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Compliance Alliance Question of the Week

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.4
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