Source: https://www.rskcompliance.com/2016/06/
Timestamp: 2019-04-24 14:54:23+00:00

Document:
Are Accounts Established for a Director’s Grandchildren Subject to Regulation O?
The Bank has several accounts in the names of the grandchildren of one of its directors, with the spouse of the director named as the secondary accountholder. Such are overdraft accounts with a $500 maximum allowed per account, for a total of six accounts with an aggregate credit balance of $3,000. Are these accounts considered loans to an insider or related interest? Should the Bank be tracking the accounts for Regulation O purposes?
The overdraft accounts for the grandchildren would not be covered by Regulation O, and thus, there would be no need to track them, as the spouse of the director is not an insider and there is no obvious beneficial interest to the director from the accounts.
Under Regulation O, if an insider is secondarily liable on an account, it would be considered an extension of credit subject to the requirements of the regulation, since the insider would be obligated to pay money to the Bank under certain circumstances. 12 CFR §215.3(a)(7).
An “insider,” for Regulation O purposes, is an executive officer, director, or principal shareholder of a financial institution or any related interest of such a person. A “related interest” is a company or political campaign controlled by that person. 12 CFR §215.2(h), (n). The spouse of an insider, therefore, would not be considered an insider.
The question, then, is whether the director obtained a “tangible economic benefit” as a result of the overdraft accounts established by the director’s spouse for the benefit of their grandchildren. Barring any facts indicating that the director has use of the accounts or is receiving account proceeds, it would seem that the benefit to the director is the satisfaction of knowing that the grandchildren have the accounts. This would be an intangible benefit, however, and thus outside the beneficial interest rule of Regulation O.
The cut off time for ATM deposits made on a business day that the bank is open is 10pm. Deposits made at the ATM after 10pm on a day that the bank is open will be considered the next business day. In addition, ATM deposits made on a day that the bank is not open will be considered the next business day.
A recent review of the Bank’s system configuration indicated that the cut-off time for ATM deposits made on a business day is actually 7pm and not 10pm, and that deposits made at the ATM after 7pm on a day that the Bank is open would be considered the next business day. In addition, ATM deposits made on a day that the Bank is not open will be considered the next business day.
The Bank wishes to correct the discrepancy between the disclosure and system processing by making the disclosure conform to the processing parameters. Will it be necessary to provide prior notice before implementing the change?
Under Regulation CC, the Bank must send consumer accountholders a notice of the change at least 30 days prior to implementing it. The proposed language will be appropriate for that purpose.
Under Regulation CC, a financial institution must provide a disclosure describing its policy as to when funds deposited in an account are available for withdrawal. The disclosure must reflect the policy followed by the institution in most cases. The institution may impose longer delays on a case-by-case basis or by invoking one of the exceptions permitted by the regulation, such as for deposits into new accounts or in excess of $5,000, provided that this is reflected in the disclosure. 12 CFR §229.16(a).
A description of how the customer can differentiate between a proprietary and a nonproprietary ATM, if the bank makes funds from deposits at nonproprietary ATMs available for withdrawal later than funds from deposits at proprietary ATMs. 12 CFR §229.16(b).
The financial institution must send a notice to holders of consumer accounts at least 30 days before implementing a change to its availability policy regarding such accounts. However, if a change expedites the availability of funds, it may be disclosed no later than 30 days after implementation. 12 CFR §229.18(e).
In this case, the Bank provided a disclosure that funds deposited into one of its ATMs no later than 10 p.m. on a business day would be made available that day. As it discovered, however, its system requires such deposits to be made no later than 7 p.m. on a business day. The Bank has been manually overriding the system to make funds available in accordance with the disclosure. Now it wants to change to disclosure to correspond to system requirements.
As this change affects the disclosed policy of the Bank, and since the earlier cut-off time will not have the effect of expediting the availability of funds, the Bank must send notice at least 30 days prior to implementing it. As a matter of best practice, the notice should also be posted in a conspicuous place in each location where the Bank’s employees receive deposits to consumer accounts.
The Bank charges all borrowers a 1% closing fee for residential mortgage loans. It has entered into an agreement with an independent mortgage broker whereby it will pay the broker a fee equal to half of the closing fee for any loans the broker brings in. The Bank does not believe that it will be necessary to itemize the broker’s fee on the Loan Estimate, since the charge is not being paid directly by the consumer, but that it will be necessary to itemize the charge on the Closing Disclosure.
The Bank’s assessment is correct, since origination charges are to be itemized on the Loan Estimate only if they are paid directly by the consumer to a creditor or loan originator, but must be disclosed on the Closing Disclosure regardless of who pays the charge.
The Bank is correct in its assessment of the disclosure requirements applicable to the fee paid by it to the mortgage broker.
Under the TILA-RESPA Integrated Disclosure (“TRID”) Rules of Regulation Z, a creditor must provide an itemization of origination charges in the Loan Estimate under the master heading “Closing Cost Details” and the subheading, “Origination Charges.” For the purpose of this disclosure, origination charges are those charges paid by the consumer to each creditor and any loan originator for originating and extending the credit, regardless of how the credit is denominated. 12 CFR §1026.37(f)(1); Official Interpretations, ¶1026.37(f)(1) – 1.
Only charges paid directly by the consumer to compensate a loan originator are included in the amounts listed in the Loan Estimate, however. Compensation of a loan originator paid indirectly by the creditor, as through the interest rate, is not itemized. Official Interpretations, ¶1026.37(f)(1) – 2; CFPB, TILA-RESPA Integrated Disclosure, p. 32.
In this case, the mortgage broker will be considered a “loan originator,” as per section 36(a)(2) of Regulation Z, but the charge paid to the broker will be paid by the Bank rather than by the consumer. It will not be necessary, then, to itemize the broker’s fee on the Loan Estimate.
It will be necessary to itemize the mortgage broker’s fee on the Closing Disclosure, since all compensation paid to a loan originator must be disclosed regardless of the party that pays the compensation. Compensation paid by a creditor to a third-party loan originator is designated as paid by others on the Closing Disclosure. 12 CFR §1026.38(f)(1); Official Interpretations, ¶1026.38(f)(1) – 2.

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