Pub. 9 2021 Issue 2

14 The Community Banker mibonline.org SUMMER 2021 By Bill Showalter, Senior Consultant, Young & Associates, Inc. TILA. Q: We have a loan that had the right to rescind. The borrower signed the rescission notice that he wished to confirm the loan. However, the co-borrower said they both wanted to cancel the loan. We have a copy of the borrower’s signature wishing to confirm the loan but no copies with signatures that they both wanted to cancel the loan. Is this an issue? Would it matter if the confirmation was signed after the cancellation? A: First, the “confirmation” signature is not required or even acknowledged by Regulation Z. (It is a common method lenders use to document that rescission has expired and the customer has not canceled.) Everything is pretty much driven by timing. The rescission period begins when the last of three things (consummation, provision of the “material disclosures,” and provision of the rescission notices) occurs and ends at midnight of the third business day following that last occurrence. (Usually, all three happen simultaneously, at a loan closing, but they can occur at different times in some situations.) Then, there is the issue of how a consumer may exercise their right to rescind. That also is time-sensitive. Their notice must be in writing and be postmarked or delivered (if other than by mail) to the lender by the midnight deadline. So, there could be a valid, effective notice of cancellation that the lender does not receive until after the midnight deadline because of mail handling/delivery time. And, yes, one consumer may cancel a transaction even if another (or others) does not wish to do so. This part is not swayed by majority rule. It is a way to allow each consumer involved to protect their home. Lastly, the timing of confirmation does not overrule a valid cancellation. If the cancellation/rescission is timely (by the midnight deadline), a confirmation has no effect – it does not cancel out the loan cancellation. BSA. Q: We are extending a loan in which the borrowers are natural persons (they sign the note and application), but the mortgage is in the name of their business (which is holding title to the property). It seems that no beneficial ownership form is required, correct? A: You are correct since the legal entity is not the “customer” opening this account/loan. Flood Insurance. Q: We have a current loan in process in which the borrower is contesting the flood determination on his property. The situation is a bit unusual because the house itself is not located in the flood area, but other structures on the property are. The flood determination shows the house just out of the flood zone. We are leaning on the side of caution. If we are going to make the loan, flood insurance is required. Is there an exception that we might be missing? A: The lender has the responsibility to make a flood hazard determination (using a third party that guarantees its results works fine) and is permitted to be “cautious.” From your description, it sounds like the outbuildings are clearly in Zone A, so flood insurance is not optional for them. The house is barely out of Zone A, so flood insurance coverage is not mandated by law/regulation – but the bank is not prohibited from requiring it in such a case. For the house, it is up to the lender. For the outbuildings, there is no option (unless you can find some way to exclude them from the security interest; check with the bank’s legal counsel). Overdraft Privilege. Q: Do banks need to have an overdraft privilege/service policy vs. having procedures? If so, could you direct me to the regulation or commentary requiring it? I am trying to sort out some details of our overdraft privilege policy and struggle to find much information. A: Actually, a bank may have both policy and procedure. Policy sets the high-level goals of what the bank wants to achieve (in a case such as this, comply with regulatory requirements, etc.). Procedure sets out what the bank will do to accomplish those goals, with some appropriate level of detail. Policy can be seen as the “what we want to accomplish” and procedure as the “how we will accomplish it.” Overdraft “privilege” regulatory requirements are found in both Regulation E (for the opt-in requirement before charging fees) and Regulation DD (advertising, etc.). Besides those regulations and their commentaries, you can get information from the banking supervisors’ exam procedures, particularly (for this subject) the Electronic Fund Transfer Act section and the Truth in Savings section. Having an appropriate (for your bank) level of policy and procedure helps ensure that staff is aware of what is expected of them, how they should accomplish what is expected, as well as helping ensure consistent treatment of and service to bank customers. You end up with happy staff because they know what is expected of them and how to accomplish it, and satisfied customers because they receive a superior level of consistent service. BSA. Q: I have a Suspicious Activity Report to give to our Board, and I wondered howmuch I should disclose or need to disclose to them? Also, should the actual SAR filing be included in the board package? A: There is nothing in the BSA rules that spells out what must be communicated to the board, just that the board must be notified of a SAR filing. Of course, if a board member is the subject of the SAR, the fact that one was filed about them must not be communicated to that person (as with any other subject of a SAR). We see variety in how SAR filings are reported to the board (or applicable board committee). A standard method of reporting seems to be to report that a SAR was filed about a person(s) Compl iance Q&A