November 2015 Legal Briefs

December 1, 2015

OHCA requests for asset verification
Reg Z vs. UCCC – Part I
HMDA – Yes, Another huge change in what you do

OHCA requests for asset verification

By Pauli D. Loeffler

The OBA Compliance team has received a large number of calls and emails about customer privacy in responding to requests from the Oklahoma Health Care Authority for account balances. This article will cover the background of why the requests are being made as well as how the bank is protected from privacy violations in providing the information requested.

Why the OHCA asking for account balances. Federal public benefit programs subject to the Social Security Act (Title 42 of the United States Code) which covers SSD, SSI, TANF (Temporary Assistance to Needy Families, formerly called Aid to Families with Dependent Children or AFDC), Medicaid and Medicare are included in the Act. Some of these programs are administered by the states, and the state agencies receive grants to administer these programs. In order to be eligible to receive grant money, the state programs have to comply with the statutes found in Title 42 of the United States Code and as well as rules promulgated by the Social Security Administration.

OHCA is the state agency designated under Tit. 63 O.S. § 5009 to administer the Oklahoma Medicaid Program. The pertinent part of the Oklahoma statute reads as follows:

“B. On and after January 1, 1995, the Authority shall be the designated state agency for the administration of the Oklahoma Medicaid Program.” OHCA’s Medicaid program is required to comply with the Title 42 U.S.C. § 1396w:

(a) Implementation

(1) In general

Subject to the provisions of this section, each State shall implement an asset verification program described in subsection (b), for purposes of determining or redetermining the eligibility of an individual for medical assistance under the State plan under this subchapter.

(b) Asset verification program

(1) In general

For purposes of this section, an asset verification program means a program described in paragraph (2) under which a State—

(A) requires each applicant for, or recipient of, medical assistance under the State plan under this subchapter on the basis of being aged, blind, or disabled to provide authorization by such applicant or recipient (and any other person whose resources are required by law to be disclosed to determine the eligibility of the applicant or recipient for such assistance) for the State to obtain (subject to the cost reimbursement requirements of section 1115(a) of the Right to Financial Privacy Act [12 U.S.C. 3415] but at no cost to the applicant or recipient) from any financial institution (within the meaning of section 1101(1) of such Act [12 U.S.C. 3401(1)]) any financial record (within the meaning of section 1101(2) of such Act) held by the institution with respect to the applicant or recipient (and such other person, as applicable), whenever the State determines the record is needed in connection with a determination with respect to such eligibility for (or the amount or extent of) such medical assistance; and

(B) uses the authorization provided under subparagraph (A) to verify the financial resources of such applicant or recipient (and such other person, as applicable), in order to determine or redetermine the eligibility of such applicant or recipient for medical assistance under the State plan.

(2) Program described

A program described in this paragraph is a program for verifying individual assets in a manner consistent with the approach used by the Commissioner of Social Security under section 1383(e)(1)(B)(ii) of this title.

(f) Refusal or revocation of authorization

If an applicant for, or recipient of, medical assistance under the State plan under this subchapter (or such other person described in subsection (b)(1), as applicable) refuses to provide, or revokes, any authorization made by the applicant or recipient (or such other person, as applicable) under subsection (b)(1)(A) for the State to obtain from any financial institution any financial record, the State may, on that basis, determine that the applicant or recipient is ineligible for medical assistance.

(g) Use of contractor

For purposes of implementing an asset verification program under this section, a State may select and enter into a contract with a public or private entity meeting such criteria and qualifications as the State determines appropriate… In carrying out activities under such contract, such an entity shall be subject to the same requirements and limitations… in use and disclosure of information as would apply if the State were to carry out such activities directly.

Additionally, Oklahoma has the following statute:

Title 56 O.S. § 1004

A. No potential Medicaid recipient shall be eligible for medical assistance unless such recipient has, in writing, authorized the Oklahoma Health Care Authority and the Attorney General to examine all records maintained as required by the Oklahoma Medicaid Program by the recipient, or of those receiving or having received Medicaid benefits through the recipient, whether the receipt of such benefits would be allowed by the Oklahoma Medicaid Program or not.

Right of privacy. Both the federal Right to Financial Privacy Act found in Title 12 U.S.C. § 3402(1) and the Oklahoma Financial Privacy Act in Title 6 O.S. § 2203(a) permit disclosure of customer financial records when the customer has provided written consent for the specific record. As indicated, in order to receive benefits, in connection withy applying for/receiving benefits, the customer has provided his consent. Title 42 O.S. §§ 1396w, above, and 1383(e)(1)(B)(ii) provide:

· The authority to make the request and the purposes which the records are required by providing this is done by citation to determine or redetermine income or resources material of the applicant or recipient or any other person for eligibility for federal benefits under the Social Security Act

· The authorization provided DOES NOT automatically terminate 3 months after it is executed, a provision found in the federal Right to Financial Privacy Act, but remains effective until the earliest of a final adverse decision, eligibility ceases or the express revocation by an applicant or recipient (or any other person). [NOTE: Once written consent is provided, the Oklahoma Financial Privacy Act has no provisions for automatic termination after a certain period of time. This is just one of several differences between the federal and state financial privacy Acts.]

· The consent signed by the customer does need not be furnished to the financial institution.

· The information obtained is not shared by Social Security nor by the state agencies, other than with respect the specified program.

OHCA, as the agency administering the Oklahoma program, has contracted with Accuity Asset Verification Services Inc. (AVS) as provided by the Title 42 O.S. § 1396w(g). Your bank may or may not be familiar with AVS, but the name “Accuity” may ring a bell – it was formerly Thomson Financial Publishing and the company has been the official registrar for the American Bankers Association for bank routing numbers, and both Accuity, Inc. and AVS are part of a group of companies providing services to banks and business for more than 175 years.

On behalf of OHCA, AVS will be sending banks letters regarding automated asset verification options available obviating the need for paper requests banks are currently receiving. Unlike the automatic data collection for the Financial Institution Deposit Match program used by the Oklahoma Child Support Services which is mandated by state law, there is no requirement at this point that banks participate in automated asset verification, but the automated system will be cost- and time- efficient for all parties. Several Oklahoma banks have already gone to the automated system.

Reg Z v. the UCCC – Part I

When Charles Cheatham was OBA general counsel, he wrote a comprehensive comparison of the differences between Reg Z and Oklahoma’s Uniform Consumer Credit Code (“U3C”) for the September 2000 OBA Legal Briefs. In the 15 years since then, Reg Z has undergone several amendments, and coverage and other provisions not only still differ from those of the U3C but the nature and extent of the differences have changed to some extent. To ensure compliance, the consumer lender or consumer credit seller must understand the provisions of both Reg Z and the U3C. This article will focus on some of the differences in coverage. Citations to sections of the Oklahoma U3C can be found in Title 14A of the Oklahoma Statutes.

Loans excluded from the U3C but are subject to Reg Z. There are two categories of consumer loans where the only applicable provision of the U3C is the maximum rate of interest permitted under Oklahoma law (45%), but there is no exclusion allowed under Reg Z. The first is a consumer purpose loan that exceeds the threshold amount under both Reg Z and the U3C (which is- $54,600 through December 31, 2015), that is secured by a mobile home without real estate and that is not a private education loan (see Sec. 3-104, below).

The second type is a consumer purpose loan made to a trust. While the amendment to the Official Interpretation to Reg Z § 1026.3(a)(2) effective October 3, 2015, made loans to trusts subject to Reg Z. The U3C definition of Consumer Loan excludes a loan to “organization” under Sec. 3-104(a) and Sec. 1-301 proves: (12) “Organization” means a corporation, government or governmental subdivision or agency, trust, estate, partnership, cooperative or association.

Real estate loans excluded from certain U3C provisions. The first real estate exclusion from the U3C is in Section 1-202(5), and it depends on the loan’s purpose. This provision generally exempts from the U3C’s coverage loans “made to enable the debtor to build or purchase a residence or to refinance such loan.” The U3C provisions with respect to (1) disclosures, (2) remedies, and (3) the 45% usury rate on non-consumer loans continue to apply. Note that disclosures made in compliance with Reg Z satisfy the disclosure requirements of Oklahoma’s U3C.

The second exclusion is in Section 3-105. It eliminates from the definition of “consumer loan” under the U3C any loan that is “primarily secured by an interest in land,” if the value of the land is substantial in relation to the amount of the loan, and the loan has an initial interest rate not exceeding 13%. Most banks have not been made many consumer-purpose real estate loans at an initial rate exceeding 13% (either fixed or variable rate) since the ‘80s. Again, most “restrictions on practices” contained in the U3C will not apply because they are neither disclosures (Section 3-301) nor remedies (Section 5-201).

“Fresh Start Loans” excluded from Reg Z are subject to the U3C. When a consumer overdraws a deposit account and is unable to bring the account to a zero balance within 60 days (at which time under federal regulatory requirements it must be charged off), most banks offer what is commonly called a “Fresh Start Loan” payable in no more than 4 installments with no finance charge. § 1026.1 provides:

(c) Coverage. (1) In general, this part applies to each individual or business that offers or extends credit, other than a person excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of 2010, Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376, when four conditions are met:

(i) The credit is offered or extended to consumers;

(ii) The offering or extension of credit is done regularly;

(iii) The credit is subject to a finance charge or is payable by a written agreement in more than four installments; and

(iv) The credit is primarily for personal, family, or household purposes.

Since Fresh Start Loans do not meet the third requirement, these loans are excluded from Reg Z coverage, and no disclosures are required

Turning now to Oklahoma’s U3C, Sec. 3-104 provides the definition of “Consumer Loan” as follows:

Except with respect to a loan primarily secured by an interest in land (Section 3-105 of this title), or except with respect to loans granted by institutions of postsecondary education except that such loans by institutions of postsecondary education shall be subject to disclosure requirements pursuant to Section 3-301 of this title and remedies for violation of disclosure provisions pursuant to Articles 5 and 6 of this title if otherwise they meet the definition of consumer loan, a “consumer loan” is a loan made by a person regularly engaged in the business of making loans in which:

(a) the debtor is a person other than an organization;

(b) the debt is incurred primarily for a personal, family or household purpose;

(d) either the principal does not exceed Fifty Thousand Dollars ($50,000.00), unless the loan is a private education loan as that term is defined in Section 8 of this act, or the debt is secured by an interest in land. The dollar amount in this paragraph shall be adjusted annually as indicated by the Consumer Financial Protection Bureau by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, as published by the Bureau of Labor Statistics, rounded to the nearest multiple of One Hundred Dollars ($100.00) or One Thousand Dollars ($1,000.00) as applicable.

So far, so good, except for the following definition in Sec. 1-301:

(13) “Payable in installments” means that payment is required or permitted by agreement to be made in:

(a) two or more periodic payments, excluding a down payment, with respect to a debt arising from a consumer credit sale pursuant to which a credit service charge is made;

(b) four or more periodic payments, excluding a down payment, with respect to a debt arising from a consumer credit sale pursuant to which no credit service charge is made; or

(c) two or more periodic payments with respect to a debt arising from a consumer loan.

If any periodic payment other than the down payment under an agreement requiring or permitting two or more periodic payments is more than twice the amount of any other periodic payment, excluding the down payment, the consumer credit sale, consumer lease, or consumer loan is “payable in installments.”

Regardless of the fact that no interest is charged on Fresh Start Loans, since these loans require the consumer make two or more payments, they are covered by the U3C, and the bank must provide disclosures.

HMDA – Yes, another huge change in what you do

By Andy Zavoina

Jargon alert! Those of you subject to HMDA will be adding new acronyms like DIACA, ULI and LEI to your regulatory vocabulary!

A new final rule making substantial changes to CFPB’s Regulation C, which implements the Home Mortgage Disclosure Act (HMDA), was published in the Federal Register on October 28, 2015. There is good news and there is bad news.

First, the bad news. If you read the single column version of the new rule which was released October 13, you will see that it is just shy of 800 pages of change here. If you prefer the final Federal Register three-column version, it is only 214 pages but it is the same content, just printed smaller. Either way, it means there is a lot of change. There are changes in the data you will collect. There are changes in which institutions will be covered. There are changes in which types of loans will be covered. There are changes in the fields you must complete. There are changes in terminology.

The good news is you will not start collecting data under the new rule until January 1, 2018. Yes, 2018. The fact is, as noted above, the changes are substantial. Some HMDA reporters who have studied the new rules already are saying there may not be enough time to effect all of these changes. The take-away lesson here is that if you are, or will be, a HMDA reporter in the next few years you need to read and digest the new rules now, in 2015, so that you can evaluate how long it will take your bank to implement the changes coming.

Two important notes on this: 1) From our recent experience with the TILA/RESPA Integrated Disclosure Rule, we have learned that it is not a simple matter of “the software vendor will handle that.” It is up to you to manage the process and stay on top of your vendors. The consequences can impact your bottom line in many ways and the goal here is smooth integration. If you approach your software vendor now and their opinion is you have until 2018, then they are not getting started soon enough and there is already a problem. The systems changes will require extensive coding and testing and that is why your management task starts now. And 2) if you are just getting ready to be a new HMDA reporter in 2016 or 2017, you have twice the work, as you must implement the current rules, and allow for change to the new rules. You may be able to reduce some of the burden by streamlining processes with both rules in mind, but your workload will be tremendous.

Back to the basic things you need to know now about HMDA. This is a big picture overview and we will certainly be writing more on this as we digest it and the implementation period draws closer, along with milestones you should be achieving along the way.

· For 2016 and 2017 you will follow the current HMDA rules. As to data collection and reporting, things do not change. On January 1, 2018 you will begin collecting data in accordance with the new rules and you will report this data on or before March 1, 2019.

· HMDA will transition from a purpose-based test to a collateral-based test. For consumer purpose loans secured by a dwelling you will report on open- and closed-end loans and lines of credit. (Yes, HELOCs, if consumer purpose and dwelling-secured, will now be covered.) The confusion we have dealt with under the existing HMDA rule when it comes of original purpose vs. refinanced loans is gone. If it is an open end of closed end consumer credit transaction secured by a dwelling, it will be covered. For these types of transactions, you no longer look to see if the transaction would be home purchase, home improvement or refinance. It will no longer matter. If it is a consumer credit transaction, you just look to see if the collateral is a dwelling to determine coverage, regardless of what the proceeds of the loan will be used for. .

· Business purpose loans will be covered if they meet two requirements: l) they are secured by a dwelling, and 2) the loan proceeds will be used to purchase, improve or refinance the dwelling will be reportable

· Home improvement loans not secured by a dwelling will not be reported.

· The coverage confusion was often an issue with agricultural loans, which are now exempt. The operation of a farm is a business and when the purpose of a refinance is business, the loan is exempt. HMDA will use Reg Z’s business purpose test.

· A “dwelling” is not just a principal residence. It includes a vacation or second home as well as investment properties. It does not include recreational vehicles, houseboats, floating homes and pre-1976 mobile homes.

· You will want to know if your institution will escape HMDA coverage. It is possible to not have to report on one type of HMDA-covered loan, but still be required to report on another. Here’s how that can happen. There is a new loan volume test. If your bank originates 25 or fewer closed-end dwelling secured loans in the prior two calendar years then those closed end loans will not be reportable. There is a separate test for open-end loans. Here the test is the origination of 100 or fewer in the prior two calendar loans. These are independent tests and it may be that your bank reports one credit type, and not the other, depending on the test. There are quirks as the testing qualifications change after 2017 so this section of the regulation may require additional study because a small bank may be a reporter, then exempt, and then a reporter the next year. (If you fall into that boat, you may wish to continue doing the behind-the-scenes information gathering and recording during your “exempt” year, just to avoid having your process grow cold and unfamiliar.)