ABA Regulatory Policy and Compliance Inbox: Must banks disclose all co-branding relationships?

And if a bank reports consumer deposit accounts to a “specialty” consumer reporting agency such as ChexSystems, is it required to follow the direct dispute provisions in the Fair Credit Reporting Act?

By Leslie Callaway, CRCM, CAFP; Mark Kruhm, CRCM, CAFP: and Rhonda Castaneda, CRCM

Q: My bank has an agreement with a third party to provide co-branded credit cards for the bank’s customers. The bank makes application forms available to its customers, and the credit card bears the bank’s name. However, the bank does not share information or provide customer lists and the third party services the card, processes customer payments and provides periodic statements. In addition, customers apply directly to the third party.

This co-branding relationship has existed for many years and has never been disclosed in the bank’s privacy notice on the basis that the bank does not have a relationship such as a joint marketing agreement that requires disclosure, and customers deal exclusively with this third party in all aspects of this relationship. The bank’s new auditor is questioning this position, arguing that the bank must disclose the relationship in its privacy notice because of the co-branding.

Is the auditor correct?

A: Yes. Even though customers are providing their information directly to the third party and the two entities do not share information, because the card is co-branded, the arrangement meets the definition of joint marketing under §1016.13(c). That section provides that “joint agreement” means a written contract pursuant to which you and one or more financial institutions jointly offer, endorse or sponsor a financial product or service. (Answer provided November 2022.)

Q: My bank is making a loan secured by a nonresidential building located in a special flood hazard area. Flood regulations (12 CFR §§ 22, 208.25, and 339) require the bank to provide a notice of special flood hazards and availability of federal disaster relief assistance, with a sample notice provided in Appendix A. The sample notice includes a section in brackets entitled “Escrow Requirements for Residential Loans.”

Given the building is nonresidential, may the bank remove the bracketed section without losing any safe harbor for its use?

A: Yes. Per Notice 7 in the 2022 “Interagency Questions and Answers Regarding Flood Insurance,” “[U]se of the sample form . . . provided in appendix A of the Regulation is not mandatory.” It continues, “[T]he sample form includes other information in addition to what is required by the Act and the Regulation. Lenders may personalize, change the format of, and add information to the sample form of notice, if they choose.” (Answer provided November 2022.)

Q: If a bank reports consumer deposit accounts to a “specialty” consumer reporting agency such as ChexSystems, is it required to follow the direct dispute provisions in the Fair Credit Reporting Act (Regulation V)? Or do those provisions apply only to disputes involving credit information?

A: The direct dispute provisions under §1022.43 of Regulation V apply to information in all consumer reports, not just credit reports. Section 1022.43(a) lists when furnishers must conduct an investigation involving a direct dispute. In addition to those related to credit information, it lists “[a]ny other information contained in a consumer report regarding an account or other relationship with the furnisher that bears on the consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. . . . ” (Answer provided December 2022.)

Q: My bank provides separate construction and permanent financing loans. One of my bank’s customers has applied for the construction and the permanent financing loan on the same application. Because it is difficult to estimate the permanent financing fees at the beginning of the construction phase, must the bank issue a Loan Estimate for the permanent financing when it issues the LE for the construction phase?

A: The bank must provide an LE for both the construction phase and the permanent phase within three business days of receipt of the application.

Comment 5 to Regulation Z (Truth in Lending Act) §1026.19(e)(1)(iii) states:

“For construction-permanent transactions disclosed as a separate construction phase and a separate permanent phase for which an application for both the construction and permanent financing has been received, the creditor complies with §1026.19(e)(1)(iii) by delivering or placing in the mail the separate disclosures required by §1026.19(e)(1)(i) for both the construction financing and the permanent financing not later than the third business day after the creditor receives the application.” (Answer provided March 2022.)

Q: My bank has a borrower who has not responded to the bank’s request for proof of updated hazard insurance for her mortgage loan as the loan agreement requires. The bank is preparing to send the 45-day notice required under the Real Estate Settlement Procedures Act (Regulation X) to begin the process of force-placing insurance. May the bank add other information such as all branch hours to the notice language required under §1024.37(c)(2)?

A: The only additional information the bank may add to the model Regulation X language is the mortgage loan account number. However, the bank may provide additional information to a borrower on “separate pieces of paper” in the same transmittal. (See §1024.37(c)(3) and (4)). (Answer provided November 2022.)

Q: My bank is considered a large bank under the Community Reinvestment Act (12 CFR §§ 25, 228, and 345) and accordingly must collect and report data for loans including those meeting the definition of small business loan. The bank purchased a number of small business loans from another bank.

What loan amount does the bank enter when reporting: the loan amount at initial consummation or the balance at the time the bank purchases the loan?

A: Banks report the amount of the loan at origination. See Interagency Questions and Answers Regarding Community Reinvestment, specifically §_.42(a)(2)-1. It clarifies that reporting the loan amount at origination is consistent with the Call Report’s use in determining whether a loan is a small business and under which category it should be reported. (Answer provided October 2022.)

Answers are provided by ABA Regulatory Policy and Compliance team members Leslie T. Callaway, CRCM, CAFP, senior director, compliance outreach and development; Mark Kruhm, CRCM, CAFP, senior compliance analyst; and Rhonda Castaneda, CRCM, senior compliance analyst. Answers do not provide, nor are they substitutes for, professional legal advice.