Pub. 4 2016 Issue 2

11 Winter 2016 The Community Banker COMPLIANCE Q&A By Bill Showalter, Senior Consultant, Young & Associates B ill Showalter, Senior Consultant, Young & Associates, Inc. Young & Associates provides banks and thrifts with support for their compliance programs, inde- pendent reviews, and in-bank training, as well as a full menu of management consulting, loan review, IT consulting, and policy systems. HMDA. Q: We know Regu- lation C provides that a loan to purchase property used pri- marily for agricultural purposes is not a “home purchase loan” even if the property includes a dwelling. But, this is the only place an agricultural exception is mentioned. What about the case of a refinancing? That definition indicates that the original purpose of the loan is not material, just that there is a dwelling-secured loan which is satisfied and replaced by anoth - er dwelling-secured loan. A: Yes, under the current rule a lender would report a “refinancing” of a farm loan. The reasoning is just as you mentioned – the exception is only for purchases. However, that will be chang- ing soon. The revised Regu- lation C will be exempting all loans with a primary agricultural purpose. Therefore, this quirk of HMDA regarding agricultural loans involving dwellings will be going away in 2018. TILA. Q: When giving out the list of homeownership counsel- ors to customers who apply for a mortgage we were under the impression that the list needs to be generated using the address of the property being pur- chased, not by the customers’ current property address. Is this correct? A: You are to use the borrow- ers’ current address/zip code, unless you have given them a choice of what location to use (not required) and they tell you to use some other specified location. UDAP/UDAAP. Q: We are a national bank and are institut- ing a statement fee, and it is cre- ating quite an outrage. Our fee structure is free eStatements, $2.00 for paper statements without images, and $3.00 for 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 category 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 five percent of customers (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? A: There is not an Equal Deposit Opportunity Act, so age is not a specified “prohib - ited basis” on the deposit side. However, you still need to be concerned with general fairness, etc. – and unfair, deceptive, or abusive acts or practices (UDAP/ UDAAP). While federal law and regulation defer generally to state law and regulation regarding structure and pricing for deposit products, the regulators retain the power to review the deposit side under the UDAP umbrella. So, it would be prudent to analyze this fee structure under the UDAP “unfairness” test. (“Deception” should not be an issue, assum- ing proper disclosure of the fees and qualifications/limits.) The OCC’s existing guidance concerning unfair or decep- tive acts or practices (UDAP) remains in effect, and is found in Advisory Letter 2002-3, “Guid- ance on Unfair or Deceptive Acts or Practices,” March 22, 2002, available at http://www. occ.gov/static/news-issuances/ memos-advisory-letters/2002/ advisory-letter-2002-3.pdf. This should help you analyze your new fee structure from the fairness standpoint. TISA. Q: Our bank lists tier rates on the bottom of our account disclosure with headings of “APY” and “RATE.” Our deposit folks are relying on the vendor’s wording at the top of the disclosure that has the words “Annual Percentage Yield” and “Interest Rate” to meet the requirements of it being spelled out on the disclo- sure. Is that sufficient, or do we need to change our headings for the rates we are offering? A: The bank should spell out both terms fully on your account disclosures. In advertisements only, you may rely on “annual percent- age yield” being spelled out somewhere in the ad, and then use the acronym APY. Howev- er, there is no similar flexibility for “interest rate” – it must be “interest rate” where ever it appears in disclosures and advertisements. Flood Insurance. Q: During an exam, we were cited for one technical violation for not having sufficient coverage. The loan was on two 1-4 family apartments. One of the buildings was in a flood zone and the other was not. The loan amount was $210,000. The flood insurance amount covered one-half of the loan amount since only one was in a flood zone. The examiner said he understood our logic but coverage should be for the full loan amount. There is guid- ance about if there are multiple buildings you allocate the loan amount among buildings and get separate flood policies. Does this make any sense or did we just miss the boat? A: The allocation provision applies only when multiple buildings are in the special flood hazard area (SFHA). If only one is in the SFHA, then the other buildings are irrelevant to the flood insurance discussion. You focus on the building(s) in the SFHA. In this case, that means only one building. So, the whole focus is on that building and the normal rule applies to how much coverage for that building – the least of loan principal, maximum insurance available, or insurable value of the building. If that building is worth at least the loan amount ($210,000), then that is how much flood insurance you should require. If the insurable value of the building is less than the loan amount, then you require coverage for that insur - able value. Receive extensive compliance training and support through the Community Bankers for Compliance Program presented by Young & Associates! Compliance Q&A