We are an out-of-state bank that purchased an Illinois bank, which will merge into our bank. Do we need to send mortgage transfer notices as required by the Illinois Banking Act to mortgage customers from the Illinois bank if the only thing that will be changing for them is the name of the institution they will be corresponding with? We will continue receiving and processing mortgage payments at the same location and phone number. Or does Illinois law not apply since we are an out-of-state bank?

We believe that your bank is required to send transfer notices for residential mortgage financing transactions under the Illinois Banking Act, in addition to potentially sending notices under Regulation X and Regulation Z, as well as Regulation P.

Under the Illinois Banking Act, any bank making residential mortgage financing transactions is required to send written notice within 45 days of the transfer of servicing of a residential mortgage. “Bank” means “any person doing a banking business whether subject to the laws of this or any other jurisdiction.” Consequently, if your bank was a separate legal entity from the Illinois bank before its purchase, we believe that the mortgagee would be considered changed and sending notice is required.

Under federal law, Regulation X requires “each transferor servicer and transferee servicer of any mortgage loan” to “provide to the borrower a notice of transfer for any assignment, sale, or transfer of the servicing of the mortgage loan.” While there is an exception for transfers that result from mergers or acquisitions, that exception does not apply if there is a change in payee. It appears that the payee will change for the former Illinois bank’s customers due to your purchase and merger with the Illinois bank (which no longer exists). As a result, we do not believe the exception would apply, and you would be required to send transfer notices under Regulation X.

Regulation Z also requires those who acquire mortgage loans to send disclosures when they become “the owner of an existing mortgage loan by acquiring legal title to the debt obligation, whether through a purchase, assignment or other transfer.” This notice is required for transfers to another legal entity resulting from a “merger, corporate acquisition, or reorganization.” The Regulation Z disclosure may be combined with the Regulation X notice, provided that the notice meets both regulations’ timing and other requirements.

Note that a combined notice under Regulation X and Regulation Z may also satisfy the Illinois Banking Act’s transfer notice requirements. The Illinois Banking Act’s requirements for the servicing transfer notice include (1) “the name and address of the transferee,” (2) “the name, address and telephone number to which inquiries by the residential mortgagor should be addressed,” and (3) “the name and address to which the next 3 monthly installments are to be submitted to the transferee and the amount of each of such monthly installment.” While a combined notice under Regulation X and Regulation Z likely would include the first two items of information, you likely would have to add the third item of information to the federal notice — the amount and receiving name and address for the next three monthly installments.

We also note that Regulation P requires banks to send privacy notices when a new customer relationship is established, including when a bank acquires the servicing rights to a consumer-purpose loan.

For resources related to our guidance, please see:

Illinois Banking Act, 205 ILCS 5/48.2(e) (“Any bank, affiliate or subsidiary of such bank which shall engage in making residential mortgage financing transactions, shall with respect to each such transaction, provide the following: . . . (2) if the servicing of a residential mortgage shall be transferred from the original mortgagee, within 45 days of such transfer, written notice sent by certified mail, return receipt requested, to the mortgagor at the address of the property . . . which notice shall set forth: the name and address of the transferee; the name, address and telephone number to which inquiries by the residential mortgagor should be addressed; and the name and address to which the next 3 monthly installments are to be submitted to the transferee and the amount of each of such monthly installment. . . .”)

Illinois Banking Act, 205 ILCS 5/2 (“‘Bank’ means any person doing a banking business whether subject to the laws of this or any other jurisdiction.”)

Regulation X, 12 CFR 1024.33(b)(1) (“Except as provided in paragraph (b)(2) of this section, each transferor servicer and transferee servicer of any mortgage loan shall provide to the borrower a notice of transfer for any assignment, sale, or transfer of the servicing of the mortgage loan. The notice must contain the information described in paragraph (b)(4) of this section. Appendix MS-2 of this part contains a model form for the disclosures required under this paragraph (b).”)

Regulation X, 12 CFR 1024.33(b)(2) (“(i) The following transfers are not assignments, sales, or transfers of mortgage loan servicing for purposes of this section if there is no change in the payee, address to which payment must be delivered, account number, or amount of payment due:

(A) A transfer between affiliates;

(B) A transfer that results from mergers or acquisitions of servicers or subservicers;

(C) A transfer that occurs between master servicers without changing the subservicer;

(ii) The Federal Housing Administration (FHA) is not required to provide to the borrower a notice of transfer where a mortgage insured under the National Housing Act is assigned to the FHA.”)

Regulation X, 12 CFR 1024.33(b)(3)(i) (“Except as provided in paragraphs (b)(3)(ii) and (iii) of this section, the transferor servicer shall provide the notice of transfer to the borrower not less than 15 days before the effective date of the transfer of the servicing of the mortgage loan. The transferee servicer shall provide the notice of transfer to the borrower not more than 15 days after the effective date of the transfer. The transferor and transferee servicers may provide a single notice, in which case the notice shall be provided not less than 15 days before the effective date of the transfer of the servicing of the mortgage loan. . . .”)

Regulation Z, 12 CFR 1026.39(a)(1) (“A ‘covered person’ means any person, as defined in § 1026.2(a)(22), that becomes the owner of an existing mortgage loan by acquiring legal title to the debt obligation, whether through a purchase, assignment or other transfer, and who acquires more than one mortgage loan in any twelve-month period. For purposes of this section, a servicer of a mortgage loan shall not be treated as the owner of the obligation if the servicer holds title to the loan, or title is assigned to the servicer, solely for the administrative convenience of the servicer in servicing the obligation.”)

Regulation Z, Official Interpretations, Paragraph 39(a)(1), Comment 4 (“Disclosures are required under this section when, as a result of a merger, corporate acquisition, or reorganization, the ownership of a mortgage loan is transferred to a different legal entity.”)

Regulation Z, 12 CFR 1026.39(b) (“Except as provided in paragraph (c) of this section, each covered person is subject to the requirements of this section and shall mail or deliver the disclosures required by this section to the consumer on or before the 30th calendar day following the date of transfer.”)

Regulation Z, Official Interpretations, Paragraph 39(b)(1), Comment 1 (“The disclosures under this section can be combined with other materials or disclosures, including the transfer of servicing notices required by the Real Estate Settlement Procedure Act (12 U.S.C. 2601 et seq.) so long as the combined disclosure satisfies the timing and other requirements of this section.”)

Regulation P, 12 CFR 1016.4(a) (“You must provide a clear and conspicuous notice that accurately reflects your privacy policies and practices to: (1) Customer. An individual who becomes your customer, not later than when you establish a customer relationship, except as provided in paragraph (e) of this section. . . .”)

Regulation P, 12 CFR 1016.4(c)(2) (“You establish a customer relationship with a consumer when you originate or acquire the servicing rights to a loan to the consumer for personal, family, or household purposes. If you subsequently transfer the servicing rights to that loan to another financial institution, the customer relationship transfers with the servicing rights.”)

Regulation P, 12 CFR 1016.4(e)(1) (“You may provide the initial notice required by paragraph (a)(1) of this section within a reasonable time after you establish a customer relationship if: (i) Establishing the customer relationship is not at the customer’s election. . . .”)

Regulation P, 12 CFR 1016.4(e)(2)(i)(A) (“In the case of financial institutions other than credit unions and financial institutions described in § 1016.3(l)(3), establishing a customer relationship is not at the customer’s election if you acquire a customer’s deposit liability or the servicing rights to a customer’s loan from another financial institution and the customer does not have a choice about your acquisition. . . .”)