ABA Compliance Center Inbox, May/June 2017

Q: I attended a training session where the instructor stated that comments on social media pertaining to helping meet our communities’ credit needs need to be included in our CRA public file. Is this a true statement?

A: Almost. Customer comments regarding your bank’s success in helping to meet the credit needs of your community are complaints that should be tracked for CRA purposes. Only comments or complaints posted on your bank’s social media page or Twitter account need be considered, however. A post on a customer’s own Facebook page is not something you can control or that should be tracked. See for reference page 14 of the FFIEC Social Media Guidance. (Response provided Jan. 2017.)


Q: We routinely verify that the name of the applicant matches the name associated with the mobile phone number provided in the application. Does this trigger a potential issue with 12 CFR 1002.6(b)(4)?

A: Yes, because the bank can’t use it as a basis for denying the loan. So, for example, if the phone is in the applicant’s spouse’s name, that cannot be a reason to deny credit. The only thing you can require is that there be a phone at the applicant’s residence where you can reach him or her. For verification purposes you could call the applicant at the number provided to ensure that it is a working number and that the client can be reached at that number. (Response provided Jan. 2017.)


Q: If a borrower pays their private mortgage insurance upfront at closing, is the bank still required to provide an annual PMI notice?

A: Absolutely. The cancellation and termination provisions still apply, even if the borrower paid upfront, and you would still have to refund any unearned premium amount. (Response provided Jan. 2017.)


Q: Are there any disclosure requirements or special provisions in the Military Lending Act regulation that apply when a covered borrower defaults?

A: There are no specific disclosures when an MLA-covered borrower defaults on a covered loan. However, the regulation includes a number of provisions that prohibit vaguely explained actions that typically surface only in the event of a default. Specifically, the rule prohibits: (1) waivers of the right to legal recourse under any state or federal law, (2) requirements to submit to arbitration or “other” “onerous legal notice provisions” in the case of dispute, and (3) demands of “unreasonable notice from the covered borrower as a condition for legal action.”

It is not clear what these mean and the Department of Defense has not provided any insight despite repeated requests, but it might be a good idea to review these prohibitions when determining what actions you plan to take. (Response provided Jan. 2017.)


Q: Our chief loan officer is considering becoming a part owner of a title company that the bank frequently uses. What type of compliance risks could this subject the bank to? Are there any RESPA Section 8 potential concerns?

A: There are any number of possible issues to consider when an employee obtains or has ownership in a company that performs services related to the institution’s business, not the least of which is Section 8 of RESPA. In order to determine what those issues may be, you should perform a risk assessment and document the arrangement, as well as any possible concern or issue it may create. In addition, it would be prudent to have legal counsel review the arrangement and opine as to the legal issues that could arise.

For example, there would likely be at least the appearance of a conflict of interest should a loan require the CLO’s authorization and the title company of which the CLO is (at least part) owner is involved.

Might this be mitigated by a disclosure similar to the “affiliated business arrangement” (AfBA) disclosure, even if technically there is no “affiliate relationship,” as defined? Or would this require such a notice from a general ethics perspective? These issues may not be addressed directly in regulations, yet should be reviewed and considered by the institution based on the specific facts and circumstances surrounding the situation, the institution’s risk tolerance, as well as any mitigation techniques that may be necessary to allow for the use of the title company on loans originated by the institution. (Response provided Jan. 2017.)


Q: My bank has a commercial customer who secured a loan with land. The land is in a flood zone. Our collateral is only the land: we did not take any structures as collateral. This customer has leased part of the land to a company that is building a restaurant on it. I do not believe we would have any reason to ask our customer to provide flood insurance since our collateral is only the land, not the new restaurant. Am I correct?

A: Correct—if your loan is not secured by the restaurant (or any other insurable structure) then it would not meet the definition of a “designated loan,” which is “a loan secured by a building or mobile home that is located or to be located in a special flood hazard area in which flood insurance is available under the Act.” It would be prudent, however, to review the lien and security interest documents to ensure that there is no boilerplate or similar language that automatically includes any improvements on the land. (Response provided Jan. 2017.)


Q: We are implementing a new service to send text messages to customers’ mobile phones if potential fraud is detected on their debit card. The plan is to send an initial text asking the customer if they would like to enroll in the program. If they answer “No,” they will receive no further texts. If they answer “Yes,” they will be enrolled in the fraud alert text program. Is the initial text subject to the TCPA’s restrictions? Would we need to eliminate phone numbers on the “Do Not Call” list, or is this covered by an exemption to prevent fraud?


Yes, the initial text asking customers if they would like to enroll in the program would be subject to the TCPA and require the customer’s consent to be sent. Alternatively, instead of seeking consent, the bank could send text messages to customers’ mobile phones when fraud was suspected on the account, under the exemption from the TCPA’s prior consent requirements that the FCC granted to financial institutions, at ABA’s request, for fraud-related calls. (Note that for the texts to be subject to the exemption, they must be sent to phone numbers provided by the customers called and comply with the other conditions imposed on the exemption.)

The Do Not Call list prohibits a telemarketing solicitation to a person who has registered his residential telephone number on the national Do Not Call registry or company-specific registry. The Do Not Call rules do not apply to the informational calls you are seeking to make. (Response provided Jan. 2017.)


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.