ABA Compliance Center Inbox, May/June 2015

By Leslie Callaway, Mark Kruhm and Rhonda Castaneda
ABA Center for Regulatory Compliance

MLOs and LOs: Same Difference?

QWill you please explain the difference between a Mortgage Loan Originator (MLO) under the S.A.F.E. Act and a Loan Originator (LO) under Regulation Z?

AAll MLOs are LOs, but not all LOs are MLOs!

Reg Z uses the terminology Loan Originator while the S.A.F.E. Act (and CFPB Regulations G and H) use Mortgage Loan Originator. The differences are found in the definitions and meaning under each separate rule.

Under the S.A.F.E. Act (Regulations G/H), Mortgage Loan Originator means (12 CFR 1007.102):

(1)  An individual who:

(i)  Takes a residential mortgage loan application; and

(ii) Offers or negotiates terms of a residential mortgage loan for compensation or gain.

Under Reg Z, a Loan Originator means: 12 CFR 1026.36(a):

…a person who, in expectation of direct or indirect compensation or other monetary gain or for direct or indirect compensation or other monetary gain, performs any of the following activities: takes an application, offers, arranges, assists a consumer in obtaining or applying to obtain, negotiates, or otherwise obtains or makes an extension of consumer credit for another person; or through advertising or other means of communication represents to the public that such person can or will perform any of these activities. The term “loan originator” includes an employee, agent, or contractor of the creditor or loan originator organization if the employee, agent, or contractor meets this definition. The term “loan originator” includes a creditor that engages in loan origination activities if the creditor does not finance the transaction at consummation out of the creditor’s own resources, including by drawing on a bona fide warehouse line of credit or out of deposits held by the creditor. All creditors that engage in any of the foregoing loan origination activities are loan originators…

So, put simply, a person must perform both tasks under the S.A.F.E. Act rules to be a MLO, while a person need perform any one of the tasks under Reg Z to be a LO. In addition, a person who meets the definition of a MLO must be registered with the NMLIS, while a LO who is not a MLO under the S.A.F.E. Act need not be registered but still must undergo specified vetting by the institution such as credit checks and criminal background checks. (Response provided February 2015)

Verifying the identity of hearing impaired clients

QOur call center team is struggling with verifying the identity of hearing impaired clients who call us using a relay service. In addition, because the relay service representative is not the customer, our staff is unwilling to give him/her the confidential customer information necessary to respond to inquiries. Can we simply decline to discuss confidential information on the phone with these clients based on privacy concerns and require hearing impaired individuals to come to the bank to conduct business in person?

AYou absolutely cannot deny service in this scenario. Individuals who man these relay services comply with strict confidentiality requirements that comply with the NAD-RID Code of Professional Conduct. If a bank refuses to assist customers using relay services (or even those using sign language interpreters), the bank risks noncompliance with the Americans with Disabilities Act (and potential allegations of discrimination under the Fair Housing Act if the call relates to a mortgage or other housing-related loan products.) The bank may (and should) provide the same services to deaf individuals using a relay service that they would provide to a hearing customer. The bank may perform any verification procedures they would normally perform in order to verify the caller is legitimate, but the bank cannot refuse service because the person is using a relay service. (Response provided February 2015)

Reg E claims for unauthorized ACH transactions

QWe have had several instances lately where we have charged off an account with a negative balance and, shortly after we have done so, the consumer has filed a Reg E claim for unauthorized ACH transactions. We understand that we must honor these error assertions and investigate and that all the Reg E timing rules apply, but are we required to reopen the account, provide provisional credit and give the customer access to those funds during the investigation?

AYou must give provisional credit as long as all other requirements have been met, and you may not withhold access to the provisionally credited funds. Reg E requires that the consumer have full access to provisionally credited funds during the investigation period (see 1005.11(c)(2)(ii)). It is always a possibility that the claim could turn out to be invalid or fraudulent, and the consumer could abscond with the provisionally credited funds, but that could happen even if the account was in good standing. You still must make the provisionally credited funds available.

However, while Reg E requires that the customer be made “whole” for errors and unauthorized transactions, it does not require that the customer be enriched by any error. The amount of the provisional credit should be able to be offset against the charged-off amount. It may be prudent to consult your bank’s legal counsel and/or prudential regulators before doing so. (Response provided February 2015)

Transferring funds by ACH from an account at another bank

QWe’re launching a new service for our consumer customers that will let them transfer funds by ACH from their account at another bank to their account at our bank. We are questioning when the funds must be made available. Can we place an exception hold if we believe it necessary to do so? We are concerned that an ACH credit we receive could be recalled.

A ACH debits are subject to NACHA Operating Rules. See, for example, NACHA Operating Rules subsection 3.3.2, titled “Timing of Debit Entries.” (Response provided June 2015)

Answers provided by Leslie Callaway, CRCM, director, compliance outreach and development; Mark Kruhm, CRCM, senior compliance analyst; and Rhonda Casteneda, compliance analyst, ABA Center for Regulatory Compliance. Answers do not provide, nor are they intended to substitute for, professional legal advice. Answers were current as of the response date shown at the end of each item.

CORRECTION: We orginally provided an incorrect response to a Regulation CC question asking when funds transferred using an ACH “debit” transfer must be made available. We incorrectly based our response on the electronic “credit” availability rules under Regulation CC. We reached out to the Federal Reserve to request clarification on this issue. The response we received is that Regulation CC does not apply to ACH debit transfers. Although ACH debit transfers are more like checks than wire transfers, they are not checks or electronic payments for purposes of the Regulation CC availability schedules and other provisions. ACH debits, however, are subject to NACHA Operating Rules. See, for example, NACHA Operating Rules subsection 3.3.2, titled “Timing of Debit Entries.” (Response provided June 2015)