Thursday, May 23, 2024

April 2012 Legal Briefs

  • NOW Account Eligibility
  • Mobile Banking Survey
  • CFPB Complaints
  • FinCEN’s Notice on CDD
  • Paperless Treasury Payments
  • More Call Report Changes Coming
  • FHA Mortgage Pricing Cuts
  • SAFE Act Exam Procedures Posted
  • Extra Time to Respond to Comments
  • Checking Out Non-profits
  • CTR Guidance – Businesses with Common Ownership

By Pauli D. Loeffler

NOW Account Eligibility

A few months ago in the January 2012 Legal Update, John Burnett wrote about how the Dodd-Frank Act provisions allowed banks to pay interest on business demand deposits, the related development of the rescission of Reg Q and he noted that if an entity was not eligible for a NOW account prior to July 21, 2011, it still isn’t eligible for a NOW account now.  In this month’s Legal Update, John writes about how the IRS has improved its online verification tool for checking whether an entity is or continues to be a tax exempt organization. To see how these two articles interrelate, we need to visit Reg D, and by that I mean the “old” (and still applicable) Federal Reserve Board Reg D found in 12 CFR Part 204 which covers Reserve Requirements of Depository Institutions, rather than the “new” Bureau of Consumer Financial Protection’s (“the Bureau”) Reg D found in 12 CFR Part 1004 which covers Alternative Mortgage Transactions Parity.

Reg. D Section 204.130 covers eligibility for NOW (Negotiable Order of Withdrawal) accounts:

(b) Individuals. (1) Any individual may maintain a NOW account regardless of the purposes that the funds will serve. Thus, deposits of an individual used in his or her business including a sole proprietor or an individual doing business under a trade name is eligible to maintain a NOW account in the individual’s name or in the “DBA” name. However, other entities organized or operated to make a profit such as corporations, partnerships, associations, business trusts, or other organizations may not maintain NOW accounts.

(2) Pension funds, escrow accounts, security deposits, and other funds held under various agency agreements may also be classified as NOW accounts if the entire beneficial interest is held by individuals or other entities eligible to maintain NOW accounts directly. The Board believes that these accounts are similar in nature to trust accounts and should be accorded identical treatment. Therefore, such funds may be regarded as eligible for classification as NOW accounts.

(c) Nonprofit organizations. (1) A nonprofit organization that is operated primarily for religious, philanthropic, charitable, educational, political or other similar purposes may maintain a NOW account. The Board regards the following kinds of organizations as eligible for NOW accounts under this standard if they are not operated for profit:

(i) Organizations described in section 501(c)(3) through (13), and (19) of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 501(c)(3) through (13) and (19));
(ii) Political organizations described in section 527 of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 527); and
(iii) Homeowners and condominium owners associations described in section 528 of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 528), including housing cooperative associations that perform similar functions.

(2) All organizations that are operated for profit are not eligible to maintain NOW accounts at depository institutions.
(3) The following types of organizations described in the cited provisions of the Internal Revenue Code are among those not eligible to maintain NOW accounts:

(i) Credit unions and other mutual depository institutions described in section 501(c)(14) of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 501(c)(14));
(ii) Mutual insurance companies described in section 501(c)(15) of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 501(c)(15));
(iii) Crop financing organizations described in section 501(c)(16) of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 501(c)(16));
(iv) Organizations created to function as part of a qualified group legal services plan described in section 501(c)(20) of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 501(c)(20)); or
(v) Farmers’ cooperatives described in section 521 of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 521).

(d) Governmental units. Governmental units are generally eligible to maintain NOW accounts at member banks. NOW accounts may consist of funds in which the entire beneficial interest is held by the United States, any State of the United States, county, municipality, or political subdivision thereof, the District of Columbia, the Commonwealth of Puerto Rico, American Samoa, Guam, any territory or possession of the United States, or any political subdivision thereof.

(e) Funds held by a fiduciary. Under current provisions, funds held in a fiduciary capacity (either by an individual fiduciary or by a corporate fiduciary such as a bank trust department or a trustee in bankruptcy), including those awaiting distribution or investment, may be held in the form of NOW accounts if all of the beneficiaries are otherwise eligible to maintain NOW accounts. The Board believes that such a classification should continue since fiduciaries are required to invest even temporarily idle balances to the greatest extent feasible in order to responsibly carry out their fiduciary duties. The availability of NOW accounts provides a convenient vehicle for providing a short-term return on temporarily idle trust funds of beneficiaries eligible to maintain accounts in their own names.

(f) Grandfather provision. In order to avoid unduly disrupting account relationships, a NOW account established at a member bank on or before August 31, 1981, that represents funds of a nonqualifying entity that previously qualified to maintain a NOW account may continue to be maintained in a NOW account.
(Emphasis added).

Over the years, I have gotten numerous calls asking whether a sole proprietorship with a “DBA” can have a NOW account since it is a business.  This is easily answered by reference to 204.130 (b)(1) as you can see. But what if the sole proprietorship is a husband and wife?  This is covered by two Federal Reserve Staff Opinions and the Oklahoma Banking Code:

STAFF OP. of January 23, 1979
A husband and wife operating a profit-making business as individuals, but not as a partnership or other financial business organization, may maintain a NOW account at a member bank, since it is impracticable to distinguish between funds that are used in their business and other funds of those individuals.

STAFF OP. of October 16, 1986
A husband and wife partnership is not eligible to maintain a NOW account at a member bank. Eligibility for NOW accounts is established by 12 USC 1832(a), which authorizes institutions to offer NOW accounts. Paragraph (2) of that section specifically excludes for-profit partnerships. Although a husband-and-wife for-profit partnership cannot maintain a NOW account, a husband and wife are permitted to maintain a joint NOW account for their non partnership purposes.

Title 6 O.S. Section 907: “A deposit made in any bank or credit union by a husband and wife which is primarily for a business purpose may be treated, at the option of the depositors, as a sole proprietorship account, rather than a partnership account unless a formal partnership has been formed.”

Moving on to other eligibility criteria now, most bankers presume that if the customer hands them a Certificate of Incorporation (Not for Profit) that has been filed with the Oklahoma Secretary of State, this customer is eligible for a NOW account.  Unfortunately, this simply isn’t true.  The state filing is just that: a state filing. The filing may provide certain benefits under state law, but it does not automatically grant the organization exemption from federal income tax, and it is exemption from federal income tax that permits it to have a NOW account.  Just because you have been handed a Certificate of Incorporation (Not for Profit) that has been duly filed with the Oklahoma Secretary of State, it does not mean you can open a NOW account.  The entity is going to have to jump through the hoops and file forms to meet the IRS requirements to be granted exemption from federal taxes.  If the Certificate is recent, you need to be aware that it takes several weeks or months before the IRS makes the determination that the entity is in fact tax exempt. You will want to see the letter from the IRS approving tax exempt status before you allow it to open a NOW account for these new entities.  For established entities, this is where the IRS’  “Exempt Organizations Select Check” ( is useful, as well as the master list of organizations listed by state which you can also find on the IRS website.

Even if you have the IRS letter in hand proving that the IRS has granted tax exempt status, Section 204.130(c) allows only certain nonprofit organizations to have NOW accounts. Organizations permitted to hold NOW accounts are limited to those that are designated as exempt from federal taxation under Title 26 U.S.C. Sec. 501(c)(3)- (13) and (19):

• Organizations operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals labor, agricultural, or horticultural organizations
• Labor, agricultural, or horticultural organizations
• Civic leagues operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality
• Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes
• Clubs organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities are for such purposes and no part of the net earnings of benefit any private shareholder or individual
• Fraternal beneficiary societies, orders, or associations that operate under a lodge system
• Voluntary employees’ beneficiary associations providing for the payment of life, sick, accident, or other benefits to the members or their dependents or designated beneficiaries, if no other part of the net earnings of such association benefit of any private shareholder or individual.
• Domestic fraternal societies, orders, or associations, operating under the lodge system where net earnings are devoted exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes
• Teachers’ retirement fund associations of a purely local character, if the income consists solely of amounts received from public taxation, amounts received from assessments on the teaching salaries of members, and income in respect of investments
• Benevolent life insurance associations of a purely local character, mutual ditch or irrigation companies, mutual or cooperative telephone companies, or like organizations subject to income restrictions regarding use and qualifications as to source
• Cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit; and any corporation chartered solely for the purpose of the disposal of bodies by burial or cremation which is not permitted by its charter to engage in any business not necessarily incident to that purpose
• A post or organization of past or present members of the Armed Forces of the United States, an auxiliary unit or society, or a trust or foundation for any such post or organization

Section 204.130(c) also permits political organizations to be exempt from federal taxation under Title 26 U.S.C. Sec. 527, and homeowners associations are exempt under Section 528 to have NOW accounts.

Governmental units are eligible to have NOW accounts under Section 204.130(g) if the entire beneficial interest is held by the United States, any State, county, municipal or political subdivision.   This seems fairly straight forward, but sometimes it gets tricky.  For instance, a Rural Water District formed under Tit. 82 of the Oklahoma Statutes IS a governmental entity, but one formed under the Nonprofit Corporation Act found in Title 18 is not.  So, a Rural Water District formed under Title 18’s Nonprofit Corporation Act wouldn’t be eligible for a NOW account as a governmental entity, but might be eligible as a nonprofit if it can provide the IRS letter of exemption, as well as the section under which it is granted so you can determine whether a NOW account is permitted.

Section 204.130(e) permits fiduciaries (trustees, guardians, personal representatives of a decedent’s estate, etc.) to have NOW accounts provided that all the beneficiaries of the NOW account are otherwise eligible.

IOLTA (Interest on Lawyer Trust Accounts) are eligible to be NOW accounts since the Oklahoma Bar Foundation receives all the interest:
In determining whether client funds may be deposited in NOW accounts under IOLTA programs, the Board has required (1) evidence that the organization administering the program is either a governmental unit or a nonprofit organization operated for religious, philanthropic, charitable, educational, or other similar purposes eligible for tax-exempt status under section 501(c)(3) of the Internal Revenue Code; and (2) an opinion from the appropriate state attorney general that the organization involved holds the beneficial interest in the accounts because it has the exclusive right to the interest on the funds maintained in the program. STAFF OP. of November 5, 1984.

Finally, I get questions whether a particular NOW account might be allowed under the Grandfather provisions found in Section 204.130(g).   These questions are often whispered over the telephone by the hopeful banker, trying to escape the listening ears of the examiner who has just found what appear to be NOW account eligibility violations.  I am always sorry to have to impart bad news in such cases.  Unfortunately, the answer always is: NOW accounts for otherwise ineligible entities were only authorized in a very few states in the northeast but never in Oklahoma, so even if your bank does happen to have NOW accounts with an ineligible entity that existed prior to August 31, 1981, the exception contained in this subsection does not apply.

By Andy Zavoina

Mobile Banking Survey

In sports and battles they say “the best defense is a good offense.” That can hold true for compliance as well. To fend off criticisms, regulatory violations and civil money penalties you plan ahead and conduct risk assessments, perform training, and write policies and procedures. But all of these require you to understand the product, service or procedure you are addressing in the first place. So rather than prepare for mobile banking after the fact, consider investigating it now. If your bank already has mobile banking you should already (to use another sports analogy) have these bases covered. But if your strategic goals include mobile banking for the future, read on. Information from a new FRB study may provide you with information you need to assist you in making a decision to intelligently expand a delivery channel and you will be on the leading edge of product development, instead of hearing about it late and finding yourself on the bleeding edge.

The Federal Reserve released a study in March 2012 which said 20 percent of bank customers have used mobile banking in the last year, and another 20 percent said they will use it this year.  The study, “Consumers and Mobile Financial Services” was done to determine the growth of mobile banking here in the U.S. It indicates its acceptance is accelerating, so banks need to ramp up, or be left behind. In fact, by the end of 2013 one in three Americans with a smartphone will use mobile banking, the study predicts. Look in your lobby and watch the customers with smartphones. These devices are more and more popular across all demographics, especially younger users which is where your bank’s future lies.

As to a younger demographic, Americans between 18 and 29 years old are 44 percent of the mobile banking customer base. When it comes to offering targeted products and services this should be considered. Conversely, your customers who are 60 years of age and older account for 20 percent of mobile banking users. If you want growth in deposits, or your mobile banking app may tie various accounts together, then this may be the demographic you want to cater to. In many cases these are the customers with the IRAs, CDs, and generally more money on deposit. If you are wondering about other users, 30 percent of mobile banking customers are age 30 to 44. Online banking is not a way to bring in minority customers. 73 percent are non-Hispanic whites, while Hispanic and non-Hispanic blacks comprise 12 and 8 percent respectively. Online banking is evenly split between men and women. It is also not tied to any specific income bracket as generally the population’s income brackets are similar to those of mobile banking users. There are exceptions at the ends of the income scale, with those earning less than $25,000 annually less likely to mobile bank, and those earning $100,000 or more, more likely.

Your younger adult customers, the 18 to 29 bracket, are likely the customers you’d believe were using mobile banking as they will have grown up with computers, smartphones, and electronic devices in general. This demographic is more comfortable with a smartphone than in a lobby line. One surprising fact is the under-banked are becoming early adopters of mobile banking. This includes younger adults, minorities and low-income customers. From a CRA perspective, bringing these customers into the bank is a plus and eventually cross-selling them loans can be an attractive proposition. This Fed study indicates 29 percent of consumers who use check cashing services or payday lenders, used mobile banking in the last year. Knowing where your customers are coming from may help you target your marketing activities and deliver the right message. Certainly each of these is very compliance-centric.

The most popular mobile banking activities are checking account balances and tracking transactions. These are services that in the past were met at ATMs, on internet banking, telephone systems and calls to customer service.  Fewer customers are using the much advertised remote deposit capture and bill payment services. The latter are perhaps easier managed on a larger screen. Still, banking apps and browsers can handle bill payment, but the user may feel handicapped on the smaller device. The remote deposit capture services may continue to grow along with mobile banking and compliance can assist in determining what parameters can be used in defining daily limits, frequency and credit qualifications that can be applicable to such transactions.
The key inhibitor to mobile banking is security. Those surveyed said either they believed mobile banking was not secure, or they were unsure how secure it was.  Banks must do the best job they can securing the apps and interface between the bank and the mobile devices, and in educating the customers about the steps the bank is taking and the steps the customer must take responsibility for.

Some interesting statistics in the study include:

1) Mobile phones and usage

a) 87 percent of the U.S. population has a mobile phone
b) 44 percent of mobile phones are smartphones (Internet-enabled)
c) 84 percent of smartphone users have accessed the Internet on their phone in the past week

2) Access to financial services

a) 21 percent of mobile phone owners have used mobile banking in the past 12 months
b) 11 percent of those not currently using mobile banking think that they will probably use it within the next 12 months
c) The most common use of mobile banking is to check account balances or recent transactions (90 percent of mobile banking users)
d) Transferring money between accounts is the second most common use of mobile banking (42 percent of mobile banking users)

3) Mobile phones and payments

a) 12 percent of mobile phone owners have made a mobile payment in the past 12 months
b) The most common use of mobile payments was to make an online bill payment (47 percent of mobile payment users)
c) 21 percent of mobile payment users transferred money directly to another person’s bank, credit card, or Paypal account

4) Customer concerns

a) The primary reason why mobile phone users had not yet adopted mobile banking was that they felt their banking needs were being met without the use of mobile banking (58 percent)
b) Concerns about the security of the technology were the primary reason given for not using mobile payments (42 percent) and the second most common reason given for not using mobile banking (48 percent)
c) More than a third of mobile phone users who do not use mobile payments either don’t see any benefit from using mobile payments or find it easier to pay with another method

5) Increased market share

a) The under-banked make comparatively heavy use of both mobile banking and mobile payments, with 29 percent having used mobile banking and 17 percent having used mobile payments in the past 12 months
b) 62 percent of the under-banked who use mobile payments have used it to pay bills
c) 10 percent of the completely unbanked report using mobile banking in the past 12 months, and 12 percent have made a mobile payment

CFPB Complaints

The process of filing complaints about banks is moving further into the digital age. The Consumer Financial Protection Bureau is accepting more and more types of complaints online.  As of March 1, the Bureau now accepts consumer complaints about bank accounts, including checking accounts, savings accounts, CDs, and related services, as well as student loans.  On vehicle and installment loans, the Bureau indicates they will take complaints if they relate to large banks only and would refer such complaints about small bank and non-bank lenders to the appropriate agency and the consumer would be notified who that was.  Consumers can now go online to file their grievance as well as filing them via mail, fax and telephone.

Banks are expected to file an initial response within 15 days and if a resolution cannot be made in this period, the CFPB wants the complaints resolved within no more than 60 days. The 15 day mark is not a simple acknowledgement. By day 15 the bank is expected to respond with:

1. The steps taken to respond to complaint, including a description of communications with consumer and copies of all written communications to consumer;
2. Communications from the consumer (including a description of conversations; copies of written communications;
3. Follow-up actions or plans;
4. A response category as the CFPB has defined them: closed with relief, closed without relief, in progress, incorrect company, misdirected, and alerted CFPB.
The consumer filing the complaint will be given a tracking number. With that number they can log back on to the CFPB site and see the status of the complaint. Each complaint will be handled individually and if the consumer is unhappy with the bank’s resolution that too can be disputed.

The process is supposed to function in steps similar to these:

1. Complaint is filed
2. CFPB routes it to the bank
3. Bank communicates with the consumer to resolve the complaint
4. Bank updates the status on the CFPB site
5. Complaint resolution is completed and emailed to the consumer and the CFPB site is updated again.

This means that banks answering complaints on the CFPB site have logon credentials to that site. These credentials should already be in place.   Not registered?  CFPB has stated the registration process is only for the banks they oversee, those over $10 billion in assets. The press release didn’t identify these banks and it isn’t reasonable to believe that angry consumers will research this. We believe the CFPB will route complaints about other banks to the relevant regulatory agency.

Those banks that do report to the CFPB should have established the infrastructure to research and respond to these complaints in the time allotted. Other banks should consider refining their procedures to react in at least the same timeframes.

On a related but separate note, businesses were receiving emails that appeared to be from the CFPB with a subject line “Consumer complaint against your company.” The CFPB does have oversight over more than just banks, but the CFPB says they have not sent any such emails. The bank may want to warn customers about these as they may be malicious. They shouldn’t be opened or responded to and in no case should personal or banking information be provided.

By John S. Burnett

FinCEN’s Notice on Customer Due Diligence

Your BSA-related obligations may be “enhanced” in the future if FinCEN moves forward on a measure currently in the early discussion stages.   FinCEN published an “advance notice of proposed rulemaking” on March 5 in which it asks for input on a number of questions about the development of a customer due diligence (CDD) regulation that would “establish a categorical [unqualified] requirement for financial institutions to identify beneficial ownership of their accountholders, subject to a risk-based verification.”

According to the Federal Register document, “FinCEN believes that issuing an express CDD rule that requires financial institutions to perform CDD, including an obligation to categorically obtain beneficial ownership information, may be necessary to protect the United States financial system from criminal abuse and to guard against terrorist financing, money laundering and other financial crimes.”

FinCEN says that it believes that an effective CDD program should include –

1. Conducting initial due diligence on customers, which includes identifying the customer, and verifying that customer’s identity as appropriate on a risk basis, at the time of account opening;
2. Understanding the purpose and intended nature of the account, and expected activity associated with the account for the purpose of assessing risk and identifying and reporting suspicious activity;
3. Except as otherwise provided, identifying the beneficial owner(s) of all customers, and verifying the beneficial owner(s)’ identity pursuant to a risk- based approach; and
4. Conducting ongoing monitoring of the customer relationship and conducting additional CDD as appropriate, based on such monitoring and scrutiny, for the purposes of identifying and reporting suspicious activity.

Beneficial ownership

FinCEN isn’t certain what “beneficial ownership” should mean in the context of CDD. One definition it is considering in the case of legal entities is—

(1) Either: (a) Each of the individual(s) who, directly or indirectly, through any contract, arrangement, understanding, relationship, intermediary, tiered entity, or otherwise, owns more than 25 percent of the equity interests in the entity; or
(b) If there is no individual who satisfies (a), then the individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, intermediary, tiered entity, or otherwise, has at least as great an equity interest in the entity as any other individual, and
(2) The individual with greater responsibility than any other individual for managing or directing the regular affairs of the entity.

FinCEN says that, if it imposes a categorical CDD requirement to identify beneficial ownership, it ” anticipates that, in general, the individual opening the account on behalf of a legal entity customer will identify its beneficial owner, and that covered financial institutions will generally be able to rely upon the beneficial ownership information presented by the customer, absent information that indicates reason to question the veracity of the information or an elevated risk of money laundering or terrorist financing.” Just what sort of information might indicate a reason to question the beneficial owner information or suggest an elevated risk of money laundering or terrorist financing isn’t discussed.

FinCEN then discusses what “verification of the beneficial owner” might mean to financial institutions.
• One possibility is that it would require verifying the identity of the individual described as the beneficial owner of the account. FinCEN presumes this ” would presumably be accomplished by using procedures similar to those currently required pursuant to the CIP Rules (e.g., obtaining a copy of a government-issued identity document of the individual), but applied to the identified beneficial owner rather than to an individual customer.”

Comment: Just how possible this might be in situations involving physically-distant beneficial ownership isn’t known.

• Another possibility is that it “would require that the financial institution verify that the individual identified by the customer as the beneficial owner, is indeed the beneficial owner of the customer, i.e., to verify the status of the identified individual.”

Comment:   How can this work as long as there are laws in some states that permit bearer stock certificates that effectively conceal beneficial ownership? How can a bank be expected to “peel the onion” of the complex layers of ownership presented by some corporations and LLCs, without expensive investigations?  How would this requirement work in cases where ownership is held through brokerage or mutual fund arrangements?

FinCEN’s Questions

In the published ANPRM, FinCEN specifically asks for comment on several issues raised by the potential new express CDD requirements.

1. Aside from policies and procedures with respect to beneficial ownership, what changes would be required in a financial institution’s CDD processes as a result of the adoption by FinCEN of an express CDD rule as described in [the] ANPRM?
2. What changes would be required in a financial institution’s CDD process, as a result of the adoption by FinCEN of a categorical requirement to obtain (and in some cases verify) beneficial ownership information, as described in this ANPRM? Is FinCEN’s suggested alternate definition of ‘‘beneficial owner,’’ discussed above, a clear and easily understood definition for the purpose of obtaining beneficial ownership information for legal entities in the context of complying with a CDD obligation? If not, would you suggest a better definition? In addition, how do financial institutions currently address the money laundering risks that might be presented by the beneficial owners of assets in an account held by an intermediary, what difficulties are presented in this regard, would further guidance or regulation be appropriate, should any requirement in this area be risk-based, and how should FinCEN define beneficial ownership for this purpose?
3. Under what circumstances does a financial institution currently obtain beneficial ownership information on a customer or accountholder?
4. How do financial institutions currently obtain beneficial ownership information?
5. Is the current, primarily risk-based, approach to a CDD program requirement resulting in varied approaches across industries or varied approaches within industries?
6. Are there other elements of CDD that would be more effective in facilitating compliance with AML program requirements and other obligations under FinCEN’s regulations?
7. What information should be required in order to identify, and verify on a risk basis, the identity of the beneficial owner?
8. Are there any products and services, or customers, that should be exempted from the requirement to obtain beneficial ownership information due to there being (i) substantially less risk of money laundering or terrorist financing associated with the account; (ii) limited value associated with the beneficial ownership information in mitigating money laundering/terrorist financing risk; or (iii) an inability to obtain the required information due to other legal requirements?
9. What financial institutions should not be covered by a CDD rule based on products and services offered?
10. What would be the impact on consumers or other customers of a CDD program including the elements identified above?

FinCEN believes that imposition of a categorical CDD requirement to obtain and verify beneficial ownership information is a reasonable requirement, given the goals of detecting, reporting and preventing suspicious activity including money laundering and terrorist financing. In general, financial institutions have been supportive thus far of FinCEN goals, and each uptick in BSA/AML expectations has seemed reasonable on its face and justified as an incremental change to already well-established policies and procedures. Financial institutions need to carefully consider the potential impact of the additional regulatory burden that could result from an express CDD requirement for obtaining and verifying beneficial ownership information, with or without risk-based exemptions. After reading and considering the ANPRM, I immediately wondered if this potential new requirement could be the proverbial “straw that broke the camel’s back” for bankers?

Paperless Treasury Payments

Treasury is serious about its plan to move all but a relative few Treasury payments away from paper and on to direct deposit or prepaid debit card by March 1, 2013. An official countdown clock was recently added to Treasury’s “Go Direct” site, with an invitation to include the clock on bank websites. You can check out the clock and find html code for adding it to your site at

There’s also an article in the March 15 issue of FedFlash (from FRB Services that reminds banks with business customers who receive Treasury check payments that those customers need to make arrangements for direct deposit with government agencies.

More Call Report Changes Coming

If you’re patting yourself on the back for getting your March 31, 2012, Call Report filed on time in spite of the changes made by the FFIEC, don’t get too comfortable. There’s more change in the wind.

According to the FDIC’s FIL-10-2012, there are still more changes that will be effective with the June 30, 2012, Call. The June changes include new Memorandum items in Schedule RC-N (Past Due and Nonaccrual Loans, Leases, and Other Assets); New items in Schedule RC-P (1-4 Family Residential Mortgage Banking Activities); and new items in Schedule RC-O (Other Data for Deposit Insurance and FICO Adjustments) for certain institutions.

FHA Mortgage Pricing Cuts

If your bank offers FHA mortgage loans, you should be aware that the FHA has announced price cuts to its Streamline Refinance Program that could benefit certain borrowers whose mortgages are currently insured by the FHA. Beginning June 11, 2012, the FHA Upfront Mortgage Insurance Premium (UFMIP) will be reduced to .01 percent and the annual premium to .55 percent for certain FHA borrowers. Check out HUD/FHA Mortgagee Letter 12-4, March 6, 2012, for details.


SAFE Act Exam Procedures Posted

To get a “heads up” on what bank examiners are likely to be looking at when they check your bank out for SAFE Act compliance, you can review the interagency SAFE Act Examination Procedures that can be downloaded from the Consumer Financial Protection Bureau’s site.

Extra Time to Respond to Comments

In December, the CFPB published a notice inviting public comment on a regulatory streamlining project. The notice asked commenters to identify provisions of the “inherited regulations” that the Bureau should make the highest priority for updating, modifying, or eliminating because they are outdated, unduly burdensome, or unnecessary. The notice also discussed several specific requirements that might warrant review, and sought suggestions for practical measures to make complying with the regulations easier. The Bureau offered a unique two-staged comment schedule, with initial comments due by March 5, 2012, and a period for responding to the initial comments that would run from March 5 through April 3. The second (response to comments) period has now been extended to June 4, 2012. Go to the CFPB’s site if you’re interested in seeing (and perhaps responding to) the comments received through March 5.

Checking Out Non-profits

The IRS has beefed up its online tool for verifying the non-profit status of organizations. You can now use “Exempt Organizations Select Check” ( to search for organizations eligible to receive tax-deductible contributions; identify organizations whose federal tax exemption was revoked for failure to file required reports with the IRS; or organizations that are Form 990-N (postcard) filers.

CTR Guidance – Businesses with Common Ownership

Bankers sometimes over-analyze regulations, and the Treasury rule on aggregating cash transactions conducted “by or on behalf of a person” is no exception. FinCEN first Guidance document for 2012 should go a long way to clearing up confusion in this area. You should read all of FIN-2012-G001 to catch all of its impact, but here’s a synopsis:

1. When it comes to entities that have their own legal existence (LLCs, partnerships and corporations, for example), any common ownership of the entities is, with one significant exception, irrelevant, and should not result in combining of cash transactions of multiple entities. For example, if Sam Smith owns ABC Inc. and DEF Inc., and is sole member of GHI LLC, you should not combine the cash transactions of the two corporations and the LLC for CTR purposes. Each entity’s cash transactions should be aggregated separately from those of the other entities, and Sam’s involvement with the three entities is irrelevant for CTR purposes.
2. The exception applies if the entities are not, in the bank’s opinion, operated independently of one another. Symptoms suggesting that businesses are not operated independently of one another include sharing places of business; sharing personnel; and regular comingling of funds between separate accounts.
3. In any event, aggregation for CTR purposes of cash transactions known to be conducted by the same individual is and always has been required.