Topic: Equal Credit Opportunity Act (ECOA)
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We have an elderly deposit customer who we believe is gambling away most of their money, and we do not believe the gambling is the result of financial exploitation by a third party. We are worried that the customer may apply for a loan that they would be unable to repay because of their gambling. Can we report their gambling to a family member, or would this violate our customer’s financial privacy? Also, would we have a legitimate reason to deny their loan? On paper, this customer would qualify for a loan since their house is paid off and they have repaid their previous loans.
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No, we do not believe you may report your customer’s gambling to a family member, as this would violate Illinois and federal financial privacy protections. The Illinois Banking Act and Regulation P prohibit the disclosure of a customer’s financial records or financial information to a third party, unless an exception applies. Although there are exceptions…
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Could it be considered discriminatory to refuse accounts for nonresident aliens because they do not have a social security number (SSN) or individual tax identification number (ITIN)? Are you aware of any sample forms or guidance related to conducting enhanced due diligence on nonresident aliens?
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Opening accounts for nonresident aliens is a business decision dependent on the amount of risk that your institution is willing to accept. FinCEN’s Customer Identification Program (CIP) requirements for non-U.S. persons include the collection of (among other things) either a customer’s “taxpayer identification number; passport number and country of issuance; alien identification card number; or…
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We want to partner with builders, sellers, and realtors to facilitate buydown subsidies that would temporarily decrease interest rates for our purchase mortgage loan borrowers. How should we disclose a buydown subsidy on the Loan Estimate (LE) and Closing Disclosure (CD)? We do not believe we need to include it on the LE, but it appears that we need to include it as a seller paid fee under Section H of the CD. Also, should we be concerned about potential fair lending violations since the subsidy is coming from a third party who may not offer it consistently to every borrower? Do you have any insight into how regulators view this type of product and what their expectations are?
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We believe a buydown subsidy should be disclosed as a “Seller Credit” in the “Summaries of Transactions” table on the CD. Also, we recommend conducting due diligence on any builders, sellers, and realtors before partnering with them to ensure that they will not be violating fair lending laws when offering the incentive. Regulation Z’s Official…
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When calculating our liabilities outstanding to one person for purposes of compliance with the Illinois Banking Act’s 25% lending limit, can we include loans to a borrower that may be subject to an exception, just to ensure we are still under the lending limit in the event that we later find out that the exception does not actually apply? Also, is there an exception that applies based on the type of collateral covering the loan?
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We do not foresee any problems that would arise from including loans in your lending limit calculations that could potentially be excluded under the Illinois Banking Act. In general, the Illinois Banking Act prohibits a state bank’s outstanding liabilities to any one person from exceeding 25% of the bank’s unimpaired capital and unimpaired surplus. However,…
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We require owners, partners, directors, and officers of an entity to guarantee loans made to the entity. If a borrowing entity (Company A) is owned by another entity (Company B), are we violating the Equal Credit Opportunity Act (ECOA) if we require the owner, partners, directors, or officers of Company B to guarantee Company A’s loan without obtaining a joint intent form? Also, if a borrowing entity is owned by an individual’s trust, can we require the trustee to guarantee the loan without obtaining a joint intent form?
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We recommend obtaining a joint intent form when requiring personal guarantees from individuals who serve as owners, partners, directors, or officers of a business that is not the loan applicant — unless such guarantees are necessary for the applicant to qualify for the loan. We believe that you may require a trustee’s guarantee as representative…
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Are there any age restrictions on issuing debit cards to minors? We have received a request to open two separate joint accounts with debit cards for minors aged ten and twelve, for which their parent would be a joint owner. Currently, we offer student checking accounts for individuals aged fifteen to twenty-one, and for those under eighteen, we require a parent or guardian to be a joint owner on the account. If we grant an exception to our usual policy and open these accounts, what legal issues should we be concerned about? Would the parent assume liability for overdrafts, and are there any concerns about unauthorized activity if the minor allows a friend to use the debit card and the parent claims the use was unauthorized?
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We are not aware of any age restrictions on issuing debit cards in Illinois or federal law, but we recommend contacting your debit card issuer and reviewing any agreements for age limitations. Additionally, we caution you against making individual exceptions to your policies and procedures. If you decide to open these accounts, you may wish…
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If a husband pledges all of his untitled farm equipment as loan collateral under a blanket financing statement, and he is the sole borrower and sole grantor, should we require his wife to grant the equipment to us as collateral as well? We already know that we cannot make her liable, but how do we prove ownership of the machinery and who should be granting it since it is untitled? We are worried about a situation in which the wife claims an interest in the equipment if the couple ever gets divorced.
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Yes, we believe that you should have both spouses sign the security agreement for the collateral, given the possibility that the wife may have some type of ownership in the untitled farm equipment — whether before or after a potential divorce. Under the Illinois Uniform Commercial Code (UCC), a security interest generally attaches to collateral…
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Are we required to retain undeliverable mail that has been returned by the post office? If so, what kind of mail should we be retaining and for how long? We have read that if we can reproduce the mailing (such as an account statement) on request, then we can shred it immediately.
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. We are unaware of any recordkeeping requirements specifically for mail that has been sent to…
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Is it a violation of UDAAP for a financial institution to not offer interest bearing deposit products to a non-resident alien?
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While are not aware of any federal or Illinois laws that would expressly prohibit a policy to not open deposit accounts based on the non-resident alien status of a person (provided the denial is based specifically on citizenship or residency status and not on national origin), some courts or regulators still could consider such a…
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When is a bank considered a federal contractor according to the Equal Employment Opportunity Commission’s (EEOC) requirement for filing EEO-1 employer information reports? We have a federal charter, are insured by the FDIC, and have less than 100 but more than 50 employees. Does that make us a federal contractor that needs to file an EEO-1?
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Your bank is required to comply with the EEOC’s EEO-1 reporting requirements if you serve as a depository of U.S. government funds in any amount, serve as an issuing and paying agent for U.S. savings bonds and savings notes, or have a contract with the government or purchase order amounting to $50,000 or more. Under…