Be sure to JOIN US on May 5, 2020, for our webinar, “Regulation B-Joint Intent”.
Regulation B prohibits lenders from requiring anyone to sign any kind of liability document unless they’re applying but you can make people sign security documents. So, who can you make sign what? To determine the answer to that question, a loan officer should determine: 1) Who’s applying?; 2) What collateral, if any, will secure the loan?; and, 3) Who owns the collateral? The joint intent rules found in Regulation B were put in place to clearly spell out the answer to question number one.
Click on the video to listen to David explain more.
View the Video Transcription Below
Let’s talk about joint intent documentation, when you have multiple applicants. Hi, Dave Dickinson with Banker’s Compliance Consulting. This is one of those pesky little areas that seems like got blown out of proportion, there’s all sorts of rumors and confusion. Let me demystify a few things. Basically, the intent behind this whole requirement of Reg B was not when you have the consumers that are filling out paper applications or online applications. It was really designed for those ag and commercial applicants that don’t have the standard application, and regulators were believing that maybe loan officers were persuading or influencing that spouses had to apply jointly.
Back in 2004, this rule went into effect that said anytime you have multiple applicants, you must have some type of evidence that that’s what they wanted to do, you didn’t twist their arm. And they came up with these little boxes on the top of the application form, which was just really almost like a joke to me, because imagine my wife and I fill out an application, and we signed Dave and Karen and we submit that. Why would we need to mark boxes? We’re already signing. Of course we’re applying. Why else would we sign an application form?
The Fed who wrote Reg B, and you might say, “Well, I’m an FDIC or OCC or CFPB or NCUA regulated, that’s not my regulator. At the Federal Reserve.” Doesn’t matter, they wrote the reg, they get the interpretative authority. Back in the second quarter of 2010, the Kansas City Federal Reserve put out a memo that basically said four things.
– One, signed apps are sufficient.
– Number two, getting those little boxes makes an even stronger case, but not necessary.
– Three, in the absence of applications, if you’ve got some type of form that the applicants can sign, a joint intent disclosure, if you will, that’d be great.
But if you don’t have that, the loan officer’s documentation will suffice.
And you might go, “You’ve got to be kidding me. You’re supposed to do this at the time of application. What are you going to do when you have a phone application?” There is no form for them to sign. There is no way for them to mark any boxes. You’re going to have to have the loan officer say, “Dave called and said he and Karen want to whatever.” That’s how you handle this. Now, sometimes I have examiners that argue with me, “We have to have these boxes marked.”
And so what I say to them, this requirement is due at the time of application, correct? “Oh yes,” they’ll say, “of course it is.” You’re telling me we can never have a phone application then? Because we can’t do this over the phone if we have to mark boxes. Typically, they back up at that moment and realize they’ve got their foot in their mouth or that they’re incorrectly interpreting this.
If you get an examiner that pushes you that you have to have these boxes marked, use that argument. We will never have another phone application then. This is due at application. We can’t do it if they’re not here physically present, that should help. Now you might say, “Well, we’re not in the Kansas City fed”. In January of 2018 the Federal Reserve has a magazine newsletter called Connections, FRB Connections. You can Google that.
January 18 reiterated the exact same thing. Now CFPB owns Reg B at this time. They’re not going to allow the Fed to put out something that they don’t agree with. And so this was endorsed, if you will, by the CFPB and therefore all Regulators. If your OCC, NCUA, FDIC, again this came out of the Fed. Why? They had the interpretative authority to say, “This is how these rules get applied.” And they were trying to straighten this out.
Get your hands on that January 2018 Federal Reserve Board Connections. There’s an article there about joint intent documentation. I think you’ll find this very helpful. Now, I’m not suggesting that your loan officers not try to get some type of joint intent documentation. In fact, I often have to play expert witness in court cases. There’s a landmark case that I was involved in where we didn’t, one of our clients did not have joint intent documentation.
I have seen where the spouse later said, “I was forced to sign this loan”, and she won and it was a mess. Maybe I come in and say, my wife and I or I’m on the phone.
The next time you see us, it’d be good to get the joint intent documentation, not from a regulatory standpoint, but from a civil liability standpoint to say a belt and suspender method I’d call it here.
We’re going to check the box for compliance by having the loan officer document date called said he and Karen want to whatever.
There’s satisfying reg B, but then we’re going to get this form later and say, Hey, we want to do things the way you want them done. Did we understand correctly that you wanted to apply jointly and this is how you want it titled or whatever? If so, sign here. That’s your get out of jail free card if you will if there’s ever any kind of question, one of the persons feels like they’re being coerced or having to sign the loan, that would definitely help in a court case if you got there. I hope this helps you think through your procedures on joint intent documentation, demystifying maybe what you’ve heard from some regulators as well. Thanks for watching.
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David’s banking career began as a field examiner for the FDIC in 1990. He later became a Compliance Officer and Loan Officer for a small bank. In 1993, he established Banker’s Compliance Consulting. Along with his amazingly talented Team, he has written numerous compliance articles for prestigious banking publications and has developed compliance seminars that Banker’s Compliance Consulting produces.
He is an expert in compliance regulations. He is also a motivational speaker and innovative educator. His quick wit and sense of humor transforms the usually tiring topic of compliance into an enjoyable educational experience. David is on the faculty of the American Bankers Association National Compliance Schools and has served on the faculty of the Center for Financial Training for many years. He also is a frequent speaker at the ABA’s Regulatory Compliance Conference. He is also a trainer for hundreds of webinars, is a Certified Regulatory Compliance Manager (CRCM) and has been a BankersOnline Guru for many years. The American Bankers Association honored David with their Distinguished Service Award in 2016.
David and his wife Karen have three adult children, four grandchildren (none of whom live at home!) and two cats (of which Dave is allergic … the cats, not the children!). They recently moved to an acreage outside of Lincoln, Nebraska where he gets to play with his tractor. When possible David can be found fishing, making sawdust in his shop, or playing the guitar and piano. He also enjoys leading worship at his church.