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Ability to Repay and Qualified Mortgage

What is excluded from the QM points and fees calculation?

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Question: What is excluded from the QM points and fees calculation?
Answer: In general, the following items are excluded from the points and fees calculation for a QM loan: 
  • Interest fees or the time-price differential;
  • FHA Upfront Mortgages Insurance Premiums (UFMIP) and annual Mortgage Insurance Premiums (MIPs); 
  • USDA Guaranty fees;
  • VA Funding fees;
  • Monthly private mortgage insurance (PMI). The portion of upfront PMI that does not exceed the current FHA upfront MIP may also be excluded if the premium is refundable on a prorated basis and a refund is automatically issued upon loan satisfaction. 
  • Bona fide third-party fees only if they are not retained by the creditor, broker, an individual LO, or affiliate of either;
  • Real estate related fees if reasonable in amount and not paid directly or indirectly to a creditor or creditor’s affiliate;
  • Up to two bona-fide discount points (as defined under the ATR/QM Rule) may be excluded if the interest rate before the discount does not exceed the APOR for a comparable transaction by more than 1% point; and
  • Up to 1 bona fide discount point if the interest rate before the discount does not exceed the APOR for a comparable transaction by more than 2 points.

What’s included in the QM points and fees calculation?

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Question: What’s included in the QM points and fees calculation?
Answer: In general, for a Qualified Mortgage (QM), the following items are included in the points and fees calculation: 
  • Finance charges unless specifically excluded from the QM points and fees, such as origination fees, and discount points;
  • Real estate related fees that are unreasonable or that are paid to a creditor or creditor’s affiliate;
  • Compensation paid by a consumer or creditor to a loan originator/mortgage broker;
  • PMI premiums that either exceed the FHA premium or are not required to be refunded when the loan is paid in full; 
  • Loan-Level Price Adjustments (LLPAs); 
  • Maximum prepayment penalty;
  • Premiums for credit insurance; credit property insurance; other life, accident, health or loss-of-income insurance where the creditor is beneficiary; or debt cancellation or suspension coverage payments.

What are the points and fees threshold for a QM?

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Question: What are the points and fees threshold for a QM?
Answer: The points and fees threshold is adjusted annually by the Consumer Financial Protection Bureau (CFPB). For the year 2020, the points and fees thresholds are as follows:
Loan Amount Points and Fees Limit
Equal to or greater than $107,747 3% of the total loan amount
For loans between $64,648 and $107,746 $3,232
For loans between $21,549 and $64,647 5% of the total loan amount
For loans between $13,468 and $21,548 $1,077
Less than $13,468 8% of the total loan amount

What is a Qualified Mortgage (QM)?

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Question: What is a Qualified Mortgage (QM)?
Answer: A qualified mortgage (QM) is a type of loan that has more stable features that help make it more likely for a borrower to pay their mortgage loan. If a lender provides a QM loan to a borrower, then it is assumed that the lender has met the ATR requirements. A QM usually include the following features:
  1. Prohibition on certain risky features such as interest-only loans, negative amortization, balloon payments, and loan terms longer than 30 years;
  2. Limitation on debt-to-income ratio; and
  3. Limitation on certain upfront “points and fees”.

What is Ability-to- Repay Rule (ATR) and how does it affect brokers?

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Question: What is Ability-to- Repay Rule (ATR) and how does it affect brokers?
Answer: The Ability-to-Repay rule is the requirement that a lender must make a reasonable and good faith determination prior to giving a loan that the borrower can pay back the mortgage loan. It’s important for mortgage brokers to understand the ATR rule so that you can educate your borrowers on these requirements and proactively obtain appropriate documentation needed for a lender to approve a loan. Under the rule, lenders must consider and verify, at a minimum, the following 8 underwriting factors:
  1. Current or reasonably expected income or assets that the consumer will rely on to repay the loan;
  2. Current employment status;
  3. Monthly mortgage payment for the new loan, calculated by using the introductory or fully indexed rate, whichever is higher, and monthly, fully-amortizing payments that are substantially equal;
  4. Monthly payment on any simultaneous loans secured by the same property;
  5. Monthly payments for property taxes and insurance and other costs, such as HOA dues or ground rent, etc.;
  6. Debts, alimony, and child-support obligations;
  7. Monthly debt-to-income ratio or residual income, that is calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income; and
  8. Credit history.

We are open for business on Columbus Day. Can I include that day as a business day when sending the Closing Disclosure?

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Question: We are open for business on Columbus Day. Can I include that day as a business day when sending the Closing Disclosure?
Answer: No. TILA §1026.2 states that since Columbus Day is a legal public holiday as defined in 5 U.S.C. 6103(a), it does not count as a business day when calculating the Closing Disclosure delivery, despite the fact that your office may be open.

Anti-Money Laundering Rule

Must a SAR and the circumstances surrounding the SAR be kept confidential?

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Question: Must a SAR and the circumstances surrounding the SAR be kept confidential?
Answer: In order for the government to be effective in combatting money laundering and other financial crimes, confidentiality is vital. The person under investigation should never be alerted about the pending SAR, nor should anyone else involved in the suspicious activity. In addition, no outside groups should be informed, such as the real estate agent or media.

Does the board have to appoint the AML officer?

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Question: Does the board have to appoint the AML officer?
Answer: Yes, the board of directors or senior management must designate a person to oversee the AML program (e.g. BSA Officer or AML Officer). Federal and state examiners may ask for evidence that this has occurred such as a corporate resolution or meeting minutes approving the appointment.

How do you file a Suspicious Activity Report (SAR)?

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Question: How do you file a Suspicious Activity Report (SAR)?
Answer: Once you have determined that a suspicious activity report (SAR) should be filed, the report should be completed through FinCEN’s website. You can gain access to file a SAR, review FAQs and other important information at https://bsaefiling.fincen.treas.gov/main.html.

What is a Suspicious Activity Report (SAR) and what is reported?

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Question: What is a Suspicious Activity Report (SAR) and what is reported?
Answer: A Suspicious Activity Report (SAR) is a form that is completed online and filed directly with FinCEN. A SAR must be filed within 30 days of the initial detection. A SAR must be filed for transactions that are attempted or conducted through a financial institution involving or aggregating at least $5,000 if the mortgage broker knows, suspects or has reason to suspect that the transaction meets on of the following criteria:
  • It involves funds or is intended to disguise or hide funds derived from criminal activity
  • It is designed to evade any BSA requirement
  • It has no apparent lawful purpose, is not of a type in which the customer would reasonably be expected to engage in, and the mortgage broker knows of no reasonable explanation, or
  • It involves the use of the mortgage broker or lender to facilitate criminal activity. This could also include transactions involving fraud or transactions in which legally-derived funds are used for illegal activity.
The SAR and any supporting documentation must be retained by the mortgage broker for 5 years after filing the SAR. Disclosing a SAR or any information that would reveal the existence of a SAR is strictly prohibited.

How often does an independent audit of the AML Program have to be completed?

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Question: How often does an independent audit of the AML Program have to be completed?
Answer: An independent audit of the AML Program should be completed every 12-24 months depending on the company’s activities and level of AML risk.

How often is Anti-Money Laundering (AML) training required?

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Question: How often is Anti-Money Laundering (AML) training required?
Answer: AML training should be provided to appropriate personnel at least on an annual basis. In addition, new employees should receive AML training when they are hired. Training materials, dates, and attendance records must be documented and retained.

What are the components of an AML Program?

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Question: What are the components of an AML Program?
Answer: In general, an AML Program must include the following requirements:
  • Oversight by the board of directors and/or senior management
  • Naming and appointment of a BSA or AML compliance officer by the board or senior management
  • Creating and Implementing policies and procedures for detecting, investigating, preventing, and reporting suspicious activity (i.e. filing a SAR), as well as retaining records of such.
  • Providing AML and red flags training to employees at time of hire and then annually, at a minimum. 
  • Independent audit
  • Conducting an independent audit of the company’s AML program on a periodic basis depending on the company’s AML risk and activities.

What is the Bank Secrecy Act (aka anti-money laundering law) and how does it affect mortgage brokers?

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Question: What is the Bank Secrecy Act (aka anti-money laundering law) and how does it affect mortgage brokers?
Answer: The Bank Secrecy Act (BSA), also referred to the anti-money laundering (AML) law, requires financial institutions (including mortgage brokers) to implement an AML program to assist the U.S. government to detect and report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The Financial Crimes Enforcement Network (FinCEN) is the bureau of the Treasury Department that oversees the law. You can find additional information at www.fincen.gov.

We are open for business on Columbus Day. Can I include that day as a business day when sending the Closing Disclosure?

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Question: We are open for business on Columbus Day. Can I include that day as a business day when sending the Closing Disclosure?
Answer: No. TILA §1026.2 states that since Columbus Day is a legal public holiday as defined in 5 U.S.C. 6103(a), it does not count as a business day when calculating the Closing Disclosure delivery, despite the fact that your office may be open.

I am about to issue a Loan Estimate and am unsure about disclosing the flood insurance. Can flood insurance be included with homeowner’s insurance and disclosed as one number, or do I need to break out the two charges?

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Question: I am about to issue a Loan Estimate and am unsure about disclosing the flood insurance. Can flood insurance be included with homeowner’s insurance and disclosed as one number, or do I need to break out the two charges?
Answer:

TILA §1026.37(g)(2) states that flood insurance premiums should be disclosed separately from homeowner’s insurance premiums, so you should list these items separately.

Appraiser Independence

Can an loan originator or sales staff select or hire the appraiser?

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Question: Can an loan originator or sales staff select or hire the appraiser?
Answer: Under AIR, a lender or any third party authorized by the Lender (including, but not limited to, appraisal companies, appraisal management companies, and Correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender cannot accept any appraisal report completed by an appraiser that is selected, retained, or compensated in any manner by any other third party, including Mortgage Brokers and real estate agents.

What are the Appraisal Independence Requirements (AIR)?

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Question: What are the Appraisal Independence Requirements (AIR)?
Answer: The Appraisal Independence Requirements (AIR) are important protections for home buyers and the housing market. These safeguards require appraisers to be licensed or certified by the state where the appraised property is located. In addition, the safeguards set up rules to prevent parties with a financial interest from selecting, retaining, and improperly influencing appraisers for a related mortgage loan.

We are open for business on Columbus Day. Can I include that day as a business day when sending the Closing Disclosure?

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Question: We are open for business on Columbus Day. Can I include that day as a business day when sending the Closing Disclosure?
Answer: No. TILA §1026.2 states that since Columbus Day is a legal public holiday as defined in 5 U.S.C. 6103(a), it does not count as a business day when calculating the Closing Disclosure delivery, despite the fact that your office may be open.

I am about to issue a Loan Estimate and am unsure about disclosing the flood insurance. Can flood insurance be included with homeowner’s insurance and disclosed as one number, or do I need to break out the two charges?

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Question: I am about to issue a Loan Estimate and am unsure about disclosing the flood insurance. Can flood insurance be included with homeowner’s insurance and disclosed as one number, or do I need to break out the two charges?
Answer:

TILA §1026.37(g)(2) states that flood insurance premiums should be disclosed separately from homeowner’s insurance premiums, so you should list these items separately.

Demographic Information on the Loan Application

When an applicant or co-applicant does not wish to provide the demographic information, is a broker still required to complete the information?

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Question: When an applicant or co-applicant does not wish to provide the demographic information, is a broker still required to complete the information?
Answer: If an applicant chooses not to provide the demographic information and the application was made in person, federal regulations require the broker to note the applicant’s ethnicity, race, and sex on the basis of visual observation or surname. If the application was not taken in person (for example, it was taken by phone or online), then the broker should not mark the demographic information if it wasn’t provided by the applicant.

Is an applicant or co-applicant required to complete the demographic information?

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Question: Is an applicant or co-applicant required to complete the demographic information?
Answer: Applicants are not required to complete this information, but they are encouraged to do so. If an applicant does not wish to provide this information for a particular section, then they should mark “I do not wish to provide this information.”

On the loan application, what is the purpose of collecting the demographic information?

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Question: On the loan application, what is the purpose of collecting the demographic information?
Answer: The purpose of collecting the demographic information of the applicant and co-applicant is to ensure that all applicants are treated fairly and that housing needs of the community are being met.

We are open for business on Columbus Day. Can I include that day as a business day when sending the Closing Disclosure?

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Question: We are open for business on Columbus Day. Can I include that day as a business day when sending the Closing Disclosure?
Answer: No. TILA §1026.2 states that since Columbus Day is a legal public holiday as defined in 5 U.S.C. 6103(a), it does not count as a business day when calculating the Closing Disclosure delivery, despite the fact that your office may be open.

E-Sign Act

What are the requirements for obtaining consent to provide documents to consumers electronically?

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Question: What are the requirements for obtaining consent to provide documents to consumers electronically?
Answer: In general, the E-Sign Act requires that prior to obtaining consent a consumer must be provided with:
  • Any right or option to have the information provided in paper and the right to withdraw consent and any conditions to do so;
  • Whether the consent applies to only the particular transaction or to certain categories of records that may be provided during the loan process;
  • Description of procedures to withdraw consent and update contact information to received electronic documents;
  • Description of how the consumer may still request a paper copy and whether a fee will be charged; and
  • A statement of the hardware and software requirements for access to and retention of the electronic documents. 
In addition, if the consumer consents electronically, it must be in a manner that can demonstrate the consumer can access the information in the electronic format.  The regulation also requires notification to consumers if there is a change in hardware or software requirements to access the consumer’s electronic records.

What is the E-Sign Act?

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Question: What is the E-Sign Act?
Answer: The Electronic Signatures in Global and National Commerce Act (E-Sign Act) allows electronic documents to be used, if the consumer affirmatively consents to receiving documents electronically and has not withdrawn such consent, when information is required by law must be provided in writing to a consumer. The E-Sign Act sets out various requirements that must be met prior to obtaining consent. If these requirements are not met or the consumer does not consent, the information cannot be provided electronically.

Equal Credit Opportunity Act

What does a broker do with regard to an adverse action notice when an application is submitted to multiple lenders?

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Question: What does a broker do with regard to an adverse action notice when an application is submitted to multiple lenders?
Answer: When a lender denies an application, the lender may require the broker to provide the adverse action notice to the loan applicants in accordance with the requirements under the Equal Credit Opportunity Act (ECOA).  Under ECOA, when an application is made on behalf of an applicant by a mortgage broker to more than one lender (as an example, let’s say 3 lenders) and 2 of the lenders deny the application but the applicant uses credit offered by 1 of the lenders, then the adverse action notice does not need to be given to the applicant by the 2 lenders that denied the application.  However, if all 3 lenders deny the application and no credit is offered or if the applicant does not expressly accept or use the credit offered, an adverse action must be timely provided from each lender to the applicant directly or through the mortgage broker. The mortgage broker may give the applicant a copy of each adverse action notice from each lender or can give one adverse action notice on behalf of the lenders. If one adverse action notice is given, the notice must contain the name and address of each lender and must either disclose the applicant's right to a statement of specific reasons within 30 days or give the primary reasons each lender relied upon in taking the adverse action - clearly indicating which reasons relate to which lender. In addition, if an adverse action is being provided to an applicant on behalf of several lenders and the lenders are under the jurisdiction of different Federal enforcement agencies, disclosure of one of the agencies on the notice will suffice.

Must an adverse action notice be provided when a consumer doesn’t qualify for a loan but is simply inquiring about possible loan options/terms and does not submit a full application?

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Question: Must an adverse action notice be provided when a consumer doesn’t qualify for a loan but is simply inquiring about possible loan options/terms and does not submit a full application?
Answer: A broker is encouraged to provide consumers with information about loan terms when a consumer is inquiring about them. However, under ECOA, if in giving information to the consumer the broker also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the broker has treated the inquiry or prequalification request as an application and must then provide an adverse action notice to the consumer. Whether the inquiry or prequalification request becomes an application depends on how the broker responds to the consumer, not on what the consumer says or asks.

How must an adverse action notice be given and what is contained in the notice?

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Question: How must an adverse action notice be given and what is contained in the notice?
Answer: An adverse action notice (aka statement of denial) must be in writing and must contain:
  • a statement of the action taken; 
  • the name and address of the creditor (or broker if the broker is providing the notice); 
  • a specific statement that discrimination is prohibited based on certain characteristics of the applicant (verbiage must be substantially similar to the regulation); 
  • the name and address of the Federal agency that administers compliance with respect to the creditor; and either:
    • A statement of specific reasons for the action taken; or
    • A disclosure of the applicant's right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the notification. The disclosure shall include the name, address, and telephone number of the person or office from which the statement of reasons can be obtained. If the creditor/broker chooses to provide the reasons orally, the creditor/broker 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.

What is an adverse action notice?

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Question: What is an adverse action notice?
Answer: An adverse action notice (aka statement of denial), is a disclosure provided to an applicant when a lender or broker cannot grant credit in the amount or on the terms requested in an application unless a counteroffer is made to grant credit in a different amount or on other terms and the applicant uses or expressly accepts the credit offered.

When must a notice of action taken be provided to a consumer under ECOA?

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Question: When must a notice of action taken be provided to a consumer under ECOA?
Answer: Under ECOA, the consumer shall be notified of action taken within the following timeframes:
  1. Within 30 days after receiving a completed application concerning the approval of, counteroffer to, or adverse action on the application;
  2. Within 30 days after taking adverse action on an incomplete application, unless a notice of incomplete application is provided in accordance with ECOA’s requirements;
  3. within 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered.

What is the Equal Credit Opportunity Act (ECOA)?

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Question: What is the Equal Credit Opportunity Act (ECOA)?
Answer: The Equal Credit Opportunity Act (ECOA) is a federal law that is intended to protect consumers who are trying to obtain credit from being discriminated against, based on any of the reasons below.     
  • Race
  • Color
  • Religion
  • National origin (the birth country of the consumer or the consumer’s ancestors)
  • Sex (including gender)
  • Marital status
  • Age (the applicant must be old enough to enter into a contract)
  • Receiving money from any public assistance program, such as Social Security Disability Insurance or the Supplemental Nutrition Assistance Program
  • Exercising of the consumer’s rights under certain consumer protection laws
In addition, ECOA also requires a lender or broker provide notice to the consumer with specific time frames when action is taken on the consumer’s application.

TILA-RESPA Integrated Disclosures (TRID) Rule

When should the Your Home Loan Toolkit be provided to an applicant?

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Question: When should the Your Home Loan Toolkit be provided to an applicant?
Answer: Your Home Loan Toolkit must be provided by the broker or lender within 3 days of receiving an application (6 TRID Rule items) for a purchase transaction.

When and who is required to provide the Loan Estimate?

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Question: When and who is required to provide the Loan Estimate?
Answer: If a mortgage broker receives a consumer's application, either the lender or the mortgage broker must provide the Loan Estimate (LE) within 3 days of receiving an application (6 TRID Rule items). If the mortgage broker provides the LE, it must comply with all relevant requirements.

Under the TRID Rule, what constitutes an application?

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Question: Under the TRID Rule, what constitutes an application?
Answer: An application under the TRID Rule constitutes receipt of the following 6 items: 
  • Borrower name
  • Borrower Social Security Number
  • Borrower Income
  • Property Address
  • Estimated Property Value
  • Loan Amount

Can a credit report fee, appraisal fee, or other fee be collected prior to closing?

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Question: Can a credit report fee, appraisal fee, or other fee be collected prior to closing?
Answer: TILA-RESPA Integrated Disclosures (TRID) Rule prohibits collecting or imposing a fee, other than a credit report, from a consumer before the consumer has received the Loan Estimate and indicated an intent to proceed with the mortgage transaction. The TRID Rule considers a fee to be imposed upon the consumer if a consumer is required to provide a payment method, even if payment is actually made at a later time.  In addition, certain States may require specific disclosures before collecting a fee from a consumer.

I am about to issue a Loan Estimate and am unsure about disclosing the flood insurance. Can flood insurance be included with homeowner’s insurance and disclosed as one number, or do I need to break out the two charges?

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Question: I am about to issue a Loan Estimate and am unsure about disclosing the flood insurance. Can flood insurance be included with homeowner’s insurance and disclosed as one number, or do I need to break out the two charges?
Answer:

TILA §1026.37(g)(2) states that flood insurance premiums should be disclosed separately from homeowner’s insurance premiums, so you should list these items separately.

UDAAP

What is the definition of a deceptive act or practice under UDAAP?

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Question: What is the definition of a deceptive act or practice under UDAAP?
Answer: In general, an act or practice is deceptive when: 
  • the act or practice misleads or is likely to mislead the consumer; 
  • the consumer’s interpretation is reasonable under the circumstances; and 
  • the misleading act or practice is material.

What is the definition of an abusive act or practice under UDAAP?

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Question: What is the definition of an abusive act or practice under UDAAP?
Answer: In general, an act or practice is abusive when it: 
  • 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 a consumer’s lack of understanding of the material risks, costs, or conditions of the product or service; a consumer’s inability to protect his or her interests in selecting or using a consumer financial product or service; or a consumer’s reasonable reliance on a covered person to act in his or her interests.

What is the definition of an unfair act or practice under UDAAP?

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Question: What is the definition of an unfair act or practice under UDAAP?
Answer: In general, an act or practice is unfair when: 
  • it causes or is likely to cause substantial injury to consumers; 
  • the injury is not reasonably avoidable by consumers; and 
  • the injury is not outweighed by countervailing benefits to consumers or to competition.

What is UDAAP?

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Question: What is UDAAP?
Answer: UDAAP is an acronym that refers to unfair, deceptive, or abusive acts or practices in connection with consumer financial products and services. Each word in the UDAAP acronym has a specific definition and carries specific requirements. Examiners will review products, services, marketing materials, disclosures, etc. to identify any UDAAP risks of harm to consumers. Examiners will also review products that combine features and terms in a way that can increase the consumer to have difficulty understanding the overall costs or risks of the product and any associated potential harm to the consumer.