It's that time again! I'm going to share a bit of Southern Louisiana culture by providing lagniappe, or a "little something extra" to all of our faithful readers. I have included a few questions that our team has answered over the last few months of 2019. You are in for a treat this week because some of the questions relate to the new Private Flood Insurance policy and Regulation E Prepaid account topics.
Question: We have hired a new executive officer (EO) who has an existing loan for business purposes of $250,000. The loan is secured by equipment and accounts receivable. Is the new EO required to pay down the debt to avoid violating Reg O?
Answer: Loans made to a person prior to the time the person was an insider are not under the Regulation O restrictions, but those Reg O restrictions do limit any additional lending that the institution may extend to the person after the person becomes an EO. If the loan with your institution is outstanding before the individual becomes an executive officer, the EO does not need to pay down the loan to avoid violating Reg O. However, you would not be able to make any additional loans to the new EO in the "other loan" category as long as the outstanding balance is $100,000 or greater. Also if the EO requests to refinance the loan, your institution would only be able to refinance up to $100,000 of that loan as long as there was not additional debt in the "other loan" category.
Private Flood Insurance Policies - Effective July 1, 2019
Question: Can a lender refuse to accept a policy that does not have the compliance aid?
Answer: No. A lender cannot refuse to accept a private flood insurance policy solely because it lacks the compliance aid. If a lender is presented with a private flood insurance policy that does not have the compliance aid, the lender must perform an analysis to determine if the policy qualifies as "private flood insurance" as defined by the new flood rule effective July 1. If the policy satisfies each of the required elements, then acceptance is mandatory. However, if during that analysis the lender determines the policy is lacking one or more of the required elements, then the lender may refuse to accept the policy.
Question: Can a lender have a policy of only accepting private flood insurance policies that meet the definition of "private flood insurance" and not those under the discretionary acceptance provisions? If so, is fair lending still a concern?
Answer: Absolutely. The discretionary acceptance provisions are simply that - discretionary. A lender can have a policy of only accepting policies that meet the definition of "private flood insurance." Refusing to accept any other policies outside of that statutory definition is a perfectly acceptable practice. This will not be a fair lending concern unless a lender starts picking and choosing when to accept discretionary policies outside of the conditions required for the optional acceptance.
Question: If the lender is doing business in a state where state laws prevent a private policy from meeting the statutory definition of private flood insurance, is it possible that lender can refuse to accept any form of private flood insurance policy?
Answer: Yes, this is possible. If state laws prevent a policy from meeting the statutory definition and the lender has a policy of refusing to accept discretionary policies, then the lender, in effect, could have a policy of not accepting private flood insurance policies. Again, these lenders need to make sure they are not picking and choosing when to accept discretionary policies outside of the conditions required for optional acceptance in order to avoid any fair lending issues.
FDIC Part 350
Question: Are FDIC regulated institutions required to post the lobby notice regarding the annual disclosure statement?
Answer: The FDIC recently repealed Part 350. Part of that rescinded the requirement to post a lobby notice. So you are no longer required to post a notice.
Regulation E - Prepaid Rule
Question: We allow P2P transfers from checking accounts; does this make these accounts prepaid accounts?
Answer:The Prepaid Rule has no bearing on customer accounts already covered under Reg. E. P2P transfers are treated just like any other EFT to or from a consumer's deposit account. Because the definition of a prepaid account expressly excludes checking and savings accounts, the fact that a consumer may conduct P2P transfers does not make this a prepaid account.
I hope you enjoyed this week's Lagniappe article. Thank you for joining us!