Pub 8 2020 Issue 3


Fall 2020

Young & Associates provides banks and thrifts with support for their compliance programs, independent reviews and in-bank training, as well as a full menu of management consulting, loan review, IT consulting and policy systems.

EFAA. Q: We have an existing customer who is depositing a large check into their account and we would like to place a five-day hold on the check because the customer does not have the funds on deposit. I was under the impression that we are required to make $5,525 available to them the next business day per Regulation CC. Is this incorrect? Can we hold the entire amount for five business days?

A: There are a couple of ways to handle this one. First, suppose the customer deposits the check into their savings account. In that case, that is not subject to Regulation CC, so you would be able to impose pretty much any reasonable hold on the deposit.

If deposited into a transaction account (DDA, NOW, etc.), Regulation CC does come into play.

  • Of course, a case-by-case hold is always available to hold the amount over $225 for up to two business days. But, that is limited relief.
  • Suppose an exception hold (other than large deposit) can be applied (reasonable cause to doubt collectibility, etc.). In that case, the entire deposit may be held until the seventh business day after the banking day of deposit.
  • If no other exception hold will apply but the large deposit exception, then $225 must still be made available by the first business day after the banking day of deposit. The next $4,800 must be made available by the second business day after the banking day of deposit. Any remaining funds may be held until the seventh business day after the banking day of deposit.

HMDA. Q: We have a current loan in which a husband and wife are purchasing their current home (buying home from the estate) but cannot qualify for the loan without their son’s income. We are counting the son as a second co-borrower. My question stems from how this should look on the HMDA-LAR. We are currently listing only mom and dad’s HMDA information on the Loan/Application Register (LAR) but are listing the son’s income on the LAR. Is this correct? It seems odd that we are not including the son’s race, etc. information on the LAR but are using his income.

A: As odd as it may seem, that looks like how you should report it. Regulation C says to record/report the income you rely on making your credit decision, without any restrictions related to the source, etc.

And, for each of the applicant information categories (race/national origin, sex, age), the HMDA Reference Chart in the Getting It Right guide says, “If there is more than one co-applicant or co-borrower, provide the required information only for the first co-applicant or co-borrower listed on the collection form.”

If the parents are listed before the son, it would be their “monitoring information” that gets recorded/reported — and the son’s income, if that is what is relied on in making the credit decision.

BSA. Q: While completing a Currency Transaction Report (CTR) for a multiple-transaction situation, I realized that one of the withdrawals conducted for one son (a minor) is actually made out of an OTMA account (Mom is the custodian). Assuming a Part I is required for the minor, should occupation be listed as “unknown” or “minor”? Should the Form of Identification be marked “unknown”?

A: Part I will be completed for the minor since the OTMA funds are for the child’s benefit; list the child’s occupation as “None — minor.” Some banks identify a parent when they open an account for a minor, so if the bank did that for this account, you would select “Unknown” for the child’s ID. If the bank accepted a birth certificate or Social Security Card for the child when the account was opened, you can select “other” and enter that information.

Record Retention. Q: After a loan is paid off, we scan the loan papers from the file and save them to a disk. Currently, we have been storing the actual paper for three years and then shredding it. Since we scan the paperwork and save it to a disk, there is no reason to keep the paper. Am I correct, or am I overlooking something?

A: The federal consumer rules allow for record retention in pretty much any form that allows you to retrieve the records readily and recreate what was given to customers, etc. So, scanned documents that can be viewed on electronic devices and printed out on paper, if needed, fit nicely into this flexible requirement.

As far as any retention requirements for legal documents like notes, mortgages, security agreements, etc., you will need to consult with the bank’s legal counsel since they are governed by state law.

ECOA. Q: If our Commercial Loan Area has a potential customer inquiring about a loan and sending preliminary information, but does not complete a full application, does this still require an adverse action to be sent when there is no origination?

A: If the potential applicant is inquiring about a type of credit the bank does not offer, such as SBA lending when the bank does not participate with SBA, then no adverse action is taken under Regulation B, and no notice is required.

However, if the potential applicant sent enough information for the lender to make a credit decision, it is considered an application and some notice of adverse action is required. A “full application” (or “completed application”) is not needed to trigger this. What notice is required depends on the size of the business. Regulation B has relaxed notification requirements for business credit, but lenders are free to give business applicants the same adverse action notices given to consumer applicants.

Flood Insurance. Q: What do we have to do about discrepancies between flood zone determinations and flood insurance policies, particularly when the flood zone on the flood insurance policy comes back as something less hazardous than the flood zone on the flood hazard determination from our flood hazard determination vendor?

A: What you do is remind the flood insurance agent of Memorandum W-08021 released by the Federal Emergency Management Agency (FEMA) in April 2008 that requires the flood insurance provider to use the more hazardous flood determination when presented with two different flood hazard determinations.

TISA. Q: When calculating an annual percentage yield (APY) for a savings account, does the formula include the frequency of how often the interest is paid? For example, in one year, interest compounded daily and paid monthly to the account will earn much more than compounded daily and paid annually.

A: The APY formula does not calculate the interest paid on an account — that is, an independent computation performed by the financial institution with whatever tools it uses. The APY formula takes the interest amount and other figures the bank inputs and computes the annual percentage yield — an annualized measure of the return paid on a deposit account. The interest amount the bank calculates should, of course, take into account all relevant factors — interest rate, compounding frequency, etc.

For more detail on APY calculations, see Appendix A in Regulation DD.

Insider Credit. Q: We have an executive officer who wants to refinance his personal residence (allowable under Regulation O) and two investment properties, each of which exceeds the $100,000 limit ($150,000 and $131,250), which I believe applies to him. However, the loans will be sold, but we will retain servicing so his payments will be made to us and remitted to Freddie Mac, and if there is a problem, the loan could come back on our books. Regulation O seems to prohibit these loans, but perhaps the fact that they will be sold changes that.

A: When the loans are sold, there would no longer be a problem — other than having made/extended a prohibited loan. But they have to go through the bank’s books to get there, and that is where the problem lies. You are correct that the portion of the loan attributable to the investment properties falls in Regulation O’s “other purposes” bucket for executive officers — which is limited to a total of no more than $100,000 outstanding at any one time. The bank would not be able to buy back the loan once sold unless the “other purposes” balance (when aggregated with any other “other purposes” credit that might be outstanding at that time) is no more than $100,000.

So, the bank really cannot make this loan, even though it is to be sold, because the “other purposes” amount exceeds Regulation O’s limit for such credit. It does not appear as though the bank will be able to accommodate its EO’s credit needs regarding the investment properties. The EO should find an alternative lender for that credit, or come up with other collateral that could cover it (e.g., a segregated deposit account, securities, etc.).

Bill Showalter, Senior Consultant, Young & Associates, Inc.

This story appears in Issue 3 2020 of the Community Banker Magazine.