August 2026 OBA Legal Briefs

August 2026

Banker Q&As

by Pauli Loeffler

HMDA reportable as a refi, or not reportable since it is now a construction loan.

1. We made a loan to purchase (then sale) an investment 1 unit dwelling.  On that same loan we had additional collateral on a 1 unit dwelling that was also being sold.  The borrower tore down the purchased dwelling and is now wanting a loan to reconstruct the property, from ground up.  We will be rolling in the originally loans balance into the new construction loan (which is the majority of the loan amount).  Both properties will be on the loan.  Is this loan exempt from HMDA because of the new loan purpose? Or is it a HMDA refinance because the original loan was secured by that second property, which is still on this new loan.

A shorter way of describing loan above is:

If we refinance a loan that was originally secured by a dwelling, and adding money for initial construction of another dwelling, is the new loan a HMDA refinance or is it exempt as a construction loan? The same dwelling is on both loans.

1. A refinance typically takes precedence over a construction purpose if a new, permanent loan satisfies and replaces an existing dwelling-secured loan. Construction-only loans are generally considered temporary financing and are excluded from HMDA reporting, while a “refinance” is defined as a loan that satisfies and replaces an existing obligation. If the loan is meant to replace an existing loan, it is generally considered a refinance under HMDA.

Key details regarding construction and refinance under HMDA:

The Hierarchy: HMDA reporting prioritizes purpose in a specific order: 1. Purchase, 2. Refinance/Cash-out Refinance, 3. Home Improvement, 4. Other.

Temporary Exemption: Construction-only loans (short-term loans to build a home) are often excluded from HMDA, as they are considered temporary, provided they are not automatically converted into permanent financing.

Refinance Definition: If a loan “satisfies and replaces” an existing dwelling-secured loan, it is a refinance.

Construction-to-Permanent: If a loan is specifically for the initial construction of a new dwelling and is replaced by permanent financing, the initial construction loan is not reportable, whereas the permanent financing (if it qualifies as a refinance) might be.

TRID vs. HMDA: It is crucial to distinguish that TRID (TILA-RESPA Integrated Disclosure) has a different hierarchy than HMDA; in TRID, a purchase typically trumps all, but in HMDA, a refinance has specific reporting requirements.

Oklahoma’s New Financial Exploitation Statute

By Scott Thompson

Financial exploitation of vulnerable adults is a rapidly escalating issue. The OBA fraud and compliance departments frequently receive calls from bankers regarding customers—often elderly individuals—who suddenly attempt to withdraw large amounts of cash or wire funds under questionable or illicit circumstances.

Bankers familiar with these scenarios understand the difficulty of convincing a customer they are likely the victim of a scam. The OBA provides resources on navigating these conversations to appropriately place the emphasis on the wrongdoers, rather than making the customer feel as if their intelligence is being questioned. Historically, however, banks have been limited in their legal ability to physically stop a customer from proceeding with a suspected scam. A new Oklahoma law, effective November 1, 2026 (6 O.S. § 3401), will equip banks with the necessary legal tools to intervene, pause suspicious activity, and collaborate with law enforcement. The objective is that these tools will significantly mitigate this pervasive problem.

This article addresses the operative provisions of the upcoming statute, detailing who is protected, the actions financial institutions can take, and the legal immunities that shield institutions when they intervene. Banks should carefully consider how they intend to utilize these tools and develop internal procedures to ensure they are applied appropriately and uniformly. Institutions may also want to consider updating their account agreements to provide customers with advance notice of this process.

1. Who is Covered? (The Definitions)

Before an institution can act under this statute, the situation must involve a “Protected Adult” and “Financial Exploitation”.

• Protected Adult: Defined as any individual 62 years of age or older, or any adult deemed incapacitated or vulnerable under the Protective Services for Vulnerable Adults Act.
• Financial Exploitation: The unauthorized taking, withholding, or use of a protected adult’s property. This definition specifically encompasses bad actors who utilize intimidation, deception, coercion, or the abuse of a Power of Attorney (POA) or guardianship to divert funds or seize control of the adult’s assets. While fraud involving external scammers is covered, the definition is broad enough to include financial exploitation by anyone, including family members.
• Trusted Contact: An adult designated by the account holder whom the bank is authorized to contact in emergencies or instances of suspected fraud. Note that while a Trusted Contact is one of the persons whom the bank must contact when it intends to initiate a hold, the statute does not limit the use of a Trusted Contact to a Protected Adult under this statute. Any customer may designate a Trusted Contact. OBA will provide a sample Trusted Contact Authorization form on its website.
• Agency: One or more of the following: (A) the Department of Human Services (Adult Protective Services), (B) the office of the district attorney in the county where the suspected exploitation occurred, or (C) any state or federal law enforcement agency with jurisdiction over the relevant area.

It is critical to understand that this statute, except the use of a Trusted Contact, is strictly limited to individuals meeting the definition of a Protected Adult. If the customer is under the age of 62 and has not been legally deemed incapacitated or vulnerable, this statute does not apply.

2. Mandatory and Permitted Reporting

The statute establishes clear lines of communication when an employee flags potential exploitation. If an institution intends to utilize the tools provided by this statute, it must establish implementation procedures to ensure actions remain consistent with statutory requirements.

• Internal Reporting: If a bank employee reasonably believes exploitation of a protected adult is occurring, has occurred, or is being attempted, they must report it to the institution. Ideally, banks already possess established protocols wherein employees report suspected exploitation to a designated internal decision-maker.
• Agency Reporting: If the institution corroborates the employee’s assessment, it must promptly notify the proper agencies (such as DHS-Adult Protective Services, the District Attorney, or law enforcement). This mandate incorporates the pre-existing reporting requirements under the Protective Services for Vulnerable Adults Act.
• Third-Party Outreach: The institution may elect to notify the customer’s designated “Trusted Contact” or another closely associated third party
• The “Bad Actor” Exception: Crucially, a bank is strictly prohibited from notifying a Trusted Contact or third party if the bank reasonably believes that specific individual is the one committing the exploitation.

3. The Power to Freeze Transactions (Temporary Holds)

One of the most potent provisions of this statute is the authority granted to banks to temporarily halt transactions to prevent irreversible financial loss. If financial exploitation of a protected adult is suspected, a bank may place a temporary hold on disbursements or transactions associated with the account. This authority is transaction-specific; it does not empower the bank to unilaterally freeze the customer’s entire account, but rather the specific transaction suspected of being exploitative. This power carries strict timelines:

• The 3-Day Notice: The bank must provide oral, written, or electronic notice of the hold and the underlying reasoning to all authorized account parties and any Trusted Contact within three business days. Simultaneously, the institution must launch an internal review. While oral notification is technically compliant, I strongly recommend always providing written notification. If the customer is not present, this can be executed via email or mail, depending on prior electronic consent. I advise banks to draft a standardized form explaining the statutory authority, the decision to place a hold, and the associated deadlines. If the customer is physically present when the hold is initiated, this notice can be handed to them directly. A sample notice will be provided on the OBA website.
• The 10-Day Clock: The hold automatically expires after 10 business days unless the bank’s internal review reasonably supports the belief that financial exploitation is occurring, or an Agency formally requests an extension. Absent additional action, the hold will expire and the transaction must be processed.
• The 10-Day Extension: As noted, the bank is obligated to immediately launch an internal review upon applying a temporary hold. The bank may also report these concerns to an Agency. If the internal investigation reasonably supports the suspicion of exploitation, or if an Agency requests in writing an extension in order to conduct its own investigation (which may be paired with an information request), the bank may extend the freeze for up to an additional 10 business days. This allows for a maximum temporary hold of 20 business days from the initial freeze date.
• Court Override: A court has the authority to terminate or extend the hold. If a court terminates the hold, the bank must process the transaction or take alternative legal steps, such as closing the account. Furthermore, while a customer generally has a right to their deposited funds when no hold is active, they do not have the right to compel the bank to utilize its operational services (such as wire transfers) if the bank believes it would be facilitating fraudulent activity.
• No Mandate to Hold: The statute clarifies that while banks can freeze transactions, they are not legally required to do so. The law was designed to provide protective tools, not to impose a mandatory legal obligation to utilize them.

4. Sharing Records with Law Enforcement

We frequently hear complaints from the Agencies that without information from the bank about a potentially exploitative transaction, it can be difficult to establish the requisite probable cause to get a subpoena or search warrant issued. Even if that hurdle is surpassed, the time it took to get the process issued may have allowed the fraud to have been completed. This statute also addresses this concern. When an Agency certifies in writing to a bank that it is investigating the exploitation of a protected adult, the bank is authorized to share relevant financial records without a search warrant or subpoena. As with the transaction holds, the bank is authorized, but not required, to share this information; it retains the right to require the Agency to issue a subpoena or search warrant. Banks should clearly define how they intend to respond to these requests within their internal procedures.

If an Agency submits a written request, it may only seek information covering 90 days before and up to 60 days after the alleged exploitation. In response, the bank may provide:

• The number of items dishonored;
• The number of items paid that created overdrafts;
• The dollar volume of the dishonored/overdraft items and a statement explaining any overdraft credit arrangements;
• The dates and amounts of deposits, debits, and the account balance;
• A copy of the signature card, including the signature and any listed addresses;
• New bank cards issued;
• Change of address requests received;
• Power of attorney or trust documents submitted or executed;
• The date the account opened and, if applicable, closed;
• Surveillance photographs and video recordings of persons accessing the account via an ATM or within the institution on the dates of the alleged illegal acts.

The statute notes that requests for the first four items on this list may be satisfied by providing complete account statements. The statute amends the Oklahoma Financial Privacy Act to create a carveout for the provision of this specific information. However, requests for information outside the scope of this list must still comply with the Oklahoma Financial Privacy Act—requiring a subpoena or search warrant—to ensure the customer’s broader privacy rights are protected.

5. Robust Liability Shield (Immunity)

To encourage swift action without the paralyzing fear of litigation, the statute provides comprehensive legal immunity. Provided the bank and its employees do not act in bad faith or with malicious purpose, they are completely immune from civil, criminal, or regulatory liability for:

• Making a report to an Agency or providing the specified records in response to a written request.
• Sharing permissible information with trusted third parties or a Trusted Contact.
• Placing, releasing, or choosing not to place a hold on an account.

This provision is designed to shield banks from successful litigation brought by disgruntled customers for holding a transaction, or by customers and their families for failing to hold a transaction, so long as the bank’s actions were conducted in good faith.

6. The Federal Right to Financial Privacy Act (RFPA)

Because this is a state statute, federal preemption principles dictate that it cannot override federal law. Consequently, a bank’s obligations under the federal Right to Financial Privacy Act (RFPA) remain entirely unchanged. Reports to, or requests for information from, federal actors must continue to be handled in strict compliance with federal law. If a bank could not legally provide information to a federal entity without a subpoena or search warrant prior to this state law, it remains prohibited from doing so now. Internal procedures must clearly delineate that requests subject to the RFPA will be managed accordingly.

7. Conclusion

This new statute provides essential tools for Oklahoma banks to protect their customers and combat the epidemic of fraud targeting the elderly and vulnerable adult populations. It offers robust protection for institutions, provided they act in good faith. In anticipation of the November 1, 2026 effective date, banks are strongly advised to draft or update internal procedures covering:

1. The process for reporting suspected financial exploitation internally and to Agencies;
2. Institutional policies on instituting transactional holds;
3. The process for conducting internal investigations and extending temporary holds;
4. The creation of a Trusted Contact program (CFPB has an explanation and examples here: https://files.consumerfinance.gov/f/documents/cfpb_trusted-contacts-consumers_2021-11.pdf);
5. The preparation and delivery methodology for temporary hold notices; and
6. Protocols for handling Agency requests for information or hold extensions.

Deceased customer accounts

By Pauli Loeffler

Funeral expenses

There are a couple of situations when a customer dies without a joint owner or pay-on-death beneficiary where paying the funeral home is a very good option to close the account. Often the relatives want to use the money to pay for the funeral, or the customer didn’t have any known relatives, and the funeral home wants to be paid.

The bank does not want to expose itself to liability but would like to accommodate the relatives’ request and/or expeditiously terminate an account.  While there is no statute that directly authorizes the bank to take this action, a bank may make a business decision to make the payment anyway as there is limited risk in doing this.

Under Section 594 of Title 58, the executor, administrator or personal representative of the decedent’s estate is required to pay the funeral expenses and the expenses of the last illness as soon as sufficient funds are available:

The executor or administrator, as soon as he has sufficient funds in his hands, must pay the funeral expenses, and the expenses of the last sickness, and the allowance made to the family of the decedent. He may retain in his hands the necessary expenses of administration, but he is not obliged to pay any other debt or any legacy until, as prescribed in this chapter, the payment has been ordered by the court.

 

Additionally, Section 591 of the Probate Code provides the order in which debts of the estate must be paid:

The debts of the estate must be paid in the following order:

1. Funeral expenses.
2. The expenses of the last sickness.
3. Funds necessary for the support of the family and allowed by the court pursuant to the provisions of this chapter.
4. Taxes to the United States or the state, county, or city.
5. Debts having preference under the laws of the United States and of this state.
6. Judgments rendered against the decedent in his lifetime, which are liens upon his property and mortgages in the order of their date.
7. Demands or claims which are presented to the executor or administrator for an allowance or proved within two (2) months after the first publication of notice to creditors.
8. All other demands against the estate except those set forth in paragraph 9 of this section.
9. Interest resulting from the extension of time for payment of federal estate or transfer taxes. Such interest shall be a cost of administration but shall not be deductible in arriving at the Oklahoma net taxable estate under Section 808 (g) of Title 68 [68-808]. [NOTE: The second sentence no longer applies since the statute cited was repealed effective January 1, 2010, as was Oklahoma estate tax.]

Since it is clear the funeral expenses are given absolute priority over all other claims against the estate, a suit against the bank for paying these expenses has little, if any, likelihood for success.  However, case law requires that the funeral expenses must be reasonable based upon the decedent’s circumstances and social station in life, and the bank needs to make sure that the funeral costs have not been satisfied by a pre-need burial trust or policy.

Offset and deceased customer

Often a bank has a loan customer die with an outstanding loan and wants to offset the loan against the deposit account owned by the deceased customer. The loan agreement usually states that death is an event of default, and the account agreement provides the account is security for any outstanding amounts owed the bank, so there should be no problem just using offset, right?

Sec. 901 of the Banking Code provides: “B. 2. A deposit account with a P.O.D. designation shall constitute a contract between the account owner, (or owners, if more than one) and the bank that upon the death of the last surviving owner of the account, and after payment of account proceeds to any secured party with a valid security interest in the account, the bank will hold the funds for or pay them to the named primary beneficiary or beneficiaries if living.” This provision will apply, for instance, if the there was a CD secured loan or a formal control agreement preventing the customer from withdrawing funds from the DDA to secure the loan.  If neither of these exist, so what is left is the right of offset which is NOT a true security interest.

If there is a POD or joint tenant not obligated on the loan (co-borrower, guarantor), offset cannot be used since as soon as the borrower dies, the customer no longer has an interest in the account nor would his estate. If there is no POD or joint owner, offset is a tricky proposition due to the order in which claims must be paid by the estate (Sec. 591 of the Probate Code, above). Funeral expenses, expenses of the last illness, necessary support of the family, taxes, etc. all come before the right of offset in priority for payment.