Thursday, May 23, 2024

February 2017 Legal Briefs

  • Bank of Blunders 2017
    • A Visit to the Bank of Blunders (Operations)
    • A Visit to the Bank of Blunders (Lending)
  • Updated Lobby Signage
  • Deregulation?
  • Penalty Caps Increasing, Again

Bank of Blunders 2017

By Mary Beth Guard and Pauli D. Loeffler

This month will be a “blast from the past” for those of you who have had the opportunity to participate in Mary Beth’s unique style of using a script to teach fledgling and experienced bankers about common compliance mistakes.  When used at seminars and schools, a small number of participants were assigned roles with scripts to read, while the rest of the audience was given clickers (little noise-making toys from a party store) to click whenever a blunder was spotted. A fun-filled clicking-fest of learning and laughter resulted.

This month, we’re giving you all-new blunder scripts reflecting compliance requirements as they exist as of early February, 2017.  Pauli tackled the Operations side, while Mary Beth had fun with lending.  Get your own clickers and use the scripts for in-house training, or treat these as the banking alternative to a crossword puzzle or Sudoku, get out a pen, and simply circle or underline the blunders and see how many you can spot. Next month, we will provide the answers.

Oh, and just a hint:  there are red herrings in here, too!

A Visit to the Bank of Blunders (Operations)

The Cast

  • Deidra Deposita (Teller)
  • Meagan A. Mystache (CSR)
  • Willis Crudeup (Teller)
  • A. “Slim” Chaunce  (Teller – Drive Thru Window)
  • Kara Free (Cashier)
  • Miscellaneous customers

Scene: Just a typical Monday morning at the Bank of Blunders, in the breakroom.

KARA:  How was your weekend?

MEAGAN:  It was terrific! I ran into that handsome Bill Stranger who just moved here from River City. He was at “Brews ‘N Billiards” Saturday night with a couple of other guys, and I managed to get up the nerve to go talk to him after my second beer. I went right up to him and said: “I don’t know if you remember me, but I work for Bank of Blunders, and I helped you open your Super NOW account a couple of weeks ago. Are you enjoying out little town of Blunders?” He said he loved how friendly everyone here is, asked me to sit down with the group, and bought me a beer. Oh, and I reminded him that we still need a copy of the lease or a utility bill to document his address since his driver’s license showed his old River City address and was expired. Bill said he’d been busy with getting settled in from the move, but he’d come by the bank this week, or better yet, just have me over to his place for dinner!

KARA:  What about you, Deidra…  Anything good to share?

DEIDRA: As a matter of fact, “yes!” Everyone at church was talking a about how George caught Peggy Sue with Richard Norvick on Friday night parked out by the lake! Rumor has it, the windows of Richard’s crew cab were pretty fogged up, and the truck was rocking, if you know what I mean.

WILLIS: (passing by from the breakroom on his way back to the drive thru):  I guess they smoothed things over. George came through the drive thru when we opened at 7 a.m. with his and Peggy Sue’s income tax refund check. I had to send the check back over to him to get her to indorse it since he was depositing it into his business account. Peggy Sue sure is a stunner with that red hair of hers.

DEIDRA:  Gee, I am pretty sure Peggy Sue is a blonde.

KARA:  Men can’t distinguish colors. I bet he meant strawberry blonde. Your story is proof that blondes have more fun.  But I guess Willis doesn’t realize that due to Section 4-205 of the UCC, you never have to have an indorsement on a check anymore.

Scene: The lobby

JERRY GUPSUM: “I need $500 cash back from this check for customer change when I make deliveries” (hands Slim the check from insurance company payable to “Shuck and Jive, Inc.” and Bank of Blunders indorsed using the Shuck &Jive, Inc.’s rubber signature stamp)

SLIM: Sure, Jerry. How do you want that?

JERRY: Give me $200.00 in fifties and the rest in twenties


SLIM: Sure thing, Jerry.

MRS. BUTTERWORTH:  Hello, missy. I sold my deceased husband’s mint condition Ford Pinto on Craig’s list for $20,000.00. The buyer sent me this cashier’s check for $25,000.00, and he said to send him the difference by wire. His agent is picking up the car this afternoon. Here’s the information for the wire.

DEIDRA:  Mrs. Butterworth, I’m afraid you are being scammed. It’s typical for these scammers to send a counterfeit cashier’s check for more than the agreed price, request the difference by wire or a cashier’s check and make off with the overage and the merchandise.  We’re not going to accept this check for deposit, but we will send it for collection. You really need to get back home and prevent the “agent” from taking the car.

MRS. BUTTERWORTH:  Young lady, I need this money to pay for my cataract surgery!  I’ve been a customer here for 40 years, and it’s my decision and my money!

DEIDRA:  We don’t want to see you lose the car and $5,000.00 to boot, Mrs. Butterworth, and we see this kind of stuff happening all the time.

MRS. BUTTERWORTH: Let me talk to your supervisor!

(DEIDRA has whispered conversation with KARA).

KARA: Mrs. Butterworth, I understand that you’re upset. Let’s go talk in my office and see if we can’t get things worked out.

Scene: At the drive thru

JILL MERRIWEATHER, wife of the bank’s president:  Hello, Willis, how’s Monday treating you?

WILLIS: It’s always a good day when you come to my window Mrs. Merriweather. What can I do for you today?

JILL: I had a bit of luck at the casino this weekend, and I need to make a deposit. (Puts $10.251.00 and a deposit slip in the canister, pushes the send button – Whoosh!)

WILLIS: (Retrieves canister, counts the money). Nice! Mrs. M.! I’ll have your receipt right out to you as soon as I fill out this Cash Transaction Report.

JILL: Darn! I’m running late for my hair appointment! My husband told me about these CTRs the last time one had to be filed, and I forgot. Just send me back the $251.00, and I’ll send you another deposit slip, so I can get to my appointment  on time, and that will save you from filling out that form.

WILLIS: Okay, I wouldn’t want you to be late for your appointment.

Scene: The lobby.

MEAGAN: Hello, can I help you?

MARY ST. JANE: I would like to open one of your Absolutely Free checking accounts. Can you tell me about it?

MEAGAN: You can open one with a $100 deposit, and as long as you either maintain an average daily balance of $100, have at least one direct deposit monthly or make 5 point of sale debit card transactions each month, and there are no service charges. E-statements are provided with the account. If you want paper statements mailed to you, those will cost $5.00 per statement. Come over to my desk, and I’ll give you one of our account brochures with the details for that account and the other accounts we offer.

(MRS. BUTTERWORTH and KARA coming out of KARA’s office)

KARA: Now you’ve heard for yourself that the bank didn’t issue that cashier’s check. It’s a counterfeit.

MRS. BUTTERWORTH:  Is your bank going to do anything about this?

KARA:  After I see you out, I am going right back into my office and file a Suspicious Activity Report.

DEIDRE: Kara, I’m really glad you were able to calm down Mrs. Butterworth and convince her she was being scammed. However, we have another problem. I took a deposit yesterday from that nice Mr. Hyde who runs the hardware store. It turns out that two of the $20 bills are counterfeit.

KARA: Well, I’ll contact Mr. Hyde, tell him of the counterfeit bills, and see if he knows who gave them to him. Meanwhile, debit the account $40.00. Give me the counterfeits, and I’ll take care of the report.

DEIDRE: I’m afraid I can’t give you the bills. I felt so bad about Mr. Hide losing money, I put in $40.00 of my own money and destroyed them.

A Visit to the Bank of Blunders (Lending)

The Cast

  • Libbie Linder – loan officer
  • Leroy Lonerman – loan officer
  • Ralph Rillest – real estate lender
  • Karla Kunsumer – consumer lending specialist
  • Noah Nawncump – commercial lender
  • Assorted Customers

Scene: Libbie’s office

LIBBIE LINDER: (speaking to Carl Kusstummur)  Good news, Carl.  I know you were concerned about the size of your flood insurance premiums.  Since the guest cottage on your property that your son and his family are living in is not attached to your main house, we don’t have to have it covered with flood insurance.  There is a special exception that applies and that will save you a bundle!  Plus, since you plan to eventually demolish the old barn on the property, that doesn’t need to be insured against flood either.

CARL KUSSTUMUR:  That is fantastic news.   And I had heard stories about how complicated it had become to get a loan these days.  When I came in last week to refinance the mortgage on my house, I expected it to be a big deal, but since it’s on a large acreage, you were able to get around lots of red tape.  What did you call it – TRID?

LIBBIE LINDER:   Yep, TRID.  It would have required you to have a waiting period before we closed your loan and all kinds of other things, if we hadn’t had the exception.

Scene: Walking from the lobby to Noah’s office

NOAH NAWNCUMP: (standing up to shake hands with Sam Successful.)  Good to see you, Sam.  What can I do for you today?

SAM SUCCESSFUL:  I assumed we could close today on that loan I’m getting for my business – you know, the one where I am putting up one of my rent houses that I own free and clear as collateral, but your assistant is telling me that the appraisal didn’t come in until late yesterday, so we have to reschedule.  I don’t want to wait!!

NOAH NAWNCUMP:  No worries, Sam.  There is this waiver I can have you sign and we can go ahead and close tomorrow.  In fact, we could close today, if you’d like.

NOAH NAWNCUMP: (comes back in after conferring with his assistant.)  Here is a waiver of the appraisal copy timing rule requirement, Sam.  I need you to sign it and backdate it to Monday.

SAM SUCCESSFUL:  Whatever you say, Noah.

NOAH NAWNCUMP: Oh, and after we close, I’ll get you a copy of the appraisal, if you really want one.  There’s just a small charge for the copy.

Scene:  Karla’s office

KARLA KUNSUMER: (speaking to Peggy Preggers, who wants to get a HELOC)  I’d love to be able to help you, Peggy, but we just need to wait and see how things shake out.  I know you think you will want to go back to work after the baby is born, but trust me, you won’t.  Almost nobody actually returns to work.  I took twenty years off after the birth of my first child!  It just isn’t feasible for us to loan you money right now because your income situation is too uncertain.  If you do decide to stick your baby in day care and go back to your job, you come see me.

PEGGY PREGGERS:  Well, we really need the loan.  I’ll be back.  Maybe I’ll only take three weeks off, instead of six, so we can qualify for the loan sooner.

Scene: By Leroy’s desk

LEROY LONERMAN: (speaking to his assistant) Don’t give me any more of these credit reporting error claims from individuals.   We don’t have to deal with these.  They have to go through the credit bureau and THEN come to us.  We have enough work to do!  Boy, I’m sure glad some things have gone away, like that Protecting Tenants at Foreclosure stuff.

Scene: Ralph’s office

RALPH RILLEST: (chatting with a customer.)  Let’s see what we have here…  So, you’re borrowing money for eighteen months to pay for a lawyer to defend your son on charges he vandalized the Porky’s sign and you’re giving us a first mortgage on your home as collateral.  Got it.  Listen, I’m really sorry the rate is so high, but let me make you a copy of your credit report and you’ll see why.  But don’t worry.  Since this is a first mortgage, the escrow requirement doesn’t apply.  And because this is a short-term loan, we really don’t need much paperwork and we can close the loan in just a couple of days.

SARGE SLIPPERY:  Thanks, Ralph.  When I get out of the army, I hope I can get my finances in order.  I’ve been distracted.  I know I can do it.   You’re my inspiration.  For you to have served time for embezzlement, then turn your life around and become a real estate lender at a prestigious banks, it’s amazing.

Scene: In the break room

LEROY LONERMAN:  (speaking to Libbie Linder.)  Hey, Libbie.  I saw you meeting with Ken Kooties this morning and he was filling out a loan application.  You might want to think long and hard before you make a loan to him.  I was working the pancake breakfast fundraiser the other day and overheard some people talking about him.  Apparently, he has a terminal case of Tickdoodleroo.  If he dies, that loan will never get repaid.

LIBBIE LINDER:  Wow.  Thanks, Leroy.  I’ll ask him about it and see how much time his doctor thinks he has.

LEROY LONERMAN:  I had to call an applicant’s doctor the other day.  The applicant’s income is from disability payments, so, I needed to know how long the disability was likely to continue.  It’s so interesting to read other people’s medical files!

KARLA KONSUMER:  (talking to Noah Nawncump)  I was so glad to see Heza Former in here today.  You know,  when his ex-wife started working here, he paid off his loans and closed all his accounts.  Now that she has retired, he’s back.  I got a loan application from him today for a boat loan and he think he will reopen his deposit accounts, too.  Said it was such a hassle when he set them up elsewhere.  They wanted him to provide identification and since he is our former customer, we don’t have to do any of that.

RALPH RILLEST: (turning to Leroy Lonerman.)  What a pain.  I’m so glad we fired that loan assistant, Curly.  On several of the Loan Estimates he prepared and sent, he forgot to put things like Lender’s title insurance and appraisal fees.  Can you imagine?  Now I have to go back through and issue revised Loan Estimates for all of them.

LEROY LONERMAN:  I know what you mean.  I had to redo some Closing Disclosures, too.  He was putting the wire fee and the courier fee on separate lines.  The fee amounts weren’t large, but splitting them out made it look like we were nickel and diming borrowers to death.

RALPH RILLEST:  I’m look at another one he apparently screwed up, too.  The customer was getting a loan to buy a home and he put the purpose down as “Home Equity,” instead of purchase just because the customer was pledging another dwelling that he owns as collateral, rather than the property he is buying.  How stupid is that?  From the consumer’s standpoint, though, it doesn’t matter.  I’m not going to try to change it.

RALPH RILLEST:  Don’t you think most settlement service provider costs are likely to be the same in Branson, Missouri as they are around here?  Our customer is purchasing a vacation home in Branson and has asked us to do the financing.  I’m trying to swag the estimates for the LE.

LEROY LONERMAN: (talking to the other loan officers.)  FYI, Guy Gunner got out of the Air Force yesterday.  We can finally pursue our foreclosure now.

KARLA KUNSUMER: (to all the other loan officers.)  Heads up.  We don’t want to be seen as dragging our feet when we have loan applications from applicants who may be part of a protected class.  Senior management just decided upon a new policy.  Any time we get an application for a loan from a female applicant or a minority applicant, a decision should be made on the application as quickly as possible – no more than two weeks in any case, so we can document the action taken and keep going.  Don’t spend too much time with the applicants or you’re not going to be able to stay within the new timeframe.  This should help us cut down on complaints by customers to regulators.

Scene:  In Libbie’s office

LIBBIE LINDER: (talking to Karla.)  Leroy said he doesn’t mind taking all of the calls from consumer applicants that you and I hate.  He can sometimes just be really chatty – ask them about their family, their church, clubs they belong to, things like that, and end up getting referrals for other mortgage business.  Let’s put his name and NMSLR ID on all the apps we get, up until the closing documents, so he will get the calls, instead of us.

NOAH NAWNCUMP:  I’m sure glad I’m in commercial lending.  No compliance requirements for my loans!

Scene:  In the lobby

LARISSA LENGUISS and FOREN SPICKER: (shaking hands with Ralph).  Good morning.   My name is Larissa and this is Foren.  Foren got a green card in the annual Diversity Visa Lottery!  He is so happy to be in America, but is really having a difficult time with speaking and understanding English.  The reason we’re here is because Foren has found a house in Little Creimzown that he is interested in buying and he would like to apply for a mortgage loan.  Since his English isn’t the greatest,  he has asked me to translate for him because I am fluent in his language and in English.

RALPH RILLEST:  Listen, I would love to help.  I really would.  But there is too much potential liability for the bank.  We require an applicant to be able to read and understand the loan documents.  Plus, we like to steer clear of loans in Little Creimzown, so we probably couldn’t help him anyway.

Updated Lobby Signage

By Andy Zavoina

 There are some regulations that have annually adjusted amounts. One of those is Regulation BB, implementing the Community Reinvestment Act (CRA). Last December 16, a joint agency notice was published with the tier sizes which identify how a financial institution will be examined, based on its asset size. This was a 16-page document which would be easy to gloss over and during the holidays; who has time, right? So at best you may have looked at the numbers and realized your institution’s size classification has not changed and there were more pressing deadlines to meet so you might just have gone on with your day. But if your institution is an FDIC regulated bank, you might have missed something.

The FDIC made some technical changes internally that really are important to you. The FDIC person with the title “Regional Manager” is now known as the “Regional Director” and I already hear the question “why is this important to me?” Your bank has a CRA Notice posted in what is often referred to as the Fed Wall, where other required notices are posted as well. This one is required by Appendix B to Part 345 and it tells readers whom to contact about CRA exams and comments. That notice needs to be changed. The notice refers to the Regional Manager but now needs to be replaced by Regional Director, and another change, the “Division of Supervision and Consumer Protection” was removed from the notice. These are changes that already happened at the FDIC and any comments sent to the Regional Manager will reach the Regional Director.

Online versions of the regulations will be updated, but you can find the text in the Federal Register, Volume 82, Number 11, January 18, 2017 which you can read here. Yes, the final rules were published about a month after the first notice from the regulators. The changes were effective on that date of publication. There is no official period of time to comply as the change has already happened. But in that this is truly technical and not substantive my recommendation is to make the change within 30 days or when you expect examiners, whichever is sooner. Some examiners may not even look at the notice, but when you can show you have these little things covered, there is a good idea that the big things are too.

And by the way, the bank size tiers are now:

“Small bank” or “small savings association” means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.226 billion.

“Intermediate small bank” or “intermediate small savings association” means a small institution with assets of at least $307 million as of December 31, of both of the prior two calendar years and less than $1.226 billion as of December 31, of either of the prior two calendar years.


By Andy Zavoina

As soon as the election results were in bankers were asking “what does this mean to us?” None of us has a reliable crystal ball but many can speculate. We should not make plans until changes really happen and this is actually a developing story. You may have read that President Trump signed an executive order requiring that for any new regulation, two others must be identified for elimination. This sounds like great deregulation information.

There were suspicions that the regulations identified for rescission would be old, meaningless requirements so the order requires a net zero cost effect. That is, “… the total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero, unless otherwise required by law…” So this is still sounding good, right.

But banks have examined executive orders in the past and found them to be less applicable than they appeared to be. In this case, the order does not apply to independent agencies. Two examples of independent agencies are the Consumer Financial Protection Bureau (CFPB) and the Securities and Exchange Commission (SEC). The heads of the independent agencies may choose to voluntarily follow an executive order but history tells us the head of the agency may do so depending on who they were appointed by, and if that party is still in office.

On February 3, 2017, the President signed two Executive Orders that could lay the groundwork for significant changes – one that calls from a rollback of some of the Dodd-Frank mandates and another that might derail the DOL fiduciary rule.  Nothing will happen instantly because some of the changes will need to be made legislatively.  Others that can happen at an agency level will have to meet procedural requirements, too.

Essentially, it’s a process, not an event (as they say).  One thing is for sure.  You can count on Roger Beverage and the OBA to keep you informed every step of the way and the OBA Compliance Team from BankersOnline will be right there to help you navigate the changes as you need to make them!

Penallty caps increasing, again

By John S. Burnett

Last summer, the federal prudential regulators and the CFPB published rules increasing the maximum civil money penalty (CMP) amounts for several violations of federal laws or regulations for which they are responsible. Their action was required by the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996 and further amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, cited as 28 U.S.C. 2461 note (the Inflation Adjustment Act). The adjustments made in 2016 included a special “catch up” adjustment that accounted for inflation for the period since each CMP was last adjusted, a span of several years in many cases.

Annual adjustment for 2017

The Inflation Adjustment Act calls for annual adjustments, to take effect on January 15, issued as final rules without regard to the rulemaking proposal and comment period requirements. The FDIC published its adjustment rule in December. The OCC, Federal Reserve and CFPB published their rules in January.

Where to find the current caps

The agencies have conveniently compiled lists of their inflation-adjusted maximum penalties in a designated section of their regulations (the FDIC and OCC have two sections each, one for banks and the other for savings associations under their supervision). Here’s where to look:

·       OCC — 12 CFR Parts 19 and 109

·       FRB — 12 CFR Part 263, § 263.65

·       FDIC — 12 CFR Part 308, §§ 116 and 132

·       CFPB — 12 CFR Part 1083, § 1083.1

The laws for which the three prudential regulators (and in some cases, the Bureau) make CMP cap adjustments are either the same or their content is the same, and the agencies coordinate their efforts to ensure their adjustments are in agreement. The Bureau has some adjustments that don’t “match up” with those of the prudential regulators because different laws are involved.

Selected examples

Here is a selective list of the CMP maximums included in the recent rules. Where three amounts are listed for a single penalty description, they are for Tier 1 (simple violation of the law), Tier 2 (a pattern or practice of violations of the law), and Tier 3 (knowing violations of the law resulting in significant loss to the institution or gain to the individual responsible). CFPB-only limits are labeled as such; those without a regulator’s initials are coordinated multi-agency limits:

  • 12 U.S.C. 5565(c)(2) – Any violation of a provision of federal consumer financial law (CFPB)  –  per day $5,526 / $27,631 / $1,105,24
  • 12 U.S.C. 2609(d)(1) – Failure to provide annual escrow statement under RESPA (CFPB)  – $90 per failure; $181,071 annual limit
  • 12 U.S.C. 2609(d)(2) – Intentional failure to provide annual escrow statements (CFPB)  – $181 per failure, with no annual limit
  • 12 U.S.C. 5113(d)(2) – Loan originator under SAFE Act in state subject to Bureau’s licensing system, violating any requirement under SAFE Act or regulation (CFPB) — $27,904
  • 15 U.S.C. 1639e(k) –  Appraisal independence – $11,053 per day first violation; $22,105 per day subsequent violations
  • Various provisions of National Bank Act, Federal Reserve Act, Federal Deposit Insurance Act, or Change in Bank Controletc. –  Per day $9,623 / $48,114 / lesser of $1,924,589 or 1% of capital
  • 12 U.S.C. 1820(k)(6)(A)(ii) – Violation of Post-Employment Restrictions – $316,566 per violation
  • 12 U.S.C. 1832(c) – Violation of NOW account ownership limitations – $2,795 per violation
  • 42 U.S.C. 4012a(f)(5) – Flood Insurance – $2,090 per violation
  • 12 U.S.C. 324 – Late or misleading reports (includes Call Reports) – $3,849 / $38,492 / $1,924,589