Compliance Journal: June 2018 WBA Legal Call Program Frequently Asked Questions

As a service provided exclusively to members, WBA offers legal information through its call program in response to compliance questions. The following questions and answers feature some recent frequently asked questions WBA has received through this program.

Q: Can a power of attorney act on an IRA account?

A: Yes, but only if the power of attorney (POA) agreement permits it.

The extent of an agent’s authority to act under a POA agreement will always depend on the language within the agreement. It is very important that bank obtain a copy of any POA agreement presented and review the language within in order to determine the extent of the powers the agent has been granted. If a financial institution is unable to interpret the POA agreement WBA recommends working with an attorney to receive a legal opinion.

Wisconsin’s Uniform Power of Attorney for Finances and Property Act under Chapter 244 governs POA agreements in Wisconsin. Chapter 244 provides for general authority with respect to banks and other financial institutions. One general power granted under statute permits an agent certain actions on an account. Account is a defined term under Wis. Stat. 705.01(1). That definition is broad enough to include an IRA.

Q: Can a power of attorney act on a trust account?

A: Yes, but only if the power of attorney (POA) agreement permits it.

Similar to the analysis above required to determine whether an agent can act on an IRA account, the ultimate authority of an agent depends on the language within the POA agreement. Meaning, an agent can act on an account owned by a trust if the agent has been granted authority to do so.

One additional consideration to make is that of granting authority. A trust is a separate legal entity from an individual, meaning it has its own interests and authorities distinct from that of an individual person. A power of attorney agreement creates authority between a principal (the person granting authority) and an agent (the person granted authority). A POA agreement giving authority to act on the finances of a natural person principal does not automatically mean the agent can act on accounts owned by a trust, even if the principal is a trustee of the trust. Because a trust account has its own authority and ownership interests, the principal must grant an agent authority to act through their powers as trustee. Authority to do so is derived from the trust agreement.

Thus, in order for an agent to act on a trust account, the POA must give them authority to do so, and that power must be permissible through the trust agreement.

Q: How is the section titled “to be completed by the financial institution (for an application taken in person):” of the Home Mortgage Disclosure Act’s (HMDA) demographic information collection form completed when an application is not taken in person?

A: It is not completed unless the financial institution has a face-to-face meeting with the applicant before completion of the application process.

HMDA requires a financial institution to obtain certain demographic information from applicants. If the applicant does not provide that information, the financial institution must collect it based on visual observation. When this occurs, the financial institution must also complete the bottom section of the collection form indicating that the applicant’s ethnicity, race, and sex was collected on the basis of visual observation or surname. For applications not taken in person, when the applicant does not provide this required information, and the financial institution does not have a later opportunity to collect it based on visual observation, this bottom portion of the form is not completed.

However, if the financial institution has a face-to-face meeting prior to conclusion of the application process, it must request the applicant’s ethnicity, race, and sex. If the applicant does not provide the requested information during the in-person meeting, it must be collected on the basis of visual observation or surname. If such a meeting occurs after the application process is complete, for example, at closing or account opening, the financial institution is not required to obtain the applicant’s ethnicity, race, and sex, and thus, not required to complete the bottom portion of the demographic information form.

Q: What considerations apply to a non-resident alien loan applicant?

A: Bank’s loan policy should discuss lending to non-resident aliens. Fair Lending and the Equal Credit Opportunity Act (ECOA) should also be considered.

The Fair Lending Act prohibits discrimination based on race, color, national origin, religion, sex, familial status, and disability. It does not include immigration status. ECOA, implemented by Regulation B, indicates in 1002.6(b)(7) that a creditor may consider the applicant’s immigration status or status as a permanent resident of the United States, and any additional information that may be necessary to ascertain the creditor’s rights and remedies regarding repayment.

So, a financial institution may consider immigration status when deciding whether to extend credit to a non-resident alien. However, lenders should be cautious that when making a credit decision, it is not based on any prohibited basis. For example, denying a loan to an immigrant based on their country of origin, rather than their status as an immigrant, would be a violation.

The commentary to Regulation B provides that the applicant’s immigration status and ties to the community (such as employment and continued residence in the area) could have a bearing on a creditor’s ability to obtain repayment. Accordingly, the creditor may consider immigration status and differentiate, for example, between a noncitizen who is a long-time resident with permanent resident status and a noncitizen who is temporarily in this country on a student visa.

The extent to which a creditor makes this consideration depends on a financial institution’s loan policy. For example: does the financial institution have jurisdiction over the non-resident alien? If they are not a US-citizen, would bank be able to initiate proceedings against them? Are they a flight risk? What if their plans change and they return to their country of origin? Will bank be able and willing to pursue them if the loan goes into default?

These are questions that bank is permitted to ask, but their consideration depends on loan policy. Because of the complexities and fact-specific considerations involved, WBA also recommends working with bank’s own counsel when considering lending to non-resident aliens.

Q: If a legal entity customer opens multiple accounts, is a certification as to beneficial ownership required for each new account?

A: Not if certain requirements are met. A financial institution that has already obtained certification from a legal entity customer may rely on that information to fulfill the beneficial ownership requirement for subsequent accounts, provided the customer certifies (in writing or orally) that such information is up-to-date and accurate at the time each subsequent account is opened and the financial institution has no knowledge of facts that would reasonably call into question the reliability of such information.

Q: Is a new certification as to beneficial ownership form required for a change in signors? 

A: Not automatically. Only if the change in signors is the result of a change in the control person or a beneficial owner. A signer who is removed or added that is not the result of a change in control person or beneficial owner is not a new account or otherwise a triggering event.

Q: Is an extension, modification, or similar arrangement treated as a renewal per the April 3, 2018 FAQ?

A: Probably. The April 3, 2018 FAQ issued by FinCEN indicates that rollovers or renewals are considered new accounts for purposes of the rule. Due to the similarities in documentation and treatment of an extension, modification, or similar arrangement it is WBA’s understanding that such continuations would be similar enough to a renewal to be considered a new account.

Q: Are loans or CDs opened prior to May 11, 2018 that automatically renew or roll over before August 9, 2018 exempt from the Customer Due Diligence (CDD) rule?

A: Yes.

The Financial Crimes Enforcement Network (FinCEN) issued new guidance on May 16, 2018 providing temporary relief from the requirements of its new CDD rule for certain types of accounts. Under the guidance, financial institutions who have accounts that were opened prior to May 11, 2018 but automatically roll over or renew in the next 90 days are not required to comply with the CDD rule until August 10, 2018. 

FinCEN did not elaborate on the use of the word “automatically” but the guidance does discuss concern expressed by some financial institutions over their ability to comply with the rule because they had established automatic processes. WBA’s understanding is that the temporary limited relief is in response to that concern regarding automatic processes. FinCEN will utilize those 90 days to review automatic renewals further.

Conclusion

If you have any questions related to these, or other compliance topics, please do not hesitate to call at 608-441-1200. 

This article is from the June 2018 Compliance Journal, you can download the entire issue by clicking here.

By, Ally Bates