AML Law and Best Practices

QUESTION

In implementing our AML program, we recognize there are the basic requirements of the law. However, what is the difference between what is required by law and what are best practices for an AML compliance program?

ANSWER

Frankly, the law is very general, even vague at times, with respect to distinguishing it and best practices. The result often leaves those who must implement an AML compliance program with little practical guidance as to what should be done.

Over time, industry participants develop ways to comply with the legal requirements for compliance programs. As methods are adopted within the industry, they may be referred to as “industry standards.”

When clearly better ways to comply emerge, they may be referred to as “best practices.” But not all industry standards or best practices will be legally compliant. Therefore, compliance with an industry standard or even a best practice may not satisfy the legal requirements.

At minimum, an organization should consider having a basic set of policies and procedures for assessing its risks for money laundering and terrorist financing. The institution should also have policies and procedures for conducting due diligence on its customers, clients, employees and agents, vendors and third-part service providers. In addition, the policies and procedures should cover how the organization deters, detects and monitors for suspicious activity. Other policies and procedures should be included to address training and how the organization handles legal process, reports suspicious activity and otherwise cooperates with law enforcement and other entities. [FFIEC Exam Manual, 33]

An organization that is affiliated with other types of entities should also consider adopting policies and procedures that apply on an enterprise-wide or institution-wide basis. Such procedures should permit organization within the enterprise to view their customers’ activity across multiply business lines and geographies. [FFIEC Exam Manual, 160]

Jonathan Foxx

President & Managing Director

Lenders Compliance Group

“Branch Office” for HMDA Purposes

QUESTION

We are a for-profit institution and have been reviewing our HMDA category based on being a “branch office.” For purposes of HMDA, what is a “branch office"?

ANSWER

Let’s first understand that a “branch office” is defined differently for depository institutions and non-depository institutions.       

A “branch office” of a depository institution is any office of a bank or savings association that is approved as a branch by a federal or state supervisory agency. A branch office does not include a free-standing electronic terminal, such as an automated teller machine, loan production office, an office of any affiliate, or an office of a third party (such as a loan broker). [12 CFR § 203.2(c)( 1); 12 CFR Part 203, Supplement I, § 203.2(c)-2]

A “branch office” of a credit union is any office where member accounts are established or loans are made, whether or not the office has been approved as a branch by a federal or state agency. [12 CFR § 203.2(c)( 1); 12 CFR Part 203, Supplement I, § 203.2(c)-1]

With respect to a for-profit institution, a “branch office” of such institution is any office of a for-profit mortgage institution that is not a bank, savings association or credit union (i.e., a non-depository institution) that takes applications from the public for home-purchase loans, home-improvement loans or refinancings. Also, a non-depository institution is deemed to have a branch office in a metropolitan area if, during the preceding calendar year, the institution received applications for, originated, or purchased five or more home-purchase loans, home-improvement loans or refinancings related to property in the metropolitan area. [12 CFR § 203.2(c)( 2); 12 CFR Part 203, Supplement I, § 203.2(c)-3]

Jonathan Foxx 

President & Manaing Director 

Lenders Compliance Group

HMDA: Date of Action Taken

QUESTION

We have been scrubbing our HMDA-LAR. In the course of our review, we became aware of the fact that there are different timing features involving the date of action for so-called “other actions.” What is the date of action taken for other actions?

ANSWER

The date of action taken does differ on the basis of several categories. In general, the following categories constitute differing ways of construing the date of action taken based on certain categories.

• Purchase of loans: the date of action taken is the purchase date.
• Loan application or preapproval denied: the date of action taken is the date the institution takes the action or the date the notice of action taken was sent to the applicant.
• Application withdrawn: (1) if the withdrawal is not in writing, the date of action taken is the date the institution receives the applicant’s express withdrawal; and (2) if the withdrawal is in writing, the date of action taken is the date shown on the notification from the applicant.
• Application closed for incompleteness: the date of action taken is the date the institution takes the action or the date the notice of action taken was sent to the applicant.
• Preapproval approved but not accepted: the date the institution takes the action or the date the notice of action taken was sent to the applicant is the date of action taken.

Jonathan Foxx

President & Managing Director

Lenders Compliance Group

ECOA preemption of State Laws

QUESTION

What state laws are inconsistent with ECOA and considered to be preempted?

ANSWER

A state law is deemed to be inconsistent with the Equal Credit Opportunity Act (ECOA) and less protective of the applicant to the extent that the law: 

1. Requires or permits a practice or act prohibited by ECOA;
2. Prohibits the individual extension of consumer credit to both parties to a marriage if each spouse individually and voluntarily applied for such credit;
3. Prohibits inquiries or collection of data required for ECOA compliance;
4. Prohibits asking about or considering age in an empirically derived, demonstrably and statistically sound, credit-worthiness, or to favor an elderly applicant; or
5. Prohibits inquiries necessary to establish or administer a special purpose credit program. [12 CFR § 202.11(b)]

Jonathan Foxx 
President & Managing 
Director Lenders Compliance Group