Pub. 3 2015 Issue 2

25 Summer 2015 The Community Banker TILA. Q: The bank holds the first lien on a customer’s primary residence. Now the consumer would like a second loan (not a refinance with new money) to pay off a personal loan and some credit cards using the primary residence as collateral, creating a second lien situation. We are unsure about the right of rescission on the second lien. Is it re- quired? A: Yes, it does. The right of rescis- sion applies any time the bank takes a security interest in someone’s principal residence to secure a con- sumer credit transaction, other than one of the specified exceptions, regardless of lien priority/position. UDAAP. Q: We are instituting a statement fee in February and it is creating quite an outrage. Our fee structure is free e-Statements, $2.00 for a paper statement without images, and $3.00 for a paper statement with images. We have been getting a lot of comments and complaints that we are discriminating against older people. Since age is a protected cate- gory we need some guidance on if we can set an age limit on giving the paper statements free. We are waiving the paper fee for our top 5% of custom- ers (these have balances of $185,000 and up). Can we set an age limit as well? We were thinking 80 and older or 80 and older with a $10,000 deposit relationship can get paper free. Would we get into trouble for this? Any help is appreciated. Thanks. A: There is not (yet) an Equal De- posit Opportunity Act, so age is not a specified “prohibited basis” on the deposit side. However, we still need to be concerned with general fair- ness, etc. – and unfair or deceptive (or abusive) acts or practices. While federal law and regulation defer generally to state law and regula- tion regarding structure and pricing for deposit products, the regula- tors retain the power to review the deposit side under the UDAP umbrella. So, it would be prudent to analyze this fee structure under the “unfairness” test. (“Deception” should not be an issue, assuming proper disclosure of the fees and qualifications/limits.) Some good guidance in this area for all financial institutions is the OCC’s existing guidance concern- ing UDAP, found in Advisory Letter 2002-3, “Guidance on Unfair or Deceptive Acts or Practices,” March 22, 2002, available at www.occ.gov/ static/news-issuances/memos-ad- visory-letters/2002/advisory-let- ter-2002-3.pdf. SCRA. Q: Does SCRA apply to business loans if service- member guarantees the entity loan? Or, if the servicemember is either the primary or co-bor- rower on a business loan? A: Yes. A footnote in both the FDIC and FRB compliance manuals states, “Section 207 of the SCRA, 50 U.S.C. app. 527, applies to ‘an obligation or liability…incurred by the servicemember, or the service- member and the servicemember’s spouse jointly, before the service member enters military service.’ No distinction is made between personal versus business credit.” HMDA. Q: We are making a mortgage loan on an invest- ment property to construct a new duplex on vacant land already owned by the custom- er. Would this be considered a home improvement loan or not reportable under HMDA? I do not believe this to be a home purchase loan because nothing is being purchased. And, it is not a refinancing because there is nothing being paid off. This loan will have an investment (one- to four-family) rental property as collateral. The full amount of the loan will be used to build a duplex on another piece of property that is already owned by the customer. Where the duplex will be built is vacant land currently. Would building a duplex on vacant land be a home improvement loan or would it not be reportable because the improvements are being made to real property that does not currently have a dwelling? A: If the loan is construction only, then it is not reportable since it is considered a “temporary” loan. However, if it is construction/ permanent, then it is reportable as a “home purchase loan” – the customer is purchasing/building the dwelling with the loan proceeds and the loan is secured by a dwell- ing, as discussed in Comment 5 to the definition of “Home purchase loan” in 12 CFR 1003.2. Unlike some other regulations, there is no reference in Regulation C to a title transfer in order to be considered a “home purchase loan.” This regulation focuses on the dwelling, not the land. RESPA - Q: The bank is meeting with a company that would basically take loan applicants that we deny and underwrite them through their standards. The customer would have to sign a release that we could share their in- formation with this company. If the other company ends us making a loan to them, we would receive a one percent fee from the company. The loans would never be on our books. We would do our nor- mal underwriting, disclosures, and adverse action notices. Is there anything we would need to do compliance-wise in regards to the one percent fee we would receive? A: There is no disclosure required because, from your description, no fee may be paid or accepted for loans subject to Regulation X, which implements the Real Estate Settlement Procedures Act. The Department of Housing and Urban Development promulgated Policy Statement 1999-1 on this issue for RESPA loans that sets standards for when a fee may be paid in such situations. The Policy Statement formalized a position HUD articulat- ed four years earlier in a letter to a national bankers association. The Policy Statement requires, before any fee may be paid or accepted, that a personmust take the application and perform at least five additional services on the list in HUD’s interpretation before they would qualify for any payment. What they get must be commen- surate with what they do for RESPA loans. For non-RESPA loans, there are no limitations in federal consumer law, but the bank should check with its legal counsel for any state law issues. EFAA. Q: If we place an exception hold based on the new account exception and the check is greater than $5,000, do we have to give the first $5,000 next-day availabil - ity in all cases, or only if the checks are U.S. Treasury, U.S. Postal Service money orders, cashier's checks, or other offi - cial checks, etc.? A: Youmust give next-day avail- ability for these items only when they are deposited into an account of the payee and the deposit is made in person to one of your employees. COMPLIANCE Q&A By Bill Showalter, Senior Consultant, Young & Associates, Inc. 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. Learn more about MIB’s Community Bankers for Compliance Program with Young & Associates at www.mibonline. org/cbc-program.