Topic: Examinations
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Under the Savings Bank Act, the Illinois Department of Financial and Professional Regulation (IDFPR) may require a savings bank to be audited if it has not already been audited at least once in the past year. If we undergo an annual director’s audit — which involves an examination of every account on our general ledger but is less extensive that an opinion audit — will this prevent the IDFPR from potentially requiring us to be audited?
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We believe that an annual director’s audit of every account on your general ledger likely would satisfy the Saving Bank Act’s criteria for avoiding the possibility of being required to undergo an independent audit. The Savings Bank Act does not specify whether a director’s or opinion (or other) audit is required for a savings bank…
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During our last CRA exam, we had several loans recognized as community development (CD) loans. Since our last exam, we have modified several lines of credit that qualified as CD loans with change in terms agreements that extended the maturity dates for several months or a year. Will these modified lines of credit be considered new CD loans?
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We believe that the modifications to the lines of credit may be counted as new CD loan originations, provided they are not counted more than once per year. The Interagency Q&As Regarding Community Reinvestment state that institutions should collect and report data about CD loans that they refinance or renew as loan originations. The Q&As…
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Will banks subject to the Illinois Community Reinvestment Act (CRA) that are already going through an FDIC CRA exam every five years have to go through another Illinois CRA exam during the same period? Or will Illinois and the FDIC alternate CRA exams, like they currently do for safety and soundness exams?
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Your questions are not addressed in the text of the Illinois CRA law, which does not provide any details on the timing of Illinois CRA exams. Instead, the Illinois CRA examination process and many other details are left to an eventual rulemaking by the Illinois Department of Financial and Professional Regulation (IDFPR), under its broad…
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Regarding the recently signed economic equity legislation, are banks exempt from the Predatory Loan Prevention Act? Also, must we immediately begin posting the public notices required under the new Illinois CRA, and will we be examined on the Illinois CRA each time we have a state exam? Currently, the FDIC examines us for the federal CRA every other examination. Will the IBA be offering any training on this new legislation?
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Predatory Loan Prevention Act State and national banks and savings banks are exempt from the provisions of the Predatory Loan Prevention Act, which caps the annual percentage rate (APR) on consumer loans at 36%. However, the law does apply to loans made by a covered lender and purchased by a bank, such as an indirect…
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We are a national bank, and we recently moved our wealth and farm management groups into a separate, state-chartered trust company that will be regulated by the IDFPR and the Federal Reserve. Which compliance regulations apply to a trust company? Do the following apply? BSA, OFAC, AML, CIP, USA Patriot Act, FACT Act, Elder Financial Abuse, UDAAP, and GLBA.
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Trust companies are subject to all the laws mentioned in your question. Broadly speaking, there are no exemptions for trust companies in the laws and regulations that generally apply to banks, bank holding companies, and their subsidiaries. Also, you mention in your question that the trust company will be regulated by the IDFPR and the…
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We produce a report for our board under Part 365 to show which of our loans exceed the supervisory loan-to-value ratio limits, which we call the Loan Value Risk Report. We currently calculate these ratios based on the original purchase price for a property. In many cases, the purchaser constructs improvements on the property (though we don’t call these construction loans), after which we obtain a new appraisal at a higher value. For purposes of calculating the supervisory loan-to-value ratios in these cases, can we use the higher appraised property values after the improvements are completed?
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We believe you may calculate the supervisory loan-to-value ratio using the appraised value of the improved property, provided that your bank obtained an updated appraisal after the improvements were completed. The Interagency Guidelines outlining the calculation and reporting of loan-to-value ratios provide that loans should be removed from your Section 365 board reports when the…
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We obtain our credit reports through a vendor, not directly from the credit bureaus. The vendor provides merged credit reports for married co-applicants, but not for unmarried co-applicants (for unmarried co-applicants it requires us to obtain two individual credit reports). We currently charge loan applicants the exact credit report fees that the vendor charges us. The vendor’s charge for an individual report is slightly more than half the cost of a merged report; in other words, married co-applicants receive a slight pricing advantage over unmarried co-applicants. Does this create a fair lending issue?
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Yes, we believe that a pricing disparity between a merged credit report for two married co-applicants (commonly misnomered as a “joint credit report”) and two individual credit reports for unmarried co-applicants would pose a fair lending issue, since the cost of the less expensive merged credit report is made available on the basis of the…
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Are banks required to notify their primary regulators when they change core accounting and processing systems? What types of vendor changes trigger this notification requirement? Who is responsible for completing this notification?
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Yes, the Bank Service Company Act requires banks to notify their primary federal regulators when contracting with a new provider for core accounting and processing services. The Bank Service Company Act requires depository institutions to notify their primary regulator when they contract with a vendor for the following types of bank services: “check and deposit…
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We received an application for a 30-year mortgage from an applicant who is 90 years old. If we had to foreclose after the borrower’s death, the collateral’s value would cover the loan amount and the foreclosure costs. A compliance examiner told us that because the applicant has passed the national life expectancy, we should counteroffer with modified loan terms, even though the loan is adequately secured.
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We believe that the compliance examiner is mistaken; denying a loan application or offering less favorable terms based on an applicant’s age likely would violate Regulation B. The general rule under Regulation B is that a creditor may not treat one applicant less favorably than other applicants on the basis of age. There is an…
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We had a technical issue that caused a failure to send notices of the initial interest rate adjustments for some of our adjustable rate mortgage (ARM) loans. The increased interest rate will correspond with an increased payment. We are now sending the notices, but they will not be timely. What is the best way to rectify this situation? Should we delay changing the customers’ rates and payment amounts?
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Yes, we recommend delaying the rate and payment adjustments until after you have provided customers with the notice required by Regulation Z. Regulation Z requires that ARM borrowers receive advance notice of rate changes, and the notice of an initial rate adjustment must be provided to customers at least 210 days (and no more than…