Pub. 8 2020 Issue 3

15 The Community Banker recreate what was given to customers, etc. So, scanned documents that can be viewed on electronic devices and printed out on paper, if needed, fit nicely into this flexible requirement. As far as any retention requirements for legal documents like notes, mortgages, secu- rity agreements, etc., you will need to consult with the bank’s legal counsel since they are governed by state law. ECOA. Q: If our Commercial Loan Area has a potential customer inquiring about a loan and sending preliminary information, but does not complete a full application, does this still require an adverse action to be sent when there is no origination? A: If the potential applicant is inquiring about a type of credit the bank does not of- fer, such as SBA lending when the bank does not participate with SBA, then no adverse action is taken under Regulation B, and no notice is required. However, if the potential applicant sent enough information for the lender to make a credit decision, it is considered an appli- cation and some notice of adverse action is required. A “full application” (or “completed application”) is not needed to trigger this. What notice is required depends on the size of the business. Regulation B has relaxed notification requirements for business credit, but lenders are free to give business appli- cants the same adverse action notices given to consumer applicants. Flood Insurance. Q: What dowe have to do about discrepancies between flood zone determinations and flood insurance poli- cies, particularly when the flood zone on the flood insurance policy comes back as some- thing less hazardous than the flood zone on the flood hazard determination fromour flood hazard determination vendor? A: What you do is remind the flood insurance agent of Memorandum W-08021 released by the Federal Emergency Man- agement Agency (FEMA) in April 2008 that requires the flood insurance provider to use the more hazardous flood determination when presented with two different flood hazard determinations. TISA. Q: When calculating an annu- al percentage yield (APY) for a savings account, does the formula include the frequency of how often the interest is paid? For example, in one year, interest compounded daily and paid monthly to the account will earn much more than compounded daily and paid annually. A: The APY formula does not calculate the interest paid on an account — that is, an independent computation performed by the financial institution with whatever tools it uses. The APY formula takes the interest amount and other figures the bank inputs and computes the annual percentage yield — an annualized measure of the return paid on a deposit account. The interest amount the bank calculates should, of course, take into account all relevant factors — interest rate, compounding frequency, etc. For more detail on APY calculations, see Appendix A in Regulation DD. Insider Credit. Q: We have an executive officer who wants to refinance his per- sonal residence (allowable under Regu- lation O) and two investment properties, each of which exceeds the $100,000 limit ($150,000 and $131,250), which I believe applies to him. However, the loans will be sold, but we will retain servicing so his payments will be made to us and remitted to Freddie Mac, and if there is a problem, the loan could come back on our books. Regulation O seems to prohibit these loans, but perhaps the fact that they will be sold changes that. A: When the loans are sold, there would no longer be a problem—other than having made/extended a prohibited loan. But they have to go through the bank’s books to get there, and that is where the problem lies. You are correct that the portion of the loan attribut- able to the investment properties falls in Regu- lation O’s “other purposes” bucket for executive officers—which is limited to a total of nomore than $100,000 outstanding at any one time. The bank would not be able to buy back the loan once sold unless the “other purposes” balance (when aggregated with any other “other pur- poses” credit that might be outstanding at that time) is nomore than $100,000. So, the bank really cannot make this loan, even though it is to be sold, because the “other purposes” amount exceeds Regulation O’s limit for such credit. It does not appear as though the bank will be able to accom- modate its EO’s credit needs regarding the investment properties. The EO should find an alternative lender for that credit, or come up with other collateral that could cover it (e.g., a segregated deposit account, securities, etc.).