C/A Commercials

Compliance Alliance Question of the Week

If we have an established escrow account for a borrower on a residential mortgage loan, upon paying of the loan, before we pay the pertinent insurance and taxes, do we refund any excess to the borrower?

A. Yes. Once the loan is paid off, RESPA, § 1024.4(b)(1), requires refunding the escrow balance to the borrower within 20 days of payoff.

(b) Refund of escrow balance —

(1) In general. Except as provided in paragraph (b)(2) of this section, within 20 days (excluding legal public holidays, Saturdays, and Sundays) of a borrower's payment of a mortgage loan in full, a servicer shall return to the borrower any amounts remaining in an escrow account that is within the servicer's control. RESPA, § 1024.4(b)(1), https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1024/34/

Did President Biden’s repeal of the OCC’s True Lender rule affect the “Madden Fix?”

No, in S.J.Res.15, which the President signed into law on June 30th, Congress exercised its power under the Congressional Review Act (“CRA”) to retroactively void the rule submitted by the Office of the Comptroller of Currency relating to “National Banks and Federal Savings Associations as Lenders” (85 Fed. Reg. 68742 (October 30, 2020)). The “Madden fix” was a separate rulemaking, which was finalized in 85 FR 33530.

The repeal of the true lender rule does not affect the separate “Madden fix” rules, which have not been subject to a CRA disapproval effort. Those rules have been challenged in court by several state attorneys general under the Administrative Procedure Act.

As a result of the new law, the true lender rule is voided retroactively. Under the CRA, the OCC is barred from issuing any regulation in “substantially the same form” absent express congressional authorization. The revocation does not set a different standard for who is the true lender on a loan; it eliminates the OCC’s bright-line standard and reverts the law to the inconsistent court-created standards governing when a bank is acting as the “true lender.”

Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Office of the Comptroller of Currency relating to “National Banks and Federal Savings Associations as Lenders”.

Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Congress disapproves the rule submitted by the Office of the Comptroller of Currency relating to “National Banks and Federal Savings Associations as Lenders” (85 Fed. Reg. 68742 (October 30, 2020)), and such rule shall have no force or effect.

S.J.Res.15 — 117th Congress (2021-2022), https://www.congress.gov/bill/117th-congress/senate-joint-resolution/15/text

Permissible Interest on Loans That Are Sold, Assigned, or Otherwise Transferred [“Madden Fix”]

85 FR 33530, https://www.federalregister.gov/documents/2020/06/02/2020-11963/permissible-interest-on-loans-that-are-sold-assigned-or-otherwise-transferred

National Banks and Federal Savings Associations as Lenders [“True Lender Rule”]

85 Fed. Reg. 68742, https://www.federalregister.gov/documents/2020/10/30/2020-24134/national-banks-and-federal-savings-associations-as-lenders  

We would like to have a giveaway contest but are concerned with the requirements under the Bank Lottery Rule. What should we consider?

Under the Bank Lottery Rule, with the exception of a savings raffle, any advance of money or credit by three or more persons for the possibility to win more than the amounts contributed generally results in a prohibited lottery. Below are several practices that are commonly accepted to not run afoul of this requirement.

The contest should be open to everyone, with no account needed to participate, offer multiple ways to enter and mention that IRS reporting may apply. The Official Rules should have a free alternative written entry method to enter for non-customers is sometimes known as the "sweepstakes workaround," which is common for giveaways. By offering a written entry alternative, a case can be made that there truly is no "money or credit" being advanced to the bank since an entrant potentially can mail in their entry and still be given a fair/equal shot at winning. While admittedly not a best practice, from what C/A has seen, it generally appears to be considered by auditors and regulators as compliant with both UDAAP and the anti-lottery statutes.

In addition to the free alternative method of entry, the bank should include the following information in the official rules for that promotion, as applicable:

·         Geographic area and/or who is eligible to participate

·         Opening date and scheduled termination date

·         Complete name and address of the sponsor and promoter of the contest

·         Number of prizes, the accurate description of each prize, the retail value of each prize and the odds of winning

·         Whether all prizes offered will be awarded and how the prizes will be awarded

·         Manner of selection of winners and when a determination of winners will be made

·         Permission to use

·         Where and when a list of winners can be obtained

·         IRS reporting may apply

12 U.S.C. 1829a(a), https://www.fdic.gov/regulations/laws/rules/1000-2200.html