March 2017 Legal Briefs

For February 2017 OBA Legal Briefs Pauli and Mary Beth provided readers with scripts reflecting compliance requirements as they exist as of early February, 2017.  Pauli tackled the Operations side, while Mary Beth had fun with lending.  This month they are providing the answers. How many did you spot? 

 

 

 

Meagan’s compliance mistakes at the “Brews ‘N Billiards” Saturday are more than a small brouhaha. By introducing herself to handsome Stranger in front of his buddies saying: “I don’t know if you remember me, but I work for Bank of Blunders, and I helped you open your Super NOW account a couple of weeks ago,” she violated Reg P §1016.3(q) with regard to personally identifiable information: 

 

(2) Examples. (i) Information included. Personally identifiable financial information includes:

 

(C) The fact that an individual is or has been one of your customers or has obtained a financial product or service from you;

 

(D) Any information about your consumer if it is disclosed in a manner that indicates that the individual is or has been your consumer…

 

Depending on the Bank of Blunder’s CIP policies and procedures, address verification can be handled in several ways. The Oklahoma Department of Public Safety does not require you to get a new DL if you move from one location in Oklahoma to another location in Oklahoma.  You must simply notify DPS of your new address: www.dmv.org/ok-oklahoma/change-address.php

 

If River City (the place Bill moved from) was in another state, he would be required to transfer his out-of-state driver’s license and obtain an Oklahoma license after becoming an Oklahoma resident.

 

Here is an excellent discussion regarding addresses from the BOL Forums:  

 

 

Willis ‘ failure to confirm that Peggy Sue was the passenger who indorsed the Treasury check for the jointly payable tax refund deposited into George’s solely owned account may well make the Bank of Blunders liable for some or all of the amount of the check, and the statute of limitations  on U.S. Treasury checks is seven years. It is not uncommon for an estranged spouse to forge the other spouse’s signature, but I have heard this scenario so many times I cannot even give you an accurate number.  When a check is presented to the drawee bank, the bank of deposit warrants that the check was paid in cash or deposited into an account of the named payee(s). Even if Peggy Sue is a customer of the bank, so it has her signature on another account, this is still a third-party indorsement which requires the bank employee confirm the identities of the joint payees before cashing or depositing it. 

 

Kara’s remark regarding §4-205 regarding a missing indorsement is entirely misplaced in this instance since Peggy Sue’s indorsement is a forgery. (Plus, 4-205 should not be relied upon if a check is payable jointly.)  I would also warn that a bank should be suspicious when the check is deposited into a recently opened joint account with only one indorsement. A common ploy when a couple has recently separated or divorced is for the one who receives the check to fraudulently open a joint account in the names of both parties in order to deposit the joint check without the knowledge or consent of the other payee and gain sole access to the proceeds. IRS checks are very specifically payable to both parties, and have the word "and" between the names. It is entirely possible for one of your joint account holders to get the IRS check with the other payee on the check having no knowledge of its receipt.  Also be aware that the same type of deception can be done with a rarely used older joint account.

 

 

Slim made the same error with regard to the check from insurance company payable to “Shuck and Jive, Inc.” and Bank of Blunders, but compounded it by giving Jerry cash back. Even if Shuck and Jive, Inc. was the only payee on the check, giving “cash back” on a check payable to an entity instead of deposing the check and then making a withdrawal is never a good practice.  Although Jerry says the $500.00 is for customer change, the bank has no way to confirm this and could be liable if Jerry is converting assets of the corporation. Jerry may have stolen the check from the mailroom.  Even if Jerry is the sole shareholder of the corporation, allowing Jerry this should not be allowed, since it can allow creditors of the corporation to "pierce the corporate veil" and go after Jerry’s personal assets as the sole shareholder which is something he can confirm with his attorney if he complains about it.   Since the insurance check was made payable jointly to the bank and the company, it probably related to property mortgaged to the bank and Slim should have checked to make sure the loan payments were current.

 

While I have no idea why Willis needed to delay Mrs. Merriweather while he filled out a CTR since he would already have the necessary information, this is definitely structuring, so instead of a CTR, a Suspicious Activity Report will have to be filed on both Mrs. Merriweather and Willis.  What about Mr. Merriweather, the bank president?  There is nothing to indicate he has done more than tell his wife that cash transactions exceeding $10,000 require a CTR. If Jill had said, “Darn, my husband hates the time it takes you guys filling out these silly reports,” we would have a different situation.

 

 

Kara committed a major BSA violation by announcing in the lobby that she is going to file a SAR.   The fact that a SAR has been filed must be disclosed only on a need-to-know basis to avoid it being indirectly communicated back to the subject.

 

 

Deidre’s destruction of the counterfeit $20.00s is going to make it a busy day for SARs at the Bank of Blunders. When a bank receives counterfeit bills, there are specific procedures that must be followed in notifying and submitting the bills to the Secret Service.. The counterfeits are evidence of a crime.

 

 

 

Not so fast.  The detached structure exemption to flood insurance comes into play only if the detached structure does not serve as a residence.  The rule says ‘‘Serve as a residence’’ shall be based upon the good faith determination of the bank that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.

 

 

LIBBIE LINDER:   Yep, TRID.  It would have required you to have a waiting period before we closed your loan and all kinds of other things, if we hadn’t had the exception.  

 

Gone are the days when there was an exception from compliance requirements based upon the property consisting of 25 or more acres.  That used to be in RESPA.  It’s not even a RESPA exemption anymore and TRID doesn’t care about anything other than whether it is a closed end consumer credit transaction secured by real property.  If it meets those criteria, TRID applies, regardless of the number of acres.

 

 

 

 

Too late for a waiver of the appraisal timing requirement, Noah!  Under Reg B, the waiver must be made before entering the three business day period prior to consummation or account opening. 

 

 

 

Never, never backdate a bank document, particularly a notice or disclosure.  If you have a contract and the contracting parties want to specify that the contract will be deemed effective as of a particular date, that’s doable.  But putting a false date is something else, and it calls into question the validity of all your bank’s documents.

 

 

Lay off on the fee income, Noah.  Section 1002.14(a)(3) says “A creditor shall not charge an applicant for providing a copy of appraisals and other written valuations as required under this section, but may require applicants to pay a reasonable fee to reimburse the creditor for the cost of the appraisal or other written valuation unless otherwise provided by law.”

 

 

You need some fair lending training, Karla.  What you’ve said is clearly illegally discriminatory under the Fair Housing Act which prohibits discrimination on the basis of familial status and there have been numerous enforcement actions brought against lenders for similar behavior.    Applicants on maternity leave should not be required to return to work status as a condition for acting on their mortgage loan application.  A 2014 Wells Fargo settlement with HUD provides insight into how the underwriting should be done.

 

 

Leroy was evidently napping when Regulation V changed, as a result of the FACT Act, paving the way for consumers to make direct disputes to furnishers of information.  The consumer may direct the dispute to the CRA or the furnisher.   If a dispute is made directly with the furnisher, the furnisher must respond directly to the consumer.  (There is also a red herring/non-issue here.  The Protecting Tenants at Foreclosure Act really did sunset and has not been reborn.) 

 

 

Ralph!  What are you thinking?  The loan would be a closed end consumer credit transaction secured by real estate (in this case, the borrower’s principal dwelling).  Despite the short term of the loan, it would be covered by TRID, so there will be a lot of paperwork and there will be waiting periods before consummation.  Plus, if the rate is high enough to trigger the HPML escrow requirement, an escrow will be needed, since the bank is acquiring a first mortgage lien on the principal residence and this would not qualify as temporary financing.  As for making someone a copy of their credit report – don’t do it.  Direct the customer to annualcreditreport.com and have him obtain copies from the three nationwide CRAs there.  Also, the Risk-based Pricing Notice should help the customer understand how his credit report negatively impacted him.

 

 

Uh oh.  It is highly unlikely that Ralph (who is obviously making consumer mortgage loans) would meet the loan originator qualification standards in Regulation Z (or the SAFE Act, if he needs to be registered).  The bank has a problem here.

 

 

The FACT Act strictly prohibits discrimination on the basis of a medical condition or medical history or even a rumor about medical matters and the bank is not allowed to inquire about it either.

 

 

Get your nose out of the applicant’s medical files, Leroy.  Here’s what the CFPB says in its Bulletin 2014-03:  To verify income for Qualified Mortgage debt-to-income ratios under the Ability-to-Repay rule, lenders are required to look at whether the Social Security Administration benefit verification letter or equivalent document includes a defined expiration date for payments. Unless the Social Security Administration letter specifically states that benefits will expire within three years of loan origination, lenders should treat the benefits as likely to continue. 

 

 

The rules and your program may allow you to skip doing CIP on existing customers opening new accounts or obtaining new loans, but it does not allow you to skip CIP on former customers.

 

 

There is no changed circumstance, so a new Loan Estimate can’t be issued.  Ralph is stuck with the violations for the inaccurate LE.

 

 

Sorry you don’t like it, Leroy, but that’s the way it is supposed to be done.

 

 

The purpose field on TRID is hierarchical.  You go through one at a time.  If the property being purchased is not the property that will be collateral for the loan, it is not a purchase loan.  It needs to be accurate.

 

 

No swagging allowed.  You must make a good faith estimate – and that requires doing your homework in the area where the service provider is to determine what the fees are there.

 

 

Maybe not.  If the mortgage originated before the period of the servicemember’s military service and the servicemember is still obligated on it, the current version of the SCRA allows a foreclosure proceeding to be stayed upon the court’s own motion or upon an application by the servicemember not only during the period of military service but for one year thereafter.

 

 

Bad idea, senior management.  Here’s some required reading:  the June 2016 enforcement order involving Bancorp South Bank from June 2016.

 

 

Two problems here.  The NMSLR ID put on a document should reflect the identifier of the loan originator actually working on the transaction at that time.  Putting another individual’s NMSLR ID on documents for a loan they aren’t actually working on is a violation.  The second problem relates to what Leroy is chatting about.  Inquiring into matters such as kids, marriages, religion, etc. could lead to the appearance of discriminating on a prohibited basis.  

 

 

By John Burnett

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) published in the March 2 Federal Register a proposal to extend for 60 days the April 10, 2017, applicability date of the “Fiduciary Conflict of Interest” rule defining who is a “fiduciary” under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code of 1986 (Code). The proposal would also push back the applicability date of related prohibited transaction exemptions, including the Best Interest Contract Exemption and amended prohibited transaction exemptions. The proposed delay would be to afford EBSA time to examine whether the fiduciary rule may adversely affect the ability of Americans to gain access to retirement information and financial advice, and to prepare an updated economic and legal analysis concerning the likely impact of the final rule as part of that examination, all as required by President Trump’s February 3, 2017, memorandum to the Secretary of Labor. 

 

The comment period on the proposal to delay the applicability date will run for 15 days, through Friday, March 17, 2017. EBSA is also inviting comments on whether a 60-day delay (to June 9) or a shorter or longer delay is appropriate. 

 

The status of the Fiduciary Rule itself is unknown. The outcome of the renewed analysis of the rule could be a determination to let the rule become effective on some future date, a decision to amend the rule (which would trigger another proposal for comment and a new final rule), or rescission of the rule. The immediate challenge for EBSA, though, is to finalize the proposal to extend the applicability date before April 10.