Topic: Third Party Risk
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Are we required to file a 1099-MISC for a payment our bank makes to an attorney representing the borrower at a loan closing? We typically would file a 1099-MISC in such situations, be we recently were advised that we should not do so. The attorney’s fees were paid by the settlement agent out of the loan proceeds and listed as a borrower-paid cost on the Closing Disclosure.
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No, we do not believe your bank would be responsible for filing a 1099-MISC form as the payor for a payment made to an attorney who provides settlement services for a loan closing. When your bank makes a payment of $600 or more to a non-employee on behalf of someone else (such as a borrower),…
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We extended a consumer mortgage loan to two individuals, who own the property securing the mortgage loan. Their homeowner’s insurance lists the insured as two different individuals with the borrowers listed as additionally insured. Can we prohibit other parties from being named as insured or additionally insured?
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Yes, a bank may dictate reasonable insurance requirements for loan collateral, including the prohibition or limitation of additional insureds on hazard insurance policies securing the loan collateral. Requirements for homeowner’s insurance (or “hazard insurance”) likely would be spelled out in your loan agreement or the mortgage instrument. For example, Fannie Mae’s standard security instrument for…
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We understand that a bank collecting its own debts would not be considered a “debt collector” under the Fair Debt Collection Practices Act (FDCPA), but what about third parties that collect debts for our bank, such as collection agencies or tow companies that repossess vehicles? Also, does a bank have any due diligence obligations under the FDCPA? Our contract with one of our collection agencies indicates that they must comply with all federal, state, and local laws and regulations. Is this sufficient under the FDCPA?
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Yes, third party collection agencies and tow companies that you contract with to collect consumer debts and repossess automobiles for your bank would be considered “debt collectors” under the FDCPA. Additionally, we believe that you should conduct due diligence on all third-party debt collectors to manage associated risks. Such due diligence should go beyond requiring…
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We ordinarily use three title companies for our consumer and commercial real estate loans, but we also regularly use other title companies we have never reviewed before. We enter into written “proposals” with these title companies, which are basic agreements reviewing products and pricing. What is the recommended due diligence we should conduct before using these title companies for any kind of title services or loan closings for the bank?
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We believe that the appropriate level of due diligence depends on the services these title companies are providing to your bank. For example, a title company providing lender’s title insurance or escrow services to your bank may present a higher degree of risk (and consequently require a more extensive review) than a title company that…
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We are considering posting our consumer loan application on our website for customers to access and fill out. We order our consumer applications through a vendor. Would there be any copyright concerns with the vendor if we post the application on our website?
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We recommend reviewing the terms of your agreement with the vendor to determine whether the application may be posted on your website. If the agreement is silent on this point, you may wish to request the vendor’s permission to post the application on your website and to memorialize such permission in writing, if it is…
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We are using a third party product to perform background and enhanced due diligence searches of higher-risk customers, including a search of local voter databases. We are not sure if we have a permissible purpose under Illinois law for accessing voter databases. In Missouri, we believe we can search voter databases for “use in connection with a permissible commercial purpose.” Does Illinois allow financial institutions to search voter databases for BSA purposes?
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No, the Illinois Election Code generally prohibits “the disclosure of electronic voter registration records to any person or entity other than to a State or local political committee and other than to a governmental entity for a governmental purpose.” Although individuals may be permitted to view the statewide voter registration list on a computer screen…
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We would like to use a third-party vendor to print and mail postcards to our internet customers. Is it permissible to send the vendor a list of our customers’ names and addresses? What due diligence is required? In the alternative, should we only use the vendor to print the postcards and address and mail them ourselves?
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Yes, it is permissible to share a list of customer names and addresses with a third-party vendor for purposes of printing postcards if certain requirements are met. Customer names and addresses may be shared with a third party if you provide your customers with an initial notice that accurately reflects your privacy policies and procedures,…
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We hired a third-party collection company to collect our charged off checking accounts, including unpaid overdrafts and fees. If a collection company enters into a repayment plan with the customer that has more than four installments, are we required to provide Truth in Lending Act disclosures? We do not receive payments directly from the customer. Under our agreement with the collection company, we receive a percentage of the amounts recovered.
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Yes, we believe you are required to provide Truth in Lending Act (TILA) disclosures when customers enter into written repayment plans of more than four installments with your debt collector. As noted in the Joint Guidance on Overdraft Protection Programs, Regulation Z requires your bank to provide TILA disclosures when offering customers an overdraft repayment…
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We have a business customer that acts as a payment processor for other companies. They create remotely created checks and deposit them with our bank via remote deposit capture at their place of business. Recently, the number of returned items has increased massively, and we wish to terminate the relationship. We would like to determine the best time to terminate the relationship. What are the timeframes in which we would be liable as the depositing bank for returns through cash letters, adjustments with entry, and incoming collection claims without entry?
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In our view, your bank could be liable for unauthorized remotely-created checks (RCCs) for at least one year from the date of the account closing (or freezing). If your bank terminated or froze the customer’s account today, paying banks would have one year from today to bring claims for violations of the RCC warranties in…
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When a consumer loan applicant is unable to locate their most recent tax return, we require the applicant to request a tax transcript from the IRS, using Form 4506-T. Our bank fills out the form, the applicant signs it, and our bank uses a third-party vendor to submit the form to the IRS. The IRS sends the transcript to the vendor, who then sends the transcript to our bank. Typically, we do not identify which type of tax transcript that we are requesting, as required in items 6 through 9 of the form. However, an applicant recently pointed out that Form 4506-T states, “Do not sign this form unless all applicable lines have been completed.” Should we fill in lines 6 through 9 before the applicant signs it?
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Yes, in our view, lines 6 through 9 — where the applicant identifies the type of tax transcript requested — should be filled out, both to ensure that your bank receives the correct information and to reassure the loan applicant that only limited information is being requested. In fact, the form itself urges the signer…