Saturday, May 25, 2024

October 2017 OBA Legal Briefs

  • 2017 Oklahoma Statutory Amendments
  • Real Estate and Money Laundering
  • FinCEN Revises Beneficial Ownership Certification
  • Consumer Liability Under Regulation E

2017 Oklahoma Statutory Amendments

By Pauli D. Loeffler

During the regular 2017 Oklahoma legislative session, a number of statutory changes were enacted, and this article will cover changes of interest to Oklahoma bankers. Some of the changes are minor, such as removing language from a statute which refers to a statute that has been repealed. In other cases, the changes to existing statutes and new legislation are substantial and have much greater impact.

Civil Procedure

Title 12 O.S. § 1751. The statute has been amended increasing the maximum amount which may be brought into court under the small claims procedure. Effective November 1, 2017, actions for the recovery of money based on contract or tort (other than libel or slander), the replevin of personal property, and interpleader of funds has been increased to an amount not exceeding $10,000. Generally, lawsuits that are pursued through small claims are much quicker and cheaper. Another amendment to this statute permits attorney’s fees of up to 25% of the judgment amount upon application by the attorney supported by sufficient documentation.

Title 12 O.S. §2003.3. This is a new statute providing procedures which are required to be followed for lawsuits brought against organizations for website noncompliance with the Americans with Disability Act (“ADA”) for the visually and hearing impaired. As many of you remember, in 2010, the Department of Justice (“DOJ”) amended Title III of the ADA which includes required mandatory compliance with respect to not only physical and but also auxiliary aids and services for effective communication with regard to ATMs provided very specific requirements. There was no “grandfather” provision, and the only out was if “modifications would cause undue burden” which was an untenable defense for banks. This resulted in banks having to replace ATMs or face action by DOJ, the agency charged with enforcing ADA, as well as class action lawsuits. The DOJ amendments also included physical, auxiliary aids, and services within the purview of accessible electronic information technology (“EIT”) which covers website and app compliance. Again, no “grandfather” provision was provided, and “modifications would cause undue burden” was not a real option for banks.

Originally, it was expected that DOJ would issue website-accessibility standards for places of public accommodation by the spring of 2014, but the DOJ has now delayed issuing Title III website accessibility regulations until 2018. Despite the absence of a legal standard promulgated by DOJ, a growing number of plaintiffs’ firms began sending demand letters to various companies, including banks, alleging that websites denied their clients with disabilities access to online goods and services in violation of ADA.

The letters generally seek out-of-court settlements, injunctive relief and attorney’s fees and costs. It should be noted that hundreds of federal class action lawsuits have been filed throughout the country. It is most likely the standard will be WCAG 2.0 AA — the standard required for government websites and cited in consent orders entered involving the DOJ. Additionally, you need to be aware that Oklahoma’s § 1402 of Title 25 (Discrimination in Public Accommodations) also applies:

It is a discriminatory practice for a person to deny an individual the full and equal enjoyment of the goods, services, facilities, privileges, advantages, and accommodations of a “place of public accommodation” because of race, color, religion, sex, national origin, age, or disability.

Title 12 O.S. §2003.3 does not relieve the bank from liability under either ADA or the Oklahoma statute (the bank should obtain an audit to determine compliance with WCAG 2.0 AA and make any changes to its website and/or app in order to conform and to avoid liability). The statute does, however, provide some breathing room to make those changes and can significantly reduce costs with regard to legal fees as well as adverse judgments when it becomes effective.

How? First, the statute requires that before filing a lawsuit for damages and/or injunctive relief in an Oklahoma state court, the plaintiff must give notice of the defect(s) with regard to websites with regard to the visually or the hearing impaired. This must be done by certified mail at least 120 days prior to filing the lawsuit. This means the plaintiff will need to provide information specifically on how the website fails to comply. Proof of service of notification is required.

Second, the notice setting forth the defects together with proof of service must be attached to the petition. If the notice and proof of service are not attached, or the notice is not provided at least 120 days prior to filing, the court is required to dismiss the lawsuit without prejudice upon the motion of the defendant.

Third, if the defendant has corrected the defects before the plaintiff’s lawsuit is filed, the court must dismiss the action and award court costs and reasonable attorney fees to the defendant. This provides motivation to the plaintiff to be accurate with regard to defects as well as impetus for the defendant to get the defects fixed quickly. Further, penalties, known by the legal term “sanctions,” may be awarded to the defendant if the lawsuit is determined by the court to be “frivolous” under Title 12 O.S. § 2011. An action is “frivolous” if—

(1) it is brought to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims are not warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; or
(3) the factual contentions lack evidentiary support.

Finally, if the defendant has made a reasonable effort to correct the defects but has not completed the correction within 120 days of notification, or prior to the plaintiff’s filing of the petition, the court may upon application of the defendant grant a reasonable extension of time based upon the nature of the work needed to correct the deficiency. If the correction is made within the period allowed, the court shall dismiss the action. This portion of the new statute will apply to actions filed prior to the November 1, 2017, effective date. In order to utilize this, banks should not wait to review websites for compliance and commence making any needed changes.

Deceased customers

Title 6 O.S. § 906. This is the section of the Banking Code permitting transfer of deposits held in sole ownership without a pay-on-death beneficiary by way of an affidavit of heirs. It also has provisions for transferring the contents of a safe deposit box. Effective November 1, 2017, the aggregate amount of such deposits held in sole ownership increases from $20,000.00 to $50,000.00. Keep in mind that in order to use the affidavit authorized by this section, certain provisions must be met in addition to the aggregate limit. The other requirements are:

a) The deceased customer must have died intestate (i.e., did not leave a Will).

b) The deceased customer must have died a resident of the state of Oklahoma.

c) No probate has or will be filed.

d) All heirs entitled to inherit under Oklahoma intestate succession sign the affidavit.

The increased amount will allow a bank to close deceased customers’ accounts meeting the requirements when the customer died prior to the effective date provided all requirements are met. A chart of the Oklahoma Intestate Succession Laws may be accessed HERE.

Note that the provisions of this section do not require the bank to accept the affidavit, but if it does so in good faith, the bank is protected.

Title 58 O.S. § 393. This is the Probate Code section containing provisions for transfer of property of a deceased customer to the heirs by use of an affidavit of heirs. Unlike the affidavit under the Banking Code, it may be used whether or not the deceased customer had a Will, and whether or not the resident died a resident of Oklahoma. It does require that the net estate in Oklahoma owned by the deceased does not exceed $50,000.00 (excluding property passing by POD, TOD, under a Totten Trust, joint tenancy with right of survivorship or under a trust). Additional requirements include:

a) No probate has been filed in any jurisdiction.

b) All taxes/debts have been paid, provided for, or are barred by statute of limitation.

The following subsection was added effective November 1, 2017:

E. Any person who knowingly submits and signs a false affidavit as provided in this section shall be fined not more than Three Thousand Dollars ($3,000.00) or imprisoned for not more than six (6) months, or both. Restitution of the amount fraudulently attained shall be made to the rightful beneficiary by the guilty person.

This language is identical to that contained in Title 6 O.S. § 906 C.

Note that the affidavit of heirs contained in the Banking Code discussed above, the bank suffers no consequences if it refuses to honor the affidavit. Good faith reliance requires the institution to make some inquiry such as whether the deceased had a Will or whether the deceased had children or living parents or grandparents if the surviving spouse is claiming as the sole heir in order to be protected. On the other hand, there can be significant consequences if the bank fails to honor an affidavit under § 393 if all conditions are met. § 394 of Title 58 provides:

The person paying, delivering, transferring, or issuing personal property or the evidence thereof to the successor or successors named in the affidavit is discharged and released to the same extent as if the person dealt with a personal representative of the decedent. Such person is not required to inquire into the truth of any statement in the affidavit. If any person to whom an affidavit is delivered refuses to pay, deliver, transfer, or issue any personal property or evidence thereof, it may be recovered or its payment, delivery, transfer, or issuance compelled upon proof of their right in a proceeding brought for the purpose by or on behalf of the persons entitled there to. Any person to whom payment, delivery, transfer, or issuance is made is answerable and accountable therefor to any personal representative of the estate or to any other person having a superior right.

When an affidavit of heirs under § 393 is used, there is no requirement to make inquiry, but refusal to accept the affidavit could result in liability if the claimant has to file a probate or otherwise seek a court order. However, if the institution knows statements contained in the affidavit under § 393 are false, it would not be liable for rejecting it. For example, the affidavit states the deceased died intestate, but the bank knows there was a Will due to a prior search of the safe deposit box done under Title 6 O.S. § 1308, and a Will was discovered.

Flow charts for the Banking Code § 906 affidavit and Probate Code § 393 affidavit can be accessed HERE.

You can find templates for both the Affidavit of Heirs under the Banking Code and the Affidavit of Heirs under the Probate Code as well as other useful templates on theOBA’s Legal and Compliance Resources page at www.oba.com/bankers/legal_and_compliance.php

Title 6 O.S. §§ 1301.2 and 1310. Section 1301.2 (Authorization for Access to Safe Deposit Box Upon Death of Lessee, a/k/a “Access on Death Deputy Statute”) and § 1310 (Search Procedure on Death) contained references to Title 68 O.S. § 812. As some of you may recall, § 812 contained provisions for a 10 day “hold” for estate tax before release of accounts and safe deposit boxes after reporting to the Oklahoma Tax Commission. Section 812 of Title 68 was fully repealed more than seven years ago, effective January 1, 2010. The OBA Compliance Team got a bit tired of telling our members to ignore the reference, so we asked the OBA’s Government Relations Committee to do something about it. They were successful in getting legislation sponsored to remove the reference from these two sections of the Banking Code, and we are exceptionally grateful.

Liens

Title 42 O.S.§ 91A is amended to allow 30 business days rather than 15 business days for resubmission for title application for a denial of any title application subordinate to a perfected lien. The amendment does not apply to Class AA licensed wrecker towing charges.

Real estate and money laundering

By John S. Burnett

FinCEN has expanded its geographic targeting orders (GTOs) with the August renewal of its program to identify the principals behind entity purchases of high-end residential real estate in several major cities.

To date, the program has been imposed on title companies that are involved in such purchases in New York City, Miami-Dade, Broward and Palm Beach counties in Florida, Los Angeles, San Diego, San Francisco, San Mateo and Santa Clara counties in California, and Bexar County (San Antonio), Texas. The latest iteration of the program adds the City and County of Honolulu, Hawaii to its list of target areas. Since none of the program affects banks – or real estate deals in Oklahoma — you can tuck all of that info away as a factoid. The more relevant topic is one discussed in a “companion” piece that FinCEN issued with its press release on the revival of the GTO program, its Advisory FIN-2017-A003, addressed to financial institutions and real estate firms and professionals to provide information on the money laundering risks associated with real estate transactions, including the purchase of luxury property through shell companies (the targets of the GTO program). The Advisory provides information on how to detect and report suspected money laundering involving real estate, which is a crime that respects no borders and has been seen in real estate transactions of more modest size than the high-end transactions covered by the GTOs.

As FinCEN notes, “many real estate transactions involve high-value assets, opaque entities, and processes that can limit transparency because of their complexity and diversity. In addition, the real estate market can be an attractive vehicle for laundering illicit gains because of the manner in which it appreciates in value, ‘cleans’ large sums of money in a single transaction, and shields ill-gotten gains from market instability and exchange-rate fluctuations. For these reasons and others, drug traffickers, corrupt officials, and other criminals can and have used real estate to conceal the existence and origins of their illicit funds.”

Much of the Advisory explains the background for the GTO program. There are also some “red flags” that might be indicators of money laundering that a bank might notice.

These involve a transaction that—

• Lacks economic sense or has no apparent lawful business purpose. Suspicious real estate transactions may include purchases/sales that generate little to no revenue or are conducted with no regard to high fees or monetary penalties;

• Is used to purchase real estate with no regard for the property ’s condition, location, assessed value, or sale price;

• Involves funding that far exceeds the purchaser’s wealth, comes from an unknown origin, or is from or goes to unrelated individuals or companies; or

• Is deliberately conducted in an irregular manner. Illicit actors may attempt to purchase property under an unrelated individual’s or company’s name or ask for records (e.g., assessed value) to be altered.

From personal experience, here are a couple more:

• A closing to which the buyer brings multiple cashier’s checks, from the same bank or more than one bank, each for $10,000 or less. The buyer may have purchased the cashier’s checks for cash, in amounts meant to avoid CTR filings, or have tried to avoid an imagined reporting requirement for a withdrawal greater than $10,000 by cashier’s check.

• A real estate loan that is paid off early in its term with funds received by wire or otherwise from an unexplained source, without a reasonable explanation.

Any one or more of those “red flags” should trigger further investigation and result in a SAR filing or a well-documented and justified decision not to file. Your real estate lenders and mortgage servicers should be informed sufficiently to recognize “red flags” and other customer activity that may be considered suspicious, and to promptly deliver such information to the person or department responsible for Suspicious Activity Report (SAR) filing. They should also assist in gathering any additional information needed to inform the SAR filing decision.

When filing a mandatory or voluntary SAR involving a real estate transaction, you should provide complete and accurate information, including relevant facts in appropriate SAR fields, and information about the real estate transaction and the circumstances and reasons why the transactions may be suspicious in the narrative section of the SAR.

FinCEN also requests that financial institutions reference Advisory FIN-2017-A003 and include the key term “ADVISORY REAL ESTATE” in the SAR narrative and in SAR field 33(z) (Money Laundering-Other ) to indicate a connection between the suspicious activity being reported and real estate property.

FinCEN revises beneficial ownership certification

By John S. Burnett

We must admit that when we saw FinCEN’s September 28 publication of revisions to the Certification Form we had hoped there was something significant happening to the regulation itself that would clear up some issues. But we quickly abandoned that hope as we saw that the only changes were corrections to technical errors on the form in the Appendix to the rule. Here’s what FinCEN said in the Federal Register document:

As revised, appendix A (Certification Form) is identical to the original version except for the following: In the first sentence in Part I under the heading “What information do I have to provide?”, the term “foreign persons” is changed to “non-U.S. persons”; and in Part II: The heading of Section II b. is changed to “b. Name, Type, and Address of Legal Entity for Which the Account is Being Opened:”; and in the headings of the last column in the Tables in Section II c and Section II d, the term “Foreign Persons” is changed to “Non-U.S. Persons” and the term “Social Security Number” is added after the term “persons”; and in footnote 1, the term “Foreign Persons” is changed to “Non-U.S.Persons” and “a Social Security Number,” is inserted after the word “provide”.

Before we dismiss these changes as trivial, we need to go back to the regulation and note that § 1010.230(b)(1) requires that a financial institution identify the beneficial owner(s) of each legal entity customer at the time a new account is opened (unless the customer is otherwise excluded under paragraph (e) of § 1010.230 or the account is exempted under paragraph (h) of that section. A financial institution may accomplish that either by obtaining a certification in the form of Appendix A from the individual opening the account on behalf of the legal entity customer or by obtaining from the individual the information required by the form by another means, provided that the individual certifies the accuracy of the information to the best of the individual’s knowledge.

If your bank or a vendor has been working on implementing the beneficial ownership requirements, FinCEN’s “technical corrections” have changed the information to be obtained from the individual opening the account.

The change of “foreign persons” to “non-U.S. persons” throughout the form isn’t likely to cause problems, since the terms were intended to mean the same (non-U.S. persons is more accurate).

However, the addition of “Type” to the information requested in item II-b, which is apparently meant to describe the type of legal entity (corporation, LLC, LLP, cooperative, general partnership, limited partnership, professional corporation, business trust, etc.) adds a new information requirement that was not required by the earlier version of the Appendix. Adding a Social Security number to the list of identifying numbers that may be supplied for a non-U.S. person may require some additional coding time for a vendor, either to produce the form or gather and identify the information.

Be sure that your bank is using or will be using the updated Appendix A form for the certification of beneficial ownership information (or that you are collecting or will collect all the required information using some other method). If you are working with a vendor to have the gathering of beneficial ownership information integrated into your on-boarding process for new accounts, make sure your vendor is (a) aware of FinCEN’s changes to the Appendix, and (b) able to incorporate the changes into its system enhancements to implement the rule.

Consumer Liability under Regulation E

By John S. Burnett

Andy Zavoina and I had the pleasure of doing a one-day seminar on Regulation E at the OBA’s training center in Oklahoma City in September. We want to include here some of the critical points we discussed on the question of consumer liability for unauthorized electronic fund transfers (UEFTs).

Error claims and consumer liability

Two sections of the regulation — §§ 1005.6 and 1005.11 – often work together. Section 1005.11 (Procedures for resolving errors) is, as its title implies, all about process. It starts with a definition of the seven types of errors it covers (one of which is a UEFT), and the timing and content requirements that a consumer must meet to make an error claim. The rest of the section addresses the time frames for the financial institution’s investigation of the error claim, provisional credit for the alleged error, and notice requirements. For this section to apply, the consumer’s claim must be received no later than 60 calendar days after the institution sends the periodic statement on which the alleged error is first reflected.

If the institution determines that the consumer’s claim is correct that one or more EFTs were unauthorized, § 1005.6 determines whether the consumer is liable for any portion of the UEFTs.

If a consumer’s error claim is untimely (late) under § 1005.11 – received more than 60 days after the statement reflecting the alleged UEFT was sent – the institution is not required to comply with the requirements of § 1005.11. However, if the consumer’s error claim involves a UEFT, the institution must nonetheless comply with § 1005.6 before imposing any liability for the UEFT on the consumer. [Comment 11(b)(1)-7] Section 1005.6 (Liability of consumer for unauthorized transfers) requires that, to make the consumer liable for a UEFT involving the consumer’s account —

(1) The financial institution must have provided disclosures of the consumer’s liability for UEFTs, of a telephone number and address for notifications when the consumer believes that a UEFT has been or may be made, and of the institution’s business days.

(2) If an access device was involved in the UEFT, it must be an accepted access device with a means to identify the consumer to whom it was issued.

There is no “statute of limitations” on consumer UEFT claims under § 1005.6. That means there is no deadline for the consumer to make a UEFT claim. Therefore, if the consumer’s claim is not timely under § 1005.11, the financial institution must still determine whether the transaction or transactions were unauthorized, and, if they were unauthorized, apply the provisions of § 1005.6 – specifically, the tiered-liability provisions of § 1005.6(b)(1), (2) and (3) – to calculate the amount for which the consumer is liable, and the amount to be credited back to the consumer’s account.

Example:

Sarah Jones has recently reviewed several months’ statements on her checking account with your bank. She discovered that Camcast, her former cable television provider had continued charging her account $89.95 on the 15th of each month, even though she had switched to a less expensive web-based subscription with a different provider. Her Camcast contract had been month-to-month when she cancelled it on December 5, 2016.

Sarah submitted a letter to your bank on October 2, 2017, detailing her claim that the monthly Camcast charges to her account from January 15 to September 15, 2017, were not authorized, and included a copy of an email from Camcast verifying her service would be terminated on December 8, 2016, and the final charge to her account would be on December 15, reduced because it would cover only 24 days of service.
You send statements of Sarah’s account on the last calendar day of each month.

Timeliness of Sarah’s claim

Under § 1005.11, Sarah’s October 2 claim is timely with respect to the charges to her account that appear on the statements sent within the 60 days before the claim. Counting 60 days back from October 2 gets us to August 3, and the charges on August 15 and September 15 (appearing on the statements sent August 31 and September 30) would be subject to the timing, notice and (if necessary) provisional credit requirements of § 1005.11. It’s untimely for the earlier UEFTs. Before the bank responds to the claim, it needs to determine what amounts Sarah is liable for under § 1005.6.

Calculating Sarah’s liability

Unlike the timing requirement under § 1005.11, where we apply the error resolution rules to the more recent transaction in a series of related errors, to determine the size of the required reimbursement for UEFTs, the bank has to go back to the earliest of the UEFTs and apply the rules in § 1005.6(b) to determine what the consumer’s liability for the UEFTs is (if any). In Sarah’s case, the first UEFT posted to her account on January 15, 2017. This case doesn’t involve an access device, so the first two paragraphs of § 1005.6(b) are ignored, and we apply paragraph (b)(3), which provides that the consumer must report a UEFT appearing on a periodic statement within 60 days of the bank’s sending of the statement to avoid liability for subsequent transfers. If the consumer fails to provide notice within that time frame, the consumer’s liability is limited to the amount of the UEFTs occurring after the close of that 60-day period and before notice to the institution.

The January 15 debit appeared on the statement sent on January 31, and the bank determines that the 60th day from January 31 is April 1, 2017. Therefore, Sarah is liable for any UEFT from Camcast posting to the account after April 1. That means that Sarah will be liable for the debits for April through September (6 x $89.95 = $539.70). The bank’s reimbursement to Sarah will be for the January through March debits (3 x $89.95 = $269.85) plus any overdraft or other fees that would not have been charged to Sarah’s account if the three UEFTs had never posted, plus any interest that would have accrued on Sarah’s account if the three UEFTs had never posted and the refunded fees had not been assessed.

Both § 1005.6 and § 1005.11 provide the most protection for consumers when they are vigilant by checking regularly to ensure they have their debit cards and check out their periodic statements quickly when they arrive. Both sections include incentives for consumer responsibility. Banks have to follow the requirements of both sections carefully to ensure that consumers’ rights are honored, but the bank isn’t mistakenly paying more than it has to.