COMPLIANCE Q&A SUMMER 2023 BY BILL SHOWALTER, SENIOR CONSULTANT, YOUNG & ASSOCIATES, INC. ECOA. Q: The bank has an application that was entered into the automated underwriting system and received an approve/eligible response. But later that same day, during a conversation with the applicant, the bank finds that the property is a leasehold and, thus, not eligible for the secondary market. The bank does not make such loans. So, is this a denial or an application for a product not offered? Not sure how to handle this one. A: This is a denial to extend credit due to the fact that the bank does not offer the type of credit or credit plan requested. That would be cited as the reason for the adverse action on the denial notice to the applicant. EFTA. Q: If we have debit card transactions outside of the U.S. blocked, would that have to be disclosed to the account/card holder? A: Regulation E requires the bank to disclose any limitations on the frequency and dollar amount of transfers. Blocking transactions not originated in the U.S. would impact the frequency of transfers, at least for some customers. So, this should be stated in the initial EFT disclosure. If this limitation has not been disclosed to current/existing customers, the bank should inform them in writing, which can be a message or an insert sent with a monthly statement. TILA. Q1: We have a loan request for a customer that will be located on 79 acres, but they are building a house. This house will obviously be for consumer purposes but will have a shop that will store farm equipment. The lender from the commercial side of the fence is hoping to do this loan instead of sending it to the consumer. Is that permissible? A1: For Regulation Z purposes, it does not matter which functional area of the bank extends the loan. If the loan is primarily for consumer (personal, family or household) purposes, appropriate disclosures must be given. In this case, that would mean TRID disclosures — Loan Estimate(s) and Closing Disclosure(s). You say that the purpose of the loan is to build a new house for the borrower, along with a shop/building for storing farm equipment, it sounds like it is probably a consumer-purpose loan. The bank can use any reasonable method for determining what the primary purpose is — e.g., what amount of the loan is to build the house vs. to build the shop/storage building. If the amount for the farm storage shop/building is greater than for the house, then an argument could be made that the loan is primarily for agricultural purposes and, thus, exempt from Regulation Z. But, if it is the other way, TRID rules. Whichever way the decision goes, be sure that the file is well documented on what is determined and how the bank made its determination. Q2: A similar situation presented itself while talking with another employee about this scenario. When a customer that is John & Jane Doe Revocable Trust owns 150 acres free and clear but is using proceeds from a loan secured by that property to construct a condo, this would also be considered a consumer/TRID purpose, correct? A2: Sounds like another consumerpurpose loan, and when real estate (dirt) is part of the collateral, TRID is triggered. I suspect your skeptical colleague must be hung up on having a trust (a non-natural person) involved. But, the CFPB explicitly dealt with that some years ago in the Official Staff Commentary on Regulation Z, Comment 2(a)(11)-3, to the definition of “consumer,” by saying, “Credit extended to trusts established for tax or estate planning purposes or to land trusts … is considered to be extended to a 22 Community Banker
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