ABA Banking Journal - July/August 2015 - (Page 46)
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When Is an
I have a question about Regulation B adverse action requirements on existing accounts.
our promissory note clearly spells out the default rate of interest (and conditions of
default), and it also states that we have no obligation to advance funds on a line of
credit under certain conditions (i.e. default, insolvency, etc.). If we invoke any of these
provisions, is the bank required to send an adverse action notice or are we covered if this is clearly spelled
out in our promissory note?
It depends on the reason for the action.
Regulation B at section 1002.2(c)(1)(ii) states
that adverse action means a termination of
an account or an unfavorable change in the
terms of an account that does not affect all
or substantially all of a class of the creditor's
accounts. If, for example, you decided to reduce
all overdraft lines of credit to $300 across
the board, that would not trigger the adverse
action requirements, but if you only reduced
the LOCs for individual customers whose credit
deteriorated in the past year, then it would.
Regulation B at 1002.2(c)(2)(ii) addressing
default states that the term adverse action does
not include any action or forbearance relating to
an account taken in connection with inactivity,
default or delinquency as to that account.
Therefore, your action based on those contract
provisions addressing default or insolvency,
would not require you to send an adverse action
notice. (Response provided April 2015)
ABA BANKING JOURNAL | JULY/AUGUST 2015
Is an insider allowed to have two first liens on
two different properties under Reg o? If yes, how
do you determine which one qualifies as the
residence exception and which one falls under
the $100,000 rule?
The short answer is it may be possible; however,
there are certain caveats. For example, only
one loan may qualify for the "in any amount"
exception under 215.5(c)(2), while additional
loans that could have qualified for the exception
will be subject to the "other purpose" limit
under 215.5(c)(4). In addition, and perhaps
specifically related to your second question,
the purpose of the loan under .5(c)(2) can
only be "to finance or refinance the purchase,
construction, maintenance, or improvement"
of a residence of the executive officer and,
as such, a HELOC, which permits draws for
any other purposes (e.g., to take a vacation,
consolidate credit card debt or purchase an
automobile), would not qualify. (FYI: The same
applies for loans to finance the education of the
executive officer's children, yet it is theoretically
possible for the exception under .5(c)(3) to
apply.) (Response provided April 2015)
Table of Contents for the Digital Edition of ABA Banking Journal - July/August 2015
BANKING’S APPALLING REGULATORY STRUCTURE
HOW BANK CULTURE DRIVES SUCCESS
KEY CONSIDERATIONS FOR CREATING SUCCESSFUL BOARDS
VENDOR RISK MANAGEMENT
FIVE RISKS THAT WILL SHAPE BANKING’S FUTURE
ABA COMPLIANCE CENTER INBOX
REAL ESTATE LENDING
FROM THE STATES
BANKER RECOMMENDED READING
INNOVATIONS IN SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS
ABA Banking Journal - July/August 2015
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