January 2025 OBA Legal Briefs

• Welcome OBA’s General Counsel
• BOI deadlines in limbo
• Interagency Guidance on Elder Financial Exploitation
• Banker Q&As
  • Unclaimed property and outstanding cashier’s check
  • Monthly payment of flood insurance
  • Right of rescission
  • Deceased IRA owner, RMD

Introducing the OBA’s new general counsel

By Scott Thompson

I would like to take this opportunity to introduce myself to the membership as the OBA’s newest employee. My name is Scott Thompson and I will be working in the role of General Counsel for the Association. I’m a George Washington Law School graduate and an Oklahoma State University alumnus, where I currently serve as a member of the alumni advisory board for the Political Science Department. I have worked in a variety of government and private sector positions over the last thirty years, including most recently as General Counsel at SpiritBank. A more complete resume was set out in the OBA Update for the “Week of Dec. 2,” so if you are interested in all of my fun and exciting work history or full educational background, you can head over to the OBA Update archives on the OBA website.

On a more personal note, I’ve been married for twenty-eight years.  My wife is a Disney fanatic, so Disney World is her happiest place on Earth. I have two boys. One is 22 and the other is 17. The oldest is a musician and currently focused on audio/video production. The youngest is a semester away from graduating high school and is headed to OSU in the Fall. We have two Yorkies. If you know Yorkies, you know they are the bosses, and we live to serve. I’m an OSU Cowboy and Pittsburgh Steelers fan, so you know that I’m very resilient in the face of adversity and disappointment. Fortunately, the Oklahoma City Thunder gives me the opportunity to experience the joy of being a fan of a team that regularly wins.

However, instead of focusing on the past, I want to address the future (mine, not the two aforementioned football teams needing better quarterbacks). Specifically, you might wonder what I will be doing when I come into work every day. That’s a good question! I certainly don’t have a complete answer (it’s my first day in the office as I write this), but they have let me in on a couple of things.

Out of the gate, I will be helping Adrian with legislation and governmental relations work. I’ve already starting reading through the bills filed for the upcoming session. If you’ve ever read through a bunch of legislation, it’s riveting. There are two sides to the legislative coin, helping enact laws that are good for bankers and stopping the ones that are bad. I haven’t yet figured out for certain which will be the bigger task this year, but it’s probably going to be the latter. There are a lot of people who have a legislator’s ear and not all of them want the best for us.

In addition to that work, I will be speaking at Association events, writing some articles, attending meetings with stakeholders like you, and working with my counterparts at the State Banking Department and the ABA to advance the interests of our members. As time passes, I hope to have the opportunity to meet and get to know many of you.

Beneficial Ownership Registration in limbo

By Pauli Loeffler

On December 23, 2024, a panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court’s preliminary injunction entered in Texas Top Cop Shop, Inc., pending the outcome of Treasury’s ongoing appeal of the district court’s order. Treasury immediately issued an alert notifying the public of this ruling and recognizing that reporting companies may have needed additional time to comply with beneficial ownership reporting requirements, Treasury extended reporting deadlines.  On December 26, 2024, a different panel of the U.S. Court of Appeals for the Fifth Circuit issued an order vacating the Court’s December 23, 2024 order granting a stay of the preliminary injunction. On December 31, 2024, the Department of Justice, on behalf of Treasury, sought a stay of the injunction pending the ongoing appeal from the Supreme Court of the United States.

As of December 26, 2024, FinCEN is complying with—and will continue to comply with— court orders.

Interagency Guidance on Elder Financial Exploitation

by Pauli Loeffler

On December 4, 2024, the federal regulatory agencies issued a Statement and Supervisory Guidance on Elder Financial Exploitation (https://www.fdic.gov/news/financial-institution-letters/2024/agencies-issue-interagency-statement-elder-financialFinancial Exploitation), “the Guidance.” The purpose is to raise supervised institutions’ awareness of, and provide strategies for addressing elder financial exploitation “EFE”). The Guidance is not intended to replace previous guidance issued, interpret or establish a compliance standard, and nor impose new regulatory requirements or new supervisory expectations.

Elder Financial Exploitation (“EFE”) is defined as the illegal or improper use of an older adult’s funds, property, or assets as according to FinCEN’s June 2022 EFE Advisory and the U.S. Department of Justice Elder Justice Initiative. “Older adults” are typically considered individuals aged 60 or older.

EFE consists of two primary subcategories: elder theft and elder scams. The Guidance emphasizes employee training to identify all types of financial exploitation not just those whose victims who are age 60 and older, but places special emphasis on Elder Financial Exploitation (“EFE”) which is critical to identifying all forms of EFE including:

• Unauthorized use of an elder’s bank accounts or credit cards
• Cashing an elderly person’s checks without authorization.
• Identity theft to open credit lines.
• Convincing an elder to add the abuser to joint accounts.
• Using a power of attorney or Letters of Guardianship for the benefit of fiduciary rather than the principal or ward
• Persuading the elder to change beneficiaries on wills, life insurance, or other financial accounts.

Note that EFE is on the rise, with a recent study done by AARP indicating an annual loss of $28.3 billion by elders.

•  Supervised institutions are encouraged to provide clear, comprehensive, and recurring training for their employees, recommending:
• Awareness of red flags to (e.g., identify theft, change of banking patterns, or recent addition of authorized users followed by large withdrawals).
• Development of a questionnaire for employees to use if they suspect financial exploitation.
• Procedures for employees and managers to respond to and report suspected financial exploitation.
• Educate employees as well as supervisors and employees directions to complete a detailed Suspicious Activity Report (SAR) when fraudulent activity is detected/suspected.

Federal law provides that a financial institution and certain employees are not liable in any civil or administrative proceeding for disclosing suspected elder financial exploitation to covered agencies if the financial institution has timely trained its employees on identifying elder financial exploitation.

Trusted contacts.

The Supervisory Guidance suggests that financial institutions may consider the establishing policies and procedures that permit account holders to designate one or more trusted contacts that the financial institution can contact when EFE is suspected. The account holder could provide the name of one or more family members, attorneys, accountants, or other trusted individuals as contacts and authorize the bank to contact that person if the bank is unable to reach the account holder or suspects that the account holder is at risk of financial exploitation. who might identify one or more family members, attorneys, accountants, or other trusted individuals and authorize the supervised institution to contact them if the supervised institution cannot reach the account holder or suspects that the account holder may be at risk of financial exploitation. The authorized contact would not have authority to obtain account information or make transactions unless specifically authorized by the account holder in writing. The problem here is similar to the situation where one joint owner names an agent under a power of attorney and the other joint owner objects.

The guidance recognizes naming a trusted contact will require the bank to set forth clear and effective procedures as to when and how it will disclose to the account holder and trusted contact that one or several transactions indicate elder financial exploitation may be involved.

The CFPB recommends that financial institutions establish procedures for enabling consumers to provide advance consent to sharing account information with a designated trusted third party when the financial institution reasonably believes that elder financial exploitation is occurring, has occurred, has been attempted or will be attempted. GLBA permits disclosure of nonpublic personal information with the consent of the consumer. The CFPB recommends developing a plain language consent form as well as procedures for offering consumers the opportunity to consent at account opening and periodically thereafter.

The CFPB recommends that financial institutions:

• Offer age-friendly services that can enhance protections against financial exploitation. There are certain services that institutions can offer to their general client base that may be particularly useful to older customers.
• Provide information about planning for incapacity. Advance planning for the possibility of diminished capacity and illness—by, e.g., naming a trusted person to serve as an agent under a power of attorney or other fiduciary—increases the odds that the person managing finances will act in the best interests of the account holder. ¨
• Honor powers of attorney. A financial institution’s refusal to honor a valid power of attorney can create hardships for account holders who need designated surrogates to act on their behalf. Financial institutions should establish procedures to ensure that the institution makes prompt decisions on whether to accept the power of attorney, that qualified staff make decisions based only on state law and other appropriate considerations and that frontline staff recognize red flags for power of attorney abuse.
• Offer protective opt-in account features. Examples of opt-in features that could reduce the risk of elder financial exploitation include cash withdrawal limits, alerts for specified account activity and read-only access to accounts for authorized third parties. A third-party monitoring feature can enable a designated family member or friend to monitor an account for irregularities without having access to funds or transactions.
• Offer convenience accounts as an alternative to traditional joint accounts. Traditional joint accounts, often used to enable a helper to pay bills, pose several risks. To avoid risks such as the joint owner withdrawing money for his or her own use, exposing account funds to creditors of the joint owner, and subverting an intended estate plan, financial institutions should provide information to consumers about these risks. When implemented properly, convenience accounts can mitigate these risks.
• Offer convenience accounts as an alternative to traditional joint accounts. Traditional joint accounts, often used to enable a helper to pay bills, pose several risks. To avoid risks such as the joint owner withdrawing money for his or her own use, exposing account funds to creditors of the joint owner, and subverting an intended estate plan, financial institutions should provide information to consumers about these risks. When implemented properly, convenience accounts can mitigate these risks. The CFPB recommends routinely offering such convenience accounts as an alternative.

Banker Q&As

Unclaimed property and outstanding cashier’s check

Q. When a customer does not cash their Escrow Surplus Check, are we able to apply that to their outstanding loan balance? Also, would we be able to deposit to their checking/savings account if they have one? We also have a customer who no longer has the mortgage loan with us, but has another loan, can it be applied to that loan?

I do know the easiest way would be to escheat the money to the State, however, we would prefer for the money be given to our customers and feel this is a service we owe them because we have a relationship with them.

A. The problem of what to do with outstanding cashier’s checks and unclaimed property is relatively common. Annually, I have at least one banker ask if it is okay to reissue the cashier’s check rather than report and remit the funds once the check has been issued for five years. The bank has no authority to do that nor can it deposit it to an existing account or pay a loan without consent of the customer. The worst-case scenario would be depositing the check without permission and then receiving a garnishment, child support, or IRS levy attaching the funds. I will point out that a cashier’s check never becomes “stale.”

In this case, the funds are ripe for reporting and remitting as unclaimed property under Tit. 60 O.S. Sec. 651.2:

651. Any sum payable on a check, certified check, cashier’s check, draft, or similar instrument, except those subject to Section 651.1 of this title, on which a banking or financial organization is directly liable, which has been outstanding for more than five (5) years after it was payable or after its issuance if payable on demand, is presumed abandoned, unless the owner, within five (5) years, has communicated in writing with the banking or financial organization concerning it or otherwise indicated an interest as evidenced by a memorandum or other record, on file, prepared by an employee thereof.

To avoid violating the statute, I recommend contacting the customer and suggesting s/he cash the check or deposit the check into an account as “not used as intended.” If she doesn’t want to do that, the bank has satisfied the conditions above, will note the contact and response, and restart the timer for reporting and remitting to the Oklahoma Treasurer.

Monthly payment of flood insurance

Q. With the revision of the National Flood Insurance Program (NFIP) allowing monthly installment payments for flood insurance premiums effective December 31, 2024, does the revision apply to both commercial and consumer purpose loans? If it does apply to commercial purpose loans, does it matter if the borrower is an entity or an individual?  Another way to ask the questions, what is the definition of “consumer” in the NFIP rule?

A. Below is the definition found on a web search for consumers, but I can’t find the source of the definition:

”A consumer of the National Flood Insurance Program (NFIP) is a property owner, renter, or business that purchases flood insurance from the program; essentially, anyone residing in a participating  community can buy flood insurance through the NFIP, regardless of whether they own or rent their property.”

With the revision of the National Flood Insurance Program (NFIP) allowing monthly installment payments for flood insurance premiums effective December 31, 2024, does the revision apply to both commercial and consumer purpose loans? If it does apply to commercial purpose loans, does it matter if the borrower is an entity or an individual?

Another way to ask the questions, what is the definition of “consumer” in the NFIP rule? Reg Z and its escrow requirements for certain loans apply only to consumer loans made to natural persons except with regard to Trusts. Likewise, Reg X applies to consumers and consumer loans. Reg X covers escrows for consumer loans and only consumer loans.

1024.5—Coverage of RESPA

(b) Exemptions. (1) [Reserved]

(2) Business purpose loans. An extension of credit primarily for a business, commercial, or agricultural purpose, as defined by 12 CFR 1026.3(a)(1) of Regulation Z. Persons may rely on Regulation Z in determining whether the exemption applies.

Reg Z 1026.3 — Exempt transactions.*

(a) Business, commercial, agricultural, or organizational credit. (1) An extension of credit primarily for a business, commercial or agricultural purpose.

(2) An extension of credit to other than a natural person, including credit to government agencies or instrumentalities.

Official Interpretation

3(a) Business, Commercial, Agricultural, or Organizational Credit

Primary purposes. A creditor must determine in each case if the transaction is primarily for an exempt purpose. If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt. (See comment 3(a)–2, however, with respect to credit cards.)…

Trusts. Credit extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization. Specifically:

Trusts for tax or estate planning purposes. In some instances, a creditor may extend credit for consumer purposes to a trust that a consumer has created for tax or estate planning purposes (or both). Consumers sometimes place their assets in trust, with themselves or themselves and their families or other prospective heirs as beneficiaries, to obtain certain tax benefits and to facilitate the future administration of their estates. During their lifetimes, however, such consumers may continue to use the assets and/or income of such trusts as their property. A creditor extending credit to finance the acquisition of, for example, a consumer’s dwelling that is held in such a trust, or to refinance existing debt secured by such a dwelling, may prepare the note, security instrument, and similar loan documents for execution by a trustee, rather than the beneficiaries of the trust. Regardless of the capacity or capacities in which the loan documents are executed, assuming the transaction is primarily for personal, family, or household purposes, the transaction is subject to the regulation because in substance (if not form) consumer credit is being extended.

Financial institutions should update their Notice of Special Flood Hazard to include the following new text:

Escrow Requirement for Residential Loans

Federal law may require a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. If your lender notifies you that an escrow account is required for your loan, then you must pay your flood insurance premiums and fees to the lender or its servicer with the same frequency as you make loan payments for the duration of your loan. These premiums and fees will be deposited in the escrow account, which will be used to pay the flood insurance provider.

Loan-Related Exceptions

The rule also excepts several categories of loans from the flood insurance escrow requirement:

loans with a subordinate position to a senior lien secured by the same property for which flood insurance is being provided;

loans secured by residential improved real estate or mobile homes that are part of a condominium, cooperative, or other project development when covered by a flood insurance policy that (a) meets the mandatory flood insurance purchase requirement; (b) is provided by the condominium association, cooperative, homeowners association, or other applicable group; and (c) the premium for which is paid by the condominium association, cooperative, homeowners association, or other applicable group as a common expense;

loans secured by residential improved real estate or a mobile home that is used as collateral for a business, commercial, or agricultural purpose;

home equity lines of credit;

nonperforming loans, which the regulation defines as loans that are 90 or more days past due and remain nonperforming until they are permanently modified or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, are collected or otherwise discharged in full; and

loans with terms of 12 months or less.

As a general rule, if a lender or its servicer determines during the term of a loan covered by this rule that an exception does not apply, the lender or its servicer shall require the escrow of all flood insurance premiums and fees as soon as reasonably practicable.

The final rule requires regulated lending institutions to offer and make available to borrowers the option to escrow flood insurance premiums and fees for loans secured by residential improved real estate or mobile homes that are outstanding as of January 1, 2016, subject to the exceptions outlined previously. The final rule clarifies that the option to escrow requirement does not apply to an outstanding loan that is already escrowing flood insurance premiums and fees or will be subject to the flood insurance escrow requirement. Furthermore, the rule requires regulated lending institutions that lose the small lender exception to offer the option to escrow to existing borrowers with outstanding loans secured by residential improved real estate or mobile homes. Regulated lending institutions have until June 30, 2016, to provide notice to affected borrowers about the option to escrow.

Right of rescission

Q. We are contemplating a transaction in which there are two borrowers.  One borrower does not live in the home, but is on the deed.  There is a hypothecator who owns the property, but does not live there.  Are we required to have the hypothecator to sign a right of rescission?  This will be on a consumer RE loan.

A. Right of rescission only applies when the loan is consumer purpose and the home is the principal residence of the person granting a security interest in the property. In the scenario you provide, neither the person lives in the home, so there is no right of rescission required.

Deceased IRA owner, RMD

Q. We have an IRA owner that recently passed away that was 65. His wife which is the beneficiary is 79. Will she be required to take an RMD?

A. Since the IRA owner had yet to reach his Required Beginning Date for Required Minimum Distribution, the beneficiary wife will not have to take an RMD prior to making it her own IRA or a beneficiary IRA.

Elder Financial Exploitation is the illegal or improper use of an older adult’s funds, property, or assets, according to FinCEN’s June 2022 EFE Advisory and the U.S. Department of Justice Elder Justice Initiative.  Older adults are typically considered individuals aged 60 or older. EFE consists of two primary subcategories: elder theft and elder scams. [Footnotes omitted]

Supervised institutions may establish policies and procedures that enable account holders to designate one or more trusted contacts that employees can contact when elder financial exploitation is suspected.  For example, an account holder might identify one or more family members, attorneys, accountants, or other trusted individuals and authorize the supervised institution to contact them if the supervised institution cannot reach the account holder or suspects that the account holder may be at risk of financial exploitation. Unless separately authorized by the account holder, a third-party trusted contact typically would not have authority to view account information or execute transactions. If a supervised institution establishes a trusted contact designation process for account holders, it may be beneficial to develop clear and effective procedures for when and how to disclose to the account holder and trusted contact that one or more transactions have indicated that elder financial exploitation may be occurring.  Any disclosures to account.