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Compliance Alliance Question of the Week

Our retail staff is looking to have changes made to our CIP policy in regard to the collection of identification regarding business accounts.  The CIP regulation states that the bank should obtain documents showing the legal existence of the entity, such as articles of incorporation or business licenses. We have found that most businesses cannot produce their articles of incorporation or equivalent and we are currently having then fill out our internal resolutions.  Does the regulation require us to obtain the original documents showing the formation of the entity?

The regulation requires that your CIP policy establish a way to verify the existence of the entity through documentary and/or non- documentary processes.  If you're going to verify through documents, the regulation lists as examples: articles of incorporation, a government-issued business license, a partnership agreement, etc.  There is not any particular form of documentation required by regulation and so long as the bank is satisfied that the legal existence of the entity is proven through whatever documentation that the entity is able to provide, then that is all that is required by the regulation. But it is already important to remember bank policy, best practices as well as any investor requirements or examiner input.

Reference:

(A) Verification through documents. For a bank relying on documents, the CIP must contain procedures that set forth the documents that the bank will use. These documents may include:

(2) For a person other than an individual (such as a corporation, partnership, or trust), documents showing the existence of the entity, such as certified articles of incorporation, a government-issued business license, a partnership agreement, or trust instrument. 31CFR1020.220(a)(2)(ii)(A) (2) https://www.ecfr.gov/cgi-bin/textidx?SID=3bb05afadae1080d1dbd9c9d461a80d6&mc=true&node=se31.3.1020_1220&rgn=div8 


When you have multiple 1-4 family dwelling properties securing a loan, does the bank still have to comply with the appraisal notice requirement and the appraisal acknowledgement/receipt of receiving appraisal 3-days before closing?

Regulation B, 12 CFR 1002.14(a)(1) requires a creditor to provide an applicant with a copy of “appraisal or other written valuations developed in connecting with an application for credit that is to be secured by a first lien on a dwelling.”  

Section 1002.14(b)(2) further defines a dwelling to include residential structures of one to four units. 

The Regulation does not address loans secured by multiple dwellings.  Conservatively, to the extent the loan will be secured by a first lien on any 1-4 dwelling, the appraisal requirements set forth in section 1002 above would apply for each such dwelling.

Additionally, Section 1002.14(a)(2) requires the provision of a disclosure to the applicant, 

C/A interprets this subsection to require only one disclosure requirement, provided that it addresses all applicable appraisals.  If the disclosure has the specific address(es) or if bank policy states otherwise, the bank is not directly prohibited from sending multiple notices either. 

Of course, please note, the borrower would still need to receive each appraisal promptly upon completion or within three days of closing, whichever is earlier. 


Must a bank have RDFI procedures in place to ensure a 30-day written notice is provided to account holders receiving Federal benefit payments prior to the actual closing of the account? 

Yes, you must give 30 days’ notice prior to closing an account receiving Federal Benefits.  However, this 30-days is not required if fraud is the reason that you are closing the account. 

For Reference:

(c) Termination and revocation of authorizations. An authorization shall remain valid until it is terminated or revoked by: (3) The closing of the recipient's account at the RDFI by the recipient or by the RDFI. With respect to a recipient of benefit payments, if an RDFI closes an account to which benefit payments currently are being sent, it shall provide 30 calendar days written notice to the recipient prior to closing the account, except in cases of fraud;

 

31 CFR 210.4(c)(3) https://www.ecfr.gov/cgi-bin/text-idx?SID=9739a73095883d2503043dd3dfee9682&mc=true&node=se31.2.210_14&rgn=div8


We have a joint account owned by three people. When filling out a SAR, do we include a Part I on an all account holder even if one had no transactions or involvement?

While a CTR has an assumption that all joint accountholders benefit from a deposit into a joint account, a SAR does not have that assumption. If a joint owner is not the transactor, and if the bank has no information that the transactions are on behalf of that particular joint owner, there is no need to specifically list them on the SAR as a subject.

 

For Reference: 
Part I Subject Information: Complete a Part I section on each known subject involved in the suspicious activity. Persons who are victims of the suspicious activity are not subjects and should not be recorded in a Part I section 
FinCEN, Electronic Filing Requirements for the FinCEN Suspicious Activity Report, p. 88: 
https://www.fincen.gov/sites/default/files/shared/FinCEN%20SAR%20ElectronicFilingInstructions-%20Stand%20Alone%20doc.pdf


Commercial Loan Scenario—Collateral is located in a SFHA, but is in a non-participating community. Because federal flood insurance would not be available, can the bank close the loan without flood insurance coverage? 

If the property is in a non-participating community, then flood insurance is not required under the regulation. A private policy may still be required under the bank's internal policy for safety and soundness reasons, which is highly advisable to protect the bank’s collateral. 

For reference:

"Flood insurance, either issued through the NFIP or from a private insurance provider, is required for the term of the loan on buildings or mobile homes when an institution makes, increases, extends or renews a designated loan, meaning all three of the following factors are present:

• The loan (commercial or consumer) is secured by improved real estate or a mobile home that is affixed to a permanent foundation (security property);

• The property securing the loan is located or will be located in an SFHA as identified by FEMA; and

• The community in which the property is located participates in the NFIP.

. . .

Nonparticipating Communities

Although a lender may make, increase, extend, or renew a loan in a nonparticipating community, a lender is still required to determine whether the security property is located in an SFHA and if so, to notify the borrower. The lender must also notify the borrower that flood insurance coverage under the NFIP is not available because the community does not participate in the NFIP. If the nonparticipating community has been identified for at least one year as containing an SFHA, properties located in the community will not be eligible for federal disaster relief assistance in the event of a federally declared disaster.

Because of the lack of NFIP flood insurance coverage and limited federal disaster assistance available, a lender should carefully evaluate the risk involved in making such a loan. A lender making a loan in a nonparticipating community may want to require the purchase of private flood insurance, if available. Also, a lender with significant lending in nonparticipating communities should establish procedures to ensure that such loans do not constitute an unacceptably large portion of the financial institution’s loan portfolio."

 

Page 6.2 - https://www.fdic.gov/regulations/compliance/manual/5/v-6.1.pdf


Does our ATM have to notify a non-customer of the bank that our bank is going to charge a fee and what the fee amount is? 

Yes, this is an explicit requirement under Regulation E, as provided below: 

(b) General. An automated teller machine operator that imposes a fee on a consumer for initiating an electronic fund transfer or a balance inquiry must provide a notice that a fee will be imposed for providing electronic fund transfer services or a balance inquiry that discloses the amount of the fee.

(c) Notice requirement. An automated teller machine operator must provide the notice required by paragraph (b) of this section either by showing it on the screen of the automated teller machine or by providing it on paper, before the consumer is committed to paying a fee.

(d) Imposition of fee. An automated teller machine operator may impose a fee on a consumer for initiating an electronic fund transfer or a balance inquiry only if:

(1) The consumer is provided the notice required under paragraph (c) of this section, and

(2) The consumer elects to continue the transaction or inquiry after receiving such notice.

https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1005/16/


For the electronic delivery of a periodic statement under Regulation E, is the bank required to notify a customer that it is available?

For customers that would like to receive their statements electronically, they must provide E-SIGN consent first--but once they provide that, they no longer need to receive paper statements, and also do not need to receive any sort of notification letting them know that their statements are available as long as everything is adequately disclosed to them in their account-opening E-SIGN documentation. However, it is a common best practice to have "statement is available" notifications sent out via e-mail, as both a courtesy to the customer and a way to demonstrate for the record that the statements were "delivered" to them.

 

(1) Form of disclosures. Disclosures required under this part shall be clear and readily understandable, in writing, and in a form the consumer may keep, except as otherwise provided in this part. The disclosures required by this part may be provided to the consumer in electronic form, subject to compliance with the consumer-consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). A financial institution may use commonly accepted or readily understandable abbreviations in complying with the disclosure requirements of this part.

 

https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1005/4/#a-1


We have a husband and wife who are opening a new joint checking account with our institution. The husband has had an individual account with us for a while, but the wife has never had an account with us. Can we still use the Regulation CC new account exception hold for deposits into the account?

 The commentary provided below makes clear that if any of the joint account holders do not have an account with the bank, the bank may use the new account hold under § 229.13.

 

If two customers that each have an established individual account with the bank open a joint account, the joint account is not subject to the new account exception. If one of the customers on the account has no current or recent established account relationship with the bank, however, the joint account is subject to the new account exception, even if the other individual on the account has an established account relationship with the bank.

Comment (B)(1)(b)(vi) to §  229.13: https://www.fdic.gov/regulations/laws/rules/6000-2500.html#fdic6000sup1229ApxE


If our bank chooses to continue to impose the six-transfer limit as it used to be set out in Regulation D, does a telephone transfer count toward the six transfers per month?  

Yes, in general, these would usually have been counted in the six-transfer limit that used to be set out in Regulation D--there is one exception for withdrawals by phone when a check is mailed to the customer, but that is rarely the case. Like you point out, the bank is allowed to continue to impose these limitations, but make sure that any disclosures or other related materials no longer say that the bank is required to impose these as a matter of law. 

(2) The term “savings deposit” also means: A deposit or account, such as an account commonly known as a passbook savings account, a statement savings account, or as a money market deposit account (MMDA), that otherwise meets the requirements of §204.2(d)(1) and from which, under the terms of the deposit contract or by practice of the depository institution, the depositor is permitted or authorized to make no more than six transfers and withdrawals, or a combination of such transfers and withdrawals, per calendar month or statement cycle (or similar period) of at least four weeks, to another account (including a transaction account) of the depositor at the same institution or to a third party by means of a preauthorized or automatic transfer, or telephonic (including data transmission) agreement, order or instruction, or by check, draft, debit card, or similar order made by the depositor and payable to third parties. … Such an account is not a transaction account by virtue of an arrangement that permits transfers for the purpose of repaying loans and associated expenses at the same depository institution (as originator or servicer) or that permits transfers of funds from this account to another account of the same depositor at the same institution or permits withdrawals (payments directly to the depositor) from the account when such transfers or withdrawals are made by mail, messenger, automated teller machine, or in person or when such withdrawals are made by telephone (via check mailed to the depositor) regardless of the number of such transfers or withdrawals.

https://www.ecfr.gov/cgi-bin/text-idx?SID=14a7ef2b738d5e3a010103190c43cc5f&mc=true&node=se12.2.204_12&rgn=div8

Does the interim final rule require depository institutions to suspend enforcement of the six convenient transfer limit on accounts classified as "savings deposits"?
No. The interim final rule permits depository institutions to suspend enforcement of the six-transfer limit, but it does not require depository institutions to do so.

https://www.federalreserve.gov/supervisionreg/savings-deposits-frequently-asked-questions.htm

 


The bank is denying an application for a deposit account, but we did not pull a credit report to make this determination. Is an adverse action notice required?

 If the bank did not use a credit report to deny the deposit account application, then an adverse action notice would not be required under the FCRA, and Reg. B adverse action requirements only apply to extensions of credit, as set out below. It’s important to consider, however, that notice may still be required under the bank's internal policy, so the bank would want to check there as well and be consistent with what it has done in similar situations in the past. 

"(a) Account means an extension of credit."
https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1002/2/#a 

 

We also are aware that banks oftentimes will pull a ChexSystem or something similar to better understand the deposit relationships the customer has had with others and will oftentimes send a denial based off that information to ensure the customer or potential customer who knows who to contact in the event of errors.


When can borrowers with Paycheck Protection Program (PPP) loans submit their loan forgiveness applications?

As set out in Interim Final Rule #20, borrowers can submit a loan forgiveness application any time on or before the maturity date of the loan—including before the end of the covered period—if the borrower has used all of the loan proceeds the borrower is requesting forgiveness on. 

Borrowers who do not apply for loan forgiveness within 10 months after the last day of the covered period, or, if the SBA determines that the loan is not eligible for forgiveness (in whole or in part), the PPP loan can no longer be deferred and the borrower has to begin paying principal and interest. If this happens, lenders are responsible for notifying the borrower of the first payment due date. Lenders also must report that the loan is no longer deferred to SBA on the next monthly SBA Form 1502 report filed by the lender. Unfortunately, it's still not clear to what extent lenders are allowed to refuse forgiveness applications from borrowers while the lender awaits further guidance from the SBA and/or Treasury, although some lenders are reportedly doing so. 

See generally Interim Final Rule #20, here: https://home.treasury.gov/system/files/136/PPP--IFR--Revisions-to-Loan-Forgiveness-Interim-Final-Rule-and-SBA-Loan-Review-Procedures-Interim-Final-Rule.pdf


Can the bank convert a HELOC that is getting close to its maturity date into a closed-end, amortizing loan without requiring TRID disclosures?

Unfortunately, no--if during the loan term a HELOC is converted from open-end credit to closed-end credit, that would trigger closed-end credit requirements, including the TRID disclosures, as set out here: 

“Converting open-end to closed-end credit. Except for home equity plans subject to § 1026.40 in which the agreement provides for a repayment phase, if an open-end credit account is converted to a closed-end transaction under a written agreement with the consumer, the creditor must provide a set of closed-end credit disclosures before consummation of the closed-end transaction… If consummation of the closed-end transaction occurs at the same time as the consumer enters into the open-end agreement, the closed-end credit disclosures may be given at the time of conversion. …”

Comment for 1026.17(b)-2 Converting Open-End To Closed-End Credit: https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1026/Interp-17/#17-b-Interp-2

Also, if the bank is internally calling this action a "modification", it still would not change these requirements. Of course, this is assuming that the conversion is not part of an established repayment phase that was part of the original agreement, as described above.

Comment for 1026.17 - General Disclosure Requirements | Consumer Financial Protection Bureau

The comment for 1026.17 is part of 12 CFR Part 1026 (Regulation Z). Regulation Z protects people when they use consumer credit.

https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1026/Interp-17/#17-b-Interp-2 

Also, if the bank is internally calling this action a "modification", it still would not change these requirements. Of course, this is assuming that the conversion is not part of an established repayment phase that was part of the original agreement, as described above.


If we doubt the collectability of a check that a customer presents to the Bank, are we able to put “an indefinite” hold on the funds? 

While Reg. CC does not specify the allowable duration of an exception hold for this reason, the Reg. says that the depositary bank may extend the hold for “a reasonable period of time.” The Fed has told us in guidance that “reasonable” is generally understood to be one additional day for on-us checks and five additional business days for local checks. The bank can impose a longer hold, but it would bear the burden of showing that the hold time is “reasonable.” 

If an exception contained in paragraphs (b) through (f) of this section applies, the depositary bank may extend the time periods established under §§229.10(c) and 229.12 by a reasonable period of time.

12 CFR §229.13(h)(1): https://www.ecfr.gov/cgi-bin/text-idx?SID=edf865ac553db81f9a0e3afd580230a1&mc=true&node=pt12.3.229&rgn=div5#se12.3.229_113  

A "reasonable" time period is generally defined as one additional business day (making a total of two business days) for on-us checks, and five additional business days (total of seven) for local checks; your institution may impose longer exception holds, but you may have the burden of proving that they are "reasonable."

 

A Guide for Financial Institutions: https://www.federalreserve.gov/pubs/regcc/regcc.htm


Are banks required to report SBA Paycheck Protection Program (PPP) loans to the credit bureaus? I thought that SBA 7(a) loans are required to be reported, but I don’t know if this extends to PPP loans.

You are right that there is a general requirement to report SBA loans. That being said, this requirement was not specifically cross referenced in the PPP rules, so it’s currently still not clear whether this requirement extends to PPP loans. While the intent does not appear to be to require institutions who currently do not report to begin the reporting process for PPP loans, the bank will ultimately have to make an internal judgment call until further guidance is issued.  

2. Reports to Credit Reporting Agencies In accordance with the Debt Collection Improvement Act of 1996, Lenders are required to report information to the appropriate credit reporting agencies whenever they extend credit via an SBA loan. Thereafter, they should continue to routinely report information concerning servicing, liquidation, and charge-off activities throughout the life-cycle of the loan. (See Chapter 26 for more information regarding credit reporting requirements for loans in charge-off status.)

SBA SOP 50 57 2, p. 28: https://www.sba.gov/sites/default/files/files/SOP_50_57_2_1.pdf


The bank has received an application for a Paycheck Protection Program (PPP) transaction. The beneficial owner of the business is not a signor or guarantor. His ID provided is expired and he doesn’t wish to provide a new copy. Is this a BSA violation if the bank does not obtain an updated ID from him?

The CIP regulations do not provide that the only way to verify identification is with an unexpired ID.  The regulations list an unexpired ID as an example of a way to verify identification ("documents may include"), but it is not the only acceptable way to verify information with documentary evidence.  The regulation allows each bank to create a policy that fits their own needs using both documentary and non-documentary evidence, so your scenario is not necessarily a violation of BSA, although it may be an exception to internal Bank policy. 

(ii) Customer verification. The CIP must contain procedures for verifying the identity of the customer, using information obtained in accordance with paragraph (a)(2)(i) of this section, within a reasonable time after the account is opened. The procedures must describe when the bank will use documents, non-documentary methods, or a combination of both methods as described in this paragraph (a)(2)(ii).

(A) Verification through documents. For a bank relying on documents, the CIP must contain procedures that set forth the documents that the bank will use. These documents may include:

(1) For an individual, unexpired government-issued identification evidencing nationality or residence and bearing a photograph or similar safeguard, such as a driver's license or passport;

31 CFR 1020.220(a)(2)(ii) https://www.ecfr.gov/cgi-bin/text-idx?SID=ac10085d2bd1b4586c54b8a9ed47d5f5&mc=true&node=se31.3.1020_1220&rgn=div8


It is my understanding that the aggregate amount of extensions of credit to executive officers cannot exceed $100,000 for Regulation O purposes. If an executive officer has a loan that is guaranteed by FSA or SBA, is the guaranteed portion of that loan counted in their aggregate debt?

Extensions of credit secured by guarantees of any department, agency, bureau, board, commission or establishment of the United States are not included in the aggregate amount of extensions of credit restriction calculation (the higher of 2.5 per cent of the bank's unimpaired capital and unimpaired surplus or $25,000, but in no event more than $100,000).

(c) A member bank is authorized to extend credit to any executive officer of the bank:

...

(3) In any amount, if the extension of credit is secured in a manner described in §215.4(d)(3)(i)(A) through (d)(3)(i)(C) of this part; and

(4) For any other purpose not specified in paragraphs (c)(1) through (c)(3) of this section, if the aggregate amount of extensions of credit to that executive officer under this paragraph does not exceed at any one time the higher of 2.5 per cent of the bank's unimpaired capital and unimpaired surplus or $25,000, but in no event more than $100,000.

Reg. O: https://www.ecfr.gov/cgi-bin/text-idx?SID=cf04bbcae4670a8a0df670f32fc1873d&mc=true&node=pt12.2.215&rgn=div5#se12.2.215_15

(3) Exceptions. (i) The general limit specified in paragraph (d)(1) of this section does not apply to the following:

...

(B) Extensions of credit to or secured by unconditional takeout commitments or guarantees of any department, agency, bureau, board, commission or establishment of the United States or any corporation wholly owned directly or indirectly by the United States;

... 

 

Reg. O: https://www.ecfr.gov/cgi-bin/text-idx?SID=cf04bbcae4670a8a0df670f32fc1873d&mc=true&node=pt12.2.215&rgn=div5#se12.2.215_14


If our customer is on a COVID-19-related forbearance plan (and she was current before the Bank agreed to the plan), do we use special comment code AW (affected by natural or declared disaster) and code CP (account in forbearance) and will either affect her credit score?

The bank may report AW or CP if it chooses, but our understanding is that this would not affect the credit score and would only provide additional insight as to the valid reason for the deferment. The CDIA also reflects this in its FAQs here: 

If I report using the recommended FAQ 58 or FAQ 45 guidance and report Special Comment AW or CP, how will the consumers' credit scores be affected?

The country's leading score developers, VantageScore and FICO note that forbearance and deferred payment scenarios have a neutral impact on a consumer's credit score so consumers in one of these programs, as reported to the nationwide credit bureaus, should have no negative impact as a result of Coronavirus. FICO noted that "the placement and reporting of an account in forbearance or a deferred payment plan in and of itself does not negatively impact a FICO(r) Score." VantageScore makes clear that "[a] loan placed in a deferred payment or forbearance plan will not result in a negative impact." The same is true for a natural disaster coding: "[t]he net impact is that a consumer's VantageScore credit score will not go down, either because negative information is neutralized because of the natural disaster..."
Page 13 https://cdia-events.s3.amazonaws.com/teleseminars-webinars/handouts/Credit+Reporting+for+Consumer's+Affected+by+Natural+or+Declared+Disasters.pdf

In addition, our CARES Act Credit Reporting Summary also provides additional detail here: 
https://compliancealliance.com/find-a-tool/tool/covid-19-credit-reporting-summary