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“Whether a refinancing has occurred is determined by reference to whether the original obligation has been satisfied or extinguished and replaced by a new obligation, based on the parties’ contract and applicable law.”
If you aren’t replacing the original note with a new note or if you aren’t adding a variable rate feature to an account that didn’t have one, you could consider it a modification. Take a look at 1026.20(a) and its commentary before you make a decision on whether you have a refinancing or modification.
UCC 4A is generally not applicable to transactions covered by EFTA/Reg E. See the EFTA exemption here: https://www.law.cornell.edu/ucc/4A
I would recommend providing it on the account agreement. The NACHA rules should give you some direction on the requirement, but I also found this link to an ABA article that might be helpful to you: https://www.aba.com/Tools/Function/Legal/Documents/UCCArticle4a.pdf
Answer by Don Blaine:
Great comment and question on the regulatory finding that examiners expect CDD to be performed on accounts opened online and how to do so. It’s great that your bank has heightened CIP protocols for online customers but banks also need to address CDD expectations in addition to CIP. Many banks struggle with obtaining the same information from online or mobile banking customers since bank processes are more geared to pulling out the old paper checklist or filling out a soft form checklist on their automated transaction monitoring system while the customer is standing in front of them. I don’t think the examiner really had any choice based on the following guidance in the FinCEN BSA/AML manual shown verbatim below (emphasis added for effect):
Core Section on CDD
The cornerstone of a strong BSA/AML compliance program is the adoption and implementation of comprehensive CDD policies, procedures, and processes for ALL customers, particularly those that present a higher risk for money laundering and terrorist financing. The objective of CDD should be to enable the bank to predict with relative certainty the types of transactions in which a customer is likely to engage.
Management should have a thorough understanding of the money laundering or terrorist financing risks of the bank’s customer base. Under this approach, the bank should obtain information at account opening sufficient to develop an understanding of normal and expected activity for the customer’s occupation or business operations.
Expanded Examination Overview – Electronic Banking
E-banking systems, which provide electronic delivery of banking products to customers, include automated teller machine (ATM) transactions; online account opening; Internet banking transactions; and telephone banking. For example, credit cards, deposit accounts, mortgage loans, and funds transfers can all be initiated online, without face-to-face contact. Management needs to recognize this as a potentially higher-risk area and develop adequate policies, procedures, and processes for customer identification and monitoring for specific areas of banking.
Accounts that are opened without face-to-face contact may be a higher risk for money laundering and terrorist financing for the following reasons:
1) More difficult to positively verify the individual’s identity.
2) Customer may be out of the bank’s targeted geographic area or country.
3) Customer may perceive the transactions as less transparent.
4) Transactions are instantaneous.
5) May be used by a “front” company or unknown third partyBased on the above regulatory guidance, banks need to be more invasive – if that is possible- and ask more questions regarding anticipated types of transactions and volumes or amounts of online customers than those potential customers that walk into a branch to open an account. The bottom line is that you will need to include your typical CDD checklist (perhaps somewhat modified) in your online account opening processes and literally force the customer to provide you with responses before you open the account or shortly thereafter. I’m sure you are already obtaining information such as purpose of the account, source of any funds being deposited or used as a loan down payment, occupation of account owner(s), deposit/withdrawal volumes broken down into checks, ATM, ACH etc, wire transfer activity (incoming or outgoing and to/from), etc.
Let’s dress up this pig in a poke. Perhaps you can sell these questions as a customer service and indicate to the potential online customer that the purpose of the CDD questions is to assist the bank in identifying intended activity from potentially fraudulent activity after the account is opened that could cause delays or result in monetary loss. For example, you might say that special forms are needed for outbound wires and you can provide the necessary form now in order to speed up the process. (I’m assuming that there actually is a form that needs to be completed by the customer before the wire transfer is sent). You might also wish to state in your online questions that the bank has certain ATM withdrawal limitations and you need to know how often that transactions are anticipated to occur at your ATM such as cash withdrawals in terms of dollar volume and total number of accounts per day. Finally, you might wish to say that part of the purpose of the questions is to ensure that the bank is doing its job in matching up the customer with the account that is best for the customer such as asking about the number of monetary instruments that might be purchased because certain accounts include fee free purchase of monetary instruments.
Also, asking the question is the best way to clear the Pep, MSB, check cashing, hurdles. Gook luck and be creative with those questions that accompany your online account opening processes.
I consulted with Jack and neither of us are aware of any published standards on this issue. Some examiners may have unofficial guidelines they use.
The level of exceptions will vary among institutions (based on general policy and policy toward exceptions). The important thing is that exceptions are tracked to ensure there is a basis for each and to ensure they don’t favor one consumer over another.
I believe it could be considered a changed circumstance (new information) if you didn’t know the fee would be charged. On the other hand, as long as you are disclosing the fee in good faith (it will or is likely to be charged as part of that transaction) I think your approach of disclosing it on the LE is acceptable.
With that said, you should be consistent. If you have a policy of consistently disclosing the fee (on applicable loans) but accidentally omit it from one LE it could appear it was intentionally omitted (unless it a reason was documented as to why it wouldn’t be charged then you became aware that it would) and in which case I think it would be difficult to argue that it was a changed circumstance (since you disclose it in every other case).
It is because this loan was subject to the closing disclosure requirements so the total points and fees is reported as NA.
1003.(4)(a)(17) For covered loans subject to Regulation Z, 12 CFR 1026.43(c), the following information:
(i) If a disclosure is provided for the covered loan pursuant to Regulation Z, 12 CFR 1026.19(f), the amount of total loan costs, as disclosed pursuant to Regulation Z, 12 CFR 1026.38(f)(4); or
(ii) If the covered loan is not subject to the disclosure requirements in Regulation Z, 12 CFR 1026.19(f), and is not a purchased covered loan, the total points and fees charged in connection with the covered loan, expressed in dollars and calculated pursuant to Regulation Z, 12 CFR 1026.32(b)(1).
This NA reporting tool from the CFPB is helpful: https://files.consumerfinance.gov/f/201511_cfpb_hmda-reporting-not-applicable.pdf.
There isn’t clear guidance on this. We have placed a call with the CFPB for their interpretation. In the meantime, the safest approach is to disclose the estimates and indicate “No” for the escrow. Hopefully we’ll get a response from the CFPB soon.
Assuming you have complied with the E-SIGN requirements, the same rule would apply for delivering the LE electronically – it would be required to be delivered (i.e. sent in compliance with E-SIGN) no later than 3 business days after application. As with regular mail, if you send the LE via email it is considered received 3 business days after delivery unless you have evidence the consumer received the disclosures earlier.
See 1026.19(e)(1)(iii)-A and (iv).Also, comment 19(e)(I)(iv)-2 states:
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).We don’t believe you would treat it any differently. You are still going to want verification of the income as required under the ATR/QM rules (if it is taxable it should show on tax returns or similar form of documentation). Both Fannie Mae and Freddie Mac address foreign income as acceptable and provide income verification requirements.
https://www.fanniemae.com/content/faq/borrower-income-verification-faqs.pdf
https://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll1619.pdfThe APR is not considered inaccurate (not more than 1/8 of 1 percentage point above or below the actual apr for regular transaction) and assuming you haven’t added a prepayment penalty or had a product change, you wouldn’t need to wait 3 additional business days. But you are required to provide corrected disclosures at or before consummation. (see comment 19(f)(2)(ii)-1.i.a)
This is a great question. I’ll kick it around with the rest of the team and get back to you ASAP. Thanks for your patience.
It seems you have a reimbursable violation of the FC. I suggest you use APRWIN to check your reimbursement requirements. If there isn’t an error with the information disclosed, a clerical error, or a tolerance reimbursement you don’t have re-disclosure requirements under 1026.19 relate to a new CD. (There isn’t anything that leads me to believe you should redisclose the CD to show the reimbursement of the FC error.) If you have redisclosure requirements due to one of these issues in 1026.19(f)(2)(iii)-(v), then a revised CD would be necessary.
It seems you have a reimbursable violation of the FC. I suggest you use APRWIN to check your reimbursement requirements. If there isn’t an error with the information disclosed, a clerical error, or a tolerance reimbursement you don’t have re-disclosure requirements under 1026.19 relate to a new CD. (There isn’t anything that leads me to believe you should redisclose the CD to show the reimbursement of the FC error.) If you have redisclosure requirements due to one of these issues in 1026.19(f)(2)(iii)-(v), then a revised CD would be necessary.
We have received your question and forwarded it to Don Blaine for his opinion. You should receive a response soon. Thanks for your patience!
My personal opinion is that you can close the account and perhaps you should (consider the risk level associated with the account). The FFIEC BSA/AML Exam Manual – SAR section state examiners will evaluate whether your policy, procedures, and processes include:
Documenting decisions not to file a SAR.
Escalating issues identified as the result of repeat SAR filings on accounts.
Considering closing accounts as a result of continuous suspicious activity.Don may have additional information.
