November
November 30
Question: If we have a customer with a credit card which is currently delinquent according to the agreement, are we required to provide an Adverse Action Notice before closing it out due to charge off?
Answer: Subject to any language within the loan agreement providing otherwise, the definition of "adverse action" within Regulation B provides a specific exemption for accountholders that are currently delinquent at the time an action is taken, as you can see below. Therefore, an adverse action notice is not necessary when closing an account due to a current delinquency.
"(2) The term does not include:
(ii) Any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account;
....
2. Current delinquency or default. The term adverse action does not include a creditor's termination of an account when the account holder is currently in default or delinquent on that account. Notification in accordance with § 1002.9 of the regulation generally is required, however, if the creditor's action is based on a past delinquency or default on the account." Learn more.
November 22
Question: Should modifications be included on our HMDA LAR?
Answer: Only “extensions of credit” are reported for HMDA purposes. Generally, a modification is not going to be considered an extension of credit because HMDA commentary indicates that an “extension of credit” generally requires a new debt obligation and a modification of an existing debt obligation, without satisfaction and replacement, is not a covered loan. As always, the institution should thoroughly review the individual facts and circumstances of the case in question to ensure it aligns with the following guidance:
"…Under the HMDA Rule, an “extension of credit” generally requires a new debt obligation. Comment 2(d)-2. Thus, for example, a loan modification where the existing debt obligation is not satisfied and replaced is not generally a Covered Loan (i.e., Closed-End Mortgage Loan or Open-End Line of Credit) under the HMDA Rule. Except as described below, if a transaction modifies, renews, extends, or amends the terms of an existing debt obligation, but the existing debt obligation is not satisfied and replaced, the transaction is not a Covered Loan…" p.28: https://files.consumerfinance.gov/f/documents/cfpb_hmda_small-entity compliance-guide_2023-02.pdf
November 16
Question: I read that the FDIC recently proposed rules that would remove restrictions on hiring candidates with criminal histories. What should we be considering regarding these new proposed changes?
Answer: As you mention, the FDIC did recently propose amendments to its regulations concerning section 19 of the Federal Deposit Insurance Act (FDIA) in light of another law that was enacted at the end of 2022—the Fair Hiring in Banking Act (FHBA). In part, the FHBA lifted some of the restrictions on banks hiring candidates with criminal histories. Specifically, it excluded or exempted certain categories of criminal offenses, including certain older offenses, offenses by individuals aged 21 or younger, and “certain lesser offenses.”
However, these proposed revisions are at least in part just the “FDIC’s interpretation of section 19 in light of the FHBA.” In other words, while the FDIC is able to propose revisions to its own regulations, only the U.S. Congress is able to amend the actual law outlined in Section 19 of the FDIA.
Further, it’s imperative that the Bank also review its insurance policies and with its insurance provider as necessary. While changes to the regulations may grant the Bank more flexibility in its hiring, these same practices may still be excluded from coverage by insurance companies as a matter on agreement. In other words, an insurance company could likely deny a claim or even refuse to issue a bond, even if the law or regulations would otherwise allow it.
November 9
Question: I read that the FDIC recently proposed rules that would remove restrictions on hiring candidates with criminal histories. What should we be considering regarding these new proposed changes?
Answer: As you mention, the FDIC did recently propose amendments to its regulations concerning section 19 of the Federal Deposit Insurance Act (FDIA) in light of another law that was enacted at the end of 2022—the Fair Hiring in Banking Act (FHBA). In part, the FHBA lifted some of the restrictions on banks hiring candidates with criminal histories. Specifically, it excluded or exempted certain categories of criminal offenses, including certain older offenses, offenses by individuals aged 21 or younger, and “certain lesser offenses.”
However, these proposed revisions are at least in part just the “FDIC’s interpretation of section 19 in light of the FHBA.” In other words, while the FDIC is able to propose revisions to its own regulations, only the U.S. Congress is able to amend the actual law outlined in Section 19 of the FDIA.
Further, it’s imperative that the Bank also review its insurance policies and with its insurance provider as necessary. While changes to the regulations may grant the Bank more flexibility in its hiring, these same practices may still be excluded from coverage by insurance companies as a matter on agreement. In other words, an insurance company could likely deny a claim or even refuse to issue a bond, even if the law or regulations would otherwise allow it.
Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call (888) 353-3933 or email info@compliancealliance.com and ask for our Membership Team.
November 2
Question: We have a loan that was locked at 7.25% and disclosed on the LE at 7.25% but mistakenly changed to 7% on the Initial CD and then corrected on the Final CD back to 7.25%. Do the bank need to honor the 7% or can the loan close with 7.25%?
Answer: Assuming that the loan was locked via a rate lock agreement, whether or not the bank would be required to honor the lower rate on the initial CD may come down to the language in the rate lock agreement. However, the regulation itself does directly address when rates are mistakenly disclosed which do not align with the bank's rate that was locked pursuant to a rate lock agreement. If the agreement does not address this, the bank may want to consider honoring the lower rate to mitigate against potential UDAAP and/or contractual risks. See: https://www.consumerfinance.gov/rules-policy/regulations/1026/19/#f-2-ii
Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call (888) 353-3933 or email info@compliancealliance.com and ask for our Membership Team.
October
October 26
Question: Is it standard for a Reg O loan to have a demand feature?
Answer: It is required for a Reg O loan to an executive officer to have a demand feature. It is not specifically required for any other type of insider, however. Some banks we have spoken to do include a demand feature for all Reg O loans, but that would be a matter of internal policy.
“(d) Any extension of credit by a member bank to any of its executive officers shall be:
…
(4) Made subject to the condition in writing that the extension of credit will, at the option of the member bank, become due and payable at any time that the officer is indebted to any other bank or banks in an aggregate amount greater than the amount specified for a category of credit in paragraph (c) of this section.”
https://www.ecfr.gov/cgi-bin/text-idx?SID=a925cc4ab3799100a8a2591c6bad3b84&mc=true&node=pt12.2.215&rgn=div5
August
August 16
Question: Is a co-signer on a mortgage loan required to receive any disclosure specifically regarding their status as a co-signer?
Answer: The Cosigner Notice required under the former Reg AA is not specifically required by law anymore after the repeal of the regulation, but it's not uncommon for it to still be provided from a UDAP perspective under bank policy or procedure - for example:
" The Agencies note that the FTC’s Credit Practices Rule requires—and the former credit practices rules applicable to banks, savings associations, and Federal credit unions required—creditors to provide a “Notice to Cosigner” explaining the cosigner’s obligations and his or her liability if the borrower fails to pay. The Agencies believe that creditors have properly disclosed a cosigner’s liability if, prior to obligation, they continue to provide a “Notice to Cosigner.”"
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20140822a2.pdf
August 10
Question: We have a loan secured by a manufactured home community. For HMDA reporting purposes, does the number of individual dwelling units reported depend on if the manufactured home sites are occupied or not?
Answer: It does not. For an application or covered loan secured by a manufactured home community, a financial institution should include in the number of individual dwelling units the total number of manufactured home sites that secure the loan and are available for occupancy, regardless of whether the sites are currently occupied or have manufactured homes currently attached.
“2. Manufactured home community. For an application or covered loan secured by a manufactured home community, the financial institution should include in the number of individual dwelling units the total number of manufactured home sites that secure the loan and are available for occupancy, regardless of whether the sites are currently occupied or have manufactured homes currently attached. A financial institution may include in the number of individual dwelling units other units such as recreational vehicle pads, manager apartments, rental apartments, site-built homes or other rentable space that are ancillary to the operation of the secured property if it considers such units under its underwriting guidelines or the guidelines of an investor, or if it tracks the number of such units for its own internal purposes. For a loan secured by a single manufactured home that is or will be located in a manufactured home community, the financial institution should report one individual dwelling unit.” https://www.consumerfinance.gov/rules-policy/regulations/1003/interp-4/#4-a-31-Interp-2
August 1
Question: Please advise if there is regulatory guidance as to when an appraisal "review" is required?
Answer: Based on the interagency guidance all appraisals need some level of review. Reviews are needed to ensure that appraisals and evaluations contain sufficient information and analysis to support the institution's decision to engage in the transaction. But some will only require a more surface-level review to make sure the information is accurate, while others will require a deeper review which analyzes the report. The interagency guidance has a section on the depth of the review, based on risk:
“…An institution should implement a risk-focused approach for determining the depth of the review needed to ensure that appraisals and evaluations contain sufficient information and analysis to support the institution's decision to engage in the transaction….”
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