Compliance Blog

Welcome to my inaugural blogpost as a Regulatory Compliance Counsel for NAFCU!

I joined NAFCU last month and managed to work in the office for 4 whole days before being advised to practice social distancing and work from home. Learning the ins-and-outs of this new job from the confines of my home – while also dealing with two children under the age of 4 – has been, well… interesting. I look forward to working on the NAFCU Compliance Blog in the years to come, hopefully one day from an actual office with other grownups.  

I’ve decided to focus my first blog post on some questions that credit unions may have regarding various exceptions to the periodic statement requirements in Regulation Z. Enjoy!

What is a Periodic Statement?

As I’m sure you all know, Regulation Z requires credit unions to provide periodic statements for certain credit accounts. These are the account statements for a member’s credit card, HELOC, mortgage, or other credit accounts, except for non-home secured closed-end loans, such as car loans, since Regulation Z does not require statements for these accounts. Regulation Z lays out specific requirements for periodic statements, including what information must be contained within them and timing requirements for when they must be provided to the member. For an in-depth discussion of the various periodic statement requirements for different types of credit, see this previous post in the Compliance Blog and check out this post for more information on the timing requirements.

Does a credit union need to send periodic statements while a loan is in forbearance?

The NAFCU Compliance team has received this question from a few members recently, due to the provisions in the CARES Act that require forbearance for federally-backed mortgages and state laws requiring forbearance on other loans. The CARES Act itself and agency guidance regarding the coronavirus pandemic do not address this issue, so the answer will depend on the normal rules for periodic statements.

Regulation Z does not provide any blanket exception for mortgages in forbearance, but the rule does permit certain modifications to the contents. The staff commentary to Section 1026.41 addresses the contents of a periodic statement for a mortgage for which the borrower has agreed to a temporary loss mitigation program, which may include forbearance. Comment 2 to 1026.41(d)(1) states that “[i]f the consumer has agreed to a temporary loss mitigation program, the amount due… may identify either the payment due under the temporary loss mitigation program or the amount due according to the loan contract.” Additionally, comment 2 to 1026.41(d)(2) notes that the periodic statement’s “explanation of the amount due” must include both the amount due under the mortgage contract, as well as the amount due under the temporary loss mitigation program. The comment also requires that the periodic statement “include an explanation that the amount due is being disclosed as a different amount because of the temporary loss mitigation program.”

When taken together, these provisions require credit unions to continue to send periodic statements for mortgage accounts that are in forbearance, but allow the credit union to avoid confusing the member by addressing the repayment terms of the forbearance in the periodic statement’s discussion of the amount due. Regulation Z and the staff commentary allow credit unions to list the amount due as zero dollars (if no payment is required), and then use the “explanation of the amount due” section to list the amount that would typically be due and explain that no payment is currently due because of the forbearance.

For open-end credit, Regulation Z and the staff commentary do not provide any explicit exceptions for loans in forbearance, deferment, or other accommodations for open-end lines of credit.

Are there other exceptions to the periodic statement requirement for mortgages?

Under Section 1026.41(e), periodic statements will not be required for the following:

• Reverse mortgages;
• Transactions secured by the member’s interest in timeshare plans;
• Use of a coupon book that contains the information required in the periodic statement;
• “Small servicers” as further explained in this NAFCU Compliance Monitor article;
• When the member is involved in certain bankruptcy proceedings as discussed in this NAFCU Compliance Monitor article; and
• Mortgages that have been charged-off as described in this previous post in the Compliance Blog.

Are there other exceptions to the periodic statement requirements for open-end credit?

Section 1026.5(b)(2)(i) provides some exceptions to the periodic statement requirement for open-end credit:

• When delinquency proceedings (such as a court action) have been instituted;
• When the credit union deems the account to be “uncollectible”; and
• When the account has been charged-off as discussed in greater detail in this previous post in the Compliance Blog.

The staff commentary to Section 1026.5(b)(2) notes that merely assigning the debt to a debt collector does not qualify as instituting “delinquency proceedings” for purposes of that exception. The staff commentary also notes a credit union must completely cease attempts to collect the debt, whether directly or through a debt collector, to trigger the “uncollectible” exception.

Do I need to continue sending periodic statements if they are returned as undelivered?

Finally, Regulation Z does provide some relief when a credit union sends a periodic statement, only to have it returned as “undelivered.” For open-end credit, the staff commentary to Section 1026.5(b)(2) notes that a credit union can stop sending periodic statements if a periodic statement is returned as undelivered. However, the credit union must resume sending the periodic statements if a new address is provided within a reasonable time, such as at least 20 days before the end of the cycle.

Notably, the staff commentary for Section 1026.41 – regarding periodic statements for mortgages – does not address this question so no similar exception exists for mortgage statements.