Source: https://www.rskcompliance.com/2015/06/
Timestamp: 2019-04-24 14:32:56+00:00

Document:
The Bank is looking to allow its business borrowers access to commercial lines of credit through online transfers. Would there be an audit or compliance issue if the Bank chooses to offer this?
From a BSA/AML and audit standpoint, the Bank will want to have sufficient controls in place to ensure that the request for an advance is authorized and for the purpose for which the credit was granted. This would include appropriate customer due diligence and monitoring, and may include restrictions on the size of advances or how often they can be requested.
Generally, the conditions for an advance from a commercial line of credit are established by the credit agreement between the Bank and the borrower. This would include the parties authorized to request an advance, the purpose for which an advance would be used, any verification of the purpose, the manner in which the disbursement would be made, and any limitations on the size or timing of the advance.
Allowing advances from a commercial line of credit to be requested and disbursed electronically would not be subject to the requirements of Regulation E, since this pertains only to consumer transactions. From both a BSA/AML and an audit standpoint, however, the Bank will want to have sufficient controls in place to ensure that the request for an advance is authorized and for the purpose for which the credit was granted.
The transfers of advances from the line should be to a business account and not a personal account in order to mitigate money laundering or funds being used for a purpose not authorized by the credit agreement.
Otherwise, online banking activity related to commercial lines of credit should comply with the Bank’s BSA/AML program, including adequate monitoring of transactions. FDIC: Risk Management Manual of Examination Policies, section 8.1 – Bank Secrecy Act, Anti-Money Laundering and Office of Foreign Assets Control.
If the Bank ordinarily uses the request for an advance as an opportunity to ascertain the financial condition of the borrower, it should be aware that online transfers may allow advances to be obtained without such a determination having been made, unless proper controls are in place. For that reason, the Bank may wish to limit the size of advances requested online or how often such advances can be requested. The Bank should also consider setting up alerts on its system for transfers above a certain dollar amount and having follow-up contact with borrowers to confirm the request and use of an advance.
The Bank asked what circumstances would justify issuing a revised Loan Estimate under the new TILA-RESPA Integrated Disclosures (“TRID”) rules.
Under the new TRID rules, a creditor may provide a revised Loan Estimate within three business days of learning of changed circumstances which cause the original estimated charges to be out of tolerance. This is similar to the current RESPA rules allowing a revised GFE to be issued, but the TRID rules are more precise and will likely be more strictly enforced. Also, the Loan Estimate must be mailed or delivered at least seven business days prior to closing. If a revised Loan Estimate will be issued during the waiting period, either the creditor cannot use the revised Loan Estimate or the closing must be postponed to allow for the waiting period.
As per RSK’s “Upcoming Action Compliance Alert” last week, which provides the latest information on forthcoming compliance changes, the effective date of the TRID rules has been pushed back from August 1st to October 1st. The effect of changed circumstances under the current RESPA rules, which was discussed in last week’s “RSK.IQ Question of the Week,” will continue until then. However, the timeframe from now and when the new rules go into effect should be employed as strategically as possible, which means that it is not too soon to consider the circumstances under which a revised Loan Estimate can be issued.
Under the TRID rules, the Bank can provide a revised Loan Estimate re-disclosing a settlement charge if changed circumstances cause the estimated charges to increase. If changed circumstances have caused either the charges subject to zero tolerance to increase, or in the case of charges subject to the 10 percent cumulative tolerance, an increase to the sum of the charges by more than 10 percent, then the Bank may, but is not required to, issue a revised Loan Estimate. 12 CFR §1026.19(e)(3)(iv)(A); Official Interpretations, ¶19(e)(3)(iv)(A)-1.
The RESPA rules for issuing a revised GFE are similar, but in practice, many banks issued revised GFEs even though the changes reflected in the GFE did not result in the charges originally disclosed becoming out of tolerance. The new TRID rules are more likely to be strictly enforced, so the Bank should be sure to issue a revised Loan Estimate only when the charges originally disclosed are no longer within tolerance due to changed circumstances.
When the creditor reasonably believes that the settlement will take place more than 60 days after the Loan Estimate has been provided, provided the Loan Estimate states that the creditor can issue a revised Loan Estimate at any time prior to 60 days before closing. 12 CFR §1026.19(e)(3)(iv)(A) – (F).
New information specific to the consumer or transaction that the creditor did not rely on when providing the original Loan Estimate. 12 CFR §1026.19(e)(3)(iv)(A).
As for changed circumstance affecting eligibility, an example would be a creditor relying upon the consumer’s representation of a $90,000 annual income when credit underwriting demonstrates that the consumer has only $60,000 in income, or when the creditor relies upon the incomes of two applicants and one of the applicants becomes unemployed.
The Bank must keep in mind, however, that the revised disclosures may reflect increased charges only to the extent that the reason for revision actually increased the particular charge. For example, if a consumer requests a rate lock extension, then the revised disclosures may reflect a new rate lock extension fee, but the fee may be no more than the rate lock extension fee charged by the creditor in its usual course of business, and other charges unrelated to the rate lock extension may not change. Official Interpretations, ¶19(e)(3)(iv) – 2.
Again, the present RESPA rules for GFEs are similar, but many banks included other changes that may have occurred since the initial GFE was provided, even though they were unrelated to the particular change justifying the issuance of the revised GFE. The new TRID rules are more explicit and thus more likely to be strictly enforced.
Timing will be important under the TRID rules. Generally, a creditor must deliver or place in the mail the revised Loan Estimate to the consumer no later than three business days after receiving the information sufficient to establish one of the reasons for the revision. 12 CFR §1026.19(e)(4)(i); Official Interpretations, ¶19(e)(4)(1) -1.
The creditor is required to deliver or place in the mail the Loan Estimate no later than seven business days before consummation of the transaction. 12 CFR §1026.19(e)(1)(iii)(B). This rule applies to the initial Loan Estimate, so that the closing must be scheduled accordingly. It also applies to the revised Loan Estimate, however, so that if the settlement is scheduled during the applicable waiting period for the revised Loan Estimate, the creditor either cannot use the revised Loan Estimate or it must postpone the settlement to allow for the seven business day period to elapse.
Evidence of compliance with the time/delivery requirements.
When can a Revised RESPA GFE be Issued under the Existing Rule Due to Changed Circumstances?
The initial credit report had a score below what was required for PMI. If the Bank updates the credit information, the borrower will qualify for PMI, but the cost will be $50 per major credit reporting agency or $150 altogether. The customer is willing to pay for this, but how should the cost be reflected in the consumer protection disclosures? The GFE and Early TIL have already been issued.
Since this is a realty-related consumer loan, the increase in the credit fee will not be included in the finance charge and will not affect the Regulation Z disclosures. With respect to the RESPA GFE, the credit fee would have been among the disclosed fees for services. RESPA, however, allows a revised GFE to be provided when changed circumstances affect settlement costs. The Bank should issue a revised GFE within three business days showing the increased credit fee for the Rapid Re-Score service.
Ordinarily, a credit report fee is included in the finance charge for a consumer loan subject to Regulation Z. However, when the consumer loan is real estate-related, as it is here, Regulation Z excludes the credit report fee from the finance charge. For that reason, the Bank can charge the additional $150 without affecting the finance charge or annual percentage rate calculations for the loan. 12 CFR §1026.4(c)(7)(iii).
As for the RESPA disclosures, the credit fee would have been one of the charges for lender-required settlement services disclosed in Block 3 of the Good Faith Estimate of Settlement Costs (the “GFE”). The tolerance between the estimated cost of the services disclosed in Blocks 3, 4, 5, 6, and 7 of the GFE and the cost actually charged the borrower at closing is 10 percent. That means that the aggregate cost for those services at closing cannot be greater than 10 percent above the sum of the amounts disclosed on the GFE, if the lender required a particular service provider to be used or the borrower selected a service provider from a list provided by the lender. 12 CFR §1024.7(e).
The question would be whether charging the customer an extra $150 for the credit fee-related charge would result in a charge at closing that was outside the 10 percent tolerance.
A revised GFE provided in response to changed circumstances must be issued within three business days of the lender learning of the changed circumstances. The GFE, however, can be revised only to the extent that the particular changed circumstances affected its disclosures. No unrelated changes can be made.
The lender may also issue a revised GFE in response to changes requested by the borrower that alter the settlement charges or the terms of the loan, as per section 1024.7(f)(3) of Regulation X. If a revised GFE is to be provided, the lender must do so with three business days of the borrower’s request.
In this case, information concerning the borrower’s credit quality which the Bank relied upon in establishing a condition of the loan had changed after the GFE was provided. For that reason, the Bank can issue a revised GFE if it does so within three business days of receiving the information establishing the changed circumstances.
The Bank should document the changed circumstances and the date it became aware of the change. This is important as the revised GFE must be issued within the three business day period in order to be valid.
The revised GFE will be increased by the cost for the updated credit score. The costs for services charged at closing will then be within the allowable tolerance for the fees disclosed in the GFE, as revised.
NOTE: Effective August 1, 2015, the disclosure requirements of RESPA and the Truth-in-Lending Act will be consolidated for consumer mortgage loans. Please contact us to obtain our whitepaper on these important changes. Next week’s “RSK.IQ Question of the Week” will address the question of how changed circumstances will affect the Loan Estimate under the new rules.

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