ABA Compliance Center Inbox, September/October 2015

Q: We are working with a vendor that is using FinCEN’s 2012 guidance to establish automated CTR reporting. The system is set up to ensure that financial institutions are capturing the complexities of related parties and transparency of cash transactions for potential aggregation consideration and CTR reporting. I see a risk of inaccurate CTR reporting if the system aggregates cash transactions that were conducted on the same day, based solely on the fact that two customers that conducted the transactions on the same day have an account together. The vendor is arguing that the risk of error for incorrectly including a particular conductor/beneficiary in the aggregation is an acceptable risk as long as the CTR was filed in a timely manner. In my opinion, the system creates the potential for over-filing CTRs and aggregating transactions for CTR reporting that are unrelated, which does not meet the accuracy requirements for CTR reporting. Am I wrong to be concerned?

A: No, you should be concerned, but in your scenario, filing the CTR when one is not required is fundamentally a vendor issue. The question of over-filing has been debated for some time. On one hand, some believe that filing a CTR that isn’t needed is not a problem. However, there are those—which include some examiners—who believe that filing a CTR that isn’t needed implies that proper procedures to ensure accuracy are lacking. To some extent, it will depend on how frequently the error occurs and what steps the bank has in place to identify and correct the discrepancy. The calibration of systems is something that should be adjusted and updated periodically.

If the vendor is unwilling or unable to tweak the system to report correctly, one solution is for there to be a second review by a human being who can make the determination regarding the validity of the CTR. Although examiners stress automated systems for tracking and reporting, I don’t believe that the expectation is that system logic should supplant human logic and common sense. While it’s important that the system flag accounts to ensure aggregation is done when needed, you might ask the vendor if there’s a way to identify the ones where you have concerns so that there can be a human review before the CTR is filed.

Related to the issue of filing a CTR when it’s not needed is the added steps which must be taken to ensure that the form meets standards for precision and completeness. If a CTR is filed, then it must be as complete and as accurate as possible, even if the CTR wasn’t needed. (Response provided June 2015)

Q: 12 U.S.C. 83 addresses loans secured by bank stock. It says: “Loans by bank on its own stock (a) General prohibition. No national bank shall make any loan or discount on the security of the shares of its own capital stock. (b) Exclusion: For purposes of this section, a national bank shall not be deemed to be making a loan or discount on the security of the shares of its own capital stock if it acquires the stock to prevent loss upon a debt previously contracted for in good faith. AMENDMENTS 2000—Pub. L. 106–569 amended section catch line and text generally. Prior to amendment, the text reads as follows: 

No association shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith; and stock so purchased or acquired shall, within six months from the time of its purchase, be sold or disposed of at public or private sale; or, in default thereof, a receiver may be appointed to close up the business of the association, according to section 192 of this title.’

What does the italicized wording actually mean?

A: As I understand it, the italicized section allows a rule exception generally prohibiting a bank from making a loan secured by its own stock in those situations for which a loan previously made “in good faith” is troubled and subject to possible loss. For example, if a loan becomes delinquent and the value of the collateral has diminished such that there is potential loss that would be incurred by the institution should it not be paid, then it may accept its own stock as collateral in order to “shore up” the loan. This is intended to be used in very limited circumstances, however, and may be subject to regulatory agency scrutiny. (Response provided June 2015)

Q: Under the TILA/RESPA integrated disclosure rules is there any circumstance under which lender credits can decrease?

A: Yes. According to the preamble to the final rule: “With respect to whether a changed circumstance or borrower-requested change can apply to the revision of lender credits, the Bureau believes that a changed circumstance or borrower-requested change can decrease such credits, provided that all of the requirements of section 1026.19(e)(3)(iv), discussed below, are satisfied.”
Therefore, if you meet one of the requirements as more specifically outlined under Regulation Z, Section 1026.19(e)(3)(iv) which are (A) changed circumstance affecting settlement charges, (B) changed circumstance affecting eligibility, (C) revisions requested by the consumer, (D) interest rate dependent charges, (E) expiration of the Loan Estimate and (F) delayed settlement date on a construction loan, it appears that the CFPB would allow you to decrease lender credits in certain circumstances. (Response provided June 2015)

Q: Can a bank report past due loans to the credit bureau if the borrower is a service member?

A: Yes, negative information may be reported to credit bureaus if the service member is past due, but a service member cannot be reported to a credit bureau or otherwise penalized for asserting his/her rights under the SCRA. For example, a bank may not report negative information to a credit bureau based on the fact that the service member has applied for relief under the SCRA, nor can it be the basis for derogatory reporting based on the lender’s determination that because the service member applied for relief that the service member is unable to pay a financial obligation. However, if the service member failed to pay as agreed, there is nothing prohibiting that type of reporting. (Response provided June 2015)

Answers are provided by Leslie Callaway, CRCM, director of compliance outreach and development; Mark Kruhm, CRCM, senior compliance analyst; and Rhonda Castaneda, 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: In the May/June edition of the ABA Banking Journal we 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)