natural person for purposes of the definition of consumer.” TISA. Q: We currently offer only fixed-rate certificates of deposit (CD). We still issue certificates for these. Management wants to offer a promotional 30-month variablerate CD with a special introductory rate not tied to any index, and these promotional CDs would automatically renew at maturity into our regular fixed-rate 30-month CDs. Can we switch customers from a variable-rate product to a fixed-rate product without having to send new disclosures at maturity (or before maturity?). This promotional CD is for new money only and will be the only variable-rate CD we offer. A: Regulation DD does not explicitly require disclosure of the fact that a renewal CD will be fixed, rather than variable rate, but it may be a good idea to disclose that to avoid later customer and regulator concerns. Since this CD has a term of over one year, the bank must send a full account disclosure for the renewal CD with the prematurity notice it must send before maturity. This account disclosure will inform the customer that the interest rate for the renewal CD is fixed (and not variable). ECOA/FCRA. Q: We have a joint application for a loan that we are denying. The reason we are denying it is because the primary applicant was not upfront with us about the purpose of the loan, and we found this out only when we asked for copies of the bills for debts the borrower was paying off and he was not able to provide any. The primary borrower can be denied for “collection action or judgment,” but the co-applicant has excellent credit and income to support the loan. Are we required to send the coapplicant a notice of adverse action or would it be acceptable to provide just the credit score disclosure since we did pull credit? A: The primary applicant should receive an adverse action notice with denial reason(s). Since you pulled credit reports, both applicants should be given the Fair Credit Reporting Act (FCRA) adverse action notice (e.g. use of information from a consumer reporting agency, along with its name, address, telephone number, etc.). If credit scores were used, credit score disclosure disclosures should also be sent to both applicants. Consumer Protection (Insurance). Q: For indirect lending, if the bank itself does not solicit or sell insurance related to the transaction the Consumer Protection in Sales of Insurance disclosure is not required at the time of application. However, if the car dealership solicits or sells credit life or disability insurance through a third party on the transaction, should the bank be looking for the application disclosure? A: This depends on how the indirect lending relationship is structured. If the deal involves three-party paper — the dealer is the lender and then sells the loan to the bank — then, as long as the dealer is not selling or soliciting for the insurance at an office of the bank, this rule does not apply. If the deal is on two-party paper — the bank is the lender and the dealer is just its agent taking the application and closing the loan — then the rule does apply and the application (credit) and sale (insurance) disclosures must be given at their appropriate times. Insider credit. Q: Are overdrafts of a related interest of a director of the bank covered under the Regulation O overdraft rules? For example, a director has identified that ABC Company is a related interest since the director is a partner in the company. For ABC Company, we have received a debit item that would overdraw the account by more than $1,000.00. Should this item be returned? A: No, this provision of Regulation O does not apply to overdrafts on accounts of related interests of insiders. Footnote 3 of the regulation states, “This prohibition also does not apply to the payment by a member bank of an overdraft of a related interest of an executive officer, director or principal shareholder of the member bank or executive officer, director or principal shareholder of its affiliates.” Community Banker 23
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