ABA Banking Journal - May 2011 - (Page 40)

ABA COMPLIANCE CENTER | INBOx Must bank mortgage lenders register under SAFE? Q. I have a question regarding the SAFE Mortgage Licensing Act. Do we have to register our lenders as mortgage loan originators even though we only grant home equity lines of credit? A. The SAFE Act (Secure And Fair Enforcement for Mortgage Licensing Act specifically defines “residential mortgage loan” to include refinancings, reverse mortgages, home equity lines of credit, and other first and second lien loans secured by a dwelling. See Federal Register page 44664 of the Final Rule. http://tinyurl.com/39h4kp5 Even if your only residential mortgage product line is home equity lines of credit, your employees who meet both of the SAFE rule requirements to be covered will need to be registered. (The two requirements are: the taking of a home equity line of credit application and the offering or negotiating terms of the equity line.) This is addressed in Appendix A of the Final Rule. See also ABA’s SAFE Act topics page for additional guidance, including an analysis of the final rules. http://tinyurl.com/45lrwnw (Response provided 4/8/11) Interest for commercial DDA, yes. For commercial NOWs, no Q. I understand that effective in July, the Dodd-Frank Act will allow banks to offer commercial NOW accounts. Is this true, and if so, what is the effective date of this change? A. No, that’s not correct, as stated. Effective July 21, 2011, the DoddFrank Act will allow banks to pay interest on commercial demand deposit accounts, but these accounts will not be NOW accounts. Although Regulation Q is changing, Reg D is not changing, so even though banks will be able to establish commercial interest-bearing accounts, these will not be classified as NOW accounts and banks will still be prohibited from establishing NOW accounts for “for-profit” businesses. The Federal Reserve believes that banks may still want to offer NOW accounts and consumers may still want “NOW” accounts, so the ability to offer those accounts will not be affected, even though a NOW account and an interest-bearing demand deposit account are functionally the same. (Response provided 4/8/11) How far does servicemember credit protection go? Q. Under the Servicemembers Civil Relief Act, does the 6% reduction in the interest rate extend to the spouse of a service member even if the service member is not on the loan as a signer or guarantor? A. The SCRA section that requires banks to reduce interest rates on obligations incurred before entering active duty—50 U.S.C. App. Sect. 527—applies to any obligation or liability of an eligible servicemember, or the servicemember and the servicemember’s spouse jointly. Thus, a bank would not be required to reduce the interest rate of a loan that is only in the name of the spouse. However, a bank may decide, as an accommodation to the servicemember, to extend the protections to the spouse. In addition, you should check to see if your state has any comparable state law protections for servicemembers, because these could extend protections to a spouse. (Response provided 4/8/11) You can’t have it both ways with consumer credit reports Q. Our bank obtains a consumer report when a customer opens a deposit account. We want to use that report to offer the consumer an overdraft line of credit if the score meets our pre-set criteria. We don’t want to tell consumers we are doing this because if we tell them and then they do not qualify, we will have to give an adverse action letter in accordance with Regulation B. How can we do this and still comply with applicable law? A. The bank cannot use a report obtained to open a checking account to make an offer of credit. When a consumer applies for one product, the bank cannot use the report obtained for that product to qualify the consumer for a different product. If your bank wants to offer the consumer a credit product, the bank must obtain the consumer’s consent to use the credit report for that purpose. In your scenario, the consumer applied for a checking account— the consumer did not apply for credit. Therefore, the bank has a choice: disclose up front and get the consumer’s permission—which means you have to give a Reg B adverse action letter if the consumer is declined (credit score not adequate)—or treat this as a prescreened solicitation. If the bank chooses the latter, there are additional disclosures that the consumer must receive, and your bank will need to follow all the record retention requirements of both FCRA and the Fair and Accurate Credit Transactions Act. Here is a link to the final rule on prescreening: http:// tinyurl.com/4f6z52q In summary, a bank cannot use a credit report to determine if a customer is eligible for a credit product they did not request without either giving the appropriate disclosures or getting their permission in the first place. (Response provided 3/11/2011) When is reusing a flood certificate permitted? Q. A flood certificate expires in seven years. Must we recertify a flood certificate at the time we modify or refinance an existing 40  |  ABA BANKING JOURNAL  |  May  2011 http://edocket.access.gpo.gov/2010/pdf/2010-18148.pdf http://www.aba.com/NR/System/Access/ManualLogin.asp?ReturnUrl=%2FMembers%2BOnly%2FRegulatory%2Fgr_SAFEAct09.htm&REASONTXT=You+are+logged+in+as+the+Default+Guest+User.++You+do+not+have+rights+to+view+the+requested+item.++Please+ensure+that+cookies+are+enabled+in+your+browser+and+try+again. http://www.occ.treas.gov/news-issuances/federal-register/70fr5021.pdf http://www.occ.treas.gov/news-issuances/federal-register/70fr5021.pdf

Table of Contents for the Digital Edition of ABA Banking Journal - May 2011

ABA Banking Journal - May 2011
Contents
Chairman’s View
Editor’s Column
The Economy
Bank Notes
ABA Community Banking: Getting in on the Prepaid Wave
Pass the Aspirin
Tech Topics
Cover Story: #5 and Feeling Good
Smartphones Alter Banking Landscape
Compliance Clinic
Compliance Inbox
ABA Resources
Surveys & Trends
Board Matters
First Person

ABA Banking Journal - May 2011

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