ABA Compliance Center Inbox, July/August 2017

Q: If a trust department is exempt from the definition of “broker” due to the “chiefly compensated calculation,” would referrals made by bank employees to the Trust Department be exempt from the referral restrictions of Regulation R?

A: The trust exemption provides an exemption with respect to trust activities. A referral by a bank employee that doesn’t involve investment products (including variable annuities) to another department in the bank is not restricted. Both the networking exemption in Reg R and the banking agencies’ NDIP guidance apply only to referrals of investment products. (Response provided March 2017.)

Q: I would like clarification on how the remittance transfer rule applies to loan proceeds. Our customer is based in the United States but the loan proceeds will be wired to a company outside the U.S. The funds are not coming from the customer’s account but are being sent from our loan settlement account directly. At no time will the loan proceeds be deposited directly into our customer’s account at the bank. Does the remittance transfer rule apply to this transaction?

A: Clearly, if the bank deposited the loan proceeds into the customer’s account and then wired the funds, there would be no question that the transaction is covered. The difference in your situation is that the bank is wiring the funds from the bank’s own account. The answer to your question is found in the definitions of the remittance transfer rule. A “remittance transfer” is an electronic transfer for funds requested by the sender to a designated recipient. When the bank is wiring the funds from the U.S. to a recipient outside the U.S. and the transfer is being done at the instruction of your customer, then it is a remittance. Remember, under the rule, it isn’t necessary that the customer have an account with the bank. The key point is that the funds are being wired from the U.S. to someone outside the U.S. at the instructions of the customer. (Response provided March 2017.)

Q: We are a national bank. Do you know if we can have a non-cash branch?

A: Yes. A branch includes “a location at which deposits are received, checks paid, or money lent.” It does not state you must do all three. If your bank wanted to apply for a branch license, it is possible to be a “cashless branch” by limiting what you do to accepting deposits and making loans. You don’t have to cash checks or disperse cash to be a branch, but you do have to be a branch to perform those other functions.

However, if you are asking if you can form a deposit production office, a DPO is not a branch. The OCC states as follows:

§ 7.4004 Establishment and operation of a deposit production office by a national bank.
(a) General rule. A national bank or its operating subsidiary may engage in deposit production activities at a site other than the main office or a branch of the bank. A deposit production office (DPO) may solicit deposits, provide information about deposit products, and assist persons in completing application forms and related documents to open a deposit account. A DPO is not a branch within the meaning of 12 U.S.C. 36(j) and 12 12 CFR 5.30(d)(1) so long as it does not receive deposits, pay withdrawals, or make loans. All deposit and withdrawal transactions of a bank customer using a DPO must be performed by the customer, either in person at the main office or a branch office of the bank, or by mail, electronic transfer, or a similar method of transfer.

Basically, much like a loan production office, this is not considered a branch as long as no branch activities take place there. (Response provided March 2017.)

Q: We’ve noticed that sometimes payee names on the final invoice we receive from the title company do not match what we have on the closing disclosure. Where in the rule does it specify that we are responsible for providing the exact payee names as they are listed on the title company invoice?

A: I believe the commentary below is what you are looking for. This appears to be a clerical error that should be corrected within the specified timeframe if the payee name is incorrect. I suggest contacting the title company explaining the additional work this is causing your bank to determine a better way to ensure you are receiving the correct names for the payees going forward.

Commentary to 1026. 19(f)(2)(iv)-
1. Requirements. Section 1026.19(f)(2)(iv) requires the creditor to deliver or place in the mail corrected disclosures if the disclosures provided pursuant to § 1026.19(f)(1)(i) contain nonnumeric clerical errors. An error is considered clerical if it does not affect a numerical disclosure and does not affect requirements imposed by § 1026.19(e) or (f). For example, if the disclosure identifies the incorrect settlement service provider as the recipient of a payment, then § 1026.19(f)(2)(iv) requires the creditor to deliver or place in the mail corrected disclosures reflecting the corrected non-numeric disclosure no later than 60 days after consummation. (Response provided March 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.