Compliance Question of the Week

In today’s banking environment as soon as one big new regulation is implemented another pops up. Our compliance resources help your community bank stay one step ahead of the regulators.

Regulations and Guidance

Question: Our lender wants to pull a consumer report on a non-applicant spouse for a consumer loan. The applicant is relying on property that is not owned by the spouse. Is this a permissible purpose under FCRA?

ANSWER: 

Section 604, of Fair Credit Reporting Act permits using a consumer report only when a permissible purpose exists and no other.

A permissible purpose is when the information is used in connection with a credit transaction involving the consumer on whom the information is to be furnished involving the extension of credit to or review or collection of an account of, the consumer. In the case of a nonapplicant spouse, the FCRA includes an example of when a nonapplicant spouse would be permitted to use the account or when the property is in a community property state.

However, a creditor does not have a permissible purpose to obtain a report on a nonapplicant spouse if the creditor receives information indicating that the applicant is relying on a separate property to repay the credit extended. For the complete list see the FTC report.

Note: the bank may obtain specific written instruction from the consumer to obtain the consumer report (FCRA Section 604(a)(2)). The instruction must be specific and not simply a name on a form. (See the FTC report “40 Years of Experience with the Fair Credit Reporting Act” page 45.)

Reference: Fair Credit Reporting Act section 604(a)(3)(A) and 604(a)(2); FTC 15 USC 1681b; See also: FTC report “40 Years of Experience with the Fair Credit Reporting Act”, July 2011, page 44

Q&A Archives

ANSWER:

The bank is permitted to share information with affiliates that is controlled by or is under the common control with the bank.

In general, the bank’s privacy policy must describe the bank’s policies and practices with respect to collecting and disclosing nonpublic personal information about a consumer to affiliated parties.

Also, the notice must provide a consumer a reasonable opportunity to direct the institution generally not to share nonpublic personal information about the consumer (that is, to “opt out”) with nonaffiliated third parties other than as permitted by exceptions under the regulation (for example, sharing for everyday business purposes, such as processing transactions and maintaining customers’ accounts, and in response to properly executed governmental requests). The privacy notice must also provide, where applicable under the Fair Credit Reporting Act (FCRA), a notice and an opportunity for a consumer to opt out of certain information sharing among affiliates. The bank provides a clear and conspicuous notice to customers that accurately reflects the bank’s privacy policies and practices not less than annually during the continuation of the customer relationship.

Reference: Regulation P examination procedures, October 2016, page 2. Fair Credit Reporting Act

ANSWER:

No. A business engaged in marijuana related activity may not be treated as a non-listed business under 31 CFR 1020.315(e)(8), and is not eligible for exemption with respect to a bank’s CTR obligations.


Reference: BSA Expectations Regarding Marijuana-Related Businesses, FinCEN FIN-2014-G001, page 7. Bank Secrecy Act 31 CFR 1020.315.

ANSWER:

This may happen on a case-by-case basis. In order to waive the seven-business day waiting period, your customer must have a bona fide financial emergency such as an eminent foreclosure sale of their home.


Although there is no official waiver form, the borrower must submit a request for waiver in writing and signed by all parties on the note.

Reference: 12 CFR 1026.19(e)(1)(v)

ANSWER:

The additional restrictions of this section apply only to executive officers of the member bank and not to executive officers of its affiliates.

Reference: 12 CFR 215.5.

ANSWER:

If the bank uses the daily minimum balance method, the bank may choose not to pay interest for days when the balance drops below the required minimum.

When the average daily balance is used, the bank may choose not to pay interest for the period in which the balance drops below the required minimum.

Reference: Official Staff Interpretation to 12 CFR 1030.7(a)(2) Comment 1 and 2. 

ANSWER:

While the regulation does not specifically state the bank must monitor for map changes, section 339.7 does require the bank to send a notice upon determining that the property securing the loan is either not covered by flood insurance or is covered by an insufficient amount.

The Flood Q&A: If the lender or servicer receives notice of remapping, the lender, or servicer, must determine whether the property is covered by sufficient flood insurance. If the borrower does not purchase a flood insurance policy that beings on the effective date of the map change, the lender or servicer must send the force placement notice to the borrower to purchase adequate flood insurance.

Reference: 12 CFR 339.7(a). Interagency Flood Q&A 2022, XVII Force Placement of Flood Insurance; Force Placement 16. See also, Force Placement 4 and 9.

ANSWER:

Yes. An annual disclosure is required.

If private mortgage insurance is required in connection with a residential mortgage transaction, the servicer shall disclose to the mortgagor in each such transaction in an annual written statement—

(A) the rights of the mortgagor under this chapter to cancellation or termination of the private mortgage insurance requirement; and

(B) an address and telephone number that the mortgagor may use to contact the servicer to determine whether the mortgagor may cancel the private mortgage insurance.

Reference: Homeowners Protection Act: 12 USC 4903(a)(3)

ANSWER:

Yes, the rule contains an exception for institutions receiving a large batch of garnishment orders.

In that circumstance, the institution may use a later date with the permission of the creditor serving the batch of orders. The institution must also keep records of account activity and actions taken in response to such batches to demonstrate compliance with the Garnishment Rule.

Reference: Fed. Consumer Compliance Outlook, 3rd Quarter 2013; 31 CFR 212.5(a)(2)

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