Q:
I have a question about a workaround for providing copies of appraisals electronically. Our system is not E-Sign compliant, so we are considering emailing the E-Sign agreement to the consumer with the appraisal attached and requesting a return receipt. If we get the confirmation that the email was received, does this meet the consent requirements of E-Sign?
A: : No. In order to comply with E-Sign, the consumer must provide demonstrable consent. That means that the consumer must be able to demonstrate to the bank that he or she is able to receive the document in the format provided. A return receipt generated by an email does not meet that definition of proof: it may show that the email was received, but it would not prove that the consumer can open it and read the contents or download an attached document. Basically, you must send a document to the consumer in the format used to provide the appraisal, and the consumer must be able to open it and respond to the bank with a code or word contained in the document that demonstrates that he can open and read the document.
Additionally, the E-Sign disclosure must be provided and the demonstrable consent received before any required disclosure is provided. Therefore, attaching a required disclosure to the email with the E-Sign disclosure would not meet the requirement of the E-Sign Act. (Response provided March 2016)
Q: My marketing department wants to pull credit reports on our existing consumer customers to see if we want to offer other credit products or services. Is this permissible as long as we only do a “soft” pull rather than a “hard” pull?
A: No. The Fair Credit Reporting Act does not differentiate between a hard and soft pull. (The basic differences between hard and soft pull is that only a hard inquiry can negatively affect a consumer’s credit score and you do not need a consumer’s consent to do a soft pull.) However, pulling consumer reports for marketing purposes is not a permissible purpose, no matter what type of pull it is, unless it is done through a pre-screened list. This is the only permissible marketing route, and even then, it only applies to credit products. Bottom line: you are prohibited from obtaining a credit score or report in order to cross-sell products and services unless you plan on making a pre-approved offer of credit. (Response provided March 2016)
Q:An executive officer of our bank is a 50 percent owner of an LLC. The LLC is split 50/50 between two members and only one of the members is an executive officer of the bank—the other member is not an employee of the bank. The LLC requires that all decisions regarding the business be made jointly between the two members. If the bank extends credit to the LLC in excess of $100,000 for business purposes, is this a violation of the extensions of credit to an executive officer provisions of Regulation O?
A: The “other purpose” limitation under 215.5(c)(4) applies only to loans directly or indirectly to an executive officer and not their related interests. If, however, the executive officer was personally to guarantee the loan to the LLC, then it may be deemed subject to the provision, as the executive officer would be indirectly personally liable for all or a portion of the obligation. (Response provided March 2016)
Q:We have a loan request for a property in a state in which we normally do not lend. We received a quote from our appraisal company for a price of $675, which was disclosed on the initial Loan Estimate. After placing the order and providing the Loan Estimate, we received a revised quote from the appraisal company of $800. Upon initial review by the appraiser, it was discovered that the property is oceanfront, has excessive square footage in relation to other homes in the area and is generally an atypical property for the area. Can we consider this a valid changed circumstance and re-disclose within three business days of receiving the increased quote and pass along the increase to the customer?
A:It depends. If the customer had not provided the information and the appraiser could not have known that the property had any or all of the characteristics listed before starting to research the property, this might still be considered a valid changed circumstance. However, if the lender who took the application was aware of the stated characteristics of the property and just failed to communicate that with the person ordering the appraisal, then it appears that this would not be a valid changed circumstance and you would not be able to increase the charge to the customer. For a good example of this exact scenario, see the Commentary to 1026.19(e)(3)(iv)(A)-1-i. (Response provided March 2016)
Q:My bank is considering automating our holiday club accounts. Instead of a passbook, we want to allow customers online access to the account so they can transfer funds at will from other accounts they have at our bank. Because the transfers occur between a consumer’s accounts within the bank, are these e-club accounts exempt from Regulation E including its periodic statement requirements?
A:No, such accounts are not exempt from Regulation E—statements are required. Section 1005.3(c)(5) of Regulation E states that in order to be exempt, any transfer of funds between a customer’s accounts within the financial institution must be made under an agreement between a consumer and the financial institution. The agreement must provide that the institution will initiate individual transfers without a specific request from the consumer. You can set these club accounts up electronically and keep them exempt if you and the customer agree that the bank will transfer a specified amount from the customer’s checking or savings account to the e-club account at specified intervals. But if you allow customers to transfer funds electronically at their discretion, then the account is subject to Regulation E and periodic statements are required. (Note that even if you restrict electronic transfers only to those preauthorized by the customer, the customer can still make deposits at the teller line and not trigger Regulation E coverage. Transactions at the ATM, however, could not be permitted.) (Response provided March 2016)
Answers are provided by Leslie Callaway, CRCM, CAFP, director of compliance outreach and development; Mark Kruhm, CRCM, CAFP, 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.
