ABA Banking Journal - August 2008 - (Page 49) MIB X AL O Does HMDA cover “splash and dash” lending? I heard recently that “splash and dash” loans are HMDA reportable as a purchase. For example, if a company purchases, rehabs, and flips a home, is it reportable? Does it matter that the borrower is an entity, rather than a person? You are correct about the HMDA reporting of “splash and dash” loans, because they fall under the exceptions to “temporary financing.” A recently issued HMDA question-and-answer document states: “Temporary Financing: When is a loan “temporary financing” such that it is exempt from reporting? Answer: The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h). “ [Emphasis has been added here.] You can find this at http://www.ffiec. gov/hmda/faqreg.htm#TemporaryFinancing Whether the loan is made to an individual or an entity is irrelevant as to whether it is reportable. It may, however, affect other information you report, such as reporting “n.a.” for income. Check-conversion poses security risk Several firms that bank with us require two signatures on their checks. Lately we have received automated clearinghouse check conversions because our commercial customers have used a check at point of sale that was converted by the merchant into an ACH transaction. Because we can’t see that two signers authorized the check, how is the bank protected if the transaction is fraudulent? Should we just return all ACH items that appear to be originated by check? In September 2006, Operating Rules of the National Automated Clearinghouse Association were amended to: (1) clarify the check conversion process for business checks; and, (2) also allow businesses to take steps to prevent their checks from being converted. The new rule–“Identification of Business Checks Ineligible for Conversion”—makes it easier for financial institutions to identify checks not eligible for conversion to ACH debits, while giving businesses a way to opt out of check conversion. According to the rule, in order for a business check to be ineligible for ACH conversion, the bank must enable an auxiliary on-us field in the MICR line. If this field exists, merchants cannot convert the item. Generally, only businesssize checks may contain this auxiliary field: smaller, personal size checks cannot, even if those checks are being used by a business. (For additional information, go to http://www.electronicpayments.org, and read about business checks ineligible for conversion) Q. the FDIC Act, as amended (“Penalty for Unauthorized Participation By Convicted Individual”). This includes the need to establish a screening process. Yet, how far should Dandy have gone? How much information should he have gathered? How much information should he have expected to get from the previous employer? If the situation were reversed, how much should he be willing to share? Bruce R. Alper, attorney with Vedder Price P.C., Chicago, spoke to these issues during ABA’s Regulatory Compliance Conference in June. The Dandy episode was one of his examples of how getting to know about applicants can challenge. Q. A. A. Share and share alike? Hardly Alper says employees frequently think employers share information freely through some kind of secret “subterranean network” that attempts to get around relevant laws through hints and codes. “That may happen in a small town,” says Alper, “but not in Chicago. People are very careful what they say about their former employees.” Alper says that this occurs in spite of laws that actually protect employers. “You get what you give,” he said, “and that’s usually not much.” Alper said that many states have statutes similar to one in Illinois, which holds: “Any employer … who, upon inquiry by a prospective employer, provides truthful written or verbal information, or information that it believes in good faith is truthful, about a current or former employee’s job performance is presumed to be acting in good faith and is immune from civil liability for the disclosure and the consequences of the disclosure. The presumption of good faith … may be rebutted by a preponderance of evidence that the information disclosed was knowingly false or in violation of a civil right of the employee or former employee.” In addition to such statutes, said Alper, “every state recognizes a common law Subscribe at www.ababj.com Leslie Callaway, CRCM, and Mark Kruhm, CRCM, ABA compliance analysts, and other ABA experts that they consult with, answer member questions here. Submit questions to: compliance@aba.com. Disclaimer: Our answers do not provide, nor are they intended to substitute for, professional legal advice. ABA BANKING JOURNAL/AUGUST 2008 49 http://www.vedderprice.com http://www.vedderprice.com http://www.ffiec.gov/hmda/faqreg.htm#TemporaryFinancing http://www.ffiec.gov/hmda/faqreg.htm#TemporaryFinancing http://www.electronicpayments.org http://www.electronicpayments.org http://www.ababj.com
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