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: A borrower is purchasing a condo on the 8th floor of the building. The condo building is in a SFHA in a participating community. However, since the unit in question is on the 8th floor, is flood insurance necessary?

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

Q&A Archives

ANSWER:

The regulation does not require a statement of the MAPR to be included in advertisements.

Reference: 32 CFR 232.6(b)(2)

ANSWER:

Regulation P provides an exception under section 13 for providing disclosure. The opt out notice requirements of 1016.6 and 1016.10 do not apply when nonpublic personal information is provided to a nonaffiliated third party to perform services on the bank’s behalf, if the bank:

  • Provides the initial notice
  • Enter into a contractual agreement with the third party that prohibits the third party from disclosing or using the information other than to carry out the purposes for which you disclosed the information, including use under an exception in 1016.14 or 1016.15 in the ordinary course of business to carry out those purposes.
When determining whether the notice requirements apply, be sure to review the examples included in these sections.

Reference: Regulation P: 12 CFR 1016.13(a) and (b) See also: 1016.14 and 1016.15

ANSWER:

The CFPB found the following acts to be unfair and abusive:

  • opening deposit accounts and transferring funds without the prior authorization of the consumers in whose names the accounts were opened; and 
  • applying for credit card accounts in the name of consumers without their prior authorization.

ANSWER:

Understanding the nature and purpose of a customer relationship—the information gathered about a customer at account opening—is essential to developing a customer risk profile. This information should be used to develop a baseline against which customer activity, such as the customer’s expected use of wires or typical number of deposits in a month, can be assessed for possible suspicious activity reporting. If account activity changes, particularly with regard to what should be anticipated based on the original nature and purpose of the account, risk-based monitoring may identify a need to update customer information, including, as appropriate, beneficial ownership.

Reference: FinCEN CDD FAQ #36

ANSWER:

Financial institutions are required to report lien status for covered loans they originate and purchase and applications that do not result in originations (preapproval requests that are approved but not accepted, preapproval requests that are denied, applications that are approved but not accepted, denied, withdrawn, or closed for incompleteness).

For covered loans purchased by a financial institution, lien status is determined by reference to the best information readily available to the financial institution at the time of purchase.

For covered loans that a financial institution originates and applications that do not result in originations, lien status is determined by reference to the best information readily available to the financial institution at the time final action is taken and to the financial institution's own procedures. Thus, financial institutions may rely on the title search they routinely perform as part of their underwriting procedures—for example, for home purchase loans. Regulation C does not require financial institutions to perform title searches solely to comply with HMDA reporting requirements. 

Financial institutions may rely on other information that is readily available to them at the time final action is taken and that they reasonably believe is accurate, such as the applicant's statement on the application or the applicant's credit report.

For example, where the applicant indicates on the application that there is a mortgage on the property or where the applicant's credit report shows that the applicant has a mortgage—and that mortgage will not be paid off as part of the transaction—the financial institution may assume that the loan it originates is secured by a subordinate lien. If the same application did not result in an origination—for example, because the application was denied or withdrawn—the financial institution would report the application as an application for a subordinate-lien loan.

Financial institutions may also consider their established procedures when determining lien status for applications that do not result in originations. For example, assume an applicant applies to a financial institution to refinance a $100,000 first mortgage; the applicant also has an open-end line of credit for $20,000.

If the financial institution's practice in such a case is to ensure that it will have first-lien position—through a subordination agreement with the holder of the lien securing the open-end line of credit—then the financial institution should report the application as an application for a first-lien covered loan.

Note: This data field is required for all HMDA reporting institutions.

Reference: 12 CFR 1003.4(a)(14); Comments 4(a)(14)-1

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

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