Source: https://www.rskcompliance.com/2016/03/
Timestamp: 2019-04-24 14:33:41+00:00

Document:
Should a CTR be Filed for a Transaction Intended to Correct an Error?
The Bank’s customer had purchased a cashier's check for $7,500 payable to a business. The next business day, the customer returned to the branch office where he purchased the check and said he could not use it, so he wanted cash instead. The teller endorsed the check as “not used for purpose intended” and proceeded to cash the check for the customer, since the funds were originally from his account. Subsequently, the branch staff decided to correct the transaction by having the customer come back to the Bank with the cash, redeposit the funds into the account, and then cash out a check drawn on the account. On the same day, the customer had cashed another check that was also in the amount of $7,500. The cash reports now show that the customer withdrew $15,000 in cash in one business day and deposited $7,500 in cash. The Bank believes that, in reality, the customer only benefited from $7,500, since he was attempting to help the branch correct their mistake. Does a CTR still need to be filed since two separate checks were cashed by the same customer on the same business day?
Under the FinCEN aggregation rules, when either the cash-in or cash-out total more than $10,000, the filing of a CTR is required. Debits must be added to debits and credits to credits. Since the deposit was a cash-in transaction, it cannot be aggregated with the cashing of the checks, and since it was less than $10,000, no CTR is required for it. The cashing of the checks were cash-out transactions which must be aggregated and treated as a single transaction. Since the total amount of the checks exceeds $10,000, a CTR must be filed for them. FinCEN’s CTR rules are not concerned with the purpose of a transaction, but only with whether it is a currency transaction and its amount.
Unfortunately, the Bank will have to file a CTR in this case.
Under FinCEN regulations, each financial institution shall file a report of each deposit, withdrawal, exchange of currency or other payment or transfer by, through, or to such financial institution which involves a transaction in currency of more than $10,000. 12 CFR §1010.311.
A “transaction” includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, certificate of deposit, or other monetary instrument, transfer, or delivery by, through, or to a financial institution, by whatever means affected. For the purpose of filing a CTR, the term “transaction in currency” means a transaction involving the physical transfer of currency from one person to another. 12 CFR §1010.100(bbb).
Multiple currency transactions are be treated as a single transaction if the financial institution has knowledge that they are by or on behalf of any person and result in either cash-in or cash-out totaling more than $10,000. This means that debits are added to debits and credits to credits. If cash debit or credit totals exceed $10,000 in a business day, a CTR is required. 12 CFR §1010.314; FinCEN, Commonly Asked Questions About FinCEN’s Currency Transaction Report (CTR), Q. 17.
In this case, the customer deposited $7,500 into his account, a check for $7,500 was drawn on the account, which was then cashed, and a second check for $7,500 was also cashed.
Each of the transactions was a transaction in currency, since each involved a physical transfer of currency from one person to another. The customer transferred $7,500 in currency to the Bank for a deposit, and the Bank transferred $15,000 to the customer when it cashed his checks. The deposit of the $7,500 in currency was a cash-in transaction. The cashing of the $7,500 checks were cash-out transactions. 31 CFR §103.22(b)(2)(ii)(G).
The deposit cannot be aggregated with the cashed checks, as this was a cash-in transaction and the cashed checks were cash-out transactions. Because the deposit was less than $10,000, no CTR has to be filed for it.
The cashed checks are both cash-out transactions and must be aggregated. Since they total $15,000, which is more than the $10,000 CTR threshold, a CTR must be filed for them.
While the cashing of the first $7,500 check was an entirely proper transaction for a limited purpose, the CTR rules are not concerned with the purpose of a transaction but whether it is a currency transaction and in what amount. When the currency transaction exceeds $10,000, the filing of a CTR is required regardless of the reasons for the transaction. FinCEN, A Guide to Understanding Currency Transaction Reports (CTR).
The Bank collects a lock-in fee which is refunded by check after closing. The Bank asks whether such a fee must be included in the APR, and whether it would make a difference if the fee was refunded for all loans.
The rate lock-in fee would be considered a finance charge under Regulation Z and should be reflected in the APR of the Loan Estimate, which is the initial TILA disclosure provided to the consumer. The APR disclosed in the Loan Estimate is not the binding APR for the loan, but it should be accurate as of the time it is given. The Closing Disclosure provided at loan consummation reflects the final terms of the loan. If the lock-in fee is refunded, it will no longer be reflected in the finance charge or APR, resulting in the finance charge and APR being lower in the Closing Disclosure than in the Loan Estimate.
Under Regulation Z, a finance charge is the cost of consumer credit stated as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction. 12 CFR §1026.4(a).
The Bank’s rate lock-in fee would be considered a finance charge, since it is a charge imposed upon the consumer by the Bank as an incident of the credit that is not comparable to the charges in a cash transaction. As such, it would be reflected in the annual percentage rate (“APR”), which is the cost of the credit stated as a rate. Official Interpretations, ¶1026.18(e)-1.
Ultimately, the consumer will not be responsible for the rate lock-in fee, though it is collected and held by the Bank. While Regulation Z does not require “seller’s points” to be included in the finance charge or APR, when the borrower will not be responsible for finance charges paid by the seller on the borrower’s behalf, there is no comparable exception for finance charges which should be refunded by the creditor. 12 CFR §1026.4(c)(5); Official Interpretations, ¶1026.4(c)(5)-2.
The lock-in fee would be reflected in the finance charge and APR of the Loan Estimate, which is the initial TILA disclosure provided to the consumer. The APR disclosed in the Comparison Table of the Loan Estimate is not the binding APR for the loan, but it is important that it accurately discloses the APR as of the time it is given.
At closing, the finance charge and APR will be disclosed in the Loan Calculations table of the Closing Disclosure. The purpose of the Closing Disclosure is to provide a statement of the final loan terms and closing costs. 12 CFR §1024.38(a)(2). If the Bank refunded the rate lock-in fee, the fee would no longer be a finance charge and would not be included in the final loan terms. The finance charge and APR disclosed in the Closing Disclosure would thus be less than the amount and rate disclosed in the Loan Estimate.
In the interest of clarity, it would be better if the refund was made at closing rather than at a later time, in order to avoid the implication that the finance charge and APR disclosed at closing should have reflected charges which had been collected from the consumer and which were still being held by the Bank.
As to whether refunding the lock-in fee for all loans would make a difference in the disclosures, it is true that Regulation Z excludes application fees from the finance charge, when an application fee is charged to all applicants, whether or not the credit is granted. There are other fees specifically excluded as well (e.g., late charges and real estate-related fees for title insurance or title examinations or appraisals). 12 CFR §1024.4(c). No provision is made, however, for a rate lock-in fee, nor is there anything in the regulation excluding it from the general definition of the finance charge.
As a practical matter, if the rate lock-in fee is going to be refunded to every applicant, whether the loan closed or not, there would be little point in charging it in the first place. Doing so would not be analogous to the rule regarding application fees, since in that situation, the Bank would be keeping the fee paid by each applicant.

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