Are Mobile Homes ‘Permanent’ Under Federal Flood Regulations?

Q: My bank would like to make loans secured by manufactured or mobile homes that will temporarily house disaster relief workers. The intent is for the structures to be easily moveable so they can be transported to the location of the disaster. Must the bank obtain flood zone certifications and otherwise comply with federal flood regulations?

A: No. The definition of “mobile home” in federal flood regulations (see 12 CFR §§22.2(g), 208.25(b)(6), and 339.2) includes such structures that are “on a permanent foundation.”

Q: Due to a number of bank mergers and acquisitions, my bank has many credit card plans with different terms and conditions. The bank would like to consolidate them into a single plan. When providing a change in terms notice, may the bank simply include a new set of disclosures or must it specify which terms are changing?

A: As explained in Comment 4 to §1026.9(c)(2)(i) of Regulation Z (Truth in Lending Act) the bank may provide a new set of disclosures “if the change is highlighted on the disclosure statement, or if the disclosure statement is accompanied by a letter or some other insert that indicates or draws attention to the term being change.” The point is to make clear to cardholders which term(s) will be changing, which a new disclosure absent explanations of the changes will not.

Q: A director of my bank has not used her personal credit card from my bank in over 12 months. May the bank stop treating the credit card as an extension of credit under Regulation O?

A: No. Unless the bank closes the credit card account, the credit card continues to qualify as an extension of credit as defined under Regulation O. Section 215.3(a) of Regulation O defines “extension of credit” as “a making or renewal of any loan, a granting of a line of credit, or an extending of credit in any manner whatsoever,” which clearly includes a credit card, even if the director is not currently using it. Note, however, that per §215.3(b)(5), an extension of credit does not include indebtedness of $15,000 or less under a bank credit card plan if certain conditions are met.

Q: Due to a system conversion, my bank would like to change the billing cycle and payment due date on existing credit card accounts. Will this require 45 days’ advance notice to change the terms of the account?

A: It depends on whether the change will cause the grace period to be shorter or longer. Under §1026.9(c)(2)(i)(A) of Regulation Z (Truth in Lending Act), credit card issuers generally must provide a notice of a “significant change” to a credit card account 45 days prior to the effective date of the change.

Section 1026.9(c)(2)(ii) defines “significant changes,” to include changes to terms that must be disclosed in the account opening disclosures, which includes the grace period, i.e., “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.”

Comment 3 to §1026.9(c)(2) further explains, “Whenever the creditor changes the consumer’s billing cycle, it must give a change-in-terms notice if the change affects any of the terms described in §1026.9(c)(2)(i) …” which includes the grace period. However, no advance notice is required “when the change is an extension of the grace period.” The purpose of the advance notice of such a change is to ensure that cardholders will be able to anticipate and budget appropriately for their expected bill.

Thus, if the change to the billing cycle and payment due date result in an extension of the grace period, no advance notice is required. However, if the creditor shortens the grace period, advance notice is required.

Q: I know that there is an exemption for requiring escrow for flood insurance for loans in a designated flood zone with terms of 12 months or less. If the bank extends the term for another nine months, is the bank required to escrow for the flood insurance premiums when it make the extension?

A: No, it is not. The 2015 amendments to the rule clarified §25 of the Homeowners Flood Insurance Affordability Act which provides the flood insurance escrow exemption for a loan that has a term of no longer than 12 months. The Supplementary Information to those final amendments provide:

[I]f a loan of 12 months or less is extended or renewed for an additional term of 12 months or less, the Agencies’ regulations would permit the exception to apply to the extended or renewed loan because an extension or renewal is a triggering event. Therefore, at the time of the triggering event, the regulated lending institution may apply the exception if the term of the newly extended or renewed loan is for a term of 12 months or less.

Answers are provided by Leslie Callaway, CRCM, CAFP, CAMS, senior director of compliance outreach and development; Mark Kruhm, CRCM, CAFP, senior compliance analyst; and Rhonda Castaneda, CRCM, senior compliance analyst, ABA Regulatory Policy and Compliance. Answers do not provide, nor are they intended to substitute for, professional legal advice. All answers provided March and April 2021.