Pub. 10 2022 Issue 2

Continued from page 15 If your bank does not have a formal preapproval program in place, this is a request for a prequalification. Preapprovals are reportable under HMDA, while prequalifications are not. bank, which can be used for online and offline account openings. The bank’s core processor can probably help find such a vendor. EFAA. Q: A customer brings in two checks to deposit into their account — one for $5,000 and one for $8,000. If we want to invoke a “large deposit” exception hold, does it apply only to the $8,000 check or the aggregated checks deposited on the same day? A: The latter, the “large deposit” exception, is applied to the aggregate of all checks deposited into a transaction account during a banking day. HMDA. Q: We have a request from a self-employed applicant who provided their tax returns but does not have a home lined up yet (no address). Is this considered a “preapproval” request? A: Maybe, depending on what your bank has in place. If you have a formal preapproval program that meets the criteria spelled out in the Official Staff Commentary on Regulation C, 12 CFR 1003.2(b), Comment 3. If your bank does not have a formal preapproval program in place, this is a request for a prequalification. Preapprovals are reportable under HMDA, while prequalifications are not. TILA/EFTA. Q: We would like to begin offering a reduced interest rate on consumer loans for automatic transfers for loan payments. This will not be a requirement for getting a loan but will be offered as an option for reducing the customer’s interest rate. We plan to discuss it with applicants, which will be disclosed in the note/disclosure. Are there any other regulations or disclosures we need to consider or provide? A: Two different federal regulations come into play here. One is Regulation Z. If the reduced interest rate will increase to its undiscounted level should the autopayment cease (due to consumer choice, insufficient funds, or some other reason), then this is considered a variable-rate loan and appropriate TIL variable-rate/ ARM disclosures must be given, even if the underlying interest rate is otherwise fixed. The other rule that could apply is Regulation E. If the automatic payment is to come from another financial institution, then the bank will need to obtain written permission from the consumer before beginning these auto-payments. While Regulation E exempts intrainstitutional transfers from this requirement (they are not considered “electronic fund transfers” under the regulation), many institutions go ahead and get written authorizations in this case, too. That way, lending personnel consider it just a routine part of the process regardless of payment source. Insider Credit. Q: An “insider” pledges collateral for a loan but will not be a borrower/ signer on the loan. Is this an “extension of credit” to the insider under Regulation O? Our exam team was hesitant to provide a definitive answer. A: The examiners may have been hesitant because the answer is, “It depends.” If the insider is merely putting up some collateral and will receive no benefit from the loan, then it is not an “extension of credit.” However, if the insider will benefit, then the “tangible economic benefit rule” in Regulation O comes into play, and the loan is considered an “extension of credit,” subject to all applicable Regulation O provisions (prior approval, nonpreferential terms, lending limits, etc.). Young & Associates provides banks and thrifts with support for their compliance programs, independent reviews, and in-bank training and a full menu of management consulting, loan review, IT consulting, and policy systems. 16 The Community Banker mibonline.org

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