ABA Banking Journal - November 2008 - (Page 94)

Compliance Clinic MIB X AL O Don’t let poor flood coverage policy soak your OREO I s a b a n k re q u i re d to m a i n ta i n f l o o d i n s u ra n c e o n r e p o s s e s s e d p ro p e r t i e s ? Federal Emergency Management Agency guidelines do not address OREO (other real estate owned) owned by a bank such as foreclosed properties, so it will be up to the banking agencies to determine whether to enforce the flood insurance requirements. Once the property is repossessed there is no “loan,” and the requirement to obtain and maintain flood insurance is necessitated by the making, renewing, extending or increasing of a loan. However, in July, the FDIC issued a Financial Institution Letter regarding the need to maintain insurance on OREO. http://www.fdic.gov/news/news/financial/2008/fil08062a.html “Insurance. A review of an institution’s umbrella insurance policies should be performed to determine if adequate hazard and liability coverage for ORE exists. If not, management should consider obtaining policies on each parcel of ORE. If an institution decides to self-insure, this decision should be documented in the ORE file.” Although this does not specifically address flood insurance, a prudent bank would probably consider including flood coverage as part of their safety and soundness controls. Q. A. are not obligated to report the address discrepancy. Additionally, the requirement is to have “reasonable policies and procedures” and it would not be a “reasonable” policy to do something that is not technically feasible. However, the agencies continue to explore whether it is feasible for systems to be modified to be able to report under these circumstances. If they determine that it is and the changes are made, then the requirement would be imposed. Do paper agreements fly for electronic statements and disclosures? W h e n o u r c u s to m e r s s i g n u p fo r e l e c t ro n i c s ta t e m e n t s a n d d i s c l o s u r es , w e a s k t h e m t o s i g n a p a p e r a p p l i c a t i o n a g re e i n g to t h i s a n d c e r t i f y i n g t h a t t h ey c a n re c e i ve i n fo r m a t i o n t h i s wa y. Is this sufficient? This is a good start, but may not go far enough. Federal Reserve Regulation E, for example, states that certain disclosures required “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 E-Sign Act states that if a statute, regulation, or rule of law requires information to be provided in writing, the use of an electronic disclosure will satisfy that requirement, if (a) the consumer is provided with detailed pre-consent notice of certain information and rights the consumer has and (b) the consumer affirmatively consents in a sufficiently demonstrable manner. This requirement to demonstrate consent states that the consumer must consent “affirmatively” and “in a manner that reasonably demonstrates that the consumer can access information in the electronic form” in which it will be disclosed. Although paper authorizations may be sufficient for consumers who already have online e-statements access and merely want to add an additional account, as a practical matter a consumer who is giving up paper entirely should consent electronically in the same manner that the consumer will be receiving the e-disclosures and statements. Q. A. Banks’ duties toward credit bureaus when discrepancies are found? W e o b ta i n a c re d i t re p o r t f rom one of t h e t h re e c re d i t r e p o r t i n g a g e n c i e s w h e n we o p e n a n ew d e p o s i t account. To comply with the FACT Act, we report on the loan s i d e of o u r b u s i n e s s, b u t d o n ’ t s e e m to h a ve t h e a b i l i t y to do that on the deposit side. I f t h e re i s a n a d d re s s d i s c re p a n cy fo r a n ew d e p o s i t a c c o u n t , a re we re q u i re d to re p o r t t h a t d i s c re p a n cy to t h e c r e d i t b u r eau? Q. This is a tricky one. This issue was brought to our attention by several banks that use credit reports, but do not regularly report to credit bureaus in one part of the bank (e.g. checking account opening), but do report regularly in another area of the bank (e.g. mortgage division). Under the regulations released with the Red Flag Rules is a requirement that users of credit reports report to the credit bureaus address discrepancies between the address on the report and the one provided by the user of the report. Users are required to report the address discrepancy if they “regularly” report to the credit bureau. ABA raised this issue with the bank regulatory agencies and there is no interagency guidance, nor a consensus among the agencies, at this time. At least one regulator has reasoned that because the credit bureau reporting process is not equipped to receive the information in these non-credit situations, banks A. MAILBOX continues with more questions and answers in the ABA Banking Journal Digital Magazine for October, at www.ababj.com Leslie Callaway, CRCM, and Mark Kruhm, CRCM, ABA compliance analysts, and other ABA experts, answer member questions here. Submit questions to: compliance@aba.com. D i s c l a i m e r : Our answers do not provide, nor are they intended to substitute for, professional legal advice. 94 NOVEMBER 2008/ABA BANKING JOURNAL Subscribe at www.ababj.com http://www.fdic.gov/news/news/financial/2008/fil08062a.html http://www.ababj.com http://www.ababj.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - November 2008

ABA Banking Journal - November 2008 Contents Editor's Column Banking 2.0: Credit, Banking's Essence, Set for Rethinking Snapshot: The Few, the Proud, the Banks that Can Raise Capital Will Strong and Simple Banks Inherit the Business? Back to the Future ABA Resources ABA Chairman's Position Farm Lenders Must Take Care When Lending in Indian Country Pass the Aspirin Into the Breach Adventures Across A Century What the Future Holds, Post Crisis Paul Volcker: A Financial Legend Still Speaks Strong Ed Yingling: Weathering the Storm Dick Kovacevich: "Boring" Banking to Dynamic Financial Services Jim Culberson: Community Banking: What has Changed and What Shouldn't Walter Shipley: How a Chemical Reaction Helped to Mold Today's JPMorgan Chase William Isaac: Challenges and Opportunities Ahead for Banks A Hundred Years from Our Pages Eight Tech Innovations that Brought Banks into 21st Century Bank Cherokee: Third Generaton Marks 100th Year The First National Bank of Altavista: Railroad Gave Birth to a Town, a Hope Chest, and a Bank Rosedales Federal Savings and Loan Association: How a Friendly Game of Cards Turned into a 100-Year Mutual New Washington State Bank: Cooking Up the Next 100 Years Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - November 2008

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