ABA Compliance Center Inbox, March/April 2018

Q We recently acquired another financial institution. Its loan portfolio contains home equity loans with prepayment penalty clauses. We would like to remove the prepayment penalty clause or not charge borrowers the prepayment penalty. If we can do either, are we required to send a notice to all affected borrowers that the prepayment penalty will not be charged if they pay off the loan early? Or, since this practice will be more favorable to borrowers, can we just forego notice and not charge customers if they pay off early?

A No, you are not required to send a notice about the removal of the prepayment penalty provision and yes, you may simply not charge customers who repay early.

Under §1026.40(f)(3)(iv) regarding limitations on home equity plans, creditors may “make a change that will unequivocally benefit the consumer throughout the remainder of the plan.” Under §1026.9(c)(1)(ii), creditors are not required to provide a change in terms notice “when the change involves a reduction of any component of a finance or other charge.” Clearly, elimination of the prepayment penalty fee is a reduction of a charge. (Response provided Nov. 2017.)

Q We are working with an outside attorney who is helping us with a commercial loan restructuring. The loan will be secured by commercial real estate and equipment. The attorney has offered to order the appraisal. Can the attorney order the appraisal for us?

A It depends. Attorneys may order the appraisal if the bank is the client, but they may not if the bank’s client is the attorney’s client. Even if outside attorneys working on behalf of the bank are permitted to order the appraisal, it does not mean that they should in all cases. It may depend in part on how the attorneys are compensated. If they are compensated on a per-loan or per job basis, then they are part of the loan production function, and their independence may be questionable.

According to the Interagency Appraisal and Evaluation Guidelines: “Because the appraisal and evaluation process is an integral component of the credit underwriting process, it should be isolated from influence by the institution’s loan production process. An appraiser and an individual providing evaluation services should be independent of the loan, collection functions of the institution and have no interest, financial or otherwise, in the property or the transaction. If absolute lines of independence cannot be achieved, an institution must be able to clearly demonstrate that it has prudent safeguards to isolate its collateral evaluation process from influence or interference from the loan production process.” (Response provided Nov. 2017.)

Q Our holding company is revising its letterhead. 
Should its stationery include “Member FDIC”?


A No. It is not required because the FDIC membership logo and statement are not required on any stationery, including bank stationery. Section 328.3(d)(2) lists the types of advertisements that do not require the official advertising statement: “The following types of advertisements do not require use of the official advertising statement, which includes: (2) Insured depository institution supplies such as stationery (except when used for circular letters), envelopes, deposit slips, checks, drafts, signature cards, deposit passbooks, certificates of deposit, etc.”

That is not to say that the use is prohibited, however, but there may be some risks. For example, if the stationery might be used to promote non-FDIC insured products and services, it may not be a good idea to have the FDIC logo as part of the letterhead. (Response provided Nov. 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.