Thursday, June 13, 2024

July 2011 Legal Update

By Mary Beth Guard:


By Pauli D. Loeffler


By John S. Burnett


By Andy Zavoina



By: Mary Beth Guard


It has been almost eerily quiet. We talked about it at the last OBA Compliance Roundtable in early June. We’re fatigued from the onslaught of new regulations and laws that have emerged since 2008, but we’re waiting, waiting, waiting for July 21, 2011 to roll around because that’s the transfer date – the date on which the Consumer Financial Protection Bureau grabs the reins and we have every reason to believe the pace of change will be fast and furious. Buy your energy drinks now.

Just before this edition went to press, there were three significant regulatory developments: l) the new Reg II on debit card interchange fees was finalized by the Federal Reserve as a final rule. The FRB also approved an interim final rule at that time. 2) the Agencies published long-awaited updated guidance on authentication in an Internet banking environment. 3) the OCC issued guidance to national banks on mortgage foreclosure practices (some recent shocking behavior could have formed the basis for a pilot for a “Lenders Gone Wild” tv show!). We will cover those developments in detail in the next edition, and then we will delve into what the Consumer Financial Protection Bureau is up to. Heatmaps. Who knew?

We managed to squeak in what you need to know about the umpteenth revision of the HUD SCRA notice (released the tail end of June) and the OCC’s new guidance on overdrafts and deposit advances.

• • •

By: Pauli D. Loeffler


As indicated in my April article, the Oklahoma Administrative Office of the Courts (the “AOC”) is required by statute to promulgate the official Oklahoma garnishment forms. On June 9, 2011, the AOC released three revised garnishment forms : 1) Post‐Judgment General Garnishment Summons, 2) Non‐Continuing and General Garnishee’s Answer/Affidavit, and 3) Notice of Garnishment & Exemptions. These forms – as well as other garnishment forms – are available in Word, WordPerfect and PDF formats at:

Changes to the Summons: The changes to the Post-Judgment General Garnishment Summons (the “Summons”) are set out below in bold italics:

If you are not a financial institution, you are further ordered to withhold any such property of indebtedness belonging to such judgment debtor or owing on the date of service of this summons, and to pay the required amount and/or deliver the property to the attorney for judgment creditor or judgment creditor if not represented by an attorney, unless otherwise ordered by the court when you file your answer. If you are a financial institution, you may proceed in accordance with 31 CFR Part 212, or similar federal or state law, if applicable, and you are further ordered to withhold any unprotected property or indebtedness belonging to such judgment debtor or owing on the date of your review of the debtor’s account, and to pay such unprotected amount and/or deliver the property to the attorney for judgment creditor or judgment creditor if not represented by an attorney, unless otherwise ordered by the court when you file your answer.

Prior to this revision, financial institutions, like every other garnishee, were required to freeze/segregate the judgment debtor’s property in the garnishee’s possession at the time the summons was served. The new language provides for the allowed time frames under 31 C.F.R. Part 212, in the event your bank does not immediately do an account review upon service of the garnishment summons after determining no Notice of Right to Garnish Federal Benefits is attached. My only issue with this revision has to do with the use of the word may rather than will or shall in “If you are a financial institution, you may proceed in accordance…” since this implies that following the procedures mandated by 31 C.F.R. 212.1 et seq. is permissive rather than required. However, I doubt that a creditor will ever make this an issue, and the mandatory nature is clear in the revision to the Answer.

On the other hand, the revised language of the Summons does not come into play when the judgment debtor named is not a natural person as the direct or beneficial owner of an account. In other words, if the judgment debtor is a partnership, LLC, corporation, an unincorporated association or some other separate legal entity, the bank needs to freeze/segregate the funds at the time of service of the summons.

Changes to the Answer: There are revisions to two sections of the Non‐Continuing and General Garnishee’s Answer/Affidavit (the “Answer”). The first change is in the Affidavit portion. The changes involve the capacity of the person answering the Summons and his relationship to the garnishee. The revision makes it clearer as to what information should go in the blanks, especially for those who do not regularly receive a garnishment summons. The revision has no real impact on financial institutions as garnishee, but the language may assist the bank as garnishor.

The other and more significant revision to the Answer is on the second page of the answer. The changes are shown below in bold italics:

2. At the time of service of the garnishment summons or upon the date it became effective, the garnishee was indebted to the judgment debtor or had possession or control of the following property, money, goods, chattels, credits, negotiable instruments or effects belonging to the judgment debtor as follows: (Please check appropriate response)

_____ Earnings as shown on the attached Calculation for Garnishment of Earnings form which is incorporated reference into this answer;
_____ Upon conducting the review of the debtor’s account(s) mandated by 31 CFR 212.1 et seq. garnishee has determined the account(s) contains $_______ unprotected funds, and $______protected funds. Specify type(s) of protected funds, and if more than one type, specify amount of each:                                                                                                                                          Other; specify:                                                                                                                       
Check here [__] if additional pages are necessary.

When I received the revised Answer, I contacted the AOC regarding the requirement of setting out not only the amounts of protected and unprotected funds but the requirement that the bank specify the type of protected benefit by amount if more there was more than one type of protected benefit. I was and am opposed to providing the amount of protected funds since the bank’s determination is binding on both the creditor and the customer and as long as the bank uses reasonable procedures to prevent errors, it is not liable for errors made in good faith. When I discussed this aspect of the revised Answer with the attorneys at the AOC, I did have to admit that since the model Notice to Account Holder found in Appendix A of 31 C.F.R. Part 212 does include this information to be provided to the judgment debtor, it is not a particular burden for the bank to include it as part of it answer.

During the 3rd week of June, I received a call from an attorney representing one of the larger banks in Oklahoma shortly after the new forms became available. He expressed a concern that the creditor now being aware of the amount of “protected” funds would step up the frequency of garnishing the judgment debtor’s accounts knowing that these funds could become “unprotected” based on the 2 month lookback. While that is possible, if all funds are derived from exempt benefits, whether federal or state, the account holder only has to claim the exemption as to the “unprotected” amount once and that should put an end to the garnishment of the account once and for all.

My complaint regarding breaking out the type and amount of protected benefit is a different proposition since this is not required anywhere under the new Rule nor is it required by Oklahoma law unless the judgment debtor or the garnishee files the Claim of Exemption and Request for Hearing form. Until May 1, 2011, the effective date of 31 C.F.R. Part 212, the bank as garnishee had no duty to do anything regarding claims of exemptions under either federal or Oklahoma law. Even now, the Rule does not require financial institutions to do more than 1) determine the protected amount, and 2) make it available to the account holder even if all funds in the account are derived from the direct deposit of Federal Benefits but the under the Rule some of the funds are unprotected after account analysis of the lookback period! It remains the account holder’s responsibility under both the federal rule and Oklahoma law to claim any exemption with regard to the amount determined to be “unprotected.”

Change to the Notice of Garnishment and Exemptions: The Notice of Garnishment and Exemptions was revised and emphasizes the points I have set out regarding my issues with the revised Answer:

If an account is being garnished and the money in the account does not belong to you, or if you are aware of other reasons why money should not be taken to pay the judgment, you may want to consult an attorney. Because of the garnishment, the garnishee may be required to withhold the amount of money claimed by the judgment creditor. You may not be able to withdraw that money. If your account contains Social Security payments or other federal benefit payments, your bank may have determined that some amounts are protected from garnishment.

I would prefer the revised language to be: Under 31 C.F.R. Part 212, your bank may have determined that some but not all of amounts derived from direct deposits of certain federal benefits are protected from garnishment. However, I suppose the Notice to Account Holder sent to the customer by the bank as required by the federal Rule will serve to clarify the meaning of this revision.

Other matters:
Another issue that came to light during the call from the attorney I mentioned earlier is that the Clerks of the Oklahoma District Courts were unaware of the changed forms and were still providing the old forms they had on hand to those requesting them. This issue was discovered when the attorney called the Oklahoma County Court Clerk to get information regarding the new Answer form. This means that banks may be receiving garnishment packets containing the old forms even for garnishments filed on and after June 9th.

If you do receive the old forms, I recommend obtaining the current official forms online through the link provided above. If, on the other hand, you have already filed your answer using the old form provided in the packet sent by the creditor, don’t sweat it: the creditor obviously was just as unaware of the change in forms as Court Clerks or you were, and I dare say the creditor will not cry “foul” at least with regard to the use of the expired form. If you received the new form AND instead used the old form, then we have a different proposition. In that case, I would recommend filing an Amended Answer with the Court Clerk and mailing a copy to the creditor/creditor’s attorney.

Finally, remember that 31 C.F.R. Part 212 is an Interim Final Rule which means that it is likely to be “tweaked” once it is published as a “final” Final Rule. That in turn means there could well be additional revisions to the Oklahoma garnishment forms.


Q: The Bank received a garnishment, and at the last moment the customer filed bankruptcy, what do I do? Send the money? Don’t send the money? What is the law?

A: You do not send the money, but you do answer the garnishment with a statement that the debtor has filed Bankruptcy including the case number. This effect of the Automatic Stay in the bankruptcy covers this situation, as discussed by in the Oklahoma Court of Civil Appeals decision in DPW Employees Credit Union v. Tinker Federal Credit Union and David Sisco, 925 P.2d 93 (1996):

Here is a quick excerpt from that court decision:

The facts are not in dispute. DPW obtained a judgment in the amount of $1,111.30 and costs against Sisco on January 25, 1995. DPW issued a garnishment summons which was served on Tinker at 4:50 p.m. on February 9, 1995. On that date, Tinker held $621.14 in Sisco’s account. The next day, February 10, 1995, Sisco filed his petition for bankruptcy and Tinker received notice of the bankruptcy. Sisco filed notice of his bankruptcy in the small claims action on February 13, 1995.

Tinker answered the garnishment summons on February 15, 1995, stating 11 U.S.C. § 362 (1993 & Supp.1996) FN1 prevented it from paying the funds it held in Sisco’s account in accord with the garnishment summons. DPW filed a Notice to Take Issue with Garnishee’s Answer on March 6, 1995. DPW argued the section 362 bankruptcy stay provisions did not apply to garnishment summons served prior to bankruptcy filing.

*** Here, DPW attempted to enforce the garnishment lien and obtain possession of the funds in Sisco’s account from Tinker concurrently with the bankruptcy action. The plain reading of section 362(a) clearly states that the filing of the petition in bankruptcy “operates as a stay,” which is automatic and extremely broad in scope. It is applicable to most formal and informal actions against the debtor or estate property. In re Zunich, 88 B.R. 721, 724 (Bankr.W.D.Pa.1988). The automatic stay also applies to judicial proceedings. Bailey v. Campbell, 862 P.2d 461, 467 (Okla.1991); see Steele v. Guardianship and Conservatorship of Crist, 251 Kan. 712, 840 P.2d 1107 (1992). The U.S. District Court in Chicago Painters’ and Decorators’ Pension, Health and Welfare and Deferred Sav. Plan Trust Funds v. Cunha, 121 B.R. 232, 233 (N.D.Ill.1990) (quoting In re O’Connor, 42 B.R. 390, 392 (BankrE.D.Ark.1984)), held “[B]ecause a garnishment proceeding is simply an ‘indirect proceeding or act to collect, assess and recover a claim against the debtor,’ it too must be stayed once a bankruptcy petition is filed.”

We therefore hold that DPW’s post-bankruptcy petition efforts to enforce its garnishment summons against the judgment debtor’s property held by Tinker constituted a clear violation of 11 U.S.C. § 362(a)’s stay provision and that the trial court erred in entering judgment against Tinker for the amount of the garnished funds.

• • •

By: John S. Burnett


The rumors that the OCC would issue guidance on overdraft payment services have proven true. The agency took the wraps off its proposed Guidance on Deposit-Related Consumer Credit Products on June 8, with its issuance of OCC Bulletin 2011-23, and publication of the proposal in the Federal Register. Comments on the proposed supervisory guidance were requested through July 8.
The OCC’s proposal has a broader reach than the FDIC’s most recent Final Overdraft Supervisory Guidance, issued November 24, 2010. It covers other forms of “deposit-related consumer credit programs” as well, including what the OCC terms “deposit advance” products (more on those in a separate article). The OCC’s Guidance consists of a statement of “principles of safe and sound banking practices” for covered products to address reputational, compliance, and credit risks, but avoids dictating specific product terms. Two appendices detail the OCC’s expectations of safe and sound practices in connection with, respectively, automated overdraft protection programs and deposit advance programs.

Affected institutions
The OCC’s Guidance would, of course, affect national banks, once final. It will also affect federal savings associations when final or on July 21, 2011, when the OCC assumes the supervisory role for those institutions from the OTS, whichever is later.

Statement of Principles
The supervisory principles enumerated in the Guidance are based on the OCC’s belief that “bankers should provide their customers with products they need, [but should not] use these products to take advantage of their customer relationship.” The agency states that it has found that a small percentage (but a significant number) of its supervised banks have deposit-related consumer credit products with apparent weaknesses that show insufficient attention to risk.
The principles that the OCC expects its supervised banks to adhere to include:
Disclosure—Clear and conspicuous disclosures before enrollment of consumers, that comply with applicable laws and regulations, and provide information about program costs, terms, and material limitations. Account materials and marketing should not mislead consumers about the optional nature of the product or otherwise promote routine use or undue reliance on the product. They should provide information on alternative deposit-related credit programs (such as overdraft lines of credit and others), if available.
Legal compliance—Products and the manner in which they are offered or marketed must comply with applicable law, including the UDAP prohibitions of the Federal Trade Commission Act (FTA Act).
Affirmative request—Enrollment should not be automatic. Customers should only be enrolled after receiving appropriate disclosures and affirmatively requesting the product, agreeing to terms and conditions, including fees.
Availability and prudent eligibility standards—Institutions should have policies and procedures that include eligibility criteria for the product. Sufficient analysis should be conducted before a request is approve to determine whether a depositor will be able to manage and repay appropriately the credit obligations arising from use of the product. [Note: such an analysis may or may not include the need for a consumer credit report; it could also involve a review of past deposit account history of the depository.] Prudent limitations on product costs and usage—Fees should be based on safe and sound banking principles in accordance with OCC regulations—at 12 CFR 7.4002—taking into account the cost of providing the service, the deterrence of misuse by customers of banking services, the competitive position of the bank, reputation and strategic risk to the bank. Banks should avoid undue reliance on the fees generated by a particular product for their revenue and earnings.
Monitoring and risk assessments—Banks should monitor usage of and revenue from deposit-related credit products to detect changes in customer usage and identify risks such as excessive use and nonperformance. Policies should provide for reassessment of creditworthiness; adjustment of credit terms, fees or limits; suspension or termination of access to credit features; or closing of accounts.
Management oversight—Appropriate management oversight includes receipt and review of regular reports on product usage, fee income and legal compliance, and periodic audits. It also includes monitoring of third-party vendors that provide related services. Management should take immediate steps to address noncompliance with supervisory principals and reputation risks.
Account management and charge-offs—Banks should follow applicable guidelines on account management and charge-offs of uncollectible balances.

Applicability to Overdraft Protection Programs (Appendix A)
The OCC still uses the term “overdraft protection programs” to refer to programs under which banks offer discretionary payment of overdrafts. The agency intends that the proposed Guidance will apply to automated overdraft protection programs, although banks with ad hoc overdraft procedures are expected to “control for and manage” any related reputational and compliance risks. The proposal is meant to build on or complement applicable portions of the Joint Agency Guidance on Overdraft Protection Programs issued in February 2005, in particular the section on “Best Practices.”
Program Availability and Prudent Eligibility Standards—The scope of the institution’s assessment of a depositor’s risk with respect to overdraft account privileges may vary depending on his or her credit and deposit profile and other risk factors, but the objective should be to determine whether a customer poses undue risks as indicated by overdraft history or any indication of inability or unwillingness to repay credit. The assessment may be conducted as part of the initial deposit opening process. Policies should provide for an “opt-in” or affirmative request for any new enrollments, and banks are free to decide how they obtain that consent, as long as it involves clear disclosure of the opt-in right and actual customer consent (note that Regulation E would still require a separate procedure and opt-in for coverage of ATM withdrawals and one-time debit card transactions).
“Opt-out” —The proposed language says that a customer should be permitted to “opt out” of program coverage at any time after which “no additional overdraft fees may be imposed,” and be provided clear notice of that ability. NOTE: This expectation seems to assume that the customer’s future overdrafts, if any, would not be paid.
Disclosures—Customers should receive sufficient information about costs, risks, and limitations when the overdraft product is offered to enable them to make an informed choice about the product. They should also receive information about any alternative overdraft services and credit products offered by the bank. Specific disclosures or notices expected include—

• Clear disclosure about the order of processing transactions and the fact that the order can affect the total amount of overdraft fees incurred by a customer. [Note: I’ve used exactly the wording of the Guidance here. I don’t believe it requires banks to disclose their actual payment order policies, but it does require a disclosure about them and how they can affect overdraft fees. I imagine that banks will ask in their comments on the Guidance that the OCC’s intent be clarified with more specific language.] • Notice when overdraft protection is suspended or terminated, and when it is reinstated.
• Disclosures required under Regulation DD relating to statement totals of overdraft fees in the statement period and year-to-date.
Prudent limitations—Program limits should control—
• The amount of credit that may be extended
• The number of overdrafts and total amount of fees that may be imposed per day and per month
• Any de minimis transaction amount below which an OD fee won’t be charged

The limits should take into account general repayment ability, safety and soundness considerations and transaction processing order, and should be clearly disclosed to customers when the product is offered. The OCC even suggests that one way to impose a prudential limit on fees would be to offer a grace period of one or more days to allow a consumer to “cure” or “cover” an overdraft to avoid an OD fee. Another expected prudential limitation is to ensure that transaction processing order is not solely designed or generally operated to maximize OD fee income. Examples provided include processing batches of items in the order received, by serial number or in random order.
Monitoring and Risk Assessments—Accounts should be monitored to detect indications of excessive overdrafts (and fees) and/or potential changes to repayment capacity. For example, a bank might deem it appropriate to review and evaluate an account under one of the following scenarios—

• Overdrafts have exceeded the OD dollar limit applicable to the account.
• The account has incurred the daily maximum daily number of OD transactions repeatedly during a month (with or without a fee)
• The account has incorrect the daily dollar maximum of OD fees repeatedly during a month
• The accountholder has shown excessive use of other credit products connection to the account

The bank should determine whether the account’s credit and/or aggregate fee limits need to be reduced, or take other appropriate action. The determination should include a more in-depth analysis of the consumer’s ability to manage and repay overdraft protection credit. The consumer should be reminded of alternatives to OD protection, such as linked deposit account or other lines of credit.
If, after making appropriate changes to the account the consumer continues to demonstrate excessive use of the overdraft feature, OD privileges should be ended and, if necessary, the account closed.
[Note that the Monitoring and Risk Assessment provision of the OCC’s Guidance has some similarities to provisions of the FDIC’s Guidance, but the FDIC document doesn’t explicitly suggest the bank shut down the overdraft feature or close the account.] Management oversight—Management should receive regular periodic reports on the program to include OD volume, profitability and credit performance. The reports should indicate levels of OD usage to help identify excessive use patterns. Management should also get reports on the status of accounts identified as demonstrating excessive use.
Suspension, termination and charge-offs—OD protection should be suspended or terminated when a consumer no longer meets eligibility requirements, has declared bankruptcy or is in default on repayment of an overdraft or other obligation to the bank. Balances should be charged off when considered uncollectible, but must be charged off no later than 60 days from the date first overdrawn if continuously overdrawn.
• • •


The previous article introduced the OCC’s Proposed Guidance on Deposit-Related Consumer Credit Products, and explained its applicability to automated overdraft protection programs at national banks and, after July 21, 2011, federal savings associations. In this article, we explain how the OCC’s proposal would extend to “deposit advance” products at those same institutions.

Affected products
“Deposit advance” products are short-term, open-end lines of credit typically extended to consumer depositors who receive recurring direct deposits such as payroll, Social Security benefits, federal retirement benefits or similar regular payments. In general, advances are made from the line of credit on the consumer’s specific request. The line is usually limited to the amount, or some part, of the regularly anticipated deposit(s). Advances are usually made in fixed dollar increments (perhaps multiples of $10) for a fixed fee per increment borrowed. Repayment typically is made from the next direct deposit to the consumer’s account. In some cases, more than one direct deposit cycle will be required to repay the line advances in full.

The OCC is concerned with bank practices involving deposit advance products, if the practices—
• Fail to appropriately evaluate the consumer’s ability to repay the line according to its terms, taking into account the consumer’s recurring deposits and other information.
• Require full repayment of the advance out of a single deposit, which reduces the funds available to the consumer for daily expenses, which can cause overdrafts.
• Fail to disclose the costs of advances
• Fail to monitor accounts for excessive use and costs.

Statement of Principles
The principles that the OCC expects banks to apply to Deposit Advance programs are described in the article on how the Guidance would apply to overdraft protection programs.

Applicability to Deposit Advance Programs (Appendix B to the Proposed Guidance)

Program Availability and Prudent Eligibility Standards—As is the case for automated overdraft protection programs, the OCC expects that banks should have policies and procedures with eligibility criteria for deposit advance service. Any new enrollment should be under an “opt-in” procedure, requiring an affirmative request or application for enrollment, including an agreement to pay fees imposed for the service. Account and marketing materials should not mislead consumers about the optional nature of the program or otherwise promote routine use or undue reliance on the product.
Risk assessment of a potential customer should include information on the consumer’s continued employment or other recurrent source(s) of direct deposit income, and other relevant information.
“Opt-out” —The proposed language says that a customer should be informed that he or she is permitted to “opt out” of coverage at any time, after which no further advances would be permitted and no related fees imposed.
Disclosures—Customers should receive sufficient pre-enrollment information about key program costs, risks, and limitations. Other expected specific disclosures or notices include—
• An explanation that direct deposit advances can be costly.
• Information about alternative deposit-related credit products, if offered by the bank.
• An explanation of transaction-processing policies for repayment of a credit advance including (if applicable) the fact the repayment could take priority over the bank’s processing of other items such as checks and could result in overdrafts or returned items and related fees
• An explanation of how an advance must be repaid if a deposit is insufficient to repay it in full
• Explanations of key program features such as any rescission or refund policies, cancellation provisions and cooling-off periods.
Prudent limitations—Program limits taking into account the amount of a consumer’s recurring direct deposits; the need for a portion of deposited funds to remain available in his/her account for daily expenses; account usage; and credit extended to the consumer, as applicable, should control—
• the number of periods during which back-to-back advances will be permitted before a cooling-off period will be imposed
• the number of months in which advances may be outstanding
• the amount or percentage of any deposit that may be used for repayment of advances
• the amount or percentage of any deposit that may be advanced in a period.
The limits should be adjusted to reflect changes in the customer’s risk of nonpayment. For example, if direct deposits stop, no further extensions of credit should be permitted.
Repayment terms—Prepayment of advances should be permitted without an additional fee. Repayments should not be set up that would overdraw the account and banks should not permit additional advances during any period in which the account is overdrawn.
Monitoring and Risk Assessments—Accounts should be monitored to detect indications of changes that adversely affect credit risk, and to detect excessive usage. Banks should include overdraft and returned-item activity in that review. When warranted, there should be appropriate follow-up with the customer concerning the use and cost of the service, repayment options and credit alternatives that are available.
Management oversight—Management should receive regular periodic reports on the program. The reports should indicate levels of line usage to help identify excessive use patterns. Management should also get reports on the status of accounts identified as demonstrating excessive use.
Charge-offs—Advances that aren’t repaid in accordance with account terms should be charged off.
• • •
By: Andy Zavoina


We wrote previously about the Reg Z minimum threshold being raised from $25,000 to $50,000 effective July 21, 2011. But what does this mean to you when it comes to practical application?

Reg Z has always listed exempt transactions, one of which was “large” loans not secured by real property or by personal property that is used or expected to be used as the principal dwelling of the consumer. When the rule was authored, $25,000 was a large loan. Many banks have since created loan products which used the threshold exemption to avoid having to make Reg Z loan disclosures.

The thought process behind that rule was that if a person was borrowing more than $25,000 and it wasn’t for their home, this must be a savvy consumer because that was a large sum of money. When Truth in Lending first passed in 1968, the average cost of a new home was just under $15,000. Average annual income was $7,850 and a new car cost about $2,800. The $25,000 threshold was a lot of money 43 years ago. (And if you are wondering, gas was $.34 a gallon.)

You can tell by the cost of living comparisons that things have changed. The act of borrowing $25,000 is a common occurrence in 2011. It is harder to buy a new car for less than that, than more than that amount. And while many banks make the Reg Z disclosures regardless of the amount, not all do. Why use paper and explain disclosures that were not necessary? Does this mean these consumers are uninformed when they borrow, and that their ability to comparison shop for the best loan is diminished? The government thought so.

What we have found is that many banks created products that were difficult to disclose under Reg Z and this exemption was a way to avoid the cost of system upgrades required to make the otherwise required disclosures. One scenario may be that you wanted to offer a revolving credit product for your Executive and Professional borrowers, but your loan system couldn’t handle the disclosures. Setting a $25,000 floor made sense because the product could be made available and no new module was needed for your core processing system. It may also be that you simply set up your loan system to not disclose the “larger” loans because it was faster and cheaper to not print disclosures, explain them at closing or to program loans with the data normally required on these disclosures.

If any of these exception uses applies to you then your products and procedures should already have changed. Remember the $50,000 threshold is effective July 21, 2011. Does this mean changing your minimum threshold to $50,000 will let you coast? No, because on June 13, the FRB published the change that will be effective January 1, 2012. This minimum amount is adjusted annually and the 2012 figure of $51,800 has been announced. So this threshold can change every year and we already know what it will be in six months. If you want to set a threshold as a way to avoid disclosures, set it very high to reduce system maintenance. Also remember that the application date doesn’t matter, it is the consummation date of the loan. Pauli’s prior article in the last Legal Briefs has more details involving renewed loans and the treatment of revolving products vs. closed-end loans.

While most banks do not have leasing programs, it is worth noting that Reg M has also changed its stated threshold.
• • •



On June 30, 2011, HUD announced that it has once again revised its Notice of Disclosure form to be sent to delinquent homeowners to notify them of rights they may have under the Service members Civil Relief Act if there is either active duty or dependents of active duty military.

Because it is unlikely that you know the current status of every one of your borrowers, the notice goes to all delinquent homeowner borrowers, not just those you identified as being in the military. And this notice is separate from other required notices, including the standard homeownership counseling notice that has been required for many years. The two notices may have the same intent, but they have different content.
You are required to send the prescribed notice within 45 days from the date a missed payment was due, unless the payment has already been made. The newest version is available at But we caution you, there were several typographical errors in the form. HUD may correct these, we aren’t sure. We have corrected the errors and also have a comparison copy to show you the differences between the last two versions on the BankersOnline Tools page,
We recommend updating your form as soon as practical.
• • •


As we pass the mid-point of 2011 it is a good time to review some of the trends we are seeing in compliance. This will allow you to tweak your compliance program and avoid problems down the road.

There have been 51 flood Civil Money Penalties (CMP) year to date. The dollar amount is $518,133 for the first half of 2011. The average penalty itself is about $600 higher than in 2010.

HMDA reporting banks are still having issues too. This year to date there has been 37 CMPs for HMDA for $286,900. The average penalty itself is about $300 more than in 2010 2011 CMPs have exceeded what was penalized in all of 2009. What was “good enough” then may not be “good enough” now as there is much more emphasis on data integrity. Expect more emphasis on fair lending as well.
In a recent FDIC teleconference on Unfair and Deceptive Acts or Practices, several points were made about UDAP and Reg AA. One bank that had been violating Reg E by requiring police reports from consumers making claims of unauthorized transfers was being reviewed for penalties under UDAP instead of under Reg E. We have also heard of UDAP being cited when disclosures under Reg E were incorrect. And the speakers commented that a bank which was collecting its own debt and was therefore not subject to the Fair Debt Collections Practices Act (FDCPA), was fined under UDAP because its practices would have violated the FDCPA.
Since 2008, 43% of UDAP violations cited by the FDIC were for banks with total assets of $250 million or less. This is not a big bank issue. Recent UDAP cases have involved rewards checking, loan pricing, error resolution and overdrafts. UDAP applies to lending and operations and is often indicated first in advertising. An act or practice does not have to violate any other law to be considered under UDAP.