June 27, 2003
USA PATRIOT ACT RULES REGARDING IDENTITY VERIFICATION MAY BE REVISED
The Department of the Treasury, through the Financial Crimes Enforcement Network, together with a number of other federal agencies issued a rule pursuant to Section 326 of the USA Patriot Act, which requires banks to implement a written customer identification (CIP) program. See 31 C.F.R. § 103.121. The rule provides that a bank’s CIP program must include procedures for verifying the identity of each customer to the extent reasonable and practicable. Pursuant to these procedures, a bank must obtain, at a minimum, the following information on customers prior to opening an account: (i) name; (ii) date of birth; (iii) address; and (iv) identification number (e.g., a Social Security number). The bank also must verify the identity of the customer by using the information described above within a reasonable amount of time after the account is opened. Such verification may be accomplished by comparing the information described above with information that appears on certain specified documents, such as the customer’s driver’s license. Currently, the rule does not provide that banks must keep photocopies of a customer’s driver’s license or any other document used to verify his or her identity. This may change, however, because the Treasury is reexamining (i) whether banks should be required to maintain copies of such documents and (ii) the type of documents that a bank may use to verify the identity of a non‑U.S. citizen. Until such time as the rule has been amended, it is advisable that banks continue to prepare their CIP programs to comply with the current rule. However, banks should be prepared to modify their programs before compliance is required on October 1, 2003 in the event of a change.
² Mike Tomkies and Chuck Gall
NISSAN MOTOR ACCEPTANCE CORPORATION SETTLES SUIT BASED ON ALLEGED DISCRIMINATORY DEALER MARKUPS
Pursuant to the terms of the settlement, NMAC has agreed to take the following actions during the term of the settlement:
- Limit the amount of the markup that may be imposed in connection with accepted contracts;
- Pay $1,000,000 to the America Saves campaign, which will be used to educate African‑American and Hispanics about automobile financing;
- Send brochures to certain existing customers in order to educate them about automobile financing and the America Saves program;
- Include a disclosure in retail installment contracts informing buyers that the annual percentage rate is negotiable;
- Educate dealers on the requirements of ECOA and the importance of compliance;
- Institute a program whereby preapproved offers of credit with no markup would be offered to African‑American and Hispanic carbuyers;
- Pay $60,000 to the class representatives and not oppose class counsel’s request for attorneys’ fees of $6,000,000 and costs of $490,000.
A number of similar lawsuits alleging discriminatory dealer markup practices have been filed and are still pending. Automobile sales finance companies, however, are not the only targets of such lawsuits. Public and private lawsuits alleging discriminatory pricing practices also have been brought against lenders making various types of secured and unsecured consumer loans. For example, suits have been brought against mortgage lenders alleging that employee or broker incentive programs that permit such entities to markup rates and fees unlawfully discriminate against protected classes of borrowers.
Based upon the above, it advisable for lenders who rely on employees or independent agents to set loan rates and fees to examine their current policies and procedures in order to determine whether they unlawfully discriminate against borrowers. A lender may do this by performing a self‑test under the ECOA, which now permits lenders to ask applicants for information regarding personal characteristics (i.e., race, color, religion, national origin or sex) if the information is to be used to monitor compliance with ECOA. When performing such a test, however, lenders must make sure that they comply with ECOA’s requirements (e.g., provide all required disclosures) in order to avoid any additional liability under the statute.
If discrimination is discovered pursuant to a self‑test, a lender must take appropriate corrective action, both remedial and prospective, in order to keep the results of the test privileged under the ECOA. Remedial relief may include the return of any overcharges that were imposed. A lender may provide prospective relief by (i) educating employees and independent agents that set loan rates and fees on the requirements and prohibitions of the ECOA and other antidiscrimination statutes, (ii) monitoring compliance with such statutes and (iii) taking appropriate enforcement action against employees and agents that fail to comply. In addition, a lender may provide prospective relief by revising current loan documents so that they are less likely to have a discriminatory impact on protected borrowers. For example, loan documents could be revised so that they clearly inform borrowers that the rates and fees of their loan may be negotiable. Before making such disclosures, however, it is critical that a lender determine whether they are permitted by applicable law in order to avoid any additional legal challenges.