BSA. Q: We found that one of our customers is providing services that make it a money service business (MSB), but it is not registered. What should we do?

A: The Financial Crimes Enforcement Network (FinCEN) states in its BSA Manual that registration with FinCEN, if required, and compliance with any state-based licensing requirements represent the most basic compliance obligations for MSBs. Therefore, it is reasonable and appropriate for a bank to require an MSB to provide evidence of compliance with such requirements, or to demonstrate that it is not subject to such requirements due to the nature of its financial services or its status exclusively as an agent of another MSB(s).

FinCEN asserts that a bank should file a Suspicious Activity Report (SAR) if it becomes aware that a customer is operating in violation of the MSB registration or state licensing requirement. FinCEN also notes that there is no requirement in the BSA regulations for a bank to close an account that is the subject of a SAR. The decision to maintain or close an account should be made by bank management under standards and guidelines approved by its board of directors.

HPA. Q: I am finding mixed messages as to whether the private mortgage insurance (PMI) disclosures are required for loans on investment rental properties. I have been going back and forth on this issue. Which is it?

A: The Homeowners Protection Act (HPA) — there is no implementing regulation — covers only consumer-purpose loans (those for personal, family, or household purposes), so it does not apply to loans involving non-owner-occupied investment properties.
A covered “residential mortgage transaction” is a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained against a single-family dwelling that is the principal residence of the mortgagor to finance the acquisition, initial construction, or refinancing of that dwelling.

TISA. Q: I’m comparing the fees disclosed on a Truth in Savings account disclosure to a monthly statement for the same deposit product. The account disclosure describes the fee as “A dormant account fee of $2.00 per month will be charged after three years of inactivity.” The description on the statement is “Service Charge.” Doesn’t the disclosed name of the fee have to be the same or similar enough for the consumer to determine what the fee is for?

A: Yes, you are correct. The Official Staff Commentary on Regulation DD requires that financial institutions must use consistent terminology to describe terms or features required to be disclosed. The example given in the Commentary is that if an institution describes a monthly fee (regardless of account activity) as a “monthly service fee” in account-opening disclosures, the periodic statement and any change-in-term notices must use the same terminology that consumers can readily identify the fee.

TILA. Q: We have a loan to a husband and wife, secured by their home. The wife is the only one on the deed and mortgage. However, our lending team gave both husband and wife rescission notices. But I thought it should be given only to one who is on the deed. Is this correct?

A: Yes, that is the general understanding (though you might want to consult with the bank’s legal counsel to understand what is considered an ownership interest in your state). “Ownership interest” does not include inchoate rights such as dower (or curtesy, the male/husband’s equivalent of dower) according to the Official Staff Commentary on Regulation Z.

EFTA. Q: When crediting back an amount from an ACH dispute, we call the customer. If no contact is made, should a letter be sent?

A: An attempted phone call does not “provide notice” to the customer. Yes, the bank is permitted to notify the customer either in writing or orally (other than if it finds no error), but the key is to notify them – not just try to notify them. Written notices (with copies to file) are generally a better way to document that a required notice was given.

BSA. Q: We are in the process of developing an online account opening. We have a lot to do yet, but our core processor is making our go-live date next week.

I am looking at the customer identification program (CIP) section of our BSA Policy and identification we require for in-person account opening. I am getting pushback about requiring secondary identification (ID), as it will slow the online opening process, and we are not sure if the product will even ask for a secondary ID. It initially will not be an issue because only existing non-business customers will be able to open accounts online, and the option to do so will be contained within online retail banking.

We know the system will require a primary ID. But after we open the product up to new customers, it will be more crucial. I am trying to make the account opening process consistent across both channels. I am looking at the FFIEC BSA/AML Examination Manual, and it doesn’t require but does encourage banks to review more than one document for identification.

Do you know how other banks are dealing with the secondary ID issue for online account opening?

A: BSA requires a “risk-based” approach, and online account opening is generally considered a higher risk. As you noted, there are no specific guidelines for secondary ID requirements.

Some banks require secondary IDs for online account opening and have not reported any issues. With respect to the online platform/system, the bank should ensure that it meets its CIP requirements.

Before the bank opens this up to everyone, it may have to find a new way to do CIP. There are numerous companies out there that will do it electronically for the bank, which can be used for online and offline account openings. The bank’s core processor can probably help find such a vendor.

EFAA. Q: A customer brings in two checks to deposit into their account — one for $5,000 and one for $8,000. If we want to invoke a “large deposit” exception hold, does it apply only to the $8,000 check or the aggregated checks deposited on the same day?

A: The latter, the “large deposit” exception, is applied to the aggregate of all checks deposited into a transaction account during a banking day.

HMDA. Q: We have a request from a self-employed applicant who provided their tax returns but does not have a home lined up yet (no address). Is this considered a “preapproval” request?

A: Maybe, depending on what your bank has in place. If you have a formal preapproval program that meets the criteria spelled out in the Official Staff Commentary on Regulation C, 12 CFR 1003.2(b), Comment 3. If your bank does not have a formal preapproval program in place, this is a request for a prequalification. Preapprovals are reportable under HMDA, while prequalifications are not.

TILA/EFTA. Q: We would like to begin offering a reduced interest rate on consumer loans for automatic transfers for loan payments. This will not be a requirement for getting a loan but will be offered as an option for reducing the customer’s interest rate. We plan to discuss it with applicants, which will be disclosed in the note/disclosure. Are there any other regulations or disclosures we need to consider or provide?

A: Two different federal regulations come into play here. One is Regulation Z. If the reduced interest rate will increase to its undiscounted level should the auto-payment cease (due to consumer choice, insufficient funds, or some other reason), then this is considered a variable-rate loan and appropriate TIL variable-rate/ARM disclosures must be given, even if the underlying interest rate is otherwise fixed.

The other rule that could apply is Regulation E. If the automatic payment is to come from another financial institution, then the bank will need to obtain written permission from the consumer before beginning these auto-payments. While Regulation E exempts intra-institutional transfers from this requirement (they are not considered “electronic fund transfers” under the regulation), many institutions go ahead and get written authorizations in this case, too. That way, lending personnel consider it just a routine part of the process regardless of payment source.

Insider Credit. Q: An “insider” pledges collateral for a loan but will not be a borrower/ signer on the loan. Is this an “extension of credit” to the insider under Regulation O? Our exam team was hesitant to provide a definitive answer.

A: The examiners may have been hesitant because the answer is, “It depends.” If the insider is merely putting up some collateral and will receive no benefit from the loan, then it is not an “extension of credit.” However, if the insider will benefit, then the “tangible economic benefit rule” in Regulation O comes into play, and the loan is considered an “extension of credit,” subject to all applicable Regulation O provisions (prior approval, non-preferential terms, lending limits, etc.).