Bank policies, procedures assist in determining the risk associated with minors

By Scott Birrenkott

Q: Can Banks Contract with Minors

A: Yes, depending on policies and procedures.

WBA frequently receives questions regarding the ability of minors to enter into a contract. No rule or regulation prohibits a bank from contracting with a minor. However, a minor can escape liability under the contract. Meaning, a minor could avoid liability from a bank seeking to hold a minor accountable for terms under the contract. Thus, banks are free to enter into contracts with minors, but must decide so as a matter of risk.

The ability of a minor to escape liability or void a contract is often referred to as the doctrine of incapacity. This is a common law term, meaning, generally, a concept under the law that is derived from judicial precedent rather than statute. As such, there is no specific rule governing contracting with a minor. It also means that there is no specific point at which a minor is deemed “competent.” If a minor attempts to escape liability under contract, it would be up to the bank to attempt to enforce the contract against the minor, and up to a court to decide.

It is important to understand the theory behind the doctrine of incapacity. Generally speaking, the theory is that a minor has not developed enough to understand the significance of contracting and thus may potentially escape liability. Because it is not readily defined, a court could find that someone who has attained the age of 18, or older, still hasn’t matured enough to understand that significance and might be permitted to void the contract.

When it comes to minor accounts, WBA generally recommends that banks consider the use of a WUTMA account. A WUTMA account is created under Wisconsin’s Uniform Transfers to Minors Act, which provides certain requirements, procedures, and responsibilities. Thus, it creates a means for a bank to open an account with an understanding of what rules apply to the relationship between the minor, the adult custodian, and the bank. While WUTMA provides for this certainty, banks should be careful before opening custodial accounts that are not governed by WUTMA, as it would leave questions as to how the account would be handled.

As a result, banks must decide, as a matter of business and policy, whether they are willing to contract with minors. This includes both deposit and loan account relationships. For the above reasons, financial institutions should consult with their policies and procedures regarding contracting with minors.

For any questions on this, or other matters, you may reach WBA legal at wbalegal@wisbank.com or 608-441-1200.

The September 2022 WBA Compliance Journal is now available. In this edition, WBA Legal covers Part 1 of a two-part series regarding contracting with minors. In this first part, readers will find a series of Q&As regarding WUTMA accounts and a new reference chart. The publication also includes a summary of recently published agency rules and notices and other important compliance-related updates for bankers.    

Banks need be aware of a recent Freedom of Information Act (FOIA) request of the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) for all Type 2 Consolidated Employer Information Reports, Standard Form 100 (EEO-1), filed by federal contractors from 2016-2020. OFCCP announced the request in the August 19, 2022, edition of the Federal Register. The FOIA request was made by Will Evans of the Center for Investigative Reporting (CIR). It is expected Evans seeks the information for further reporting about the racial, ethnic, and gender composition of federal contractors’ employees.

As stated in the Federal Register notice, OFCCP has reason to believe that the information requested may be protected from disclosure under FOIA Exemption 4, which protects disclosure of confidential commercial information, but has not yet determined whether the requested information is protected from disclosure under that exemption. OFCCP has requested that entities that filed Type 2 Consolidated EEO-1 Reports as federal contractors at any time from 2016-2020, that object to the disclosure of the information, to submit those objections to OFCCP within 30 days of the date of the notice.

Objections must be filed with OFCCP by September 19, 2022.

For banks that consider themselves to be federal contractors, WBA urges the bank to file objections to the disclosure of its EEO-1 Report data by the filing deadline. OFCCP has stated that if it does not receive a written objection by September 19, it will assume that the federal contractor has no objection to the disclosure and will begin the process of sending specific EE0-1 Report data to the FOIA requester.

Background

Will Evans of CIR submitted a FOIA request for “[a] spreadsheet of all consolidated (Type 2) EEO-1 reports for all federal contractors for 2016.” CIR subsequently amended the request multiple times, most recently on June 2, 2022, to include Type 2 EEO-1 reports for all federal contractors, including first-tier subcontractors, from 2016-2020. The Type 2 EEO-1 report is one of several different types of reports that multi-establishment employers must file annually, which consists of a consolidated report of demographic data for all employees at headquarters as well as all establishments, categorized by race/ethnicity, sex, and job category.

Title VII of the Civil Rights Act provides statutory authority for the EEO-1 Reports. The Equal Employment Opportunity Commission (EEOC) enforces the employment nondiscrimination law. See 42 U.S.C. 2000e-8(c). The EEOC’s regulations require employers with 100 or more employees to file the EEO-1 Report with the EEOC. See 29 CFR 1602.7. In addition, OFCCP’s regulations require federal contractors and first-tier subcontractors that are covered by Executive Order 11246 and that have 50 or more employees to file the EEO-1 Report.

Banks as Federal Contractor

Whether a bank is a federal contractor for purposes of having to file an EEO-1 Report is a determination banks have previously made with instruction from bank counsel. Therefore, each bank should already have determined whether it must file an EEO-1 Report, including whether it had filed such report in 2016-2020.

Regarding OFCCP’s interpretation of federal contractor, there are a couple of items to consider. First, OFCCP has concluded through an “FAQ” posted on its website that because deposit insurance is a federal contract, FDIC-insured banks would be considered federal contractors as the bank would accept the insurance. See FAQ #13.

Second, some banks are required to file Affirmative Action Plans via OFCCP’s Contractor Portal. It is anticipated that if a bank is registered through OFCCP’s Contractor Portal or has subscribed to OFCCP’s “GovDelivery” e-mail listserv, the bank can generally expect that OFCCP considers the bank to be a federal contractor and may disclose the bank’s EEO-1 Report data.

In response to the FOIA request, a bank, as federal contractor, need consider whether to file objections with OFCCP regarding the FOIA request for its EEO-1 Report data. OFCCP has also issued a FAQ regarding the FOIA request.

Consider Filing an Objection to the Disclosure of EEO-1 Report Data and Steps for Filing

If a bank filed any EEO-1 Report in 2016–2020, it need consider whether to file an objection with OFCCP over the release of its EE0-1 Report data. As some banks voluntarily report diversity data, the release of EEO-1 Report data may be less of a concern than for those who seek to keep diversity data nonpublic. Again, it is expected that CIR seeks the information for further reporting about the racial, ethnic, and gender composition of federal contractors’ employees.

As stated in the Federal Register notice, OFCCP acknowledges that Exemption 4 of FOIA may provide for OFCCP to withhold specific federal contractor EEO-1 Reports. However, each federal contractor must object to the release if it seeks to protect its EEO-1 Reports from being released under the FIOA request. The written objection must be received no later than September 19, 2022.

To facilitate the process, OFCCP has created a web form through which written objections may be submitted. WBA recommends the use of the specifically created web form. Written objections may also be submitted via email. Regardless of the delivery system used, any objections filed by the bank must include the bank’s name, address, and contact information for the bank.

A bank will need to answer the following six questions. With exception to question #6, WBA recommends banks filing objections to answer “yes” to each question. Banks filing an objection also need to include a description of how the release of its EEO-1 Report data would impact its recruiting efforts, employee retention, and management of its workforce. Banks also need to describe the protections it has in place for maintaining the confidentiality of the data contained in its EE0-1 Reports. Answering the questions and providing descriptions are critical for OFCCP to determine whether the information should be withheld or disclosed pursuant to FIOA Exemption 4.

  1. Do you consider information in your EEO-1 report to be a trade secret or commercial information? If yes, please explain why.
  2. Do you customarily keep the requested information private or closely-held? If yes, please explain what steps have been taken to protect data contained in your reports, and to whom it has been disclosed.
  3. Do you contend that the government provided an express or implied assurance of confidentiality? If yes, please explain. If no, skip to question 4.
  4. If you answered “no” to question 3, were there expressed or implied indications at the time the information was submitted that the government would publicly disclose the information? If yes, please explain.
  5. Do you believe that disclosure of this information could cause harm to an interest protected by Exemption 4 (such as by causing genuine harm to your economic or business interests)? If yes, please explain.
  6. Are there other legal issues OFCCP should be aware of? If yes, please explain.

Summary

A recent FOIA request of OFCCP seeks data from EEO-1 Reports filed by federal contractors from 2016-2020. As a result of the request and of the type of information requested, OFCCP requested that entities (which could include banks) that filed Type 2 Consolidated EEO-1 Reports as federal contractors at any time from 2016-2020, that object to the disclosure of the information, to submit those objections to OFCCP by September 19, 2022.

OFCCP has created a web form for filing objections. If OFCCP does not receive a written objection by September 19, it will assume that the federal contractor has no objection to the disclosure and will begin the process of sending the bank’s EE0-1 Report data to the FOIA requester.

Any follow-up questions to the OFCCP notice may be posed to WBA Legal by email or by phone at 608-441-1200.

Classroom

Congratulations to the 19 bankers who recently completed the 2022 Deposit Compliance School held August 22 and 23 at the WBA headquarters in Madison and via livestream! WBA’s Deposit Compliance School is designed to give Wisconsin bankers a strong foundation of the various deposit regulations that affect banks. 

  • Aubrie Bobholz, Horicon Bank  
  • Lu Ann Bowman, Mound City Bank, Platteville  
  • Laura Enders, Bank of Sun Prairie  
  • Carol Green, First Community Bank, Milton  
  • Nicole Havel, Dairy State Bank, Rice Lake  
  • Andy Hayes, Capitol Bank, Madison  
  • Kelsey Herold, First Citizens State Bank-Whitewater, Whitewater  
  • Austin Hines, River Falls State Bank, River Falls  
  • Hailey Klaas, Peoples State Bank, Lancaster  
  • Marty MacEacher, Peoples State Bank, Prairie du Chien  
  • Amanda Markell, Bank of Sun Prairie, Sun Prairie  
  • Brett Miller, Capitol Bank, Madison  
  • Brooke Noboa, First Federal Bank of Wisconsin, Waukesha  
  • Brad Olsen, WoodTrust Bank, Wisconsin Rapids  
  • Hunter Olson, American Bank of Beaver Dam, Beaver Dam  
  • Nicole Ramirez, Woodford State Bank, Monroe  
  • Deanna Van Acker, Johnson Financial Group, Racine  
  • Brian Vogeltanz, Bank of Luxemburg, Luxemburg  
  • Evan Whitehead, Settlers bank, Appleton 

Deposit Compliance School Class Photo

 

This school is geared toward bank retail staff, including head tellers, personal bankers, universal bankers and managers, as well as compliance officers, operations personnel, and bank legal counsel. WBA Director – Legal Scott Birrenkott, FIPCO Compliance & Risk Management Advisor Michelle Haslam, and compliance consultant Laureen Lehnberg served as faculty for this year’s Deposit Compliance School.

Triangle Background
Triangle Background

Rose Oswald PoelsBy Rose Oswald Poels

As many would know, I started my career at WBA answering compliance questions for members through WBA’s Legal Call Program and a frequently asked question has long been, “May a bank pull a credit report on a non-applicant spouse when a married Wisconsin resident applies for credit individually?” WBA’s longstanding answer has been yes. Banks have a permissible purpose under the Fair Credit Reporting Act (FCRA) to pull credit on the non-applicant spouse when an applicant is a married Wisconsin resident. Under Wisconsin’s Marital Property Act (MPA), the creditor should consider the couple a unit, taking into consideration all income and all debt of both spouses.

The Bureau of Consumer Financial Protection (CFPB) recently issued an advisory opinion regarding permissible uses of credit reports. The opinion appears to be primarily directed at consumer reporting agencies who furnish credit reports. However, given statements within the opinion regarding use of credit reports, I believe it worth a reminder about how the MPA plays a role in there being a legitimate business need for a bank to pull a credit report on a non-applicant spouse when a married Wisconsin resident applies for credit individually, as CFPB failed to take into considerations a state’s property laws when it analyzed permissible purposes under FCRA Section 604.

Under the MPA, when credit will result in an obligation that is “in the interest of marriage or the family” pursuant to sec. 766.56(1), Stats., creditors need to consider both the assets and liabilities of each spouse when evaluating an applicant spouse’s creditworthiness. By reviewing both the assets and liabilities of each spouse, the creditor can meet its obligations under s. 766.56(1) to consider “all marital property available to satisfy the obligation in the same manner that the creditor, in evaluating the creditworthiness of an unmarried credit applicant, considers the property of an unmarried credit applicant…” Credit reports are the tools most often used to determine liabilities of both spouses.

The Federal Trade Commission (FTC), the agency with authority for banks regarding FCRA prior to the Dodd-Frank Act, recognized states’ property laws under its interpretation of FCRA permissible purposes. To use a credit report, the FCRA provides that one must have a permissible purpose for the report. FCRA Section 604 sets forth the permissible purposes of credit reports. Section 604(a)(3)(A) allows a consumer reporting agency to furnish consumer reports to a person which it has a reason to believe “intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.” Past FTC interpretation of this section has confirmed that creditors may pull a credit report on a non-applicant spouse.

In particular, FTC interpretation of FCRA Section 604(a)(3)(A) has been,

“A creditor has a permissible purpose to obtain a consumer report on an applicant’s spouse if that spouse will be permitted to use the account or will be contractually liable upon the account, or if the applicant is relying on the spouse’s income as a basis for repayment of the credit requested. In addition, a creditor may obtain a consumer report on an applicant’s spouse if (i) the state law doctrine of necessaires (which may make a consumer liable for certain debts of a spouse) applies to the transaction, (ii) the applicant resides in a community property state, (iii) the property upon which the applicant is relying as a basis for repayment of the credit requested is located in such a state, or (iv) the applicant is acting as the agent of the nonapplicant spouse.”

The requirements under the MPA and FTC’s interpretation of a permissible purpose under the FCRA were the areas of law WBA has cited as rationale why banks may use the consumer reports of both the married Wisconsin resident applicant and his/her non-applicant spouse when determined debt in connection with new credit or review of an account.

However, with CFPB having issued an advisory opinion regarding the furnishing and use of credit reports under the FCRA, members need be aware of the opinion.

In its opinion, CFPB stated that the permissible purposes listed in FCRA section 604(a)(3) are consumer specific and that a consumer reporting agency may not provide a consumer report to a user under FCRA section 604(a)(3) unless it has reason to believe that all of the consumer report information included pertains to the consumer who is the subject of the user’s request. CFPB believes section 604 analysis need be on a consumer-by-consumer basis, intending the use of information in connection with a credit transaction to be one involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.

CFPB’s new advisory opinion could be read to not allow a credit report to be pulled on a non-applicant spouse as the non-applicant spouse is not party to the application. In writing this opinion, CFPB has failed to consider a state’s property law — such as the Wisconsin MPA — and of the legitimate business need for debt information. Separately, a creditor cannot require spouses to apply together to then obtain a credit report on both spouse as that would be a violation of Regulation B. CFPB’s focus only on federal law when writing this advisory opinion without considering state marital property laws raises a question for banks in marital/community property states, including Wisconsin banks when trying to comply with s. 766.56(1) Stats.

WBA believes banks do have a permissible purpose under state law, and therefore under FCRA section 604, to obtain a credit report of a non-applicant spouse in connection with an application involving a married Wisconsin resident, since CFPB’s advisory opinion focuses solely on the fact that FCRA permissible purposes are consumer-specific and is silent on any relevant state law.

It is clear under s. 766.56(1), Stats. that when credit will result in an obligation, that is “in the interest of marriage or the family,” creditors need to consider both the assets and liabilities of each spouse when evaluating an applicant spouse’s creditworthiness. This requirement results in a legitimate business need to identify debts of both the applicant spouse and non-applicant spouse. Furthermore, pursuant to s. 766.55(1), Stats., an obligation incurred while married is presumed to be incurred in the interest of the marriage or family, and under para. (2) the obligation is to be satisfied from all marital property and all other property of the married Wisconsin resident applicant. These MPA provisions make the non-applicant spouse part of the credit transaction and resulting obligation for which a credit report is being used thereby meeting the conditions under CFPB’s advisory opinion despite CFPB not specifically addressing marital property interests.

Due to the requirements of ss. 766.55 and 766.56, Stats., banks have a permissible purpose under FCRA section 604(a)(3) to use a consumer report of a non-applicant spouse when an applicant is a married Wisconsin resident. A bank’s current practice to pull a credit report on both spouses need not change as a result of CFPB’s advisory opinion.

While CFPB’s release is only that of an advisory opinion, and is not regulation, I want to make sure that members are aware of the opinion and its narrowness, along with WBA’s thoughts on it.

By Scott Birrenkott

Q: Have the Agencies Finalized Their Revised Flood Q&As?

A: Yes. The OCC, FRB, FDIC, FCA, and NUCA (agencies) have reorganized, revised, and expanded the Interagency Questions and Answers Regarding Flood Insurance (Revised Flood Q&A).

Flood matters continue to be a hot topic with the examiners, and the Revised Flood Q&As are a helpful tool in working through many of the issues associated with flood compliance. The agencies previously issued flood interpretations, but those resources were scattered and found within various guidance documents such as the 2009 and 2011 Q&As. The Revised Flood Q&As supersede and replace those resources by consolidating and updating them into a single document.

The Revised Flood Q&As are organized by category and broken down into numerical designations within their categories. The agencies plan to update and manage these categories accordingly in the future. As an example of the benefit of the Revised Flood Q&As, examiners have recently been reviewing cross-collateralization and contents coverage calculations. The new category labeled “Other Security Interests” includes helpful discussion regarding such matters. For example, “Other Security Interests 7” discusses when flood insurance is required on contents, including examples of how to calculate. Question 8 then discusses a situation in which the contents might be located in another building, and question 9 covers applicability to contents taken as an “abundance of caution.” WBA has recently received questions regarding when contents coverage is required, as well as how to calculate insurable value when contents is included. These updated Q&As are helpful in understanding how the regulators view such situations.

While the flood rules themselves have not changed, the Revised Flood Q&As have been updated for ease of use and remain an excellent resource to consult when faced with a flood question. For any questions on flood matters or other compliance, also consider reaching out to WBA legal at wbalegal@wisbank.com or 608-441-1200.