Regulation Z Changes

 

A reminder about the upcoming Regulation Z changes for loan applications received on or after January 30, 2011:

These changes affect both the Preliminary and Final Truth-in-Lending disclosures for Consumer purpose closed-end Real Estate loans secured by real property (with or without a dwelling),

 

These changes replace the payment stream disclosure with a table that shows the principal and interest payment, the interest rate, and also the escrow requirement if applicable.

 

There are different model tables for different types of loans (fixed rate loans, adjustable rate or tiered-rate loans, and interest only loans)

 

If your bank’s particular loan document software provider has not provided an update regarding these disclosures, it may be a good time to contact them.

 

There are also additional changes regarding these disclosures with a mandatory effective date of October 1, 2011.

 

If you would like more information, please see the press release: http://www.federalreserve.gov/newsevents/press/bcreg/20101222a.htm

 

 

Are you ready for interest-bearing DDA accounts for businesses?

 

Effective July 21, 2011 Dodd-Frank Act Title VI. Section 627 will repeal the Regulation Q and the prohibition against paying interest on demand deposit accounts.  The repeal will allow banks to pay interest on demand deposit accounts held by businesses and consumers. 

Reminder:   Regulation D prohibits corporations and partnerships (and certain others) from owning a Negotiable Order of Withdrawal (NOW) account.   This rule has not changed.   NOW accounts differ from demand deposit accounts in that the bank account agreement specifies that the bank has the right to require seven days advance notice before a withdrawal can be made. Funds from demand deposits are available on demand.

Under Section 343 of the Dodd-Frank Act, the FDIC provides unlimited deposit insurance for noninterest-bearing transaction accounts through December 31, 2012.  If your customer converts their demand deposit account to the new demand deposit interest-bearing product, they should be informed that they will NOT have unlimited FDIC insurance.

Bank Management is encouraged to begin planning now for developing new checking account products that will pay interest on demand deposit accounts for businesses, and possibly for consumers, also.  Many banks offer an “earnings credit” that offsets any service charges incurred on the commercial account.   If you will pay interest you should consider removing the earnings credit option.  Service charge income could increase to offset the interest expense on the new product.

 

Project List

• Management should decide whether the bank will offer interest-bearing demand deposit accounts and what rates you will pay.  If you don’t offer these accounts and your competitors do, you should be prepared to respond to customer inquiries.

 

• You should contact your core banking software provider to ensure the core system has the ability to accommodate paying interest on demand deposits. 

 

• New account plans should be established for all new account types. You should ensure that these accounts are coded differently from other demand deposits so that they are reported correctly on regulatory reports.

 

• General ledger accounts for interest-bearing demand deposits and related interest expense and interest accruals, should be established, added to system interface parameters, and added to reconciliation forms.

 

• Business Account brochures will need to be updated.  Truth in Savings disclosures will need to be updated if you add a new consumer account.

 

• New account staff will need training on the new products.

 

• Marketing and advertising campaigns should be developed if you decide to promote the new product

 

If you are interested in an Internal Audit of your DDA accounts, or a Compliance Audit of Interest on Deposits please Contact Us.

 

 

 

Risk Based Pricing Reminder

 

The Risk-Based Pricing Final Rule was effective January 1, 2011. Please see the final rule for more information:

 

 

http://www.federalreserve.gov/newsevents/.htm

 

 

Important Information Regarding Kiting

Due to the increased kiting activities occurring throughout the state, we wanted to take a moment to remind our clients of suspicious circumstances in bank customer activity that may indicate a kiting scheme, as well as the internal controls and tools at your disposal to help detect these circumstances.

 

Factors to look for when monitoring suspicious accounts to detect a kiting:

 

• several accounts with similar names, owned or controlled by the same individuals
  
  
• regular or excessive drawings against uncollected funds (as indicated by system reports)
  
  
• frequent daily negative ending balances or overdrafts that eventually clear or are covered in a short time frame
  
  
• identifiable patterns of transactions such as deposits, transfers between accounts, withdrawals, and wire transfers, often with similar or increasing amounts
  
  
• frequent or regular deposits of checks drawn on their accounts in out of area banks

• frequent requests by the customer for account balances, collected items, or cleared items
  
  
• frequent check withdrawals to the same institution, with the maker listed as payee
  
  
• a low average daily balance in relation to deposit activity and a low collected fund balance in relation to the book balance
  
  
• a volume of activity or large debits and credits inappropriate in relation to the nature of the business of the account holder involved
  
  
• monitor if today’s deposits are required to cover checks that would otherwise be insufficient

 

We also wanted to remind everyone of the effective tools that are most likely already at your disposal and can assist in detecting kiting if utilized regularly.

 

These tools include:

• Kiting suspect report/Drawing on uncollected funds report
  
  
• Ensuring collected balances are reviewed when paying checks/releasing funds
  
  
• Reviewing a Large transactions report for suspicious trends
  
  
• Training frontline staff on how to identify kiting situations

 

The most effective way to combat a suspected kiting situation is to close the customer’s account. Other effective tools include placing maximum Regulation CC holds on incoming deposits. Any suspected fraudulent item may be sent for collection and credit can be delayed until the funds are received from the other bank.

 

Remember that a kiting operation requires a Suspicious Activity Report to be filed 1) for insider abuse involving any amount; 2) violations aggregating $5,000 or more where a suspect can be identified; and 3) violations aggregating $25,000 or more regardless of a potential suspect.

 

 

FinCEN Form 104

 

FinCEN has published an updated CTR form with “March 2011” in the top left corner.

 

The following is from the FinCEN website:

 

As part of the transfer of the BSA regulations from 31 CFR Part 103 to 31 CFR Chapter X, FinCEN has updated the regulatory citations found in its forms to 31 CFR Chapter X. The new date of March 2011 found on the form solely indicates that the form has been updated to reflect the appropriate 31 CFR Chapter X citations. There have been no substantive regulatory changes to the forms or the data elements requested through them as a result of this update of the regulatory citations.

 

We recommend that you begin using the updated form, as soon as possible. We also recommend that you update any policies or procedures that have the “old” regulatory citation, 31 CFR Part 103. It should be changed to 31 CFR Chapter X.

 

 

FIL-18-2011 (click to go to FDIC's Page)

 

 

This applies to FDIC regulated banks only.

 

Last week the FDIC issued FIL-18-2011. It is to inform you of a new address for the FDIC’s Consumer Response Center (CDC).

 

This is important because this address is printed on your bank’s Adverse Action forms and Fair Housing Posters. Your Compliance Officer should update the forms and replace the poster as soon as practicable.

 

 

Safe Act Update

 

The NMLS (Nationwide Mortgage Licensing System and Agency is now open and accepting registrations. You have until July 29th to register your bank’s Mortgage Loan Originators (MLOs).

You should already have a policy and procedures in place which were due November 1, 2010.  There are samples of procedures, policies, checklist, etc. on the Tools page of Bankersonline.com. These should be helpful, if you haven’t yet developed your policies and procedures.  MAi also has a sample policy.

 

There is an NMLS resource center on the Internet at http://mortgage.nationwidelicensingsystem.org that you can use if you need more information. This is also the website where you will perform the input for the register.

 

Remember, the bank must register first.  Administrators should be designated. You should have already designated the persons covered by the definition of MLOs.

 

Once you know who is covered and who your administrator is, you are ready to start. Have your background checks done and review them following guidelines established by your bank for evaluating information.

You also need to get fingerprints of your MLOs.

You will have to decide how and where to post your list of MLOs and their unique identifiers (MLO number). You have options; you can post the list on your website or in the bank lobby. Employees need to be trained to provide this number on request. The number should also be printed on the originator’s initial communication with a consumer. Examples in the regulation are the commitment letter, Good Faith Estimate or Early Truth in Lending disclosure. Fannie Mae and Freddie Mac require the number on the loan application.

Information must be updated as changes occur and once each year. Registrations must be renewed annually during the annual renewal period, November 1 through December 31.