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January 13, 2010


To: Chairman, Board of Directors
Chief Executive Officer
All Farm Credit System Banks and Associations

From: Thomas G. McKenzie, Director and Chief Examiner
Office of Examination

Subject: Consumer and Borrower Rights Regulatory Compliance Requirements


As part of OE’s National Oversight Program, the Office of Examination evaluated compliance with the Federal Reserve Consumer Regulations and Farm Credit Administration Borrower Rights Regulations at selected System institutions. The results of the examination activity were communicated separately to each of the institutions examined.

Based on the findings observed, we expect all institutions to evaluate their practices related to compliance with consumer and borrower rights regulations. In particular, institutions must ensure templates and forms are fully completed with appropriate information. Additionally, institutions should also maintain an effective and ongoing training program with emphasis on new or revised laws and regulations, as well as exceptions cited in internal audits and FCA examinations. There were several findings observed at multiple institutions that should be reviewed by all institutions to ensure regulatory compliance. Specifically:

• Equal Credit Opportunity Act (ECOA) Regulation B (12 CFR Part 202) § 202.13 requires that Voluntary Monitoring Information must be collected for the applicant’s (and co-applicant’s) Ethnicity, Race, Sex, Marital Status, and Age. If the applicant does not complete the information, loan officers should complete the form based on visual observation.

• ECOA Regulation B (12 CFR Part 202) § 202.9 requires applicants be given a specific reason for denial or the right to a statement of specific reasons for denial. The failure to meet underwriting standards and a minimum credit score are not specific enough reasons; therefore, additional information should be communicated.

• ECOA Regulation B (12 CFR Part 202) § 202.9 also requires that the ECOA notice include the appropriate agency contact information. The correct notice for Farm Credit institutions should read:

• FCA Regulation 617.7410 requires that the Distressed Loan Restructuring (DLR) notice must include a statement identifying the loan as distressed. In addition, this FCA Regulation requires that borrowers in bankruptcy receive DLR notifications. Furthermore, institutions should document their analysis of restructuring requests including the least cost analysis and the timeframe for the decision. The 15-day period for the decision-making process begins at the end of the negotiations to develop a restructuring application, and this date must be documented.

• Institutions should review the updated requirements of the Real Estate Settlement Procedures Act (24 CFR Part 3500), especially the disclosure requirements for Good Faith Estimates and the Special Information Handbook as well as retention requirements for the HUD-1 and HUD-1A forms.

• Institutions should review the updated requirements of the Truth in Lending Act Regulation Z (12 CFR Part 226), especially the requirements for disclosing required deposits and security interests as well as when it is appropriate to select the assumption box.

• Institutions are encouraged to develop procedures to determine applicability of the Home Mortgage Disclosure Act on an annual basis.

• As addressed in the recently issued National Oversight Plan for Fiscal Year 2010, issued December 16, 2009, we anticipate delinquencies and borrower complaints to increase in the rising risk environment facing agriculture. As a result, we encourage institutions to review borrower rights policies and procedures especially in the areas of Distressed Loan Restructuring, Right of First Refusal, and Credit Review Committees and increase training accordingly.