ABA Banking Journal - July/August 2015 - (Page 46)

> ABA COMPLIANCE CENTER INBOX Q: When Is an Adverse Action notice required? 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) 46 ABA BANKING JOURNAL | JULY/AUGUST 2015 Q: 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

CHAIRMAN'S VIEW
UPFRONT
OPERATIONS
ECONOMIC OUTLOOK
PICTURE THIS
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
CEO SYMPOSIUM
MOBILE BANKING
PAYMENTS
ABA COMPLIANCE CENTER INBOX
INVESTOR PERSPECTIVE
COMMUNICATIONS
REAL ESTATE LENDING
LEGAL BRIEFS
FROM THE STATES
BANKER RECOMMENDED READING
INNOVATIONS IN SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS

ABA Banking Journal - July/August 2015

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