Compliance Questions & Answers

OFAC requires that all blocking and reject reports be submitted in writing. Optional reporting forms and options for electronic filing are available. Blocking and reject reports must contain a copy of the original transfer instructions.

Reference: OFAC FAQs: Sanctions Compliance, Q49.

Under privacy, an institution or its affiliates are prohibited from disclosing a customer’s account number or similar access code for a credit card, deposit, or transaction account to a nonaffiliated third party for use in telemarketing, direct mail marketing, or other marketing through electronic mail.

There are only three exceptions to this prohibition. A financial institution may disclose its customers’ account numbers to:

1. a consumer reporting agency;
2. its agent to market the institution’s own products or services, provided that the agent is not authorized to directly initiate charges to the account; or
3. another participant in a private label credit card or an affinity or similar program involving the institution.

Depending upon the totality of the circumstances, an institution that does not comply with these requirements may be also engaging in UDAAP.

Reference: CFPB Exam Manual V.2 October 2012.

Among the most significant risks are the ECOA (Regulation B) and fair lending. The bank needs to implement procedures to ensure that the third party (also known as dealer), follows fair lending – i.e., are interest rates fair to all applicants; are there any disparities based on prohibited bases, do the third party’s policies result in any actions that could violate ECOA (deliberately or inadvertently).

How are disclosures addressed; how are adverse actions addressed, etc. Keep in mind that whether direct or indirect lending, compliance with consumer protections is critical. Policies and procedures should be in place to ensure compliance; and procedures should also address monitoring of third party, as well as the responsibilities of the bank and third party as applicable.

Reference: https://www.minneapolisfed.org/publications/banking-in-the-ninth/indirect-lending. See also: http://www.philadelphiafed.org/bank-resources/publications/consumer-compliance-outlook/outlook-live/2013/indirect-auto-lending.cfm

No. Community Development includes activities, regardless of their location, that provide affordable housing for, or community services targeted to, low or moderate-income individuals and activities that promote economic development by financing small businesses and farms.

Activities that stabilize or revitalize particular low- or moderate-income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income areas (including by creating, retaining, or improving jobs for low- or moderate-income persons) also qualify as community development, even if the activities are not located in these areas.

One example is financing a supermarket that serves as an anchor store in a small strip mall located at the edge of a middle-income area, if the mall stabilizes the adjacent low-income community by providing needed shopping services that are not otherwise available in the low-income community.

Reference: FDIC Compliance Examination Manual CRA Interagency Q&A July 2016

The statute states that bank bribery act does not apply to bona fide salary, wages, fees, or other compensation paid, or expenses paid or reimbursed, in the usual course of business.

Note, that the bank must also consider any other laws, regulations, or statutes that may apply to compensation. For example, consider the following apply:

• RESPA 1024.14: Prohibitions against kickbacks and unearned fees;
• Regulation O: Insider lending;
• Regulation Z 1026.42: Valuation independence;
• Appraisal guidelines;
• Bank’s internal policies: Code of Ethics, Insider Activities, Lending Policy, etc.

Reference: 18 USC 215 Receipts of Commissions or gifts for procuring loans aka Bank Bribery Statute.

The bank may charge a determination fee. Charging a fee for the original determination is clearly within the permissible purpose envisioned by the Act.

The Agencies agree that a determination fee may include, among other things, reasonable fees for a lender, servicer, or third party to monitor the flood hazard status of property securing a loan in order to make determinations on an ongoing basis.

However, the life-of-loan fee is based on the authority to charge a determination fee and, therefore, the monitoring fee may be charged only if the following events occur:

• The determination is made in connection with the making, increasing, extending, or renewing of a loan that is initiated by the borrower;
• The determination is prompted by a revision or updating by FEMA of floodplain areas or flood-risk zones;
• The determination is prompted by FEMA’s publication of notices or compendia that affect the area in which the security property is located; or
• The determination results in force placement of insurance.

Further, a lender may not charge a composite determination and life-of-loan fee if the loan does not close, because the life-of-loan fee would be an unearned fee in violation of the Real Estate Settlement Procedures Act.

Reference: 12 CFR 339.8; See also, Interagency Flood Q&A 2022, VII. Flood Insurance Determination Fees; Fees 1-2.