Legal Ease is the weekly Q&A from the IBAT Bottom Line. Go to the Legal Ease Archive.
Latest Additions to Legal Ease:
We have been auditing our flood procedures. Our practice is to send out the flood notice along with disclosures and a form that the customer signs and returns, acknowledging receipt of the flood notice disclosure. What we have discovered is a number of flood notices that are unsigned. Is not having a signed copy of the flood notice disclosure a problem?
Under the Notice to Customer provisions of the Flood Disaster Protection Act (12 CFR §208.25(i); 12 CFR §22.9; 12 CFR §339.3; or 12 CFR §172.9) a lender must retain a record that the borrower received the notice. Retaining a record would not necessarily mean having a signed acknowledgment - but that is probably the best way to demonstrate receipt by the borrower.
From the Mandatory Purchase Guidelines (technically rescinded), page 35:
Lenders must retain a record or evidence of the borrower’s receipt of the notice throughout the period the lender owns the loan. This record can be the borrower’s statement or initials that the notice was received directly, or the U.S. Postal Service return receipt in either hard copy or electronic format. The lender need not retain a hard copy version of the notice to the borrower and loan servicer.
From the OCC Flood Disaster Protection Comptroller's Handbook (May 1999) -
Record Keeping Requirements
The record keeping requirements include retention of:
- Copies of completed SFHD forms, in either hard copy or electronic form, for as long as the bank owns the loan; and
- Records of receipt of notices to the borrower and the servicer for as long as the bank owns the loan.
Although there is no particular form, the record of receipt should contain a statement from the borrower indicating that the borrower has received the notification. Examples of records of receipt may include a borrower's signed acknowledgment on a copy of the notice, a borrower-initialed list of documents and disclosures that the lender provided the borrower, or a scanned electronic image of a receipt or other document signed by the borrower.
A lender may keep the record of receipt provided by the borrower and the servicer in the form that best suits the bank’s business practices. Lenders who retain these records electronically must be able to retrieve them within a reasonable time.
A local law enforcement agency is asking for information about one of our customers and checks that may have cleared their account. Can we provide that information without a subpoena? Would it make a difference if it was an out of state law enforcement agency?
While it is reasonable to want to assist law enforcement agencies in a criminal investigation, without either the customer's specific written consent to the release of the information or a subpoena, the information should not be released. If there is a legitimate criminal investigation it should not be difficult to obtain a subpoena. If the request is from an out of state law enforcement agency, they should provide you a subpoena as well - but by going through a Texas court. As a general rule, subpoenas issued by courts outside of Texas suffer from jurisdictional issues. The exception to that would be grand jury subpoenas issued from outside the state which could be complied with without those same jurisdictional issues.
If the request is in connection with a SAR that your bank filed, there is a safe harbor for the SAR itself and for "...all supporting documentation related to the filed SAR...". However only documentation or information directly related to the SAR could be released without a subpoena.
We have individual TUTMA accounts for three minor children with the mother being the custodian on each account. The mother came in and withdrew $6,000.00 from each of the accounts receiving a total of $18,000.00 in cash. In doing the CTR, I assume that we would do it on all four people – the minors and the mother who took the money. Since we do not know the circumstances of what the money is going to be used for, does the mother benefit from the transaction or was she just the person who took the money out and the children are the only three who benefit?
Since the mother has control of the accounts in her role as the custodian you would have to assume she is making the withdrawals for the benefit of the minor children. Under what is known as the "essential benefit" rule, unless you had knowledge to the contrary that the transactions were being conducted to benefit the minor children, you would not be required nor prohibited from listing the custodian in a second Part 1 on the CTR. The proper way would be to list each child in Part I - Section A Person(s) on Whose Behalf Transaction(s) Is Conducted, and to list the mother in her role as the custodian in Part I - Section B Individual(s) Conducting Transaction(s) checking the box for multiple transactions but not checking the box for conducted on own behalf. In Part II - Amount and Type of Transaction(s) each of the three accounts would be listed. If there is information to the contrary, still file the CTR noting the custodian as the person "conducted on own behalf" and then, also a SAR if applicable.
When filling out the signature card, is it required for the bank to put the individual’s legal name on the signature card or can it be tailored to the customer’s liking? I thought it had to be a certain way for FDIC insurance coverage, but I can’t seem to put my hands on where I read that. For example, Sally Jane Smith walks in and that is her legal name. Should we put Sally Jane Smith or can we put Sally J. Smith or S.J. Smith if she prefers to go by S.J.?
If you allow accounts to be opened in anything other than the full name of the depositor, you might get multiple deposit and credit accounts opened by the same person in more than one name. Without going into detail, this could cause issues with garnishments, levies, subpoenas, setoff, FDIC insurance, etc…. For consistency throughout the bank, it would be a best practice to use the name on the drivers license. A "best practice" is using the drivers license for two reason. First, the full name on the drivers license is required for UCC filings. See UCC §9.503(a)(4). Secondly, most people do not carry (and should not carry) their Social Security cards. If the depositor doesn’t have a drivers license, they can easily get a state ID. There are certainly times when you’ll need to make exceptions, but that goes beyond the scope of this question and answer. Be sure that your board approved CIP and procedures are consistent with your practice.
And for the person who doesn’t want their full name on their account, you can certainly print checks in their preferred name and, if possible, have mail sent to their preferred name.
Follow-Up Question: But what happens when the IRS uses the social security names to match the 1099s? If they don’t match, the bank gets hit financially. Kind of a tough situation I guess.
Answer: The bank will receive a "B" notice (Notice of Incorrect Taxpayer Identification Number) from the IRS. For the small number of potential mismatches that you will receive, you will need to contact the accountholder and have them either correct the name or TIN and certify that the amended version is correct or must certify, under penalty of perjury, that the original furnished information was correct.