Compliance Question of the Week

In today’s banking environment as soon as one big new regulation is implemented another pops up. Our compliance resources help your community bank stay one step ahead of the regulators.

Regulations and Guidance

Question: What is required under Bank Protection Act?

ANSWER: 

The Bank Protection Act requires each bank to implement a written security program that includes procedures for opening and closing the bank, how to respond during and after a robbery, security devices such as alarms, vault, and tamper resistant locks on doors and windows. Each bank must also designate a security officer to oversee the security program who is also responsible for reporting.

Reference: FED 12 CFR 208.61; OCC 12 CFR 21; FDIC 12 CFR 32

Q&A Archives

ANSWER:

Exceptions to the periodic statement requirement for certain accounts include:

Preauthorized transfers to accounts.

For accounts that may be accessed only by preauthorized transfers to the account the following rules apply:

(i) Passbook accounts. For passbook accounts, the financial institution need not provide a periodic statement if the institution updates the passbook upon presentation or enters on a separate document the amount and date of each electronic fund transfer since the passbook was last presented.

(ii) Other accounts. For accounts other than passbook accounts, the financial institution must send a periodic statement at least quarterly.

Intra-institutional transfers.

For an electronic fund transfer initiated by the consumer between two accounts of the consumer in the same institution, documenting the transfer on a periodic statement for one of the two accounts satisfies the periodic statement requirement.

Relationship between paragraphs (c)(1) and (2) of this section.

An account that is accessed by preauthorized transfers to the account described in paragraph (c)(1) of this section and by intra-institutional transfers described in paragraph (c)(2) of this section, but by no other type of electronic fund transfers, qualifies for the exceptions provided by paragraph (c)(1) of this section.

Reference: 1005.9(c).

ANSWER:

The military will notify only the service member’s family or next of kin in case of death.

It is the responsibility of the service member’s family or designated representative to handle personal affairs for the deceased.  The servicer may also obtain this information from the surviving spouse when attempting to make third party contact to ascertain the reason for delinquency.

Reference: Fed. Consumer Compliance Outlook, 1st Quarter 2013, as updated in Dec. 2015.

ANSWER:

Under Regulation GG: A person that identifies and blocks a transaction, prevents or prohibits the acceptance of its products or services in connection with a transaction, or otherwise refuses to honor a transaction shall not be liable to any party for such transaction if:

  • The transaction is a restricted transaction;
  • Such person reasonable believes the transaction to be a restricted transaction; or
  • The person is participant in a designated payment system and blocks or otherwise prevents the transaction in reliance on the policies and procedures of the designated payment system in an effort to comply with this regulation.

Reference: Regulation GG: 12 CFR 233.5(d) Policies and Procedures Required

ANSWER:

A residential condominium, including multi-story condominium complexes, are subject to the regulatory requirements for flood insurance.

The purchase requirements apply to loans secured by individual residential condo units located in multi-story complexes.

Reference: Interagency Flood Q&A 2022, XII. Flood Insurance Requirements for Residential Condominiums and Co-Ops; Condo and Co-Ops 1

ANSWER:

There are numerous risks that may arise from an institution’s use of third parties.

Some of the risks are associated with the underlying activity itself, similar to the risks faced by an institution directly conducting the activity.

Other potential risks arise from or are heightened by the involvement of a third party.

Failure to prevent or mitigate these risks can expose an institution to:

  • supervisory action,
  • financial loss,
  • litigation,
  • reputation damage, and
  • may even impair the institution’s ability to establish new or service existing customer relationships.

Some of the risks that may arise from a relationship with a third party include:

  • compliance risk,
  • reputation risk,
  • strategic risk,
  • operational risk,
  • transaction risk,
  • credit risk, and
  • country risk.

Reference: FDIC Compliance Examination Manual - March 2017, VII-4.2


ANSWER:

In general, ADA states that guide/service animals are to be permitted in buildings. However, the FAQ states the ADA does not require some entities to revise their policies regarding permitting animals. To determine whether the bank is exempt from the requirements for service/guide animals, review the ADA as well as state and local/municipal laws which may be more protective of people with disabilities.

Reference: 2 U.S. Code Chapter 126 -[42 U.S.C. 12101] Equal Opportunities for Individuals with Disabilities; Pub. L. 110–325 See also: Frequently Asked Questions about Service Animals and the ADA www.ada.gov


ANSWER:

No. Regulation Z only refers to 1st liens when it comes to escrow requirements for HPMLs. There is nothing in the rule or commentary to suggest that it is the banks responsibility to perform due diligence on the first lien loan, even if the first lien is at the same financial institution. 

Reference: 12 CFR 26.35(b)


ANSWER:

Fair lending laws contain provisions to address predatory lending practices such as inadequate disclosure - the practice of failing to fully disclose or explain the true costs and risks of loan transactions.

Other predatory lending examples include:  

  • Collateral or equity “stripping”: The practice of making loans that rely on the liquidation value of the borrower's home or other collateral rather than the borrower's ability to repay.
  • Risky loan terms and structures: The practice of making loans with terms or structures that make it more difficult or impossible for borrowers to reduce their indebtedness.
  • Padding or packing: The practice of charging customers unearned, concealed, or unwarranted fees.
  • Flipping: The practice of encouraging customers to frequently refinance mortgage loans solely for the purpose of earning loan-related fees.
  • Single-premium credit insurance: The requirement to obtain life, disability, or unemployment insurance for which the consumer does not receive a net tangible financial benefit.

Reference: OCC Fair Lending Handbook

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