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Thanks for the question! If it isn’t the consumer’s principal dwelling I don’t think it meets the requirement. With that said, this has always been an debated area. I’ll ask Jack what he sees from other banks as the industry standard practice or if he’s heard any examiners’ take on this.
By e-consent, I assume you’re talking about complying with esign (e.g. providing the required disclosure and obtaining demonstrable consent from the consumer that they can access the information in the electronic form provided). If you did not comply with esign prior to providing the documents electronically, you have not provided the disclosures according to Reg Z. If you have complied with esign and then deliver the disclosures electronically that is all you need to do (i.e. you do not need to obtain evidence that the consumer has viewed or read the disclosures; however, you many want to obtain acknowledgement of receipt if your at the end of the timeframe). To sum up, even if you comply with esign and deliver by electronic means, as with standard mail electronic receipt is considered three business days after delivery unless you obtain some form of acknowledgement from the consumer saying they received it earlier. See the commentary below that explains all of this.
Comment 1026.19(3)(1)(iv)-2: (emphasis added is my own)
2. Electronic delivery. The three-business-day period provided in § 1026.19(e)(1)(iv) applies to methods of electronic delivery, such as email. For example, if a creditor sends the disclosures required under § 1026.19(e) via email on Monday, pursuant to § 1026.19(e)(1)(iv) the consumer is considered to have received the disclosures on Thursday, three business days later. The creditor may, alternatively, rely on evidence that the consumer received the emailed disclosures earlier. For example, if the creditor emails the disclosures at 1 p.m. on Tuesday, the consumer emails the creditor with an acknowledgement of receipt of the disclosures at 5 p.m. on the same day, the creditor could demonstrate that the disclosures were received on the same day. Creditors using electronic delivery methods, such as email, must also comply with § 1026.37(o)(3)(iii), which provides that the disclosures in § 1026.37 may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the E-Sign Act. For example, if a creditor delivers the disclosures required under § 1026.19(e)(1)(i) to a consumer via email, but the creditor did not obtain the consumer’s consent to receive disclosures via email prior to delivering the disclosures, then the creditor does not comply with § 1026.37(o)(3)(iii), and the creditor does not comply with § 1026.19(e)(1)(i), assuming the disclosures were not provided in a different manner in accordance with the timing requirements of § 1026.19(e)(1)(iii).Thanks for the great question! Have you considered, 1026.39 – Mortgage Transfer Disclosures? In addition to the privacy policy and payment info, I believe it may apply. (See below.) I’ll also see if Jack has any other thoughts.
(b) Disclosure required. Except as provided in paragraph (c) of this section, each covered person is subject to the requirements of this section and shall mail or deliver the disclosures required by this section to the consumer on or before the 30th calendar day following the date of transfer.
(a)(1) A “covered person” means any person, as defined in §1026.2(a)(22), that becomes the owner of an existing mortgage loan by acquiring legal title to the debt obligation, whether through a purchase, assignment or other transfer, and who acquires more than one mortgage loan in any twelve-month period. For purposes of this section, a servicer of a mortgage loan shall not be treated as the owner of the obligation if the servicer holds title to the loan, or title is assigned to the servicer, solely for the administrative convenience of the servicer in servicing the obligation.
(a)(2): A “mortgage loan” means:
(i) An open-end consumer credit transaction that is secured by the principal dwelling of a consumer; and
(ii) A closed-end consumer credit transaction secured by a dwelling or real property.
We believe the bank should absorb the difference of $33.00 between what was collected at origination and the actual cost of release. If the note or mortgage specifically allows you to collect the higher amount then you may be able to collect it as part of the payoff, but it is unlikely that the documents address the higher fee. If such language is included in the note consult your attorney on what would be permitted.
First, you would need to consider the beneficial ownership requirements. With that said, those who are strictly authorized signers (not owners/beneficial owners) are generally not required by law to be put through the CIP process as it applies to “customers”. A customer for purposes of CIP is “…a “person” (an individual, a corporation, partnership, a trust, an estate, or any other entity recognized as a legal person) who opens a new account, an individual who opens a new account for another individual who lacks legal capacity, and an individual who opens a new account for an entity that is not a legal person (e.g., a civic club). A customer does not include a person who does not receive banking services, such as a person whose loan application is denied. 43 The definition of “customer” also does not include an existing customer as long as the bank has a reasonable belief that it knows the customer’s true identity. 44 Excluded from the definition of customer are federally regulated banks, banks regulated by a state bank regulator, governmental entities, and publicly traded companies (as described in 31 CFR 1020.315(b)(1) through (4)).”https://bsaaml.ffiec.gov/manual/RegulatoryRequirements/01
However, I believe most banks do apply their CIP requirements to authorized signers as well. Look to your bank’s policy to see if requirements are defined for authorized signers.
As for OFAC, the FFIEC exam procedures tell us that a bank’s OFAC compliance program should be risk based. Again, I believe most bank’s apply normal customer procedures, including OFAC, to authorized signers.
https://bsaaml.ffiec.gov/manual/RegulatoryRequirements/15
OFAC Compliance Program
While not required by specific regulation, but as a matter of sound banking practice and in order to mitigate the risk of noncompliance with OFAC requirements, banks should establish and maintain an effective, written OFAC compliance program that is commensurate with their OFAC risk profile (based on products, services, customers, and geographic locations). The program should identify higher-risk areas, provide for appropriate internal controls for screening and reporting, establish independent testing for compliance, designate a bank employee or employees as responsible for OFAC compliance, and create training programs for appropriate personnel in all relevant areas of the bank.Take a look at the “Who Must Receive” section of this article: https://consumercomplianceoutlook.org/2013/second-quarter/adverse-action-notice-requirements-under-ecoa-fcra/.
And from the FTC FCRA Summary:https://www.ftc.gov/sites/default/files/documents/reports/40-years-experience-fair-credit-reporting-act-ftc-staff-report-summary-interpretations/110720fcrareport.pdf
PRIMARY CREDIT APPLICANT, CO-APPLICANT, AND GUARANTOR
Because the FCRA adopts the definition of “adverse action” from the ECOA, only an “applicant”
experiences “adverse action” in the context of a credit transaction. See 12 CFR § 202.2(c)(1).
A co-applicant is an “applicant” but a guarantor is not. 12 CFR. § 202.2(e). Therefore, where a
creditor denies an application, both the primary applicant and any co-applicant have suffered an
“adverse action,” but any guarantor has not. See comment 615(a)-2B.78I don’t know of anything that would prohibit it from being required. A couple of things you need to consider:
1) Reg E, 1005.10(e), states.. (e) Compulsory use—(1) Credit. No financial institution or other person may condition an extension of credit to a consumer on the consumer’s repayment by preauthorized electronic fund transfers, except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer’s account. This exception does not apply to a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61.Also, you should consider if this practice would have a disparate impact on your consumers in your area (i.e. is one demographic likely to be denied because they don’t typically have checking accounts) and could that result in a fair lending issue.
I think this is generally accurate, but the exception only applies if the notice is provided with an application accessed by electronic form.
1002.4(d)(2) Disclosures in electronic form. The disclosures required by this part that are required to be given in writing may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). Where the disclosures under §§ 1002.5(b)(1), 1002.5(b)(2), 1002.5(d)(1), 1002.5(d)(2), 1002.13, and 1002.14(a)(2) accompany an application accessed by the applicant in electronic form, these disclosures may be provided to the applicant in electronic form on or with the application form, without regard to the consumer consent or other provisions of the E-Sign Act.
You also have the HPML appraisal notice requirement that might be applicable. Reg Z says this about the form of disclosures (does not have the same language as Reg B regarding the appraisal notice provided with electronic application and Esign):
1026.17(a)(1) The creditor shall make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures required by this subpart may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The disclosures required by §§ 1026.17(g), 1026.19(b), and 1026.24 may be provided to the consumer in electronic form without regard to the consumer consent or other provisions of the E-Sign Act in the circumstances set forth in those sections. The disclosures shall be grouped together, shall be segregated from everything else, and shall not contain any information not directly related to the disclosures required under § 1026.18, § 1026.20(c) and (d), or § 1026.47. The disclosures required by § 1026.20(d) shall be provided as a separate document from all other written materials. The disclosures may include an acknowledgment of receipt, the date of the transaction, and the consumer’s name, address, and account number. The following disclosures may be made together with or separately from other required disclosures: The creditor’s identity under § 1026.18(a), the variable rate example under § 1026.18(f)(1)(iv), insurance or debt cancellation under § 1026.18(n), and certain security interest charges under § 1026.18(o). The itemization of the amount financed under § 1026.18(c)(1) must be separate from the other disclosures under § 1026.18, except for private education loan disclosures made in compliance with § 1026.47.Mary Beth Guard’s responses are below:
How many financial institutions are involved in this growing market? At last count, according to FinCEN, there were 493 banks and 140 credit unions providing banking services to Marijuana-Related Businesses. That count is based upon SARs filed through March 31, 2019. (The number is growing. If you go back to SARs filed as of September 30., 2018, you find there were only 375 banks and 111 credit unions banking marijuana-related businesses.
For those FIs that are onboarding these types of businesses, what is the range of or average fee assessed? Fees assessed per marijuana business account can range from $500 to $2500+ per month, depending upon the size, the volume of activity, the number of locations the business has. Basically, the more work the FI has to go to, the higher the fees. Some financial institutions may base the fees on a percentage of gross revenue generated by the business each month. I do not favor that approach because it makes the FI appear to be a “partner” in the business, benefitting from the upside.
What is the number of FTEs suggested to manage the risk? That will depend upon the number of MRB accounts the institution has. Two would be the absolute minimum, in my opinion.
What is the regulatory stance, or are they waiting on the Senate to pass the SAFE Banking Act of 2019? The federal bank regulators have not formally taken positions on this issue. On the other hand, none of them have initiated enforcement actions against institutions banking MRBs. The big concern is whether the institution is adequately staffed and has the necessary expertise.
I don’t have much experience with this feature, but I agree with you that disclosures would need to be provided prior to activating the product so you have documentation that the customer was clearly informed prior to acceptance of the feature.
In regards to the OD fee, I do have concern with applying an OD fee because of this product. It seems to result in the opposite effect of what the bank is promoting which is “saving”. In an effort to avoid a UDAP issue, at the least I think this would have to be very clearly disclosed before implementation, as I mentioned above. Even with clear disclosures, which could eliminate the deceptive prong of UDAP/UDAAP it could still result in being unfair or abusive if not handled properly. Is there a way to set up the feature so it wouldn’t roll funds up if the round up would result in a negative balance?
I think your best approach would be to walk through this with your regulator before you get too far into the process. They’ll be able to advise you on what your best practices should be and what they will expect to see.
I can’t think of any way it would affect the HPML rules – they remain the same. Is there something in particular you’re thinking of?
TRID applies to closed-end consumer credit transactions that are secured by real property, other than reverse mortgages. Note it applies to closed-end credit, not open-end, and also note there is no exemption for short term loans.
I’m glad Jack got some more details on your situation. If I understand correctly, you have been giving funds directly to your borrower and to pay the construction costs; this has been an issue with proceeds not actually being used for construction costs and you are trying to ensure that what is being disbursed to the borrower is for construction costs/the work is being done. As Jack mentioned that many banks have an inspection process/policy in place for disbursing proceeds.
A little research shows there are various ways banks handle this control function. Some use a existing DDA or open a new DDA and take a security interest, some might us a DDA, SAV or GL as an escrow account. If the customer is opening – it is a consumer account – then consumer disclosures would apply. As a reminder, it might be worth reviewing this old opinion letter from the FDIC addressing insurance on escrowed funds and how to make sure you have documented the account sufficiently: https://www.fdic.gov/regulations/laws/rules/4000-7550.html.
“The FDIC will not recognize a claim for insurance coverage based on a fiduciary relationship which is not evident from the deposit account records of the insured institution. 12 C.F.R. § 330.4(b). Deposit account records must expressly disclose, by specific reference, the existence of any fiduciary relationship, including relationships involving a custodian, pursuant to which funds in an account are deposited and on which a claim for insurance coverage is based. Id.”
I’m also hoping some others will tell us what their process is.
Yes, a violation has occurred if you do not obtain the determination until after closing. In order to fully comply with the law you can’t wait until after closing to make the determination. If this property had been in a flood zone you would have multiple violations related to the purchase of insurance and the notice requirement.
It sounds like you’ve already done so, but use this as a learning opportunity. Look for gaps in procedures that allowed for this, use it as a training opportunity, and as the impetus to increase monitoring.
