ABA Regulatory Policy and Compliance Inbox: For HMDA reporting, should bank use calendar year of application or date of final action?

And it permissible for a bank to purchase an email list from a third party to send out email marketing materials to non-customers?

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

Q: My bank is subject to the Home Mortgage Disclosure Act (Regulation C), and it has met the covered open-end loan threshold in 2021 and 2022 and will begin reporting these loans on its Home Mortgage Disclosure Act loan/application register in 2023. For reporting purposes, does the bank use the calendar year of the application date or the calendar year of the date on which final action was taken?

A: The bank reports the year in which final action is taken. Thus, any application for a covered loan made in 2022 on which final action is taken in 2023 should be reported in 2023.

See Comment 14 to §1003.4(a)(8)(i) which states, “An institution does not report any covered loan application still pending at the end of the calendar year; it reports that application on its loan/application register for the year in which final action is taken.” (Answer provided January 2023

If a beneficial owner of a bank’s legal entity customers (a corporation, limited liability company, general partnership, etc.) is a non-resident, the bank must obtain Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting). This form, sometimes referred to as a “certificate of foreign status,” establishes that the individual is a foreign person and the beneficial owner of the income connected to the form.

My bank requires a Form W-8BEN from all foreign beneficial owners of legal entity accounts, whether or not they are signers on the account. An auditor is questioning this practice, asserting it is not necessary to complete the form for non-signers. Should the bank require a W-8 BEN form if the beneficial owner is not a signer on the account?

It depends. The W-8 BEN instructions state that the form applies to “beneficial owners.” In its form, irs.gov/instructions/iw8ben, the IRS explains:

The beneficial owner of income is generally the person who is required under U.S. tax principles to include the payment in gross income on a tax return. A person is not a beneficial owner of income, however, to the extent that person is receiving the income as a nominee, agent, or custodian, or to the extent the person is a conduit whose participation in a transaction is disregarded. In the case of amounts paid that do not constitute income, beneficial ownership is determined as if the payment were income.

Thus, if the beneficial owners/non-signers fit this definition, the bank is required to obtain a completed W-8BEN, even if these individuals are not signers on the bank account associated with the entity. (Answer provided February 2023.)

Q: My bank is under the impression that if a building securing a loan is located in a community that does not participate in the National Flood Insurance Program the flood regulations (12 CFR §§ 25, 208.25, 339) do not apply. The banks auditor states this is not correct.

A: Do the flood regulations apply if the collateral building is not located in a participating community?

Yes, the regulation applies, but flood insurance is not required. Per answer to question Applicability 1 in the 2022 Interagency Questions and Answers Regarding Flood Insurance, the regulation does apply in these cases. This means lenders must determine whether the building or mobile home is in an SFHA using a Standard Flood Hazard Determination Form and provide the borrower with a notice of flood hazards. However, the lender need not require the borrower obtain flood insurance for the building. Note that banks may, by policy, require that borrowers obtain flood insurance coverage for safety and soundness purposes (although it would require a private flood insurance policy). (Answer provided January 2023.)

Q: My bank is in a state in which consumers may place their property to be pledged as collateral in a trust in which the bank is the trustee. Is this a HMDA-reportable transaction?

A: No. Loans in which the bank is acting in a fiduciary capacity as the trustee are not reportable. See Comment 1 to §1003.3(c)(1) which states that “a closed-end mortgage loan or an open-end line of credit originated or purchased by a financial institution acting in a fiduciary capacity is an excluded transaction. A financial institution acts in a fiduciary capacity if, for example, the financial institution acts as a trustee.” (Answer provided February 2023.)

Q: Is it permissible for a bank to purchase an email list from a third party to send out email marketing materials to non-customers? If yes, what laws or regulation might apply?

A: Yes, it is permissible, but the bank must consider the European Union’s General Data Protection Regulation and the Controlling the Assault of Non-Solicited Pornography and Marketing Act.

GDPR requires that the consumer consent to receive marketing emails and that the consent be freely given, specific, informed, unambiguous and provided by some form of clear affirmative action. In addition, because an email may not reveal the location of the consumer, the bank should either request physical addresses corresponding to the email addresses or that the firm selling the list either certify that it is GDPR-compliant or that none of the email addresses provided are subject to GDPR.

The other law to consider is the CAN-SPAM Act, which sets the rules for commercial email, establishes requirements for commercial messages, gives recipients the right to have the sender stop emailing them and spells out penalties for violations. It applies to all commercial email sent both to customers and non-customers. The bank needs to ensure that it can manage and honor the ability of email recipients to unsubscribe. The Federal Trade Commission publishes an excellent guide on CAN-SPAM compliance. (Answer provided February 2023.)

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.