Thursday, May 23, 2024

December 2009 Legal Briefs

Clarification from Federal Reserve Supports Viability of Short-Term Balloon Notes in Spite of HPML Changes 

Reg GG Implementation Deadline Extended at Last Minute to June 1, 2010
 
Recent Reg CC Changes: We Are Quickly Heading Toward All Local Checks
 
Final Rule Revising Reg E Restricts Overdraft Charges on ATMs and One-Time Debit Card Transactions Effective July 1, 2010
 
FinCEN’s BSA E-Filing Completes Transition to Adobe-based Electronic Forms Effective 1/1/2010
 
Reminder: Changes to Reg DD Effective 1/1/2010
 
Reminder: HUD’s Reg X (RESPA) Changes; Use of New GFE and HUD-1 Forms Mandatory 1/1/2010
 
Reg S Revised to Increase Fees for Subpoena Compliance Effective 1/1/2010
 
S.A.F.E. Act Update

Clarification from Federal Reserve Supports Viability of Short-Term Balloon Notes in Spite of HPML Changes

Probably the greatest firestorm during my brief tenure here at the OBA surrounded the Reg Z changes that went into effect on October 1, 2009. The biggest fallout of those changes was calling into question the use a traditional mortgage product offered by many Oklahoma banks, 3- and 5-year balloon notes. For many Oklahoma banks, 3- and 5-year balloon notes are an important part of their business and, in many cases, the only way to meet their customers’ needs. New provisions were added to Reg Z effective October 1, 2009, creating a new category of loans dubbed "High Priced Mortgage Loans" or "HPMLs". The Reg Z changes brought into question the ability of banks to make a HPML balloon note of less than seven years. For a thorough review of the October 1, 2009 changes, visit the September 2009 Legal Update, discussing the HPML Reg Z changes, and the October 2009 Legal Update, discussing possible work-arounds to these changes.
Recently bankers received some welcome news from the Federal Reserve Board. The Fed published Consumer Affairs Letter 09-12 on Nov. 9, providing much-needed clarification as to when it is permissible for banks to make HPML balloon notes of less than seven years. Although a balloon note can still not meet the "presumption of compliance" provided for in Reg Z, CA 09-12 offers the following clarification to the HPML changes:
  • Reg Z does not prohibit HPML balloon notes of less than seven years. However, CA 09-12 states that a lender must use “prudent underwriting standards” and, after considering a consumer’s income, employment, obligations and assets, the lender should determine that the value of the collateral is not the basis for repaying the obligation (including the balloon payment).
  • A bank does not have to determine that a consumer will be able to pay the balloon payment when it comes due. CA 09-12 recognizes that such a requirement “would effectively ban short-term balloon loans.” It goes on to state that, “If the Board had intended to ban these products it would have done so explicitly.”
  • In order to avoid running afoul of the HPML requirements, a bank should verify that the consumer would likely be able to satisfy the balloon payment obligation by refinancing the loan or through income or assets other than the collateral, based upon information available at the time of making the balloon loan.
  • In determining whether a consumer will be able to refinance a balloon payment, a bank should exercise "prudent underwriting," including considering factors such as the loan-to-value ratio and the borrower’s debt-to-income ratio or residual income, as of the time of loan consummation.
An important caveat: The reach of this letter is somewhat limited. Strictly speaking, it is guidance only from the Federal Reserve to its own regulators. We have received unofficial word that the OCC and OTS have distributed this letter to their regulators as well. As of yet, the FDIC seems to be indicating it will not follow suit. This especially leaves state-chartered banks in a difficult position, as the FDIC may be digging in its heels on this important issue.
In any event, although CA 09-12 does not provide absolute clarity, it goes a long way toward providing comfort for banks that wish to provide short-term balloon notes to their customers.
 
Reg GG Implementation Deadline Extended at Last Minute to June 1, 2010
               
                In the November 2009 Legal Update, a great deal of space and attention was dedicated to the brand new Reg GG, which implements the Unlawful Internet Gambling Enforcement Act (“UIGEA”). Although Reg GG took effect on January 19, 2009, the deadline for banks’ implementation of Reg GG was stated to be December 1, 2009. As you may recall, my article last month mentioned that there has been much speculation about the possible delay or repeal of Reg GG. However, I was somewhat dismissive of that possibility “at this late hour”.
 
                Well, leave it to the federal government to cause banks to ramp up for a new regulation and then pull the rug out from under the need to do so at the last minute. Mind you, as discussed in last month’s article, Reg GG is not very well written, and its implementation remains problematic. On Wednesday, November 25, the Federal Reserve announced that given the amount of commentary from industry groups, including the American Bankers Association, about the difficulty of implementation of the regulation, it was delaying the compliance deadline for Reg GG by six months to June 1, 2010. (This notice did not become official until published in the Federal Register on December 1, 2009, at 74 FR 62687).
 
Where Does This Leave Your Bank?
 
                You may be saying, “Great, we don’t have to worry about this for a few months now.” Well that may or may not be the case, depending on how much you have done prior to December 1. Let’s lay this out based upon three separate scenarios:
 
Banks Who Had Done Nothing Prior to December 1
 
                Ironically, the delay of the deadline to June 1, 2010 arguably leaves banks that had done absolutely nothing in the best position. In that the December 1 deadline did not come to fruition, if your bank did nothing prior to December 1, you were not out of compliance with the requirements of Reg GG. Further this gives you extra months to wait and see what will happen.
 
Banks Who Implemented Reg GG Effective December 1
 
                If your bank fully ramped up for Reg GG by adopting a formal, written UIGEA policy and procedures, sent out notice to your existing customers, you need to take a careful look at what your policies and procedures state. If your policies and procedures state they will be effective December 1, 2009, they are arguably in effect, despite the extension of the deadline. If this is the case for you, you can probably promptly rescind your policies and procedures in the same manner they were adopted. This may have some additional complications if your bank elected to combine your BSA policy with your Reg GG policy. In any case, you should act quickly if you have explicitly stated in writing that your policy and procedures are effective December 1, to either rescind them or decide to go forward with the implementation of your UIGEA policy and procedures.
 
                I do not believe that the act of sending a notice out to existing commercial customers should have any effect on your decision. If you have sent out such a notice, I do not think you are tied into going forward or not rescinding your policies and procedures as a result.
 
                Alternatively, if your policies and procedures stated that they would be effective based upon when final implementation is required, or similar language, then you are likely in good shape, as the implementation would be automatically delayed as a result of the Federal Reserve Board’s last-minute reprieve.
 
Recent Reg CC Changes: We Are Quickly Heading Toward All Local Checks
 
                We have long been aware of Reg CC requirements for funds availability, and the differentiation between local and non-local checks. Under Reg CC, a check is considered “local” if your institution is located in the same check-processing region as the paying institution. Funds from local checks must be made available by the second business day following the day of your customer’s deposit. In contrast, nonlocal checks do not have to be made available until the fifth business day following the day of deposit.
 
                Recent statements made by the Federal Reserve indicate that by early 2010, all checks will be processed out of the Federal Reserve Bank of Cleveland. When this occurs, all financial institutions will be in the same check-processing region, effectively eliminating nonlocal checks. 
 
Effective October 17, 2009, the Federal Reserve transferred the check-processing operations of the Federal Reserve Bank of Dallas to the Federal Reserve Bank of Cleveland. Effective November 14, 2009, the Federal Reserve transferred the check-processing operations of the Los Angeles branch of the Federal Reserve Bank of San Francisco to the Federal Reserve Bank of Cleveland. Thus, almost all banks have now been consolidated into the Federal Reserve Bank of Cleveland. Appendix A to Part 229 of Reg CC has been adjusted accordingly. 
 
In light of these changes and the expected final round of changes coming soon, whereby there will no longer be any nonlocal checks, many banks are simply switching to next day availability on all checks. This approach may be preferable to trying to update your system from these recent changes, especially considering there is likely to be another round of changes soon, requiring another update.
 
One other aspect of these changes that your bank should consider is whether your Reg CC disclosures to your customers need to be updated to reflect these changes. Reg CC requires that financial institutions provide their customers who have transaction accounts disclosures stating when their funds will be available for withdrawal. These disclosures need to be accurate. We would not expect that most banks will have to change anything as a result of the switch to all local checks. However, if your bank’s disclosures, for example, list the range of routing numbers which will be considered local or nonlocal, or otherwise become inaccurate, you will need to provide new disclosures to your customers, pursuant to Reg CC.
 
Final Rule Revising Reg E Restricts Overdraft Charges on ATMs and One-Time Debit Card Transactions Effective July 1, 2010
 
Byron’s Quick Hit: Revised Reg E became a final rule on November 12, 2009. The compliance deadline for the revisions is July 1, 2010. It will require ALL consumer customers (new and existing) to “opt in” to overdraft protection for ATM overdrafts and “one-time” debit card transactions in order for the bank to charge an overdraft fee for these transactions. Customers that opt in must also be given the continuous right to opt out. In addition, the rule prohibits “bundling” of the opt-in for ATM and one-time debit card overdraft services for checks and other transactions, i.e., ATM and one-time debit card transactions must get their own, independent opt-in.             
 
Previously, the Federal Reserve had proposed changes that would have required consumers to opt-in for overdraft fees on all types of transactions, including checks, automated teller machine (ATM) and ACH transactions. For its final rule published on November 17, 2009 [74 F.R. 59033], the Fed opted to limit the breadth of the changes to overdraft fees on ATM transactions and “one-time debit card transactions.” It does not affect checks or ACH transactions. Unfortunately, as finalized the new Reg E will require banks to significantly change aspects of their operations in order to come into compliance. Compliance with the final rule is mandatory on July 1, 2010.
 
Reg E implements the Electronic Fund Transfer Act (“EFTA”), enacted in 1978. It provides a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer (EFT) systems. The final rule limits the ability of a bank to assess an overdraft fee for paying ATM and one-time debit card transactions that overdraw a consumer’s account, unless a consumer affirmatively consents, or opts in, to the bank’s payment of overdrafts for these transactions.
 
Relationship between Reg E and Reg Z [12 C.F.R. § 205.12]
 
                The interaction between Reg E and Reg Z is explained at 12 C.F.R. § 205.12(a) when a credit or debit card permits a consumer to obtain an extension of credit incident to an electronic funds transfer. Generally, Reg E governs in the context of overdrafts of debit cards issued by a bank where credit is extended under an overdraft service. In this context, despite the fact that the overdraft service is an extension of consumer credit, it is specifically exempted from Reg Z. The regulation also specifies that Reg Z will control a true credit card through which cash withdrawals can be made at an ATM.
 
Important Definitions
 
                The final rule defines “OVERDRAFT SERVICE” as “a service under which a financial institution assesses a fee or charge on a consumer’s account held by the institution for paying a transaction (including a check or other item) when the consumer has insufficient or unavailable funds in the account.” The term does not include a line of credit subject to Reg Z or a service that transfers funds from another of customer’s account, such as a savings account.
 
                A “consumer” is defined as a natural person. Thus, the final rule does not affect any commercial accounts.
 
                The final rule does not explicitly define a “one-time debit card transaction.” It is probably safe to say that this includes most point of sale purchases. The obvious counterpart to the “one-time” debit card transaction is a recurring debit card transaction. The bank’s ability to differentiate between these is one of the important technical hurdles to implementing these changes (see discussion below).
 
Opt-In Requirement [12 C.F.R. § 205.17(b)]
 
                The heart of the final regulation is the “opt-in” requirement. A bank is prohibited from charging a consumer’s account a fee or charge on the account for paying an ATM or a “one-time debit card transaction unless each of the following requirements are met: (i) the bank must provide the consumer with a written notice, or, if the consumer agrees, electronically, segregated from all other information, describing the bank’s overdraft service, (ii) the bank must provide a reasonable opportunity for the consumer to affirmatively opt in to the overdraft service for ATM and one-time debit card transactions, (iii) the bank must obtain the consumer’s affirmative opt-in (either in writing or electronically) to the overdraft service for ATM and one-time debit card transactions; and (iv) the bank must provide the customer with written confirmation (or electronically, if agreed to by the customer) of the consumer’s consent to the service, including a statement informing the consumer of the right to revoke such consent.
 
Exceptions to Opt-In Requirement 12 C.F.R. § (b)(4)
 
                The opt-in requirement does not apply to a bank that “has a policy and practice of declining to authorize and pay any ATM or one-time debit card transactions when the institution has a reasonable belief at the time of the authorization request that the consumer does not have sufficient funds available to cover the transaction.” Thus, where a bank elects to simply decline approval of transactions that it knows will take an account into overdraft, it does not have to obtain a customer’s opt-in. In that context, if the bank were to have a transaction that when authorization was given, the bank had a good-faith belief the transaction would not take the account into overdraft, if between the authorization and actual posting of the item the account became overdrafted, the bank could charge an overdraft fee for such transaction. Further, the regulation makes clear that banks can apply this exception on an account-by-account basis.
 
Prohibition on Bundling ATM/One-Time Debit Card Overdraft Protection [12 C.F.R. § 205.17(b)(2) and (3)]
 
                The final rule makes clear that a customer’s right to opt-in for ATM and one-time debit card transactions must be an opt-in right that is independent of other account features. Thus, Section 205.17 provides two important additional requirements relating to the ATM/one-time debit card opt-in: (i) a bank may not condition the payment of overdrafts for checks, ACH transactions, or any other type of transaction on the consumer opting in for payment of ATM and one-time debit card transactions; and (ii) a bank must provide a consumer who does not opt in to overdraft protection for ATM and one-time debit card transactions the same account terms, conditions, and features that it provides to customers that opt in (other than the ATM/one-time debit card overdraft service itself).
 
Timing of Implementation [12 C.F.R. § 205.17(c)]
 
                Importantly, the final rule does not require direct compliance until July 1, 2010. Although the opt-in requirement applies to both new and existing consumer accounts, for existing accounts, banks have until August 15, 2010 to obtain an opt-in from their customer and can continue to charge for overdrafts for ATM and one-time debit transactions until that time. For accounts opened on or after July 1, 2010, the bank must obtain the customers opt it before it can assess any overdraft fee for paying an ATM or one-time debit card transaction.
 
Requirements of Notice to Customers [12 C.F.R. § 205.17(d)]
 
                The final rule provides Model Form A-9 in Appendix A to Part 205. [A link to the entirety of the final rule, including this model form can be found at http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2009_register&page=59053&position=all.] The regulation provides that the notice to customers, which is part of the opt-in requirement, “shall be substantially similar” to this model form and “may not contain any information not specified in or otherwise permitted by [Section 205.17(d)]. Pursuant to this paragraph, the notice to customers must contain (i) a brief description of the bank’s overdraft service and the type of transactions for which a fee for paying an overdraft may be imposed; (ii) the dollar amount of any fees assessed for paying an ATM or one-time debit card transaction; (iii) the maximum number of overdraft fees that may be assessed per day, or, if applicable, that there is no such limit; (iv) an explanation of the customer’s right to opt in to the overdraft service; and (v) a description of alternatives offered by the bank to the overdraft service, including, if applicable, that the bank offers a line of credit (under Reg Z) or a service that transfers funds from another account of the customer. 
 
In addition, Section 205.17(d)(6) permits, but does not require some additional disclosures, including, if applicable, the bank’s separate “returned item fee” (see discussion of breaking out NSF and Overdraft Fees below) and that additional merchant returned item fees may apply when the bank does not cover an overdraft item. For existing customers, the bank may also include a statement such as “After August 15, 2010, we will not authorize and pay overdrafts for the following types of types of transactions unless you ask us to …”
 
 
Customer’s Right to Opt Back Out
 
                Section 205.17(f) specifies that a customer may revoke consent as described in the opt-in notice to the customer. A bank must implement a customer’s opt-out as soon as reasonably practicable. 
 
Rationale for the Final Rule
 
                Obviously, the final rule modifying Reg E is intended to be a consumer protection measure. However, the final rule was significantly scaled back from the original proposal, which would have covered all consumer transactions, especially including checks and ACH transactions. The Federal Reserve decided to differentiate between these types of transactions based upon the importance that the Fed believes consumers normally place on the various types of transactions. 
 
The basic rationale offered by the Federal Reserve for requiring an opt-in for overdraft services is the historical shift from an item-by-item determination to cover overdraft items to automated overdraft systems. The Fed reasons that historically banks were much more likely not to cover overdraft items at all, including checks, but especially ATM and debit card transactions. 
 
In choosing to require an opt-in only for ATM and one-time debit card transactions, the Fed specifically cited the argument that customers would rather have their checks and ACH transactions paid, as those items are likely to be of more significance (important bills), whereas one-time debit card purchases tend to represent discretionary spending. The argument here is that many consumers are not aware that banks will knowingly allow them to take their account negative via an ATM transaction or debit card transaction and would “prefer that their bank decline ATM or debit card transactions if the transactions would overdraw their account.” 
 
The Fed also noted that in contrast to a declined point of sale transaction, if the consumer were to write a check to a merchant and the check be returned, this would likely result in the imposition of additional merchant returned item fees. Thus, the consumer is likely no worse off if the bank were to cover the check and charge an overdraft fee. Obviously, this also avoids possible criminal consequences to writing bogus checks.
 
The Fed specifically noted that it believes that ATM and one-time debit card transactions have been a key driver behind the growth in the volume and cost of overdraft fees, particularly singling out point-of-sale debit card transactions. In the case of debit card transactions, the Fed also notes than an overdraft fee is much more likely to exceed the amount overdrawn.
 
Technical Issues for Implementing Final Rule
 
                This is one of those rules for which a great deal of lead-time is necessary. There are tremendous technical issues associated with complying with the final rule.
 
                Ability to Differentiate Between Paying Overdrafts on Different Classes of Items. The first practical hurdle to implementing this regulation is that if a bank wishes to charge any overdraft fees at all, including for checks and ACH transactions, it must have the ability to treat ATM and one-time debit transactions and other items, including checks and ACH transactions differently. This currently is probably not the case for most banks, as most banks charge the same overdraft charge, regardless of the item type. Further, where customers must have the option to opt-in for overdraft fees on ATM and one-time debit card transactions, a bank will either have to treat these charges differently or have a policy of returning all overdraft transactions. Start talking to your software provider early to make sure they are dealing with this hurdle.
 
Differentiating Between One-Time and “Recurring” Debit Card Transactions. One of the principal objections raised by the industry was that the technology is not available to differentiate between a “one-time” debit card transaction and a recurring one. This is an issue that service providers will likely need to start working on immediately in order to have any chance at coming up with a solution to this practical issue. Fortunately, the final rule does not apply to ACH transactions. In this regard, the Official Comment to Reg E has been modified to add a comment adding a safe harbor, stating a financial institution complies with the rule if it adapts its system to identify debit card transactions as either one-time or recurring. If it does so, a bank may rely on the transaction’s coding by merchants and other third parties as one-time or recurring. See Comment 17(b)-1.ii.
 
                Getting Available Balances Updated Faster. Many debit card and ATM transactions are approved because the customer has a sufficient available balance at the time of the requested transaction. Many times (if not most of the time), these transactions would not be approved if the customer’s balance was negative at the time. Meanwhile, these transactions themselves do not post until one or more business days later. By the time they do, a customer’s account may be driven into overdraft status. Under the final rule, the bank WILL NOT be allowed to charge an overdraft fee in this instance for customers that have not opted in. Yet, the bank is committed to make the payment by giving its approval (or is out the cash in the case of an ATM transaction). While the Fed recognized that banks do not have perfect information when deciding whether to approve and ATM or debit card transaction, it stated, “On balance, the Board believes financial institutions are a better position to mitigate the information gap by developing improved processing and updating systems…”
 
Practical Advice in Wake of the Final Rule
 
                The final rule will significantly affect banking operations and profitability for all banks. In light of the final rule, the following suggestions may make sense for your bank:
 
                Adjust Consumer Account Agreements So That ATM and One-Time Debit Card Transactions Post First. Banks are free to determine in advance the order in which items will post to their customers account. Often, banks account agreements provide that checks will post first, or items will post larger to smaller. It would seem like where, as here, banks will have a limited ability to charge overdraft charges for ATM and one-time debit card transactions, it would be advisable to provide that those items will post FIRST, prior to checks and ACH transactions. This would have the result of minimizing the chance that items for which the bank cannot charge an overdraft fee causing an account to become overdrafted, while allowing banks to maximize overdraft fees on the items for which they may continue to charge (at least for now). Of course, any change in account agreement will require new disclosures to customers.
 
                Adjust Account Pricing. The final rule WILL result in reduced revenue for banks. How much will vary. However, banks must decide whether to make up for the loss of some overdraft fees in other areas. As discussed below, there are currently proposals in Congress to require even more onerous restrictions on overdrafts, including on checks and other transactions. Hopefully, one positive result of this final rule will be to take the wind out of the sale of those proposals. In any event, as an industry, we may be headed back to the day when almost all accounts were something other than “free” and where consumers are charged for each item, or for each item over a specified number of items per period.
 
                Differentiate Between NSF and Overdraft Charges? The Fed correctly points out that most overdraft or NSF fees do not differentiate between instances where the bank returns an item and when it pays it. As a customer service issue, most banks choose to pay an item that overdrafts an account, unless it is likely that the bank will not be able to recover the overdraft amount. However, in light of the final rule and proposals currently before Congress, there is good reason for banks to consider differentiating between charges for (i) the handling of items that would overdraft a consumer’s account (herein, an “NSF item”) and (ii) the charge for paying an NSF item (an overdraft fee). 
 
As it relates to the final rule, Reg E does not prohibit a bank from charging a fee for declining an ATM or one-time debit card transaction. However, the Fed specifically notes that such a fee does not make much sense, stating “While the final rule does not address declined transaction fees, the Board notes that such fees could raise significant fairness under the FTC Act, because the institution bears little, if any, risk or cost to decline authorization of an ATM or one-time debit card transaction.”
 
However, especially in the case of checks, it may be prudent for banks to consider splitting out the charge to a customer for the cost of handling an NSF item and the charge for paying such an item. There is currently at least one proposal in Congress to require similar opt-in for checks and other items. Importantly, nothing currently proposed would limit a bank’s ability to charge a fee for handling an NSF item. The reality is that in the case of checks, there is a cost to the bank associated with the handling of an NSF item and there is a cost to the bank for covering an NSF item. It may be time to look at splitting out these charges. 
 
This may be a stop-gap solution for banks that do not wish to or cannot for technological reasons differentiate between overdraft charges for various types of items. A bank could adopt a policy that it will not pay NSF items of any type. However, they could still charge for the handling of checks and other items that require the manual review by a bank employee.
 
FinCEN’s BSA E-Filing Completes Transition to Adobe-based Electronic Forms Effective 1/1/2010
 
                On June 27, 2009, FinCEN’s BSA E-filing system began a transition from IBM PureEdge forms to Adobe forms. This transition will be complete on January 1, 2010. This transition affects BSA E-Filing users to various degrees, as follows:
 
Discrete Filers – Discrete filers need to transition from the use of PureEdge electronic forms and must begin using Adobe-based electronic forms. Discrete filers who use templates (forms that have been pre-populated with selected data) will need to create new templates using the Adobe forms.
 
Batch Filers – Batch filers that submit via the web browser will see a new cover page which will now be referred to as a “header page.”
 
Secure Direct Transfer Mode (SDTM) Filers – No change required. SDTM is a secure mechanism for transferring batch submissions from your organization’s internal server to the BSA E-Filing server.
 
                For complete information about this transition, including links to the new Adobe-based forms, go to http://bsaefiling.fincen.treas.gov/news/BSA%20E-Filing%20Adobe%20Transition%20Questions%20and%20Answers%20Guide.pdf.
 
Reminder: Changes to Reg DD Effective 1/1/2010
 
                Previously, the Legal Update covered important amendments to Reg DD relating to banks’ disclosure practices related to overdraft services. For a complete run-down of those changes which become mandatory on January 1, 2010, visit the April 2009 Legal Update. By way of a quick re-hash, Reg DD is amended in three main ways: (1) all banks will be required to disclose monthly totals and year-to-date totals for overdraft fees and returned-item fees (not just banks that actively “advertise” overdraft protection); (2) new formatting and proximity requirements will apply to this disclosure (in a table with columns, appearing “in close proximity” to where the fees themselves are posted on the statement); and (3) any “overdraft funds” cannot be included within the customer’s automated account balance that is provided (at an ATM, online, or by automated telephone balance), unless such balance is stated as including overdraft funds (or similar wording) and the balance available without such funds is also prominently disclosed.
 
Reminder: HUD’s Reg X (RESPA) Changes; Use of New GFE and HUD-1 Forms Mandatory 1/1/2010
 
                In the October 2009 Legal Update, I covered important revisions to HUD’s Reg X, for which compliance becomes mandatory on January 1, 2010. HUD’s Reg X, interpreting RESPA, applies to most residential loans made by federally insured institutions (with the exception of temporary loans, including construction loans). Beginning January 1, 2010, the revisions to Reg X require the use of a new Good Faith Estimate Form and new conforming HUD-1 and HUD-1A forms, which are intended to facilitate comparison shopping between lenders. In addition, the revised Reg X will restrict lenders to charges reflected on the new GFE, within prescribed tolerances. If you need further information, including links to the new forms, visit the October 2009 Legal Update.
 
Reg S Revised to Increase Fees for Subpoena Compliance Effective 1/1/2010
 
                Reg S is the Federal Regulation that governs the fees that banks may charge for compliance with subpoenas from federal government authorities, including responding to subpoenas from federal court. Effective January 1, 2010, the fees that banks may charge have been increased, in some instances, fairly significantly, as follows:
 
·         Photocopy and paper copies of microfiche costs remain unchanged at $.25 per page;
·         Costs of stored media has increase from $5.00 to actual cost;
·         Costs for search and processing time have been increased, as follows:
o    Clerical/technical employees—from $11/hour to $22/hour
o    Computer support specialist (new category)–$30/hour
o    Manager/supervisory employees—from $17/hour to $30/hour
 
In addition to these changes, a new subsection 219.3(b)(3) has been added, providing that the hourly charges for search and processing will be automatically adjusted every 3 years to account for changes in labor rates.
 
                Rates for documents requested by an Oklahoma governmental authority (including subpoenas from state court) are governed by 6 Okla. Stat. § 2206. Normally, the Oklahoma legislature acts to copy any increase in rates under Reg S. We expect that to be the case again this year. We will let you know as soon as news is available on that front. Until then, rates remain the same for state court subpoenas.
 
S.A.F.E. Act Update
 
                There have been a couple of developments relating to the Federal S.A.F.E. Act and registration requirements for mortgage loan originators (MLOs) under that Act. Having said that, we still have not reached finality. Stay tuned for at least one more update here.
 
                First, the federal website where MLOs have to register, including MLOs working for Oklahoma banks, is now up. The website is www.stateregulatoryregistry.org. Second, on November 13, 2009 the FDIC published FIL-64-2009, containing a “draft final rule” for implementation of the Federal S.A.F.E. Act. What is a draft final rule, you may ask?  Well, it IS NOT a final rule. Evidently, the FDIC wants to give as much time as possible to review what it thinks the final rule will look like. The FDIC is waiting on the other regulatory agencies involved in this rulemaking to publish the final rule. It may change before it is final.
 
Where Are We Now?
 
                Employees of Oklahoma banks will be exempt from the more onerous provisions of the Oklahoma S.A.F.E. Act for MLOs, so long as they register under the Federal S.A.F.E. Act. Oklahoma banks will have to register and “sponsor” each of their employees who are MLOs for registration under the central registry. MLOs will have to be registered by the earlier of (i) 6 months from passage of the expected final rule, or (ii) by July 31, 2010. 
 
                Given the lack of finality of the current situation, I am going to cover this topic at least one more time. Although there remains time to implement the final rule, banks should not plan on waiting until the last minute, as their employees will need a good deal of time to submit information needed for the federal registry. 
 
Look for an update and full explanation here as soon as the federal rule is finalized.