ABA Compliance Center Inbox, January/February 2016

Q: Our bank offers a savings account club for children between 13-18 years of age. Our marketing department would like to begin sending texts to these children to remind them about upcoming events like our scholarship classes or when the scholarship applications are due. Can we do this?

A: The texting activity would be subject to the Telephone Consumer Protection Act (TCPA), which requires that you obtain the “called party’s” prior express consent. However, because these are minors, the safest approach is to receive consent from the subscriber (i.e., the parent).

If you want to dig deeper into the issue, it is not clear that consent must be obtained from the subscriber and not from the minor child. First, many states’ laws provide that a minor can give consent to engage in commercial transactions all the time, some of which involve their consenting to something asked by the seller.

Second, the FCC has stated that a person who is not the current subscriber of the number may give consent to receive messages at that number. In its July Declaratory Ruling and Order, the FCC stated that in order to obtain prior express consent for the call, a caller must have the consent of the “current subscriber to or customary user of the number.” This does not address the question of whether a minor can consent, but it does indicate that a person other than the subscriber may give consent.

But, as stated above, the safest course is to obtain consent from the subscriber. (Response provided Oct. 2015)

Q: I think I understand the new flood rules regarding the detached structure exemption, but I have a slightly different question. We have a borrower who wants to purchase some land for recreational purposes. The land is located in a flood zone and contains a storage barn and two RV ports that have a roof and solid back wall that contains hook-ups for water and electric for the RVs. The front of the RV port is supported by two metal poles. Can these structures be exempted from the flood insurance requirements under the detached structure exemption? If not, is there any other way our bank can exempt the structures from the flood insurance requirements?

A: To your first question regarding the detached structure exemption, no. The § 22.4 Exemptions state that “The flood insurance requirement prescribed by § 22.3 does not apply with respect to: …(c) Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence.” Although you might be able to argue that this is a residential property (e.g., the consumer parks his RV there when he goes camping) you would still not be able to use the detached structure exemption, because when there is no primary residential structure, there can be no detached structure. If your borrower builds a residence in the future, you may be able to revisit this determination.

To determine whether or not you can otherwise exempt these structures, you first need to determine if these are insurable structures as defined under the flood rules. To be an insurable structure, a building must have two or more walls and an attached roof. Based on your description, it does not appear that the RV ports meet that requirement, but the barn would. Therefore, the barn would require flood insurance.

Of course, you have the option of excluding the structures as collateral, but safety and soundness issues and the value of the collateral should always be taken into consideration before making any final decision. Finally, and most importantly, you must always look to your institution’s own policies and procedures before making any determination about exempting any structure from the flood insurance requirements. (Response provided 
Oct. 2015)

Q: Our bank has decided to stop making home equity loans and offer only home equity lines of credit. If someone applies for a home equity loan, would we owe the applicant an adverse action notice because it’s a credit term that we don’t offer, or would we not owe them an adverse action notice because it’s not currently a type of credit that we offer?

A: We believe it would be a “term of credit” rather than a “type of credit.” The commentary to §1002.2 Paragraph 2(c)(2)(v) defines what constitutes terms of credit requiring an adverse action notice, and states:

When an applicant applies for credit and the creditor does not offer the credit terms requested by the applicant (for example, the interest rate, length of maturity, collateral, or amount of down payment), a denial of the application for that reason is adverse action (unless the creditor makes a counteroffer that is accepted by the applicant) and the applicant is entitled to notification under §1002.9.

Based on that definition, if a customer asks for a closed-end, 15-year home equity loan and you state that you only make open-end HELOCs with a 10-year term that would seem to involve terms of credit (interest rate, maturity). Put differently, your bank offers a home equity product—just not under the terms requested by the applicant. Conversely, if a person applies for a home equity loan and you do not make any home-equity-secured loans at all, you could argue that it is a loan type you don’t make. But if you do offer second mortgages—just not closed-end ones—then it’s a term of credit requiring an adverse action notice if you deny the request. (Response provided Oct. 2015)

Q: Our institution does not share personal non-public information with non-affiliated third parties. When we (the bank) receive an application for consumer credit, and the client does not qualify under the bank’s parameters (due to FICO score, for example), may the bank send the application information to a non-affiliated third party for the purpose of having that institution consider the customer’s request?

A: Yes, you may share the NPPI with a non-affiliated third party if you have the written consent of the customer or the consumer. §1016.15(a) states that “[t]he requirements for initial notice in §1016.4(a)(2), for the opt out in §§1016.7 and 1016.10, and for service providers and joint marketing in §1016.13 do not apply when you disclose nonpublic personal information: With the consent or at the direction of the consumer, provided that the consumer has not revoked the consent or direction.” (Response provided Oct. 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.