02-030 C.M.R. ch. 190, § 5 - CORRECTIVE ACTION

A. Copies of Documents to Administrator. Copies of any correspondence or documentation, including refund checks, sent to the consumer in fulfillment of the obligations established in this Rule, shall also be provided contemporaneously to the Administrator.

B. Corrective Action Not Involving Overcharges. Violations not involving overcharges, including, but not limited to, the improper disclosure of required information, conduct or action by a creditor contrary to law, or the use of prohibited terms or conditions in consumer credit agreements, shall be corrected as follows:

(1) Corrected disclosure statements shall be provided to consumers whenever the disclosures required by law to be given contain an inaccuracy;

(2) Actions taken by a creditor against a consumer that are contrary to the Code shall be rescinded; and

(3) Agreements containing terms or provisions prohibited by the Code shall be reformed to conform to the Code.

C. Corrective Action Involving Overcharges; General Provisions. A consumer subject to an overcharge will be reimbursed by the creditor using either the lump sum method or the lump sum/ payment reduction method, at the discretion of the creditor, except that if any portion of the overcharge has already been collected it will be refunded by the lump sum method and may not be amortized.

D. Special Rules I nvolving Overcharges Resulting from Truth-in-Lending Disclosure Violations.

(1) In situations involving the improper disclosure of the Annual Percentage Rate (APR) or Finance Charge, the following provisions apply:

(a) Where there is an understated APR and the Finance Charge is correct, the creditor shall take corrective action to ensure that the consumer's true cost of credit does not exceed the disclosed APR.

(b) Where there is an understated Finance Charge and the APR is correct, the creditor shall take corrective action to ensure that the consumer's true cost of credit does not exceed the disclosed Finance Charge.

(c) Where both the Finance Charge and the APR are understated, the creditor shall take appropriate action to correct the larger overcharge.

(2) In situations involving the failure to disclose the Annual Percentage Rate or Finance Charge, the following provisions apply:

(a) Where the APR was omitted and the Finance Charge was correct, the APR shall be considered to be:

(i) the contract rate if that rate was disclosed on the note or truth-in-lending disclosure statement, except that a contract rate disclosed as a graduated rate (under § 2-201(2)(A) or § 2-401(2)(A)) shall not be considered to be a disclosure of the contract rate; or

(ii) if the contract rate was not disclosed, the contract rate (as determined) or the actual APR, reduced by 1/14 of 1% in real estate-secured transactions, and 1% in all other transactions, whichever is less.

For purposes of this subparagraph, the "contract rate" is the rate of interest on the note, or other form of indebtedness, exclusive of any form or prepaid finance charge.

(b) Where the Finance Charge was required to be disclosed but was omitted and the APR was correct, the Finance Charge shall be considered to be the lesser Finance Charge derived by comparing the Finance Charge generated by application of the contract rate (whether disclosed or to be determined), or that generated by application of the APR reduced by 1/14 of 1% in real estate-secured transactions, or 1% in all other transactions.

(3) In situations involving improper disclosure of the Annual Percentage Rate or Finance Charge and simultaneous omission of the Annual Percentage Rate or Finance Charge, the following provisions apply:

(a) Where the APR is understated and the Finance Charge is omitted, the creditor will first determine what the Finance Charge should be in accordance with § 5(D)(2)(b). An adjustment will then be made in accordance with § 5(D)(1)(c).

(b) Where the Finance Charge is understated and the APR is omitted, the creditor will first determine what the APR should be in accordance with § 5(D)(2)(a). An adjustment will then be made in accordance with § 5(D)(1)(c).

(4) In situations involving the failure to give a disclosure statement to the consumer, the APR and Finance Charge will be determined in accordance with § 5(D)(2)(a).

(5) In situations involving the improper disclosure of Credit Life or Accident and Health Insurance the following provisions apply:

(a) If the creditor has not disclosed to the consumer in writing that Credit Life or Accident and Health Insurance is optional, the insurance shall be treated as having been required by the creditor and improperly excluded from the finance charge. The creditor shall take appropriate corrective action for the overcharge resulting from the understated finance charge or APR. The insurance will remain in effect subject to the terms of the policy.

(b) If the creditor has disclosed to the consumer in writing that Credit Life or Accident and Health Insurance is optional but there is either no signed insurance option or no disclosure of the cost of insurance, the creditor shall, unless a claim was made on the insurance policy and paid, be required to send a written notice to the affected consumer disclosing the cost of the insurance and notifying the consumer that the insurance is optional and that it may be canceled within 45 days to obtain a full refund of all premiums charged. If the creditor receives no response within 45 days, the insurance will remain in effect subject to the terms of the policy, and no further corrective action will be required.

(c) Omission of the date on the insurance option shall not be considered to result in an overcharge.

(6) If a creditor has not itemized and disclosed the charges allowed by § 8-105(4) and has not included them in the finance charge as required by that Section, the resulting disclosure violation shall constitute an overcharge which shall be refunded to the consumer.

(7) In situations involving the proper disclosure of the optional nature and cost of Credit Life or Accident and Health Insurance, in which the consumer elects to purchase such coverage and is appropriately charged for it, but in which the creditor fails to obtain such coverage for the consumer, coverage will be presumed to exist and the creditor will be responsible for paying any claim that may be made to the same extent as the insurer had coverage been obtained. However, coverage will not be presumed to exist and the creditor will not be responsible for paying any claim if the consumer is ineligible for such insurance, or the insurance has been terminated, and the consumer was so notified and the creditor has returned any premium to the consumer within 60 days of the determination of ineligibility or termination.

Notes

02-030 C.M.R. ch. 190, § 5