Compliance Question of the Week

In today’s banking environment as soon as one big new regulation is implemented another pops up. Our compliance resources help your community bank stay one step ahead of the regulators.

Regulations and Guidance

Question: Does the E-Sign Act apply to all documents?

ANSWER:

No, the E-Sign Act does not apply to all documents. The provisions of the E-Sign Act do not apply to:

wills and trusts;
domestic relations matters;
court orders or notices, and
foreclosures and evictions.

Reference: 15 U.S.C. 7003.

Q&A Archives

ANSWER:

The FFIEC BSA/AML Examination Manual describes the examination procedures your bank needs to perform to ensure that the system is accurate and appropriately identifying suspicious activity.

As part of the independent testing the bank should:

Evaluate the system’s methodology for establishing and applying expected activity or filtering criteria.
Evaluate the system’s ability to generate monitoring reports.
Determine whether the system filtering criteria are reasonable and include, at a minimum, cash, monetary instruments, funds transfers, and other higher-risk products, services, customers, or geographies, as appropriate.

Reference: FFIEC BSA AML Examination Manual

ANSWER:

The Bank Bribery statute does not define a thing of value with a dollar amount. In 1986, the statute was revised to include that a “thing of value” must be either offered or received “corruptly” with the intent to “influence or reward” a bank employee in connection with bank business.

Reference: 18 USC 215(a)(1) and (2). Department of Justice Website; https://www.justice.gov/usam/criminal-resource-manual-829-bank-bribery-18-usc-215-generally.

ANSWER:

Under FCRA, an adverse action notice must be provided to any consumer defined as an individual, including co-applicants (see 603(c)).

The notice may be provided in writing or orally or in electronic format.

The FCRA notice is required when adverse action is taken based on information in a consumer report.

For a covered transaction under FCRA, a notice must be provided if:

adverse action is taken in whole or in part on information in a consumer report;
consumer credit is denied or a charge for credit increased based on information obtained from third parties other than consumer reporting agencies bearing upon the consumer's creditworthiness, credit standing, credit capacity, character, general reputation, person al characteristics, or mode of living; or
adverse action was taken based on information furnished by a corporate affiliate of the person taking the action.

When adverse action involves a consumer report in which a credit score played a role in the decision, the following are required, as applicable:

Section 615(a) notice (adverse action based on information in a consumer report;
Section 615(b)(1) notice (consumer credit denied or a charge for credit increased based on information obtained from third parties other than consumer reporting agencies;
Section 615(b)(2) notice (taking adverse action based on information obtained from an affiliate).

Reference: FCRA, Section 603(c), 615(a)(2) - (4), 615(b)(1) and (2); Federal Reserve Consumer Compliance Outlook, 2nd Quarter 2013

ANSWER:

Under Homeowners Protection Act, in the case of lender paid mortgage insurance (LPMI), in connection with a residential mortgage transaction.

The initial notice is to be provided: not later than the date on which a loan commitment is made for the residential mortgage transaction.

In general, the notice must inform the borrower of the differences between LPMI and borrower paid mortgage insurance (BPMI), including:

How LPMI differs from BPMI because it cannot be canceled by the borrower or automatically terminated;
Usually results in a mortgage having a higher interest rate than BPMI; and
Terminates only when the mortgage is refinanced, paid off, or otherwise terminated.

Reference: Homeowners Protection Act 12 USC chapter 49 section 4905(c) Disclosures requirements for lender paid mortgage insurance. See also: FDIC Consumer Compliance Examination Manual: V Lending - HOPA, September 2015, V-5.5

ANSWER:

According to a CFPB complaint reports, the following are the products and services about which consumers complain the most:

credit reporting;
overdrafts and fees;
availability of funds, especially of funds deposited via check or through direct deposit;
promotional offers for opening new accounts;
error resolution procedures for deposit accounts; and
probate process across different types of accounts.

ANSWER:

An insider means an executive officer, director, or principal shareholder and includes any related interest of such person.

Reference: 12 CFR 215.2(h).

ANSWER:

After calculating and establishing the protected amount in each account in the account holder’s name, the financial institution should follow its customary procedures for handling garnishment orders against any funds in excess of the protected amount in each account.

Reference: Fed. Consumer Compliance Outlook, 3rd Quarter 2013; 31 CFR 212.6(d).

ANSWER:

The flood rule provides that to be accepted under the discretionary acceptance provision, the flood insurance policy must cover both the mortgagor(s) and the mortgagee(s) as loss payees, except in the case of a policy that is provided by a condominium association, cooperative, homeowners association, or other applicable group and for which the premium is paid by the condominium association, cooperative, homeowners association or other applicable group as a common expense. This exception is identical to the exception provided for the requirement to escrow flood premiums currently contained in the requirement to escrow flood premiums currently contained in the Agencies’ flood insurance rules.

Reference: Loans in areas having special flood hazards, final rule, Federal Register Wednesday February 20, 2019, page 4962. See also escrow rule: OCC: 12 CFR 22.5(a)(2)(iii) FED: 12 CFR 08.25(e)(1)(ii)(C) FDIC: 12 CFR 339.5(a)(2)(iii)

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Compliance Question of the Week

Question: Does the E-Sign Act apply to all documents?

Q&A Archives

Question: How can we validate that our AML software system is accurately working?

Question: Under the Bank Bribery Act, is there a set dollar amount which qualifies as a thing of value?

Question: When must a bank provide an adverse action notice disclosure under FCRA?

Question: When is a disclosure required to be provided when there is a lender paid mortgage insurance (LPMI)?

Question: Which products and services receive the most consumer complaints?

Question: Under Regulation O, who is considered an insider for recordkeeping purposes?

Question: What happens with the funds in excess of the amount protected under the Garnishment rule?

Question: For private flood insurance to be accepted under discretionary acceptance, does the policy need to have a specific mortgage interest clause provision for condominiums or is there an exception for condos?

Ask an Expert