Source: https://www.rskcompliance.com/2016/04/
Timestamp: 2019-04-24 14:40:42+00:00

Document:
The Bank asks how RESPA’s rules for force placing hazard insurance apply when there is an escrow account.
When the borrower has an escrow account for the payment of hazard insurance premiums, the servicer is prohibited from obtaining force-place insurance where it can continue the borrower’s homeowner’s insurance, even if the servicer has to advance funds to do so. If the servicer advances funds to ensure that the borrower’s hazard insurance is paid in a timely manner, it can seek repayment from the borrower for the funds advanced. Small servicers can obtain force-place hazard insurance even if there is an escrow account, so long as the force-place hazard insurance would be less expensive to the borrower than any disbursement the small servicer would have made to maintain the hazard insurance.
The RESPA rules on force-placing hazard insurance exclude hazard insurance obtained by the borrower but maintained by the servicer under an escrow account. 12 CFR §1024.37(a) (2) (ii). This means that the force-placed rules do not apply when an escrow account has been established for the payment of hazard insurance. Instead, the servicer must follow the rules RESPA has established for escrow accounts.
Under RESPA’s escrow account rules, when the borrower has an escrow account for the payment of hazard insurance premiums, the servicer is prohibited from obtaining force-place insurance where it can continue the borrower’s homeowner’s insurance, even if the servicer has to advance funds to do so. If the servicer advances funds to ensure that the borrower’s hazard insurance is paid in a timely manner, it can seek repayment from the borrower for the funds advanced. 12 CFR §1024.17(k)(5)(i), (ii)(C); CFPB, Summary of the Final Mortgage Servicing Rules (January 17, 2013).
If the servicer is unable to disburse funds from the borrower’s escrow account, in order to ensure that the hazard insurance premiums are paid in a timely manner, it is allowed then to force-place hazard insurance. The servicer is considered to be unable to disburse funds from the borrower’s escrow account if it has a reasonable belief that either the borrower’s hazard insurance has been canceled or was not renewed, or that the borrower’s property is vacant. 12 CFR §1024.17(k)(5)(i),(ii)(A).
A servicer is not considered “unable to disburse” funds, however, merely because there are not sufficient funds in the escrow account to pay the hazard insurance premium charges. The servicer would be required to make an advance into the escrow account and to recoup the advance from the borrower. 12 CFR §1024.17(k)(5)(ii)(B),(C).
The rule against obtaining force-placed hazard insurance in cases in which hazard insurance can be maintained through the escrow account exempts small servicers, so long as the force-placed insurance purchased by the small servicer is less expensive to a borrower than the amount of any disbursement the servicer would have made to maintain the borrower’s homeowner’s insurance through the escrow account. 12 CFR §1024.17(k)(5)(iii); CFPB, Summary of the Final Mortgage Servicing Rules (January 17, 2013).
A bank is a “small servicer” if it services 5,000 or fewer mortgage loans that it originated or which were assigned to it. However, if it services any mortgage loans it did not originate and does not own, then it is not considered a small servicer, even if it services 5,000 or fewer mortgage loans.
If the Bank provided the Electronic Funds Transfer (“EFT”) disclosure when the consumer opened the deposit account, should the disclosure be provided again at a loan closing, when direct payments are made from the borrower’s account?
Direct loan payments are considered EFT under Regulation E. When a financial institution holds the account from which direct payments will be made, the EFT disclosures must be made in close proximity to the loan closing. If any time has elapsed between the loan closing and when the EFT disclosures were originally made, we recommend that the disclosures be made again at the loan closing.
A direct loan payment from a consumer’s deposit account would be considered EFT under Regulation E, since it involves a direct withdrawal from the account. 12 CFR §1005.3(b)(1)(iii).
Generally, the EFT disclosures must be provided at the time a consumer contracts for an EFT service or before the first EFT is made involving the consumer’s account. Disclosures provided by a financial institution earlier than the regulation requires, such as when the consumer opens a checking account, need not be repeated when the consumer later enters into an agreement with a third party to initiate preauthorized transfers to or from the consumer's account, unless the terms and conditions differ from those that the institution previously disclosed. However, if an agreement for EFT services to be provided by an account-holding institution is directly between the consumer and the account-holding institution, disclosures must be provided in close proximity to the event requiring disclosure, for example, when the consumer contracts for a new service. 12 CFR §1005.7(a); Official Interpretations, ¶1005.7(a)-1.
In this case, the Bank is going to make a loan to a consumer and have direct loan payments made from the consumer’s account. This means that the EFT disclosures must be provided in close proximity to the EFT services requiring disclosure, which would be the agreement obtained at closing for direct loan payments. The term “close proximity” is not defined by the regulation or its official commentary. For that reason, if any time has elapsed between the loan closing and when the EFT disclosures were originally provided, the better policy is to provide the EFT disclosures again at closing, in order to avoid the risk that the disclosures were not made in a timely manner.
Some of Bank’s DDA accounts are changed to a Regulation CC status code of “repeat overdrafter” automatically by its core processor when specific criteria are met. Once this change takes effect, check deposits no longer receive $200 next day availability if they are second day availability checks. The Bank’s processor has informed the Bank that it cannot turn this “auto” status change off, though the Bank would prefer to use this status to delay availability for five to seven days. The processor also says that banks are not required to send customers a notice in such a case, since they are not delaying the availability, but only not providing the $200.
When an account is repeatedly overdrawn, the Bank is no longer subject to the availability requirements of Regulation CC, including the special rule making $200 available the next day from non-next-day availability deposits. The Bank is not required to extend the availability period. Whether it does so is a policy decision for the Bank to make, which should be reflected in the way account transactions are processed. If the exception regarding repeated overdrafts is invoked, the Bank must notify the customer. As a matter of best practice, the notice should refer to the $200 being withheld, since it is subject to a special availability rule. When invoking the exception, the Bank may delay the availability of funds for a reasonable period of time. A “reasonable period of time” would be one additional business day for “on-us” checks and five additional business days for local checks.
Regulation CC requires deposits of various types to be made available to a depository bank’s customers, measured in business days following the banking day on which the deposit is made. Cash, electronic payments, and certain check deposits must generally be made available for withdrawal the business day after the banking day on which they were received, provided the deposit was made at a staffed teller station and deposited into an account held by the payee of the check.
Two types of deposits, U.S. Treasury checks and “on us” checks, must receive next-day availability even if the deposit was not made at a staffed teller station. Other check or cash deposits must be available on the second business day after the day of deposit, if they were not made at a staffed teller station. 12 CFR §229.10.
There is a special rule for check deposits not subject to next-day availability, which requires the financial institution to make available next day $200 from the aggregate of non-next-day items deposited by a customer. 12 CFR §229.10(c)(1)(vii).
If any account or combination of accounts of a depository bank’s customer has been repeatedly overdrawn, then for a period of six months after the last such overdraft, Secs. 229.10(c) and 229.12 [i.e., the availability schedule] do not apply to any of the accounts. 12 CFR §229.13(d).
If an exception contained in paragraphs (b) through (e) of this section applies, a depository bank may extend the time periods established under Secs. 229.10(c) and 229.12 for a reasonable period of time. 12 CFR §229.13(h)(1).
Since the Bank is not required to extend the hold period but has the option to do so, the hold period does not have to be automatically extended or the $200 withheld when there have been repeated overdrafts. The Bank may or may not extend the hold period and may or may not withhold the $200. This is a policy decision for the Bank to make, which should be reflected in the Bank’s account opening disclosures and the way account transactions are processed.
The day the funds will be available for withdrawal. 12 CFR §229.13(g)(1).
The time period when funds will generally be made available. 12 CFR §229.13(g)(3).
Regulation CC does not indicate whether or not a specific mention must be made of the $200 that would have been made available the next day for non-next-day availability deposits. Presumably, a reference to the amount of the deposit being delayed or the fact that funds are being delayed would necessarily include the $200. We believe that it would be better practice, however, to make specific mention of the $200, since it is subject to a separate special availability rule.
A longer extension may be reasonable, but the depository institution has the burden of establishing it. 12 CFR §229.13(h)(1), (4).

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