Flood Insurance.

Q: We are working on a loan for our borrowers to purchase a primary residence. I just pulled the flood determination and found that part of the property is in the flood zone. However, the residential structure is not in the flood zone, only an older storage shed.

Do we need to place flood insurance on the storage shed? Or is there an exemption for detached structures in this case?

A: Generally, any insurable building located in a special flood hazard area (zone A) that secures a bank’s loan must be covered by flood insurance. However, there is an exception for “Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence.” So, if this shed does not serve as a residence and is not used for a commercial purpose, it may be exempted from the mandatory flood insurance purchase requirement.

FCRA. Q: We have a customer who is trying to refinance a loan she has with our bank. She first asked our bank to do the refi, so we pulled her credit report. Now she is shopping and asked us to share the credit report we pulled with another lender. I don’t know if we want to do that, but I need to know if that is even allowable under the regulation.

A: The FCRA permits the bank to share the report with the applicant but not with the other lender. If the bank shares the information with another person, it becomes a credit reporting agency. And it likely does not want to be considered a consumer reporting agency because there are a lot of additional requirements and obligations it would have to meet. Most banks believe it is best to stay a user and a provider of information to the consumer reporting agencies.

TILA. Q: We are updating the bank’s historical table in the early plan disclosure for our variable-rate home equity line of credit (HELOC). The bank’s HELOC product is set up as 10 years with interest-only payments, and the principal is due at maturity.

The historical table always had the first 10 years completed with index, interest rate (APR), and payment, and the last five years showing the index and rate only. However, this year’s updated table shows only the most recent 10 years completed with the monthly payment.

I didn’t see anything where the rule on this disclosure has changed. Shouldn’t the historical table have the first 10 years completed with the index, rate, and monthly payment and the last five with the index and rate only?

A: Yes, the historical table must show a full 15-year history of both the index values (for a particular date each year) and annual percentage rates (APR) to show potential borrowers what would have happened in the past (as an indicator of what might happen in the future). In addition, the table should show any payments (based on an initial $10,000 advance) for whatever time period payments are to be made under the particular program – for the 10 years in this case, the first 10 years of the 15-year index/rate history.

TISA. Q: I am reviewing a checking account advertisement that states “NO Monthly Service Charge.” The account being advertised requires that monthly statements are sent by e-mail and charges a $3.00 monthly service charge if they are not. I reviewed Regulation DD and it states that a monthly service charge is a fee that must be listed, and the bank lists the fee on the TISA disclosure.

My question is whether the advertising claim of “no monthly service charge” is “misleading” under Regulation DD standards?

A: Yes, this probably should be considered it misleading as written because Regulation DD states that “An advertisement shall not… [r]efer to or describe an account as ‘free’ or ‘no cost’ (or contain a similar term) if any maintenance or activity fee may be imposed on the account.” “No monthly service charge” seems to be a “similar term” to “free” or “no cost.”

Now, if the advertisement clearly stated, “NO Monthly Service Charge with E-Statements,” that would be a different story. The limiting factor would be clearly stated, making the advertisement compliant (and no longer misleading).

BSA. Q: We are unsure about how to file Currency Transaction Reports (CTR) for the following kinds of transactions.

We have a customer, Bonnie, who is an individual and, on behalf of herself, cashed a check in the amount of $12,000 and also closed (withdrawing $9.26 cash) an account titled Bonnie Realty Group, LLC. Is it correct to file a Part I on Bonnie (Person conducting on own behalf) for a withdrawal in the amount of $12,010 (total amount of cash Bonnie received) and a second Part I on the Realty Group (Person on whose behalf transaction was conducted) for a withdrawal in the amount of $10?

Would this be filed differently if the Realty Company was a Sole Proprietor?

A: Actually, for Bonnie and her LLC, you will need three Part I’s – one for Bonnie as the person conducting on her own behalf (with $12,000 cash out), one for Bonnie as the person conducting on behalf of another (with $10 cash out), and one for Bonnie Realty as a person on whose behalf a transaction is conducted (also with $10 cash out).

If the realty company had been a sole proprietorship operating under a “fictitious name” (DBA, doing business as), then there would have been only one Part I filed with the DBA name input in field eight, “Alternate Name.”

TILA. Q: I have a question on a rescission calendar tool I use. The Federal Reserve is closed on Monday following a specific federal holiday this year (Juneteenth). Can we really count that day as a “business day” for rescission purposes?

A: Yes. For a federal holiday such as Juneteenth, New Year’s Day, Independence Day, Veterans Day, or Christmas, the specified date is the “holiday” regardless of when it happens to be observed by the Federal Reserve or other entities in a particular year (particularly when the holiday falls on a weekend).

This situation is anticipated in the Official Staff Commentary on Regulation Z for the definition of “business day” – even though the text regarding the “specific” definition does not mention the Juneteenth holiday yet – in Comment 2 to paragraph 2(a)(6). This comment states, “When one of these holidays (July 4, for example) falls on a Saturday, Federal offices and other entities might observe the holiday on the preceding Friday (July 3). In cases where the more precise rule applies, the observed holiday (in the example, July 3) is a business day.”

EFAA/EFTA. Q: And how does a federal holiday like Juneteenth that is date-specific impact deposit-related requirements, particularly those in Regulation CC (funds availability) and Regulation E (electronic fund transfers)?

A: These two deposit-related rules define “business day” differently. Regulation E has a simple definition that mirrors the “general” definition of the term in Regulation Z. A “business day” is “any day on which the offices of the consumer’s financial institution are open to the public for carrying on substantially all business functions.” So, if the bank’s offices are not open for “substantially all business functions,” that day is not a Regulation E “business day.”

On the other hand, Regulation CC resembles the “specific” definition in Regulation Z (almost). The underlying statute defines “business day” as “any day other than a Saturday, Sunday, or legal holiday.” Regulation CC elaborates on this by spelling out the federal legal holidays (although Juneteenth has not yet been added to the list in the regulation). Then, it adds the following sentence, “If January 1, July 4, November 11, or December 25 fall on a Sunday, the next Monday is not a business day” – reflecting the normal business day schedule of the Federal Reserve System (FRS), a key element for availability of check deposits that clear through the FRS. Presumably, Juneteenth should receive this same treatment, even though explicit reference to this new holiday has not yet been added.

ECOA/HMDA. Q: We would still record and report demographic information (race, ethnicity, and sex) for investment properties, right?

A: That depends. You would not collect “government monitoring information” (GMI) for Regulation B purposes since the property securing the loan will not be occupied by the applicant as their principal residence.

However, if the bank is subject to the Home Mortgage Disclosure Act (HMDA), you would collect GMI if the purpose of the loan is “home purchase,” “home improvement,” or “refinancing.”