Uh-Oh—Suspicious Activity Went On for a Year, but the BSA Officer Just Found Out

I am the BSA officer at my bank and I’ve just been made aware of suspicious account activity in one of our trust department accounts. This activity has been going on for over a year, but has just now come to my attention due to our bank being named as a defendant in a court action involving the trust beneficiaries. There was apparently some reluctance on the part of the trust department employees to report the activity due to the trust relationship. Based on the activity that began 18 months ago, we should have filed a Suspicious Activity Report at that time, but since this just came to my attention, are we late in filing? If so, how do we (or can we) fix it? Does the clock start ticking when anyone in the bank is made aware of the suspicious activity, or does it start ticking when the BSA officer or department is made aware?

According to the FFIEC BSA Examination Manual, in its section entitled “Suspicious Activity Reporting—Overview,” the SAR rules require that “a SAR be electronically filed through the BSA E-Filing System no later than 30 calendar days from the date of the initial detection of facts that may constitute a basis for filing a SAR … The time period for filing a SAR starts when the organization, during its review or because of other factors, knows or has reason to suspect that the activity or transactions under review meet one or more of the definitions of suspicious activity.”

The phrase “initial detection” should not be interpreted as meaning the moment a transaction is highlighted for review. The real problem the bank faces is the fact that bank employees were aware of a problem and yet did not take the appropriate steps to bring that to the attention of the BSA officer.

The court case is your “wake-up call”—a red flag to check through the files to make sure you didn’t miss something—but should not be considered the initial detection of potential suspicious activity. The 30-day (or 60-day) reporting period does not begin until an appropriate review is conducted. What is important is that when someone in the bank becomes aware of something that might be suspicious, appropriate steps should be taken to investigate.
Since you have now determined that suspicious activity occurred, you should file a SAR. Your SAR should state when the activity occurred and when you (the BSA officer) became aware of it. And, you should include as much detail about what happened as possible, including any explanation for the delay in filing.

The major concern here is that this does bring to light the fact that there is an issue with your overall compliance management system and your ability to monitor for suspicious activity. It also highlights a lack of awareness on the part of your employees. Along those lines, there’s an opportunity to introduce the idea that there needs to be clear expectations to communicate suspicions so that the right staff can properly evaluate whether there is something suspicious and whether it should be reported. And, it clearly indicates the need to train the trust department staff about the importance of reporting suspicious activity and notifying the BSA officer promptly. (Response provided Nov. 2016.)

We have a clause in our loan contracts that requires the borrower to waive a jury trial in cases of disputes. It seems to me that this was outlawed for consumer real estate loans. Is this correct, or is it okay to leave it in our contracts?

Unless your state law prohibits it, a waiver of jury trial clause appears to be permissible. What was “outlawed” was mandatory arbitration and other non-judicial procedures. See §1026.36(h): 36(h) Prohibition on Mandatory Arbitration Clauses and Waivers of Certain Consumer Rights:

A contract or other agreement for a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the consumer’s principal dwelling) may not include terms that require arbitration or any other non-judicial procedure to resolve any controversy or settle any claims arising out of the transaction. This prohibition does not limit a consumer and creditor or any assignee from agreeing, after a dispute or claim under the transaction arises, to settle or use arbitration or other non-judicial procedure to resolve that dispute or claim.

In the preamble to the final rule, the Consumer Financial Protection Bureau stated: “In response to the comments, the Bureau does not interpret TILA section 129C(e)(3) to limit waivers of rights to a jury trial because bench trials are judicial procedures.” Simply put, a hearing before a judge is still a judicial action, even if no jury is involved. (Response provided Nov. 2016.)

If an executive officer inadvertently overdraws his or her account with a point-of-sale transaction but did not opt-in to the payment of overdrafts under Regulation E, which regulation prevails—Regulation E or Regulation O? We would normally charge executive officers a fee; however, because they didn’t opt-in, Regulation E doesn’t allow us to charge the fee.

Both Regulation E and Regulation O apply. The overdraft provisions of Regulation O, §215.4(e) (2) state that “the prohibitions in paragraph (e)(1) on the payment of overdrafts does not apply to payment of inadvertent overdrafts on an account in an aggregate amount of $1,000 or less, provided … (ii) The member bank charges the executive officer or director the same fee charged any other customer of the bank in similar circumstances.”

Regulation O doesn’t require you to charge a fee—it just requires you to treat an insider no differently than you would any other customer. Because a “regular” customer who did not opt in would not be charged a fee under §1005.17 of Regulation E, your insider also should not be charged. Under Regulation E, a financial institution may assess fees for paying ATM or one-time debit card transactions pursuant to an overdraft protection program if the institution provides the consumer with a written notice and the consumer affirmatively consents, or opts in, to the program for ATM and one-time debit card transactions. Your executive officer is also a consumer, so if the executive officer did not opt in, the bank cannot charge a fee for any one-time debit or ATM transaction that would overdraw that person’s account. (Response provided Nov. 2016.)

We have a question relating to the adjustable interest rate table under the TILA-RESPA integrated disclosures. Our adjustable-rate mortgage products currently do not have a cap, but the maximum interest rate is 13 percent. In the AIR table, our vendor is telling us that since we don’t have a cap, the subsequent change column should be zero. We disagreed, but they are standing by their interpretation of the rule. Can you please give us your interpretation of what the table should show?

If the rate can actually increase to 13 percent, then I’m not sure why the vendor is taking that particular position. The commentary directs you to disclose the maximum interest rate permitted by applicable law, such as state usury law, if you don’t have a rate cap in the “legal obligation.”

The commentary at §1026.37(j)(4)-2 says: “Maximum interest rate. The maximum interest rate required to be disclosed pursuant to § 1026.37(j)(4) is the maximum interest rate permitted under the terms of the legal obligation, such as an interest rate ’cap.’ If the terms of the legal obligation do not specify a maximum interest rate, the maximum interest rate permitted by applicable law, such as State usury law, must be disclosed.”

As limits on interest rate changes (§ 1026.37(j)(6)):

• As first change, the maximum possible change for the first adjustment of the interest rate after consummation (§ 1026.37(j)(6)(i)); and
• As subsequent changes, the maximum possible change for subsequent adjustments of the interest rate. (§ 1026.37(j)(6)(ii))
  (Response provided Nov. 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 CRCM, 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.