Consumer Compliance FAQs: Sending Privacy Notices and Appraisals

Do we need to send an annual privacy notice?

This frequently asked question falls into a regulatory area where some financial institutions caught a break in 2018.

That “break” came with a few caveats that are frequently misunderstood or, when taken advantage of, not documented as well as they should be.

The exceptions are rather straightforward in Regulation P, § 1016.5(e)(1), so let’s review them below:

The second one (ii) is easy to follow and document compliance. Document your most recent privacy notice sent to customers; document your current privacy notice; and show that no changes have been made. Do this every year.

But the first one (i) is not as easy to document. Many compliance officers at institutions will say, “We meet the requirements of (i) in that we don’t share NPI with nonaffiliated third parties, or only share NPI under one of the three allowable ways.” That statement needs to be supported, but how do you document that you’re not doing something?

To take advantage of 1016.5(e)(1), you’ll need to document that you “don’t share.” Below is one way to do this:

1. Meet with the compliance officer, privacy officer, marketing officer, and vendor management officer to determine how to obtain a list of every vendor/third party used at the institution and what level of NPI is shared with them.
2. Once the list is obtained, verify that NPI is shared and meets one of the exceptions in § 1016.13, § 1016.14, or § 1016.15.
3. Review and research the vendors that are marked as “not sharing” and verify that this is true. This is time-consuming, but without doing this step, one cannot determine if the requirements of (ii) above are met.

If you can support and document that both of the requirements of § 1016.5(e)(1) are met, then your institution does not have to send an annual privacy notice.

Do I need to send the borrower a copy of the appraisal?

Regulation B, § 1002.14(a) regarding providing appraisals and other valuations to a borrower requires the following:

(1) In general. A creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A creditor shall provide a copy of each such appraisal or other written valuation promptly upon completion, or three business days prior to consummation of the transaction (for closed-end credit) or account opening (for open-end credit), whichever is earlier.

There are a lot of nuances in the paragraph above. The easy part deals with the first lien on a dwelling (which is a 1–4 unit residential property). The timing requirements are fairly straightforward as well. However, the part about “other written valuations” requires some interpretation, and the trickiest part is what isn’t mentioned in the paragraph at all: that these requirements pertain to closed-end and open-end loans for both consumer and commercial lending transactions. Yes, if a commercial loan is secured by a first-lien dwelling, then this appraisal rule pertains. There are many times when a borrower will secure a business loan with a dwelling.

Let’s review how to define “other valuation.” Per Regulation B, the term “valuation” means any estimate of the value of a dwelling developed in connection with a credit application. In addition to a formal appraisal report, this includes:

• A document your staff prepares that assigns value to the property
• A report approved by a government-sponsored enterprise for describing to the applicant an estimate developed by the enterprise’s proprietary methodology or mechanism
• Automated valuation model reports used to estimate the property’s value
• A broker price opinion prepared by a real estate broker, agent, or salesperson to estimate the property’s value

Many institutions will provide the appraisal or other valuation within three business days on all loans, resulting in only one workflow to worry about. However, if your concern is whether you have to provide the appraisal, follow the requirements above, focusing on the loan (closed-end, open-end, consumer, or commercial) being secured by a first-lien dwelling.

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