There aren’t many things less exciting than the text of a regulation. Taxes? Maybe. But then again, I either get money back or have to pay a little bit, which is an excitement factor all in its own. The reality of regulations for compliance professionals is that they are a necessary evil - we must understand them to do our jobs. The challenge with this is that the rules can sometimes be extremely confusing.
For example, let’s consider definitions. While logic would tell us that a definition should be consistent from one regulation to another, reality tells us that this is anything but the truth. When I teach compliance schools where we work through regulations from top to bottom, I always make an effort to point out the difference in the definition of “business day” as the definition varies - sometimes greatly - from one regulation to another. In fact, Regulation Z actually has two different definitions for business day: the precise definition (which always includes Saturdays) and the general definition (which may or may not include Saturdays).
The Regulation Z Definition of a Business Day
As we are discussing the two different definitions of a business day under Regulation Z (precise and general), I think that it is appropriate to start with the actual text from the regulation, and then to break it down for us. To clarify, the two separate "definitions" are actually combined into a single definition, which one must dissect to understand the difference between the two.
The following is the definition of a business day from Regulation Z:
Business day means a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescission under §§ 1026.15 and 1026.23, and for purposes of §§1026.19(a)(1)(ii), 1026.19(a)(2), 1026.19(e)(1)(iii)(B), 1026.19(e)(1)(iv), 1026.19(e)(2)(i)(A), 1026.19(e)(4)(ii), 1026.19(f)(1)(ii), 1026.19(f)(1)(iii), 1026.20(e)(5), 1026.31, and 1026.46(d)(4), the term means all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
In addition to this definition, Regulation Z provides the following two comments in the official staff interpretations (commentary), which help us to understand the two different "definitions":
1. Business function test. Activities that indicate that the creditor is open for substantially all of its business functions include the availability of personnel to make loan disbursements, to open new accounts, and to handle credit transaction inquiries. Activities that indicate that the creditor is not open for substantially all of its business functions include a retailer's merely accepting credit cards for purchases or a bank's having its customer-service windows open only for limited purposes such as deposits and withdrawals, bill paying, and related services.
2. Rule for rescission, disclosures for certain mortgage transactions, and private education loans. A more precise rule for what is a business day (all calendar days except Sundays and the Federal legal holidays specified in 5 U.S.C. 6103(a)) applies when the right of rescission, the receipt of disclosures for certain dwelling- or real estate-secured mortgage transactions under §§ 1026.19(a)(1)(ii), 1026.19(a)(2), 1026.19(e)(1)(iii)(B), 1026.19(e)(1)(iv), 1026.19(e)(2)(i)(A), 1026.19(e)(4)(ii), 1026.19(f)(1)(ii), 1026.19(f)(1)(iii), 1026.20(e)(5), 1026.31(c), or the receipt of disclosures for private education loans under § 1026.46(d)(4) is involved. Four Federal legal holidays are identified in 5 U.S.C. 6103(a) by a specific date: New Year's Day, January 1; Independence Day, July 4; Veterans Day, November 11; and Christmas Day, December 25. When one of these holidays (July 4, for example) falls on a Saturday, Federal offices and other entities might observe the holiday on the preceding Friday (July 3). In cases where the more precise rule applies, the observed holiday (in the example, July 3) is a business day.
As you can tell, this guidance can be extremely confusing, especially since regulation Z references other sections of the rule instead of actually telling us what topic/area they are referencing. Therefore, let’s break both the general and precise definitions down into layman’s terms.
The Precise Definition of a Business Day
While the precise definition of a business day is the more complicated definition due to the references to other parts of Regulation Z, it is important to start with this definition as it is basically the exception to the rule. In other words, if something in Regulation Z has a timing requirement based on business days, the precise definition would only apply to that requirement if the definition specifically stated it applies. If it is not specifically stated in Regulation Z under the precise definition, then the general definition would apply.
I think that it is also worth pointing out that the term “precise” isn’t always the term referenced by the CFPB. While the commentary states that “A more precise rule for what is a business day,” this is actually the only time the rules use the term “precise.” In fact, the preamble to the final rule repeatedly uses the term “specific,” when referencing the definition different from that of the “general” definition. That said, for communication purposes I have chosen to call this "definition" of a business day the "precise definition."
To fully understand the precise definition of a business day, we must break it down into two parts. First, this definition states that a business day is “all calendar days except Sundays and the legal public holidays specified in U.S.C. 6103(a).” For most, this part of the definition should be extremely straightforward as the only days you don’t count as a business day are Sundays and holidays such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
To break down the second part of the precise definition, we must look at the specific sections of Regulation Z that are referenced by this definition. Basically, the precise definition provides thirteen citations (thirteen when you include the two citations for rescission) for when the precise definition applies. If a part of regulation Z is not referenced in these thirteen citations, then the general definition of a business day would apply rather than the precise definition.
The following parts of regulation Z use the precise definition of a business day, meaning that they count all calendar days except Sundays and legal holidays:
- 1026.15 = Right of rescission for open-end credit
- 1026.23 = Right of rescission for closed-end credit
- 1026.19(a)(1)(ii) = Imposition of fees for reverse mortgage transactions
- 1026.19(a)(2) = Waiting periods for early/corrected disclosures for reverse mortgages
- 1026.19(e)(1)(iii)(B) = Loan Estimate timing requirements for the seven day rule
- 1026.19(e)(1)(iv) = Loan Estimate timing requirements for assumed delivery (mail)
- 1026.19(e)(2)(i)(A) = Fee restrictions related to the intent to proceed
- 1026.19(e)(4)(ii) = Loan Estimate timing requirements prior to closing
- 1026.19(f)(1)(ii) = Closing Disclosure timing requirements for initial disclosure
- 1026.19(f)(1)(iii) = Closing Disclosure timing requirements for assumed delivery (mail)
- 1026.20(e)(5) = Escrow cancellation notice timing requirements
- 1026.31(c) = High cost mortgage disclosure timing requirements
- 1026.46(d)(4) = Private education loan disclosure timing requirements
To summarize these sections, the commentary has clumped them into three categories which make for easier communication:
- Rescission
- Disclosures for certain mortgage transactions
- Private education loans
Again, if Regulation Z does not specifically mention a rule in the above citations, then the general definition of a business day would apply.
The General Definition of a Business Day
The general definition of a business day is a bit easier to understand, but also a bit more challenging than the precise definition as it will be different from one financial institution to another. Specifically, the general definition of a business day is defined as “a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions.” In other words, Saturdays may or may not be included in the general definition of a business day based on the operations of a specific financial institution. The challenge with this, of course, is determining whether a financial institution is “open to the public for carrying on substantially all of its business functions.”
In order to fully understand what is meant by being “open to the public for carrying on substantially all of its business functions,” we must look to the commentary for guidance as to what applies. Specifically, the commentary specifically states that activities that indicate a financial institution is open for “substantially all of its business functions” “include the availability of personnel to make loan disbursements, to open new accounts, and to handle credit transaction inquiries.” In layman’s terms, this means that if a financial institution does not have processing staff available to issue the Loan Estimate, then Saturday’s would not count.
One item worth noting during this discussion of the general definition is that public holidays could count under the general definition of a business day. For example, if a financial institution is open for business on a holiday (such as Veterans Day, Washington’s birthday, Columbus day, or Martin Luther King Day), then that holiday would count as a business day under the definition. It would not, however, count under the precise definition of a business day that automatically excludes all federal holidays.
The final piece to understanding the general definition of a business day is to determine which parts of regulation Z reference the general definition. As discussed earlier, if a section of the rule is not specifically referenced in the citations found in the precise definition, then the general definition would apply. The most common application of the general definition is the requirement to provide a Loan Estimate within three business day of receiving an application. This application to the general definition appears appropriate as the rule essentially only requires a financial institution to provide the Loan Estimate on days when its processing staff are working. For example, if those who issue a Loan Estimate do not work on Saturdays - which is the case for many community banks and credit unions - then the general definition of a business day would not apply and the financial institution would not be required to count Saturday when issuing the initial Loan Estimate.
Application of the General and Precise Definitions
The bottom line with the definition of a business day under Regulation Z is that each financial institution must make a determination of how the general definition is going to apply to them. If the general definition does not include Saturdays, as they are not open for substantially all business functions, then the financial institution must only worry about the precise definition, unless they are open on a public holiday where they would be required to count that day as a business day under the general definition. If a financial institution is open for substantially all business functions on Saturdays, then they will count all Saturdays, along with any legal holiday they are open, for calculating days according to the general definition.
It is important to note that accuracy is preferred on the definition of business day as trying to take a conservative approach, as a general approach, could be problematic. For example, a financial institution could count holidays they are not open for purposes of the general definition, but could not do so for the precise definition. Doing so would result in a Loan Estimate being provided a day earlier than needed, but would also result in cutting the rescission period short by a day. Therefore, it is extremely important to ensure that all business days - whether under the general or precise definitions - are calculated properly.
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