Reg. 31665 (June 4, 2010). 

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•	 The financial institution has provided a reasonable opportunity for the consumer to 

affirmatively consent (opt in) to the overdraft service for ATM and one-time debit card 

transactions; 

•	 The financial institution has obtained the consumer’s affirmative consent (opt in) for ATM 

and one-time debit card transactions; and 

•	 The financial institution has mailed or delivered written (or, if the consumer agrees, 

electronic) confirmation of the consent, including a statement informing the consumer of the 

right to revoke consent. An institution complies if it adopts reasonable procedures to ensure 

that it assesses overdraft fees only for transactions paid after mailing or delivering the 

confirmation to the consumer. (12 CFR 1005.17(b)(1); Comment 1005.17(b)-7)) 

Fee Prohibitions. As a general rule, an institution may not charge overdraft fees for paying an 

ATM or one-time debit card transaction unless the consumer has opted in. The fee prohibition also 

applies to an institution that has a policy and practice of not paying an ATM or one-time debit card 

overdraft when it reasonably believes at the time of the authorization request that the consumer 

does not have sufficient funds available to pay the transaction, although the institution does not 

have to comply with the notice and opt-in requirements. (Comment 1005.17(b)-1(iv)) 

Lack of consent does not prohibit the financial institution from paying ATM or one-time debit card 

overdrafts. However, the financial institution may charge a fee only if the consumer has consented to 

the institution’s overdraft service for ATM and one-time debit card transactions. (Comment 

1005.17(b)-2) Conversely, the financial institution is not required to pay an ATM or one-time debit 

card overdraft even if the consumer has consented to pay a fee. (Comment 1005.17(b)-3) 

For a consumer who has not opted in, if a fee or charge is based on the amount of the outstanding 

negative balance, an institution may not charge a fee for a negative balance that is solely attributable 

to an ATM or one-time debit card transaction. However, an institution may assess a fee if the 

negative balance is attributable in whole or in part to a check, ACH transaction or other type of 

transaction not subject to the prohibition on assessing overdraft fees. (Comment 1005.17(b)-8) 

For a consumer who has not opted in, the institution may not assess daily or sustained negative 

balance, overdraft, or similar fees for a negative balance, based solely on ATM or one-time debit 

card transactions. However, if the negative balance is attributable in part to a check, ACH 

transaction or other type of transaction not subject to the prohibition on assessing overdraft fees, 

the institution may charge a daily or sustained overdraft or similar fee, even if the consumer has 

not opted in. The date the fee may be charged is based on the date on which the check, ACH, or 

other type of transaction is paid into overdraft. (Comment 1005.17(b)-9) 

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Contents and Format of Notice. The notice describing the overdraft service must be 

substantially similar to Model Form A-9. The notice must include all of the following items, and 

may not contain any other information not expressly specified or otherwise permitted: 

•	 A brief description of the overdraft service and the types of transactions for which the 

financial institution may charge a fee; 

•	 The dollar amount of any fee that may be charged for an ATM or one-time debit card 

transaction, including any daily or other overdraft fees;13 

•	 The maximum number of fees that may be charged per day, or, if applicable, that there is no 

limit; 

•	 An explanation of the right to affirmatively consent to the overdraft service, including the 

methods by which the consumer may consent;14 and 

•	 The availability of a line of credit or a service that transfers funds from another account to 

cover overdrafts, if the financial institution offers those alternatives.15 (12 CFR 1005.17(d)(1) 

through (d)(5)) 

The financial institution also may (but is not required to) include the following information, to 

the extent applicable: 

•	 Disclosure of the right to opt into, or out of, the payment of overdrafts for other types of 

transactions (e.g., checks, ACH transactions, or automatic bill payments) and a means for the 

consumer to exercise such choices; 

•	 Disclosure of the financial institution’s returned item fee, as well as the fact that merchants 

may charge additional fees; and 

•	 Disclosure of the right to revoke consent. (12 CFR 1005.17(d)(6)) 

Reasonable opportunity to consent. The financial institution must provide a reasonable 

opportunity to consent. Reasonable methods of consent include mail - if the financial institution 

provides a form for the consumer to fill out and mail, telephone - if the financial institution 

provides a readily-available telephone line that the consumer may call, electronic means - if the 

13 If the amount of the fee may vary based on the number of times the consumer has overdrawn the account, the amount of the 

overdraft, or other factors, the financial institution must disclose the maximum fee. 

14 Institutions may tailor the response portion of Model Form A-9 to the methods offered. For example, a tear-off portion of 

Model Form A-9 is not necessary if consumers may only opt-in by telephone or electronically. (Comment 1005.17(d)-3). 

15 If the institution offers both a line of credit subject to Regulation Z (12 CFR Part 1026) and a service that transfers funds from 

another account of the consumer held at the institution to cover overdrafts, the institution must state in its opt-in notice that both 

alternative plans are offered. If the institution offers one, but not the other, it must state in its opt-in notice the alternative plan 

that it offers. If the institution does not offer either plan, it should omit the reference to the alternative plans. (Comment 

1005.17(d)-5). If the financial institution offers additional alternatives for paying overdrafts, it may (but is not required to) 

disclose those alternatives. 12 CFR 1005.17(d)(5). 

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financial institution provides a form that can be accessed and processed at its website, where the 

consumer may click on a box to consent and click on a button to affirm consent, or in person - if 

the financial institution provides a form for the consumer to complete and present at a branch or 

office. (Comment 1005.17(b)-4) The financial institution may provide the opportunity to consent 

and require the consumer to make a choice as a step to opening an account. (Comment 

1005.17(b)-5) 

Affirmative consent is necessary. An important feature of the opt in is that the consumer’s 

affirmative consent is necessary before the institution may charge overdraft fees for paying an 

ATM or one-time debit card transaction. (12 CFR 1005.17(b)(iii)) The consent must be separate 

from other consents or acknowledgments (including a consent to receive disclosures 

electronically). Check boxes are allowed, but the check box and the consumer’s signature may 

only apply to the consumer’s consent to opt in. Preprinted disclosures about the overdraft service 

provided with a signature card or contract do not constitute affirmative consent. (Comment 

1005.17(b)-6) 

Confirmation and consumer’s right to revoke. Not only must the consumer affirmatively 

consent, but the institution must mail or deliver to the consumer a written confirmation (or 

electronic, if the consumer agrees) that the consumer has consented, along with a statement 

informing the consumer of the right to revoke the consent at any time. (12 CFR 1005.17(b)(iv) 

and Comment 1005.17(b)-7) An institution complies with the confirmation requirement if it has 

adopted reasonable procedures to ensure that overdraft fees are assessed only on transactions 

paid after the confirmation is mailed or delivered to the consumer. (Comment 1005.17(b)-7)) 

Assessing fees. For consumers who have not opted in, institutions are prohibited from charging 

overdraft fees for paying those transactions. This prohibition applies to daily or sustained 

overdraft, negative balance, or similar fees. However, the rule does not prohibit an institution 

from assessing these fees if the negative balance is attributable, in whole or part, to a check, 

ACH or other transaction not subject to the fee prohibition. However, if the negative balance is 

attributable in part to an ATM transaction, for example, and in part to a check, a fee may be 

assessed based on the date when the check is paid into overdraft, not the date of the ATM or onetime debit transaction. 

Conditioning payment of other overdrafts. The financial institution may not condition the 

payment of other types of overdraft transactions on the consumer’s affirmative consent, and the 

financial institution may not decline to pay other types of overdraft transactions because the 

consumer has not affirmatively consented to the payment of ATM and one-time debit card 

overdrafts. (12 CFR 1005.17(b)(2)) In other words, the financial institution may not use different 

criteria for paying other types of overdraft transactions for consumers who have consented and 

for consumers who have not consented. (Comment 1005.17(b)(2)-1) 

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Same account terms, conditions, and features. In addition, the financial institution must 

provide to consumers who do not affirmatively consent the same account terms, conditions, and 

features (except the payment of ATM and one-time debit overdrafts) that are available to 

consumers who do affirmatively consent. (12 CFR 1005.17(b)(3)) That requirement includes, but 

is not limited to: 

• Interest rates paid; 

• Fees assessed; 

• The type of ATM or debit card provided to the depositor;16 

• Minimum balance requirements; and 

• On-line bill payment services. (Comment 1005.17(b)(3)-1) 

Joint Accounts. Any consumer may consent, or revoke consent, for payment of ATM or onetime debit card transactions from a joint account. (12 CFR 1005.17(e)) 

Continuing Right to Consent or Revoke. A consumer may consent to the payment of ATM and 

one-time debit card overdrafts at any time. A consumer may also revoke consent at any time. The 

financial institution must implement a revocation as soon as reasonably practicable. (12 CFR 

1005.17(f)) The financial institution need not waive overdraft fees assessed before it implements 

the consumer’s revocation. (Comment 1005.17(f)-1) 

Duration of Consent. Consent remains effective until the consumer revokes it, unless the 

financial institution terminates the overdraft service. (12 CFR 1005.17(g)) The financial 

institution may terminate the overdraft service, for example, if the consumer makes excessive 

use of the service. (Comment 1005.17(g)-1) 

Effective Date. The overdraft services rule became effective on January 19, 2010, and 

compliance became mandatory on July 1, 2010. For accounts opened on or after July 1, 2010, the 

financial institution must obtain consent before charging a fee for payment of any ATM or onetime debit overdraft. However, for accounts opened before July 1, 2010, the financial institution 

may not charge a fee for paying any ATM or one-time debit overdraft on or after August 15, 

2010, unless it has obtained consent. (See 12 CFR 1005.17(c)) 

16 For example, the financial institution may not provide a PIN-only debit card to consumers who do not opt in, and a debit card 

with both PIN and signature-debit features to consumers who do opt in. 

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IV.	 Issuance of Access Devices – 

12 CFR 1005.5 and 1005.18 

In general, a financial institution may issue an access device to a consumer only in the following 

cases: 

•	 The consumer requested it in writing or orally.17 

•	 It is a renewal of, or a substitute for, an accepted access device (as defined in 12 CFR 

1005.2(a)). (12 CFR 1005.5(a)). 

Only one renewal or substitute device may replace a previously issued device. A financial 

institution may provide additional devices at the time it issues the renewal or substitute access 

device provided the institution complies with the requirements for issuing unsolicited access 

devices for the additional devices (Comments 1005.5(a)(2)-1 and 1005.5(b)-5). 

A financial institution may issue an unsolicited access device only if the access device meets all 

of the following criteria. The access device is: 

•	 Not validated - that is, it cannot be used to initiate an EFT. 

•	 Accompanied by the explanation that it is not validated and how the consumer may dispose 

of it if the consumer does not wish to validate it. 

•	 Accompanied by a complete disclosure, in accordance with 12 CFR 1005.7, of the 

consumer’s rights and liabilities that will apply if the access device is validated. 

•	 Validated only upon oral or written request from the consumer and after a verification of the 

consumer’s identity by some reasonable means (12 CFR 1005.5(b)). 

The financial institution may use any reasonable means of verifying the consumer’s identity, but 

the consumer is not liable for any unauthorized transfers if an imposter succeeds in validating the 

access device (Comment 1005.5(b)-4). 

Payroll Card Access Devices. Consistent with 12 CFR 1005.5(a), a financial institution 

may issue a payroll card access device only in response to an oral or written request for the 

device or as a renewal or substitute for an accepted access device. A consumer is deemed to 

request an access device for a payroll account when the consumer chooses to receive salary or 

other compensation through a payroll card account (Comment 1005.18(a)-1). 

EFT added to credit card. The EFTA and Regulation E apply when the capability to 

initiate EFTs is added to an accepted credit card (as defined under Regulation Z). The EFTA and 

Regulation E also apply to the issuance of an access device that permits credit extensions under a 

17 For a joint account, a financial institution may issue an access device to each account holder for whom the requesting holder 

specifically requests an access device (Comment 1005.5(a)(1)-1). 

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preexisting agreement between the consumer and a financial institution to extend credit only to 

cover overdrafts (or to maintain a specified minimum balance). The Truth in Lending Act and 

Regulation Z govern the addition of a credit feature to an accepted access device, and except as 

discussed above, the issuance of a credit card that is also an access device. For information on 

Regulation E’s relationship to other laws, including Truth in Lending, see 12 CFR 1005.12. 

V. Consumer Liability and Error Resolution 

Liability of Consumers for Unauthorized Transfers – 

12 CFR 1005.6 

A consumer may be liable for an unauthorized EFT (defined in 12 CFR 1005.2(m)) depending 

on when the consumer notifies the financial institution and whether an access device was used to 

conduct the transaction. Under the EFTA, there is no bright-line time limit within which 

consumers must report unauthorized EFTs (71 Fed. Reg. 1638, 1653 (Jan. 10, 2006)). 

The extent of the consumer’s liability is determined solely by the consumer’s promptness in 

notifying the financial institution (Comment 1005.6(b)-3). Other factors may not be used as a 

basis to hold consumers liable. Regulation E expressly prohibits the following factors as the 

basis for imposing greater liability than is permissible under Regulation E: the consumer was 

negligent (e.g., wrote a PIN on an ATM card); an agreement between the consumer and the 

financial institution provides for greater liability; or the consumer is liable for a greater amount 

under state law (Comments 1005.6(b)-2 and 1005.6(b)-3). 

A consumer may only be held liable for an unauthorized transaction, within the limitations set 

forth in 12 CFR 1005.6(b), if: 

•	 The financial institution has provided all of the following written disclosures to the consumer: 

o	 A summary of the consumer’s liability for unauthorized EFTs. 

o	 The telephone number and address for reporting that an unauthorized EFT has been or 

may be made. 

o	 The financial institution’s business days. 

•	 Any access device used to affect the EFT was an accepted access device (as defined in 12 

CFR 1005.2(a)). 

•	 The financial institution has provided a means to identify the consumer to whom the access 

device was issued (12 CFR 1005.6(a)). 

Regulation E allows, but does not require, the financial institution to provide a separate means to 

identify each consumer of a multiple-user account (Comment 1005.6(a)-2). 

The limitations on the amount of consumer liability for unauthorized EFTs, the time limits 

within which consumers must report unauthorized EFTs, and the liability for failing to adhere to 

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those time limits, are listed in the chart below. The financial institution may impose less 

consumer liability than is provided by 12 CFR 1005.6 based on state law or the deposit 

agreement (12 CFR 1005.6(b)(6)). 

Consumer Liability for Unauthorized Transfers 

Event Timing of Consumer 

Notice to Financial Institution 

Maximum liability 

Loss or theft of access 

device18 Within two business days after learning 

of loss or theft 

Lesser of $50, OR total amount of 

unauthorized transfers. 

Loss or theft of access 

device 

More than two business days after 

learning of loss or theft up to 60 calendar 

days after transmittal of statement 

showing first unauthorized transfer made 

with access device. 

Lesser of $500, OR the sum of: 

(a) $50 or the total amount of 

unauthorized transfers occurring in 

the first two business days, 

whichever is less; AND 

(b) The amount of unauthorized transfers 

occurring after two business days 

and before notice to the financial 

institution.19 

Loss or theft of access 

device 

More than 60 calendar days after 

transmittal of statement showing first 

unauthorized transfer made with access 

device. 

For transfers occurring within the 60-day 

period, the lesser of $500, OR the sum of 

(a) Lesser of $50 or the amount of 

unauthorized transfers in first two 

business days; AND 

(b) The amount of unauthorized transfers 

occurring after two business days. 

For transfers occurring after the 60-day 

period, unlimited liability (until the 

financial institution is notified)20 

Unauthorized transfer(s) 

not involving loss or theft 

of an access device 

Within 60 calendar days after transmittal 

of the periodic statement on which the 

unauthorized transfer first appears. 

No liability. 

Unauthorized transfer(s) More than 60 calendar days after Unlimited liability for unauthorized 

not involving loss or theft transmittal of the periodic statement on transfers occurring 60 calendar days after 

of an access device which the unauthorized transfer first 

appears. 

the periodic statement and before notice 

to the financial institution. 

Knowledge of Loss or Theft. The fact that a consumer has received a periodic statement 

reflecting an unauthorized transaction is a factor, but not conclusive evidence, in determining 

whether the consumer had knowledge of a loss or theft of the access device (Comment 

1005.6(b)(1)-2). 

18 Includes a personal identification number (PIN) if used without a card in a telephone transaction, for example. 

19 Provided the financial institution demonstrates that these transfers would not have occurred had notice been given within the 

two-business-day period. 

20 Provided the financial institution demonstrates that these transfers would not have occurred had notice been given within the 

60-day period. 

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Timing of Notice. If a consumer’s delay in notifying a financial institution was due to 

extenuating circumstances, such as extended travel or hospitalization, the time periods for 

notification specified above must be extended to a reasonable time (12 CFR 1005.6(b)(4); 

Comment 1005.6(b)(4)-1). 

Notice to the Financial Institution. A consumer gives notice to a financial institution 

about unauthorized use when the consumer takes reasonable steps to provide the financial 

institution with the pertinent information, whether or not a particular employee actually receives 

the information (12 CFR 1005.6(b)(5)(i)). Even if the consumer is unable to provide the account 

number or the card number, the notice effectively limits the consumer’s liability if the consumer 

sufficiently identifies the account in question, for example, by giving the name on the account 

and the type of account (Comment 1005.6(b)(5)-3). At the consumer’s option, notice may be 

given in person, by telephone, or in writing (12 CFR 1005.6(b)(5)(ii)). Notice in writing is 

considered given at the time the consumer mails the notice or delivers the notice for transmission 

by any other usual means to the financial institution. Notice may also be considered given when 

the financial institution becomes aware of circumstances leading to the reasonable belief that an 

unauthorized transfer has been or may be made (12 CFR 1005.6(b)(5)(iii)). 

Relation of Error Resolution to Truth in Lending. Regulation E’s liability and error 

resolution provisions apply to an extension of credit that occurs under an agreement between the 

consumer and a financial institution to extend credit when the consumer’s account is overdrawn, 

to maintain a specified minimum balance in the consumer’s account, or under an overdraft 

service (12 CFR 1005.12(a)(1)(ii)). As provided in 12 CFR 1005.12 and related commentary, for 

transactions involving access devices that also function as credit cards, the liability and error 

resolution provisions of Regulation E or Regulation Z will apply depending on the nature of the 

transaction: 

•	 If the unauthorized use of a combined access device-credit card solely involves an extension 

of credit, other than an extension of credit described under 12 CFR 1005.12(a)(1)(iii), and 

does not involve an EFT, for example, when the card is used to draw cash advances directly 

from a credit line, only the error resolution provisions of Regulation Z will apply. 

•	 If the unauthorized use of a combined access device-credit card involves only an EFT, for 

example, debit card purchases or cash withdrawals at an ATM from a checking account, only 

the error resolution provisions of Regulation E will apply. 

•	 If a combined access device-credit card is stolen and unauthorized transactions are made by 

using the card as both a debit card and a credit card, Regulation E will apply to the 

unauthorized transactions in which the card was used as a debit card, and Regulation Z will 

apply to the unauthorized transactions in which the card was used as a credit card. 

Procedures for Resolving Errors – 12 CFR 1005.11 

This section defines the term error and describes the steps the consumer must take when 

asserting an error in order to receive the protection of the EFTA and Regulation E, and the 

procedures that a financial institution must follow to resolve an alleged error. 

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An error includes any of the following: 

•	 An unauthorized EFT. 

•	 An incorrect EFT to or from the consumer’s account. 

•	 The omission from a periodic statement of an EFT to or from the consumer’s account that 

should have been included. 

•	 A computational or bookkeeping error made by the financial institution relating to an EFT. 

•	 The consumer’s receipt of an incorrect amount of money from an electronic terminal. 

•	 An EFT not identified in accordance with the requirements of 12 CFR 1005.9 or 1005.10(a). 

•	 A consumer’s request for any documentation required by 12 CFR 1005.9 or 1005.10(a) or for 

additional information or clarification concerning an EFT (12 CFR 1005.11(a)(1)). 

The term error does not include: 

•	 A routine inquiry about the balance in the consumer’s account or a request for duplicate 

copies of documentation or other information that is made only for tax or other recordkeeping purposes (12 CFR 1005.11(a)(2)(i), (ii), and (iii)). 

•	 The fact that a financial institution does not make a terminal receipt available for a transfer of 

$15 or less in accordance with 1005.9(e) (Comment 1005.11(a)-6). 

A financial institution must comply with the error resolution procedures in 12 CFR 1005.11 with 

respect to any oral or written notice of error from the consumer that: 

•	 The financial institution receives not later than 60 days after sending a periodic statement or 

other documentation first reflecting the alleged error (see 12 CFR 1005.14 and 1005.18). 

•	 Enables the financial institution to identify the consumer’s name and account number. 

•	 Indicates why the consumer believes the error exists and, to the extent possible, the type, 

date, and amount of the error (12 CFR 1005.11(b)(1)). 

A financial institution may require a consumer to give written confirmation of an error within 10 

business days of giving oral notice. The financial institution must provide the address where 

confirmation must be sent (12 CFR 1005.11(b)(2)). 

Error Resolution Procedures. After receiving a notice of error, the financial institution 

must do all of the following: 

•	 Promptly investigate the oral or written allegation of error. 

•	 Complete its investigation within 10 business days (12 CFR 1005.11(c)(1)). 

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•	 Report the results of its investigation within three business days after completing its 

investigation. 

•	 Correct the error within one business day after determining that an error has occurred. 

The financial institution may take up to 45 calendar days (12 CFR 1005.11(c)(2)) to complete its 

investigation provided it: 

•	 Provisionally credits the funds (including interest, where applicable) to the consumer’s 

account within the 10 business-day period. 

•	 Advises the consumer within two business days of the provisional crediting. 

•	 Gives the consumer full use of the funds during the investigation. 

A financial institution need not provisionally credit the account to take up to 45 calendar days to 

complete its investigation if the consumer fails to provide the required written confirmation of an 

oral notice of error, or if the notice of error involves an account subject to the margin 

requirements or other aspects of Regulation T (Securities Credit by Brokers and Dealers, 12 CFR 

Part 220) (12 CFR 1005.11(c)(2)(i)(B)). 

However, where an error involves an unauthorized EFT, the financial institution must comply 

with the requirements of the provisions relating to unauthorized EFTs before holding the 

consumer liable, even if the consumer does not provide a notice of error within the time limits in 

12 CFR 1005.11(b) (Comment 1005.11(b)(1)-7). 

When investigating a claim of error, the financial institution need only review its own records if 

the alleged error concerns a transfer to or from a third party, and there is no agreement between 

the financial institution and the third party for the type of EFT involved (12 CFR 1005.11(c)(4)). 

However, the financial institution may not limit its investigation solely to the payment 

instructions where other information within the financial institution’s records pertaining to a 

particular account may help to resolve a consumer’s claim (Comment 1005.11(c)(4)-5). 

If, after investigating the alleged error, the financial institution determines that an error has 

occurred, it must promptly (within one business day after such determination) correct the error, 

including the crediting of interest if applicable. The financial institution must provide within 

three business days of the completed investigation an oral or written report of the correction to 

the consumer and, as applicable, notify the consumer that the provisional credit has been made 

final (12 CFR 1005.11(c)(2)(iii) and (iv)). 

If the financial institution determines that no error occurred or that an error occurred in a different 

manner or amount from that described by the consumer, the financial institution must mail or deliver 

a written explanation of its findings within three business days after concluding its investigation. The 

explanation must include a notice of the consumer’s rights to request the documents upon which the 

financial institution relied in making its determination (12 CFR 1005.11(d)). 

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Upon debiting a provisionally credited amount, the financial institution must notify the consumer 

of the date and amount of the debit and of the fact that the financial institution will honor 

(without charge) checks, drafts, or similar paper instruments payable to third parties and 

preauthorized debits for five business days after transmittal of the notice. The financial 

institution need honor only items that it would have paid if the provisionally credited funds had 

not been debited. Upon request from the consumer, the financial institution must promptly mail 

or deliver to the consumer copies of documents upon which it relied in making its determination 

(12 CFR 1005.11(d)(2)). 

If a notice involves an error that occurred within 30 days after the first deposit to the account was 

made, the time periods are extended from 10 and 45 days, to 20 and 90 days, respectively. If the 

notice of error involves a transaction that was not initiated in a state or resulted from a point-ofsale debit card transaction, the 45-day period is extended to 90 days (12 CFR 1005.11(c)(3)). 

If a financial institution has fully complied with the investigation requirements, it generally does 

not need to reinvestigate if a consumer later reasserts the same error. However, it must 

investigate a claim of error asserted by a consumer following receipt of information provided 

pursuant to 12 CFR 1005.11(a)(1)(vii) (12 CFR 1005.11(e)). 

VI. Receipts and Periodic Statements 

Documentation of Transfers – 12 CFR 1005.9 

Electronic terminal receipts. Receipts must be made available at the time a consumer 

initiates an EFT at an electronic terminal (12 CFR 1005.9(a)). Financial institutions may provide 

receipts only to consumers who request one (Comment 1005.9(a)-1). The receipt must include, 

as applicable: 

•	 Amount of the transfer. A charge for making the transfer may be included in the amount, 

provided the charge is disclosed on the receipt and on a sign posted on or at the terminal. 

•	 Date. The date the consumer initiates the transfer. 

•	 Type of transfer and type of account. Descriptions such as “withdrawal from checking” or 

“transfer from savings to checking” are appropriate. This is true even if the accounts are only 

similar in function to a checking account (such as a share draft or NOW account) or a savings 

account (such as a share account). If the access device used can only access one account, the 

type of account may be omitted (Comments 1005.9(a)(3)-1; 1005.9(3)-2; 1005.9(3)-4; and 

1005.9(3)-5). 

•	 Identifying number or code. Number or code identifying the consumer’s account(s) or the 

access device used to initiate the transfer – the number and code need not exceed four digits 

or letters. 

•	 Location of the terminal. The location of the terminal where the transfer is initiated or an 

identification, such as a code or terminal number. If the location is disclosed, except in 

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limited circumstances where all terminals are located in the same city or state, the receipt 

must include the city and state or foreign country and one of the following: 

○	 Street address of the terminal; 

○	 Generally accepted name for the location of the terminal (such as an airport, shopping 

center, or branch of a financial institution); or 

○	 Name of the entity (if other than the financial institution providing the statement) at 

whose place of business the terminal is located, such as a store, and the city, state, or 

foreign country (12 CFR 1005.9(a)(5)). 

Third party. Name of any third party to or from whom funds are transferred — a code may be 

used to identify the party if the code is explained on the receipt. This requirement does not apply 

if the name of the party is provided by the consumer in a manner the terminal cannot duplicate 

on the receipt, such as on a payment stub (12 CFR 1005.9(a)(6) and Comment 1005.9(a)(6)-1). 

Receipts are not required for electronic EFTs of $15 or less (12 CFR 1005.9(e)). 

Periodic statements. Periodic statements must be sent for each monthly cycle in which an 

EFT has occurred, and at least quarterly if no EFT has occurred (12 CFR 1005.9(b)). For each 

EFT made during the cycle, the statement must include, as applicable: 

•	 Amount of the transfer – if a charge was imposed at an electronic terminal by the owner or 

operator of the terminal, that charge may be included in the amount. 

•	 Date the transfer was posted to the account. 

•	 Type of transfer(s) and type of account(s) to or from which funds were transferred. 

•	 For each transfer (except deposits of cash, or a check, draft or similar paper instrument to the 

consumer’s account) initiated at an electronic terminal, the terminal location as required for 

the receipt under 12 CFR 1005.9(a)(5). 

•	 Name of any third party payee or payor. 

•	 Account number(s). 

•	 Total amount of any fees and charges, other than a finance charge as defined by Regulation 

Z, assessed during the period for making EFTs, the right to make EFTs, or for account 

maintenance. 

•	 Balance in the account at the beginning and close of the statement period. 

•	 Address and telephone number to be used by the consumer for inquiries or notice of errors. If 

the financial institution has elected to send the abbreviated error notice with every periodic 

statement, the address and telephone number may appear on that document. 

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•	 If the financial institution has provided a telephone number which the consumer can use to 

find out whether or not a preauthorized transfer has taken place, that telephone number. 

Exceptions to the Periodic Statement Requirement for Certain Accounts 

•	 Passbook accounts. Where a consumer’s passbook may not be accessed by an EFT other 

than preauthorized transfers to the account, a periodic statement need not be sent, provided 

that the financial institution updates the consumer’s passbook or provides the required 

information on a separate document at the consumer’s request. To update the passbook, the 

amount and date of each EFT made since the passbook was last presented must be listed (12 

CFR 1005.9(c)(1)(i)). For other accounts that may be accessed only by preauthorized 

transfers to the account, the financial institution must send a periodic statement at least 

quarterly (12 CFR 1005.9(c)(1)(ii)). 

•	 Transfers between accounts. If a transfer occurs between two accounts of the consumer at 

the same financial institution, the transfer need only be documented for one of the two 

accounts (12 CFR 1005.9(c)(2)). A preauthorized transfer between two accounts of the 

consumer at the same financial institution is subject to the 12 CFR 1005.9(c)(1) rule on 

preauthorized transfers and not the 12 CFR 1005.9(c)(2) rule on intra-institutional transfers 

(12 CFR 1005.9(c)(3)). 

•	 Documentation for Foreign-initiated transfers. If an EFT is initiated outside the United 

States, the financial institution need not provide a receipt or a periodic statement reflecting 

the transfer if it treats an inquiry for clarification or documentation as a notice of error (12 

CFR 1005.9(d)). 

Alternatives to Periodic Statements for Financial 

Institutions Offering Payroll Card Accounts – 

12 CFR 1005.18 

This section provides an alternative to providing periodic statements for payroll card accounts if 

financial institutions make the account information available to consumers by specific means. In 

addition, this section clarifies how financial institutions that do not provide periodic statements for 

payroll card accounts can comply with the Regulation E requirements relating to initial disclosures, 

the annual error resolution notice, liability limits, and the error resolution procedures. 

Typically, employers and third-party service providers do not meet the definition of a “financial 

institution” subject to the regulation because they neither (i) hold payroll card accounts nor (ii) 

issue payroll cards and agree with consumers to provide EFT services in connection with payroll 

card accounts. However, to the extent an employer or a service provider undertakes either of 

these functions, it would be deemed a financial institution under the regulation (Comment 

1005.18(a)-2). 

Alternative to Periodic Statements. A financial institution does not need to furnish periodic 

statements required by 12 CFR 1005.9(b) if the financial institution makes available to the 

consumer the following: 

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•	 The account balance, through a readily available telephone line. 

•	 An electronic history of account transactions covering at least 60 days preceding the date the 

consumer electronically accesses the account. 

•	 A written history of the account transactions provided promptly in response to an oral or 

written request and covering at least 60 days preceding the date the financial institution 

receives the consumer’s request (12 CFR 1005.18(b)(1)). 

The history of account transactions must include the same type of information required on 

periodic statements under 12 CFR 1005.9(b) (12 CFR 1005.18(b)(2)). 

Requirements to Comply with Regulation E. If a financial institution provides an 

alternative to periodic statements under 12 CFR 1005.18(b), it must comply with the following: 

•	 Modify the initial disclosures under 12 CFR 1005.7(b) by disclosing: 

o	 A telephone number that the consumer may call to obtain the account balance; the means 

by which the consumer can obtain an electronic account history, such as the address of an 

Internet website; and a summary of the consumer’s right to receive a written account 

history upon request (in place of the summary of the right to receive a periodic statement 

required by 12 CFR 1005.7(b)(6)), including a telephone number to call to request a 

history. The disclosure required by 12 CFR 1005.18(c)(1)(i) may be made by providing a 

notice substantially similar to the notice contained in paragraph A-7(a) in Appendix A of 

Part 1005. 

o	 A notice concerning error resolution that is substantially similar to the notice contained in 

paragraph A-7(b) in Appendix A, in place of the notice required by 12 CFR 1005.7(b)(10). 

•	 Provide an annual error resolution notice that is substantially similar to the notice contained 

in paragraph (b) to A-7 - Model Clauses for Financial Institutions Offering Payroll Card 

Accounts in Appendix A of 12 CFR Part 1005, in place of the notice required by 12 CFR 

1005.8(b). Alternatively, a financial institution may include on or with each electronic and 

written history provided in accordance with 12 CFR 1005.18(b)(1), a notice substantially 

similar to the abbreviated notice for periodic statements contained in paragraph A-3(b) in 

Appendix A, modified as necessary to reflect the error-resolution provisions set forth in this 

section. 

•	 Limits on consumer liability. 

o	 For purposes of 12 CFR 1005.6(b)(3), the 60-day period for reporting any unauthorized 

transfer begins on the earlier of: 

 The date the consumer electronically accesses the consumer’s account under 12 CFR 

1005.18(b)(1)(ii), provided that the electronic history made available to the consumer 

reflects the transfer; or 

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 The date the financial institution sends a written history of the consumer’s account 

transactions requested by the consumer under 12 CFR 1005.18(b)(1)(iii) in which the 

unauthorized transfer is first reflected. 

○	 A financial institution may limit the consumer’s liability for an unauthorized transfer as 

provided under 12 CFR 1005.6(b)(3) for transfers reported by the consumer within 120 

days after the transfer was credited or debited to the consumer’s account. 

•	 Comply with error resolution requirements. 

o	 An error notice is considered timely, and the financial institution must comply with the 

requirements of 12 CFR 1005.11, if the financial institution receives notice from the 

consumer no later than the earlier of: 

 60 days after the date the consumer electronically accesses the consumer’s account 

under 12 CFR 1005.18(b)(1)(ii), provided that the electronic history made available 

to the consumer reflects the alleged error; or 

 60 days after the date the financial institution sends a written history of the 

consumer’s account transactions requested by the consumer under 12 CFR 

1005.18(b)(1)(iii) in which the alleged error is first reflected. 

o	 Alternatively, a financial institution complies with the error resolution requirements in 12 

CFR 1005.11 if it investigates any oral or written notice of an error from the consumer 

that is received by the financial institution within 120 days after the transfer allegedly in 

error was credited or debited to the consumer’s account. 

VII. Gift Cards – 12 CFR 1005.20 

A gift card is a type of prepaid card that is designed to be purchased by one consumer and given 

to another consumer as a present or expression of appreciation or recognition. When provided in 

the form of a plastic card, a user of a gift card is able to access and spend the value associated 

with the device by swiping the card at a POS terminal, much as a person would use a debit card. 

There are two distinct types of gift cards: closed-loop cards and open-loop cards. Closed-loop 

gift cards constitute the majority of the gift card market, are typically issued by a merchant, not 

by a financial institution, and generally can only be used to make purchases at the merchant or 

group of merchants. Open-loop gift cards are generally issued by financial institutions, typically 

carry a card network brand logo, can be used at a wide variety of merchants and are more likely 

to carry fees compared to closed-loop gift cards, including card issuance and transaction-based 

fees. Open-loop gift cards are more likely to offer the capability of being reloaded with 

additional value (reloadable) than are closed-loop gift cards. 

Concerns have been raised regarding the amount of fees associated with gift cards, the expiration 

dates of gift cards, and the adequacy of disclosures. Consumers who do not use the value of the 

card within a short period of time may be surprised to find that the card has expired or that 

dormancy or service fees have reduced the value of the card. Even where fees or terms are 

CFPB	 Manual V.2 (October 2012) EFTA 30 
 

 

 

 

 

 

 

 

 

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disclosed on or with the card, the disclosures may not be clear and conspicuous. This rule 

contains restrictions on dormancy, inactivity and service fees and expiration dates. 

Scope of the gift card rule. The rule is generally limited to gift certificates, store gift 

cards, or general-use prepaid cards sold or issued to consumers primarily for personal, family, or 

household purposes. It generally does not apply to cards, codes, or other devices that are 

reloadable and not marketed or labeled as a gift card or gift certificate and loyalty, award, and 

promotional gift cards. See also the exclusions from the gift card definitions, described above. 

Restrictions on Dormancy, Inactivity, or Service Fees – 12 CFR 1005.20(d). 

No person may impose a dormancy, inactivity, or service fee with respect to a gift certificate, store 

gift card, or general-use prepaid card, unless three conditions are satisfied: 

•	 There has been no activity with respect to the certificate or card within the one-year period 

prior to the imposition of the fee; 

•	 Only one such fee is assessed in a given calendar month; and 

•	 Disclosures regarding dormancy, inactivity, or service fees are clearly and conspicuously 

stated on the certificate or card, and the person issuing or selling the certificate or card has 

provided these disclosures to the purchaser before the certificate or card is purchased. See the 

disclosure section, above, for additional information. 

Expiration Date Restrictions – 12 CFR 1005.20(e). A gift certificate, store gift 

card, or general-use prepaid card may not be sold or issued unless the expiration date of the 

funds underlying the certificate or card is no less than five years after the date of issuance (in the 

case of a gift certificate) or five years after the date of last load of funds (in the case of a store 

gift card or general-use prepaid card). In addition, information regarding whether funds 

underlying a certificate or card may expire must be clearly and conspicuously stated on the 

certificate or card and disclosed prior to purchase. 

No person may sell or issue a certificate or card with an expiration date unless the person has 

established policies and procedures to provide consumers with a reasonable opportunity to 

purchase a certificate or card that has an expiration date that is at least five years from the date of 

purchase. A person who has established policies and procedures to prevent the sale of a 

certificate or card with less than five years from the date of purchase satisfies this requirement. 

A certificate or card generally must include a disclosure alerting consumers to the difference 

between the certificate or card expiration date and the funds expiration date, if any, and that the 

consumer may contact the issuer for a replacement card. This disclosure must be stated with 

equal prominence and in close proximity to the certificate or card expiration date. Nonreloadable certificates or cards that bear an expiration date on the certificate or card that is at 

least seven years from the date of manufacture need not include this disclosure. See the 

disclosure section, above, for additional information. 

To ensure that consumers are able to access the underlying funds for the full five-year period, 

fees may not be imposed for replacing an expired certificate or card if the underlying funds 

CFPB	 Manual V.2 (October 2012) EFTA 31 
 

 

 

 

 

 

 

 

 

 

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remain valid (unless the card has been lost or stolen). In lieu of sending a replacement certificate 

or card, issuers may remit, without charge, the remaining balance of funds to the consumer. 

Effective Date. The requirements of this section apply to any gift certificate, store gift card, 

or general-use prepaid card sold to a consumer on or after August 22, 2010, or provided to the 

consumer as a replacement for such certificate or card.21 

VIII. Other Requirements 

Preauthorized Transfers – 12 CFR 1005.10 

A preauthorized transfer may be either a credit to, or a debit from, an account. 

Preauthorized transfers to a consumer’s account. When an account is scheduled to 

be credited by a preauthorized EFT from the same payor at least once every 60 days, the 

financial institution must provide some form of notice to the consumer so that the consumer can 

find out whether or not the transfer occurred (12 CFR 1005.10(a)). The notice requirement will 

be satisfied if the payor provides notice to the consumer that the transfer has been initiated. If the 

payor does not provide notice, the financial institution must adopt one of three alternative 

procedures for giving notice. 

•	 The financial institution may give the consumer oral or written notice within two business 

days after a preauthorized transfer occurs. 

•	 The financial institution may give the consumer oral or written notice, within two business 

days after the preauthorized transfer was scheduled to occur, that the transfer did not occur. 

•	 The financial institution may establish a readily available telephone line22 that the consumer 

may call to find out whether a preauthorized transfer has occurred. If the financial institution 

selects this option, the telephone number must be disclosed on the initial disclosures and on 

each periodic statement. 

The financial institution need not use any specific language to give notice but may not simply 

provide the current account balance (Comment 1005.10(a)(1)-1). The financial institution may 

use different methods of notice for different types of preauthorized transfers and need not offer 

consumers a choice of notice methods (Comment 1005.10(a)(1)-2). 

21 For gift cards produced before April 1, 2010, the mandatory compliance date was extended to January 31, 2011, for several 

disclosures on the card. 12 CFR 1005.20(h). 

22 The telephone line must be “readily available” so that consumers calling to inquire about transfers are able to have their calls 

answered reasonably promptly during normal business hours. During the initial call in most cases and within two business days 

after the initial call in all cases, the financial institution should be able to verify whether the transfer was received (Comment 

1005.10(a)(1)-5). Within its primary service area, a financial institution must provide a local or toll-free telephone number 

(Comment 1005.10(a)(1)-7). 

CFPB	 Manual V.2 (October 2012) EFTA 32 
 

 

 

 

 

 

 

 

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The financial institution that receives a preauthorized transfer must credit the consumer’s 

account as of the day the funds are received (12 CFR 1005.10(a)(3)). 

Preauthorized transfers from a customer’s account. Preauthorized transfers from 

a consumer’s account may only be authorized by the consumer in writing and signed or similarly 

authenticated by the consumer (12 CFR 1005.10(b)). Signed, written authorizations may be 

provided electronically, subject to the E-Sign Act (Comment 1005.10(b)-5). In all cases, the 

party that obtains the authorization from the consumer must provide a copy to the consumer. If a 

third party payee fails to obtain an authorization in writing or fails to provide a copy to the 

consumer, the third party payee and not the financial institution has violated Regulation E 

(Comment 1005.10(b)-2). 

Stop payments. Consumers have the right to stop payment of preauthorized transfers from 

accounts. The consumer must notify the financial institution orally or in writing at any time up to 

three business days before the scheduled date of the transfer (12 CFR 1005.10(c)(1)). If the debit 

item is resubmitted, the institution must continue to honor the stop-payment order. (Comment 

1005.10(c)-1) The financial institution may require written confirmation of an oral stop payment 

order to be made within 14 days of the consumer’s oral notification. If the financial institution 

requires a written confirmation, it must inform the consumer at the time of the oral stop payment 

order that written confirmation is required and provide the address to which the confirmation 

should be sent. If the consumer fails to provide written confirmation, the oral stop payment order 

ceases to be binding after 14 days (12 CFR 1005.10(c)(2)). 

Notice of transfers varying in amount. If a preauthorized transfer from a consumer’s 

account varies in amount from the previous transfer under the same authorization or the 

preauthorized amount, either the financial institution or the designated payee must send to the 

consumer a written notice, at least 10 days before the scheduled transfer date, of the amount and 

scheduled date of the transfer (12 CFR 1005.10(d)(1)). The consumer may elect to receive notice 

only when the amount varies by more than an agreed amount or falls outside a specified range 

(12 CFR 1005.10(d)(2)). The range must be an acceptable range that the consumer could 

reasonably anticipate (Comment 1005.10(d)(2)-1). The financial institution does not violate 

Regulation E if the payee fails to provide sufficient notice (Comment 1005.10(d)-1). 

Compulsory use. The financial institution may not make it a condition for an extension of 

credit that repayment will be by means of preauthorized EFT, except for credit extended under 

an overdraft credit plan or extended to maintain a specified minimum balance in the consumer’s 

account (12 CFR 1005.10(e)(1)). The financial institution may offer a reduced APR or other 

cost-related incentive for an automatic payment feature as long as the creditor offers other loan 

programs for the type of credit involved (Comment 1005.10(e)(1)-1).23 

23 This section also prohibits anyone from requiring the establishment of an account for receipt of EFTs with a particular 

financial institution either as a condition of employment or the receipt of a government benefit (12 CFR 1005.10(e)(2)). 

However, the employer may require direct deposit of salary, as long as the employee may choose the financial institution that will 

accept the direct deposit, or limit direct deposits to one financial institution as long as the employee may choose to receive salary 

by other means (e.g., check or cash). (Comment 1005.10(e)(2)-1). 

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Services Offered by Provider Not Holding Consumer’s 

Account – 12 CFR 1005.14 

A person who provides EFT services to a consumer but does not hold the consumer’s account is 

a service provider subject to 12 CFR 1005.14 if the person issues an access device that the 

consumer can use to access the account and no agreement exists between the person and the 

account-holding financial institution. Transfers initiated by a service provider are often cleared 

through an automated clearinghouse (ACH). 

The responsibilities of the service provider are set forth in 12 CFR 1005.14(b)(l) and (2). The 

duties of the account-holding financial institution with respect to the service provider are found 

in 12 CFR 1005.14(c)(l) and (2). 

Electronic Fund Transfer of Government Benefits – 

12 CFR 1005.15 

12 CFR 1005.15 contains the rules that apply to electronic benefit transfer (EBT) programs. It 

provides that government agencies must comply with modified rules on the issuance of access 

devices, periodic statements, initial disclosures, liability for unauthorized use, and error 

resolution notices. 

IX. Relation to Other Laws – 12 CFR 1005.12 

This section describes the relationship between the EFTA and the Truth in Lending Act (TILA). 

The section also provides procedures for states to apply for exemptions from the requirements of 

the EFTA or Regulation E for any class of EFTs within the state. 

The EFTA governs the following: 

•	 The issuance of debit cards and other access devices with EFT capabilities. 

•	 The addition of EFT features to credit cards. 

•	 The issuance of access devices whose only credit feature is a pre-existing agreement to 

extend credit to cover account overdrafts or to maintain a minimum account balance, or is an 

overdraft service. 

CFPB	 Manual V.2 (October 2012) EFTA 34 
 

 

 

 

 

 

 

 

 

 

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The TILA governs all of the following: 

•	 The issuance of credit cards as defined in Regulation Z. 

•	 The addition of a credit feature to a debit card or other access device, other than an overdraft 

service. 

•	 The issuance of dual debit/credit cards, except for access devices whose only credit feature is 

a pre-existing agreement to cover account overdrafts or to maintain a minimum account 

balance, or is an overdraft service. 

The EFTA and Regulation E preempt inconsistent state laws, but only to the extent of the 

inconsistency. The CFPB is given the authority to determine whether or not a state law is 

inconsistent. A financial institution, state, or other interested party may request the CFPB to 

make such a determination. A state law will not be deemed inconsistent if it is more protective of 

the consumer than the EFTA or Regulation E. Upon application, the CFPB has the authority to 

exempt any state from the requirements of the Act or the regulation for any class of EFTs within 

a state, with the exception of the civil liability provision. 

X. Administrative Enforcement and Record 

Retention – 12 CFR 1005.13 

Section 917 of the EFTA sets forth the federal agencies responsible for enforcing compliance 

with the provisions of the Act. 

Record retention. Financial institutions must maintain evidence of compliance with the 

EFTA and Regulation E for at least two years. The agency supervising the financial institution 

may extend this period. The period may also be extended if the financial institution is subject to 

an action filed under Sections 910, 915 or 916(a) of the EFTA, which generally apply to the 

financial institution’s liability under the EFTA and Regulation E. Persons subject to the EFTA 

who have actual notice that they are being investigated or subject to an enforcement proceeding 

must retain records until disposition of the proceeding. 

Records may be stored on microfiche, microfilm, magnetic tape, or in any other manner capable 

of accurately retaining and reproducing the information. 

XI.	 Miscellaneous 

EFTA contains several additional provisions that are not directly reflected in the language of 

Regulation E. Most significantly, 15 U.S.C. 1693l provides that the consumer may not waive by 

agreement any right conferred, or cause of action created, by the EFTA. However, the consumer 

and another person may provide by agreement greater consumer protections or additional rights 

or remedies than those provided by EFTA. In addition, the consumer may sign a waiver in 

settlement of a dispute. 

CFPB	 Manual V.2 (October 2012) EFTA 35 
 

 

 

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If a third party payee has agreed to accept payment by EFT, the consumer’s obligation to pay is 

suspended during any period in which a system malfunction prevents an EFT from occurring (15 

U.S.C. 1693j). However, the payee may avoid that suspension by making a written request for 

payment by means other than EFT. 

Failure to comply with the requirements of EFTA can result in civil and criminal liability, as 

outlined in 15 U.S.C. 1693m and 15 U.S.C. 1693n. Financial institutions may also be liable for 

damages under 15 U.S.C. 1693h due to failure to complete an EFT or failure to stop a 

preauthorized transfer when instructed to do so. 

Model disclosure clauses and forms – 12 CFR 1005, 

Appendix A 

Appendix A of Regulation E contains model clauses and forms that financial institutions may use 

to comply with the requirement disclosure requirements of Regulation E. Use of the model forms 

is optional and a financial institution may make certain changes to the language or format of the 

model forms without losing the protection from civil and criminal liability under Sections 915 

and 916 of the EFTA. The model forms are: 

A-1	 Model Clauses for Unsolicited Issuance (12 CFR 1005.5(b)(2)) 

A-2	 Model Clauses for Initial Disclosures (12 CFR 1005.7(b)) 

A-3	 Model Forms for Error Resolution Notice (12 CFR 1005.7(b)(10) and 1005.8(b)) 

A-4	 Model Form for Service-Providing Institutions (12 CFR 1005.14(b)(1)(ii)) 

A-5	 Model Forms for Government Agencies (12 CFR 1005.15(d)(1) and(2)) 

A-6	 Model Clauses for Authorizing One-Time Electronic Fund Transfers Using Information 

from a Check (12 CFR 1005.3(b)(2)) 

A-7	 Model Clauses for Financial Institutions Offering Payroll Card Accounts 

(12 CFR 1005.18(c)) 

A-8	 Model Clause for Electronic Collection of Returned Item Fees (12 CFR 1005.3(b)(3)) 

A-9	 Model Consent Form for Overdraft Services (12 CFR 1005.17) 

CFPB	 Manual V.2 (October 2012) EFTA 36 
 

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REFERENCES 

Laws 

15 U.S.C. 1693 et seq. 

15 U.S.C. 7001 et seq. 

Regulations 

Electronic Fund Transfer Act 

Electronic Signatures in Global and National Commerce 

Consumer Financial Protection Bureau Regulation (12 CFR) 

Part 1005 Electronic Fund Transfers (Regulation E) 

CFPB Manual V.2 (October 2012) EFTA 37 
 

 

 

 

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Examination Procedures EFTA 

Electronic Fund 

Transfer Act1 

Examination Objectives 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

• To determine the financial institution’s compliance with Regulation E. 

•	 To assess the quality of the financial institution’s compliance risk management systems and 

its policies and procedures for implementing Regulation E. 

•	 To determine the reliance that can be placed on the financial institution’s internal controls 

and procedures for monitoring the financial institution’s compliance with Regulation E. 

•	 To direct corrective action when violations of law are identified or when the financial 

institution’s policies or internal controls are deficient. 

Examination Procedures 

Management and Policy-Related Examination Procedures 

1. Through a review of all written policies and procedures, management’s selfassessments, customer complaints, prior examination reports, and any
 

compliance audit material, including work papers and reports, determine
 

whether:
 

a. The scope of the audit addresses all provisions as applicable. 

b.	 Management has taken corrective actions to follow-up on previously 

identified deficiencies. 

c.	 The testing includes samples covering all product types and decision 

centers. 

d. The work performed is accurate. 

e.	 Significant deficiencies and their causes are included in reports to
 

management and/or to the Board of Directors.
 

f. The frequency of review is appropriate. 

[Click&type] 

1 These reflect FFIEC-approved procedures. 

CFPB	 Manual V.2 (October 2012) Procedures 1 
 

 

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Examination Procedures EFTA 

2. Through discussions with management and review of available information, 

determine whether the financial institution’s internal controls are adequate 

to ensure compliance in Regulation E area under review. Consider the 

following: 

a.	 Organization charts; 

b.	 Process flowcharts; 

c.	 Policies and procedures; 

d.	 Account documentation; 

e.	 Checklists; and 

f.	 Computer program documentation. 

[Click&type] 

3. Through a review of the financial institution’s training materials, determine 

whether: 

a.	 The financial institution provides appropriate training to individuals 

responsible for Regulation E compliance and operational procedures. 

b.	 The training is comprehensive and covers the various aspects of 

Regulation E that apply to the individual financial institution’s product 

offerings and operations. 

[Click&type] 

4.	 Through discussions with management and review of available information, 

determine whether the financial institution’s Overdraft Protection Program 

has incorporated any guidance issued by its agency, as applicable. In 

addition to ATM and one time debit card transactions, consider other types 

of transactions as well. Consider the institution’s contravention of the 

guidance when assessing the institution’s compliance management system 

and in determining the overall compliance rating. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 2 
 

 

 

 

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Transaction-Related Examination Procedures 

If upon conclusion of the management and policy-related examination procedures, you note 

procedural weaknesses or other risks requiring further investigation, conduct transaction testing, 

as necessary, using the following examination procedures. Use your judgment in deciding the 

size of each sample of deposit account disclosures, notices, and advertisements. Increase the 

sample size until you are confident you have sufficiently reviewed all aspects of the financial 

institution’s activities and policies subject to the regulation. 

1. Obtain and review copies of the following: 

a.	 Disclosure forms; 

b.	 Advertising and scripts for overdraft opt-ins; 

c.	 Account agreements; 

d.	 Procedural manuals and written policies; 

e.	 Merchant agreements; 

f.	 Automated teller machine receipts and periodic statements; 

g.	 Error resolution statements/files; 

h.	 Form letters used in case of errors or questions concerning an account; 

i.	 Any agreements with third parties allocating compliance
 

responsibilities; and
 

j.	 Consumer complaint files. 

[Click&type] 

2. Determine the extent and adequacy of the financial institution’s policies, 

procedures, and practices for ensuring compliance with the regulation. In 

particular, verify that: 

a.	 Access devices are issued in compliance with the regulation (12 CFR 

1005.5(b)). 

b.	 Required disclosures are given at time the account is opened or prior to 

the first EFT (12 CFR 1005.4 and 1005.7(c)). 

c.	 Unauthorized transfer claims are processed in compliance with the 

regulation (12 CFR 1005.6 and 1005.11). 

d.	 Liability for unauthorized transfer claims is assessed in compliance with 

the regulation (12 CFR 1005.6). 

e.	 Negligence is not a factor in determining customer liability. The deposit 

agreement may not impose greater liability than Regulation E provides 

but may provide for less consumer liability (12 CFR 1005.6). 

f.	 Preauthorized debits and credits comply with the regulation (12 CFR 

1005.10). 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 3 
 

 

 

 

 

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Examination Procedures EFTA 

3. If the financial institution has changed the terms or conditions since the last 

examination that required a written notice to the customer, determine that the 

institution provided the proper notice in a timely manner (12 CFR 1005.8(a)). 

[Click&type] 

4. Review a sample of periodic statements to determine that they contain 

sufficient information for the consumer to identify transactions adequately 

and that they otherwise comply with regulatory requirements (12 

CFR 1005.9). 

[Click&type] 

5. Verify that the financial institution does not require compulsory use of 

EFTs, except as authorized (12 CFR 1005.10(e)). 

[Click&type] 

6. Review documents relating to a sample of unauthorized transfers, lost or 

stolen ATM cards, and EFT consumer complaints, and their respective 

periodic statements. During this review: 

a.	 Evaluate the financial institution’s compliance with its error resolution 

procedures to isolate any apparent deficiencies in the financial 

institution’s operations and to ensure that the institution follows its 

policies for unauthorized transfers (12 CFR 1005.6 and 1005.11). 

b.	 Determine whether the financial institution investigates alleged errors 

and notifies consumers of the results within allotted time frames and, 

when appropriate, provisionally re-credits the account (12 CFR 

1005.11(c)). 

c.	 Verify that the financial institution follows regulatory procedures after it 

completes its investigation and determines either that an error occurred 

(12 CFR 1005.11(c)(1)) or that no error occurred (12 CFR 1005.11(d)). 

[Click&type] 

7. Review a periodic statement for each type of account in which electronic 

fund transfers occur to make sure that the statements comply with the 

requirements of the regulation (12 CFR 1005.9(b)). 

[Click&type] 

8. Review ATM and point-of-sale transfer receipts to determine whether they 

provide a clear description of the transaction (12 CFR 1005.9(a)). 

[Click&type] 

9. Determine that the financial institution is maintaining records of compliance 

for a period of not less than two years from the date disclosures are required 

to be made or action is required to be taken (12 CFR 1005.13(b)). 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 4 
 

 

 

 

 

 

 

 

 

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10. If the financial institution maintains payroll card accounts, review a sample
 

of the payroll card accounts. If the financial institution does not provide
 

periodic statements under 12 CFR 1005.9(b) for these accounts, verify that
 

the institution makes available the account balance by telephone, an 

electronic history of account transactions, and (upon request) a written 

history of account transactions (12 CFR 1005.18(b)).
 

[Click&type] 

11. If the financial institution maintains payroll card accounts,verify that the
 

financial institution complies with the modified requirements with respect
 

to the required initial disclosures, error resolution notices, limitations on 

liability, and error resolution procedures (12 CFR 1005.18(c)).
 

[Click&type] 

12. If the financial institution operates one or more ATMs for which it charges a
 

fee for use, determine that the financial institution provides notice of the fee
 

and the amount of the fee both on the machine and on the screen or paper
 

before the consumer is committed to paying the fee (12 CFR 1005.16).
 

[Click&type] 

13. Determine that the financial institution holding a consumer’s account does
 

not assess a fee or charge on a consumer’s account for paying an ATM or
 

one-time debit card transaction pursuant to the institution’s overdraft
 

service,2 unless the institution: 12 CFR 1005.17(b)(1)
 

•	 Provides the consumer with a notice in writing (or if the consumer 

agrees, electronically), that is segregated from all other information and 

describes the institution’s overdraft service; 

•	 Provides a reasonable opportunity for the consumer to affirmatively 

consent, or opt in, to the service for ATM and one-time debit card 

transactions; 

•	 Obtains the consumer’s affirmative consent, or opt-in, to the 

institution’s payment of ATM or one-time debit card transactions; and 

•	 Provides the consumer with confirmation of the consumer's consent in 

writing (or if the consumer agrees, electronically), which includes a 

statement informing the consumer of the right to revoke such consent. 

An institution does not have to meet the notice requirements described above 

if it has a policy and practice of declining to authorize and pay any ATM or 

one-time debit card transactions when it has a reasonable belief at the time of 

2 The term “overdraft service” means a service under which a financial institution assesses a fee or charge on a consumer's 

account held by the institution for paying a transaction (including a check or other item) when the consumer has insufficient or 

unavailable funds in the account. 12 CFR 1005.17(a). “Overdraft service” does not include a service that transfers funds from 

another account held by a consumer or a line of credit. 

CFPB	 Manual V.2 (October 2012) Procedures 5 
 

 

 

 

 

 

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Examination Procedures EFTA 

the authorization request that the consumer does not have sufficient funds 

available to cover the transaction. However, it is still prohibited from 

charging fees for paying an ATM or one-time debit transaction overdraft. (12 

CFR Part 1005, Supp. I, Comment 1005.17(b)-1(iv)). 

NOTE: This section became mandatory on July 1, 2010. However, for 

accounts opened before July 1, the section became mandatory on August 

15, 2010. (12 CFR 1005.17(c)). 

[Click&type] 

13A.	 Determine that in assessing overdraft fees for consumers who have not 

opted in, the institution charges fees only for negative balances, daily, or 

sustained overdraft, or similar fees, when the negative balance is 

attributable in whole or in part to checks, ACH or other transactions not 

subject to the fee prohibition, and the fee is assessed based on the date when 

the check is paid into overdraft, not the date of the ATM or one-time debit 

transaction. (Comment 1005.17(b)-9). 

[Click&type] 

14. Determine that the financial institution does not: 

12 CFR 1005.17(b)(2) 

•	 Condition the payment of any overdrafts for checks, ACH transactions, 

and other types of transactions on the consumer affirmatively 

consenting to the institution’s payment of ATM and one-time debit card 

transactions pursuant to the institution's overdraft service; or 

•	 Decline to pay checks, ACH transactions, and other types of 

transactions that overdraw the consumer’s account because the 

consumer has not affirmatively consented to the institution's overdraft 

service for ATM and one-time debit card transactions. 

[Click&type] 

15. Determine that the financial institution provides to consumers who do not 

affirmatively consent to the institution’s overdraft service for ATM and 

one-time debit card transactions the same account terms, conditions, and 

features that it provides to consumers who affirmatively consent, except for 

the overdraft service for ATM and one-time debit card transactions. 12 CFR 

1005.17(b)(3). 

[Click&type] 

16. Ensure that the notice required by 12 CFR 1005.17(b)(1)(i) is substantially 

similar to Model Form A–9, includes all applicable items in the following 

list, and does not contain any additional information: 12 CFR 1005.17(d) 

and Comments 1005.17(d)-1 through 1005.17(d)-5. 

CFPB	 Manual V.2 (October 2012) Procedures 6 
 

 

 

 

 

 

 

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Overdraft service. A brief description of the financial institution’s overdraft 

service and the types of transactions for which a fee or charge for paying an 

overdraft may be imposed, including ATM and one-time debit card 

transactions. 

Fees imposed. The dollar amount of any fees or charges assessed by the 

financial institution for paying an ATM or one-time debit card transaction 

pursuant to the institution’s overdraft service, including any daily or other 

overdraft fees. If the amount of the fee is determined on the basis of the 

number of times the consumer has overdrawn the account, the amount of 

the overdraft, or other factors, the institution must disclose the maximum 

fee that may be imposed. 

Limits on fees charged. The maximum number of overdraft fees or charges 

that may be assessed per day, or, if applicable, that there is no limit. 

Disclosure of opt-in right. An explanation of the consumer’s right to 

affirmatively consent to the financial institution's payment of overdrafts for 

ATM and one-time debit card transactions pursuant to the institution’s 

overdraft service, including the methods by which the consumer may 

consent to the service; and 

Alternative plans for covering overdrafts. If the institution offers both a line 

of credit subject to Regulation Z (12 CFR Part 1026) and a service that 

transfers funds from another account of the consumer held at the institution to 

cover overdrafts, the institution must state in its opt-in notice that both 

alternative plans are offered. If the institution offers one, but not the other, it 

must state in its opt-in notice the alternative plan that it offers. If the 

institution does not offer either plan, it should omit the reference to the 

alternative plans. If the financial institution offers additional alternatives for 

paying overdrafts, it may (but is not required to) disclose those alternatives. 

Permitted modifications and additional content. If applicable, the institution 

may modify the content required by 12 CFR 1005.17(d) to indicate that the 

consumer has the right to opt into, or opt out of, the payment of overdrafts 

under the institution’s overdraft service for other types of transactions, such 

as checks, ACH transactions, or automatic bill payments; to provide a 

means for the consumer to exercise this choice; and to disclose the 

associated returned item fee and that additional merchant fees may apply. 

The institution may also disclose the consumer’s right to revoke consent. 

The response portion of Model Form A-9 may be tailored to the methods 

offered for opting in, and may include reasonable methods to identify the 

account, such as a bar code. For notices provided to consumers who opened 

accounts prior to July 1, 2010, the financial institution may describe the 

institution’s overdraft service with respect to ATM and one-time debit card 

transactions with a statement such as “After August 15, 2010, we will not 

authorize and pay overdrafts for the following types of transactions unless 

you ask us to (see below).” 

CFPB Manual V.2 (October 2012) Procedures 7 
 

 

 

 

 

 

 

 

 

 

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Examination Procedures EFTA 

[Click&type] 

17. Determine that, when two or more consumers jointly hold an account, the
 

financial institution treats the affirmative consent of any of the joint 

consumers as affirmative consent for that account, and treats a revocation of
 

affirmative consent by any of the joint consumers as revocation of consent
 

for that account. 12 CFR 1005.17(e).
 

[Click&type] 

18. Ensure that a consumer may affirmatively consent to the financial
 

institution's overdraft service at any time in the manner described in the
 

institution’s (12 CFR 1005.17(b)(1)(i)) notice, and that a consumer may
 

also revoke consent at any time in the manner made available to the 

consumer for providing consent. 12 CFR 1005.17(f).
 

[Click&type] 

19. Determine that the financial institution implements a consumer's revocation
 

of consent as soon as reasonably practicable. 12 CFR 1005(17)(f).
 

[Click&type] 

20. Determine that a consumer’s affirmative consent to the institution's
 

overdraft service is effective until revoked by the consumer, or until the
 

financial institution terminates the service.12 CFR 1005.17(g).
 

[Click&type] 

21. Determine that gift card disclosures (made under 12 CFR 1005.20 of
 

Regulation E) are clear and conspicuous. 12 CFR 1005.20(c)(1) Further 

determine that the disclosures are provided to the consumer in a retainable
 

written or electronic form. Only disclosures provided under 12 CFR
 

1005.20(c)(3) (prior to purchase of a gift certificate, store gift card or
 

general-use prepaid card) [or 12 CFR 1005.20(h)(2), if applicable3

] may be
 

given orally. 12 CFR 1005.20(c)(2).
 

NOTE: as explained by the rulemaking’s prefatory material, permitting oral 

disclosures is necessary in limited circumstances where disclosures cannot 

be made prior to purchase unless made orally, such as when a certificate or 

card is purchased by telephone. Though disclosures required to be made 

prior to purchase can be made orally, the rule still requires written or 

electronic disclosures to be provided on or with the certificate or card. 

[Click&type] 

3 Section 1005.20(h)(2) allows a delayed effective date – until January 31, 2011 – for disclosures on the card for gift cards that 

were produced before April 1, 2010. Throughout the remainder of the examination procedures, such sections are denoted by a 

triple asterisk ***. 

CFPB	 Manual V.2 (October 2012) Procedures 8 
 

 

 

 

 

 

 

 

 

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Examination Procedures EFTA 

22. Determine that the disclosures required by: 

•	 12 CFR 1005.20(a)(4)(iii) (loyalty, award, or promotional gift card); 

•	 12 CFR 1005.20(d)(2) (dormancy, inactivity, or service fees); 

•	 12 CFR 1005.20(e)(3) (expiration date or phone and web regarding 

replacement); and 

•	 12 CFR 1005.20(f)(2) (phone and web regarding fees), 

are made on the certificate or card, or in the case of a loyalty, award, or 

promotional gift card, on the card, code, or other device.*** 

NOTE: A disclosure made in an accompanying terms and conditions 

document, on packaging surrounding a certificate or card, or on a sticker or 

other label affixed to the certificate or card does not constitute a disclosure 

on the certificate or card. 

If the certificate or card is electronic, determine that disclosures are 

provided electronically on the certificate or card provided to the consumer. 

If an issuer provides a code or confirmation to a consumer orally, determine 

that the issuer provides to the consumer a written or electronic copy of the 

code or confirmation promptly, and the applicable disclosures are provided 

on the written copy of the code or confirmation. 12 CFR 1005.20(c)(4). 

[Click&type] 

23. Determine that the following are stated, as applicable, clearly and 

conspicuously on the gift certificate, store gift card, or general-use prepaid 

card:*** 

•	 The amount of any dormancy, inactivity, or service fee that may be 

charged; 

•	 How often such fee may be assessed; and 

•	 That such fee may be assessed for inactivity. 12 CFR 1005.20(d)(2). 

[Click&type] 

24. Determine that the following disclosures are provided in connection with a 

gift certificate, store gift card, or general-use prepaid card as applicable: *** 

•	 For each type of fee that may be imposed in connection with the 

certificate or card (other than a dormancy, inactivity, or service fee, 

which are discussed above) the following information must be provided 

on or with the certificate or card: 12 CFR 1005.20(f)(1). 

o	 The type of fee; 

o	 The amount of the fee (or an explanation of how the fee will be 

determined); and 

o	 The conditions under which the fee may be imposed. 

•	 A toll-free telephone number and, if one is maintained, a website, that a 

CFPB	 Manual V.2 (October 2012) Procedures 9 
 

 

 

 

CFPB 

Examination Procedures EFTA 

consumer may use to obtain information about fees described in 

paragraphs 12 CFR 1005.20(d)(2) and 12 CFR 1005.20(f)(1) (described 

immediately above) of this section must be disclosed on the certificate 

or card. 12 CFR 1005.20(f)(2). 

[Click&type] 

25. If an expiration date applies to a certificate or card, determine that the 

following disclosures are provided on the certificate or card, as applicable: 

*** 

•	 The expiration date for the underlying funds or, if the underlying funds 

do not expire, that fact; 

•	 A toll-free telephone number and, if one is maintained, a website that a 

consumer may use to obtain a replacement certificate or card after the 

certificate or card expires if the underlying funds may be available; and 

•	 Except where a non-reloadable certificate or card bears an expiration 

date that is at least seven years from the date of manufacture, a 

statement, disclosed with equal prominence and in close proximity to 

the certificate or card expiration date, that: 

o	 The certificate or card expires, but the underlying funds either do 

not expire or expire later than the certificate or card, and 

•	 The consumer may contact the issuer for a replacement card. 12 CFR 

1005.20(e)(3). 

[Click&type] 

26. Determine that a loyalty, award, or promotional gift card sold or issued by 

the examined institution sets forth the following disclosures, as applicable: 

12 CFR 1005.20(a)(4)(iii) 

•	 A statement on the front of the card, code, or other device, indicating 

that the card, code, or other device is issued for loyalty, award, or 

promotional purposes; 

•	 The expiration date for the underlying funds on the front of the card, 

code, or other device; 

•	 The amount of any fees that may be imposed in connection with the 

card, code, or other device, and the conditions under which they may be 

imposed. This disclosure must be provided on or with the card, code, or 

other device; and 

•	 A toll-free telephone number and, if one is maintained, a website that a 

consumer may use to obtain fee information on the card, code, or other 

device. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 10 
 

 

 

 

 

 

 

 

CFPB 

Examination Procedures EFTA 

27. Determine that a person (examined institution) that issues or sells a gift 

certificate, store gift card, or general-use prepaid card discloses to the 

consumer, prior to purchase, the information required by 12 CFR 

1005.20(d)(2) (dormancy, inactivity, or service fees), 12 CFR 1005.20(e)(3) 

(expiration date or phone and web regarding replacement), and 12 CFR 

1005.20(f)(1) (other fees). 12 CFR 1005.20(c)(3). 

[Click&type] 

28. Determine that the fees and terms and conditions of expiration that are 

required to be disclosed prior to purchase are not changed after purchase. 12 

CFR 1005.20(c)(3). *** 

[Click&type] 

29. Determine that no person(examined institution) imposes a dormancy, 

inactivity, or service fee with respect to a gift certificate, store gift card, or 

general-use prepaid card, unless: 12 CFR 1005.20(d). 

•	 There has been no activity with respect to the certificate or card, in the 

one year period ending on the date on which the fee is imposed; 

•	 Required disclosures are provided; 

•	 Not more than one dormancy, inactivity, or service fee is imposed in 

any given calendar month. 

[Click&type] 

30. Determine that the person (examined institution) does not sell or issue a gift 

certificate, store gift card, or general-use prepaid card with an expiration 

date unless: 12 CFR 1005.20(e). *** 

•	 Required expiration date disclosures are provided on the certificate or 

card, as applicable; 

•	 It has established policies and procedures to provide consumers with a 

reasonable opportunity to purchase a certificate or card with at least five 

years remaining until the certificate or card expiration date; 

•	 The expiration date for the underlying funds is at least the later of: 

o	 Five years after the date the gift certificate was initially issued, or 

the date on which funds were last loaded to a store gift card or 

general-use prepaid card; or 

o	 The certificate or card expiration date, if any; and 

•	 No fee or charge is imposed on the cardholder for replacing the gift 

certificate, store gift card, or general-use prepaid card or for providing 

the certificate or card holder with the remaining balance in some other 

manner prior to the funds expiration date, unless such certificate or card 

has been lost or stolen. 

CFPB	 Manual V.2 (October 2012) Procedures 11 
 

 

 

 

 

 

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[Click&type] 

31. For cards produced prior to April 1, 2010, 12 CFR 1005.20 (c)(3), (d)(2),
 

(e)(1), (e)(3), and (f) did not apply until January 31, 2011, if certain
 

conditions were met. If applicable, determine that the issuer: 

•	 Complies with all other non-suspended provisions of the gift card rules; 

•	 Does not impose an expiration date with respect to the funds underlying 

such certificate or card and, at the consumer’s request, replaces such 

certificate or card if it has funds remaining, at no cost to the consumer; 

•	 Discloses through in-store signage, messages during customer service 

calls, websites, and general advertising, that: 

o	 The underlying funds of such certificate or card do not expire; 

o	 Consumers holding such certificate or card have a right to a free 

replacement certificate or card, accompanied by the packaging and 

materials typically associated with such certificate or card; and 

o	 Any dormancy, inactivity, or service fee for such certificate or card 

that might otherwise be charged will not be charged if such fees do 

not comply with Section 915 of the Electronic Fund Transfer Act. 

Determine that the above disclosures (i) were provided until January 31, 

2011, with respect to in-store signage and general advertising, (ii) and are 

provided until January 31, 2013, with respect to messages during customer 

service calls and websites. 

[Click&Type] 

Examiner’s Summary, Recommendations, and Comments 

[Click&Type] 

CFPB	 Manual V.2 (October 2012) Procedures 12 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Audit Financial Institution Policies Transaction Testing 

Yes	 No NA 

CFPB 

Examination Checklist EFTA 

Electronic Fund Transfer 

Act1 (Regulation E) 

This questionnaire can be used to review audit 

workpapers, to evaluate financial institution 

policies, to perform transaction testing, and to train as appropriate. Complete only those aspects 

of the checklist that specifically relate to the issue being reviewed, evaluated, or tested, and 

retain those completed sections in the workpapers. 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

When reviewing audit, evaluating financial institution policies, or performing transaction testing, a 

“No” answer indicates a possible exception/deficiency and you should explain it in the workpapers. 

If a line item is not applicable within the area you are reviewing, indicate by using “NA.” 

Check the applicable use: 

Issuance of Access Devices – 12 CFR 1005.5 

1. Do the financial institution’s policies, practices, and procedures 

allow that validated access devices are issued only: 

•	 In response to oral or written requests (12 CFR 1005.5(a)(1)) 

or
 

•	 As a renewal or substitution for an accepted access device?
 

(12 CFR 1005.5(a)(2))
 

2. Do the financial institution’s policies, practices, and procedures 

allow that unsolicited access devices are issued only when the 

devices are: 

• Not validated? (12 CFR 1005.5(b)(1)) 

•	 Accompanied by a clear explanation that they are not
 

validated and how they may be disposed of if validation is
 

not desired? (12 CFR 1005.5(b)(2))
 

•	 Accompanied by the initial disclosures required by 12 CFR
 

1005.7? (12 CFR 1005.5(b)(3)) 

1 These reflect FFIEC-approved procedures. 

CFPB	 Manual V.2 (October 2012) Checklist 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes	 No NA 

CFPB 

Examination Checklist EFTA 

•	 Validated only in response to a consumer’s request and after
 

the financial institution has verified the consumer’s identity
 

by reasonable means (e.g., photograph, fingerprint, personal
 

visit, signature)? (12 CFR 1005.5(b)(4) and Staff
 

Commentary)
 

Consumer Liability for Unauthorized Electronic Fund 

Transfers – 12 CFR 1005.6 

3. Does the financial institution impose liability on the consumer 

for unauthorized transfers only if: (12 CFR 1005.6(a)) 

•	 Any access device that was used was an accepted access
 

device?
 

•	 The institution has provided a means to identify the
 

consumer to whom it was issued?
 

•	 The institution has provided the disclosures required by 

12 CFR 1005.7(b)(l), (2), and (3)?
 

4. Does the financial institution not rely on consumer negligence or 

the deposit agreement to impose greater consumer liability for 

unauthorized EFTs than is permitted under Regulation E? (12 

CFR Part 1005, Supp. 1, Comments 1005.6(b)-1 and -2) 

5. If a consumer notifies the financial institution within two 

business days after learning of the loss or theft of an access 

device, does the financial institution limit the consumer’s 

liability for unauthorized EFTs to the lesser of $50 or actual 

loss? (12 CFR 1005.6(b)(1)) 

6. If a consumer does not notify the financial institution within two 

business days after learning of the loss or theft of an access 

device, does the institution limit the consumer’s liability for 

unauthorized EFTs to the lesser of $500 or the sum of (12 CFR 

1005.6(b)(2)): 

•	 $50 or the amount of unauthorized EFTs that occurred within 

the two business days, whichever is less;
 

plus 

•	 The amount of unauthorized EFTs that occurred after the
 

close of two business days and before notice to the financial
 

institution (provided the financial institution establishes that 

these transfers would not have occurred had the consumer
 

notified the financial institution within that two-day period)?
 

CFPB	 Manual V.2 (October 2012) Checklist 2 
 

 

 

 

 

 

 

 

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Examination Checklist EFTA 

Yes No NA 

7. If a consumer notifies the financial institution of an unauthorized 

EFT within 60 calendar days of transmittal of the periodic 

statement upon which the unauthorized EFT appears, does the 

financial institution not hold the consumer liable for the 

unauthorized transfers that occur after the 60-day period? (12 

CFR 1005.6(b)(3)) 

8. If a consumer does not notify the financial institution of an 

unauthorized EFT within 60 calendar days of transmittal of the 

periodic statement upon which the unauthorized EFT appears, 

does the financial institution ensure that the consumer’s liability 

does not exceed the amount of the unauthorized transfers that 

occur after the close of the 60 days and before notice to the 

financial institution, if the financial institution establishes that 

the transfers would not have occurred had timely notice been 

given? (12 CFR 1005.6(b)(3)) 

9. If a consumer notifies the financial institution of an unauthorized 

EFT within the timeframes discussed in questions 7 or 8 and the 

consumer’s access device is involved in the unauthorized 

transfer, does the financial institution hold the consumer liable 

for amounts as set forth in 12 CFR 1005.6(b)(1) or (2) 

(discussed in questions 5 and 6)? (12 CFR 1005.6(b)(3)) 

NOTE: The first two tiers of liability (as set forth in 12 CFR 

1005.6(b)(1) and (2) and discussed in questions 5 and 6) do not 

apply to unauthorized transfers from a consumer’s account made 

without an access device. (Comment 1005.6(b)(3)-2) 

10. Does the financial institution extend the 60-day time period by a 

reasonable amount, if the consumer’s delay in notification was 

due to an extenuating circumstance? (12 CFR 1005.6(b)(4)) 

11. Does the financial institution consider notice to be made when 

the consumer takes steps reasonably necessary to provide the 

institution with pertinent information, whether or not a particular 

employee or agent of the institution actually received the 

information? (12 CFR 1005.6(b)(5)(i)) 

12. Does the financial institution allow the consumer to provide 

notice in person, by telephone, or in writing? (12 CFR 

1005.6(b)(5)(ii)) 

CFPB Manual V.2 (October 2012) Checklist 3 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Examination Checklist EFTA 

13. Does the financial institution consider written notice to be given 

at the time the consumer mails or delivers the notice for 

transmission to the institution by any other usual means? (12 

CFR 1005.6(b)(5)(iii)) 

14. Does the financial institution consider notice given when it 

becomes aware of circumstances leading to the reasonable belief 

that an unauthorized transfer to or from the consumer’s account 

has been or may be made? (12 CFR 1005.6(b)(5)(iii)) 

15. Does the financial institution limit the consumer’s liability to a 

lesser amount than provided by 12 CFR 1005.6, when state law 

or an agreement between the consumer and the financial 

institution provide for such an amount? (12 CFR 1005.6(b)(6)) 

Initial Disclosures – 12 CFR 1005.7 

16. Does the financial institution provide the initial disclosures at the 

time a consumer contracts for an EFT service or before the first 

EFT is made involving the consumer’s account? (12 CFR 

1005.7(a)) 

17. Do the financial institution’s initial disclosures provide the 

following information, as applicable: 

•	 A summary of the consumer’s liability for unauthorized 

transfers under 12 CFR 1005.6 or under state or other
 

applicable law or agreement? (12 CFR 1005.7(b)(1))
 

•	 The telephone number and address of the person or office to
 

be notified when the consumer believes that an unauthorized 

EFT has been or may be made? (12 CFR 1005.7(b)(2))
 

•	 The financial institution’s business days? (12 CFR
 

1005.7(b)(3))
 

•	 The type of EFTs the consumer may make and any limits on
 

the frequency and dollar amount of transfers? (If details on 

the limits on frequency and dollar amount are essential to 

maintain the security of the system, they need not be
 

disclosed.) (12 CFR 1005.7(b)(4))
 

•	 Any fees imposed by the financial institution for EFTs or for
 

the right to make transfers? (12 CFR 1005.7(b)(5))
 

CFPB	 Manual V.2 (October 2012) Checklist 4 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Examination Checklist EFTA 

•	 A summary of the consumer’s right to receive receipts and 

periodic statements, as provided in 12 CFR 1005.9, and 

notices regarding preauthorized transfers as provided in 12 

CFR 1005.10(a) and 1005.10(d)? (12 CFR 1005.7(b)(6)) 

•	 A summary of the consumer’s right to stop payment of a 

preauthorized EFT and the procedure for placing a stop 

payment order, as provided in 12 CFR 1005.10(c)? (12 CFR 

1005.7(b)(7)) 

•	 A summary of the financial institution’s liability to the 

consumer for its failure to make or to stop certain transfers 

under the EFTA? 

(12 CFR 1005.7(b)(8)) 

•	 The circumstances under which the financial institution, in 

the ordinary course of business, may disclose information to 

third parties concerning the consumer’s account? (12 CFR 

1005.7(b)(9)) 

•	 An error resolution notice that is substantially similar to the 

Model Form A-3 in appendix A? (12 CFR 1005.7(b)(10)) 

•	 A notice that a fee may be imposed by an ATM operator (as 

defined in 12 CFR 1005.16(a)) when the consumer initiates 

an EFT or makes a balance inquiry and by any network used 

to complete the transaction? (12 CFR 1005.7(b)(11)) 

18. Does the financial institution provide disclosures at the time a 

new EFT service is added, if the terms and conditions of the 

service are different than those initially disclosed? (12 CFR 

1005.7(c)) 

Change-in-Terms Notice;
 

Error Resolution Notice – 12 CFR 1005.8
 

19. If the financial institution made any changes in terms or 

conditions required to be disclosed under 12 CFR 1005.7(b) that 

would result in increased fees, increased liability, fewer types of 

available EFTs, or stricter limits on the frequency or dollar 

amount of transfers, did the financial institution provide a 

written notice to consumers at least 21 days prior to the effective 

date of such change? (12 CFR 1005.8(a)) 

CFPB	 Manual V.2 (October 2012) Checklist 5 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes No NA 

CFPB 

Examination Checklist EFTA 

20. Does the financial institution provide either the long form error 

resolution notice at least once every calendar year or the short 

form error resolution notice on each periodic statement? (12 

CFR 1005.8(b)) 

Receipts at Electronic Terminals; 

Periodic Statements – 12 CFR 1005.9 

21. Does the financial institution make receipts available to the 

consumer at the time the consumer initiates an EFT at an 

electronic terminal? The financial institution is exempt from this 

requirement for EFTs of $15 or less. (12 CFR 1005.9(a) and (e)) 

22. Do the receipts contain the following information, as applicable: 

•	 The amount of the transfer? (12 CFR 1005.9(a)(1)) 

•	 The date the transfer was initiated? (12 CFR 1005.9(a)(2)) 

•	 The type of transfer and the type of account to or from which 

funds were transferred? (12 CFR 1005.9(a)(3)) 

•	 A number or code that identifies the consumer’s account or 

the access device used to initiate the transfer? (12 CFR 

1005.9(a)(4)) 

•	 The terminal location where the transfer is initiated? (12 

CFR 1005.9(a)(5)) 

•	 The name or other identifying information of any third party 

to or from whom funds are transferred? (12 CFR 

1005.9(a)(6)) 

23. Does the financial institution send a periodic statement for each 

monthly cycle in which an EFT has occurred? If no EFT 

occurred, does the financial institution send a periodic statement 

at least quarterly? (12 CFR 1005.9(b)) 

24. Does the periodic statement contain the following information, 

as applicable: 

•	 Transaction information for each EFT occurring during the 

cycle, including the amount of transfer, date of transfer, type 

of transfer, terminal location, and name of any third-party 

transferor or transferee? (12 CFR 1005.9(b)(1)) 

•	 Account number? (12 CFR 1005.9(b)(2)) 

•	 Fees? (12 CFR 1005.9(b)(3)) 

CFPB	 Manual V.2 (October 2012) Checklist 6 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Examination Checklist EFTA 

Yes No NA 

•	 Account balances? (12 CFR 1005.9(b)(4)) 

•	 Address and telephone number for inquiries? (12 CFR 

1005.9(b)(5)) 

•	 Telephone number to ascertain preauthorized transfers, if the 

financial institution provides telephone notice under 12 CFR 

1005.10(a)(1)(iii)? (12 CFR 1005.9(b)(6)) 

Preauthorized Transfers – 12 CFR 1005.10 

25. If a consumer’s account is to be credited by a preauthorized EFT 

from the same payor at least once every 60 days (and the payor 

does not already provide notice to the consumer that the transfer 

has been initiated) (12 CFR 1005.10(a)(2)), does the financial 

institution do one of the following: 

•	 Provide oral or written notice, within two business days, 

after the transfer occurs? (12 CFR 1005.10(a)(1)(i)) 

•	 Provide oral or written notice, within two business days after 

the transfer was scheduled to occur, that the transfer did or 

did not occur? (12 CFR 1005.10(a)(1)(ii)) 

•	 Provide a readily available telephone line that the consumer 

can call to determine if the transfer occurred and that 

telephone number is disclosed on the initial disclosure of 

account terms and on each periodic statement? (12 CFR 

1005.10(a)(1)(iii)) 

26. Does the financial institution credit the amount of a 

preauthorized transfer as of the date the funds for the transfer are 

received? (12 CFR 1005.10(a)(3)) 

27. Does the financial institution ensure that an authorization is 

obtained for preauthorized transfers from a consumer’s account 

by a written, signed or similarly authenticated authorization, and 

is a copy of the authorization provided to the consumer? (12 

CFR 1005.10(b)) 

28. Does the financial institution allow the consumer to stop 

payment on a preauthorized EFT by oral or written notice at 

least three business days before the scheduled date of the 

transfer? (12 CFR 1005.10(c)(1)) 

CFPB	 Manual V.2 (October 2012) Checklist 7 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CFPB 

Examination Checklist EFTA 

29. If the financial institution requires that the consumer give written 

confirmation of an oral stop-payment order within 14 days, does 

the financial institution inform the consumer, at the time they 

give oral notification, of the requirement and provide the address 

where they must send the written confirmation? 

NOTE: An oral stop-payment order ceases to be binding after
 

14 days if the consumer fails to provide the required written 

confirmation. (12 CFR 1005.10(c)(2))
 

30. Does the financial institution inform, or ensure that third-party 

payees inform, the consumer of the right to receive notice of all 

varying transfers? 

or 

Does the financial institution give the consumer the option of
 

receiving notice only when a transfer falls outside a specified
 

range of amounts or differs from the most recent transfer by an 

agreed-upon amount? (12 CFR 1005.10(d)(2))
 

31. If the financial institution or third-party payee is obligated to 

send the consumer written notice of the EFT of a varying 

amount, does the financial institution ensure that: 

•	 The notice contains the amount and date of transfer? 

•	 The notice is sent at least 10 days before the scheduled date 

of transfer? (12 CFR 1005.10(d)(1))
 

32. Does the financial institution not condition an extension of credit 

to a consumer on the repayment of loans by preauthorized EFT, 

except for credit extended under an overdraft credit plan or 

extended to maintain a specified minimum balance in the 

consumer’s account? (12 CFR 1005.10(e)(1)) 

33. Does the financial institution not require a consumer to establish 

an account for EFTs with a particular institution as a condition 

of employment or receipt of government benefits? (12 CFR 

1005.10(e)(2)) 

Procedures for Resolving Errors – 12 CFR 1005.11 

34. Does the financial institution have procedures to investigate and 

resolve all oral or written notices of error received no later than 

60 days after the institution sends the periodic statement or 

provides passbook documentation? (12 CFR 1005.11(b)(2)) 

CFPB	 Manual V.2 (October 2012) Checklist 8 
CFPB 

Examination Checklist EFTA 

CFPB Manual V.2 (October 2012) Checklist 9 

 Yes No NA 

35. If the financial institution requires written confirmation of an 

error within 10 business days of an oral notice, does the financial 

institution inform the consumer of this requirement and provide 

the address where the written confirmation must be sent? (12 

CFR 1005.11(b)(2)) 

36. Does the financial institution have procedures to investigate and 

resolve alleged errors within 10 business days, except as 

otherwise provided in 12 CFR 1005.11(c)? (12 CFR 

1005.11(c)(1)) 

NOTE: The time period is extended in certain circumstances. 

(12 CFR 1005.11(c)(3)) 

37. Does the financial institution report investigation results to the 

consumer within three business days after completing its 

investigation and correct any error within one business day after 

determining that an error occurred? (12 CFR 1005.11(c)(1)) 

38. If the financial institution is unable to complete its investigation 

within 10 business days, does the financial institution have 

procedures to investigate and resolve alleged errors within 45 

calendar days of receipt of a notice of error; and: 

• Does the financial institution provisionally credit the 

consumer’s account in the amount of the alleged error 

(including interest, if applicable) within 10 business days of 

receiving the error notice (however, if the financial 

institution requires, but does not receive, written 

confirmation within 10 business days, the financial 

institution is not required to provisionally credit the 

consumer’s account)? 

• Within two business days after granting any provisional 

credit, does the financial institution inform the consumer of 

the amount and date of the provisional credit and gives the 

consumer full use of the funds during the investigation? 

• Within one business day after determining that an error 

occurred, does the financial institution correct the error? and 

• Does the financial institution report the results to the 

consumer within three business days after completing its 

investigation including, if applicable, notice that a 

provisional credit has been made final? (12 CFR 1005.11(c)) 

NOTE: The time period is extended in certain circumstances 

(12 CFR 1005.11(c)(3)) 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes	 No NA 

CFPB 

Examination Checklist EFTA 

39. If a billing error occurred, does the financial institution not 

impose a charge related to any aspect of the error-resolution 

process? (Comment 1005.11(c)-3) 

40. If the financial institution determines that no error occurred (or 

that an error occurred in a manner or amount different from that 

described by the consumer), does the financial institution send a 

written explanation of its findings to the consumer and note the 

consumer’s right to request the documents the financial 

institution used in making its determination? (12 CFR 

1005.11(d)(1)) 

41. When the financial institution determines that no error (or a 

different error) occurred, does the financial institution notify the 

consumer of the date and amount of the debiting of the 

provisionally credited amount and the fact that the financial 

institution will continue to honor checks and drafts to third 

parties and preauthorized transfers for five business days (to the 

extent that they would have been paid if the provisionally 

credited funds had not been debited)? (12 CFR 1005.11(d)(2)) 

Record Retention – 12 CFR 1005.13 

42. Does the financial institution maintain evidence of compliance 

with the requirements of the EFTA and Regulation E for a 

period of two years? (12 CFR 1005.13(b)) 

Disclosures at Automated Teller 

Machines (ATM) – 12 CFR 1005.16 

43. If the financial institution operates an ATM and imposes a fee on 

a consumer for initiating an EFT or balance inquiry, does the 

financial institution provide notice that a fee will be imposed and 

disclose the amount of the fee? (12 CFR 1005.16(b)) 

44. Does the financial institution post the notice required by 12 CFR 

1005.16(b) in a prominent and conspicuous location on or at the 

ATM? (12 CFR 1005.16(c)(1)) 

45. Does the financial institution provide the notice required by 12 

CFR 1005.16(b) either by showing it on the ATM screen or by 

providing it on paper before the consumer is committed to 

paying a fee? (12 CFR 1005.16(c)(2)) 

CFPB	 Manual V.2 (October 2012) Checklist 10 
 

 

 

 

Yes	 No NA

 

 

 

 

 

 

 

 

 

 

CFPB 

Examination Checklist EFTA 

Requirements for Overdraft Services – 12 CFR 1005.17 

46. Does the financial institution’s Overdraft Protection Program 

incorporate any guidance issued by its agency, as applicable? 

47. Does the financial institution’s Overdraft Protection Program 

provide “overdraft services,” i.e., charge fees for paying ATM 

and one-time debit overdrafts? (12 CFR 1005.17(a)) If no, do 

not complete this section. 

48. If the financial institution assesses a fee or charge (NOTE: fees 

or charges may generally be assessed only on transactions paid 

after the confirmation has been mailed or delivered) on the 

consumer’s account for paying an ATM or one-time debit card 

transaction pursuant to the financial institutions overdraft 

service, does the financial institution first 

(12 CFR 1005.17(b)(1)): 

•	 Provide the consumer with a notice in writing, or if the
 

consumer agrees, electronically, that is segregated from all
 

other information and describes the institution’s overdraft
 

service (12 CFR 1005.17(b)(1)(i));
 

•	 Provide a reasonable opportunity for the consumer to 

affirmatively consent, or opt-in, to the institution’s payment
 

of ATM and one-time debit card transactions
 

(12 CFR 1005.17(b)(1)(ii));
 

•	 Obtain the consumer’s affirmative consent, or opt-in, to the
 

institution’s payment of ATM or one-time debit card
 

transactions (12 CFR 1005.17(b)(1)(iii)); and
 

•	 Provide the consumer with confirmation of the consumer’s
 

consent in writing, or if the consumer agrees, electronically, 

which includes a statement informing the consumer of the
 

right to revoke such consent? (12 CFR 1005.17(b)(1)(iv)) 

49. Does the financial institution ensure that it does not condition 

the payment of any overdrafts for checks, ACH transactions, and 

other types of transactions on the consumer affirmatively 

consenting to the institution’s payment of ATM and one-time 

debit card transactions pursuant to the institution’s “overdraft 

services”? (12 CFR 1005.17(b)(2)(i)) 

CFPB	 Manual V.2 (October 2012) Checklist 11 
 

 

 

 

 

 

 

 

 

CFPB 

Examination Checklist EFTA 

Yes No NA 

50. Does the financial institution pay checks, ACH transactions, and 

other types of transactions that overdraw the consumer’s account 

regardless of whether the consumer has affirmatively consented 

to the institution’s overdraft protection service for ATM and 

one-time debit card transactions? (12 CFR 1005.17(b)(2)(ii)) 

51 For consumers who have not opted in, and if an overdraft fee or 

charge is based on the amount of the outstanding negative 

balance, does the institution only assess fees where the negative 

balance is attributable in whole or in part to a check, ACH, or 

other type of transaction not subject to the prohibition on 

assessment of overdraft fees? 

For consumers who have not opted in, does the financial 

institution only assess daily or sustained overdraft, negative 

balance, or similar fees or charges where the negative balance is 

attributable in whole or in part to a check, ACH, or other type of 

transaction not subject to the prohibition on assessment of 

overdraft fees? 

Does the institution base the date on which such a daily or 

sustained overdraft, negative balance, or similar fee or charge is 

assessed on the date on which the check, ACH, or other type of 

transaction was paid into overdraft? (Comment 1005.17(b)-9) 

52. Does the financial institution provide consumers who do not 

affirmatively consent to the institution’s overdraft service for 

ATM and one-time debit card transactions the same account 

terms, conditions, and features that it provides to consumers who 

affirmatively consent, except for the overdraft service for ATM 

and one-time debit card transactions? (12 CFR 1005.17(b)(3)) 

53. Is the notice required by (12 CFR 1005.17(b)(1)(i)) substantially 

similar to Model Form A-9 set forth in Appendix A of 

(12 CFR 1005.17), including applicable items from the list 

below, and does it not contain any additional information? 

(12 CFR 1005.17(d)) 

• Overdraft Service – Does the notice provide a brief 

description of the overdraft service and the types of 

transactions for which a fee or charge off paying an overdraft 

may be imposed, including ATM and one-time debit card 

transactions? (12 CFR 1005.17(d)(1)) 

CFPB Manual V.2 (October 2012) Checklist 12 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB 

Examination Checklist EFTA 

Yes No NA 

•	 Fees imposed – Does the notice contain the dollar amount of 

any fees or charges assessed by the financial institution for 

paying an ATM or one-time debit card transaction pursuant 

to the financial institution’s overdraft service, including any 

daily or other overdraft fees? 

NOTE: If the amount of the fee is determined on the basis of 

the number of times the consumer has overdrawn the 

account, the amount of the overdraft, or other factors, the 

institution must disclose the maximum fee that may be 

imposed. (12 CFR 1005.17(d)(2)) 

•	 Limits on Fees Charged – Does the notice disclose the 

maximum number of overdraft fees or charges that may be 

assessed per day, or, if applicable, that there is no limit? 

(12 CFR 1005.17(d)(3)) 

•	 Disclosure of opt-in right – Does the notice explain the 

consumer’s right to affirmatively consent to the financial 

institution’s payment of overdrafts for ATM and one-time 

debit card transactions pursuant to the institution’s overdraft 

service, including the methods by which the consumer may 

consent to the service? (12 CFR 1005.17(d)(4)) 

•	 Alternative Plans for Covering Overdrafts – As applicable, 

does the institution’s opt-in notice appropriately address the 

alternative methods for covering overdrafts? 

•	 If the institution offers both a line of credit subject to 

Regulation Z (12 CFR Part 1026) and a service that transfers 

funds from another account of the consumer held at the 

institution to cover overdrafts, does the notice state that both 

alternative plans are offered? 

•	 If the institution offers one, but not the other, does the notice 

state which of the alternative plan it offers. If the institution 

does not offer either a line of credit subject to Regulation Z 

(12 CFR Part 1026) or a service that transfers funds from 

another account of the consumer held at the institution to 

cover overdrafts plan, does the notice exclude information 

regarding either of these plans. 

•	 If the financial institution offers additional alternatives for 

paying overdrafts, at its option the institution may (but is not 

required to) disclose those alternatives. Does its notice 

describe those alternatives? 

CFPB	 Manual V.2 (October 2012) Checklist 13 
 

 

 

 

 

 

 

 

 

 

 

Yes No NA 

CFPB 

Examination Checklist EFTA 

•	 Permitted Modifications and Additional Content – If the 

institution modifies the notice, are the modifications 

permitted: to indicate that the consumer has the right to opt 

into, or out of, the payment of overdrafts under the 

institution’s overdraft service for other types of transactions, 

such as checks, ACH transactions, or automatic bill 

payments; to provide a means for the consumer to exercise 

this choice; and to disclose the associated returned item fee 

and that additional merchant fees may apply? The institution 

may also disclose the consumer’s right to revoke consent. 

The response portion of Model Form A-9 may be tailored to 

the methods offered for opting in, and may include 

reasonable methods to identify the account, such as a bar 

code. For notices provided to consumers who opened 

accounts prior to July 1, 2010, the financial institution may 

describe the institution’s overdraft service with respect to 

ATM and one-time debit card transactions with a statement 

such as “After August 15, 2010, we will not authorize and 

pay overdrafts for the following types of transactions unless 

you ask us to (see below).” (12 CFR 1005.17(d)(6) and 

Comments 1005.17(d)-1 through -5)) 

54. Joint Accounts – When two or more consumers jointly hold an 

account, does the financial institution treat the affirmative 

consent of any of the joint consumers as affirmative consent for 

that account, and treat the revocation of affirmative consent by 

any of the joint consumers as revocation of consent for that 

account? (12 CFR 1005.17(e)) 

55. Continuing Right to Opt-In or to Revoke Opt-In – Does the 

financial institution allow the consumer to affirmatively consent 

to the financial institution’s overdraft service at any time in the 

manner described in the notice required 

(12 CFR 1005.17(b)(1)(i)) and allow a consumer to revoke 

consent at any time in the manner made available to the 

consumer for providing consent? (12 CFR 1005.17(f)) 

56. Does the financial institution implement a consumer’s 

revocation of consent as soon as reasonably practicable? 

(12 CFR 1005.17(f)) 

57. Is the consumer’s affirmative consent to the overdraft service 

effective until revoked by the consumer, or unless the financial 

institution terminates the service? (12 CFR 1005.17(g)) 

CFPB	 Manual V.2 (October 2012) Checklist 14 
 

 

 

 

 

 

 

 

 

 

 

 

 

Yes	 No NA

CFPB 

Examination Checklist EFTA 

Payroll Card Accounts – 12 CFR 1005.18 

58. If the financial institution offers payroll card accounts, does the 

financial institution either provide periodic statements as 

required by 12 CFR 1005.9(b) or make available to the 

consumer: 

•	 The account balance, through a readily available telephone
 

line, and
 

•	 An electronic history of the consumer’s account transactions, 

such as through an Internet website, that covers at least 60 

days preceding the date the consumer electronically accesses
 

the account, and
 

•	 A written history of the consumer’s account transactions that
 

is provided promptly in response to an oral or written request
 

and that covers at least 60 days preceding the date the 

financial institution receives the consumer’s request? (12 

CFR 1005.18(b))
 

NOTE: The history of account transactions must include the 

information set forth in 12 CFR 1005.9(b). 

59. Does the financial institution provide initial disclosures that 

include, at a minimum: 

•	 A telephone number that the consumer may call to obtain the
 

account balance, the means by which the consumer can
 

obtain an electronic account history, such as the address of a
 

website, and a summary of the consumer's right to receive a 

written account history upon request, including a telephone
 

number to call to request a history, and
 

•	 A notice concerning error resolution? (12 CFR
 

1005.18(c)(1))
 

60. Does the financial institution provide an annual notice 

concerning error resolution or, alternatively, an abbreviated 

notice with each electronic and written history? (12 CFR 

1005.18(c)(2)) 

CFPB	 Manual V.2 (October 2012) Checklist 15 
 

 

61. Does the financial institution begin the 60-day period for 

reporting any unauthorized transfer under 12 CFR 1005.6(b)(3) 

on the earlier of the date the consumer electronically accesses 

the consumer's account after the electronic history made 

available to the consumer reflects the transfer; or the date the 

financial institution sends a written history of the consumer's 

account transactions requested by the consumer in which the 

unauthorized transfer is first reflected? (12 CFR 1005.18(c)(3)) 

NOTE: A financial institution may comply with the provision 

above by limiting the consumer's liability for an unauthorized 

transfer as provided under 12 CFR 1005.6(b)(3) for any transfer 

reported by the consumer within 120 days after the transfer was 

credited or debited to the consumer's account. 

62. Does the financial institution comply with the error resolution 

requirements in response to an oral or written notice of an error 

from the consumer that is received by the earlier of 60 days after 

the date the consumer electronically accesses the consumer's 

account after the electronic history made available to the 

consumer reflects the alleged error; or 60 days after the date the 

financial institution sends a written history of the consumer's 

account transactions requested by the consumer in which the 

alleged error is first reflected? (12 CFR 1005.18(c)(4)) 

NOTE: The financial institution may comply with the 

requirements for resolving errors by investigating any oral or 

written notice of an error from the consumer that is received by 

the institution within 120 days after the transfer allegedly in 

error was credited or debited to the consumer's account. 

Requirements for Gift Cards and 

Gift Certificates – 12 CFR 1005.20 

63. Does the institution offer gift certificates, store gift cards, 

general-use prepaid cards, loyalty, award, or promotional gift 

cards? If no, do not complete this section. 

64. Determine if the institution offers consumers, primarily for 

personal, family, or household purposes, in a specified amount, a 

card, code, or other device on a prepaid basis, the following: 

• Gift certificates – which may not be increased or reloaded in 

exchange for payment; and are redeemable upon presentation 

at a single merchant or an affiliated group of merchants for 

goods and services? (12 CFR 1005.20(a)(1)) 

 

 

 

 

 

 

CFPB 

Examination Checklist EFTA 

Yes No NA 

CFPB Manual V.2 (October 2012) Checklist 16 
 

 

 

 

 

 

 

Yes No NA 

 

 

 

 

 

 

CFPB 

Examination Checklist EFTA 

•	 Store gift cards – which may be increased or reloaded, in 

exchange for payment; and are redeemable upon presentation 

at a single merchant or an affiliated group of merchants for 

goods and services? (12 CFR 1005.20(a)(2)) 

•	 General-use prepaid cards – which may be increased or 

reloaded, in exchange for payment; and are redeemable upon 

presentation at multiple, unaffiliated merchants for goods or 

services, or useable at automated teller machines? 

(12 CFR 1005.20(a)(3)) 

65. Do loyalty, award, or promotional gift cards as defined by 

(12 CFR 1005.20(a)(4)) contain the following disclosures as 

applicable? 

•	 A statement indicating that the card, code, or other device is 

issued for loyalty, award, or promotional purposes, which 

must be included on the front of the card, code, or other 

device (12 CFR 1005.20(a)(4)(iii)(A)); 

•	 The expiration date for the underlying funds, which must be 

included on the front of the card, code, or other device 

(12 CFR 1005.20(a)(4)(iii)(B)); 

•	 The amount of fees that may be imposed in connection with 

the card, code, or other device, and the conditions under 

which they may be imposed, which must be provided with 

the card, code, or other device 

(12 CFR 1005.20(a)(4)(iii)(C)); and 

•	 A toll-free telephone number and, if one is maintained, a 

website, that a consumer may use to obtain fee information, 

which must be included on or with the card, code, or other 

device (12 CFR 1005.20(a)(4)(iii)(D))? 

66. If the terms of the gift certificate, store gift card, or general-use 

prepaid card impose a dormancy, inactivity, or service fee as 

defined under (12 CFR 1005.20(a)), please answer the 

following: 

•	 Has there been activity with respect to the certificate or card, 

in the one-year period ending on the date on which the fee 

was imposed (12 CFR 1005.20(d)(1)); 

CFPB	 Manual V.2 (October 2012) Checklist 17 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes	 No NA 

 

CFPB 

Examination Checklist EFTA 

•	 As applicable, are the following, clearly and conspicuously
 

stated on the gift certificate, store gift card, or general-use 

prepaid card***2: 

o	 The amount of any dormancy, inactivity, or service fee
 

that may be charged (12 CFR 1005.20(d)(2)(i));
 

o	 How often such a fee may be assessed
 

(12 CFR 1005.20(d)(2)(ii)); and
 

o	 That such fee may be assessed for inactivity
 

(12 CFR 1005.20(d)(2)(iii))?
 

•	 Is the dormancy, inactivity, or service fee imposed limited to
 

one in any given calendar month (12 CFR 1005.20(d)(3))?
 

67. If the financial institution sells or issues a gift certificate, store 

gift card, or general-use prepaid card with an expiration date, 

please answer the following: 

•	 Has the financial institution established policies and
 

procedures to provide consumers with a reasonable
 

opportunity to purchase a certificate or card with at least five
 

years remaining until the certificate or card expiration date
 

(12 CFR 1005.20(e)(1))? *** 

•	 The expiration date for the underlying funds is at least the
 

later of five years after the date the gift certificate was
 

initially issued, or the date on which funds were last loaded 

to a store gift card or general-use prepaid card; or the 

certificate or card expiration date, if any
 

(12 CFR 1005.20(e)(2))?
 

68. If the financial institution sells or issues a gift certificate, store 

gift card, or general-use prepaid card with an expiration date, 

then are the following disclosures provided on the certificate or 

card, as applicable: *** 

•	 The expiration date for the underlying funds, or if the
 

underlying funds do not expire, the fact that the funds do not
 

expire (12 CFR 1005.20(e)(3)(i));
 

2 Section 1005.20(h)(2) allows a delayed effective date – until January 31, 2011 – for disclosures on the card for gift cards that 

were produced before April 1, 2010. Throughout the remainder of the examination procedures, such sections are denoted by a 

triple asterisk ***. 

CFPB	 Manual V.2 (October 2012) Checklist 18 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes No NA 

CFPB 

Examination Checklist EFTA 

•	 A toll-free number and, if one is maintained, a website that a 

consumer may use to obtain a replacement certificate or card 

after the certificate or card expires if the underlying funds 

may be available (12 CFR 1005.20(e)(3)(ii)); and 

•	 Except where a non-reloadable certificate or card bears an 

expiration date that is at least seven years from the date of 

manufacture, a statement, disclosed with equal prominence 

and in close proximity to the certificate or card expiration 

date, that: 

o	 The certificate or card expires, but the underlying funds 

either do not expire or expire later than the certificate or 

card (12 CFR 1005.20(e)(3)(iii)(A)); 

o	 The consumer may contact the issuer for a replacement 

card (12 CFR 1005.20(e)(3)(iii)(B)); and 

o	 No fee or charge is imposed on the cardholder for 

replacing the gift certificate, store gift card, or generaluse prepaid card or for providing the certificate or card 

holder with the remaining balance in some manner prior 

to the funds expiration date unless such certificate or 

card has been lost or stolen. (12 CFR 1005.20(e)(4)). 

69. Are the following disclosures provided in connection with a gift 

certificate, store gift card, or general-use prepaid card, as 

applicable: *** 

•	 For each type of fee that may be imposed in connection with 

the gift certificate or card (other than a dormancy, inactivity, 

or service fee subject to the disclosure requirements under 

(12 CFR 1005.20(d)(2)), the following information must be 

provided on or with the certificate or card: 

o	 The type of fee (12 CFR 1005.20(f)(1)(i)); 

o	 The amount of the fee (or an explanation of how the fee 

will be determined) (12 CFR 1005.20(f)(1)(ii)); and 

o	 The conditions under which the fee may be imposed 

(12 CFR 1005.20(f)(1)(iii)). 

•	 A toll-free telephone number and, if one is maintained, a 

website, that a consumer may use to obtain information 

about dormancy, inactivity, service, or each type of fee that 

may be imposed in connection with the certificate or card 

(12 CFR 1005.20(f)(2)). 

CFPB	 Manual V.2 (October 2012) Checklist 19 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes	 No NA 

CFPB 

Examination Checklist EFTA 

70. For cards issued prior to April 1, 2010, 12 CFR 1005.20(c)(3), 

(d)(2), (e)(1), (e)(3), and (f) did not apply until January 31, 2011, 

if certain conditions were met. If applicable, determine that the 

issuer: 

•	 Complies with all other non-suspended provisions of the gift
 

card rules;
 

•	 Does not impose an expiration date with respect to the funds
 

underlying such certificate or card and, at the consumer’s
 

request, replaces such certificate or card if it has funds
 

remaining, at no cost to the consumer;
 

•	 Discloses through in-store signage, messages during
 

customer service calls, websites, and general advertising, 

that:
 

o	 The underlying funds of such certificate or card do not 

expire; 

o	 Consumers holding such certificate or card have a right to a 

free replacement certificate or card, accompanied by the 

packaging and materials typically associated with such 

certificate or card; and 

o	 Any dormancy, inactivity, or service fee for such 

certificate or card that might otherwise be charged will 

not be charged if such fees do not comply with Section 

915 of the Electronic Fund Transfer Act. 

•	 Determine that the above disclosures (i) were provided until
 

January 31, 2011, with respect to in-store signage and
 

general advertising and (ii) are provided until January 31, 

2013, with respect to messages during customer service calls
 

and websites.
 

Comments 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Checklist 20 
 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations TISA 

Truth in Savings Act1 

Regulation DD (12 CFR Part 1030), which implements the Truth in Savings Act (TISA), became 

effective in June 1993. An official staff commentary interprets the requirements of Regulation 

DD (12 CFR 1030 (Supplement I)). Since then, several amendments have been made to 

Regulation DD and the Staff Commentary, including changes effective January 1, 2010, 

concerning disclosures of aggregate overdraft and returned item fees on periodic statements and 

balance disclosures provided to consumers through automated systems. In addition, effective 

July 6, 2010, clarifications were made to the provisions related to overdraft services (NOTE: The 

effective date for the clarification to 12 CFR 1030.11(a)(1)(i), requiring the term “Total 

Overdraft Fees” to be used, was October 1, 2010) (75Fed. Reg. 31673). 

The Dodd-Frank Act granted rulemaking authority under the Truth in Savings Act to the 

Consumer Financial Protection Bureau (CFPB) and, with respect to entities under its 

jurisdiction, granted authority to the CFPB to supervise for and enforce compliance with the 

Truth in Savings Act and its implementing regulations.2 In December 2011, the CFPB restated 

the Federal Reserve’s implementing regulation at 12 CFR Part 1030 (76 Fed. Reg. 79276) 

(December 21, 2011). 

The purpose of Regulation DD is to enable consumers to make informed decisions about their 

accounts at depository institutions through the use of uniform disclosures. The disclosures aid 

comparison shopping by informing consumers about the fees, annual percentage yield, interest 

rate, and other terms for deposit accounts. A consumer is entitled to receive disclosures under all 

of the following circumstances: 

• When an account is opened. 

• Upon request. 

• When the terms of the account are changed. 

• When a periodic statement is sent. 

• For most time accounts, before the account matures. 

1 These reflect FFIEC-approved procedures. 

2 Dodd-Frank Act Secs. 1002(12)(P), 1024(b)-(c), and 1025(b)-(c); 12 U.S.C. Secs. 5481(12)(P), 5514(b)-(c), and 5515(b)-(c). 

Section 1100B of the Dodd-Frank Act did not grant the CFPB Truth in Savings Act rulemaking authority over credit unions or 

repeal the National Credit Union Administration (NCUA)’s rulemaking authority over credit unions under 12 U.S.C. 4311. The 

NCUA’s rule can be found at 12 CFR Part 707. 

CFPB Manual V.2 (October 2012) TISA 1 
 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations TISA 

The regulation also includes requirements on the payment of interest, the methods of calculating 

the balance on which interest is paid, the calculation of the annual-percentage yield, and 

advertising. 

Coverage – 12 CFR 1030.1 

Regulation DD applies to all depository institutions, except credit unions, that offer deposit 

accounts to residents of any state. Branches of foreign institutions located in the United States 

are subject to Regulation DD if they offer deposit accounts to consumers. Edge Act and 

agreement corporations, and agencies of foreign institutions, are not depository institutions for 

purposes of Regulation DD. 

In addition, persons who advertise accounts are subject to the advertising rules. For example, if a 

deposit broker places an advertisement offering consumers an account at a depository institution, 

the advertising rules apply to the advertisement, whether the account is to be held by the broker 

or directly by the consumer. 

Definitions – 12 CFR 1030.2 

Section 1030.2 defines key terms used in Regulation DD. Among those definitions are the 

following: 

Account – 12 CFR 1030.2(a) 

An account is a deposit account at a depository institution that is held by or offered to a 

consumer. It includes time, demand, savings, and negotiable order of withdrawal accounts. 

Regulation DD covers interest-bearing as well as noninterest-bearing accounts. 

Advertisement – 12 CFR 1030.2(b) 

An advertisement is a commercial message, appearing in any medium, that promotes directly or 

indirectly 

•	 the availability or terms of, or a deposit in, a new account; and 

•	 for purposes of 12 CFR 1030.8(a) (misleading or inaccurate advertisements) and 1030.11 

(additional disclosure requirements for institutions advertising the payment of overdrafts), 

the terms of, or a deposit in, a new or existing account. 

An advertisement includes a commercial message in visual, oral, or print media that invites, 

offers, or otherwise announces generally to prospective customers the availability or terms of, or 

a deposit in, a consumer account. Examples of advertisements include telephone solicitations and 

messages on automated teller machine screens. 

CFPB	 Manual V.2 (October 2012) TISA 2 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB Consumer 

Laws and Regulations TISA 

Annual Percentage Yield – 12 CFR 1030.2(c) 

An annual percentage yield is a percentage rate reflecting the total amount of interest paid on 

an account, based on the interest rate and the frequency of compounding for a 365-day period, or 

366-day period during leap years, and calculated according to the rules in Appendix A of 

Regulation DD. Interest or other earnings are not to be included in the annual percentage yield if 

the circumstances for determining the interest and other earnings may or may not occur in the 

future (see Appendix A, footnote 1). 

Average Daily Balance Method – 12 CFR 1030.2(d) 

The average daily balance method is the application of a periodic rate to the average daily 

balance in the account for the period. The average daily balance is determined by adding the full 

amount of principal in the account for each day of the period and dividing that figure by the 

number of days in the period. 

Bonus – 12 CFR 1030.2(f) 

A bonus is a premium, gift, award, or other consideration worth more than $10 (whether in the 

form of cash, credit, merchandise, or any equivalent) given or offered to a consumer during a 

year in exchange for opening, maintaining, renewing, or increasing an account balance. The term 

does not include interest, other consideration worth $10 or less given during a year, the waiver or 

reduction of a fee, or the absorption of expenses. 

Business Day – 12 CFR 1030.2(g) 

A business day is a calendar day other than a Saturday, a Sunday, or any of the legal public 

holidays specified in 5 U.S.C. Section 6103(a). 

Consumer – 12 CFR 1030.2(h) 

A consumer is a natural person who holds an account primarily for personal, family, or 

household purposes, or to whom such an account is offered. The term does not include accounts 

held by a natural person on behalf of another in a professional capacity or accounts held by 

individuals as sole proprietors. 

Daily Balance Method – 12 CFR 1030.2(i) 

The daily balance method is the application of a daily periodic rate to the full amount of 

principal in the account each day. 

Depository Institution – 12 CFR 1030.2(j) 

The terms depository institution and institution are defined in Section 19(b)(1)(A)(i)-(vi) of the 

Federal Reserve Act (12 U.S.C. Section 461). Credit unions are defined in Section 

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19(b)(1)(A)(iv). Branches of foreign institutions located in the United States are subject to the 

regulation if they offer deposit accounts to consumers. Edge Act and agreement corporations, 

and agencies of foreign institutions, are not depository institutions for purposes of this 

regulation. 

Deposit Broker – 12 CFR 1030.2(k) 

A deposit broker is a person who is in the business of placing or facilitating the placement of 

deposits in an institution, as defined by Section 29(g) of the Federal Deposit Insurance Act (12 

U.S.C. Section 1831f(g)). 

Fixed-Rate Account – 12 CFR 1030.2(l) 

A fixed-rate account is an account for which the institution contracts to give at least 30 calendar 

days’ advance written notice of decreases in the interest rate. 

Grace Period – 12 CFR 1030.2(m) 

A grace period is a period following the maturity of an automatically renewing time account 

during which the consumer may withdraw funds without being assessed a penalty. 

Interest – 12 CFR 1030.2(n) 

Interest is any payment to a consumer or to an account for the use of funds in an account, 

calculated by applying a periodic rate to the balance. Interest does not include the payment of a 

bonus or other consideration worth $10 or less during a year, the waiver or reduction of a fee, or 

the absorption of expenses. 

Interest Rate – 12 CFR 1030.2(o) 

An interest rate is the annual rate of interest paid on an account and does not reflect 

compounding. For purposes of the account disclosures in 12 CFR 1030.4(b)(1)(i), the interest 

rate may, but need not, be referred to as the “annual percentage rate” in addition to being referred 

to as the “interest rate.” 

Passbook Savings Account – 12 CFR 1030.2(p) 

A passbook savings account is a savings account in which the consumer retains a book or other 

document in which the institution records transactions on the account. Passbook savings 

accounts include accounts accessed by preauthorized electronic fund transfers to the account. As 

defined in Regulation E, a preauthorized electronic fund transfer is an electronic fund transfer 

authorized in advance to recur at substantially regular intervals. Examples include an account 

that receives direct deposit of Social Security payments. Accounts permitting access by other 

electronic means are not passbook savings accounts and must comply with the requirements of 

12 CFR 1030.6 if statements are sent four or more times a year. 

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Periodic Statement – 12 CFR 1030.2(q) 

A periodic statement is a statement setting forth information about an account (other than a 

time account or passbook savings account) that is provided to a consumer on a regular basis four 

or more times a year. 

State – 12 CFR 1030.2(r) 

A state is a state, the District of Columbia, the commonwealth of Puerto Rico, and any territory 

or possession of the United States. 

Stepped-Rate Account – 12 CFR 1030.2(s) 

A stepped-rate account is an account that has two or more interest rates that take effect in 

succeeding periods and are known when the account is opened. 

Tiered-Rate Account – 12 CFR 1030.2(t) 

A tiered-rate account is an account that has two or more interest rates that are applicable to 

specified balance levels. A requirement to maintain a minimum balance to earn interest does not 

make an account a tiered-rate account. 

Time Account – 12 CFR 1030.2(u) 

A time account is an account with a maturity of at least seven days in which the consumer 

generally does not have a right to make withdrawals for six days after the account is opened, 

unless the deposit is subject to an early withdrawal penalty of at least seven days’ interest on the 

amount withdrawn. 

Variable-Rate Account – 12 CFR 1030.2(v) 

A variable-rate account is an account in which the interest rate may change after the account is 

opened, unless the institution contracts to give at least 30 calendar days’ advance written notice 

of rate decreases. 

General Disclosure Requirements – 12 CFR 1030.3 

General Requirements – 12 CFR 1030.3(a) and (b) 

Section 1030.3 outlines the general requirements for account disclosures and periodic-statement 

disclosures. Such disclosures are required to be: 

• Clear and conspicuous; 

• In writing; 

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•	 In a form the consumer may keep; 

•	 Clearly identifiable for different accounts, if disclosures for different accounts are combined; 

•	 Reflective of the terms of the legal obligation of the account agreement between the 

consumer and the depository institution; 

•	 Available in English upon request if the disclosures are made in languages other than 

English; and 

•	 Consistent in terminology when describing terms or features that are required to be disclosed. 

Electronic Disclosures 

Regulation DD disclosures may be provided to the consumer in electronic form, subject to 

compliance with the consumer consent and other applicable provisions of the Electronic 

Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. Section 7001 et seq.). 

The E-Sign Act does not mandate that institutions or consumers use or accept electronic records 

or signatures. It does, however, permit institutions to satisfy any statutory or regulatory 

requirements that information, such as Regulation DD disclosures, be provided in writing to a 

consumer by providing the information electronically after obtaining the consumer’s affirmative 

consent. 

But before the consumer can give consent, the institution must provide the consumer with a clear 

and conspicuous statement, informing the consumer of: 

•	 Any right or option to have the information provided in paper or non-electronic form. 

•	 The right to withdraw the consent to receive information electronically and the 

consequences, including fees, of doing so. 

•	 The scope of the consent (whether the consent applies only to a particular transaction or to 

identified categories of records that may be provided during the course of the parties’ 

relationship). 

•	 The procedures to withdraw consent and to update information needed to contact the 

consumer electronically. 

•	 The methods by which a consumer may obtain, upon request, a paper copy of an electronic 

record after having given consent to receive the information electronically and whether any 

fee will be charged. 

Prior to consenting, the institution must provide the consumer with a statement of the hardware 

and software requirements for access to and retention of the electronic information. The 

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consumer must consent electronically or confirm consent electronically in a manner that 

“reasonably demonstrates that the consumer can access information in the electronic form that 

will be used to provide the information that is the subject of the consent.” 

After the consent, if an institution changes the hardware or software requirements such that a 

consumer may be prevented from accessing and retaining information electronically, the 

institution must notify the consumer of the new requirements and must allow the consumer to 

withdraw consent without charge. 

Under 12 CFR 1030.3(a), the disclosures required by 12 CFR 1030.4(a)(2) (Disclosures Upon 

Request) and 1030.8 (Advertising) may be provided to the consumer in electronic form without 

regard to the consumer consent or other provisions of the E-Sign Act, as set forth in those 

sections of Regulation DD. For example, under 12 CFR 1030.4(a)(2) (Disclosures Upon 

Request), if a consumer who is not present at the institution makes a request for disclosures, the 

institution may provide the disclosures electronically if the consumer agrees without regard to 

the consumer consent or other provisions of the E-Sign Act. 

Relation to Regulation E – 12 CFR 1030.3(c) 

Disclosures required by and provided in accordance with the Electronic Fund Transfer Act (15 

U.S.C. Section 1693 et seq.) and its implementing Regulation E (12 CFR Part 1005), that are 

also required by Regulation DD, may be substituted for the disclosures required by this 

regulation. Compliance with Regulation E is deemed to satisfy the disclosure requirements of 

Regulation DD, such as when: 

•	 An institution changes a term that triggers a notice under Regulation E, and uses the timing 

and disclosure rules of Regulation E for sending change-in-term notices. 

•	 Consumers add an ATM access feature to an account, and the institution provides disclosures 

pursuant to Regulation E, including disclosure of fees (see 12 CFR 1005.7). 

•	 An institution, complying with the timing rules of Regulation E, discloses at the same time 

fees for electronic services (such as for balance inquiry fees at ATMs) required to be 

disclosed by this regulation but not by Regulation E. 

•	 An institution relies on Regulation E’s rules regarding disclosure of limitations on the 

frequency and amount of electronic fund transfers, including security-related exceptions. But 

any limitations on intra-institutional transfers to or from the consumer’s other accounts 

during a given time period must be disclosed, even though intra-institutional transfers are 

exempt from Regulation E. 

Other general disclosure requirements include the following: 

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Multiple Consumers – 12 CFR 1030.3(d) 

If an account is held by more than one consumer, the institution may make disclosures to any one 

of the consumers. 

Oral Response to Inquiries – 12 CFR 1030.3(e) 

If an institution chooses to provide rate information orally, it must state the annual percentage 

yield and may state the interest rate. However, the institution may not state any other rate. The 

advertising rules do not cover an oral response to a rate inquiry. 

Rounding and Accuracy Rules for Rates and Yields – 12 CFR 1030.3(f) 

The rounding and accuracy requirements are as follows: 

•	 Rounding – The annual percentage yield, the annual percentage yield earned, and the 

interest rate must be rounded to the nearest one-hundredth of one percentage point (.01%) 

and expressed to two decimal places. (For account disclosures, the interest rate may be 

expressed to more than two decimal places.) For example, if an annual percentage yield is 

calculated at 5.644 percent, it must be rounded down and disclosed as 5.64 percent, or if 

annual percentage yield is calculated at 5.645 percent, it must be rounded up and disclosed as 

5.65 percent. 

•	 Accuracy – The annual percentage yield (and the annual percentage yield earned) will be 

considered accurate if it is not more that one-twentieth of one percentage point (.05 percent) 

above or below the annual percentage yield (and the annual percentage yield earned) that are 

calculated in accordance with Appendix A of Regulation DD. 

Account Disclosures – 12 CFR 1030.4 

Section 1030.4 covers the delivery and content of account disclosures both at the time an account 

is open and when requested by a consumer. 

Delivery of Account Disclosures – 12 CFR 1030.4(a) 

Disclosures at Account Opening – 12 CFR 1030.4(a)(1) 

A depository institution must provide account disclosures to a consumer before an account is 

opened or a service is provided, whichever is earlier. (An institution is deemed to have provided 

a service when a fee, required to be disclosed, is assessed.) An institution must mail or deliver 

the account opening disclosures no later than ten business days after the account is opened or the 

service is provided, whichever is earlier, if the consumer: 

•	 Is not present when the account is opened or the service is provided, and 

•	 Has not received the disclosures. 

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If a consumer who is not present at the institution uses electronic means (for example, an Internet 

website) to apply to open an account or to request a service, the institutions must provide the 

disclosures before opening the account or providing the service. 

Disclosures Upon Request – 12 CFR 1030.4(a)(2) 

A depository institution must provide full account disclosures, including complete fee schedules, 

to a consumer upon request. Institutions must comply with all requests for this information, 

whether or not the requester is an existing customer or a prospective customer. A response to an 

oral inquiry (by telephone or in person) about rates and yields or fees does not trigger the duty to 

provide account disclosures. However, when consumers ask for written information about an 

account (whether by telephone, in person, or by other means), the institution must provide 

disclosures, unless the account is no longer offered to the public. 

If the consumer makes the request in person, the institution must provide the disclosures at that 

time. If a consumer is not present when the request is made, the institution must mail or deliver the 

disclosures within a reasonable time after it receives the request. Ten business days is considered a 

reasonable time for responding to requests for account information that a consumer does not make 

in person, including requests made by electronic means (such as by electronic mail). 

If a consumer who is not present at the institution makes a request for account disclosures, 

including a request made by telephone, email, or via the institution’s website, the institution may 

send the disclosures in paper form or, if the consumer agrees, may provide the disclosures 

electronically, such as to an email address that the consumer provides for that purpose, or on the 

institution’s website, without regard to the consumer consent or other provisions of the E-Sign 

Act. The institution is not required to provide, nor is the consumer required to agree to receive, 

the disclosures required by 12 CFR 1030.4(a)(2) in electronic form. 

When providing disclosures upon the request of a consumer, the institution has several choices 

of how to specify the interest rate and annual percentage yield. The institution may disclose the 

rate and yield offered: 

• Within the most recent seven calendar days; 

• As of an identified date; or 

• Currently by providing a telephone number for consumers to call. 

Further, when providing disclosures upon the request of a consumer, the institution may state the 

maturity of a time account as a term rather than a date. Describing the maturity of a time account 

as “1 year” or “6 months,” for example, illustrates a statement of the maturity as a term rather 

than a date (“January 10, 2010”). 

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Content of Account Disclosures – 12 CFR 1030.4(b) 

Account disclosures must include, as applicable, information on the following (see Appendix A 

and B of Regulation DD for information on the annual percentage yield calculation and for 

model clauses for account disclosures and sample forms): 

Rate Information – 12 CFR 1030.4(b)(1) 

An institution must disclose both the “annual percentage yield” and the “interest rate,” using 

those terms. 

For fixed-rate accounts, an institution must disclose the period of time that the interest rate will 

be in effect. 

For variable-rate accounts, an institution must disclose all of the following: 

•	 The fact that the interest rate and annual percentage yield may change. 

•	 How the interest rate is determined. 

•	 The frequency with which the interest rate may change. 

•	 Any limitation on the amount the interest rate may change. 

Compounding and Crediting – 12 CFR 1030.4(b)(2) 

An institution must disclose the frequency with which interest is compounded and credited. In 

cases where consumers will forfeit interest if they close an account before accrued interest is 

credited, an institution must state that interest will not be paid. 

Balance Information – 12 CFR 1030.4(b)(3) 

An institution must disclose the following information about account balances: 

•	 Minimum balance requirements – An institution must disclose any minimum balance 

requirement to: 

o	 Open the account; 

o	 Avoid the imposition of a fee; or 

o	 Obtain the annual percentage yield disclosed. 

In addition, the institution must disclose how the balance is determined to avoid the
 

imposition of a fee or to obtain the annual percentage yield.
 

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•	 Balance computation method – An explanation of the balance-computation method, 

specified in 12 CFR 1030.7 of Regulation DD, that is used to calculate interest on the 

account. An institution may use different methods or periods to calculate minimum balances 

for purposes of imposing a fee and accruing interest. The institution must disclose each 

method and corresponding period. 

•	 When interest begins to accrue – An institution must state when interest begins to accrue 

on noncash deposits. 

Fees – 12 CFR 1030.4(b)(4) 

An institution must disclose the amount of any fee that may be imposed in connection with the 

account (or an explanation of how the fee will be determined) and the conditions under which the 

fee may be imposed. Examples of fees that must be disclosed are: 

•	 Maintenance fees, such as monthly service fees. 

•	 Fees to open or to close an account. 

•	 Fees related to deposits or withdrawals, such as fees for use of the institution’s ATMs. 

•	 Fees for special services, such as stop-payment fees. 

Institutions must state if fees that may be assessed against an account are tied to other accounts at 

the institution. For example, if an institution ties the fees payable on a NOW account to balances 

held in the NOW account and a savings account, the NOW account disclosures must state that 

fact and explain how the fee is determined. 

An institution must specify the categories of transactions for which an overdraft fee may be 

imposed. For example, it is sufficient to state that the fee applies to overdrafts “created by check, 

in-person withdrawal, ATM withdrawal, or other electronic means.” However, it is insufficient 

to state that a fee applies “for overdraft items.” 

Transaction Limitations – 12 CFR 1030.4(b)(5) 

An institution must disclose any limitations on the number or dollar amount of withdrawals or 

deposits. Examples of such limitations include: 

•	 Limits on the number of checks that may be written on an account within a given time 

period. 

•	 Limits on withdrawals or deposits during the term of a time account. 

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•	 Limits under Regulation D (Reserve Requirements on Depository Institutions) on the number 

of withdrawals permitted from money market deposit accounts by check to third parties each 

month. 

Features of Time Accounts – 12 CFR 1030.4(b)(6) 

For time accounts, an institution must disclose information about the following features: 

•	 Time requirements – An institution must state the maturity date and, for “callable” time 

accounts, the date or circumstances under which an institution may redeem a time account at 

the institution’s option. 

•	 Early withdrawal penalties – An institution must state the following: 

o	 If a penalty will or may be imposed for early withdrawal. 

o	 How it is calculated. 

o The conditions for its assessment. 

An institution may, but does not need to, use the term “penalty” to describe the loss of
 

interest that consumers may incur for early withdrawal of funds from an account. 

Examples of early withdrawal penalties include:
 

o	 Monetary penalties, such as “$10.00” or “seven days’ interest plus accrued but uncredited 

interest.” 

o	 Adverse changes to terms such as a lowering of the interest rate, annual percentage yield, 

or compounding frequency for funds remaining on deposit. 

o	 Reclamation of bonuses. 

•	 Withdrawal of interest prior to maturity – An institution must disclose the following, as 

applicable: 

o	 A statement that the annual percentage yield assumes interest remains on deposit until 

maturity and that a withdrawal will reduce earnings for accounts where: 

 Compounding occurs during the term; and 

 Interest may be withdrawn prior to maturity; or 

o	 A statement that interest cannot remain on deposit and that payout of interest is
 

mandatory for accounts where:
 

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







The stated maturity is greater than one year; 

Interest is not compounded on an annual or more frequent basis; 

Interest is required to be paid out at least annually; and 

The annual percentage yield is determined in accordance with Section E of Appendix 

A of Regulation DD. 

•	 Renewal policies – An institution must state whether an account will, or will not, renew 

automatically at maturity. If it will, the statement must indicate whether a grace period will 

be provided and, if so, must indicate the length of that period. For accounts that do not renew 

automatically, the statement must indicate whether interest will be paid after maturity if the 

consumer does not renew the account. 

Bonuses – 12 CFR 1030.4(b)(7) 

For bonuses, an institution must disclose: 

•	 The amount or type of any bonus. 

•	 When the bonus will be provided. 

•	 Any minimum balance and time requirements to obtain the bonus. 

Subsequent Disclosures – 12 CFR 1030.5 

Section 1030.5 covers the required disclosures when the terms of an account change, resulting in 

a negative effect on the consumer. In addition, this section covers the required disclosures for 

both time accounts that automatically renew and have a maturity longer than one month and time 

accounts that do not renew automatically and have a maturity of longer than one year. 

Change in Terms – 12 CFR 1030.5(a) 

Advance Notice Required – 12 CFR 1030.5(a)(1) 

An institution must give advance notice to affected consumers of any change in a term that is 

required to be disclosed if the change may reduce the annual percentage yield or adversely affect 

the consumer. The notice must include the effective date of the change and must be mailed or 

delivered at least 30 calendar days before the effective date of the change. 

No Notice Required – 12 CFR 1030.5(a)(2) 

An institution is not required to provide a notice for any of the following changes: 

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•	 For variable-rate accounts, any change in the interest rate and corresponding changes in the 

annual percentage yield. 

•	 Any changes in fees assessed for check printing. 

•	 For short-term time accounts, any changes in any term for accounts with maturities of one 

month or less. 

•	 The imposition of account maintenance or activity fees that previously had been waived for a 

consumer when the consumer was employed by the depository institution, but who is no 

longer employed there. 

•	 The expiration of a one-year period that was part of a promotion, described in the account 

opening disclosures, for example, to “waive $4.00 monthly service charges for one year.” 

Notice for Time Accounts Longer Than One Month That Renew 

Automatically – 12 CFR 1030.5(b) 

For automatically renewing time accounts with maturities longer than one month, an institution 

must provide different disclosures depending on whether the maturity is longer than one year or 

whether the maturity is one year or less. The institution must provide all disclosures before 

maturity. The requirements are summarized in the following pages, including in Table 1. 

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Table 1 

Subsequent Notice Requirements for Time Accounts 

Maturity Automatically Renewable (Rollover) Non-automatically Renewable 

(Non-rollover) 

> One Year Timing

(a) 30 calendar days before maturity, 

or 

(b) 20 calendar days before end of grace 

period, if a grace period is at least 5 

calendar days 

Content

(a) Date existing account matures 

(b) Disclosures for a new account (12 CFR 

1030.4(b)) 

If terms have not been determined, 

indicate this fact, state the date when 

they will be determined, and provide a 

telephone number to obtain the terms 

(12 CFR 1030.5(b)(1)). 

Timing

10 calendar days before maturity 

Content

Maturity date, and whether or not 

interest will be paid after maturity (12 

CFR 1030.5(c)) 

> One Month 

and 

< One Year 

Timing

(a) 30 calendar days before maturity, 

or 

(b) 20 calendar days before end of grace 

period, if a grace period is at least 5 

calendar days 

Content

(a) Disclosures required under 12 CFR 

1030.5(b)(1), 

or 

(b) Date of maturities of existing and new 

account, any change in terms, and a 

difference in terms between new 

account and ones of existing account. 

If terms have not been determined, 

indicate this fact, state the date when 

they will be determined, and provide a 

telephone number to obtain the terms 

(12 CFR 1030.5(b)(2)). 

No subsequent notice required 

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Maturities Longer Than One Year – 12 CFR 1030.5(b)(1) 

If the maturity is longer than one year, the institution must provide the date the existing account 

matures and the required account disclosures for a new account, as described in 12 CFR 

1030.4(b). If the interest rate and annual percentage yield that will be paid for the new account 

are unknown when disclosures are provided, the institution must state the following: 

•	 That those rates have not yet been determined. 

•	 The date when they will be determined. 

•	 A telephone number for consumers to call to obtain the interest rate and the annual 

percentage yield for the new account. 

Maturities Longer Than One Month but No More Than One Year 

– 12 CFR 1030.5(b)(2) 

If the maturity is longer than one month but less than or equal to one year, the institution must 

either: 

•	 Provide the disclosures required in 12 CFR 1030.5(b)(1) for accounts longer than one year; 

or 

•	 Disclose to the consumer: 

○	 The date the existing account matures and the new maturity date if the account is
 

renewed;
 

○	 The interest rate and the annual percentage yield for the new account if they are known. 

If the rates have not yet been determined, the institution must disclose: 

•	 The date when they will be determined; and 

•	 A telephone number the consumer may call to obtain the interest rate and the annual 

percentage yield for the new account; and 

○	 Any difference in the terms of the new account as compared to the terms required to be 

disclosed for the existing account. 

Delivery – 12 CFR 1030.5(b) 

The institution must mail or deliver all disclosures at least 30 calendar days before maturity of 

the existing account. Alternatively, the institution may mail or deliver the disclosures at least 20 

calendar days before the end of the grace period on the existing account, provided a grace period 

of at least five calendar days is allowed. 

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Notice for Time Accounts Longer Than One Year That Do Not Renew 

Automatically – 12 CFR 1030.5(c) 

For time accounts with maturity longer than one year that do not renew automatically at 

maturity, an institution must disclose to consumers the maturity date and whether interest will be 

paid after maturity. The institution must mail or deliver the disclosures at least 10 calendar days 

before maturity of the existing account. The requirements are summarized in Table 1. 

Periodic Statement Disclosures – 12 CFR 1030.6 

Regulation DD does not require institutions to provide periodic statements. However, for 

institutions that mail or deliver periodic statements, 12 CFR 1030.6 sets forth specific 

information that must be included in a periodic statement. 

General Requirements – 12 CFR 1030.6(a) 

The statement must include the following disclosures: 

Annual Percentage Yield Earned – 12 CFR 1030.6(a)(1) 

An institution must state the annual percentage yield earned during the statement period, using 

that term, and calculated according to Appendix A of Regulation DD. 

Amount of Interest – 12 CFR 1030.6(a)(2) 

An institution must state the dollar amount of interest earned during the statement period, 

whether or not it was credited. In disclosing interest earned for the period, an institution must use 

the term “interest” or terminology such as: 

• “Interest paid,” to describe interest that has been credited; or 

• “Interest accrued” or “interest earned,” to indicate that interest is not yet credited. 

Fees Imposed – 12 CFR 1030.6(a)(3) 

An institution must report any fees that are required to be disclosed and that were debited to the 

account during the statement period, even if assessed for an earlier period. The fees must be 

itemized by type and dollar amounts. When fees of the same type are imposed more than once in 

a statement period, an institution may itemize each fee separately or group the fees together and 

disclose a total dollar amount for all fees of that type. When fees of the same type are grouped 

together, the description must make clear that the dollar figure represents more than a single fee, 

for example, “total fees for checks written this period.” The Staff Commentary provides 

examples of fees that may not be grouped together. For example, an institution must separately 

identify whether a fee was for the payment of an overdraft or for returning the item unpaid. 

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Total overdraft and returned item fees, if any, must also be disclosed on the periodic statement. 

An institution must provide totals for fees for the payment of overdrafts and totals for items 

returned unpaid, both for the statement period and for the calendar year to date. See 12 CFR 

1030.11(a)(1) and (2). (The institution may, however, continue to itemize overdraft and returned 

item fees.) 

Length of Period – 12 CFR 1030.6(a)(4) 

An institution must indicate the total number of days in the statement period, or the beginning 

and ending dates of the period. Institutions providing the beginning and ending dates of the 

period must make clear whether both dates are included in the period. 

Combined Statements (Staff Commentary 12 CFR 1030.6(a)-3) 

Institutions may provide information about an account (for example, a Money Market Deposit 

Account) on the periodic statement for another account (such as a Negotiable Order of 

Withdrawal account) without triggering the disclosures required by this section, as long as: 

•	 The information is limited to the account number, the type of account, or balance 

information; and 

•	 The institution also provides a periodic statement complying with this section for each 

account. 

Aggregate Fee Disclosure – 12 CFR 1030.6(a)(5) 

•	 If an institution charges a consumer overdraft and returned item fees, it must disclose them 

on the consumer’s periodic statement as required by 12 CFR 1030.11(a). 

Special Rule for Average Daily Balance Method – 12 CFR 1030.6(b) 

Section 1030.6 has special periodic statement requirements for an institution using the average 

daily balance method and calculating interest for a period other than the statement period. In 

these situations, an institution must calculate and disclose the annual percentage yield earned and 

amount of interest earned based on the time period used rather than the statement period. In 

addition, when disclosing the length of period requirement on the periodic statement, an 

institution must state this information for the statement period as well as the interest-calculation 

period. See Staff Commentary for examples. 

Payment of Interest – 12 CFR 1030.7 

Section 1030.7 covers the payment of interest, including how to determine the balance on which 

to pay interest, the daily periodic rate to use, and the date interest begins to accrue. 

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Permissible Methods to Determine Balance to Calculate Interest – 

12 CFR 1030.7(a)(1) 

An institution must calculate interest on the full amount of principal in an account for each day 

by using one of the following methods: 

•	 Daily balance method, where the daily periodic rate is applied to the full amount of 

principal in the account each day. 

•	 Average daily balance method, where a periodic rate is applied to the average daily balance 

in the account for the period. The average daily balance is determined by adding the full 

amount of principal in the account for each day of the period and dividing that figure by the 

number of days in the period. 

The following are prohibited calculation methods: 

•	 Ending-balance method, where interest is paid on the balance in the account at the end of 

the period. 

•	 Low-balance method, where interest is paid based on the lowest balance in the account for 

any day in that period. 

•	 Investable-balance method, where interest is paid on a percentage of the balance, excluding 

the amount set aside for reserve requirements. 

Use of 365-day basis (Staff Commentary 12 CFR 1030.7(a)(1)-2) 

Institutions may apply a daily periodic rate greater than 1/365 of the interest rate – such as 1/360 

of the interest rate – as long as it is applied 365 days a year. 

Leap Year (Staff Commentary 12 CFR 1030.7(a)(1)-4) 

Institutions may apply a daily rate of 1/366 or 1/365 of the interest rate for 366 days in a leap 

year, if the account will earn interest for February 29. 

Maturity of Time Accounts (Staff Commentary 12 CFR 1030.7(a)(1)-5) 

Institutions are not required to pay interest after time accounts mature. 

Dormant Accounts (Staff Commentary 12 CFR 1030.7(a)(1)-6) 

Institutions must pay interest on funds in an account, even if inactivity or the infrequency of 

transactions would permit the institution to consider the account to be “inactive” or “dormant” 

(or similar status) as defined by state, other laws, or the account contract. 

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Permissible Methods to Determine Minimum Balance to Earn Interest – 

12 CFR 1030.7(a)(2) 

If an institution requires a minimum balance to earn interest, it must use the same method to 

determine the required minimum balance as it uses to determine the balance on which interest is 

calculated. For example, if an institution requires a $300 minimum balance that would be 

determined by using the average daily balance method, then it must calculate interest based on 

the average daily balance method. Further, an institution may use an additional method that is 

unequivocally beneficial to the consumer. 

Balances Below the Minimum (Staff Commentary 12 CFR 1030.7(a)(2)-1 and 2) 

An institution that requires a minimum balance may choose not to pay interest for days or period 

when the balance drops below the required minimum, whether they use the daily-balance method 

or the average daily balance method to calculate interest. 

Paying on Full Balance (Staff Commentary 12 CFR 1030.7(a)(2)-4) 

Institutions must pay interest on the full balance in the account that meets the required minimum 

balance. For example, if $300 is the minimum daily balance required to earn interest, and a 

consumer deposits $500, the institution must pay the stated interest rate on the full $500 and not 

just on $200. 

Minimum Balance Not Affecting Interest 

(Staff Commentary 12 CFR 1030.7(a)(2)-7) 

Institutions may use the daily balance, average daily balance, or any other computation method 

to calculate minimum-balance requirements that do not involve the payment of interest. For 

example, an institution may use any computation method to compute minimum balances for 

assessing fees. 

Compounding and Crediting Policies – 12 CFR 1030.7(b) 

This section does not require institutions to compound or credit interest at any particular 

frequency. Institutions choosing to compound interest may compound or credit interest annually, 

semi-annually, quarterly, monthly, daily, continuously, or on any other basis. 

An institution may choose not to pay accrued interest if consumers close an account prior to the 

date accrued interest is credited, as long as the institution has disclosed this practice in the initial 

account disclosures. 

Date Interest Begins to Accrue – 12 CFR 1030.7(c) 

Interest shall begin to accrue not later than the business day specified for interest-bearing 

accounts in Section 606 of the Expedited Funds Availability Act, which states: 

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“... interest shall accrue on funds deposited in an interest-bearing account at a depository 

institution beginning not later than the business day on which the depository institution 

receives provisional credit for such funds.” 

Interest shall accrue until the day funds are withdrawn. 

Advertising – 12 CFR 1030.8 

Section 1030.8 contains account advertising requirements, including overall general rules and 

rules for special account features. In addition, the section describes advertising involving certain 

types of media and in-house posters that are exempt from Regulation DD’s advertising 

requirements. 

General Advertising Rules – 12 CFR 1030.8(a) and (b) 

Misleading or Inaccurate Advertising – 12 CFR 1030.8(a) 

An institution may not advertise in a way that is misleading or inaccurate or misrepresents its 

deposit contract. In addition, an advertisement may not use the word “profit” in referring to 

interest paid on an account. 

An institution’s advertisement may not refer to or describe an account as “free” or “no cost” (or 

contain a similar term such as “fees waived”) if a maintenance or activity fee may be imposed on 

the account. Examples of such maintenance or activity fees include: 

•	 Any fee imposed when a minimum-balance requirement is not met, or when consumers 

exceed a specified number of transactions. 

•	 Transaction and service fees that consumers reasonably expect to be imposed on a regular 

basis. 

•	 A flat fee, such as a monthly service fee. 

•	 Fees imposed to deposit, withdraw, or transfer funds, including per-check or per-transaction 

charges (for example, 25 cents for each withdrawal, whether by check or in person). 

Examples of fees that are not maintenance or activity fees include: 

•	 Fees not required to be disclosed under 12 CFR 1030.4(b)(4). 

•	 Check-printing fees. 

•	 Balance-inquiry fees. 

•	 Stop-payment fees and fees associated with checks returned unpaid. 

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•	 Fees assessed against a dormant account. 

•	 Fees for ATM or electronic transfer services (such as preauthorized transfers or home 

banking services) not required to obtain an account. 

If an account (or a specific account service) is free only for a limited period of time (for example, 

for one year following the account opening) the account (or service) may be advertised as free if 

the time period is also stated. 

If an electronic advertisement (such as an advertisement appearing on a website) displays a 

triggering term (such as a bonus or annual percentage yield), described elsewhere in 12 CFR 

1030.8, the advertisement must clearly refer the consumer to the location where the additional 

required information begins. For example, an advertisement that includes a bonus or annual 

percentage yield may be accompanied by a link that directly takes the consumer to the additional 

information. As discussed in 12 CFR 1030.3(a), electronic advertising disclosures may be 

provided to the consumer in electronic form without regard to the consumer consent or other 

provisions of the E-Sign Act. 

The Staff Commentary provides the following examples of advertisements that would ordinarily 

be misleading, inaccurate, or misrepresent the deposit contract: 

•	 Representing an overdraft service as a “line of credit,” unless the service is subject to 

Regulation Z, 12 CFR Part 1026. 

•	 Representing that the institution will honor all checks or authorize payment of all 

transactions that overdraw an account, with or without a specified dollar limit, when the 

institution retains discretion at any time not to honor checks or authorize transactions. 

•	 Representing that consumers with an overdrawn account are allowed to maintain a negative 

balance when the terms of the account’s overdraft service require consumers promptly to 

return the deposit account to a positive balance. 

•	 Describing an institution’s overdraft service solely as protection against bounced checks 

when the institution also permits overdrafts for a fee for overdrawing accounts by other 

means, such as ATM withdrawals, debit card transactions, or other electronic fund transfers. 

•	 Advertising an account-related service for which the institution charges a fee in an 

advertisement that also uses the word “free” or “no cost” (or a similar term) to describe the 

account, unless the advertisement clearly and conspicuously indicates that there is a cost 

associated with the service. If the fee is a maintenance or activity fee under 12 CFR 

1030.8(a)(2), however, an advertisement may not describe the account as “free” or “no cost” 

(or contain a similar term) even if the fee is disclosed in the advertisement. 

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Advertising Rate Information – 12 CFR 1030.8(b) 

When an institution states a rate of return in an advertisement, it must do the following: 

•	 State the rate as an “annual percentage yield,” using that term. 

•	 If the advertisement uses the abbreviation “APY,” state the term “annual percentage yield” at 

least once in the advertisement. 

•	 If the advertisement uses the term “interest rate,” use the term in conjunction with, but not 

more conspicuously than, the related annual percentage yield. 

•	 It may not state any other rate except “annual percentage yield” or “interest rate”. 

•	 Round the annual percentage yield, the annual percentage yield earned, and the interest rate 

to the nearest one-hundredth of one percentage point (.01%) and express them to two decimal 

places. 

An advertisement for a tiered-rate account that states an annual percentage yield must also state 

the annual percentage yield for each tier, along with corresponding minimum-balance 

requirements. 

An advertisement for a stepped-rate account that states an interest rate must state all the interest 

rates and the time period that each rate is in effect. 

Required Advertising for Special Account Features – 12 CFR 1030.8(c) 

If an institution advertises an annual percentage yield for a product and the product includes one 

of the features listed in 12 CFR 1030.8(c)(1)-(6), then the institution must clearly and 

conspicuously disclose the information outlined in 12 CFR 1030.8(c)(1)-(6) as noted below. 

However, these requirements do not necessarily apply if the situation falls under the exemptions 

of 12 CFR 1030.8(e). 

Variable Rates – 12 CFR 1030.8(c)(1) 

For variable-rate accounts, the advertisement must state that the rate may change after the 

account is opened. 

Time Annual Percentage Yield (APY) is Offered – 12 CFR 1030.8(c)(2) 

The advertisement must include the period of time during which the annual percentage yield will 

be offered. Alternatively, the advertisement may state that the annual percentage yield is accurate 

as of a specified date. The date must be recent in relation to the publication or media broadcast 

used for the advertisement, taking into account the particular circumstances or production 

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deadlines involved. An advertisement may refer to the annual percentage yield as being accurate 

as of the date of publication, if the date is on the publication itself. 

Minimum Balance – 12 CFR 1030.8(c)(3) 

For accounts that have a required minimum balance, the advertisement must state the minimum 

balance required to obtain the advertised annual percentage yield. For tiered-rate accounts, the 

advertisement must state the minimum balance required for each tier in close proximity and with 

equal prominence to the applicable annual percentage yield. 

Minimum Opening Deposit – 12 CFR 1030.8(c)(4) 

For an account that requires a minimum deposit to open the account, the advertisement must 

state the minimum deposit required to open the account, if it is greater than the minimum balance 

necessary to obtain the advertised annual percentage yield. 

Effect of Fees – 12 CFR 1030.8(c)(5) 

An advertisement must state that fees could reduce the earnings on the account. This requirement 

only applies to maintenance or activity fees. 

Features of Time Accounts – 12 CFR 1030.8(c)(6) 

For time accounts, the advertisement must include: 

•	 Term of the account. 

•	 Early withdrawal penalties – a statement that a penalty will or may be imposed for early 

withdrawal. 

•	 Required interest payouts – a statement that interest cannot remain on deposit and that payout 

of interest is mandatory for non-compounding time accounts with the following features: 

○	 The stated maturity is greater than one year. 

○	 Interest is not compounded on an annual or more frequent basis. 

○	 Interest is required to be paid out at least annually. 

○	 The annual percentage yield is determined in accordance with Section E of Appendix A 

of Regulation DD. 

Bonuses – 12 CFR 1030.8(d) 

If an institution states a bonus in an advertisement, the advertisement must state clearly and 

conspicuously the following information, if applicable to the advertised product: 

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•	 “Annual percentage yield,” using that term. 

•	 Time requirement to obtain the bonus. 

•	 Minimum balance required to obtain the bonus. 

•	 Minimum balance required to open the account, if it is greater than the minimum balance 

necessary to obtain the bonus. 

•	 Time when the bonus will be provided. 

However, these requirements do not necessarily apply if the situation falls under the exemptions 

of 12 CFR 1030.8(e). In addition, general statements such as “bonus checking” or “get a bonus 

when you open a checking account” do not trigger the bonus disclosures. 

Exemption for Certain Advertisements – 12 CFR 1030.8(e) 

Section 1030.8(e) exempts certain types of media and certain indoor signs from some of the 

section’s advertising rules. 

Media Exemptions – 12 CFR 1030.8(e)(1) 

If an institution advertises through one of the following media, the advertisement does not need 

to include information required under certain 12 CFR 1030.8 rules, as outlined below: 

•	 Exempted media 

○	 Broadcast or electronic media, such as television or radio. However, the exemption does 

not extend to Internet and email advertisements. 

○	 Outdoor media, such as billboards. 

○	 Telephone response machines. However, solicitations for a tiered-rate account made 

through telephone-response machines must provide the annual percentage yields and the 

balance requirements applicable to each tier. 

•	 Exempted advertising requirements 

○	 Information required for special account features involving variable rates, time an annual 

percentage yield is offered, minimum opening deposit, effect of fees, and early 

withdrawal penalties for time accounts. 

○	 When bonuses are advertised, information required related to a minimum balance to open 

an account (if it is greater than the minimum balance necessary to obtain the bonus) and 

related to when a time the bonus will be provided. 

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Indoor Signs – 12 CFR 1030.8(e)(2) 

If an institution posts account information on signs inside its premises (or the premises of a 

deposit broker), the postings are exempt from the advertising requirements for: 

•	 Permissible rates; 

•	 When additional disclosures are required; 

•	 Bonuses; and 

• Certain media exemption. 

If a sign, falling under this exemption, states a rate of return, it must:
 

•	 State the rate as an “annual percentage yield,” using that term or the term “APY.” The sign 

must not state any other rate, although the related interest rate may be stated. 

•	 Contain a statement advising consumers to contact an employee for further information about 

applicable fees and terms. 

Indoor signs include advertisements displayed on computer screens, banners, preprinted posters, 

and chalk or peg boards. Any advertisement inside the premises that can be retained by a 

consumer (such as a brochure or a printout from a computer) is not an indoor sign. 

Additional Disclosures in Connection With the Payment of Overdrafts – 

12 CFR 1030.8(f) 

In addition to the general requirement that advertisements not be misleading, an institution that 

promotes the payment of overdrafts in an advertisement must also include in the advertisement 

the disclosures required under 12 CFR 1030.11(b). 

Record Retention – 12 CFR 1030.9(c) 

Section 1030.9(c) covers the record retention requirements in order for an institution to 

demonstrate compliance with Regulation DD, including rate information, advertising, and 

providing disclosures to consumers at the appropriate time (including upon a consumer’s request). 

Timing 

Under Regulation DD, an institution must retain records that evidence compliance for a 

minimum of two years after the date that disclosures are required to be made or an action is 

required to be taken. In addition, if required by its supervising agency, an institution may need to 

retain records for a longer time period. 

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An institution may demonstrate its compliance by: 

•	 Establishing and maintaining procedures for paying interest and providing timely disclosures. 

•	 Retaining sample disclosures for each type of account offered to consumers such as accountopening disclosures, copies of advertisements, and change-in-term notices; and information 

regarding the interest rates and annual percentage yields offered. 

Methods of Retaining Evidence 

An institution must be able to reconstruct the required disclosures and other required actions, but 

does not need to maintain hard copies of disclosures and other records. It may keep records 

evidencing compliance in microfilm, microfiche, or other methods that reproduce records 

accurately (including computer files). 

Payment of Interest 

An institution must retain sufficient rate and balance information to permit the verification of 

interest paid on an account, including the payment of interest on the full principal balance. 

12 CFR 1030.10 – [Reserved] 

Additional Disclosure Requirements for Overdraft Services 

– 12 CFR 1030.11 

Section 1030.11 contains periodic statement and advertising requirements for certain 

discretionary overdraft services. The requirements address concerns about the uniformity and 

adequacy of information provided to consumers when they overdraw their deposit accounts. 

Specifically, they address certain types of services – sometimes referred to as “bounced-check 

protection” or “courtesy overdraft protection” – which institutions offer to pay consumers’ 

checks and other items when there are insufficient funds in the account. The requirements apply 

to all depository institutions, regardless of whether they promote their overdraft services. 

Periodic Statement Disclosures – 12 CFR 1030.11(a) 

Disclosure of Total Fees – 12 CFR 1030.11(a)(1) 

The institution must disclose on its periodic statements (if it provides periodic statements) 

separate totals for the statement period and for the calendar year to date for: 

•	 The total dollar amount for all fees or charges imposed on the account for paying checks or 

other items when there are insufficient or unavailable funds and the account becomes 

overdrawn, using the term “Total Overdraft Fees” (the requirement to use the term “Total 

Overdraft Fees” is effective October 1, 2010); and 

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•	 The total dollar amount for all fees or charges imposed on the account for returning items 

unpaid. 

The aggregate fee disclosures must be placed in close proximity to the disclosure of any fee(s) 

that may be imposed in connection with the account and must use a substantially similar format 

as shown below: (see Appendix B of the regulation). The table must contain lines (or similar 

markings such as asterisks) inside the table to divide the columns and rows. 

Total for this period Total year-to-date 

Total Overdraft Fees $60.00 $150.00 

Total Returned Item Fees 0.00 30.00 

The total dollar amount for paying overdrafts includes per-item fees as well as interest charges, 

daily or other periodic fees, or fees charged for maintaining an account in overdraft status, 

whether the overdraft is by check, debit card transaction, or by other transaction type. It also 

includes fees charged when there are insufficient funds because previously deposited funds are 

subject to a hold or are uncollected. It does not include fees for transferring funds from another 

account of the consumer to avoid an overdraft, or fees charged under a service subject to 

Regulation Z, 12 CFR 1026. 

The total dollar amount for all fees for returning items unpaid must include all fees charged to the 

account for dishonoring or returning checks or other items drawn on the account. The institution 

must disclose separate totals for the statement period and for the calendar year-to-date. Fees 

imposed when deposited items are returned are not included. Institutions may use terminology 

such as ‘‘returned item fee’’ or ‘‘NSF fee’’ to describe fees for returning items unpaid. 

In the case of waived fees, an institution may provide a statement for the current period 

reflecting that fees imposed during a previous period were waived and credited to the account. 

Institutions may, but are not required to, reflect the adjustment in the total for the calendar yearto-date and in the applicable statement period. For example, if an institution assesses a fee in 

January and refunds the fee in February, the institution could disclose a year-to-date total 

reflecting the amount credited, but it should not affect the total disclosed for the February 

statement period, because the fee was not assessed in the February statement period. If an 

institution assesses and then waives and credits a fee within the same cycle, the institution may, 

at its option, reflect the adjustment in the total disclosed for fees imposed during the current 

statement period and for the total for the calendar year-to-date. Thus, if the institution assesses 

and waives the fee in the February statement period, the February fee total could reflect a total 

net of the waived fee. 

The disclosures under this section must be included on periodic statements provided by an 

institution starting the first statement period that began after January 1, 2010. For example, if a 

consumer’s statement period typically closes on the 15th of each month, an institution must 

provide the disclosures required by this section on subsequent periodic statements for that 

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consumer beginning with the statement reflecting the period from January 16, 2010, to 

February 15, 2010. 

Advertising Disclosures for Overdraft Services – 12 CFR 1030.11(b) 

Disclosures – 12 CFR 1030.11(b)(1) 

Unless an exception in 12 CFR 1030.11(b)(2)-(4) applies, any advertisement promoting the 

payment of overdrafts must disclose in a clear and conspicuous manner all of the following: 

•	 The fee(s) for the payment of each overdraft. 

•	 The categories of transactions for which a fee may be imposed for paying an overdraft. 

•	 The time period by which the consumer must repay or cover any overdraft. 

•	 The circumstances under which the institution will not pay an overdraft. It is sufficient to 

state, as applicable, “Whether your overdrafts will be paid is discretionary, and we reserve 

the right not to pay. For example, we typically do not pay overdrafts if your account is not in 

good standing, or you are not making regular deposits, or you have too many overdrafts.” 

Communications Not Subject to Additional Advertising Disclosures 

– 12 CFR 1030.11(b)(2) 

The advertising disclosure rules for overdraft services do not apply in the following 

circumstances: 

•	 An advertisement promoting a service where the institution’s payment of overdrafts would be 

agreed upon in writing and subject to Regulation Z (12 CFR Part 1026). 

•	 A communication by an institution about the payment of overdrafts in response to a 

consumer-initiated inquiry about deposit accounts or overdrafts. However, providing 

information about the payment of overdrafts in response to a balance inquiry made through 

an automated system, such as a telephone response machine, ATM, or an institution’s 

Internet site, is not a response to a consumer-initiated inquiry that is exempt from the 

advertising disclosures. 

•	 An advertisement made through broadcast or electronic media, such as television or radio. 

However, this exception does not apply to advertisements posted on an institution’s Internet 

site, on an ATM screen, provided on telephone-response machines, or sent by electronic mail. 

•	 An advertisement made on outdoor media, such as billboards. 

•	 An ATM receipt. 

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•	 An in-person discussion with a consumer. 

•	 Disclosures required by federal or other applicable law. 

•	 Information included on a periodic statement or on a notice informing a consumer about a 

specific overdrawn item or the amount the account is overdrawn. 

•	 A term in a deposit account agreement discussing the institution’s right to pay overdrafts. 

•	 A notice provided to a consumer, such as at an ATM, that completing a requested transaction 

may trigger a fee for overdrawing an account, or a general notice that items overdrawing an 

account may trigger a fee. 

•	 Informational or educational materials concerning the payment of overdrafts if the materials 

do not specifically describe the institution’s overdraft service. 

•	 An opt-out or opt-in notice regarding the institution’s payment of overdrafts or provision of 

discretionary overdraft services. 

Exception for ATM Screens and Telephone Response Machines – 

12 CFR 1030.11(b)(3) 

Any advertisement made on an ATM screen or using a telephone response machine is not 

required to include the following: 

•	 The categories of transactions for which a fee may be imposed for paying an overdraft. 

•	 The circumstances under which the institution will not pay an overdraft. 

Exception for Indoor Signs – 12 CFR 1030.11(b)(4) 

The advertising requirement to disclose fees for the payment of each overdraft does not apply to 

advertisements for the payment of overdrafts on indoor signs, if the indoor sign contains a clear 

and conspicuous statement that: 

•	 Fees may apply; and 

•	 Consumers should contact an employee for further information about applicable fees and 

terms. 

An indoor sign covered under this exception is one described in 12 CFR 1030.8(e)(2) and the 

accompanying Staff Commentary. In addition to the Staff Commentary’s examples of 

advertisements that are not considered indoor signs, an ATM screen is not considered an indoor 

sign for purposes of the overdraft disclosure requirements. 

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Account Balance Disclosures – 12 CFR 1030.11(c) 

In general, 12 CFR 1030.11(c) covers how an institution displays a consumer’s account balance 

information on automated systems, such as an ATM, when the institution will advance additional 

funds to cover insufficient or unavailable funds in a consumer’s account. Specifically, if an 

institution discloses balance information to a consumer through an automated system, the 

disclosed balance may not include additional amounts that the institution may provide to cover 

an item when there are insufficient or unavailable funds in the consumer’s account. This 

requirement covers additional funds that an institution may provide under a service provided at 

the institution’s own discretion, a service subject to Regulation Z (12 CFR 1026), or a service to 

transfer funds from another account of the consumer. However, the institution may, at its option, 

disclose an additional, second account balance that would include funds provided by the 

institution, if the institution prominently states that any such second balance includes funds that 

the institution may provide to cover insufficient or unavailable funds in the consumer’s account 

and, if applicable, that additional funds are not available for all transactions. 

Additional amounts that may be included in balance. The balance may, but need not, include 

funds that are deposited in the consumer’s account, such as from a check, that are not yet made 

available for withdrawal in accordance with the funds availability rules under Regulation CC (12 

CFR 229). In addition, the balance may, but need not, include funds that are held by the 

institution to satisfy a prior obligation of the consumer (for example, to cover a hold for an ATM 

or debit card transaction that has been authorized but for which the bank has not settled). 

Retail sweep programs. When disclosing a transaction account balance, an institution is not 

required to exclude funds from the consumer’s balance that may be transferred from another 

account pursuant to a retail sweep account. In a retail sweep program, an institution establishes 

two legally distinct subaccounts, a transaction subaccount and a savings subaccount. These two 

accounts together make up the consumer’s account. Retail sweep account programs typically: 

•	 Comply with the Federal Reserve Board’s Regulation D, 

•	 Prevent direct access by the consumer to the non-transaction subaccount that is part of the 

retail sweep program, and 

•	 Document on the consumer’s periodic statements the account balance as the combined 

balance in the subaccounts. 

Disclosure of second balance. If an institution discloses additional balances that include funds 

that may be provided to cover an overdraft, the institution must prominently state that the 

additional balance(s) includes additional overdraft funds. The institution may not simply state, 

for instance, that the second balance is the consumer’s ‘‘available balance,’’ or contains 

‘‘available funds.’’ Rather, the institution should provide enough information to convey that the 

second balance includes funds that the institution may provide to cover insufficient or 

unavailable funds. For example, the institution may state that the balance includes ‘‘overdraft 

funds.’’ Where a consumer has not opted into (or as applicable, has opted out of) the 

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institution’s discretionary overdraft service, any additional balance disclosed should not include 

funds that otherwise might be available under that service. Where a consumer has not opted into 

(or as applicable, has opted out of) the institution’s discretionary overdraft service for some, but 

not all transactions (e.g., the consumer has not opted into overdraft services for ATM and onetime debit card transactions), an institution that includes funds from its discretionary overdraft 

service in the balance should convey that the overdraft funds are not available for all 

transactions. For example, the institution could state that overdraft funds are not available for 

ATM and one-time debit card transactions. Similarly, if funds are not available for all 

transactions pursuant to a service subject to Regulation Z (12 CFR 1026) or a service that 

transfers funds from another account, a second balance that includes such funds should also 

indicate this fact. 

Automated systems. The balance disclosure requirement applies to any automated system 

through which the consumer requests a balance, including, but not limited to, a telephone 

response system, the institution’s Internet site, or an ATM. The requirement applies whether the 

institution discloses a balance through an ATM owned or operated by the institution or through 

an ATM not owned or operated by the institution (including an ATM operated by a nondepository institution). If the balance is obtained at an ATM, the requirement also applies 

whether the balance is disclosed on the ATM screen or on a paper receipt. 

Effect on State Laws (Regulation DD - Appendix C) 

Regulation DD preempts state law requirements that are inconsistent with the requirements of 

the Truth in Savings Act (TISA) or Regulation DD. A state law is inconsistent if it contradicts 

the definitions, disclosure requirements, or interest-calculation methods outlined in the act or the 

regulation. The regulation also provides that interested parties may request the Consumer 

Financial Protection Bureau to determine whether a state law is inconsistent with the TISA. 

CFPB Manual V.2 (October 2012) TISA 32 
 

 

 

 

CFPB Consumer 

Laws and Regulations TISA 

REFERENCES 

Laws 

12 U.S.C. 4301 et seq. Truth in Savings Act 

12 U.S.C. 4005 et seq. Expedited Funds Availability Act 

15 U.S.C. 7001 et seq. Electronic Signatures in Global and National Commerce Act (ESign Act) 

Regulations
 

Consumer Financial Protection Bureau Regulations (12 CFR)
 

Part 1005 Electronic Fund Transfer (Regulation E)
 

Part 1026 Truth in Lending (Regulation Z)
 

Part 1030 Truth in Savings (Regulation DD)
 

Federal Reserve Board Regulations (12 CFR) 

Part 204 Reserve Requirements of Depository Institutions (Regulation D) 

Part 229 Availability of Funds and Collection of Checks (Regulation CC) 

National Credit Union Administration Regulation (12 CFR) 

Part 707 Truth in Savings 

CFPB Manual V.2 (October 2012) TISA 33 
 

 

 

 

 

 

 

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Examination Procedures TISA 

Truth in Savings Act1 2 

Examination Objectives 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

•	 To determine the institution’s compliance with 

Regulation DD, including the requirements to provide full account disclosures (for example, 

fee schedules) to consumers to open an account and upon request and including the require-

-

-

-

ments covering overdraft payment disclosures and advertising. 

•	 To assess the quality of the institution’s compliance risk management systems and its poli

cies and procedures for implementing Regulation DD. 

•	 To determine the reliance that can be placed on the institution’s internal controls and proce

dures for monitoring the institution’s compliance with Regulation DD. 

•	 To direct corrective action when violations of law are identified or when the institution’s pol

icies or internal controls are deficient. 

Management- and Policy-Related Examination Procedures 

1. Determine the types of deposit accounts offered by the institution to 

consumers (including accounts usually offered to commercial customers
 

that may occasionally be offered to consumers) as well as the 

characteristics of each type of deposit account (for example, bonuses
 

offered, minimum balances, balance-computation method, frequency of
 

interest crediting, fixed or variable rates, fees imposed, and frequency of
 

periodic statements).
 

[Click&type] 

2. Review relevant written policies and procedures, management’s selfassessments, consumer complaints, and any compliance audit material
 

including work papers and reports to determine whether:
 

• The scope of the audit addresses all provisions as applicable. 

•	 Management has taken corrective actions to followup on previously
 

identified deficiencies.
 

•	 The testing includes samples covering all product types and decision 

centers.
 

• The work performed is accurate. 

1 These reflect FFIEC-approved procedures. 

2 The Consumer Financial Protection Bureau’s implementing regulation is cited in these procedures. However, if examiners cite 

violations by a credit union, examiners should cite violations of the National Credit Union Administration’s implementing 

regulation, 12 CFR Part 707. 

CFPB	 Manual V.2 (October 2012) Procedures 1 
 

 

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Examination Procedures TISA 

•	 Significant deficiencies and their causes are included in reports to 

management and to the Board of Directors, as appropriate. 

•	 The frequency of review is appropriate. 

[Click&type] 

3. Through discussions with management and review of available 

information, determine whether the institution’s internal controls are 

adequate to ensure compliance in Regulation DD area under review. 

Consider the following: 

•	 Organization charts; 

•	 Process flowcharts; 

•	 Policies and procedures; 

•	 Account documentation; 

•	 Checklists; and 

•	 Computer program documentation. 

[Click&type] 

4. Through a review of the institution’s training materials, determine 

whether: 

•	 The institution provides appropriate training to individuals responsible 

for Regulation DD compliance and operational procedures. 

•	 The training is comprehensive and covers the various aspects of Regulation DD that apply to the individual institution’s product offerings 

and operations. 

•	 The training includes the timing requirements of 12 CFR 1030.4(a)(2) 

to provide disclosure information (e.g., terms, conditions, and fees) to a 

consumer upon a request, whether or not the consumer is an existing or 

a prospective customer. Review whether the training instructs all employees, including branch employees, to provide such disclosures at the 

time of the request if the consumer makes the request in person or 

within ten business days if the consumer is not present when making 

the request. 

[Click&type] 

5. Determine the extent and adequacy of the institution’s policies, 

procedures, and practices for ensuring compliance with the regulation. In 

particular, verify that: 

•	 Account disclosure information is available to be provided to all consumers within the appropriate time frames. This requirement pertains 

to all consumer requesters whether or not the consumer is an existing 

customer or a prospective customer. 

CFPB	 Manual V.2 (October 2012) Procedures 2 
 

 

 

 

 

 

CFPB 

Examination Procedures TISA 

•	 Advance notice is given for any changes in terms required to be disclosed under 12 CFR 1030.4 and that exceptions to the advance notice 

requirements are limited to those set forth in 12 CFR 1030.5(a)(2). 

•	 If periodic statements are given, the statements disclose the required 

information, including the annual percentage yield earned, the amount 

of interest, fees imposed, and the statement’s covered time period. 

•	 The institution’s methods of paying interest are permissible. Review
 

the dates on which interest begins to accrue on deposits to accounts, 

and determine whether hold times comply with the Expedited Funds
 

Availability Act.
 

•	 The institution’s advertising policies are consistent with the requirements of the regulation, including advertising requirements for
 

overdraft services.
 

•	 Evidence of compliance is retained for a minimum of two years after the 

date disclosures are required to be made or action is required to be taken. 

•	 The periodic statements separately disclose the total fees and charges 

for payment of items that overdraw the account and for returning items 

unpaid.These disclosures must be provided for the statement period 

and the calendar year-to-date. 

[Click&type] 

Transaction-Related Examination Procedures 

If upon conclusion of the management and policy-related examination procedures, procedural 

weaknesses or other risks requiring further investigation are noted, conduct the transaction 

testing, as necessary, using the following examination procedures. Use examiner judgment in 

deciding the size of each sample of deposit account disclosures, notices, and advertisements. 

Increase the sample size until you are confident that all aspects of the institution’s activities and 

policies that are subject to the regulation are reviewed. 

General Disclosure Requirements – 12 CFR 1030.3 

1. Determine whether the institution makes disclosures clearly and
 

conspicuously in writing and in a form the consumer may keep (12 CFR
 

1030.3(a)). 

[Click&type] 

2. If the disclosures are combined with other account disclosures, determine 

whether it is clear which disclosures are applicable to the consumer’s
 

account (12 CFR 1030.3(a)).
 

[Click&type] 

3. If the institution provides a consumer disclosure in electronic form, 

CFPB	 Manual V.2 (October 2012) Procedures 3 
 

 

 

 

CFPB 

Examination Procedures TISA 

determine whether the institution has obtained the consumer’s consent, 

where required, and complies with the other applicable provisions of the 

Electronic Signatures in Global and National Commerce Act (E-Sign 

Act)(15 U.S.C. § 7001 et seq.) (12 CFR 1030.3(a)). 

[Click&type] 

4. Determine whether the disclosures reflect the legal obligation of the 

account agreement between the consumer and the institution (12 CFR 

1030.3(b)). 

[Click&type] 

5. If the institution provides disclosures in a language other than English, 

verify whether the disclosures are available in English upon request (12 

CFR 1030.3(b)). 

[Click&type] 

6. Determine whether disclosures use consistent terminology when 

describing terms or features that are required to be disclosed (Staff 

Commentary 1030.3(a)-2). 

[Click&type] 

7. Determine whether the institution substitutes disclosures required by 

Regulation E for disclosures required by Regulation DD (12 CFR 

1030.3(c)). 

[Click&type] 

8. Determine whether the institution provides required disclosures to at least 

one account holder if there are multiple holders (12 CFR 1030.3(d)). 

[Click&type] 

9. Determine whether the institution’s oral response to a consumer’s inquiry 

about interest rates payable on accounts state the annual percentage yield 

(APY) by reviewing the institution’s policies and procedures. If the 

institution chooses, it may also state the interest rate, but no other rate (12 

CFR 1030.3(e)). 

[Click&type] 

10. Determine whether the APY, the annual percentage earned (APYE) and 

the interest rate are rounded to the nearest one-hundredth of one 

percentage point (.01%). 

NOTE: For account disclosures, the interest rate may be expressed to more 

than two decimal places (12 CFR 1030.3(f)(1)). 

[Click&type] 

11. Determine whether the APYs and APYEs are not more than one-twentieth 

CFPB	 Manual V.2 (October 2012) Procedures 4 
 

CFPB 

Examination Procedures TISA 

of one percentage point (.05%) above or below the APY (and APYE) as 

determined in accordance with Appendix A of Regulation DD (12 CFR 

1030.3(f)(2)). 

[Click&type] 

Account Disclosures – 12 CFR 1030.4 

Delivery of Account Disclosures 

Account Opening 

12. Determine whether the institution provides account disclosures to 

consumers before an account is opened or a service is provided, whichever 

is earlier (12 CFR 1030.4(a)(1)(i)). 

•	 If the consumer is not present when the account is opened or a service 

is provided (and has not already received the disclosures), the institution should mail or deliver the disclosures no later than 10 business 

days after the account is opened or the service is provided, whichever 

is earlier (12 CFR 1030.4(a)(1)(i)). 

•	 If the consumer who is not present at the institution uses electronic 

means to open an account or request a service, the institution must provide the disclosures before the account is open or the service is 

provided (12 CFR 1030.4(a)(1)(ii)). 

[Click&type] 

Consumer Request 

13. Determine whether the institution has available full account disclosures, 

including complete fee schedules, to provide to a consumer upon 

request.This requirement pertains to all consumer requests, whether or not 

the consumer is an existing customer or a prospective customer. 

•	 If the request is made in person, determine whether the institution has 

disclosures available to provide upon the consumer’s request. 

•	 If the consumer is not present, the institution must mail or deliver the 

disclosures within a reasonable period of time after it receives the request (generally no more than 10 days) (12 CFR 1030.4(a)(2)(i)). 

[Click&type] 

14. Determine whether the institution chooses one of the following options
 

when providing rate information (12 CFR 1030.4(a)(2)(ii)(A)).
 

•	 Specifies an interest rate and APY that were offered within the most 

recent seven calendar days. 

CFPB	 Manual V.2 (October 2012) Procedures 5 
 

CFPB 

Examination Procedures TISA 

•	 States that the rate and yield are accurate as of an identified date. 

•	 Provides a telephone number that consumers may call to obtain current 

rate information. 

[Click&type] 

15. For a time deposit account, the institution may state the maturity as a term 

rather than a date (12 CFR 1030.4(a)(2)(ii)(B)). 

[Click&type] 

Content of Disclosures 

Rate information 

16. Determine whether account disclosures include, as applicable: 

•	 The “annual percentage yield” and the “interest rate” using those 

terms. 

•	 For fixed-rate accounts the period of time the interest rate will be in 

effect (12 CFR 1030.4(b)(1)(i)). 

[Click&type] 

17. For variable-rate accounts, determine whether account disclosures include 

all of the following information (12 CFR 1030.4(b)(1)(ii)): 

•	 The fact that the interest rate and APY may change. 

•	 How the interest rate is determined. 

•	 The frequency with which the interest rate may change. 

•	 Any limitations on the amount the interest rate may change. 

[Click&type] 

Compounding and crediting 

18. Determine whether account disclosures describe the frequency with which 

interest is compounded or credited (12 CFR 1030.4(b)(2)(i)). 

[Click&type] 

19. If the consumer will forfeit interest if the consumer closes an account 

before accrued interest is credited, determine whether account disclosures 

include a statement that interest will not be paid in such cases (12 CFR 

1030.4(b)(2)(ii)). 

[Click&type] 

Balance information 

20. As applicable, determine whether account disclosures: 

CFPB	 Manual V.2 (October 2012) Procedures 6 
 

CFPB 

Examination Procedures TISA 

• Describe the minimum balance required to (12 CFR 1030.4(b)(3)(i)): 

○	 Open an account; 

○	 Avoid the imposition of a fee; or 

○	 Obtain the APY disclosed. 

•	 Describe how the minimum balance requirement is determined to 

avoid the imposition of a fee or to obtain the APY disclosed (12 CFR 

1030.4(b)(3)(i)). 

•	 Explain the balance computation method (specified in 12 CFR 1030.7) 

used to calculate interest on the account (12 CFR 1030.4(b)(3)(ii)). 

•	 State when interest begins to accrue on noncash deposits (12 CFR 

1030.4(b)(3)(iii)). 

[Click&type] 

Fees 

21. Determine whether account disclosures state the amount of any fee that 

may be imposed in connection with the account (or an explanation of how 

the fee will be determined) and the conditions under which the fee may be 

imposed (12 CFR 1030.4(b)(4)). 

•	 Determine whether the institution has specified the categories of transactions for which an overdraft fee may be imposed (Staff Commentary 

12 CFR 1030.4(b)(4)-5). 

[Click&type] 

Transaction Limitations 

22. Determine whether the account disclosures state any limits on the number 

or dollar amount of withdrawals or deposits (12 CFR 1030.4(b)(5)). 

[Click&type] 

Features of time accounts 

23. For time accounts, determine whether account disclosures include, as
 

applicable:
 

•	 The maturity date (12 CFR 1030.4(b)(6)(i)). 

•	 A statement that a penalty will or may be imposed for early 

withdrawal, how it is calculated, and the conditions for its assessment 

(12 CFR 1030.4(b)(6)(ii)). 

•	 If compounding occurs during the term and the interest may be withdrawn prior to maturity, a statement that the APY assumes interest 

remains on deposit until maturity and that a withdrawal will reduce 

earnings (12 CFR 1030.4(b)(6)(iii)). 

CFPB	 Manual V.2 (October 2012) Procedures 7 
 

CFPB 

Examination Procedures TISA 

•	 A statement that interest cannot remain on deposit and that payout of 

interest is mandatory for accounts (12 CFR 1030.4(b)(6)(iii)): 

○	 With a stated maturity greater than one year; 

○	 That do not compound interest on an annual or more frequent basis; 

○	 That require interest payouts at least annually; and 

○	 That disclose an APY determined in accordance with Section E of 

Appendix A of Regulation DD. 

•	 A statement of whether or not the account will renew automatically at 

maturity (12 CFR 1030.4(b)(6)(iv)): 

○	 If it will renew automatically at maturity, a statement whether or 

not a grace period will be provided and, if so, the length of the 

grace period. 

○	 If it will not renew automatically, a statement of whether interest 

will be paid after maturity if the consumer does not renew the account. 

[Click&type] 

Bonuses 

24. Determine whether the account disclosures state the amount or type of any 

bonus, when the bonus will be provided, and any minimum balance and 

time requirements to obtain the bonus (12 CFR 1030.4(b)(7)). 

[Click&type] 

Subsequent Disclosures – 12 CFR 1030.5 

Change in Terms Notice 

25. Determine whether the institution sends out advance change in terms
 

notices to consumers of any change in a term, required to be disclosed 

under 12 CFR 1030.4(b), that may reduce the annual percentage yield 

(APY) or that otherwise adversely affects consumers. Verify that the
 

notice (12 CFR 1030.5(a)(1)):
 

•	 Includes the effective date of the change. 

•	 Is mailed or delivered at least 30 days before the effective date of the 

change. 

[Click&type] 

26. Determine whether exceptions to the notice requirements are limited to (12 

CFR 1030.5(a)(2)): 

•	 Variable-rate changes; 

•	 Check-printing fees; and 

CFPB	 Manual V.2 (October 2012) Procedures 8 
 

CFPB 

Examination Procedures TISA 

•	 Short-term time accounts (one month or less). 

[Click&type] 

Pre-Maturity Notices – Renewable Accounts 

27. For time accounts with a maturity longer than one month and that renew 

automatically, determine whether the proper subsequent disclosures (12 

CFR 1030.5(b)): 

•	 Are mailed or delivered at least 30 days before maturity of the existing 

account. Alternatively, the institution may mail or deliver the disclosures at least 20 calendar days before the end of the grace period on the 

existing account, if a grace period of at least five days is allowed (12 

CFR 1030.5(b)). 

•	 For accounts with maturities of more than one year, include the following information (12 CFR 1030.5(b)(1)): 

o	 The account disclosures required in 12 CFR 1030.4(b) for new accounts; 

o	 The date the existing account matures; 

o	 If the interest rate and APY are not known, include the following: 

 The fact that the rates are unknown; 

 The date that the rates will be determined; 

 A telephone number to call to obtain the rates that will be paid 

on the new account. 

•	 For accounts with maturities of one year or less, include the following 

information (12 CFR 1030.5(b)(2)): 

o	 The same account disclosures as required in 12 CFR 1030.5(b)(1) 

for accounts with maturities of more than one year; 

 Or disclose to the consumer: 

o	 The date the existing account matures and the new maturity date if 

the account is renewed; and 

o	 The interest and APY, if known. 

o	 If the rates are not known, include the following: 

 The fact that the rates are unknown; 

 The date they will be determined; 

 A telephone number to call to obtain the rates that will be paid 

on the new account; and 

o	 The difference in the terms of the new account, as compared to the 

existing account. 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 9 
 

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Examination Procedures TISA 

Pre-Maturity Notices – Nonrenewable Accounts 

28. For time accounts with a maturity longer than one year and that do not
 

renew automatically, determine whether the institution (12 CFR
 

1030.5(c)):
 

•	 Discloses the maturity date. 

•	 Discloses whether interest will be paid after maturity. 

•	 Mails or delivers the disclosures at least 10 calendar days before maturity of the existing account. 

[Click&type] 

Periodic Statement Disclosures – 12 CFR 1030.6 

29. If an institution mails or delivers a periodic statement, determine whether 

the statements include the following (12 CFR 1030.6(a)): 

•	 The “annual percentage yield earned” during the statement period, using that term and calculated in accordance to Appendix A of 

Regulation DD (12 CFR 1030.6(a)(1)). 

•	 The amount of interest earned during the statement period (12 CFR 

1030.6(a)(2)). 

•	 Any debited fees required to be disclosed under 12 CFR 1030.4(b)(4) 

itemized by dollar amount and type (12 CFR 1030.6(a)(3)). 

NOTE: Except as required in 12 CFR 1030.11(a)(1) for overdraft 

payment fees, if fees of the same type are imposed more than once in a 

statement period, an institution may itemize fees separately or group 

them together and disclose a total dollar amount for all fees of the 

same type. Fees for paying overdrafts and for returning items unpaid 

are not fees of the same type and must be separately distinguished 

(Staff Commentary 12 CFR 1030.6(a)(3)-2(iv)). 

•	 The total number of days in the statement period or the beginning and 

ending dates of the period (12 CFR 1030.6(a)(4)). 

•	 If applicable, the total overdraft and returned item fees required to be 

disclosed by 12 CFR 1030.11(a) (12 CFR 1030.6(a)(5)). 

[Click&type] 

30. If the institution uses the average daily balance method and calculates 

interest for a period other than the statement period, determine whether the 

institution 12 CFR 1030.6(b)): 

•	 Calculates and discloses the APY earned and the amount of interest 

earned based on the other period rather than the statement period; and 

•	 States the information required in 12 CFR 1030.6(a)(4), specifying the 

CFPB	 Manual V.2 (October 2012) Procedures 10 
 

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Examination Procedures TISA 

period length for the other period as well as for the statement period. 

[Click&type] 

Payment of Interest – 12 CFR 1030.7 

31. Determine whether the institution calculates interest based on the full 

amount of principal in an account for each day by use of either the daily 

balance method or the average daily balance method 12 CFR 

1030.7(a)(1)). 

[Click&type] 

32.	 For deposit accounts that require a minimum balance to earn interest, 

determine whether the institution is using the same method to determine 

the minimum balance as it uses to determine the balance on which interest 

is calculated 12 CFR 1030.7(a)(2)). 

NOTE: An institution may use an additional method that is unequivocally 

beneficial to the consumer 12 CFR 1030.7(a)(2)). 

[Click&type] 

33.	 If an institution chooses not to pay accrued interest if the consumer closes 

an account prior to the date accrued interest is credited, determine whether 

the institution disclosed this practice in the initial account disclosures 

(Staff Commentary 12 CFR 1030.7(b)-3). 

NOTE: An institution is not required to compound or credit interest at any 

particular frequency but, if it does, it may compound or credit interest 

annually, semi-annually, quarterly, monthly, daily, continuously, or on any 

other basis (12 CFR 1030.7(b) and Staff Commentary 12 CFR 1030.7(b)-1). 

[Click&type] 

34.	 Determine whether interest begins to accrue no later than the business day 

on which the depository institution receives provisional credit for the 

funds, in accordance with Section 606 of the Expedited Funds Availability 

Act and the implementing Regulation CC, Section 229.14 (12 CFR 

1030.7(c)). 

[Click&type] 

35.	 Determine whether interest accrues until the day funds are withdrawn (12 

CFR 1030.7(c)). 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 11 
 

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Advertising – 12 CFR 1030.8 

General 

36. Determine the types of advertising the institution uses, including visual, 

oral, or print, that meet the regulatory definition of an advertisement. 

[Click&type] 

37. Determine that all types of advertisements do not contain misleading or 

inaccurate statements and do not misrepresent deposit contracts (12 CFR 

1030.8(a)(1)). 

[Click&type] 

38. Determine that advertisements of accounts do not: 

•	 Refer to or describe an account as “free” or “no cost” (or contain a 

similar term) if any maintenance or activity fee is charged; 

•	 Use the word profit to refer to interest paid on the account; 

•	 Use the term “fees waived” if a maintenance or activity fee can be 

imposed (12 CFR 1030.8(a)(2) and Staff Commentary 12 CFR 

1030.8(a)-5). 

[Click&type] 

39. If an electronic advertisement displays a triggering term, determine
 

whether the advertisement clearly refers the consumer to the location
 

where the additional required information begins (Staff Commentary 12 

CFR 1030.8(a)-9).
 

[Click&type] 

40. For institutions that promote the payment of overdrafts in an 

advertisement, determine whether the advertisement includes the
 

disclosures required by 12 CFR 1030.11(b) (12 CFR 1030.8(f)).
 

[Click&type] 

Permissible Advertisement Rates 

41. For advertisements that state a rate of return, determine whether (12 CFR 

1030.8(b)): 

•	 The rate is stated as an “annual percentage yield” using that term and 

that no other rate is stated except “interest rate.” 

•	 If the advertisement uses the abbreviation “APY,” the term “annual 

percentage yield” is stated at least once in the advertisement. 

•	 If the advertisement states the interest rate, it uses the term “interest 

rate” in conjunction with, but not be more conspicuous than, the annual 

CFPB	 Manual V.2 (October 2012) Procedures 12 
 

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Examination Procedures TISA 

percentage yield to which it relates. 

•	 Rates are rounded to the nearest one-hundredth of one percentage point 

(.01%) and expressed to two decimal places. 

[Click&type] 

42. For tiered-rate accounts, determine whether an annual percentage yield is 

stated for each tier, along with corresponding minimum balance 

requirements (Staff Commentary 12 CFR 1030.8(b)-1). 

[Click&type] 

43. For stepped-rate accounts, determine whether all interest rates and the time 

period that each rate is in effect are stated (Staff Commentary 12 CFR 

1030.8(b)-2). 

[Click&type] 

Required Additional Disclosures 

44. With the exception of broadcast, electronic, or outdoor media, telephoneresponse machines, and indoor signs, if the annual percentage yield is 

stated in the advertisement, determine whether it includes the following 

information, as applicable, clearly and conspicuously: 

•	 For a variable rate account, that the rate may change after account 

opening (12 CFR 1030.8(c)(1)). 

•	 The time period that the annual percentage yield will be offered or a 

statement that it is accurate as of a specified date (12 CFR 

1030.8(c)(2)). 

•	 The minimum balance required to earn the advertised annual percentage yield (12 CFR 1030.8(c)(3)). 

•	 For tiered accounts, the minimum balance required for each tier stated 

in close proximity and with equal prominence to the applicable APY, if 

applicable (12 CFR 1030.8(c)(3)). 

•	 The minimum deposit to open the account, if it is greater than the minimum balance necessary to obtain the advertised annual percentage 

yield (12 CFR 1030.8(c)(4)). 

•	 A statement that maintenance or activity fees could reduce the earnings 

on the account(12 CFR 1030.8(c)(5) and Staff Commentary 12 CFR 

1030.8(c)(5)-1). 

•	 For time accounts: 

o	 Term of the account (12 CFR 1030.8(c)(6)(i)). 

o	 A statement that a penalty will or may be imposed for early withdrawal (12 CFR 1030.8(c)(6)(ii)). 

o	 A statement that interest cannot remain on deposit and that payout 

CFPB	 Manual V.2 (October 2012) Procedures 13 
 

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Examination Procedures TISA 

of interest is mandatory for noncompounding time accounts with 

the following features (12 CFR 1030.8(c)(6)(iii)): 

 Stated maturity greater than one year. 

 Interest is not compounded annually or more frequently. 

 Interest is required to be paid out at least annually. 

 The APY is determined in accordance with Section E of Appendix A of Regulation DD. 

[Click&type] 

Bonuses 

45. For advertisements that state a bonus (a premium, gift, award or other
 

consideration worth more than $10), determine whether they state all of
 

the following:
 

•	 The “annual percentage yield,” using that term (12 CFR 1030.8(d)(1)). 

•	 The time requirement to obtain the bonus (12 CFR 1030.8(d)(2)). 

•	 The minimum balance required to obtain the bonus (12 CFR 

1030.8(d)(3)). 

•	 The minimum balance required to open the account, if it is greater than 

the minimum balance required to obtain the bonus (12 CFR 

1030.8(d)(4)). 

•	 When the bonus will be provided (12 CFR 1030.8(d)(5)). 

[Click&type] 

Exemptions for certain advertisements 

46. Advertisements made through broadcast, electronic, or outdoor media, and 

telephone-response machines are exempted from some of the Regulation 

DD advertising requirements and are only required to contain certain 

information. (This exemption does not apply to Internet or email 

advertisements.) Determine whether advertisements made in these media 

contain the following information as applicable, clearly and conspicuously 

(12 CFR 1030.8(e)(1) and Staff Commentary 12 CFR 1030.8(e)(1)(i)-1): 

•	 The minimum balance required to earn the advertised annual percentage yield. For tiered accounts, the minimum balance required for each 

tier stated in close proximity and with equal prominence to the applicable APY, if applicable (12 CFR 1030.8(c)(3)). 

•	 For time accounts: 

o	 Term of the account (12 CFR 1030.8(c)(6)(i)). 

o	 A statement that interest cannot remain on deposit and that payout 

of interest is mandatory for noncompounding time accounts with 

CFPB	 Manual V.2 (October 2012) Procedures 14 
 

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Examination Procedures TISA 

the following features(12 CFR 1030.8(c)(6)(iii)): 

 Stated maturity greater than one year. 

 Interest is not compounded annually or more frequently. 

 Interest is required to be paid out at least annually. 

 The APY is determined in accordance with Section E of Appendix A of Regulation DD. 

o	 For advertisements that state a bonus (a premium, gift, award or 

other consideration worth more than $10): 

 The “annual percentage yield,” using that term 12 CFR 

1030.8(d)(1)). 

 The time requirement to obtain the bonus (12 CFR 

1030.8(d)(2)). 

 The minimum balance required to obtain the bonus (12 CFR 

1030.8(d)(3)). 

[Click&type] 

47. Indoor signs are exempted from most of the Regulation DD advertising 

requirements. Determine that indoor signs: 

•	 Do not: 

o	 Contain misleading or inaccurate statements and do not misrepresent deposit contracts (12 CFR 1030.8(a)(1)). 

o	 Refer to or describe an account as “free” or “no cost” (or contain a 

similar term) if any maintenance or activity fee is charged (12 

CFR 1030.8(a)(2)). 

o	 Use the word profit to refer to interest paid on the account (12 

CFR 1030.8(a)(2)). 

o	 Use the term “fees waived” if a maintenance or activity fee can be 

imposed (Staff Commentary 12 CFR 1030.8(a)-5). 

• If a rate of return is stated, determine whether the indoor sign: 

o	 States the rate as “annual percentage yield” or “APY.” No other 

rate may be stated except for the interest rate in conjunction with 

the APY to which it relates (12 CFR 1030.8(e)(2)(ii)(A)). 

o	 Contains a statement advising consumers to contact an employee 

for further information about applicable fees and terms (12 CFR 

1030.8(e)(2)(ii)(B)). 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 15 
 

CFPB 

Examination Procedures TISA 

Record Retention Requirements – 12 CFR 1030.9 

48 Determine whether the institution has maintained evidence of compliance
 

with Regulation DD, including rate information, advertising, and providing 

consumers disclosures at the appropriate time (including upon a
 

consumer’s request), for a minimum of two years after disclosures are 

required to be made or action is required to be taken. For example, review
 

samples of advertising and disclosures, policies and procedures, and 

training activities, as appropriate (12 CFR 1030.9(c)).
 

[Click&type] 

12 CFR 1030.10 – [Reserved] 

Additional Disclosure Requirements for Overdraft Services 

– 12 CFR 1030.11 

Periodic Statement Disclosures 

49. Determine whether the institution discloses on each periodic statement (if
 

a statement is provided) separate totals, for both the statement period and 

for the calendar year-to-date, for both of the following (12 CFR
 

1030.11(a)(1) and (a)(2)):
 

•	 The total amount for all fees or charges imposed on the account for 

paying checks or other items when there are insufficient or unavailable 

funds and the account becomes overdrawn, using the term “Total 

Overdraft Fees” (the requirement to use the term “Total Overdraft 

Fees” is effective October 1, 2010) (12 CFR 1030.11(a)(1)(i)); 

•	 The total amount for all fees or charges imposed on the account for returning items unpaid (12 CFR 1030.11(a)(1)(ii). 

[Click&type] 

50. Determine if the aggregate fee disclosures are in a format that is
 

substantially similar to the sample form in Appendix B of Regulation DD
 

and that the disclosures are in close proximity to any fee identified in 12 

CFR 1030.6(a)(3) (12 CFR 1030.11(a)(3)). NOTE: The table must contain 

lines (or similar markings such as asterisks) inside the table to divide the
 

columns and rows.
 

[Click&type] 

Advertisement Requirements 

51. Unless an exception under 12 CFR 1030.11(b)(2)-(4) applies, when an 

institution advertises the payment of overdrafts, determine whether the
 

institution clearly and conspicuously discloses in advertisements all of the
 

CFPB	 Manual V.2 (October 2012) Procedures 16 
 

 

 

CFPB 

Examination Procedures TISA 

following: 

•	 The fee(s) for the payment of each overdraft (12 CFR
 

1030.11(b)(1)(i)).
 

•	 The categories of transactions for which a fee may be imposed for paying an overdraft (12 CFR 1030.11(b)(1)(ii)). 

•	 The time period by which the consumer must repay or cover any overdraft (12 CFR 1030.11(b)(1)(iii)). 

•	 The circumstances under which the institution will not pay an overdraft 

(12 CFR 1030.11(b)(1)(iv)). 

[Click&type] 

52. Disclosure of Account Balances 

•	 If the institution discloses account balance information through automated systems, determine whether: 

o	 The balance excludes additional amounts that the institution may 

provide to cover items when there are insufficient or unavailable 

funds (12 CFR 1030.11(c)). 

o	 The institution, if it discloses at its option additional account balances that include additional amounts, prominently states that any 

such balance includes additional amounts and, if applicable, that 

those additional amounts are not available for all transactions (12 

CFR 1030.11(c)). 

NOTE: Regulation DD does not require an institution to exclude funds 

from the consumer’s balance that may be transferred from another 

account pursuant to a retail sweep program (Staff Commentary 12 CFR 

1030.11(c)-2). 

[Click&type] 

Examiner’s Summary, Recommendations, and Comments 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 17 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB 

Examination Checklist TISA 

Truth in Savings Act1 

General Disclosure Requirements – 

12 CFR 1030.32 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

Yes	 No NA 

1.	 Does the institution make the required disclosures clearly and 

conspicuously in writing and in a form the consumer may keep (12 CFR
 

1030.3(a))?
 

2.	 If the disclosures are combined with other account disclosures, is it
 

clear which disclosures are applicable to the consumer’s account (12 

CFR 1030.3(a))?
 

3.	 Do the disclosures reflect the terms of the legal obligation of the
 

account agreement between the consumer and the institution (12 CFR
 

1030.3(b))?
 

4.	 If the disclosures are provided in a language other than English, are
 

disclosures also available in English upon request (12 CFR
 

1030.3(b))?
 

5.	 Do the disclosures use consistent terminology when describing terms
 

or features that are required to be disclosed (Staff Commentary 12 

CFR 1030.3(a)-2)?
 

6.	 Does the institution substitute disclosures required by Regulation E for
 

disclosures required by this regulation (12 CFR 1030.3(c))?
 

7.	 Does the institution provide disclosures to at least one account holder
 

if there are multiple holders (12 CFR 1030.3(d))?
 

8.	 Do the institution’s oral responses to a consumer’s inquiry about interest
 

rates payable on accounts state the annual percentage yield (APY)? If the
 

institution chooses, it may state the interest rate, but no other rate (12
 

CFR 1030.3(e)).
 

9.	 Are the APY, annual percentage yield earned (APYE), and the interest
 

rate rounded to the nearest one-hundredth of one percentage point
 

(.01%) and expressed to two decimal places (12 CFR 1030.3(f)(1))?
 

1 These reflect FFIEC-approved procedures. 

2 The Consumer Financial Protection Bureau’s implementing regulation is cited in these procedures. However, if examiners cite 

violations by a credit union, examiners should cite violations of the National Credit Union Administration’s implementing regulation, 12 CFR Part 707. 

CFPB	 Manual V.2 (October 2012) Checklist 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CFPB 

Examination Checklist TISA 

•	 For account disclosures, is the interest rate expressed to two or 

more decimal places (12 CFR 1030.3(f)(1))? 

10.	 Are the APY and APYE not more than one-twentieth of one 

percentage point (.05%) above or below the APY and APYE 

determined in accordance with appendix A of Regulation DD (12 CFR 

1030.3(f)(2))? 

Account Disclosures – 12 CFR 1030.4 

Delivery of Account Disclosures 

Account Opening 

1.	 Does the institution provide initial disclosures before an account is 

opened or a service provided, whichever is earlier (12 CFR 

1030.4(a)(1))? 

•	 If the consumer is not present when the account is open or a 

service is provided (and has not already received the disclosures), 

does the institution mail or deliver the disclosures no later than ten 

business days after the account is opened or the service is 

provided, whichever is earlier (12 CFR 1030.4(a)(1)(i))? 

•	 If the consumer who is not present at the institution uses electronic 

means to open an account or request a service, does the institution 

provide the disclosures before the account is open or the service is 

provided (12 CFR 1030.4(a)(1)(ii))? 

Consumer Request 

2.	 Does the institution have full account disclosures, including complete 

fee schedules, available to provide to consumers upon request? This 

requirement pertains to all consumer requests, whether or not the 

consumer is an existing customer or a prospective customer (12 CFR 

1030.4(a)(2)(i)). 

•	 If the consumer makes the request in person, does the institution 

have disclosures available to provide upon request? 

•	 If the consumer who is not present at the institution makes a 

request, does the institution mail or deliver the account disclosures 

within a reasonable time after it receives the request (generally no 

more than 10 days) (12 CFR 1030.4(a)(2)(i))? 

3.	 In providing disclosures upon request, does the institution choose one 

of the following options when providing rate information (12 CFR 

1030.4(a)(2)(ii)): 

CFPB	 Manual V.2 (October 2012) Checklist 2 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CFPB 

Examination Checklist TISA 

•	 Specify an interest rate and APY that were offered within the most 

recent seven calendar days (12 CFR 1030.4(a)(2)(ii)(A))?
 

•	 State that the rate and yield are accurate as of an identified date 

(12 CFR 1030.4(a)(2)(ii)(A))?
 

•	 Provide a telephone number that consumers may call to obtain 

current rate information (12 CFR 1030.4(a)(2)(ii)(A))?
 

4.	 For a time deposit account, does the institution choose to state the 

maturity of the time account as a term rather than a date (12 CFR 

1030.4(a)(2)(ii)(B))? 

Content of Disclosures 

Rate Information 

5.	 Do account disclosures include, as applicable (12 CFR 1030.4(b)): 

•	 The “annual percentage yield” and interest rate, using those terms
 

(12 CFR 1030.4(b)(1)(i))?
 

•	 For fixed-rate accounts, the period of time the interest rate will be
 

in effect (12 CFR 1030.4(b)(1)(i))?
 

6.	 For variable-rate accounts, do account disclosures include all of the 

following information (12 CFR 1030.4(b)(1)(ii)): 

•	 The fact that the interest rate and APY may change (12 CFR
 

1030.4(b)(1)(ii)(A))?
 

• How the interest rate is determined (12 CFR 1030.4(b)(1)(ii)(B))? 

•	 The frequency with which the interest rate may change 12 

CFR 1030.4(b)(1)(ii)(C))?
 

•	 Any limitation on the amount the interest rate may change 12 

CFR 1030.4(b)(1)(ii)(D))?
 

Compounding and Crediting 

7.	 Do the account disclosures describe the frequency with which interest 

is compounded and credited (12 CFR 1030.4(b)(2)(i))? 

8.	 If consumers will forfeit interest if they close the account before 

accrued interest is credited, do the account disclosures include a 

statement that interest will not be paid in such cases (12 CFR 

1030.4(b)(2)(ii))? 

CFPB	 Manual V.2 (October 2012) Checklist 3 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Examination Checklist TISA 

Yes No NA 

Balance Information 

9.	 As applicable, do the account disclosures (12 CFR 1030.4(b)(3)(i)): 

•	 Describe the minimum balance required to: 

o	 Open an account (12 CFR 1030.4(b)(3)(i)(A)(1))? 

o	 Avoid the imposition of a fee (12 CFR 1030.4(b)(3)(i)(A)(2))? 

o	 Obtain the APY disclosed (12 CFR 1030.4(b)(3)(i)(A)(3))? 

•	 Explain the balance computation method used to calculate interest 

on the account (12 CFR 1030.4(b)(3)(ii))? 

•	 State when interest begins to accrue on noncash deposits (12 

CFR 1030.4(b)(3)(iii))? 

Fees 

10.	 Do the account disclosures state the amount of any fee that may be 

imposed in connection with the account (or an explanation of how the 

fee will be determined) and the conditions under which the fee may be 

imposed (12 CFR 1030.4(b)(4))? 

•	 Regardless of whether the institution promotes overdraft payment, 

does it disclose specific categories of transactions that may cause 

an overdraft fee to be imposed on the accountholder (Staff 

Commentary 12 CFR 1030.4(b)(4)-5)? 

Transaction Limitations 

11.	 Do the account disclosures state any limits on the number or dollar 

amount of withdrawals or deposits (12 CFR 1030.4(b)(5))? 

Features of Time Accounts 

12.	 For time accounts, do the account disclosures also include the 

following, as applicable (12 CFR 1030.4(b)(6)): 

•	 The maturity date (12 CFR 1030.4(b)(6)(i))? 

•	 A statement that a penalty will or may be imposed for early 

withdrawal, how it is calculated, and the conditions for its 

assessment (12 CFR 1030.4(b)(6)(ii))? 

CFPB	 Manual V.2 (October 2012) Checklist 4 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CFPB 

Examination Checklist TISA 

•	 If compounding occurs during the term and the interest may be 

withdrawn prior to maturity, a statement that the APY assumes 

that interest remains on deposit until maturity and that a 

withdrawal will reduce earnings (12 CFR 1030.4(b)(6)(iii))? 

•	 A statement that interest cannot remain on deposit and that payout 

of interest is mandatory for accounts with the following features 

(12 CFR 1030.4(b)(6)(iii)): 

○	 With a stated maturity greater than one year; 

○	 That do not compound interest on an annual or more frequent 

basis; 

○	 That require interest payouts at least annually; and 

○	 That disclose an APY determined in accordance with Section 

E of 

Appendix A of Regulation DD? 

•	 A statement of whether or not the account will renew
 

automatically at maturity (12 CFR 1030.4(b)(6)(iv))?
 

○	 If the account will renew automatically at maturity, a 

statement of whether or not a grace period is provided, and if 

so, the length of the grace period? 

○	 If the account does not renew automatically, a statement of 

whether interest will be paid after maturity if the consumer 

does not renew the account? 

Bonuses 

13.	 Do account disclosures state the amount or type of any bonus, when 

the bonus will be provided, and any minimum balance and time 

requirements to obtain the bonus (12 CFR 1030.4(b)(7))? 

Subsequent Disclosures – 12 CFR 1030.5 

Change in Terms Notice 

1.	 Does the institution provide advance change in terms notices to 

consumers of any change to a term, required to be disclosed under 12 

CFR 1030.4(b), that may reduce the annual percentage yield or that 

otherwise adversely affects the consumer? (12 CFR 1030.5(a)(1)) 

•	 Does the notice include the effective date of the change (12 CFR 

1030.5(a)(1))? 

CFPB	 Manual V.2 (October 2012) Checklist 5 
 

 

 

 

 

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CFPB 

Examination Checklist TISA 

•	 Is the notice mailed or delivered at least 30 days before the 

effective date of the change (12 CFR 1030.5(a)(1))?
 

2.	 Are exceptions to the notice requirements limited to the following (12 

CFR 1030.5(a)(2))? 

• Variable-rate changes (12 CFR 1030.5(a)(2)(i))? 

• Check-printing fees (12 CFR 1030.5(a)(2)(ii))? 

•	 Short-term time accounts (one month or less) (12 CFR
 

1030.5(a)(2)(iii))?
 

Pre-Maturity Notices – Renewable Accounts 

3.	 For time accounts with maturities longer than one month and that 

automatically renew, does the institution (12 CFR 1030.5(b)): 

• Mail or deliver subsequent disclosures at least 30 calendar days 

before maturity of existing account (12 CFR 1030.5(b))?
 

(Alternatively, if grace period of at least five calendar days is
 

allowed, the institution may mail or deliver disclosures at least 20
 

calendar days before the end of the grace period.)
 

•	 For accounts with maturities longer than one year, include in the
 

disclosures (12 CFR 1030.5(b)(1)):
 

o	 The account disclosures outlined in 12 CFR 1030.4(b) for the
 

new account?
 

o The date the existing account matures? 

o	 If the interest rate and APY for the new account have not been 

determined: 







The fact that the rates have not yet been determined? 

The date that the rates will be determined? 

A telephone number to call for the interest rate and APY 

that will be paid on the new account? 

•	 For accounts with maturities of one year or less, include in the
 

disclosures (12 CFR 1030.5(b)(2)):
 

o	 The same account disclosures as required under 12 CFR
 

1030.5(b)(1) for accounts with maturities of more than one
 

year (12 CFR 1030.5(b)(2)(i)):
 

Or include: 

CFPB	 Manual V.2 (October 2012) Checklist 6 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes	 No NA 

 

 

 

 

 

 

 

 

CFPB 

Examination Checklist TISA 

o	 The date the existing account matures and the new maturity
 

date if the account is renewed (12 CFR 1030.5(b)(2)(ii)(A))?
 

o	 The interest rate and APY for the new account, if known (12 

CFR 1030.5(b)(2)(ii)(B))?
 

o If the rates are not known (12 CFR 1030.5(b)(2)(ii)(B)): 







The fact that the rates have not yet been determined? 

The date they will be determined? 

A telephone number to call for the interest rate and APY 

that will be paid on the new account? 

o	 Any difference in the terms of the new account, compared to 

the existing account (12 CFR 1030.5(b)(2)(ii)(C))?
 

Pre-Maturity Notices – Nonrenewable Accounts 

4.	 For time accounts with maturities longer than one year and that do not 

automatically renew, does the institution (12 CFR 1030.5(c)): 

• Disclose the maturity date? 

• Disclose whether interest will be paid after maturity? 

•	 Mail or deliver the disclosures at least 10 calendar days before the 

maturity of the existing account?
 

Periodic Statement Disclosures – 12 CFR 1030.6 

1.	 If an institution mails or delivers a periodic statement, do the 

statements include the following (12 CFR 1030.6(a)): 

•	 The “annual percentage yield earned” during the statement period,
 

using that term and calculated in accordance to Appendix A of
 

Regulation DD (12 CFR 1030.6(a)(1))?
 

•	 The amount of interest earned during the statement period (12 

CFR 1030.6(a)(2))?
 

CFPB	 Manual V.2 (October 2012) Checklist 7 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes No NA 

CFPB 

Examination Checklist TISA 

•	 Any debited fees required to be disclosed under 12 CFR 

1030.4(b)(4), itemized by dollar amount and type (12 CFR 

1030.6(a)(3))? 

NOTE: Except as required in 12 CFR 1030.11(a)(1) for overdraft 

payment fees, if fees of the same type are imposed more than once 

in a statement period, an institution may itemize fees separately or 

group them together and disclose a total dollar amount for all fees 

of the same type. Fees for paying overdrafts and for returning 

items unpaid are not fees of the same type and must be separately 

distinguished. 

•	 The total number of days in the statement period or the beginning 

and ending dates of the period (12 CFR 1030.6(a)(4))? 

2.	 If the institution uses the average daily balance method and calculates 

interest for a period other than the statement period, does the 

institution (12 CFR 1030.6(b)): 

•	 Calculate and disclose the APYE and the amount of interest 

earned based on the other period rather than the statement period? 

•	 State the information required in 12 CFR 1030.6(a)(4), specifying 

the period length for the other period as well as for the statement 

period? 

Payment of Interest – 12 CFR 1030.7 

1.	 Does the institution calculate interest on the full amount of principal 

in the account each day by use of either the daily balance method or 

the average daily balance method (12 CFR 1030.7(a)(1))? 

2.	 For deposit accounts that require a minimum balance to earn interest, 

does the institution use the same method to determine any minimum 

balance as it uses to determine the balance on which interest is 

calculated? 

NOTE: An institution may use an additional method that is 

unequivocally beneficial to the consumer (12 CFR 1030.7(a)(2)). 

CFPB	 Manual V.2 (October 2012) Checklist 8 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes	 No NA 

CFPB 

Examination Checklist TISA 

3.	 If an institution chooses not to pay accrued interest if the consumer 

closes an account prior to the date accrued interest is credited, does 

the institution disclose this practice in the initial account disclosures 

(Staff Commentary 12 CFR 1030.7(b)-3)? 

NOTE: An institution is not required to compound or credit interest at
 

any particular frequency but, if it does, it may compound or credit
 

interest annually, semi-annually, quarterly, monthly, daily, 

continuously, or on any other basis (12 CFR 1030.7(b) and Staff 

Commentary 12 CFR 1030.7(b)-1).
 

4.	 Does interest begin to accrue no later than the business day specified 

for interest-bearing accounts in Section 606 of the Expedited Funds 

Availability Act and implementing Regulation CC (12 CFR 1030.7(c))? 

5.	 Does interest accrue until the day the funds are withdrawn (12 CFR 

1030.7(c))? 

Advertising Requirements – 12 CFR 1030.8 

General 

1.	 Do the types of advertising that the institution uses, including visual, 

oral, or print, meet the regulatory definition of an advertisement? 

2.	 Do the advertisements refrain from misleading or inaccurate 

statements, and from misrepresenting the institution’s deposit contract 

(12 CFR 1030.8(a)(1))? 

3.	 Do the advertisements refrain from using (12 CFR 1030.8(a)(2) and 

Staff Commentary 12 CFR 1030.8(a)-5): 

•	 The terms “free” or “no cost” (or similar term) if any maintenance 

or activity fee may be imposed?
 

• The word “profit” when referring to interest paid on an account? 

•	 The term “fees waived” if a maintenance or activity fee can be 

imposed?
 

4.	 If an electronic advertisement displays a triggering term, does the 

advertisement clearly refer the consumer to the location where the 

additional required information begins (Staff Commentary 12 CFR 

1030.8(a)-9)? 

CFPB	 Manual V.2 (October 2012) Checklist 9 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CFPB 

Examination Checklist TISA 

5.	 For an institution that promotes the payment of overdrafts in an 

advertisement, does the advertisement include the disclosures required 

by 12 CFR 1030.11(b) (12 CFR 1030.8(f))? 

Permissible Advertisement Rates 

6.	 If the institution advertises a rate of return (12 CFR 1030.8(b)): 

•	 Is the rate stated as “annual percentage yield,” using that term, and 

no other rate except “interest rate”? 

•	 If the advertisement uses the abbreviation “APY,” has the term 

“annual percentage yield” been stated at least once in the 

advertisement? 

•	 If the advertisement states the interest rate, using that term, is it 

stated in conjunction with, but not more conspicuous than, the 

annual percentage yield to which it relates? 

•	 Are the annual percentage yields and interest rates rounded to the 

nearest one-hundredth of one percentage point (.01%) and 

expressed to two decimal places? 

7.	 If the institution advertises tiered-rate accounts, does the 

advertisement state an annual percentage yield for each tier, along 

with corresponding minimum-balance requirements (Staff 

Commentary 12 CFR 1030.8(b)-1)? 

8.	 If the institution advertises stepped-rate accounts, does the 

advertisement state all the interest rates and the time period that each 

rate is in effect (Staff Commentary 12 CFR 1030.8(b)-2)? 

Required Additional Disclosures 

9.	 With the exception of broadcast, electronic, or outdoor media, 

telephone-response machines, and indoor signs, if the annual 

percentage yield is stated in the advertisement, is the following 

information, as applicable, stated clearly and conspicuously (12 CFR 

1030.8(c)): 

•	 For a variable rate account, that the rate may change after account 

opening (12 CFR 1030.8(c)(1))? 

•	 The time period that the annual percentage yield will be offered or 

a statement that it is accurate as of a specified date (12 

CFR1030.8(c)(2))? 

CFPB	 Manual V.2 (October 2012) Checklist 10 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CFPB 

Examination Checklist TISA 

•	 The minimum balance required to earn the advertised annual 

percentage yield (12 CFR 1030.8(c)(3))? 

•	 For tiered-rate accounts, the minimum balance required for each 

tier stated in close proximity and with equal prominence to the 

applicable APY, if applicable (12 CFR 1030.8(c)(3))? 

•	 The minimum deposit to open the account, if it is greater than the 

minimum balance necessary to obtain the advertised annual 

percentage yield (12 CFR 1030.8(c)(4))? 

•	 A statement that maintenance or activity fees could reduce the 

earnings on the account (12 CFR 1030.8(c)(5) and Staff 

Commentary 12 CFR 1030.8(c)(5)-1)? 

•	 For time accounts, the following features (12 CFR 1030.8(c)(6)): 

○	 Term of the account (12 CFR 1030.8(c)(6)(i))? 

○	 A statement that a penalty will or may be imposed for early 

withdrawal (12 CFR 1030.8(c)(6)(ii))? 

○	 A statement that interest cannot remain on deposit and that 

payout of interest is mandatory for noncompounding time 

accounts with the following features (12 CFR 

1030.8(c)(6)(iii))? 









A stated maturity greater than one year. 

Interest is not compounded on an annual or more frequent 

basis. 

Interest is required to be paid out at least annually. 

The APY is determined in accordance with Section E of 

Appendix A. 

Bonuses 

10.	 Unless an exception applies in 12 CFR 1030.8(e), if a bonus is stated 

in an advertisement, does the advertisement state the following 

information, as applicable, clearly and conspicuously (12 CFR 

1030.8(d)): 

•	 The “annual percentage yield,” using that term (12 CFR 

1030.8(d)(1))? 

•	 The time requirement to obtain the bonus (12 CFR 1030.8(d)(2))? 

CFPB	 Manual V.2 (October 2012) Checklist 11 
 

 

 

 

 

 

 

 

 

 

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•	 The minimum balance required to obtain the bonus (12 CFR
 

1030.8(d)(3))?
 

•	 The minimum balance required to open the account, if it is greater
 

than the minimum balance necessary to obtain the bonus) (12 CFR
 

1030.8(d)(4))?
 

• When the bonus will be provided (12 CFR 1030.8(d)(5))? 

Exemptions for Certain Advertisements 

11.	 Do advertisements made through broadcast, electronic, or outdoor 

media, and telephone-response machines contain the following 

information, as applicable, clearly and conspicuously (12 CFR 

1030.8(e)(1) and Staff Commentary 12 CFR 1030.8(e)(1)(i)-1): 

•	 The minimum balance required to earn the advertised annual
 

percentage yield? For tiered accounts, the minimum balance 

required for each tier stated in close proximity and with equal
 

prominence to the applicable APY, if applicable (12 CFR
 

1030.8(c)(3))?
 

•	 For time accounts: 

○ Term of the account (12 CFR1030.8(c)(6)(i))? 

○	 A statement that interest cannot remain on deposit and that
 

payout of interest is mandatory for noncompounding time
 

accounts with the following features (12 

CFR 1030.8(c)(6)(iii)):
 

 A stated maturity greater than one year. 

 Interest is not compounded on an annual or more frequent 

basis. 





Interest is required to be paid out at least annually. 

The APY is determined in accordance with Section E of 

Appendix A of Regulation DD. 

•	 If an advertisement states a bonus: 

○	 The “annual percentage yield,” using that term (12 CFR
 

1030.8(d)(1))?
 

○	 The time requirement to obtain the bonus (12 CFR
 

1030.8(d)(2))?
 

CFPB	 Manual V.2 (October 2012) Checklist 12 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Examination Checklist TISA 

○	 The minimum balance required to obtain the bonus (12 CFR
 

1030.8(d)(3))?
 

12. Do indoor signs: 

•	 Refrain from: 

o	 Containing misleading or inaccurate statements, and
 

misrepresenting deposit contracts (12 CFR 1030.8(a)(1))?
 

o	 Referring to or describe an account as “free” or “no cost” (or
 

contain a similar term) if any maintenance or activity fee is
 

charged?
 

o Using the word profit to refer to interest paid on the account? 

o	 Using the term “fees waived” if a maintenance or activity fee 

can be imposed (12 CFR 1030.8(a)(2) and Staff Commentary 

12 CFR 1030.8(a)-5)?
 

•	 If a rate of return is stated: 

o	 State the rate as “annual percentage yield” or “APY”? No
 

other rate may be stated except for the interest rate in
 

conjunction with the APY to which it relates. 

o	 Contain a statement advising consumers to contact an 

employee for further information about applicable fees and 

terms (12 CFR 1030.8(e)(2))?
 

Record Retention Requirements – 12 CFR 1030.9 

13.	 Has the institution retained evidence of compliance with Regulation 

DD, including rate information, advertising, and providing consumers 

disclosures at the appropriate time (including upon a consumer’s 

request), for a minimum of two years after disclosures are required to 

be made or action is required to be taken? For example, review 

samples of advertising and disclosures, policies and procedures, and 

training activities, as appropriate (12 CFR 1030.9(c)). 

CFPB	 Manual V.2 (October 2012) Checklist 13 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB 

Examination Checklist TISA 

Yes	 No NA 

[Reserved] – 12 CFR 1030.10 

Overdraft Payment Disclosure and 

Advertising Requirements – 12 CFR 1030.11 

Periodic Statement Disclosures 

1.	 Does the institution disclose on each periodic statement (if it provides 

a statement, and if a consumer is charged such fees) separate totals, 

for both the statement period and the calendar year-to-date, for both of 

the following (12 CFR 1030.11(a)(1) and (2)): 

•	 The total amount of fees and charges imposed for paying checks or
 

other items when there are insufficient or unavailable funds and the 

account becomes overdrawn, using the term “Total Overdraft Fees”
 

(12 CFR 1030.11(a)(1)(i))? (NOTE: The requirement to use the
 

term “Total Overdraft Fees” is effective October 1, 2010) AND
 

•	 The total amount of fees imposed on an account for returning
 

items unpaid (12 CFR 1030.11(a)(1)(ii))?
 

2.	 Does the institution disclose the fees in close proximity to any fee 

identified in 12 CFR 1030.6(a)(3) that may be imposed in connection 

with the account and in a substantially similar format as found in 

Appendix B of Regulation DD? NOTE: The table must contain lines 

(or similar markings such as asterisks) inside the table to divide the 

columns and rows. 

Advertisement Requirements 

3.	 Unless an exception under 12 CFR 1030.11(b)(2)-(4) applies, when an 

institution advertises the payment of overdrafts, are all of the 

following disclosed clearly and conspicuously in the advertisement: 

•	 The fee(s) for the payment of each overdraft (12 CFR
 

1030.11(b)(1)(i))?
 

•	 The categories of transactions for which a fee may be imposed for
 

paying an overdraft (12 CFR 1030.11(b)(1)(ii))?
 

•	 The time period by which the consumer must repay or cover any
 

overdraft (12 CFR 1030.11(b)(1)(iii))?
 

•	 The circumstances under which the institution will not pay an 

overdraft (12 CFR 1030.11(b)(1)(iv))?
 

CFPB	 Manual V.2 (October 2012) Checklist 14 
 

 

 

 

Yes No NA

 

 

CFPB 

Examination Checklist TISA 

Disclosure of Account Balances 

4.	 If the institution discloses account balance information to a consumer 

through an automated system, does: 

•	 The balance exclude additional amounts that the institution may 

provide to cover an item when there are insufficient or unavailable 

funds in the consumer’s account (12 CFR 1030.11(c))? NOTE: 

The regulation does not require an institution to exclude funds 

from the consumer’s balance that may be transferred from another 

account pursuant to a retail sweep program (Staff Commentary 

((12 CFR 1030.11(c)-2)). 

•	 The institution, if it discloses at its option additional account 

balances that include such additional amounts, prominently state 

that the balance includes such additional amounts, and if 

applicable, that the additional amounts are not available for all 

transactions (12 CFR 1030.11(c))? 

Comments 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Checklist 15 
 

 

 

 

 

 

 

 

 

 

CFPB 

Laws and Regulations GLBA Privacy 

Gramm-Leach-Bliley Act (GLBA) 

Privacy of Consumer Financial Information1 

Title V, Subtitle A of the Gramm-Leach-Bliley Act (“GLBA”) governs the treatment of 

nonpublic personal information about consumers by financial institutions. Section 502 of the 

Subtitle, subject to certain exceptions, prohibits a financial institution from disclosing nonpublic 

personal information about a consumer to nonaffiliated third parties, unless the institution 

satisfies various notice and opt-out requirements, and provided that the consumer has not elected 

to opt out of the disclosure. Section 503 requires the institution to provide notice of its privacy 

policies and practices to its customers. Section 504 authorizes the issuance of regulations to 

implement these provisions. 

In 2000, the four federal banking agencies and the National Credit Union Administration 

(“NCUA”) published regulations implementing provisions of the GLBA governing the treatment 

of nonpublic personal information about consumers by financial institutions.2 The regulations 

establish rules governing duties of a financial institution to provide particular notices and 

limitations on its disclosure of nonpublic personal information, as summarized below. 

The Dodd-Frank Act granted rule-making authority for most of Subtitle A of Title V of the 

Gramm-Leach-Bliley Act (15 U.S.C. §§ 6802-6809) with respect to many financial institutions 

to the Consumer Financial Protection Bureau (CFPB) and, with respect to entities under its 

jurisdiction, granted authority to the CFPB to supervise for and enforce compliance with these 

statutory provisions and their implementing regulations.

3 In December 2011 the CFPB 

restated the regulations of transferor agencies at 12 CFR Part 1016 (76 Fed. Reg. 79025) 

(December 21, 2011).4 

The regulations establish rules governing duties of a financial institution to provide particular 

notices and limitations on its disclosure of nonpublic personal information as summarized below. 

A financial institution must provide a notice of its privacy policies and allow the consumer to opt 

out of the disclosure of the consumer’s nonpublic personal information to a nonaffiliated third 

party if the disclosure is outside of the exceptions in Sections 13, 14, or 15 of the regulations. 

1 These reflect FFIEC-approved procedures. 

2 The NCUA published its final rule in the Federal Register on May 18, 2000 (65 Fed. Reg. 31722). 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 jointly published their final rules on June 1, 2000 (65 Fed. Reg.35162). 

3 Dodd-Frank Act §§ 1002(12)(J), 1024(b)-(c), and 1025(b)-(c); 12 U.S.C. §§ 5481(12)(J), 5514(b)-(c), and 5515(b)-(c). Under 

Sec. 1002(12)(J), the Dodd-Frank Act excepted from CFPB authority Sec. 505 as it applies to Sec. 501(b) – related to financial 

institution security safeguards. 

4 The transferor agencies are the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Federal Trade 

Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift 

Supervision. 

CFPB Manual V.2 (October 2012) GLBA Privacy 1 
 

 

 

 

 

 

 

 

 

 

CFPB 

Laws and Regulations GLBA Privacy 

Regardless of whether a financial institution shares nonpublic personal information, the 

institution must provide notices of its privacy policies to its customers. 

A financial institution generally may not disclose customer account numbers to any nonaffiliated 

third party for marketing purposes. 

A financial institution must follow reuse and redisclosure limitations on any nonpublic personal 

information it receives from a nonaffiliated financial institution. 

In general, the privacy notice must describe a financial institution’s policies and practices with 

respect to disclosing nonpublic personal information about a consumer to both affiliated and 

nonaffiliated third parties. Also, the notice must provide a consumer a reasonable opportunity to 

direct the institution generally not to share nonpublic personal information about the consumer 

(that is, to ‘‘opt out’’) with nonaffiliated third parties other than as permitted by the statute (for 

example, sharing for everyday business purposes, such as processing transactions and 

maintaining customers’ accounts, and in response to properly executed governmental requests). 

The privacy notice must also provide, where applicable under the Fair Credit Reporting Act 

(“FCRA”), a notice and an opportunity for a consumer to opt out of certain information sharing 

among affiliates. 

Section 728 of the Financial Services Regulatory Relief Act of 2006 (“Regulatory Relief Act” or 

“Act”) required the Agencies to develop a model privacy form that financial institutions may rely 

on as a safe harbor to provide disclosures under the privacy rules. 

On December 1, 2009, the four federal banking agencies and four additional federal regulatory 

agencies5

 jointly released a voluntary model privacy notice form designed to make it easier for 

consumers to understand how financial institutions collect and share nonpublic personal 

information (74 Fed. Reg. 62890). The final rule adopting the model privacy form was effective 

on December 31, 2009, except that notices that were provided on or before December 31, 2010, 

using sample clauses contained in Appendix B to the 2000 rule continued to receive the safe 

harbor for compliance with the notice requirements of the regulation for one year. Appendix B 

and the sample clauses were deleted from the agencies’ rules effective January 1, 2012.6 

Definitions and Key Concepts 

In discussing the duties and limitations imposed by the regulations, a number of key concepts are 

used. These concepts include “financial institution”; “nonpublic personal information”; 

“nonaffiliated third party”; the “opt-out” right and the exceptions to that right; and “consumer” 

and “customer.” Each concept is briefly discussed below. A more complete explanation of each 

appears in the regulations. 

5 The four additional federal regulators are the NCUA, the Commodity Futures Trading Commission, the Federal Trade 

Commission, and the Securities and Exchange Commission. 

6 In restating the regulations from transferor agencies, the CFPB removed Appendix B from its regulation. 

CFPB Manual V.2 (October 2012) GLBA Privacy 2 
 

 

 

 

 

 

 

 

CFPB 

Laws and Regulations GLBA Privacy 

Financial Institution: 

A “financial institution” is any institution the business of which is engaging in activities that are 

financial in nature or incidental to such financial activities, as determined by Section 4(k) of the 

Bank Holding Company Act of 1956. Financial institutions can include banks, securities brokers 

and dealers, insurance underwriters and agents, finance companies, mortgage bankers, and travel 

agents.7 

Nonpublic Personal Information: 

“Nonpublic personal information” generally is any information that is not publicly available and 

that: 

•	 A consumer provides to a financial institution to obtain a financial product or service from 

the institution; 

•	 Results from a transaction between the consumer and the institution involving a financial 

product or service; or 

•	 A financial institution otherwise obtains about a consumer in connection with providing a 

financial product or service. 

Information is publicly available if an institution has a reasonable basis to believe that the 

information is lawfully made available to the general public from government records, widely 

distributed media, or legally required disclosures to the general public. Examples include 

information in a telephone book or a publicly recorded document, such as a mortgage or 

securities filing. 

Nonpublic personal information may include individual items of information as well as lists of 

information. For example, nonpublic personal information may include names, addresses, phone 

numbers, social security numbers, income, credit score, and information obtained through 

Internet collection devices (i.e., cookies). 

There are special rules regarding lists. Publicly available information would be treated as 

nonpublic if it were included on a list of consumers derived from nonpublic personal 

information. For example, a list of the names and addresses of a financial institution’s depositors 

would be nonpublic personal information even though the names and addresses might be 

published in local telephone directories because the list is derived from the fact that a person has 

a deposit account with an institution, which is not publicly available information. 

However, if the financial institution has a reasonable basis to believe that certain customer 

relationships are a matter of public record, then any list of these relationships would be 

7 Certain functionally regulated subsidiaries, such as brokers, dealers, and investment advisers are subject to privacy regulations 

issued by the Securities and Exchange Commission. Other functionally regulated subsidiaries, such as futures commission 

merchants, commodity trading advisors, commodity pool operators, and introducing brokers in commodities, are subject to 

privacy regulations issued by the Commodity Futures Trading Commission. Insurance entities may be subject to privacy 

regulations issued by their respective state insurance authorities. 

CFPB	 Manual V.2 (October 2012) GLBA Privacy 3 
 

 

 

 

 

 

CFPB 

Laws and Regulations GLBA Privacy 

considered publicly available information. For instance, a list of mortgage customers where the 

mortgages are recorded in public records would be considered publicly available information. 

The institution could provide a list of such customers, and include on that list any other publicly 

available information it has about the customers on that list without having to provide notice or 

opt out. 

Nonaffiliated Third Party: 

A “nonaffiliated third party” is any person except a financial institution’s affiliate or a person 

employed jointly by a financial institution and a company that is not the institution’s affiliate. An 

“affiliate” of a financial institution is any company that controls, is controlled by, or is under 

common control with the financial institution. 

Opt-out Right and Exceptions: 

The Right 

Consumers must be given the right to “opt out” of, or prevent, a financial institution from 

disclosing nonpublic personal information about them to a nonaffiliated third party, unless an 

exception to that right applies. The exceptions are detailed in Sections 13, 14, and 15 of the 

regulations and described below. 

As part of the opt-out right, consumers must be given a reasonable opportunity and a reasonable 

means to opt out. What constitutes a reasonable opportunity to opt out depends on the 

circumstances surrounding the consumer’s transaction, but a consumer must be provided a 

reasonable amount of time to exercise the opt-out right. For example, it would be reasonable if 

the financial institution allows 30 days from the date of mailing a notice or 30 days after 

customer acknowledgement of an electronic notice for an opt-out direction to be returned. What 

constitutes a reasonable means to opt out may include check-off boxes, a reply form, or a tollfree telephone number, again depending on the circumstances surrounding the consumer’s 

transaction. It is not reasonable to require a consumer to write his or her own letter as the only 

means to opt out. 

The Exceptions 

Exceptions to the opt-out right are detailed in Sections 13, 14, and 15 of the regulations. 

Financial institutions need not comply with opt-out requirements if they limit disclosure of 

nonpublic personal information: 

To a nonaffiliated third party to perform services for the financial institution or to function on its 

behalf, including marketing the institution’s own products or services or those offered jointly by 

the institution and another financial institution. The exception is permitted only if the financial 

institution provides notice of these arrangements and by contract prohibits the third party from 

disclosing or using the information for other than the specified purposes. The contract must 

provide that the parties to the agreement are jointly offering, sponsoring, or endorsing a financial 

product or service. However, if the service or function is covered by the exceptions in Section 14 

or 15 (discussed below), the financial institution does not have to comply with the additional 

CFPB Manual V.2 (October 2012) GLBA Privacy 4 
 

 

 

 

 

 

CFPB 

Laws and Regulations GLBA Privacy 

disclosure and confidentiality requirements of Section 13. Disclosure under this exception could 

include the outsourcing of marketing to an advertising company. (Section 13) 

As necessary to effect, administer, or enforce a transaction that a consumer requests or 

authorizes, or under certain other circumstances relating to existing relationships with customers. 

Disclosures under this exception could be in connection with the audit of credit information, 

administration of a rewards program, or to provide an account statement. (Section 14) 

For specified other disclosures that a financial institution normally makes, such as to protect 

against or prevent actual or potential fraud; to the financial institution’s attorneys, accountants, 

and auditors; or to comply with applicable legal requirements, such as the disclosure of 

information to regulators. (Section 15) 

Consumer and Customer: 

The distinction between consumers and customers is significant because financial institutions 

have additional disclosure duties with respect to customers. All customers covered under the 

regulation are consumers, but not all consumers are customers. 

A “consumer” is an individual, or that individual’s legal representative, who obtains or has 

obtained a financial product or service from a financial institution that, is to be used primarily for 

personal, family, or household purposes. 

A “financial service” includes, among other things, a financial institution’s evaluation or 

brokerage of information that the institution collects in connection with a request or an 

application from a consumer for a financial product or service. For example, a financial service 

includes a lender’s evaluation of an application for a consumer loan or for opening a deposit 

account even if the application is ultimately rejected or withdrawn. 

Consumers who are not customers are entitled to an initial privacy and opt-out notice only if 

their financial institution wants to share their nonpublic personal information with nonaffiliated 

third parties outside of the exceptions. 

A “customer” is a consumer who has a “customer relationship” with a financial institution. A 

“customer relationship” is a continuing relationship between a consumer and a financial 

institution under which the institution provides one or more financial products or services to the 

consumer that are to be used primarily for personal, family, or household purposes. 

•	 For example, a customer relationship may be established when a consumer engages in one of 

the following activities with a financial institution: 

•	 Maintains a deposit or investment account; 

•	 Obtains a loan; 

•	 Enters into a lease of personal property; or 

•	 Obtains financial, investment, or economic advisory services for a fee. 

CFPB	 Manual V.2 (October 2012) GLBA Privacy 5 
 

 

 

 

CFPB 

Laws and Regulations GLBA Privacy 

Customers are entitled to initial and annual privacy notices regardless of the information 

disclosure practices of their financial institution. 

There is a special rule for loans. When a financial institution sells the servicing rights to a loan to 

another financial institution, the customer relationship transfers with the servicing rights. 

However, any information on the borrower retained by the institution that sells the servicing 

rights must be accorded the protections due any consumer. 

•	 Note that isolated transactions alone will not cause a consumer to be treated as a customer. 

For example, if an individual purchases a bank check from a financial institution where the 

person has no account, the individual will be a consumer but not a customer of that 

institution because he or she has not established a customer relationship. Likewise, if an 

individual uses the ATM of a financial institution where the individual has no account, even 

repeatedly, the individual will be a consumer, but not a customer of that institution. 

Financial Institution Duties 

The regulations establish specific duties and limitations for a financial institution based on its 

activities. Financial institutions that intend to disclose nonpublic personal information outside the 

exceptions will have to provide opt-out rights to their customers and to consumers who are not 

customers. All financial institutions have an obligation to provide an initial and annual notice of 

their privacy policies to their customers. All financial institutions must abide by the regulatory 

limits on the disclosure of account numbers to nonaffiliated third parties and on the redisclosure 

and reuse of nonpublic personal information received from nonaffiliated financial institutions. 

A brief summary of financial institution duties and limitations appears below. A more complete 

explanation of each appears in the regulations. 

Notice and Opt-out Duties to Consumers: 

If a financial institution intends to disclose nonpublic personal information about any of its 

consumers (whether or not they are customers) to a nonaffiliated third party, and an exception 

does not apply, then the financial institution must provide to the consumer: 

•	 An initial notice of its privacy policies; 

•	 An opt-out notice (including, among other things, a reasonable means to opt out); and 

•	 A reasonable opportunity, before the financial institution discloses the information to the 

nonaffiliated third party, to opt out. 

The financial institution may not disclose any nonpublic personal information to nonaffiliated 

third parties except under the enumerated exceptions unless these notices have been provided 

and the consumer has not opted out. Additionally, the institution must provide a revised notice 

before the financial institution begins to share a new category of nonpublic personal information 

or shares information with a new category of nonaffiliated third party in a manner that was not 

described in the previous notice. 

CFPB	 Manual V.2 (October 2012) GLBA Privacy 6 
 

 

 

CFPB 

Laws and Regulations GLBA Privacy 

Note that a financial institution need not comply with the initial and opt-out notice requirements 

for consumers who are not customers if the institution limits disclosure of nonpublic personal 

information to the exceptions. 

Notice Duties to Customers: 

In addition to the duties described above, there are several duties unique to customers. In 

particular, regardless of whether the institution discloses or intends to disclose nonpublic 

personal information, a financial institution must provide notice to its customers of its privacy 

policies and practices at various times. 

•	 A financial institution must provide an initial notice of its privacy policies and practices to 

each customer, not later than the time a customer relationship is established. Section 4(e) of 

the regulations describes the exceptional cases in which delivery of the notice is allowed 

subsequent to the establishment of the customer relationship. 

•	 A financial institution must provide an annual notice at least once in any period of 12 

consecutive months during the continuation of the customer relationship. 

•	 Generally, new privacy notices are not required for each new product or service. However, a 

financial institution must provide a new notice to an existing customer when the customer 

obtains a new financial product or service from the institution, if the initial or annual notice 

most recently provided to the customer was not accurate with respect to the new financial 

product or service. 

•	 When a financial institution does not disclose nonpublic personal information (other than as 

permitted under Section 14 and Section 15 exceptions) and does not reserve the right to do 

so, the institution has the option of providing a simplified notice. 

Requirements for Notices 

Clear and Conspicuous. Privacy notices must be clear and conspicuous, meaning they must be 

reasonably understandable and designed to call attention to the nature and significance of the 

information contained in the notice. The regulations do not prescribe specific methods for 

making a notice clear and conspicuous, but do provide examples of ways in which to achieve the 

standard, such as the use of short explanatory sentences or bullet lists, and the use of plainlanguage headings and easily readable typeface and type size. Privacy notices also must 

accurately reflect the institution’s privacy practices. 

Delivery Rules. Privacy notices must be provided so that each recipient can reasonably be 

expected to receive actual notice in writing, or if the consumer agrees, electronically. To meet 

this standard, a financial institution could, for example, (1) hand-deliver a printed copy of the 

notice to its consumers, (2) mail a printed copy of the notice to a consumer’s last known address, 

or (3) for the consumer who conducts transactions electronically, post the notice on the 

institution’s website and require the consumer to acknowledge receipt of the notice as a 

necessary step to completing the transaction. 

CFPB	 Manual V.2 (October 2012) GLBA Privacy 7 
 

 

 

 

 

 

 

 

CFPB 

Laws and Regulations GLBA Privacy 

For customers only, a financial institution must provide the initial notice (as well as the annual 

notice and any revised notice) so that a customer may be able to retain or subsequently access the 

notice. A written notice satisfies this requirement. For customers who obtain financial products 

or services electronically, and agree to receive their notices on the institution’s website, the 

institution may provide the current version of its privacy notice on its website. 

Notice Content. A privacy notice must contain specific disclosures. However, a financial 

institution may provide to consumers who are not customers a “short form” initial notice together 

with an opt-out notice stating that the institution’s privacy notice is available upon request and 

explaining a reasonable means for the consumer to obtain it. The following is a list of disclosures 

regarding nonpublic personal information that institutions must provide in their privacy notices, 

as applicable: 

1.	 Categories of information collected; 

2.	 Categories of information disclosed; 

3.	 Categories of affiliates and nonaffiliated third parties to whom the institution may disclose 

information; 

4.	 Policies with respect to the treatment of former customers’ information; 

5.	 Information disclosed to service providers and joint marketers (Section 13); 

6.	 An explanation of the opt-out right and methods for opting out; 

7.	 Any opt-out notices the institution must provide under the Fair Credit Reporting Act with 

respect to affiliate information sharing; 

8.	 Policies for protecting the security and confidentiality of information; and 

9.	 A statement that the institution makes disclosures to other nonaffiliated third parties as 

permitted by law (Sections 14 and 15). 

Model Privacy Notice Form. The Appendix to 12 CFR Part 1016 contains the model privacy 

notice form. A financial institution can use the model form to obtain a “safe harbor” for 

compliance with the content requirements for notifying consumers of its information-sharing 

practices and their right to opt out of certain sharing practices. To obtain the safe harbor, the 

institution must provide a model form in accordance with the instructions set forth in the 

Appendix. The final rule adopting the model privacy form and accompanying safe harbor 

became effective on December 31, 2009. 

Limitations on Disclosure of Account Numbers: 

A financial institution must not disclose an account number or similar form of access number or 

access code for a credit card, deposit, or transaction account to any nonaffiliated third party 

(other than a consumer reporting agency) for use in telemarketing, direct mail marketing, or 

other marketing through electronic mail to the consumer. 

CFPB	 Manual V.2 (October 2012) GLBA Privacy 8 
 

 

 

 

 

 

 

 

 

 

 

CFPB 

Laws and Regulations GLBA Privacy 

The disclosure of encrypted account numbers without an accompanying means of decryption, 

however, is not subject to this prohibition. The regulation also expressly allows disclosures by a 

financial institution to its agent to market the institution’s own products or services (although the 

financial institution must not authorize the agent to directly initiate charges to the customer’s 

account). Also not barred are disclosures to participants in private-label or affinity card programs, 

where the participants are identified to the customer when the customer enters the program. 

Redisclosure and Reuse Limitations on Nonpublic Personal Information Received: 

If a financial institution receives nonpublic personal information from a nonaffiliated financial 

institution, its disclosure and use of the information is limited. 

•	 For nonpublic personal information received under a Section 14 or 15 exception, the 

financial institution is limited to: 

o	 Disclosing the information to the affiliates of the financial institution from which it 

received the information; 

o	 Disclosing the information to its own affiliates, who may, in turn, disclose and use the 

information only to the extent that the financial institution can do so; and 

o	 Disclosing and using the information pursuant to a Section 14 or 15 exception (for 

example, an institution receiving information for account processing could disclose the 

information to its auditors). 

•	 For nonpublic personal information received other than under a Section 14 or 15 exception, 

the recipient’s use of the information is unlimited, but its disclosure of the information is 

limited to: 

o	 Disclosing the information to the affiliates of the financial institution from which it 

received the information; 

o	 Disclosing the information to its own affiliates, who may, in turn disclose the information 

only to the extent that the financial institution can do so; and 

o	 Disclosing the information to any other person, if the disclosure would be lawful if made 

directly to that person by the financial institution from which it received the information. 

For example, an institution that received a customer list from another financial institution 

could disclose the list (1) in accordance with the privacy policy of the financial institution 

that provided the list, (2) subject to any opt-out election or revocation by the consumers 

on the list, and (3) in accordance with appropriate exceptions under Sections 14 and 15. 

Other Matters 

Fair Credit Reporting Act 

The regulations do not modify, limit, or supersede the operation of the Fair Credit Reporting Act. 

CFPB	 Manual V.2 (October 2012) GLBA Privacy 9 
 

 

 

 

CFPB 

Laws and Regulations GLBA Privacy 

State Law 

The regulations do not supersede, alter, or affect any state statute, regulation, order, or 

interpretation, except to the extent that it is inconsistent with the regulations. A state statute, 

regulation, order, etc. is consistent with the regulations if the protection it affords any consumer 

is greater than the protection provided under the regulations, as determined by the FTC. 

Guidelines Regarding Protecting Customer Information 

The regulations require a financial institution to disclose its policies and practices for protecting 

the confidentiality, security, and integrity of nonpublic personal information about consumers 

(whether or not they are customers). The disclosure need not describe these policies and 

practices in detail, but instead may describe in general terms who is authorized to have access to 

the information and whether the institution has security practices and procedures in place to 

ensure the confidentiality of the information in accordance with the institution’s policies. 

The four federal banking agencies published guidelines, pursuant to Section 501(b) of the 

Gramm-Leach-Bliley Act, that address steps a financial institution should take in order to protect 

customer information. The guidelines relate only to information about customers, rather than all 

consumers. Compliance examiners should consider the findings of a 501(b) inspection during the 

compliance examination of a financial institution for purposes of evaluating the accuracy of the 

institution’s disclosure regarding data security. 

REFERENCES 

Laws 

15 U.S.C. § 6801 et seq. Title V of the Gramm-Leach-Bliley Act 

Regulations 

Consumer Financial Protection Bureau Regulation (12 CFR) 

Part 1016 Privacy of Consumer Financial Information (Regulation P) 

CFPB Manual V.2 (October 2012) GLBA Privacy 10 
 

 

 

CFPB 

Examination Procedures GLBA Privacy 

Gramm-Leach-Bliley Act 

(GLBA) 

Privacy of Consumer 

Financial Information 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

Examination Objectives1 

•	 To assess the quality of a financial institution’s compliance management policies and procedures for implementing the privacy regulation, specifically ensuring consistency between 

what the financial institution tells consumers in its notices about its policies and practices and 

what it actually does. 

•	 To determine the reliance that can be placed on a financial institution’s internal controls and 

procedures for monitoring the institution’s compliance with the privacy regulation. 

•	 To determine a financial institution’s compliance with the privacy regulation, specifically in 

meeting the following requirements: 

o	 Providing to customers notices of its privacy policies and practices that are timely, accurate, clear and conspicuous, and delivered so that each customer can reasonably be 

expected to receive actual notice; 

o	 Disclosing nonpublic personal information to nonaffiliated third parties, other than under 

an exception, after first meeting the applicable requirements for giving consumers notice 

and the right to opt out; 

o Appropriately honoring consumer opt-out directions; 

o	 Lawfully using or disclosing nonpublic personal information received from a nonaffiliated financial institution; and 

o Disclosing account numbers only according to the limits in the regulations. 

•	 To initiate effective corrective actions when violations of law are identified, or when policies 

or internal controls are deficient. 

1 These reflect FFIEC-approved procedures. 

CFPB	 Manual V.2 (October 2012) Procedures 1 
 

 

 

 

 

CFPB 

Examination Procedures GLBA Privacy 

Initial Procedures 

1.	 Through discussions with management and review of available 

information, identify the institution’s information sharing practices (and 

changes to those practices) with affiliates and nonaffiliated third parties; 

how it treats nonpublic personal information; and how it administers opt 

outs. Consider the following as appropriate: 

• Notices (initial, annual, revised, opt-out, short-form, and simplified); 

• Institutional privacy policies and procedures, including those to: 

o	 process requests for nonpublic personal information, including requests for aggregated data; 

o	 deliver notices to consumers; 

o	 manage consumer opt-out directions (e.g., designating files, allowing a reasonable time to opt out, providing new opt-out and privacy 

notices when necessary, receiving opt-out directions, handling joint 

account holders); 

o	 prevent the unlawful disclosure and use of the information received 

from nonaffiliated financial institutions; and 

o	 prevent the unlawful disclosure of account numbers. 

•	 Information-sharing agreements between the institution and affiliates 

and service agreements or contracts between the institution and nonaffiliated third parties either to obtain or provide information or 

services; 

•	 Complaint logs, telemarketing scripts, and any other information obtained from nonaffiliated third parties (NOTE: Review telemarketing 

scripts to determine whether the contractual terms set forth under Section 13 are met and whether the institution is disclosing account 

number information in violation of Section 12); 

•	 Categories of nonpublic personal information collected from or about 

consumers in obtaining a financial product or service (e.g., in the application process for deposit, loan, or investment products; for an overthe-counter purchase of a bank check; from E-banking products or services, including the data collected electronically through Internet 

cookies; or through ATM transactions); 

•	 Categories of nonpublic personal information shared with, or received 

from, each nonaffiliated third party; 

•	 Consumer complaints regarding the treatment of nonpublic personal 

information, including those received electronically; 

•	 Records that reflect the bank’s categorization of its information sharing 

practices under Sections 13, 14, 15, and outside of these exceptions; and 

•	 Results of a 501(b) inspection (used to determine the accuracy of the 

CFPB	 Manual V.2 (October 2012) Procedures 2 
 

 

 

 

 

 

CFPB 

Examination Procedures GLBA Privacy 

institution’s privacy disclosures regarding data security). 

[Click&type] 

2.	 Use the information gathered from step 1 to work through the “Privacy 

Notice and Opt-Out Decision Tree” (Attachment A). Identify which 

module(s) of procedures is (are) applicable. 

[Click&type] 

3.	 Use the information gathered from step 1 to work through the Reuse and 

Redisclosure and Account Number Sharing Decision Trees, as necessary 

(Attachments B & C). Identify which module is applicable. 

[Click&type] 

4.	 Determine the adequacy of the financial institution’s internal controls and 

procedures to ensure compliance with the privacy regulation as applicable. 

Consider the following: 

•	 Sufficiency of internal policies and procedures, and controls, including 

review of new products and services and controls over servicing 

arrangements and marketing arrangements; 

•	 Effectiveness of management information systems, including the use of 

technology for monitoring, exception reports, and standardization of 

forms and procedures; 

•	 Frequency and effectiveness of monitoring procedures; 

•	 Adequacy and regularity of the institution’s training program; 

•	 Suitability of the compliance audit program for ensuring that: 

○	 the procedures address all regulatory provisions as applicable; 

○	 the work is accurate and comprehensive with respect to the institution’s information sharing practices; 

○	 the frequency is appropriate; 

○	 conclusions are appropriately reached and presented to responsible 

parties; 

○	 steps are taken to correct deficiencies and to follow-up on previously identified deficiencies; and 

•	 Knowledge level of management and personnel. 

[Click&type] 

5.	 Ascertain areas of risk associated with the financial institution’s sharing 

practices (especially those within Section 13 and those that fall outside 

of the exceptions) and any weaknesses found within the compliance 

management program. Keep in mind any outstanding deficiencies 

identified in the audit for follow-up when completing the modules. 

CFPB	 Manual V.2 (October 2012) Procedures 3 
 

 

 

 

CFPB 

Examination Procedures GLBA Privacy 

[Click&type] 

6.	 Based on the results of the foregoing initial procedures and discussions
 

with management, determine which procedures if any should be completed
 

in the applicable module, focusing on areas of particular risk. The selection 

of procedures to be employed depends upon the adequacy of the
 

institution’s compliance management system and level of risk identified.
 

Each module contains a series of general instructions to verify compliance, 

cross-referenced to cites within the regulation. Additionally, there are 

cross-references to a more comprehensive checklist, which the examiner
 

may use if needed to evaluate compliance in more detail.
 

[Click&type] 

7.	 Evaluate any additional information or documentation discovered during
 

the course of the examination according to these procedures. Note that this
 

may reveal new or different sharing practices necessitating reapplication of
 

the Decision Trees and completion of additional or different modules. 

[Click&type] 

8.	 Formulate conclusions. 

•	 Summarize all findings. 

•	 For violation(s) noted, determine the cause by identifying weaknesses 

in internal controls, compliance review, training, management oversight, or other areas. 

•	 Identify action needed to correct violations and weaknesses in the institution’s compliance system, as appropriate. 

•	 Discuss findings with management and obtain a commitment for corrective action. 

[Click&type] 

Examiner’s Summary, Recommendations, and Comments 

[Click&type] 

CFPB	 Manual V.2 (October 2012) Procedures 4 
 

 

 

 

 

 

 

 

Module 1 

Yes Privacy notice (presentation, 

content, and delivery)
 

(with or without Section
 

13 notice & contracting)
 

Short-form notice (optional
 

for consumers)
 

Customer notice delivery rules
 

Opt-out rules
 

No 

Does the financial institution 

share nonpublic personal 

information with nonaffiliated 

third parties under Sections 14 

and/or 15 and outside of the 

exceptions (with or without also 

sharing under 13)? 

Does the financial institution 

share nonpublic personal 

information with nonaffiliated 

third parties under sections 13, 

and 14 and/or 15 but not 

outside the exceptions? 

Does the financial 

institution share 

nonpublic personal 

information with 

nonaffiliated third parties 

only under Sections 14 

and/or 15? 

Yes 

Yes 

Module 2 

Privacy notice 

Customer notice delivery rules 

Section 13 notice & contracting 

Module 3 

Privacy notice 

Simplified notice (if applicable) 

Customer notice delivery rules 

 

 

 

 

 

CFPB GLBA Privacy
 

Examination Procedures Attachment A
 

Decision Tree: Privacy 

Notice and Opt-Out1 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

1 These reflect FFIEC-approved procedures. 

CFPB Manual V.2 (October 2012) GLBA Privacy Attachment 1 
 

 

 

 

 

 

No 

No review 

necessary 

Does the financial 

institution receive nonpublic 

personal information from 

nonaffiliated financial 

institutions? 

Yes 

Outside of 

Sections 

14 and 15 

Module 4 

Receipt of information 

under Section 14 

and/or 15 

Module 5 

Receipt of information 

outside of Section 

14 and/or 15 

How is that 

information received? 

Under Sections 

14 and/or 15 

CFPB GLBA Privacy
 

Examination Procedures Attachment B
 

Decision Tree: Reuse and Redisclosure of Nonpublic 

Personal Information Received from Nonaffiliated 

Financial Institutions (Sections 11(A) and 11(B)) 

CFPB Manual V.2 (October 2012) GLBA Privacy Attachment 2 
 

 

 

Does the financial institution share 

account numbers or similar access No* 

numbers or codes with nonaffiliated third 

parties (other than a consumer reporting 

agency) for telemarketing, direct mail, or 

electronic mail marketing? 

No review 

necessary 

Module 6 

Account number 

sharing 

* This may include sharing of encrypted account numbers, but not the decryption key. 

CFPB GLBA Privacy
 

Examination Procedures Attachment C
 

Decision Tree: Account Number Sharing 

(Section 12) 

CFPB Manual V.2 (October 2012) GLBA Privacy Attachment 3 
 

 

 

 

 

 

 

CFPB GLBA Privacy
 

Examination Procedures Module 1 

Module 1: Sharing nonpublic personal information 

with nonaffiliated third parties under Sections 14 

and/or 15 and outside of the exceptions (with or 

without also sharing under Section 13) 

NOTE: Financial institutions whose practices fall within this category engage in the most 

expansive degree of information sharing permissible. Consequently, these institutions are held to 

the most comprehensive compliance standards imposed by the Privacy regulation. 

A. Disclosure of Nonpublic Personal Information 

1.	 Select a sample of third-party relationships with nonaffiliated third parties and obtain a 

sample of data shared between the institution and the third party both inside and outside 

of the exceptions. The sample should include a cross-section of relationships but should 

emphasize those that are higher risk in nature as determined by the initial procedures. 

Perform the following comparisons to evaluate the financial institution’s compliance with 

disclosure limitations. 

a.	 Compare the categories of data shared and with whom the data were shared to those 

stated in the privacy notice and verify that what the institution tells consumers 

(customers and those who are not customers) in its notices about its policies and 

practices in this regard and what the institution actually does are consistent (§§10, 6). 

b.	 Compare the data shared to a sample of opt-out directions and verify that only 

nonpublic personal information covered under the exceptions or from consumers 

(customers and those who are not customers) who chose not to opt out is shared 

(§10). 

[Click&type] 

2.	 If the financial institution also shares information under Section 13, obtain and review 

contracts with nonaffiliated third parties that perform services for the financial institution 

not covered by the exceptions in Section 14 or 15. Determine whether the contracts 

prohibit the third party from disclosing or using the information other than to carry out 

the purposes for which the information was disclosed. 

[Click&type] 

B. Presentation, Content, and Delivery of Privacy Notices 

1.	 Review the financial institution’s initial, annual and revised notices, as well as any shortform notices that the institution may use for consumers who are not customers. 

Determine whether or not these notices: 

a.	 Are clear and conspicuous (§§3(b), 4(a), 5(a)(1), 7(a)(1), 8(a)(1)); 

b.	 Accurately reflect the policies and practices used by the institution (§§4(a), 5(a)(1), 

8(a)(1)). Note, this includes practices disclosed in the notices that exceed regulatory 

requirements; and 

CFPB	 Manual V.2 (October 2012) GLBA Privacy Attachment 4 
 

 

 

CFPB GLBA Privacy
 

Examination Procedures Module 1 

c.	 Include, and adequately describe, all required items of information and contain 

examples as applicable (§6). Note that if the institution shares under Section 13 the 

notice provisions for that section shall also apply. 

d.	 If the model privacy form is used, determine that it reflects the institution’s policies 

and practices. For institutions seeking a safe harbor for compliance with the content 

requirements of the regulation, verify that the notice has the proper content and is in 

the proper format as specified in the Appendix to the regulation. 

[Click&type] 

2.	 Through discussions with management, review of the institution’s policies and 

procedures, and a sample of electronic or written consumer records where available, 

determine if the institution has adequate procedures in place to provide notices to 

consumers, as appropriate. Assess the following: 

a.	 Timeliness of delivery (§§4(a), 7(c), 8(a)); 

b.	 Reasonableness of the method of delivery (e.g., by hand; by mail; electronically, if 

the consumer agrees; or as a necessary step of a transaction) (§9); and 

c.	 For customers only, review the timeliness of delivery (§§4(d), 4(e), 5(a)), means of 

delivery of annual notice (§9(c)), and accessibility of or ability to retain the notice 

(§9(e)). 

[Click&type] 

C. Opt-Out Right 

1.	 Review the financial institution’s opt-out notices. An opt-out notice may be combined 

with the institution’s privacy notices. Regardless, determine whether the opt-out notices: 

a.	 Are clear and conspicuous (§§3(b) and 7(a)(1)); 

b.	 Accurately explain the right to opt out (§7(a)(1)); 

c.	 Include and adequately describe the three required items of information (the 

institution’s policy regarding disclosure of nonpublic personal information, the 

consumer’s opt-out right, and the means to opt out) (§7(a)(1)); and 

d.	 Describe how the institution treats joint consumers (customers and those who are not 

customers), as applicable (§7(d)). 

[Click&type] 

2.	 Through discussions with management, review of the institution’s policies and 

procedures, and a sample of electronic or written records where available, determine if 

the institution has adequate procedures in place to provide the opt-out notice and comply 

with opt-out directions of consumers (customers and those who are not customers), as 

appropriate. Assess the following: 

a.	 Timeliness of delivery (§10(a)(1)); 

CFPB	 Manual V.2 (October 2012) GLBA Privacy Attachment 5 
 

 

 

 

CFPB GLBA Privacy
 

Examination Procedures Module 1 

b.	 Reasonableness of the method of delivery (e.g., by hand; by mail; electronically, if 

the consumer agrees; or as a necessary step of a transaction) (§9); 

c.	 Reasonableness of the opportunity to opt out (the time allowed to and the means by 

which the consumer may opt out) (§§10(a)(1)(iii), 10(a)(3)); and 

d.	 Adequacy of procedures to implement and track the status of a consumer's (customers 

and those who are not customers) opt-out direction, including those of former 

customers (§7(e), (f), (g)). 

[Click&type] 

D. Checklist Cross References 

Regulation Section Subject Checklist Questions 

4(a); 6(a, b, c, e); and 

9(a, b, g) 

Privacy notices (presentation, content, 

and delivery) 

2, 8-11, 14, 18, 35, 36, 

40 

4(a, c, d, e); 5; and 9(c, e) Customer notice delivery rules 1, 3-7, 37, 38 

13 Section 13 notice and contracting rules 

(as applicable) 12, 47 

6(d) Short form notice rules (optional for 

consumers only) 15-17 

7; 8; and 10 Opt-out rules 19-34, 41-43 

14, 15 Exceptions 48, 49, 50 

CFPB	 Manual V.2 (October 2012) GLBA Privacy Attachment 6 
 

 

 

 

 

 

 

CFPB GLBA Privacy
 

Examination Procedures Module 2 

Module 2: Sharing nonpublic personal information 

with nonaffiliated third parties under Sections 13, 

and 14 and/or 15, but not outside of these 

exceptions 

A. Disclosure of Nonpublic Personal Information 

1.	 Select a sample of third-party relationships with nonaffiliated third parties and obtain a 

sample of data shared between the institution and the third party. The sample should 

include a cross-section of relationships but should emphasize those that are higher risk in 

nature as determined by the initial procedures. Perform the following comparisons to 

evaluate the financial institution’s compliance with disclosure limitations. 

a.	 Compare the data shared and with whom the data were shared to ensure that the 

institution accurately categorized its information sharing practices and is not sharing 

nonpublic personal information outside the exceptions (§§13, 14, 15). 

b.	 Compare the categories of data shared and with whom the data were shared to those 

stated in the privacy notice and verify that what the institution tells consumers in its 

notices about its policies and practices in this regard and what the institution actually 

does are consistent (§§10, 6). 

c.	 If the model privacy form is used, determine that it reflects the institution’s policies 

and practices. For institutions seeking a safe harbor for compliance with the content 

requirements of the regulation, verify that the notice has the proper content and is in 

the proper format as specified in the Appendix to the regulation. 

[Click&type] 

2.	 Review contracts with nonaffiliated third parties that perform services for the financial 

institution not covered by the exceptions in Section 14 or 15. Determine whether the 

contracts adequately prohibit the third party from disclosing or using the information 

other than to carry out the purposes for which the information was disclosed. 

[Click&type] 

B. Presentation, Content, and Delivery of Privacy Notices 

1.	 Review the financial institution’s initial and annual privacy notices. Determine whether 

or not they: 

a.	 Are clear and conspicuous (§§3(b), 4(a), 5(a)(1)); 

b.	 Accurately reflect the policies and practices used by the institution (§§4(a), 5(a)(1)). 

Note, this includes practices disclosed in the notices that exceed regulatory 

requirements; and 

c.	 Include, and adequately describe, all required items of information and contain 

examples as applicable (§§6, 13). 

CFPB	 Manual V.2 (October 2012) GLBA Privacy Attachment 7 
 

 

 

 

CFPB GLBA Privacy
 

Examination Procedures Module 2 

[Click&type] 

2.	 Through discussions with management, review of the institution’s policies and 

procedures, and a sample of electronic or written consumer records where available, 

determine if the institution has adequate procedures in place to provide notices to 

consumers, as appropriate. Assess the following: 

a.	 Timeliness of delivery (§4(a)); 

b.	 Reasonableness of the method of delivery (e.g., by hand; by mail; electronically, if 

the consumer agrees; or as a necessary step of a transaction) (§9); and 

c.	 For customers only, review the timeliness of delivery (§§4(d), 4(e), and 5(a)), means 

of delivery of annual notice §9(c)), and accessibility of or ability to retain the notice 

(§9(e)). 

[Click&type] 

C. Checklist Cross References 

Regulation Section Subject Checklist Questions 

4(a); 6(a, b, c, e); and 

9(a, b, g) 

Privacy notices (presentation, content, 

and delivery) 

2, 8-11, 14, 18, 35, 36, 

40 

13 Section 13 notice and contracting rules 12, 47 

4(a, c, d, e); 5; and 9(c, e) Customer notice delivery rules 1, 3-7, 37, 38 

14, 15 Exceptions 48, 49, 50 

CFPB	 Manual V.2 (October 2012) GLBA Privacy Attachment 8 
 

 

 

 

 

 

CFPB GLBA Privacy
 

Examination Procedures Module 3 

Module 3: Sharing nonpublic personal information 

with nonaffiliated third parties only under Sections 

14 and/or 15 

NOTE: This module applies only to customers. 

A. Disclosure of Nonpublic Personal Information 

1.	 Select a sample of third-party relationships with nonaffiliated third parties and obtain a 

sample of data shared between the institution and the third party. 

a.	 Compare the data shared and with whom the data were shared to ensure that the 

institution accurately states its information sharing practices and is not sharing 

nonpublic personal information outside the exceptions. 

[Click&type] 

B. Presentation, Content, and Delivery of Privacy Notices 

1.	 Obtain and review the financial institution’s initial and annual notices, as well as any 

simplified notice that the institution may use. Note that the institution may only use the 

simplified notice when it does not also share nonpublic personal information with 

affiliates outside of Section 14 and 15 exceptions. Determine whether or not these 

notices: 

a.	 Are clear and conspicuous (§§3(b), 4(a), 5(a)(1)); 

b.	 Accurately reflect the policies and practices used by the institution (§§4(a), 5(a)(1)). 

Note, this includes practices disclosed in the notices that exceed regulatory 

requirements; and 

c.	 Include, and adequately describe, all required items of information (§6). 

d.	 If the model privacy form is used, determine that it reflects the institution’s policies 

and practices. For institutions seeking a safe harbor for compliance with the content 

requirements of the regulation, verify that the notice has the proper content and is in 

the proper format as specified in the Appendix to the regulation. 

[Click&type] 

2.	 Through discussions with management, review of the institution’s policies and 

procedures, and a sample of electronic or written customer records where available, 

determine if the institution has adequate procedures in place to provide notices to 

customers, as appropriate. Assess the following: 

a.	 Timeliness of delivery (§§4(a), 4(d), 4(e), 5(a)); and 

b.	 Reasonableness of the method of delivery (e.g., by hand; by mail; electronically, if 

the customer agrees; or as a necessary step of a transaction) (§9) and accessibility of 

or ability to retain the notice (§9(e)). 

[Click&type] 

CFPB	 Manual V.2 (October 2012) GLBA Privacy Attachment 9 
 

 

CFPB GLBA Privacy
 

Examination Procedures Module 3 

C. Checklist Cross References 

Regulation Section Subject Checklist Questions 

6 Customer notice content and 

presentation 

8-11, 14, 18 

6 (c)(5) Simplified notice content (optional) 13 

4 (a, d, e); 5; and 9 Customer notice delivery process 1, 3-7, 35-40 

14, 15 Exceptions 48, 49, 50 

CFPB Manual V.2 (October 2012) GLBA Privacy Attachment 10 
 

 

 

 

 

CFPB GLBA Privacy
 

Examination Procedures Module 4 

Module 4: Reuse and redisclosure of nonpublic 

personal information received from a nonaffiliated 

financial institution under Sections 14 and/or 15 

A. Through discussions with management and review of the institution’s procedures, determine 

whether the institution has adequate practices to prevent the unlawful redisclosure and reuse 

of the information where the institution is the recipient of nonpublic personal information 

(§11(a)). 

[Click&type] 

B. Select a sample of data received from nonaffiliated financial institutions, to evaluate the 

financial institution’s compliance with reuse and redisclosure limitations. 

1.	 Verify that the institution’s redisclosure of the information was only to affiliates of the 

financial institution from which the information was obtained or to the institution’s own 

affiliates, except as otherwise allowed in step 2 below (§11(a)(1)(i) and (ii)). 

[Click&type] 

2.	 Verify that the institution only uses and shares the data pursuant to an exception in 

Sections 14 and 15 (§11(a)(1)(iii)). 

[Click&type] 

C. Checklist Cross References 

Regulation Section Subject Checklist Question 

11(a) Reuse and redisclosure 44 

CFPB	 Manual V.2 (October 2012) GLBA Privacy Attachment 11 
 

 

 

 

 

 

 

CFPB GLBA Privacy
 

Examination Procedures Module 5 

Module 5: Redisclosure of nonpublic personal 

information received from a nonaffiliated financial 

institution outside of Sections 14 and 15 

A. Through discussions with management and review of the institution’s procedures, determine 

whether the institution has adequate practices to prevent the unlawful redisclosure of the 

information where the institution is the recipient of nonpublic personal information (§11(b)). 

[Click&type] 

B. Select a sample of data received from nonaffiliated financial institutions and shared with 

others to evaluate the financial institution’s compliance with redisclosure limitations. 

1.	 Verify that the institution’s redisclosure of the information was only to affiliates of the 

financial institution from which the information was obtained or to the institution’s own 

affiliates, except as otherwise allowed in the step b below (§11(b)(1)(i) and (ii)). 

[Click&type] 

2.	 If the institution shares information with entities other than those under step a above, 

verify that the institution’s information sharing practices conform to those in the 

nonaffiliated financial institution’s privacy notice (§11(b)(1)(iii)). 

[Click&type] 

3.	 Also, review the procedures used by the institution to ensure that the information sharing 

reflects the opt-out status of the consumers of the nonaffiliated financial institution (§§10, 

11(b)(1)(iii)). 

[Click&type] 

C. Checklist Cross References 

Regulation Section Subject Checklist Question 

11(b) Reuse and redisclosure 45 

CFPB	 Manual V.2 (October 2012) GLBA Privacy Attachment 12 
 

 

CFPB GLBA Privacy
 

Examination Procedures Module 6 

Module 6: Account number sharing 

A. If available, review a sample of telemarketer scripts used when making sales calls to 

determine whether the scripts indicate that the telemarketers have the account numbers of the 

institution’s consumers (§12). 

[Click&type] 

B. Obtain and review a sample of contracts with agents or service providers to whom the 

financial institution discloses account numbers for use in connection with marketing the 

institution's own products or services. Determine whether the institution shares account 

numbers with nonaffiliated third parties only to perform marketing for the institution’s own 

products and services. Ensure that the contracts do not authorize these nonaffiliated third 

parties to directly initiate charges to customer’s accounts (§12(b)(1)). 

[Click&type] 

C. Obtain a sample of materials and information provided to the consumer upon entering a 

private label or affinity credit card program. Determine if the participants in each program 

are identified to the customer when the customer enters into the program (§12(b)(2)). 

[Click&type] 

D. Checklist Cross References 

Regulation Section Subject Checklist Question 

12 Account number sharing 46 

CFPB Manual V.2 (October 2012) GLBA Privacy Attachment 13 
 

 

 

 

 

 

Yes	 No

 

 

 

 

 

 

 

 

CFPB 

Examination Checklist GLBA Privacy 

Gramm-Leach-Bliley Act (GLBA) 

Privacy of Consumer 

Financial Information1 

Exam Date: [Click&type] 

Prepared By: [Click&type] 

Reviewer: [Click&type] 

Docket #: [Click&type] 

Entity Name: [Click&type] 

SUBPART A 

Initial Privacy Notice 

NOTE: No notice is required if nonpublic personal information is disclosed to 

nonaffiliated third parties only under an exception in Sections 14 and 15, and 

there is no customer relationship. [§4(b)] With respect to credit relationships, an 

institution establishes a customer relationship when it originates a consumer 

loan. If the institution subsequently sells the servicing rights to the loan to 

another financial institution, the customer relationship transfers with the 

servicing rights. [§4(c)] 

1.	 Does the institution provide a clear and conspicuous notice that accurately
 

reflects its privacy policies and practices to all customers not later than when 

the customer relationship is established, other than as allowed in paragraph (e) of
 

Section four (4) of the regulation [§4(a)(1))]?
 

2.	 Does the institution provide a clear and conspicuous notice that accurately
 

reflects its privacy policies and practices to all consumers, who are not
 

customers, before any nonpublic personal information about the consumer is
 

disclosed to a nonaffiliated third party, other than under an exception in Sections
 

14 or 15 [§4(a)(2)]?
 

3.	 Does the institution provide to existing customers, who obtain a new financial
 

product or service, an initial privacy notice that covers the customer's new
 

financial product or service, if the most recent notice provided to the customer
 

was not accurate with respect to the new financial product or service [§4(d)(1)] ?
 

4.	 Does the institution provide initial notice after establishing a customer 

relationship only if:
 

 The customer relationship is not established at the customer's election
 

[§4(e)(1)(i)] or 

 To do otherwise would substantially delay the customer's transaction (e.g. in 

the case of a telephone application), and the customer agrees to the 

subsequent delivery [§4 (e)(1)(ii)]? 

1 These reflect FFIEC-approved procedures. 

CFPB	 Manual V.2 (October 2012) Checklist 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes No 

 

 

CFPB 

Examination Checklist GLBA Privacy 

5.	 When the subsequent delivery of a privacy notice is permitted, does the 

institution provide notice after establishing a customer relationship within a 

reasonable time [§4(e)]? 

Annual Privacy Notice 

6.	 Does the institution provide a clear and conspicuous notice that accurately 

reflects its privacy policies and practices at least annually (that is, at least once in 

any period of 12 consecutive months) to all customers, throughout the customer 

relationship? [§5(a)(1)and (2)] 

NOTE: Annual notices are not required for former customers [§5(b)(1)and (2)]. 

7.	 Does the institution provide an annual privacy notice to each customer whose 

loan the institution owns the right to service [§§5(c), 4(c)(2)]? 

Content of Privacy Notices 

8.	 Do the initial, annual, and revised privacy notices include each of the following, 

as applicable: 

•	 The categories of nonpublic personal information that the institution collects 

[§6(a)(1)]; 

•	 The categories of nonpublic personal information that the institution 

discloses [§6(a)(2)]; 

•	 The categories of affiliates and nonaffiliated third parties to whom the 

institution discloses nonpublic personal information, other than parties to 

whom information is disclosed under an exception in Section14 or 15 

[§6(a)(3)]; 

•	 The categories of nonpublic personal information disclosed about former 

customers, and the categories of affiliates and nonaffiliated third parties to 

whom the institution discloses that information, other than those parties to 

whom the institution discloses information under an exception in Section 14 

or 15 [§6(a)(4)]; 

•	 If the institution discloses nonpublic personal information to a nonaffiliated 

third party under Section13, and no exception under Section 14 or 15 

applies, a separate statement of the categories of information the institution 

discloses and the categories of third parties with whom the institution has 

contracted [§6(a)(5)]; 

•	 An explanation of the opt-out right, including the method(s) of opt out that 

the consumer can use at the time of the notice [§6(a)(6)]; 

•	 Any disclosures that the institution makes under Section603(d)(2)(A)(iii) of 

the Fair Credit Reporting Act (FCRA) [§6(a)(7)]; 

CFPB	 Manual V.2 (October 2012) Checklist 2 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes No 

 

 

 

 

 

CFPB 

Examination Checklist GLBA Privacy 

•	 The institution’s policies and practices with respect to protecting the 

confidentiality and security of nonpublic personal information [§6(a)(8)]; 

and 

•	 A general statement—with no specific reference to the third parties—that the 

institution makes disclosures to other nonaffiliated third parties for everyday 

business purposes, such as (with the institution including all that are 

applicable) to process transactions, maintain accounts, respond to court 

orders and legal investigations, or report to credit bureaus, or as otherwise 

permitted by law [§6(a)(9),(b)(1) and (2)]? 

NOTE: Institutions that provide a model privacy form in accordance with the 

instructions in the Appendix to the regulation will receive a safe harbor for 

compliance with the content requirements of the regulation. 

9.	 Does the institution list the following categories of nonpublic personal 

information that it collects, as applicable: 

•	 Information from the consumer [§6(c)(1)(i)]; 

•	 Information about the consumer’s transactions with the institution or its 

affiliates [§6(c)(1)(ii)]; 

•	 Information about the consumer’s transactions with nonaffiliated third 

parties [§6(c)(1)(iii)]; and 

•	 Information from a consumer reporting agency [§6(c)(1)(iv)]? 

10.	 Does the institution list the following categories of nonpublic personal 

information that it discloses, as applicable, and a few examples of each, or 

alternatively state that it reserves the right to disclose all the nonpublic personal 

information that it collects: 

•	 Information from the consumer; 

•	 Information about the consumer’s transactions with the institution or its 

affiliates; 

•	 Information about the consumer’s transactions with nonaffiliated third 

parties; and 

•	 Information from a consumer reporting agency [§6(c)(2)]? 

NOTE: Examples are recommended under Section 6(c)(2) although not under 

Section 6(c)(1). 

CFPB	 Manual V.2 (October 2012) Checklist 3 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes No 

 

 

 

 

 

CFPB 

Examination Checklist GLBA Privacy 

11.	 Does the institution list the following categories of affiliates and nonaffiliated 

third parties to whom it discloses information, as applicable, and a few examples 

to illustrate the types of the third parties in each category: 

•	 Financial service providers [§6(c)(3)(i)]; 

•	 Non-financial companies [§6(c)(3)(ii)]; and 

•	 Others [§6(c)(3)(iii)]? 

12.	 Does the institution make the following disclosures regarding service providers 

and joint marketers to whom it discloses nonpublic personal information under 

Section 13: 

•	 As applicable, the same categories and examples of nonpublic personal 

information disclosed as described in paragraphs (a)(2) and (c)(2) of Section 

six (6) (see questions 8b and 10)and [§6(c)(4)(i)]; 

•	 That the third party is a service provider that performs marketing on the 

institution’s behalf or on behalf of the institution and another financial 

institution[§6(c)(4)(ii)(A)]; or 

•	 That the third party is a financial institution with which the institution has a 

joint marketing agreement [§6(c)(4)(ii)(B)]? 

13.	 If the institution does not disclose nonpublic personal information, and does not 

reserve the right to do so, other than under exceptions in Sections 14 and 15, 

does the institution provide a simplified privacy notice that contains at a 

minimum: 

•	 A statement to this effect; 

•	 The categories of nonpublic personal information it collects; 

•	 The policies and practices the institution uses to protect the confidentiality 

and security of nonpublic personal information; and 

•	 A general statement that the institution makes disclosures to other 

nonaffiliated third parties as permitted by law [§6(c)(5)]? 

NOTE: Use of this type of simplified notice is optional; an institution may 

always use a full notice. 

14.	 Does the institution describe the following about its policies and practices with 

respect to protecting the confidentiality and security of nonpublic personal 

information: 

• Who is authorized to have access to the information[§6(c)(6)(i)]; and 

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•	 Whether security practices and policies are in place to ensure the 

confidentiality of the information in accordance with the institution’s policy 

[§6(c)(6)(ii)]? 

NOTE: The institution is not required to describe technical information about the 

safeguards used in this respect. 

15.	 If the institution provides a short-form initial privacy notice with the opt-out 

notice, does the institution do so only to consumers with whom the institution 

does not have a customer relationship [§6(d)(1)]? 

16.	 If the institution provides a short-form initial privacy notice according to Section 

6(d)(1), does the short-form initial notice: 

•	 Conform to the definition of “clear and conspicuous” [§6(d)(2)(i)]; 

•	 State that the institution's full privacy notice is available upon request 

[§6(d)(2)(ii)]; and 

•	 Explain a reasonable means by which the consumer may obtain the notice 

[§6(d)(2)(iii)]? 

NOTE: The institution is not required to deliver the full privacy notice with the 

short-form initial notice. [§6(d)(3)]) 

17.	 Does the institution provide consumers who receive the short-form initial notice 

with a reasonable means of obtaining the longer initial notice, such as: 

•	 A toll-free telephone number that the consumer may call to request the 

notice [§6(d)(4)(i)]; or 

•	 For the consumer who conducts business in person at the institution's office, 

having copies available to provide immediately by hand-delivery 

[§6(d)(4)(ii)]? 

18.	 If the institution, in its privacy policies, reserves the right to disclose nonpublic 

personal information to nonaffiliated third parties in the future, does the privacy 

notice include, as applicable, the: 

•	 Categories of nonpublic personal information that the financial institution 

reserves the right to disclose in the future, but does not currently disclose; 

[§6(e)(1)] and 

•	 Categories of affiliates or nonaffiliated third parties to whom the financial 

institution reserves the right in the future to disclose, but to whom it does not 

currently disclose, nonpublic personal information [§6(e)(2)]? 

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Examination Checklist GLBA Privacy 

Opt-Out Notice 

19.	 If the institution discloses nonpublic personal information about a consumer to a 

nonaffiliated third party, and the exceptions under Sections 13-15 do not apply, 

does the institution provide the consumer with a clear and conspicuous opt-out 

notice that accurately explains the right to opt out [§7(a)(1)]? 

20.	 Does the opt-out notice state: 

•	 That the institution discloses or reserves the right to disclose nonpublic 

personal information about the consumer to a nonaffiliated third party 

[§7(a)(1)(i)]; 

•	 That the consumer has the right to opt out of that disclosure [§7(a)(1)(ii)]; 

and 

•	 A reasonable means by which the consumer may opt out [§7(a)(1)(iii)]? 

21.	 Does the institution provide the consumer with the following information about 

the right to opt out: 

•	 All the categories of nonpublic personal information that the institution 

discloses or reserves the right to disclose [§7(a)(2)(i)(A)]; 

•	 All the categories of nonaffiliated third parties to whom the information is 

disclosed [§7(a)(2)(i)(A)]; 

•	 That the consumer has the right to opt out of the disclosure of that 

information [§7(a)(2)(i)(A)]; and 

•	 The financial products or services that the consumer obtains to which the 

opt-out direction would apply [§7(a)(2)(i)(B)]? 

22.	 Does the institution provide the consumer with at least one of the following 

reasonable means of opting out, or with another reasonable means: 

•	 Check-off boxes prominently displayed on the relevant forms with the optout notice [§7(a)(2)(ii)(A)]; 

•	 A reply form included with the opt-out notice [§7(a)(2)(ii)(B)]; 

•	 An electronic means to opt out, such as a form that can be sent via electronic 

mail or a process at the institution’s website, if the consumer agrees to the 

electronic delivery of information [§7(a)(2)(ii)(C)]; or 

•	 A toll-free telephone number [§7(a)(2)(ii)(D)]? 

NOTE: The institution may require the consumer to use one specific means, as 

long as that means is reasonable for that consumer [§7(a)(iv)]. 

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23.	 If the institution delivers the opt-out notice after the initial notice, does the 

institution provide the initial notice once again with the opt-out notice [§7(c)]? 

24.	 Does the institution provide an opt-out notice, explaining how the institution will 

treat opt-out directions by the joint consumers, to at least one party in a joint 

consumer relationship [§7(d)(1)]? 

25.	 Does the institution permit each of the joint consumers in a joint relationship to 

opt out [§7(d)(2)]? 

26. Does the opt-out notice to joint consumers state that either: 

•	 The institution will consider an opt out by a joint consumer as applying to all 

associated joint consumers [§7(d)(2)(i)]; or 

• Each joint consumer is permitted to opt out separately [§7(d)(2)(ii)]? 

27. If each joint consumer may opt out separately, does the institution permit: 

•	 One joint consumer to opt out on behalf of all of the joint consumers
 

[§7(d)(3)];
 

•	 The joint consumers to notify the institution in a single response [§7(d)(5)];
 

and
 

•	 Each joint consumer to opt out either for himself or herself and/or for
 

another joint consumer [§7(d)(5)]?
 

28.	 Does the institution refrain from requiring all joint consumers to opt out before 

implementing any opt-out direction with respect to the joint account [§7(d)(4)]? 

29.	 Does the institution comply with a consumer's direction to opt out as soon as is 

reasonably practicable after receiving it [§7(e)]? 

30. Does the institution allow the consumer to opt out at any time [§7(f)]? 

31.	 Does the institution continue to honor the consumer's opt-out direction until 

revoked by the consumer in writing, or, if the consumer agrees, electronically 

[§7(g)(1)]? 

32.	 When a customer relationship ends, does the institution continue to apply the 

customer’s opt-out direction to the nonpublic personal information collected 

during, or related to, that specific customer relationship (but not to new 

relationships, if any, subsequently established by that customer) [§7(g)(2)]? 

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Revised Notices 

33.	 Except as permitted by Sections 13-15, does the institution refrain from 

disclosing any nonpublic personal information about a consumer to a 

nonaffiliated third party, other than as described in the initial privacy notice 

provided to the consumer, unless: 

•	 The institution has provided the consumer with a clear and conspicuous 

revised notice that accurately describes the institution's privacy policies and 

practices [§8(a)(1)]; 

•	 The institution has provided the consumer with a new opt-out notice 

[§8(a)(2)]; 

•	 The institution has given the consumer a reasonable opportunity to opt out of 

the disclosure, before disclosing any information [§8(a)(3)]; and 

•	 The consumer has not opted out [§8(a)(4)]? 

34.	 Does the institution deliver a revised privacy notice when it: 

•	 Discloses a new category of nonpublic personal information to a
 

nonaffiliated third party [§8(b)(1)(i)];
 

•	 Discloses nonpublic personal information to a new category of nonaffiliated 

third party [§8(b)(1)(ii)]; or 

•	 Discloses nonpublic personal information about a former customer to a 

nonaffiliated third party, if that former customer has not had the opportunity 

to exercise an opt-out right regarding that disclosure [§8(b)(1)(iii)]? 

NOTE: A revised notice is not required if the institution adequately described 

the nonaffiliated third party or information to be disclosed in the prior privacy 

notice [§8(b)(2). 

Delivery Methods 

35.	 Does the institution deliver the privacy and opt-out notices, including the shortform notice, so that the consumer can reasonably be expected to receive actual 

notice in writing or, if the consumer agrees, electronically [§9(a)]? 

36.	 Does the institution use a reasonable means for delivering the notices, such as: 

•	 Hand-delivery of a printed copy [§9(b)(1)(i)]; 

•	 Mailing a printed copy to the last known address of the consumer
 

[§9(b)(1)(ii)];
 

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•	 For the consumer who conducts transactions electronically, clearly and 

conspicuously posting the notice on the institution’s electronic site and 

requiring the consumer to acknowledge receipt as a necessary step to 

obtaining a financial product or service [§9(b)(1)(iii)]; or 

•	 For isolated transactions, such as ATM transactions, posting the notice on 

the screen and requiring the consumer to acknowledge receipt as a necessary 

step to obtaining the financial product or service [§9(b)(1)(iv)]? 

NOTE: Insufficient or unreasonable means of delivery include: exclusively oral 

notice, in person or by telephone; branch or office signs or generally published 

advertisements; and electronic mail to a customer who does not obtain products 

or services electronically [§9 (b)(2)(i) and (ii), and (d)]. 

37.	 For annual notices only, if the institution does not employ one of the methods 

described in question 36, does the institution employ one of the following 

reasonable means of delivering the notice such as: 

•	 For the customer who uses the institution’s website to access products and 

services electronically and who agrees to receive notices at the website, 

continuously posting the current privacy notice on the website in a clear and 

conspicuous manner [§9(c)(1)]; or 

•	 For the customer who has requested the institution refrain from sending any 

information about the customer relationship, making copies of the current 

privacy notice available upon customer request [§9(c)(2)]? 

38.	 For customers only, does the institution ensure that the initial, annual, and 

revised notices may be retained or obtained later by the customer in writing, or if

the customer agrees, electronically [§9(e)(1)]? 

39.	 Does the institution use an appropriate means to ensure that notices may be 

retained or obtained later, such as: 

•	 Hand-delivery of a printed copy of the notice [§9(e)(2)(i)]; 

•	 Mailing a printed copy to the last known address of the customer
 

[§9(e)(2)(ii)]; or
 

•	 Making the current privacy notice available on the institution’s website (or 

via a link to the notice at another site) for the customer who agrees to receive

the notice at the website [§9(e)(2)(iii)]? 

40.	 Does the institution provide at least one initial, annual, and revised notice, as 

applicable, to joint consumers [§9(g)]? 

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Examination Checklist GLBA Privacy 

Yes No 

SUBPART B 

Limits on Disclosure to Nonaffiliated Third Parties 

41.	 Does the institution refrain from disclosing any nonpublic personal information 

about a consumer to a nonaffiliated third party, other than as permitted under 

Sections 13-15, unless: 

•	 It has provided the consumer with an initial notice [§10(a)(1)(i)]; 

•	 It has provided the consumer with an opt-out notice [§10(a)(1)(ii)]; 

•	 It has given the consumer a reasonable opportunity to opt out before the 

disclosure [§10(a)(1)(iii)]; and 

•	 The consumer has not opted out [§10(a)(1)(iv)]? 

NOTE: This disclosure limitation applies to consumers as well as to customers 

[§10(b)(1)], and to all nonpublic personal information regardless of whether 

collected before or after receiving an opt-out direction [§10(b)(2)]. 

42.	 Does the institution provide the consumer with a reasonable opportunity to opt 

out such as by: 

•	 Mailing the notices required by Section 10 and allowing the consumer to 

respond by toll-free telephone number, return mail, or other reasonable 

means (see question 22) within 30 days from the date mailed [§10(a)(3)(i)]; 

•	 Where the consumer opens an on-line account with the institution and agrees 

to receive the notices required by Section 10 electronically, allowing the 

consumer to opt out by any reasonable means (see question 22) within 30 

days from consumer acknowledgement of receipt of the notice in 

conjunction with opening the account [§10(a)(3)(ii)]; or 

•	 For isolated transactions, providing the notices required by Section 10 at the 

time of the transaction and requesting that the consumer decide, as a 

necessary part of the transaction, whether to opt out before the completion of 

the transaction [§10(a)(3)(iii)]? 

43. Does the institution allow the consumer to select certain nonpublic personal 

information or certain nonaffiliated third parties with respect to which the 

consumer wishes to opt out [§10(c)]? 

NOTE: An institution may allow partial opt outs in addition to, but may not 

allow them instead of, a comprehensive opt out. 

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Yes	 No 

Limits on Redisclosure and Reuse of Information 

44.	 If the institution receives information from a nonaffiliated financial institution 

under an exception in Sections 14 or 15, does the institution refrain from using 

or disclosing the information except: 

•	 To disclose the information to the affiliates of the financial institution from 

which it received the information [§11(a)(1)(i)];
 

•	 To disclose the information to its own affiliates, which are in turn limited by 

the same disclosure and use restrictions as the recipient institution 

[§11(a)(1)(ii)]; and 

•	 To disclose and use the information pursuant to an exception in Sections 14
 

or 15 in the ordinary course of business to carry out the activity covered by
 

the exception under which the information was received [§11(a)(1)(iii)]?
 

NOTE: The disclosure or use described in section c of this question need not be 

directly related to the activity covered by the applicable exception. For instance, 

an institution receiving information for fraud-prevention purposes could provide 

the information to its auditors. But “in the ordinary course of business” does not 

include marketing [§11(a)(2)]. 

45.	 If the institution receives information from a nonaffiliated financial institution 

other than under an exception in Section 14 or 15, does the institution refrain 

from disclosing the information except: 

•	 To the affiliates of the financial institution from which it received the 

information [§11(b)(1)(i)];
 

•	 To its own affiliates, which are in turn limited by the same disclosure 

restrictions as the recipient institution [§11(b)(1)(ii)]; and
 

•	 To any other person, if the disclosure would be lawful if made directly to 

that person by the institution from which the recipient institution received the 

information [§11(b)(1)(iii)]? 

Limits on Sharing Account Number Information for Marketing Purposes 

46.	 Does the institution refrain from disclosing, directly or through affiliates, 

account numbers or similar forms of access numbers or access codes for a 

consumer's credit card account, deposit account, or transaction account to any 

nonaffiliated third party (other than to a consumer reporting agency) for 

telemarketing, direct mail or electronic mail marketing to the consumer, except: 

•	 To the institution’s agents or service providers solely to market the
 

institution’s own products or services, as long as the agent or service
 

provider is not authorized to directly initiate charges to the account
 

[§12(b)(1)]; or
 

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•	 To a participant in a private label credit card program or an affinity or 

similar program where the participants in the program are identified to the 

customer when the customer enters into the program [§12(b)(2)]? 

NOTE: An “account number or similar form of access number or access code” 

does not include numbers in encrypted form, so long as the institution does not 

provide the recipient with a means of decryption. [§12(c)(1)] A transaction 

account does not include an account to which third parties cannot initiate 

charges [§12(c)(2)]. 

SUBPART C 

Exception to Opt-Out Requirements for Service Providers and Joint 

Marketing 

47.	 If the institution discloses nonpublic personal information to a nonaffiliated third 

party without permitting the consumer to opt out, do the opt-out requirements of 

Sections 7 and 10 and the revised notice requirements in Section 8 not apply 

because: 

•	 The institution disclosed the information to a nonaffiliated third party who 

performs services for or functions on behalf of the institution (including joint 

marketing of financial products and services offered pursuant to a joint 

agreement as defined in paragraph (b) of §13) [§13(a)(1)]; 

•	 The institution has provided consumers with the initial notice [§13(a)(1)(i)]; 

and 

•	 The institution has entered into a contract with that party prohibiting the 

party from disclosing or using the information except to carry out the 

purposes for which the information was disclosed, including use under an 

exception in Sections 14 or 15 in the ordinary course of business to carry out 

those purposes [§13(a)(1)(ii)]? 

Exceptions to Notice and Opt-Out Requirements for Processing and 

Servicing Transactions 

48.	 If the institution discloses nonpublic personal information to nonaffiliated third 

parties, do the requirements for initial notice in Section4(a)(2), opt out in 

Sections 7 and 10, revised notice in Section 8, and for service providers and joint 

marketing in Section 13, not apply because the information is disclosed as 

necessary to effect, administer, or enforce a transaction that the consumer 

requests or authorizes, or in connection with: 

•	 Servicing or processing a financial product or service requested or 

authorized by the consumer [§14(a)(1)]; 

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•	 Maintaining or servicing the consumer's account with the institution or with 

another entity as part of a private label credit card program or other credit 

extension on behalf of the entity or [§14(a)(2)]; 

•	 A proposed or actual securitization, secondary market sale (including sale of 

servicing rights) or other similar transaction related to a transaction of the 

consumer [§14(a)(3)]? 

49.	 If the institution uses a Section 14 exception as necessary to effect, administer, 

or enforce a transaction, is it : 

•	 Required, or is one of the lawful or appropriate methods to enforce the rights 

of the institution or other persons engaged in carrying out the transaction or 

providing the product or service [§14(b)(1)]; or 

•	 Required, or is a usual, appropriate, or acceptable method to[§14(b)(2)]: 

o	 carry out the transaction or the product or service business of which the 

transaction is a part, including recording, servicing, or maintaining the 

consumer's account in the ordinary course of business [§14(b)(2)(i)]; 

o	 administer or service benefits or claims [§14(b)(2)(ii)]; 

o	 confirm or provide a statement or other record of the transaction or 

information on the status or value of the financial service or financial 

product to the consumer or the consumer’s agent or broker 

[§14(b)(2)(iii)]; 

o	 accrue or recognize incentives or bonuses [§14(b)(2)(iv)]; 

o	 underwrite insurance or for reinsurance or for certain other purposes 

related to a consumer's insurance [§14(b)(2)(v)]; or 

o	 in connection with: 

 the authorization, settlement, billing, processing, clearing, 

transferring, reconciling, or collection of amounts charged, debited, 

or otherwise paid by using a debit, credit, or other payment card, 

check, or account number, or by other payment means 

[§14(b)(2)(vi)(A)]; 

 the transfer of receivables, accounts or interests therein 

[§14(b)(2)(vi)(B)]; or 

 the audit of debit, credit, or other payment information 

[§14(b)(2)(vi)(C)]? 

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Examination Checklist GLBA Privacy 

Other Exceptions to Notice and Opt-Out Requirements 

50.	 If the institution discloses nonpublic personal information to nonaffiliated third 

parties, do the requirements for initial notice in Section 4(a)(2), opt out in 

Sections 7 and 10, revised notice in Section 8, and for service providers and joint 

marketers in Section 13, not apply because the institution makes the disclosure: 

• With the consent or at the direction of the consumer [§15(a)(1)]: 

o to protect the confidentiality or security of records [§15(a)(2)(i)]; 

o	 to protect against or prevent actual or potential fraud, unauthorized 

transactions, claims, or other liability [§15(a)(2)(ii)]; 

o	 for required institutional risk control or for resolving consumer disputes 

or inquiries [§15(a)(2)(iii)]; 

o	 to persons holding a legal or beneficial interest relating to the consumer 

[§15(a)(2)(iv)]; or 

o	 to persons acting in a fiduciary or representative capacity on behalf of the 

consumer [§15(a)(2)(v)]. 

•	 To insurance rate advisory organizations, guaranty funds or agencies, 

agencies rating the institution, persons assessing compliance, and the
 

institution's attorneys, accountants, and auditors [§15(a)(3)];
 

•	 In compliance with the Right to Financial Privacy Act or to law enforcement 

agencies [§15(a)(4)]; 

•	 To a consumer reporting agency in accordance with the FCRA or from a
 

consumer report reported by a consumer reporting agency [§15(a)(5)];
 

•	 In connection with a proposed or actual sale, merger, transfer, or exchange of 

all or a portion of a business or operating unit, if the disclosure of nonpublic 

personal information concerns solely consumers of such business or unit 

[§15(a)(6)]; 

•	 To comply with Federal, state, or local laws, rules, or legal requirements
 

[§15(a)(7)(i)];
 

•	 To comply with a properly authorized civil, criminal, or regulatory 

investigation, or subpoena or summons by Federal, state, or local authorities 

[§15(a)(7)(ii)]; or 

•	 To respond to judicial process or government regulatory authorities having
 

jurisdiction over the institution for examination, compliance, or other
 

purposes as authorized by law [§15(a)(7)(iii)]?
 

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Yes No 

NOTE: The regulation gives the following as an example of the exception 

described in section A of this question: “A consumer may specifically consent to 

[an institution’s] disclosure to a nonaffiliated insurance company of the fact that 

the consumer has applied to [the institution] for a mortgage so that the insurance 

company can offer homeowner’s insurance to the consumer.” 

Comments 

[Click&Type] 

CFPB Manual V.2 (October 2012) Checklist 15 


 

 

 

 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Consumer Risk Assessment 

CFPB’s Risk Assessment process is designed to evaluate on a consistent basis the extent of risk 

to consumers arising from the activities of a particular supervised entity and to identify the 

sources of that risk. “Risk to consumers” for the purpose of the CFPB Risk Assessment is the 

potential for consumers to suffer economic loss or other legally-cognizable injury as a result of a 

violation of Federal consumer financial law. To determine risk to consumers, the Risk 

Assessment considers the interaction of two broad sets of factors: the inherent risks in a 

particular line of business or the entity as a whole and the quality of controls implemented by the 

entity to manage and mitigate those risks. As noted below, the Risk Assessment will be used 

during CFPB’s supervision planning process to set priorities and focus examination and 

supervision activities. 

Inherent risk includes factors that increase the potential for unfair, deceptive or abusive acts or 

practices, for discrimination, or for violations of other Federal consumer financial laws. It also 

includes factors that increase the compliance management challenges of a business and thereby 

increase the risk of such violations. The quality of risk controls includes factors related to both 

managing and mitigating specific inherent risks as well as the strength of an entity’s overall 

system of compliance management. 

The questions and considerations in this template may be used to conduct risk assessments of 

individual lines of business, supervised entities as a whole, and groups of affiliated entities when 

feasible and applicable. Assessments of individual lines of business in large complex entities 

may be considered together to reach conclusions about the entity as a whole. 

The risk assessment is not a determination of whether a violation of law exists. 

Using the Risk Assessment Template 

The template provides a series of factors that bear on inherent risk and relevant risk controls. 

Examiners conducting the assessment should rate each relevant factor (low, moderate, or high 

inherent risk; strong, adequate, or weak risk controls and mitigation), and comment briefly on the 

basis for each rating and issues to consider during the examination. The factor ratings, taken as a 

whole, result in the Risk Summary, which is a conclusion about whether the overall risk to 

consumers is low, moderate, or high. The Risk Summary also includes a judgment about the 

expected change in the overall risk (decreasing, increasing, or stable/unchanged), and when that 

direction last changed. The Risk Summary, and the basis for it, will be included with the 

Examination Report. 

The factor ratings and comments should be used to inform the Examination Scope. For example, 

if the nature and structure of certain products point to high inherent risk and the quality of risk 

controls is only adequate, then the examination scope should likely include a review of those 

products and the related compliance controls. The magnitude and severity of potential consumer 

harm arising from particular risks should be considered when setting priorities for review. 

There may be other institution or industry-specific risk factors beyond those included in the 

template that should be considered when assessing risk to consumers. Examiners should use their 

CFPB Manual V.2 (October 2012) Template 1 
 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

knowledge and judgment to identify risks that are unique to a particular entity or its specialized 

business focus. 

CFPB Manual V.2 (October 2012) Template 2 
 

 

 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

The sections below include (1) factors that specifically increase the risk that unfair, deceptive, abusive acts or practices, 

discrimination, or other violations of Federal consumer financial law will occur and (2) factors that generally increase the 

difficulty of managing compliance in an organization. 

Inherent Risk 

Comments in each section should identify any specific factors present in the line of business or entity being assessed, note 

the potential UDAAP, discrimination, or other regulatory issues to review during an examination, and comment briefly 

on the basis for the rating assigned to that factor. The rating should reflect the degree of risk. 

Nature and Structure of Products Comments 

The profitability of a product is dependent upon penalty fees (e.g., fees 

for a late payment, for exceeding a credit limit, or for overdrawing 

deposited funds). 

[Click&type] 

The terms of the product are subject to change at the discretion of the 

entity, and the entity has frequently made changes in the terms. 

The entity reverses fees at a significantly higher rate than other entities 

of similar size offering similar products. 

Pricing structure (interest rate, points, fees) and other features and 

terms are combined in a manner that is likely to make the total costs of 

the product difficult for consumers to understand. 

Products are bundled in a way that may obscure relative costs. 

Consumers pay penalties to terminate a relationship, including 

forgoing money or benefits they would otherwise earn. 

CFPB Manual V.2 (October 2012) Template 3 
 

 

 

 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Consumers face barriers to information, such as costs to access 

customer service or information about their account. 

Credit decision-makers have wide discretion over setting terms and 

features of products with inadequate policies and procedures 

addressing appropriate exercise of that discretion. 

Credit products are not underwritten based upon the likely ability of 

the consumer to make the required (or, in the case of adjustable rate 

products, potentially required) payments over the term of the loan. 

RATING – Nature and Structure of Products Low Moderate High 

Consumers to whom products are marketed Comments 

Consider the extent to which the marketing of a product or service is 

targeted to particular populations including: 

• Students or young adults; 

• Elderly; 

• Minorities; 

• Immigrants; 

• Consumers of certain national origins; 

• Members of specific religious groups or denominations; 

• Military service members or former service members; 

• Consumers with limited education; 

[Click&type] 

CFPB Manual V.2 (October 2012) Template 4 
 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

• Consumers with limited English proficiency; 

• Low-income consumers or consumers on limited fixed 

incomes; 

• Consumers receiving any type of public assistance; 

• Consumers with limited experience with financial products or 

services; 

• Consumers in or who have recently experienced financial 

distress; 

• Consumers with low credit scores (e.g., FICO below 620); or 

• Consumers of a certain gender or marital status. 

Products targeted to consumers who fall in multiple categories may be 

of particular concern. 

Consider whether any particular populations are missing or excluded 

from the entity’s advertising. 

RATING – Consumers to whom products are marketed Low Moderate High 

CFPB Manual V.2 (October 2012) Template 5 
 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Marketing methods and sales organizations Comments 

Incentives and Compensation [Click&type] 

Incentives encourage the sale of high-cost products regardless of 

consumer’s request or situation. 

Compensation or performance evaluation of person-to-person sales 

staff (telephone, face-to-face)is based on: 

• The number of sales made; 

• The size of the sales made (for example, average loan size) or 

the volume of sales; 

• The price of the product sold; or 

• The particular product sold 

without consideration of product outcomes or performance(for 

example, default or attrition rates, etc.). 

Person-to-person sales staff has discretion to set prices (interest 

rate, points, fees) with inadequate policies and procedures 

addressing exercise of that discretion. 

Person-to-person sales staff is not accountable for product 

outcomes or performance (default rates, attrition rates, etc.). 

Marketing and Advertising 

Marketing materials are not written in a language or at a level 

understandable by targeted consumers. 

Key product terms or features are not readily available to 

consumers. 

Targeted consumers would not likely qualify for advertised 

products or terms. 

CFPB Manual V.2 (October 2012) Template 6 
 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Advertising includes teaser rates or low fees with little or no 

information about important conditions (such as periodic or exit 

charges). 

Complex products are marketed to consumers not likely to benefit 

from them or who may likely be harmed by them. 

Product marketing and sales, including branch locations, are 

targeted in a manner that may be discriminatory. 

Advertising utilizes media outlets targeted to particular populations 

only to advertise its higher-cost products and not its full range of 

products. 

RATING – Marketing Methods and Sales Organization Low Moderate High 

CFPB Manual V.2 (October 2012) Template 7 
 

 

 

 

 

 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Ongoing customer relationship management Comments 

Employees with customer service responsibilities, including 

collections, are not evaluated or compensated based on the quality of 

service or level of customer satisfaction. 

[Click&type] 

The compensation of customer service representatives with discretion 

to adjust prices or modify other terms is impacted by the frequency 

and/or size of such adjustments. 

Customer service representatives with discretion to adjust prices or 

modify other terms operate with inadequate policies and procedures 

addressing exercise of that discretion. 

Vendors with customer service responsibilities, including collections, 

are not evaluated based on quality of service or level of customer 

satisfaction. 

The compensation of vendors that provide customer service 

representatives with discretion to adjust prices or modify other terms is 

impacted by the frequency and/or size of such adjustments. 

Vendors that provide customer service representatives with discretion 

in pricing operate with inadequate policies and procedures addressing 

exercise of that discretion. 

The number of customer service staff is insufficient to provide timely 

service. 

Customer service information systems do not have sufficient capacity 

to support the number of customers. 

RATING – Ongoing customer relationship management Low Moderate High 

CFPB Manual V.2 (October 2012) Template 8 
 

 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Compliance management challenges Comments 

The entity maintains multiple, discrete un-integrated information 

systems to originate and service product relationships, including new 

product relationships with existing customers. 

[Click&type] 

Solicitation is conducted through active cross-selling, outbound 

telemarketing, or use of third parties for direct marketing. 

The entity uses internet advertising or a wide variety of other mass 

media. 

The entity has an extensive or decentralized retail network. 

Numerous subsidiaries or affiliates provide consumer financial 

products and services on behalf of the entity. 

The entity relies heavily on third parties other than subsidiaries or 

other affiliates to provide products and services to consumers. 

RATING – Compliance Management Challenges Low Moderate High 

Other factors that point to heightened consumer risk Comments 

DESCRIBE FACTOR [Click&type] 

RATING – Other factors Low Moderate High 

CFPB Manual V.2 (October 2012) Template 9 
 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

The considerations below bear on both the general quality of an entity’s consumer compliance risk management and 

specifically on controlling the risks of unfair, deceptive or abusive acts or practices, discrimination, or other violations of 

Federal consumer financial law. The specific factors indicate strong compliance management. 

QUALITY OF CONSUMER COMPLIANCE RISK CONTROLS AND MITIGATION
 

Comments in each section should identify any factors of concern in the line of business or entity being assessed, note 

particular compliance management issues to review during an examination, and comment briefly on the basis for the 

rating assigned to that factor. The rating should reflect the strength of compliance management. 

Board of Directors and Management Comments 

The board of directors has adopted comprehensive policies that 

establish clear standards for compliance with applicable laws, 

including laws prohibiting unfair, deceptive or abusive acts or 

practices, and discrimination: 

• Policies and procedures are comprehensive and thorough. 

• Policies are current and consistent with consumer business 

activities, and reflect current laws and regulations. 

• A clear process exists for aligning compliance policies with 

changing business activities. 

[Click&type] 

Management’s commitment to consumer compliance has been 

communicated throughout the regulated entity. 

The board and management receive regular and meaningful reporting 

with respect to consumer protection issues, consumer compliance, or 

complaints. 

CFPB Manual V.2 (October 2012) Template 10 
 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

The board and management follow up on a timely basis on issues 

identified with respect to consumer compliance. 

Management anticipates, plans, and reacts promptly to changes in 

markets, technology, regulations, or consumer need. 

RATING – Board of Directors and Management Strong Adequate Weak 

Authority and accountability for compliance Comments 

Sufficient resources have been allocated to compliance, including 

monitoring of compliance throughout the organization and monitoring 

third parties that perform activities involving consumers. 

[Click&type] 

Management and staff responsible for compliance with consumer 

protection laws are independent from the business line when 

appropriate given the size, nature, and complexity of the entity and 

have clear authority to identify and resolve consumer compliance 

issues. 

Unit or individual performance expectations include responsibility for 

compliance. 

Units or individuals have sufficient authority to effect a strong 

compliance program. 

RATING – Authority and accountability for compliance Strong Adequate Weak 

CFPB Manual V.2 (October 2012) Template 11 
 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Compliance risk management program and oversight Comments 

The compliance risk management program is well tailored to the size, 

nature, and complexity of the entity. 

[Click&type] 

The compliance program is independent from the business line when 

appropriate given the size, nature, and complexity of the entity and 

provides sufficient oversight of the entity. 

The compliance program provides sufficient oversight of third parties 

interacting with consumers on behalf of the entity in relation to 

consumer compliance risk. 

Regular compliance testing is conducted and includes samples of 

sufficient size covering all relevant product types, decision centers, 

customer points of contact, and customer communications. 

Compliance testing includes regular and comprehensive selfassessments for compliance with consumer laws and regulations 

including fair lending. 

The compliance management program promptly addresses issues of 

potential unfairness, deception, abuse, or discrimination. 

The compliance risk management program includes comprehensive 

controls and systems to assure prompt and thorough corrective action 

when problems are found. 

RATING – Compliance risk management program and oversight Strong Adequate Weak 

CFPB Manual V.2 (October 2012) Template 12 
 

 

 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Product and system development and modification Comments 

Consumer compliance risks are considered throughout the product and 

system lifecycle. 

[Click&type] 

Management and staff responsible for consumer compliance are 

involved in the product life cycle, including product development and 

changes, marketing, product delivery, and customer service. 

Possible unfair, deceptive, abusive, or discriminatory effects of 

product design or delivery are considered and resolved at an early 

stage. 

Management and staff responsible for consumer compliance are 

involved in the structuring of incentives, including those for 

employees and third-party vendors and their employees who interact 

with consumers. 

RATING – Product and system development and modification Strong Adequate Weak 

CFPB Manual V.2 (October 2012) Template 13 
 

 

 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Training Comments 

Appropriate training is provided to all staff, including those 

responsible for product development, marketing, and customer service 

and covers consumer protection laws and the obligation to avoid 

unfair, deceptive, abusive, or discriminatory practices. 

[Click&type] 

Training is timely, repeated as necessary, and tailored to the particular 

responsibilities of the staff receiving it. 

Training encourages all employees to take responsibility for consumer 

compliance and to identify and correct issues. 

Policies and procedures and oversight mechanisms are designed to 

ensure that appropriate and current training is provided to employees 

of third parties who interact with consumers. 

RATING – Training Strong Adequate Weak 

CFPB Manual V.2 (October 2012) Template 14 
 

 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Complaint Management Comments 

The entity provides consumers with the opportunity to submit 

complaints through channels of the customer’s choice, including mail, 

email, or phone. 

[Click&type] 

The entity provides complete and timely responses to complaints 

received either directly from consumers or indirectly through 

regulators or other third parties that process complaints. 

Third parties that provide services involving consumers have an 

established complaint process that is appropriately monitored by the 

supervised entity. 

The entity tracks all types of complaints. 

The entity actively monitors complaints to identify issues that may 

require changes in products, procedures, and/or training. 

The entity tracks the time to final resolution of consumer complaints. 

Complaints are resolved without requiring the direction or 

involvement of executives, regulators, or third parties (such as the 

Better Business Bureau), or the prospect of litigation or enforcement 

actions. 

RATING – Complaint Management Strong Adequate Weak 

CFPB Manual V.2 (October 2012) Template 15 
 

 

 

 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Other factors that point to potential lack of controls or mitigation Comments 

<DESCRIBE FACTOR> [Click&type] 

RATING – Other factors Strong Adequate Weak 

Magnitude and Severity of Potential Harm – 

This factor should be considered when setting priorities for 

examination activities based on potential risks identified in particular 

products, lines of business, or the entity overall. Comments should 

discuss and compare the likely magnitude and severity of potential 

harm from any identified sources of risk. Comments 

The magnitude and severity of potential harm to consumers will vary 

based upon the number of consumers who may be directly impacted 

and the risks identified. For example, a smaller entity, or smaller line 

of business within an entity, may pose a greater risk to consumers than 

a larger one if the consumers potentially impacted by the smaller entity 

or line of business face much larger harmful consequences than those 

of the larger entity. 

[Click&type] 

RATING – Magnitude and Severity of Potential Harm Low Moderate High 

CFPB Manual V.2 (October 2012) Template 16 
 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Background Considerations – these factors indicate a likelihood of existing weaknesses and may bear on the direction of risk 

Supervisory History – Regulatory violations and Matters 

Requiring Attention identified in previous examinations; 

consumer compliance rating 

Comments 

Violations involve prohibited kickbacks, discrimination, unfair, 

deceptive or abusive acts or practices, need for reimbursements, or 

other harm to consumers. 

[Click&type] 

Violations are repeated or continuing. 

Violations result from systemic causes. 

Violations and Matters Requiring Attention reflect compliance 

management weaknesses. 

Consumer compliance rating of 3, 4 or 5. 

RATING – Supervisory History Low Moderate High 

CFPB Manual V.2 (October 2012) Template 17 
 

 

 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Consumer complaints Comments 

Numerous complaints from consumers are filed against the entity, or 

its third-party vendors that interact with consumers, relative to the size 

of the customer base or in comparison to other entities of similar size 

offering similar products. 

[Click&type] 

Complaints allege or involve: 

• Misleading or false statements; 

• Lack of disclosure of information about material terms of a 

product or service; 

• Unauthorized fees, fees for services not provided, or 

duplicative fees; 

• Previously undisclosed charges; 

• Customer service; or 

• Loan servicing and collections. 

Complaints evidence non-compliance with consumer protection laws. 

Complaints raise issues of discrimination. 

Complaints raise issues of potential unfair, deceptive, or abusive acts 

or practices. 

RATING – Consumer Complaints Low Moderate High 

CFPB Manual V.2 (October 2012) Template 18 
 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

SUMMARY WORKSHEET 

Use this worksheet for an overall view of the Risk Assessment findings. 

Enter the rating for the different risk factors reviewed on the previous pages and note the priorities for examination review. 

Risk Factors Rating Review Priorities 

INHERENT RISK [Click&type] 

Nature and structure of products [Click&type] 

Consumers to whom products are marketed [Click&type] 

Marketing methods and sales organization [Click&type] 

Ongoing customer relationship management [Click&type] 

Complexity of organization [Click&type] 

Other factors [Click&type] 

RISK CONTROLS AND MITIGATION 

Board of directors and management [Click&type] 

Authority and accountability for compliance [Click&type] 

Compliance risk management program and oversight [Click&type] 

CFPB Manual V.2 (October 2012) Template 19 
 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

Product and system development and modification [Click&type] 

Training [Click&type] 

Complaint management [Click&type] 

Other factors [Click&type] 

Magnitude and severity of potential harm [Click&type] 

BACKGROUND CONSIDERATIONS 

Supervisory history – regulatory violations, Matters Requiring Attention, 

rating 

[Click&type] 

Consumer complaints [Click&type] 

CFPB Manual V.2 (October 2012) Template 20 
 

 

 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

RISK ASSESSMENT CONCLUSIONS 

Risk Summary 

Supervised entity or line of business reviewed: [Click&type] 

Element 

Current 

MM/DD/YYYY 

Preceding 

MM/DD/YYYY 

Inherent Risk [Click&type] [Click&type] 

Quality of Risk Controls and Mitigation [Click&type] [Click&type] 

Overall Risk to Consumers* [Click&type] [Click&type] 

Expected Change/Direction of Risk Increasing Decreasing Stable 

Last Change in Direction 

MM/DD/YYYY 

Increasing Decreasing Stable 

CFPB Manual V.2 (October 2012) Template 21 
 

 

CFPB Risk Assessment 

Entity Name: Prepared by: 

Docket Number: Date: 

*Overall Risk to Consumers: 

The overall risk is the inherent risk identified in a particular business line or supervised entity, 

mitigated or amplified by the strength or weakness of the controls to address those risks. The 

following chart is a general guide to assessing the overall risk to consumers. Examiners must 

apply their judgment in making this determination; however, a risk controls conclusion of 

“Weak” should result in an overall risk conclusion that is no more favorable than “Moderate,” 

even if the degree of risk is concluded to be “Low.” 

Overall Risk to Consumers 

Quality of Risk Controls 

Strong Adequate Weak 

Inherent Risk 

High Moderate High High 

Moderate Low Moderate High 

Low Low Low Moderate 

Summarize the primary bases for the summary conclusions: 

[Click&type] 

CFPB Manual V.2 (October 2012) Template 22 
 

 

 

CFPB Supervision Plan 

Entity Name: Prepared by: 

Docket Number: Date: 

Supervision Plan for
 

Depository Institutions and Affiliates
 

Data Section 

CFPB Docket # [Click&type] 

Entity Name [Click&type] 

City, State [Click&type] 

Affiliated Entity Name(s) [Click&type] 

Narrative Section 

Institution Profile 

Summarize the current Profile of the lead institution and any affiliate(s). 

[Click&type] 

Risk Assessment 

Summarize the results of the current Risk Assessment(s). 

[Click&type] 

Supervision Plan 

Based on the Profile and Risk Assessment, summarize the plan for supervising the institution and 

its affiliates. Identify the purpose of particular activities, and note any that require particularly 

close coordination with Enforcement or Fair Lending. 

[Click&type] 

Priorities: Describe the priorities for CFPB supervision activities, which should relate to the 

risks present in the institution and its affiliates. Clarifying priorities will assist in scheduling 

examiner resources. 

[Click&type] 

Monitoring: Describe the plan and timeline for monitoring the institution and affiliates, 

including any follow-up for Matters Requiring Attention or Enforcement Actions. 

[Click&type] 

CFPB Manual V.2 (October 2012) Template 1 
 

 

CFPB Supervision Plan 

Entity Name: Prepared by: 

Docket Number: Date: 

Examination(s): Describe the proposed focus, scope,and schedule of examination activities 

during the year (either in a full examination or a series of limited examinations). Note the 

location of proposed activities. Include information about coordination with the prudential or 

state regulator(s), including examination schedule(s) if known. If an examination is not 

scheduled during the current year, note why. 

[Click&type] 

Examination Resource Requirements: Proposed number of examiners, any special skills or 

knowledge needed, and projected number of examiner work weeks. 

[Click&type] 

Additional Notes 

[Click&type] 

CFPB Manual V.2 (October 2012) Template 2 
 

 

 

 

 

CFPB Scope Summary 

Entity Name: Prepared by: 

Docket Number: Date: 

EXAMINATION SCOPE SUMMARY 

CFPB Docket # [Click&type] 

Name of Supervised Entity: [Click&type] 

City, State: [Click&type] 

Entity website: [Click&type] 

Organization chart [Insert or attach as pdf if available] 

Number of Open Offices/Branches 

(including Main Office): 

[Click&type] 

Number of Agents (where applicable): [Click&type] 

Total Assets (where applicable) 

Date (xx/xx/xxxx) 

$ [Click&type] 

[Click&type] 

EXAMINATION DATES 

Examination Start Date [Click&type] 

Completion Date [Click&type] 

Examination Period [Click&type] 

Anticipated Hours [Click&type] 

EXAMINATION TEAM 

Lead Regional Office [Click&type] 

Regional Office(s) 

Performing Examination: 

[Click&type] 

Name Role Specialty 

[Click&type] Examiner-In-Charge 

[Click&type] Lead Examiner 

(if applicable) 

[Click&type] [Click&type] [Click&type] 

[Click&type] [Click&type] [Click&type] 

[Click&type] OFLEO contact [Click&type] 

[Click&type] Enforcement contact [Click&type] 

CFPB Manual V.2 (October 2012) Template 1 
 

 

 

 

 

 

 

 

CFPB Scope Summary 

Entity Name: Prepared by: 

Docket Number: Date: 

PRUDENTIAL AND/OR STATE REGULATOR(S) 

Prudential and/or State Regulator(s) [Click&type] 

Regulator Contact(s) [Click&type] 

Contact phone # [Click&type] 

Contact email [Click&type] 

COMMUNICATION PLAN 

• Who is responsible for communicating with the entity? 

• List any expected or scheduled meetings. 

[Click&Type] 

COMPLAINTS 

Consumer Complaints received by CFPB since the previous examination 

[Click&type] 

OUTSTANDING ENFORCEMENT ACTIONS 

EA Type Issue Date Agency Comments 

[Click&type] [Click&type] [Click&type] [Click&type] 

OUTSTANDING MATTERS REQUIRING ATTENTION 

Matter 

Requiring 

Attention 

Status Due Date Required 

Response 

Comments 

[Click&type] [Click&type] [Click&type] [Click&type] [Click&type] 

BREAKDOWN OF LOAN ORIGINATION AND PORTFOLIO 

(xx/xx/xxxx – xx/xx/xxxx) 

Loan Type Dollar Volume 

Originated During 

Period 

% of All Loans 

Originated During 

Period & Kept in 

Portfolio 

Loan Type as a % of 

Total Portfolio at 

End of Period 

Residential Loans [Click&type] [Click&type] [Click&type] 

Consumer Loans [Click&type] [Click&type] [Click&type] 

Small Business 

Loans 

[Click&type] [Click&type] [Click&type] 

Other [Click&type] [Click&type] [Click&type] 

CFPB Manual V.2 (October 2012) Template 2 
 

 

 

 

 

CFPB Scope Summary 

Entity Name: Prepared by: 

Docket Number: Date: 

HMDA
 

Is HMDA Applicable? Yes No

(If yes, must consult Fair Lending) 

ASSET VOLUME CHANGE 

Date: xx/xx/xxxx xx/xx/xxxx 

Total Assets: $ (000,000) $ (000,000) 

Source: Call Report 

Public Filing 

Other (specify) [Click&type] 

Call Report 

Public Filing 

Other (specify) [Click&type] 

CHANGE IN OTHER FINANCIAL INFORMATION 

(as applicable) 

Date: xx/xx/xxxx xx/xx/xxxx 

Total Deposits $[Click&type] $[Click&type] 

Total Consumer 

Deposits 

$[Click&type] $[Click&type] 

($ volume) ($ volume) 

Money Transmission $[Click&type] $[Click&type] 

Check Cashing $[Click&type] $[Click&type] 

Debt Collection $[Click&type] $[Click&type] 

Other (Add 

additional lines for 

areas applicable to 

the entity being 

examined) 

$[Click&type] $[Click&type] 

CFPB Manual V.2 (October 2012) Template 3 
 

 

 

 

 

 

CFPB Scope Summary 

Entity Name: 

Docket Number: 

Prepared by: 

Date: 

ENTITYASSESSMENT SUMMARY 

(Prior to onsite portion of examination) 

Risk Summary: 

[Copy from Risk Assessment.] 

Element Current 

MM/DD/YYYY 

Preceding 

MM/DD/YYYY 

Inherent Risk [Click&type] [Click&type] 

Quality of Risk Controls and Mitigation [Click&type] [Click&type] 

Overall Risk to Consumers [Click&type] [Click&type] 

Expected Change/Direction of Risk Increasing Decreasing Stable 

Last Change in Direction MM/DD/YYYY 

Increasing Decreasing Stable 

Narrative description of primary basis for Risk Assessment. 

[Copy from Risk Assessment.] 

[Click&type] 

SCOPE OF THE EXAMINATION 

(Completed prior to onsite portion of examination) 

Narrative description of related examination activities 

COMPLIANCE MANAGEMENT SYSTEM 

[Click&type] 

UDAAP 

[Click&type] 

FAIR LENDING REVIEW 

[Click&type] 

COMPLAINTS 

[Click&type] 

CFPB Manual V.2 (October 2012) Template 4 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFPB Scope Summary 

Entity Name: Prepared by: 

Docket Number: Date: 

PRODUCT OR BUSINESS LINE REVIEW 

AREA 

Review 

Yes | NA Comments 

Mortgage 

Origination 

[Click&type] 

Mortgage Servicing [Click&type] 

Short-Term, SmallDollar Lending 

[Click&type] 

REGULATION(S) REVIEW 

Indicate the specific regulations that will be subject to transactional testing, noting the 

relationship with activities in the previous sections. 

AREA 

Review 

Yes | NA Comments 

LENDING 

Truth In Lending Act [Click&type] 

Real Estate Settlement 

Procedures Act [Click&type] 

Homeowners 

Protection Act 

[Click&type] 

Equal Credit 

Opportunity Act [Click&type] 

Home Mortgage 

Disclosure Act 

[Click&type] 

Fair Credit Reporting 

Act 

[Click&type] 

Consumer Leasing Act [Click&type] 

S.A.F.E. Mortgage 

Licensing Act 

[Click&type] 

Fair Debt Collection 

Practices Act [Click&type] 

CFPB Manual V.2 (October 2012) Template 5 
 

 

 

 

 

 

 

 

CFPB Scope Summary 

Entity Name: Prepared by: 

Docket Number: Date: 

DEPOSITS 

AREA 

Review 

Yes | NA Comments 

Truth In Savings Act [Click&type] 

Electronic Fund 

Transfer Act 

[Click&type] 

PRIVACY 

AREA 

Review 

Yes | NA Comments 

Sections 502-509 of 

the Gramm Leach 

Bliley Act (Privacy 

provisions, but not 

information security) 

[Click&type] 

FINAL SCOPE SUMMARY 

Describe changes to the scope of the examination that occurred during the examination, 

including changes to the Risk Summary. 

[Click&type] 

Note considerations for the scope of the next examination. 

[Click&type] 

CFPB Manual V.2 (October 2012) Template 6 
 

Entity Name: Prepared by: 

Docket Number: Date: 

 

CFPB Compliance Management Review 

Examiners should use this template to evaluate the entity’s compliance management system. The review should cover the items listed 

below (and detailed on the following pages) that are the common elements of an effective compliance management program. 

I. Board of Directors and Management Oversight ............................................................................................................................. 2
 

II. Policies and Procedures .................................................................................................................................................................. 4
 

III. Training ........................................................................................................................................................................................... 7
 

IV. Monitoring and Corrective Action.................................................................................................................................................. 9
 

V. Consumer Complaint Response.................................................................................................................................................... 11
 

VI. Compliance Audit ......................................................................................................................................................................... 13
 

CFPB Manual V.2 (October 2012) Template 1
 
 

 

 

 

 

 

 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

I. Examination Procedures - Board of Directors and Management Oversight 

To evaluate board’s and senior management’s 

oversight of the compliance management system, 

examiners should: 

Comments 

1. Review board meeting minutes and supporting materials 

during the period under review for coverage of compliance 

matters. 

2. Determine board committee structures and delegated 

responsibility for compliance matters, such as to an audit 

committee or risk committee, and review the meeting 

minutes and supporting materials of those committees for 

coverage of compliance matters. 

3. Determine any management committees with delegated 

authority and accountability for compliance matters, 

including fair lending, and review their composition, 

functions, and reporting to committees of the board or to the 

board. 

4. Determine the authority and accountability for compliance 

matters of regional or business unit governance bodies; and 

review their composition, functions, and reporting. 

5. Review policies for: 

a. Clarity, comprehensiveness, and currency; and 

b. Appropriate reflection of risks to consumers posed by 

the organization’s practices, including compliance 

issues and risks facing the organization. 

6. Review the formal written compliance function document 

adopted by the board of directors or an appropriate 

committee of the board, and determine the resource 

allocation to compliance as part of the entity’s budget and 

planning process. 

CFPB Manual V.2 (October 2012) Template 2 
 

 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

7. Identify the chief compliance officer and other responsible 

individuals. 

8. Review the role of the chief compliance officer for authority 

to lead a compliance program and independence from 

business units. 

9. Review board and board committee records for evidence of 

the chief compliance officer’s independent access to board 

members and governance bodies. 

10. Review processes for the identification of new regulatory 

requirements, changes in requirements, and planning for 

implementation. 

11. Review processes for development and implementation of 

new consumer financial products or services, distribution 

channels or strategies to determine degree of compliance 

function participation. Determine whether these processes 

consider fair lending compliance risk. 

12. Determine degree of compliance review of draft marketing 

material (including scripts) and their implementation. 

13. Review reporting for the identification and resolution of 

issues and the timeliness and completeness of such actions. 

14. Review board or committee consideration of compliance 

audit matters for coverage of key risks, independence from 

business functions, and resolution of identified issues. 

Conclusions - Board of Directors and Management Oversight 

Draw preliminary conclusions about the strength, adequacy, or weakness of board and senior management oversight. Consider 

whether the board and management has: 

a. Demonstrated clear expectations about compliance within the entity and to service providers; 

b. Adopted clear policy statements regarding consumer compliance; 

c. Appointed an appropriately qualified and experienced chief compliance officer; 

CFPB Manual V.2 (October 2012) Template 3 
 

 

 

 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

d. Provided for other compliance officers with authority and accountability; 

e. Established a compliance function to set policies, procedures, and standards; 

f. Allocated resources to the compliance function commensurate with the size and complexity of the entity’s operations and 

practices and the Federal consumer financial laws and regulations to which the entity is subject; 

g. Addressed consumer compliance risks of harm to consumers throughout product development, marketing, and account 

administration; 

h. Addressed consumer compliance risks of harm to consumers through the entity’s handling of consumer complaints and 

inquiries; 

i. Required audit coverage of compliance matters and reviewed the results of periodic compliance audits; and 

j. Provided for recurring reports of compliance risks, issues, and resolution through a committee structure or to the board. 

Confirm the preliminary conclusions through a risk-focused review of the compliance management system. 

[Click& Type] 

II. Examination Procedures - Policies and Procedures 

To determine the strength, adequacy, or weakness of 

policies and procedures, examiners should: 

Comments 

1. Request and review policies and procedures related to 

consumer compliance, including fair lending and other 

Federal consumer financial laws, and policies and 

procedures related to offering consumer financial products 

and services. 

2. Review policies and procedures for changes management 

committed to make following recent monitoring, audit, and 

examination findings and recommendations. 

3. Review policies and procedures to determine whether and 

how they address new or amended Federal consumer 

financial laws and regulations since the preceding 

examination by the CFPB, state, or prudential regulator, as 

CFPB Manual V.2 (October 2012) Template 4 
 

 

 

 

 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

applicable. 

4. Request and review policies and procedures to determine 

whether they cover consumer financial products or services 

introduced since the preceding examination by the CFPB, 

state, or prudential regulator, as applicable. 

5. Review policies and procedures relating to compliance with 

specific regulatory requirements (such as fair lending or the 

privacy of consumer financial information) and their 

implementing procedures. 

6. Review for outdated content, the names of unaffiliated 

entities, or other indicators that policies are overly general or 

not tailored to the needs and actual practices of the 

supervised entity being examined. 

7. Review policies and procedures for products with features 

that may inhibit consumer understanding or otherwise pose 

heightened risks of (a) unfair, deceptive, or abusive 

practices, or (b) fair lending concerns. 

8. Review policies and procedures for products containing 

features that may pose heightened risk of unlawful 

discrimination. Such features may include: 

a. particular incentives created by employee compensation 

structures; 

b. discretion over product selection, underwriting, or 

pricing; or 

c. distinctions related to geography or prohibited bases 

(such as age or marital status). 

9. Review policies and procedures designed to ensure that the 

entity’s service providers comply with legal obligations 

applicable to the product or service of the examined entity 

and the provider. 

CFPB Manual V.2 (October 2012) Template 5 
 

 

 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

10. Review policies and procedures maintained by different 

regional, business unit, or legal entities subject to the same 

corporate or board-level policies for consistency. 

11. Review policies and procedures for record retention and 

destruction timeframes to ensure compliance with legal 

requirements. 

12. If compliance procedures are embedded in automated tools 

or business unit procedures, determine that a qualified 

compliance officer or contractor reviewed these tools for 

consistency with policies and procedures and compliance 

with applicable Federal consumer laws and approved them 

for the purpose for which they are utilized. 

Conclusions - Policies and Procedures 

Draw preliminary conclusions regarding the strength, adequacy, or weakness of policies and procedures. Consider whether policies 

and procedures: 

a. Are consistent with board-approved policies; 

b. Address compliance with applicable Federal consumer financial laws; 

c. Cover product or service lifecycles; and 

d. Are maintained and modified to remain current and to serve as a reference for employees in their day-to-day activities. 

Confirm the preliminary conclusions by identifying business units, delivery channels, or offices for transaction testing. Test to 

confirm that actual practices are consistent with strong or adequate written policies and procedures. Test to determine the impact of 

apparently weak procedures. 

[Click& Type] 

CFPB Manual V.2 (October 2012) Template 6 
 

 

 

 

 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

III. Examination Procedures - Training 

To evaluate the quality of the entity’s compliance 

training program, examiners should: 

Comments 

1. Request and review the schedule, record of completion, and 

materials for recent compliance training of board members 

and executive officers. 

2. Determine the involvement of compliance officer(s) in 

selecting, reviewing, or delivering training content. 

3. Request and review policies, standards, schedules, and 

records of completion for compliance-specific training of 

compliance professionals, managers, and staff, and 

documents demonstrating that service providers who have 

consumer contact or compliance responsibilities are 

appropriately trained. 

4. Request and review samples of the content of training 

materials and comprehension tests, including training related 

to fair lending, new regulatory requirements, new products 

or channels of distribution, and marketing (including scripts). 

5. Request and review training developed as a result of 

management commitments to address monitoring, audit, or 

examination findings and recommendations or issues raised 

in consumer complaints and inquiries. 

6. Determine whether the program is designed to provide 

training about the specific regulatory requirements relevant 

to the functions of particular positions for loan officers, such 

as the Truth in Lending Act and the Equal Credit 

Opportunity Act. 

7. Review records of follow-up, escalation, and enforcement 

for units with training completion rates that do not meet the 

CFPB Manual V.2 (October 2012) Template 7 
 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

supervised entity’s standards or deadlines. 

8. Request and review the supervised entity’s plans for 

additions, deletions, or modifications to compliance training 

over the next 12 months and any plans for changes to the 

overall training resources and compare actual training 

activities to prior plans. 

Conclusion - Training 

Draw preliminary conclusions about the strength, adequacy, or weakness of the compliance training program. Consider whether: 

a. Compliance training is current, complete, directed to appropriate individuals based on their roles; 

b. Training is effective, and commensurate with the size of the entity and nature and risks to consumers presented by its 

activities; 

c. Training is consistent with policies and procedures and designed to reinforce those policies and procedures; and 

d. Compliance professionals have access to training that is necessary to administer a compliance program. 

Confirm the preliminary conclusions through a risk-focused review of the compliance training program. 

[Click& Type] 

CFPB Manual V.2 (October 2012) Template 8 
 

 

 

 

 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

IV. Examination Procedures - Monitoring and Corrective Action 

To evaluation whether monitoring and audit programs 

are adequate and comprehensive, examiners should: 

Comments 

1. Determine the chief compliance officer’s role in the 

compliance monitoring element of the compliance program. 

2. Request and review the monitoring and testing schedule for 

the current year or next 12 months and review the currency 

of reviews in process against the current schedule. 

3. Request and review the risk assessments or other documents 

that led to the monitoring and testing program plan, 

including any fair lending risk assessments. 

4. Discuss with the compliance officer or monitoring manager 

the coverage of service providers that have contact with 

consumers. 

5. Determine whether and to what extent monitoring includes 

calculation tools, the content of consumer disclosures and 

notices, marketing materials, and scripts or guides for 

employee contacts with consumers. 

6. Request and review all compliance monitoring, testing, and 

corrective action reports completed during a specific period 

of time. Include reports related to fair lending compliance, 

such as fair lending “self-evaluations.” (But do not request 

reports of fair lending “self-tests” that meet the strict 

requirements set forth in 12 CFR 1002.15.) 

7. Review reports for indications of systemic weaknesses, 

repeat violations of law and resulting risks or harms to 

consumers, or other matters of significant concern such as 

potential discriminatory effects of policies or procedures or 

particular business units with continuing or high levels of 

CFPB Manual V.2 (October 2012) Template 9 
 

 

 

 

 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

non-compliance. 

8. Review a sample of reports and supporting documents 

covering potential unfair, deceptive, or discriminatory 

practices or related matters that pose heightened risks to 

consumers for thoroughness of review, accuracy of findings, 

and appropriateness of recommendations. 

9. Determine whether monitoring results in corrective action 

that is timely and appropriate in size and scope. 

Conclusions - Monitoring and Corrective Action 

Draw a preliminary conclusion regarding the strength, adequacy, or weakness of the compliance monitoring and corrective action 

program. Consider whether: 

a. Monitoring is scheduled and completed and leads to timely corrective actions where appropriate; 

b. Monitoring confirms that transactions and other consumer contacts are handled according to the entity’s policies and 

procedures; 

c. Monitoring and testing consider the results of risk assessments or other guides for prioritizing reviews; 

d. Monitoring addresses deficiencies identified in internal or external audits and the board’s or management’s directives on 

resolving the deficiencies; and 

e. Findings are escalated to management and to the board of directors if appropriate. 

Confirm the preliminary conclusions by selecting areas for further review either because of lack of coverage by the monitoring 

program or to confirm monitoring or corrective action findings. 

[Click& Type] 

CFPB Manual V.2 (October 2012) Template 10 
 

 

 

 

 

 

 

 

 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

V. Examination Procedures - Consumer Complaint Response 

To evaluate the adequacy of the consumer complaint 

responses, examiners should: 

Comments 

1. Obtain and review records of recent consumer complaints 

and inquiries received by CFPB about the entity and its 

service providers. 

2. Review industry or other benchmarking complaint data 

collected by CFPB. 

3. To the extent available, obtain and review records of recent 

consumer complaints against the institution from: 

a. The prudential regulator; 

b. State regulators; 

c. State attorneys general offices or licensing and 

registration agencies; and 

d. Private or other industry sources. 

4. Request and review the institution’s policies and procedures 

for receiving, escalating, and resolving consumer complaints 

and inquiries. 

5. Request and review the record of consumer complaints and 

inquiries received by the institution for a specific recent 

period of time. 

6. Identify complaints alleging deception, unfair treatment, 

unlawful discrimination, or other significant consumer injury 

and review some or all of those complaints for handling, 

timeliness, disposition, and any prospective and retrospective 

corrective actions. 

7. Determine whether corrective action is offered or taken for 

CFPB Manual V.2 (October 2012) Template 11 
 

 

 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

any complaint resulting in a conclusion of violation of law or 

regulation. 

8. Determine whether complaints involving service providers 

or other third parties referring business to the supervised 

entity receive prompt and appropriate handling and followup by the entity. 

9. If a supervised entity maintains multiple consumer response 

centers or units, determine whether it employs a common set 

of best practices as applicable. 

10. Determine whether evaluations of consumer contacts are 

shared within the supervised entity and included in 

compliance management reporting to the Board and senior 

management and whether such information is used in 

modifying policies, procedures, training, and monitoring. 

Conclusions - Consumer Complaint Response 

Draw preliminary conclusions regarding the strength, adequacy, or weakness of the entity’s response to consumer issues and 

concerns. Consider whether: 

a. Consumer complaints and inquiries are appropriately recorded and categorized; 

b. Complaints and inquiries regarding the entity or its service providers are addressed and resolved promptly; 

c. Complaints that raise legal issues involving potential consumer harm from unfair treatment or discrimination, or other 

regulatory compliance issues, are appropriately escalated; 

d. Complaint data and individual cases drive adjustments to business practices as appropriate; 

e. Consumer complaints result in retrospective corrective action when appropriate; and 

f. Weaknesses in the compliance management system exist, based on the nature or number of substantive complaints from 

consumers. 

Confirm the preliminary conclusions by identifying business conduct areas, specific regulations, or organizational units for more 

detailed review. 

[Click& Type] 

CFPB Manual V.2 (October 2012) Template 12 
 

 

 

 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

VI. Examination Procedures - Compliance Audit 

To determine the adequacy of the compliance audit 

program, examiners should: 

Comments 

1. Request the supervised entity’s audit plans and schedules for 

the prior year, current year, and the following year. 

2. If compliance audit is performed by a third party, request and 

review the engagement letters or contracts covering the prior 

year and the current year. 

3. Determine the basis for the audit plan and schedule and 

whether reporting is to the board of directors or to an audit 

committee or other committee of the board. 

4. Request and review all compliance audit reports for a 

specified period of time, including any fair lending audit 

reports. 

5. Determine whether written audit reports identify the scope, 

sampling techniques, findings/deficiencies, 

recommendations for corrective action, and management 

responses with time frames for corrective action. 

6. Determine whether audit scopes include previous audit and 

examination findings, new requirements, new products and 

channels, and self-identified higher risk areas of the 

supervised entity’s operations. 

7. Request and review audit workpapers for a sample of audits 

covering fair lending laws and regulations; potential unfair, 

deceptive, or abusive practices; or other areas that may pose 

heightened risks to consumers. 

8. Determine whether corrective actions are tracked and any 

delay in appropriate management response or lack of 

CFPB Manual V.2 (October 2012) Template 13 
 

CFPB Manual V.2 (October 2012) Template 14 

 

CFPB Compliance Management Review 

Entity Name: Prepared by: 

Docket Number: Date: 

corrective action is escalated. 

9. Determine whether the supervised entity’s chief compliance 

officer and appropriate business unit head(s) receive copies 

of audit reports, so that adjustments can be made to 

compliance program elements in a timely manner. 

10. Review audit function structure and policies and procedures 

to ensure that the audit function, whether internal or external, 

is sufficiently independent of the business line and 

compliance management function. 

Conclusion - Compliance Audit 

Draw preliminary conclusions about the strength, adequacy, or weakness of the compliance audit. Consider whether: 

a. The audit program is sufficiently independent and reports to the board or a committee of the board; 

b. The audit program addresses compliance with all applicable Federal consumer financial laws; 

c. The schedule and coverage of audit activities is appropriate to the size of the entity, its consumer financial product offerings, 

and its manner of conducting its consumer financial products business; 

d. All appropriate compliance and business unit managers receive copies of audit reports in a timely manner; and 

e. Audit results lead to appropriate, timely corrective action. 

Confirm the preliminary conclusions by identifying areas for further review based on gaps in audit coverage or to confirm the 

accuracy of audit findings and reporting. 

[Click& Type] 
 

 

 

 

 

 

 

 

 

 

 

 

 

<office>Region 

<Addresss> 

<Phone Number> 

<Date>
 

[BOARD OF DIRECTORS / Principal(s)]
 

<Entity name>
 

<street address>
 

<city state zip>
 

Dear [Directors/Principal(s)]:
 

Pursuant to the authority of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the
 

Consumer Financial Protection Bureau (CFPB) performed a risk-focused examination of <entity name>. 

The examination began on <Month XX, 20XX>.
 

The following report summarizes the findings of our examination. Any matters of criticism, violations of
 

laws or regulations, and other matters of concern identified within this Examination Report require the
 

[Board of Directors’/principal’s] and management’s prompt attention and corrective action.
 

The comments and conclusions in this report are based on an analysis of information obtained from the
 

entity’s records and from other authoritative sources. CFPB prepared this report for supervisory purposes, 

and you should not consider it an audit report.
 

<Select one of the following paragraphs and delete the other two paragraphs. If you select the third 

paragraph, indicate when a reply is due. > 

[Please review the entire report at your next meeting and note your review in the minutes of that meeting. 

or Please review the entire report and retain written documentation confirming your review.] You need 

not prepare or send CFPB a written response to the report. 

[Please review the entire report at your next meeting, adopt any corrective actions called for, and note 

your review and actions in the minutes of that meeting. or Please review the entire report, adopt any 

corrective actions called for, and retain written confirmation confirming your review.] You need not 

prepare or send CFPB a written response to the report. 

[Please review the entire report at your next meeting. Please send us a certified copy of excerpts from 

your minutes stating that you reviewed the report, or Please review the entire report and send us written 

confirmation of your review,] and advise us of what action you took, or will take, regarding each point 

discussed in the Matters Requiring Attention section of this report. Please reply within [Click and Type 

Number of Days] days from the date of this letter. 

If you have any questions, please call me at [Click and Type phone number]. If I am unavailable, please 

call [Click and Type Name and Title of Alternate], at [Click and Type phone number]. 

/s/ 

[Click and Type: name title] 

cc: <prudential regulator> 

CFPB Manual V.2 (October 2012) Template 1 
<office>Region 

<Addresss> 

<Phone Number> 

<Date>

[BOARD OF DIRECTORS / Principal(s)]

<Entity name> 

<street address>

<city state zip>

Dear [Directors/Principal(s)]: 

Pursuant to the authority of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the

Consumer Financial Protection Bureau (CFPB) performed a risk-focused examination of <entity name>. 

The examination began on <Month XX, 20XX>. 

The following report summarizes the findings of our examination. Any matters of criticism, violations of

laws or regulations, and other matters of concern identified within this Examination Report require the 

[Board of Directors’/principal’s] and management’s prompt attention and corrective action.

The comments and conclusions in this report are based on an analysis of information obtained from the 

entity’s records and from other authoritative sources. CFPB prepared this report for supervisory purposes, 

and you should not consider it an audit report. 

<Select one of the following paragraphs and delete the other two paragraphs. If you select the third 

paragraph, indicate when a reply is due. > 

[Please review the entire report at your next meeting and note your review in the minutes of that meeting. 

or Please review the entire report and retain written documentation confirming your review.] You need 

not prepare or send CFPB a written response to the report. 

[Please review the entire report at your next meeting, adopt any corrective actions called for, and note 

your review and actions in the minutes of that meeting. or Please review the entire report, adopt any 

corrective actions called for, and retain written confirmation confirming your review.] You need not 

prepare or send CFPB a written response to the report. 

[Please review the entire report at your next meeting. Please send us a certified copy of excerpts from 

your minutes stating that you reviewed the report, or Please review the entire report and send us written 

confirmation of your review,] and advise us of what action you took, or will take, regarding each point 

discussed in the Matters Requiring Attention section of this report. Please reply within [Click and Type 

Number of Days] days from the date of this letter. 

If you have any questions, please call me at [Click and Type phone number]. If I am unavailable, please 

call [Click and Type Name and Title of Alternate], at [Click and Type phone number]. 

/s/

[Click and Type: name title] 

cc: <prudential regulator> 

CFPB Manual V.2 (October 2012) Template 1 
 

 

 

 

 

 

 

 

 

 

EXAMINATION REPORT 

Examination Start Date: [Click&type] 

Examination Cycle Ending Date: [Click&type] 

Entity name: [Click&type] 

City, State: [Click&type] 

CFPB Docket Number: [Click&type] 

CFPB Region: [Click&type] 

Entity Type: [Click&type] 

Examination Type: [Click&type] 

Subordinate and [Click&type] 

Affiliated Organizations Reviewed: 

Prohibition of Disclosure or Release 

This document is the property of the Consumer Financial Protection Bureau (CFPB), and the CFPB 

furnishes this document to the entity for its confidential use. Except as provided in 12 CFR 1070.42, the 

entity’s directors, officers, or employees may not disclose the report or any portion of it to unauthorized 

persons or organizations. Unauthorized persons or organizations include anyone not officially connected 

with the entity as an officer, director, employee, attorney, auditor, independent auditor, or parent holding 

company. 

If the entity receives a subpoena or other legal process calling for production of this document, notify the 

Regional Director and the CFPB General Counsel immediately. Advise the attorney issuing the subpoena 

and, if necessary, the court of the above prohibition and refer them to 12 CFR Part 1070. 
 

<Examination Report Template>
 

<Throughout this template, you will find instructions within angled 

brackets, “<” and “>.” Please delete the angled brackets and 

instructions before completing the report. 

General Instructions: 

The primary purpose of the report is to communicate examination findings to a supervised 

entity’s management, board of directors, or principals. The report must emphasize significant 

matters and avoid issues that do not affect or support a rating. Throughout the report, present 

information under Comments and Supporting Analysis in a well-organized and logical manner. 

Report comments should be concise, discussing major strengths and/or weaknesses to support 

the examiners’ conclusions. Limit supporting analysis to information that clearly and succinctly 

demonstrates the conclusions, and avoid including material for informational purposes that does 

not provide support for the rating or risk assessment. 

Plain Language 

Reports should follow “plain language” principles: 

•	 Identify your audience. 

•	 Write in active voice (e.g., “identify the doer”). 

•	 Use strong verbs and the simplest tense possible. 

•	 Use simple everyday words except for necessary technical terms. 

•	 Avoid jargon, excessive acronyms and abbreviations, multiple negatives, unnecessary 

qualifiers, and redundancies. 

•	 Construct short, concise sentences. 

•	 Express parallel ideas in parallel constructions (e.g., the bullets listed here each begin with a 

verb). 

Definition of Dates used in Examinations 

The following definitions ensure accurate and consistent presentation of financial data in the 

report and consistent records of examination activities. The Federal financial institution 

regulatory agencies use similar definitions. 

Examination (As Of) Date – The date of the data presented in the report. Generally, this is the 

most recent quarterly information that is available. Significant subsequent events may result in 

the presentation of more recent data. 

Examination Start Date (Examination Commenced) – The date the examination activity 

commenced. For all examinations, use the date that time was first charged to the examination. 

Examination Completion Date (Examination Concluded) – The last day of examination 

activities. 

Close (Examination Report Mail) Date – The day that CFPB mails the final report to the entity. 

Previous Examination Date – The examination start date of the prior examination. > 

Docket No. <Number> Examination Start Date: <DD/MM/YYYY> 2 
 

CFPB
 

Examination Report <Entity Name>
 

Table of Contents
 

EXAMINATION CONCLUSIONS 4 

SCOPE 

CONCLUSIONS AND COMMENTS 

RISK ASSESSMENT 

CONSUMER COMPLIANCE RATING 

MATTERS REQUIRING ATTENTION 

REVIEW AND FINDINGS 9 

ASSESSMENT OF RISKS 

COMPLIANCE MANAGEMENT REVIEW 

AREA(S) REVIEWED: <insert name or description> 

<repeat "Area(s) Reviewed" for each additional area 

reviewed> 

RECOMMENDATIONS 

COMPLIANCE WITH ENFORCEMENT ACTIONS 11 

APPENDIX 12 

EXAMINATION TEAM MEMBERS 

Docket No. <Number> Examination Start Date: <DD/MM/YYYY> 3 
 

 

CFPB
 

Examination Report <Entity Name>
 

Examination Conclusions
 

Conclusions on the findings of this examination and the results of interim monitoring and reviews. 

Scope 

<The scope should include a brief explanation of the examination activities undertaken, 

including, as applicable, the Risk Assessment, reviews for potential violations of Federal 

consumer financial law (particularly unfair, deceptive or abusive acts or practices, and 

discrimination), review of the entity’s compliance management system, or review of complaints. 

Identify the products/services and regulatory issues reviewed. Examples of Products/Services 

Reviewed: [credit cards, mortgage origination, mortgage servicing, private student lending, 

auto lending, payday lending, unsecured consumer lending, deposit-related, financial advisory 

services].> 

[Click & Type] 

Conclusions and Comments 

<The Conclusion must contain an overall conclusion, followed by a concise summary of the 

findings. The conclusion should match the tone and language of the rating definition. This 

section should include summary details or facts supporting the conclusion, including a summary 

of material deficiencies that support 3, 4, and 5 ratings. The narrative should include both 

positive and negative conclusions and be concise, constructive, and direct. The narrative 

comments do not need to cover every area reviewed during an examination. Rather, the 

comments should focus on those matters that support the overall conclusion and rating. > 

[Click & Type] 

Docket No. <Number> Examination Start Date: <DD/MM/YYYY> 4 
 

 

CFPB
 

Examination Report <Entity Name>
 

Risk Assessment 

<The results of the final Risk Assessment should be included in this section. A narrative 

explanation should be provided in the Review and Findings section of the report. The supporting 

documentation and analysis for the risk assessment findings entered below should be 

documented in the Risk Assessment template and included in the examination workpapers. The 

date used for the current examination should be the date the examination activity commenced 

(Examination Start Date). The date used for previous examinations should be the examination 

start date of the prior examination.> 

Element 

Current 

<MM/DD/YYYY> 

Preceding 

<MM/DD/YYYY> 

Inherent Risk <low, moderate, high> <low, moderate, high> 

Quality of Risk Controls and 

Mitigation 

<strong, adequate, weak> <strong, adequate, weak> 

Overall Risk to Consumers* <low, moderate, high> <low, moderate, high> 

Expected Change/Direction of Risk <increasing/decreasing/stable> 

Last Change in Direction <MM/DD/YYYY> 

<increasing/decreasing/stable> 

* The inherent risk identified in a particular business line or supervised entity, mitigated or 

amplified by the strength or weakness of the controls to address those risks. 

Docket No. <Number> Examination Start Date: <DD/MM/YYYY> 5 
 

 

 

 

 

 

 

CFPB
 

Examination Report <Entity Name>
 

Consumer Protection Compliance Rating 

<Insert the current examination rating for the regulated entity and choose the correct rating 

definition below. Ensure that the examination rating is supported in the workpapers and the 

Final Scope Summary. The procedures for determining the examination rating as well as the 

definitions for each rating are located in the “Close the Examination” section of the 

Examination Manual. The dates are the examination start dates. In the table below, if the 

previous consumer compliance examinations were conducted by other agencies, note the 

agency’s name under the rating.> 

Current 

Examination 

Previous Examinations 

(if applicable) 

<MM/DD/YYYY> <MM/DD/YYYY> <MM/DD/YYYY> 

Compliance Rating <1-5> <1-5> <1-5> 

A supervised entity with this rating <Insert rating here and choose the appropriate definition 

language below. Then delete the other ratings and definition language below. NOTE: THE 

CFPB ADOPTED THESE FFIEC-APPROVED DEFINITIONS; THEY MAY NOT BE 

EDITED.> 

“1” 

Is in a strong compliance position. Management is capable of and staff is sufficient for 

effectuating compliance. An effective compliance program, including an efficient system of 

internal procedures and controls, has been established. Changes in consumer statutes and 

regulations are promptly reflected in the institution's policies, procedures, and compliance 

training. The institution provides adequate training for its employees. If any violations are noted, 

they relate to relatively minor deficiencies in forms or practices that are easily corrected. There is 

no evidence of discriminatory acts or practices, reimbursable violations, or practices resulting in 

repeat violations. Violations and deficiencies are promptly corrected by management. As a 

result, the institution gives no cause for supervisory concern. 

“2” 

Is in a generally strong compliance position. Management is capable of administering an 

effective compliance program. Although a system of internal operating procedures and controls 

has been established to ensure compliance, violations have nonetheless occurred. These 

violations, however, involve technical aspects of the law or result from oversight on the part of 

operating personnel. Modification in the institution's compliance program and/or the 

establishment of additional review/audit procedures may eliminate many of the violations. 

Compliance training is satisfactory. There is no evidence of discriminatory acts or practices, 

reimbursable violations, or practices resulting in repeat violations. 

“3” 

Is in a less than satisfactory compliance position. It is a cause for supervisory concern and 

requires more than normal supervision to remedy deficiencies. Violations may be numerous. In 

addition, previously identified practices resulting in violations may remain uncorrected. 

Docket No. <Number> Examination Start Date: <DD/MM/YYYY> 6 
 

 

 

 

 

 

CFPB
 

Examination Report <Entity Name>
 

Overcharges, if present, involve a few consumers and are minimal in amount. There is no 

evidence of discriminatory acts or practices. Although management may have the ability to 

effectuate compliance, increased efforts are necessary. The numerous violations discovered are 

an indication that management has not devoted sufficient time and attention to consumer 

compliance. Operating procedures and controls have not proven effective and require 

strengthening. This may be accomplished by, among other things, designating a compliance 

officer and developing and implementing a comprehensive and effective compliance program. 

By identifying an institution with marginal compliance early, additional supervisory measures 

may be employed to eliminate violations and prevent further deterioration in the institution's 

less-than-satisfactory compliance position. 

“4” 

Requires close supervisory attention and monitoring to promptly correct the serious compliance 

problems disclosed. Numerous violations are present. Overcharges, if any, affect a significant 

number of consumers and involve a substantial amount of money. Often practices resulting in 

violations and cited at previous examinations remain uncorrected. Discriminatory acts or 

practices may be in evidence. Clearly, management has not exerted sufficient effort to ensure 

compliance. Its attitude may indicate a lack of interest in administering an effective compliance 

program, which may have contributed to the seriousness of the institution's compliance 

problems. Internal procedures and controls have not proven effective and are seriously deficient. 

Prompt action on the part of the supervisory agency may enable the institution to correct its 

deficiencies and improve its compliance position. 

“5” 

Is in need of the strongest supervisory attention and monitoring. It is substantially in noncompliance with the consumer statutes and regulations. Management has demonstrated its 

unwillingness or inability to operate within the scope of consumer statutes and regulations. 

Previous efforts on the part of the regulatory authority to obtain voluntary compliance have been 

unproductive. Discrimination, substantial overcharges, or practices resulting in serious repeat 

violations are present. 

<The Examiner-in-Charge (EIC) will sign the examination report. If an examiner is acting as 

the EIC for professional development purposes (EIC in training), a commissioned examiner must 

review the EIC in training’s work and sign the report.> 

/s/ <EIC signature> 

Examiner-in-Charge 

Docket No. <Number> Examination Start Date: <DD/MM/YYYY> 7 
 

CFPB
 

Examination Report <Entity Name>
 

Matters Requiring Attention 

Specific expectations and time frames for actions requiring prompt response and corrective action. 

<This section should include significant matters requiring prompt board or principal and 

management attention, corrective action, and a written response to the CFPB. There may be 

other corrective actions that do not get incorporated here because they do not require attention 

from the Board or Principal(s) nor do they require a written response to the CFPB. Those 

corrective actions should be included under Required Corrective Actions in the Review and 

Findings section. 

Communicate specific expected actions and time frames. Do not use of the term “should” when 

you require the board or principal(s) and management to take corrective action; instead, use 

“must.”> 

<Select one of the following paragraphs and delete the other.> 

This examination found no matters requiring a written response from the <board of directors or 

principals>; however, <the board or principal(s)> is responsible for the adoption and 

implementation of any corrective actions discussed in other sections of this report. 

<or> 

This examination found the following matters that the <board of directors or principals> must 

specifically address in their written response to this examination report. The <board of directors 

or principals> is also responsible for the adoption and implementation of any corrective actions 

discussed in other sections of this report. 

Matter Requiring Due Date Required Response 

Attention 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

Docket No. <Number> Examination Start Date: <DD/MM/YYYY> 8 
 

 

 

 

 

CFPB
 

Examination Report <Entity Name>
 

Review and Findings 

Assessment of Risks 

Aspects of a supervised entity’s products or operations that increase the risk of unfair, deceptive, or abusive acts 

or practices; of discrimination; or of violations of other Federal consumer financial laws (inherent risks). 

<The conclusion must contain an overall Conclusion about the Inherent Risk findings from the 

CFPB Risk Assessment and should include summary details or facts supporting the conclusion. 

Include details supporting the conclusion in the Comments and Supporting Analysis section.> 

Conclusion 

[Click&type] 

Comments and Supporting Analysis 

[Click&type] 

Compliance Management Review 

The effectiveness of the supervised entity’s strategy for identifying and managing inherent risks and the strength of 

the entity’s overall system of compliance management. 

<The conclusion must contain an overall Conclusion about the effectiveness of the supervised 

entity’s strategy for identifying and managing inherent risks to consumers and managing its 

consumer compliance responsibilities. The Conclusion section should include summary details 

or facts supporting the conclusion, including a summary of material deficiencies. Provide 

details supporting the conclusion in the Comments and Supporting Analysis section.> 

Conclusion 

[Click&type] 

Comments and Supporting Analysis 

[Click&type] 

Required Corrective Actions 

To address weaknesses in managing risks of potential unfair, deceptive, or abusive acts or practices; of 

discrimination; or of other violations of Federal consumer financial law. 

<This section identifies specific actions that management must take to resolve supervisory 

concerns, including specific time frames for completion. If there are no corrective actions for a 

particular area, just insert “N/A.” Actions requiring board or principal attention, including 

repeat deficiencies, should be included under Matters Requiring Attention in the Examination 

Conclusions section. Recommendations or ideas for management to consider should be 

provided in the Recommendations section; they should not be included under Required 

Corrective Actions.> 

[Click&type] 

Docket No. <Number> Examination Start Date: <DD/MM/YYYY> 9 
 

 

CFPB
 

Examination Report <Entity Name>
 

Area Reviewed [insert name or description] 

<The area reviewed should include findings for each specific product or service that was 

reviewed. For example, the area reviewed may be Mortgage Origination. The Conclusion, 

Comments and Supporting Analysis, and Required Corrective Actions should focus on mortgage 

origination and any statutory or regulatory issues identified for the area reviewed. The 

conclusion must contain an overall conclusion on the area reviewed and summary details or 

facts supporting the conclusion, including a summary of material deficiencies. Include details 

supporting the conclusion in the Comments and Supporting Analysis section. If no deficiencies 

exist, it should be stated and the Required Corrective Actions section should state “N/A.” This 

section (Area Reviewed, Conclusion, Comments and Supporting Analysis, and Required 

Corrective Actions) should be repeated as many times as necessary to cover the different reviews 

conducted during the examination.> 

[Click&type] 

Conclusion 

[Click&type] 

Comments and Supporting Analysis 

<If a regulatory violation is identified, include the citation for the violation, consistent with the 

format from the Supervision and Examination System.> 

[Click&type] 

Required Corrective Actions 

<This section identifies specific actions that management must take to resolve supervisory 

concerns, including specific time frames for completion. If there are no required corrective 

actions for a particular area, state “N/A”. Actions requiring board or principal attention, 

including repeat deficiencies, should be included under Matters Requiring Attention in the 

Examination Conclusions section. Recommendations or ideas for management to consider 

should be provided under the Recommendations section; they should not be included under 

Required Corrective Actions.> 

[Click&type] 

Recommendation(s) 

Suggestions to improve or strengthen currently satisfactory entity practices. 

<The section is an optional section to provide recommendations to improve or strengthen entity 

practices that are currently found to be satisfactory.> 

[Click&type] 

Docket No. <Number> Examination Start Date: <DD/MM/YYYY> 10 
 

 

CFPB
 

Examination Report <Entity Name>
 

Compliance with Supervisory or Enforcement 

Actions 

The status of the supervised entity’s compliance with consumer financial protection-related supervisory or 

enforcement actions, including any areas of non-compliance or partial compliance. 

<This section should be completed if the supervised entity has existing consumer financial 

protection-related supervisory or enforcement action(s) in place from the CFPB or the entity’s 

prudential regulator. Supervisory actions are non-public agreements such as Memoranda of 

Understanding. Enforcement Actions include public orders to Cease and Desist or to pay Civil 

Money Penalties. Use this section to document conclusions and supporting analysis as well as 

required corrective actions concerning the supervised entity’s compliance with any such actions. 

Generally, if the supervised entity has failed to comply with any requirements, this should be 

addressed as a Matter Requiring Attention. 

If there are no existing or previous consumer financial protection-related supervisory or 

enforcement action(s), insert “N/A.” > 

Conclusion 

[Click&type] 

Comments and Supporting Analysis 

[Click&type] 

Corrective Actions 

[Click&type] 

Docket No. <Number> Examination Start Date: <DD/MM/YYYY> 11 
 

CFPB
 

Examination Report <Entity Name>
 

Appendix 

CFPB Examination Team Members 

<Use this section of the report to identify all CFPB examiners who participated in the 

examination of the regulated entity.> 

The following individuals participated in this examination: 

[Click&type] 

Docket No. <Number> Examination Start Date: <DD/MM/YYYY> 12 
 

 

 

 

 

 

 

 

 

 

 

<office>Region 

<Addresss> 

<Phone Number> 

<Date>
 

[BOARD OF DIRECTORS / Sr. Manager/Principal(s)]
 

<Entity name>
 

<street address>
 

<city state zip>
 

Dear [Directors/Manager/Principal(s)]:
 

Pursuant to the authority of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the
 

Consumer Financial Protection Bureau (CFPB) performed a review of certain activities at <entity name>. 

The review began on <Month XX, 20XX>.
 

The following summarizes the findings of our review. Any matters of criticism, violations of laws or
 

regulations, and other matters of concern identified within this Supervisory Letter (Letter) require the 

[Board of Directors’/principal’s if appropriate] and management’s prompt attention and corrective action.
 

The comments and conclusions in this Letter are based on an analysis of information obtained from the
 

entity’s records and from other authoritative sources. CFPB prepared this Letter for supervisory purposes, 

and you should not consider it an audit report.
 

<Select one of the following and delete the others . If you select an option from the third paragraph, 

indicate when a reply is due. > 

[Please review the entire Letter at your next meeting and note your review in the minutes of that meeting. 

or Please review the entire Letter and retain written documentation confirming your review.] You need 

not prepare or send CFPB a written response to the Letter. 

Please review the entire Letter at your next meeting, adopt any corrective actions called for, and note your 

review and actions in the minutes of that meeting. or Please review the entire Letter, adopt any corrective 

actions called for, and retain written confirmation confirming your review.] You need not prepare or send 

CFPB a written response to the Letter. 

Please review the entire Letter at your next meeting. Please send us a certified copy of excerpts from your 

minutes stating that you reviewed the Letter, or Please review the entire Letter and send us written 

confirmation of your review,] and advise us of what action you took, or will take, regarding each point 

discussed in the Matters Requiring Attention section of this Letter. Please reply within [Click and Type 

Number of Days] days from the date of this Letter. 

If you have any questions, please call me at [Click and Type phone number]. If I am unavailable, please 

call [Click and Type Name and Title of Alternate], at [Click and Type phone number]. 

/s/ 

[Click and Type: name title] 

cc: <prudential regulator> and or <state regulator> 

CFPB Manual V.2 (October 2012) Template 1 
<office>Region 

<Addresss> 

<Phone Number> 

<Date>

[BOARD OF DIRECTORS / Sr. Manager/Principal(s)]

<Entity name> 

<street address>

<city state zip>

Dear [Directors/Manager/Principal(s)]: 

Pursuant to the authority of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the

Consumer Financial Protection Bureau (CFPB) performed a review of certain activities at <entity name>. 

The review began on <Month XX, 20XX>. 

The following summarizes the findings of our review. Any matters of criticism, violations of laws or 

regulations, and other matters of concern identified within this Supervisory Letter (Letter) require the 

[Board of Directors’/principal’s if appropriate] and management’s prompt attention and corrective action.

The comments and conclusions in this Letter are based on an analysis of information obtained from the 

entity’s records and from other authoritative sources. CFPB prepared this Letter for supervisory purposes, 

and you should not consider it an audit report.

<Select one of the following and delete the others . If you select an option from the third paragraph, 

indicate when a reply is due. > 

[Please review the entire Letter at your next meeting and note your review in the minutes of that meeting. 

or Please review the entire Letter and retain written documentation confirming your review.] You need 

not prepare or send CFPB a written response to the Letter.

Please review the entire Letter at your next meeting, adopt any corrective actions called for, and note your 

review and actions in the minutes of that meeting. or Please review the entire Letter, adopt any corrective 

actions called for, and retain written confirmation confirming your review.] You need not prepare or send 

CFPB a written response to the Letter.

Please review the entire Letter at your next meeting. Please send us a certified copy of excerpts from your 

minutes stating that you reviewed the Letter, or Please review the entire Letter and send us written 

confirmation of your review,] and advise us of what action you took, or will take, regarding each point 

discussed in the Matters Requiring Attention section of this Letter. Please reply within [Click and Type 

Number of Days] days from the date of this Letter. 

If you have any questions, please call me at [Click and Type phone number]. If I am unavailable, please 

call [Click and Type Name and Title of Alternate], at [Click and Type phone number]. 

/s/ 

[Click and Type: name title] 

cc: <prudential regulator> and or <state regulator> 

CFPB Manual V.2 (October 2012) Template 1 
 

 

 

 

 

 

 

 

 

 

 

Supervisory Letter 

Review Start Date: [Click&type] 

Examination Cycle Ending Date: [Click&type] 

Entity name: [Click&type] 

City, State: [Click&type] 

CFPB Docket Number: [Click&type] 

CFPB Region: [Click&type] 

Entity Type: [Click&type] 

Review Type: [Click&type: Target Review, Horizontal Review] 

Subordinate and [Click&type] 

Affiliated Organizations Reviewed: 

Prohibition of Disclosure or Release 

This document is the property of the Consumer Financial Protection Bureau (CFPB), and the CFPB 

furnishes this document to the entity for its confidential use. Except as provided in 12 CFR 1070.42, the 

entity’s directors, officers, or employees may not disclose the report or any portion of it to unauthorized 

persons or organizations. Unauthorized persons or organizations include anyone not officially connected 

with the entity as an officer, director, employee, attorney, auditor, independent auditor, or parent holding 

company. 

If the entity receives a subpoena or other legal process calling for production of this document, notify the 

Regional Director and the CFPB General Counsel immediately. Advise the attorney issuing the subpoena 

and, if necessary, the court of the above prohibition and refer them to 12 CFR Part 1070. 
 

 

 

 

 

 

 

 

<Supervisory Letter Template>
 

<Throughout this template, you will find instructions within angled 

brackets, “<” and “>.” Please delete the angled brackets and 

instructions before completing the report. 

General Instructions: 

The primary purpose of the Supervisory Letter (Letter) is to communicate findings from a target 

review to a supervised entity’s management, board of directors, or principals. The Letter must 

emphasize significant matters and avoid issues that do not affect the findings. Throughout the 

Letter, present information under Comments and Supporting Analysis in a well-organized and 

logical manner. Comments should be concise, discussing major strengths and/or weaknesses to 

support the examiners’ conclusions. Limit supporting analysis to information that clearly and 

succinctly demonstrates the conclusions, and avoid including material for informational 

purposes that does not provide support for the conclusion. 

This template has sections that may or may not be applicable to specific target reviews. 

Exercise judgment to expand on, duplicate, or delete any section(s) as appropriate. 

Plain Language 

The Letters should follow “plain language” principles: 

•	 Identify your audience. 

•	 Write in active voice (e.g., “identify the doer”). 

•	 Use strong verbs and the simplest tense possible. 

•	 Use simple everyday words except for necessary technical terms. 

•	 Avoid jargon, excessive acronyms and abbreviations, multiple negatives, unnecessary 

qualifiers, and redundancies. 

•	 Construct short, concise sentences. 

•	 Express parallel ideas in parallel constructions (e.g., the bullets listed here each begin with a 

verb). 

Definition of Dates used in Examinations or Reviews 

The following definitions ensure accurate and consistent presentation of financial data in the 

Letter and consistent records of supervisory activities. The Federal financial institution 

regulatory agencies use similar definitions. 

Review (As Of) Date – The date of the data presented in the Letter. Generally, this is the most 

recent quarterly information that is available. Significant subsequent events may result in the 

presentation of more recent data. 

Review Start Date (Review Commenced) – The date the supervisory activity commenced. Use 

the date that time was first charged to the supervisory activity. 

Review Completion Date (Review Concluded) – The last day of review activities. 

Close (Mail) Date – The day that CFPB mails the final Letter to the entity. 

Previous Examination or Review Date – The start date of the prior examination or review. > 

Docket Number: <Number> Review Start Date: <DD/MM/YYYY> 2 
 

 

 

CFPB
 

Supervisory Letter <Entity Name>
 

<This Table of Contents should be customized to the review that was 

conducted and the content of the Letter.> 

Table of Contents 

REVIEW CONCLUSIONS 4 

SCOPE 

CONCLUSIONS AND COMMENTS 

RISK ASSESSMENT 

MATTERS REQUIRING ATTENTION 

REVIEW AND FINDINGS 7 

ASSESSMENT OF RISKS 

COMPLIANCE MANAGEMENT REVIEW 

AREA(S) REVIEWED: <insert name or description> 

<repeat "Area(s) Reviewed" for each additional area 

reviewed> 

RECOMMENDATIONS 

COMPLIANCE WITH ENFORCEMENT ACTIONS 9 

APPENDIX 10 

REVIEW TEAM MEMBERS 

Docket Number: <Number> Review Start Date: <DD/MM/YYYY> 3 
 

CFPB
 

Supervisory Letter <Entity Name>
 

Review Conclusions
 

Conclusions on the findings of this review. 

Scope 

<The scope should include a brief explanation of the supervision activities undertaken, 

including, as applicable, the Risk Assessment, reviews for potential violations of Federal 

consumer financial law (particularly unfair, deceptive or abusive acts or practices, and 

discrimination), review of the entity’s compliance management system, or review of complaints. 

Identify the products/services and regulatory issues reviewed. Examples of Products/Services 

Reviewed: [credit cards, mortgage origination, mortgage servicing, private student lending, 

auto lending, payday lending, unsecured consumer lending, deposit-related, and financial 

advisory services].> 

[Click & Type] 

Conclusions and Comments 

<The Conclusion must contain an overall conclusion, followed by a concise summary of the 

findings. This section should include summary details or facts supporting the conclusion, 

including a summary of any material deficiencies. The narrative should include both positive 

and negative conclusions and be concise, constructive, and direct. The narrative comments do 

not need to cover every area reviewed, but should focus on those matters that support the overall 

conclusion. > 

[Click & Type] 

Docket Number: <Number> Review Start Date: <DD/MM/YYYY> 4 
 

 

 

CFPB
 

Supervisory Letter <Entity Name>
 

Risk Assessment 

<Including the results of a risk assessment is optional; include the results only if appropriate to 

the situation. If it is, a narrative explanation should be provided in the Review and Findings 

section of the Letter. The supporting documentation and analysis for the risk assessment 

findings entered below should be documented in the Risk Assessment template and included in 

the review workpapers. The date used for the current review should be the date the supervisory 

activity commenced. The date used for previous examinations or reviews should be the start date 

of the prior examination or review.> 

Element 

Current 

<MM/DD/YYYY> 

Preceding 

<MM/DD/YYYY> 

Inherent Risk <low, moderate, high> <low, moderate, high> 

Quality of Risk Controls and 

Mitigation 

<strong, adequate, weak> <strong, adequate, weak> 

Overall Risk to Consumers* <low, moderate, high> <low, moderate, high> 

Expected Change/Direction of Risk <increasing/decreasing/stable> 

Last Change in Direction <MM/DD/YYYY> 

<increasing/decreasing/stable> 

* The inherent risk identified in a particular business line or supervised entity, mitigated or 

amplified by the strength or weakness of the controls to address those risks. 

<The Examiner-in-Charge (EIC) will sign the supervisory letter. If an examiner is acting as the 

EIC for professional development purposes (EIC in training), a commissioned examiner must 

review the EIC in training’s work and sign the letter.> 

/s/ <EIC signature> 

Examiner-in-Charge 

Docket Number: <Number> Review Start Date: <DD/MM/YYYY> 5 
 

 

 

CFPB
 

Supervisory Letter <Entity Name>
 

Matters Requiring Attention 

Specific expectations and time frames for actions requiring prompt response and corrective action. 

<This section should include significant matters requiring prompt board or principal, and 

management attention, corrective action, and a written response to the CFPB. There may be 

other corrective actions that do not get incorporated here because they do not require attention 

from the Board or Principal(s) nor do they require a written response to the CFPB. Those 

corrective actions should be included under Required Corrective Actions in the Review and 

Findings section. 

Communicate specific expected actions and time frames. Do not use of the term “should” when 

you require the board or principal(s) and management to take corrective action; instead, use 

“must.”> 

<Select one of the following paragraphs and delete the other.> 

This review found no matters requiring a written response from the <Board of Directors or 

principals>; however, <the Board or principal(s)> is responsible for the adoption and 

implementation of any corrective actions discussed in other sections of this Letter. 

[or] 

This review found the following matters that the <Board of Directors or principals> must 

specifically address in their written response to this Letter. The <Board of directors or 

principals> is also responsible for the adoption and implementation of any corrective actions 

discussed in other sections of this Letter. 

Matter Requiring Due Date Required Response 

Attention 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

[Click&type] [Click&type] • [Click&type] 

Docket Number: <Number> Review Start Date: <DD/MM/YYYY> 6 
 

CFPB
 

Supervisory Letter <Entity Name>
 

Review and Findings 

Assessment of Risks 

Aspects of a supervised entity’s products or operations that increase the risk of unfair, deceptive, or abusive acts 

or practice; of discrimination; or of violations of other Federal consumer financial laws (inherent risks). 

<Include this section only if a CFPB Risk Assessment was developed as part of the review. If it 

is included, provide an overall Conclusion about the Inherent Risk findings from the CFPB Risk 

Assessment with a brief summary of details or facts supporting the conclusion. Include details 

supporting the conclusion in the Comments and Supporting Analysis section.> 

Conclusion 

[Click&type] 

Comments and Supporting Analysis 

[Click&type] 

Compliance Management Review 

The effectiveness of the supervised entity’s strategy for identifying and managing inherent risks and the strength of 

the entity’s overall system of compliance management. 

<Include this section only if applicable to the particular review undertaken. If included, provide 

an overall Conclusion about the effectiveness of the supervised entity’s strategy for identifying 

and managing inherent risks to consumers and managing its consumer compliance 

responsibilities. The Conclusion section should include summary details or facts supporting the 

conclusion, including a summary of material deficiencies. Provide details supporting the 

conclusion in the Comments and Supporting Analysis section.> 

Conclusion 

[Click&type] 

Comments and Supporting Analysis 

[Click&type] 

Required Corrective Actions 

To address weaknesses in managing risks of potential unfair, deceptive, or abusive acts or practices; of 

discrimination; or of other violations of Federal consumer financial law. 

<This section identifies specific actions that management must take to resolve supervisory 

concerns, including specific time frames for completion. If there are no corrective actions for a 

particular area, just insert “N/A.” Actions requiring board or principal attention, including 

repeat deficiencies, should be included under Matters Requiring Attention in the Review 

Conclusions section. Recommendations or ideas for management should be provided in the 

Recommendations section; they should not be included under Required Corrective Actions.> 

[Click&type] 

Docket Number: <Number> Review Start Date: <DD/MM/YYYY> 7 
 

CFPB
 

Supervisory Letter <Entity Name>
 

Area Reviewed: [insert name or description] 

<The area reviewed should include findings for each specific product or service that was 

reviewed. For example, the area reviewed may be Mortgage Origination. The Conclusion, 

Comments and Supporting Analysis, and Required Corrective Actions should focus on mortgage 

origination and any statutory or regulatory issues identified for the area reviewed. The 

conclusion must contain an overall conclusion on the area reviewed and summary details or 

facts supporting the conclusion, including a summary of material deficiencies. Include details 

supporting the conclusion in the Comments and Supporting Analysis section. If no deficiencies 

exist, it should be stated and the Required Corrective Actions section should state “N/A.” This 

section (Area Reviewed, Conclusion, Comments and Supporting Analysis, and Required 

Corrective Actions) should be repeated as many times as necessary to cover the different reviews 

conducted during the supervisory activity.> 

[Click & Type] 

Conclusion 

[Click & Type] 

Comments and Supporting Analysis 

<If a regulatory violation is identified, include the citation for the violation, consistent with the 

format from the Supervision and Examination System.> 

[Click & Type] 

Required Corrective Actions 

<This section identifies specific actions that management must take to resolve supervisory 

concerns, including specific time frames for completion. If there are no required corrective 

actions for a particular area, state “N/A”. Actions requiring board or principal attention, 

including repeat deficiencies, should be included under Matters Requiring Attention in the 

Review Conclusions section. Recommendations or ideas for management to consider should be 

provided under the Recommendations section; they should not be included under Required 

Corrective Actions.> 

[Click & Type] 

Recommendation(s) 

Suggestions to improve or strengthen currently satisfactory entity practices. 

<The section is an optional section to provide recommendations to improve or strengthen entity 

practices that are currently satisfactory.> 

[Click & Type] 

Docket Number: <Number> Review Start Date: <DD/MM/YYYY> 8 
 

CFPB
 

Supervisory Letter <Entity Name>
 

Compliance with Supervisory or Enforcement 

Actions 

The status of the supervised entity’s compliance with consumer financial protection-related supervisory or 

enforcement actions, including any areas of non-compliance or partial compliance. 

<This section should be completed if the supervised entity has existing consumer financial 

protection-related supervisory or enforcement action(s) in place from the CFPB or the entity’s 

prudential regulator, and compliance with the action(s) was reviewed during the supervisory 

activity that is the subject of the Letter. Supervisory actions are non-public agreements such as 

Memoranda of Understanding. Enforcement Actions include public orders to Cease and Desist 

or to pay Civil Money Penalties. Use this section to document conclusions and supporting 

analysis as well as required corrective actions concerning the supervised entity’s compliance 

with any such actions. Generally, if the supervised entity has failed to comply with any 

requirements, this should be addressed as a Matter Requiring Attention. 

If there are outstanding consumer financial protection-related supervisory or enforcement 

action(s) but compliance with them was not reviewed, state that in the Conclusion section. 

If there are no existing or previous consumer financial protection-related supervisory or 

enforcement action(s), insert “N/A.” > 

Conclusion 

[Click & Type] 

Comments and Supporting Analysis 

[Click & Type] 

Corrective Actions 

[Click & Type] 

Docket Number: <Number> Review Start Date: <DD/MM/YYYY> 9 
 

 

 

CFPB
 

Supervisory Letter <Entity Name>
 

Appendix 

CFPB Review Team Members 

<Use this section of the Letter to identify all CFPB examiners who participated in the review of 

the regulated entity.> 

The following individuals participated in this review: 

[Click & Type] 

Docket Number: <Number> Review Start Date: <DD/MM/YYYY> 10