§ 531.4 Assigned collateral; verification.

A member may retain documents evidencing home mortgages it has assigned to its Bank to secure advances, if it agrees to hold such documents for the benefit and subject to the direction and control of the Bank. The Bank shall obtain a written security agreement signed by the borrowing member and describing the type of collateral, and an opinion by Bank counsel that such agreement is in compliance with applicable law. The Bank shall periodically verify that such mortgage collateral exists and that appropriate collateralization procedures are maintained. The Bank shall prescribe collateralization procedures for members, and shall establish verification procedures in accordance with generally accepted auditing standards.

[44 FR 60718, Oct. 22, 1979]

§ 531.8 Guidelines relating to nondiscrimination in lending.

(a) General. Fair housing and equal opportunity in home financing is a policy of the United States established by Federal Statutes and Presidential orders and proclamations. In furtherance of the Federal civil rights laws and the economical home financing purposes of the statutes administered by the Board, the Board has adopted, in Parts 528 and 529 of this subchapter, nondiscrimination regulations which, among other things, prohibit arbitrary refusals to consider loan applications on the basis of the age or location of a dwelling, and prohibit discrimination based on race, color, religion, sex, or national origin in fixing the amount, interest rate, duration, application procedures, collection or enforcement procedures, or other terms or conditions of housing related loans. This section provides supplementary guidelines to aid member institutions in developing and implementing nondiscriminatory lending policies. Each member institution should re-examine its underwriting standards at least annually in order to ensure equal opportunity.

(b) Loan underwriting standards. The basic purpose of the Board's nondiscrimination regulations is to require that every applicant be given an equal

opportunity to obtain a loan. Each worthiness loan applicant's credit

should be evaluated on an individual basis without reference to presumed characteristics of a group. The use of lending standards which have no economic basis and which are discriminatory in effect is a violation of law even in the absence of an actual intent to discriminate. However, a standard which has a discriminatory effect is not necessarily improper if its use achieves a genuine business need which cannot be achieved by means which are not discriminatory in effect or less discriminatory in effect.

(c) Discriminatory practices—(1) Discrimination on the basis of sex or marital status. The Civil Rights Act of 1968 and the National Housing Act prohibit discrimination in lending on the basis of sex. The Equal Credit Opportunity Act, in addition to this prohibition, forbids discrimination on the basis of marital status. Refusing to lend to, requiring higher standards of creditworthiness of, or imposing different requirements on, members of one sex or individuals of one marital status, is discrimination based on sex or marital status. Loan underwriting decisions must be based on an applicant's credit history and present and reasonably foreseeable economic prospects, rather than on the basis of assumptions regarding comparative differences in creditworthiness between married and unmarried individuals, or between men and women.

(2) Discrimination on the basis of language. Requiring fluency in the English language as a prerequisite for obtaining a loan may be a discriminatory practice based on national origin.

(3) Income of husbands and wives. A practice of discounting all or part of either spouse's income where spouses apply jointly is a violation of section 527 of the National Housing Act. As with other income, when spouses apply jointly for a loan, the determination as to whether a spouse's income qualifies for credit purposes should depend upon a reasonable evaluation of his or her past, present, and reasonably foreseeable economic circumstances. Information relating to childbearing intentions of a couple or an individual may not be requested.

(4) Supplementary income. Lending standards which consider as effective only the non-overtime income of the primary wage-earner may result in discrimination because they do not take account of variations in employment patterns among individuals and families. The Board favors loan underwriting which reasonably evaluates the credit worthiness of each applicant based on a realistic appraisal of his or · her own past, present, and foreseeable I economic circumstances. The determination as to whether primary income I or additional income qualifies as effective for credit purposes should depend upon whether such income may reaIsonably be expected to continue 1. through the early period of the mortgage risk. Automatically discounting ¤ other income from bonuses, overtime, or part-time employment, will cause some applicants to be denied financing without a realistic analysis of their E credit worthiness. Since statistics show that minority group members and lowand moderate-income families rely more often on such supplemental income, the practice may be racially ■ discriminatory in effect, as well as artificially restrictive of opportunities for home financing.

(5) Applicant's prior history. Loan decisions should be based upon a realistic evaluation of all pertinent factors respecting an individual's creditworthiness, without giving undue weight to any one factor. The member institution should, among other thing, take into consideration that: (a) In some instances, past credit difficulties may have resulted from discriminatory #practices; (b) a policy favoring applicants who previously owned homes may perpetuate prior discrimination; (c) a current, stable earnings record may be the most reliable indicator of credit-worthiness, and entitled to more weight than factors such as educational level attained; (d) job or residential changes may indicate upward mobility; and (e) preferring applicants who have done business with the lender can perpetuate previous discriminatory policies.

(6) Income level or racial composition of area. Refusing to lend or lending on less favorable terms in particular areas because of their racial com

position is unlawful. Refusing to lend, or offering less favorable terms (such as interest rate, downpayment, or maturity) to applicants because of the income level in an area can discriminate against minority group persons.

(7) Age and location factors. Sections 528.2, 528.2a, and 528.3 prohibit loan denials based upon the age or location of a dwelling. These restrictions are intended to prohibit use of unfounded or unsubstantiated assumptions regarding the effect upon loan risk of the age of a dwelling or the physical or economic characteristics of an area. Loan decisions should be based on the present market value of the property offered as security (including consideration of specific improvements to be made by the borrower) and the likelihood that the property will retain an adequate value over the term of the loan. Specific factors which may negatively affect its shortrange future value (up to 3-5 years) should be clearly documented. Factors which in some cases may cause the market value of a property to decline are recent zoning changes or a significant number of abandoned homes in the immediate vicinity of the property. However, not all zoning changes will cause a decline in property values, and proximity to abandoned buildings may not affect the market value of a property because of rehabilitation programs or affirmative lending programs, or because the cause of abandonment is unrelated to high risk. Proper underwriting considerations include the condition and utility of the improvements, and various physical factors such as street conditions, amenities such as parks and recreation areas, availability of public utilities and municipal services, and exposure to flooding and land faults. However, arbitrary decisions based on age or location are prohibited, since many older, soundly constructed homes provide housing opportunities which may be precluded by an arbitrary lending policy.

(d) Marketing practices. Member institutions should review their advertising and marketing practices to ensure that their services are available without discrimination to the community they serve. Discrimination in lending

is not limited to loan decisions and underwriting standards; an institution does not meet its obligations to the community or implement its equal lending responsibility if its marketing practices and business relationships with developers and real estate brokers improperly restrict its clientele to segments of the community. A review of marketing practices could begin with an examination of an institution's loan portfolio and applications to ascertain whether, in view of the demographic characteristics and credit demands of the community in which the institution is located, it is adequately serving the community on a nondiscriminatory basis. The Board will systematically review marketing practices where evidence of discrimination in lending is discovered.

(Title VIII, Pub. L. 95-128, 91 Stat. 1147 (12 U.S.C. 2901); Title VII, Pub. L. 93-495 (15 U.S.C. 1691); Title VIII, Pub. L. 90-284, 82 Stat. 81 (42 U.S.C. 3601-3619), 16 Stat. 144, 14 Stat. 27 (42 U.S.C. 1981); EO 11063, 27 FR 11527; sec. 17, 47 Stat. 736, as amended (12 U.S.C. 1437); secs. 402, 403, 407, 48 Stat. 1256, 1257, 1260, as amended (12 U.S.C. 1725, 1726, 1730); sec. 5, 48 Stat. 132, as amended (12 U.S.C. 1464); Reorg. Plan No. 3 of 1947, 12 FR 4981, 3 CFR, 1943-48 Comp., p. 1071)

[39 FR 43620, Dec. 17, 1974, as amended at 43 FR 22338, May 25, 1978]

§ 531.9 Interest rates on advances.

Except as the Board may otherwise provide, the following requirements shall apply to advances by Banks to their members:

(a) Obligations evidencing such advances shall, except under paragraph (b) of this section, be written at rates of interest within the range approved by the Board, calculated on the unpaid principal balance from time to time outstanding, and Banks shall not, except under paragraph (c) of this section, collect interest on such advances at a rate outside such approved range of rates, so calculated;

(b) Obligations evidencing such advances may provide that the holder of the obligation may: (1) Decrease the interest rate thereon and (2) by giving the member or principal obligor notice specified in the obligation, not exceeding 30 days, increase such rate to a

rate not in excess of the maxmum rate then permitted by the Board.

(c) Obligations evidencing such advances shall provide for an increase of not less than 1 percent and not more than 5 percent per year in the then current rate on past due principal and interest.

(d) All forms of obligations used to evidence such advances, and the opinion of Bank counsel as to their validity in the jurisdiction(s) where they will be used, shall be submitted for approval to the Director or Deputy Director, Office of District Banks.

§ 531.10 Accepting pooled accounts.

A member institution may not pool or participate in pooling funds, or solicit, or promote pooled accounts. However, a member institution is authorized to accept pooled funds from existing or potential account holders who have pooled their funds in order to meet any prescribed minimum amount under this part or to aggregate $100,000 or more.

[44 FR 33674, June 12, 1979. Redesignated at 51 FR 10816, Mar. 31, 1986]

PART 532-BOARD RULINGS

AUTHORITY: Sec. 17, 47 Stat. 736, as amended (12 U.S.C. 1437); Reorg. Plan No. 3 of 1947, 12 FR 4981, 3 CFR, 1943-48 Comp., p. 1071.

§ 532.1 Payment in gold or its equivalent.

Section 463(a) of 31 U.S.C. provides, in part, that "[e]very provision contained in or made with respect to any obligation which purports to give the obligee a right to require payment in gold or a particular kind of coin or currency, or in an amount of money of the United States measured thereby, is declared to be against public policy; and no such provision shall be contained in or made with respect to any obligation [incurred after June 5, 19331." The board believes that section remains in effect even though Pub. L. 93-373 invalidated laws prohibiting persons from purchasing, holding, selling, or otherwise dealing with gold, effective December 31, 1974. The board interprets 31 U.S.C. 463 as prohibiting members from agreeing to

pay any part of the principal of, or interest or dividends earned on, their savings accounts in gold (including gold coin), gold related instruments or securities, or an amount of money determined with reference to gold: Provided, That members may pay interest or dividends in gold coins minted and issued by the United States Treasury pursuant to Pub. L. 99-185, 99 Stat. 1177 (1985).

[43 FR 46848, Oct. 11, 1978, as amended at 51 FR 10816, Mar. 31, 1986; 51 FR 34951, Oct. 1, 1986]

PART 533-ELECTRONIC FUND TRANSFERS

AUTHORITY: Title XX, Pub. L. 95-630 (15 U.S.C. 1693 et seq.); sec. 5B, 47 Stat. 727, as amended by sec. 4, 80 Stat. 824, as amended; sec. 17, 47 Stat. 736, as amended (12 U.S.C. 1430, 1437); sec. 5, 48 Stat. 132, as amended; (12 U.S.C. 1464). Reorg. Plan No. 3 of 1947, 12 FR 4981; 3 CFR, 1943-48 Comp., p. 1071.

§ 533.1 Electronic fund transfers subject to Regulation E.

Plan No. 3 of 1947, 12 FR 4981; 3 CFR, 194348 Comp., p. 1071.

SOURCE: 45 FR 64164, Sept. 29, 1980, unless otherwise noted.

§ 534.1 Authority and scope.

(a) Pursuant to section 11(e)(2) of the Federal Home Loan Bank Act (12 U.S.C. 1431(e)(2)) (Bank Act), the Board has promulgated this part governing the collection, processing, and settlement, and services incidental thereto, of drafts, checks, and other negotiable and nonnegotiable items and instruments by Federal Home Loan Banks. Settlement, collection, and processing include the following activities as defined in this part: account processing, data processing, data communication, issuance of forms, transportation of items, and storage services.

(b) Any activity authorized by section 11(e)(2) of the Bank Act shall be governed by the provisions of this part.

(a) Unless otherwise defined in this part, the terms used in this part shall conform, in the following order, to: Regulations of the Board, the Uniform Commerical Code, regulations of the Federal Reserve System, and general banking usage.

(b) The term "account processing" includes charging, crediting, and settling of member or eligible institution accounts, excluding individual customer accounts.

(c) As used in this part, the term "assets" includes furniture and equipment, leasehold improvements, and capitalized start-up costs.

(d) The term "data processing" includes capture, storage, and assembling of, and computation of, data from payment instruments received from Federal Reserve offices, Federal Home Loan Banks, clearinghouse associations, depository institutions, and other direct sending entities.

(e) The term “data communication” means transmitting and receiving of data to or from Federal Home Loan Banks, Federal Reserve offices, clearinghouse associations, depository institutions or their service bureaus, and other direct sending entities, arrange

ment for delivery of information; and telephone inquiry service.

(f) The term "eligible institution" means any institution eligible to make application to become a member of a Federal Home Loan Bank under section 4 of the Bank Act (12 U.S.C. 1424).

(g) The term "issuance of forms” means the designation and distribution of standardized forms for use in collection, processing, and settlement services.

(h) The term "presentment" means a demand for acceptance or payment made upon the maker, acceptor, drawee or other payor by or on behalf of the holder, and may involve the use of electronic transmission of an instrument or item or transmission of data from the instrument or item by electronic or mechanical means.

(i) The term "statement packaging" includes receiving statement information from members or eligible institutions or their service bureaus on respective customer cycle dates; printing statements; matching customer account statements; packaging the statements with appropriate items and informational materials, as authorized by individual members and eligible institutions, for distribution to their customers; sending the packages to the members or eligible institutions or mailing the packages directly to their customers.

(j) The term "storage services" includes filing, storage, and truncation of items.

(k) The term "transportation of items" includes transporting items from Federal Reserve offices, other Federal Home Loan Banks clearinghouse associations, depository institutions, and other direct sending entities to a Federal Home Loan Bank; forwarding items to financial institutions after sorting and forwarding cash items or return items to Federal Reserve offices and other sending entities.

§ 534.3 General provisions.

The Federal Home Loan Banks are authorized (a) to engage in, be agents intermediaries for, or otherwise

or

participate or assist in, the processing, Collection, and settlement of checks,

drafts, or any other negotiable or n negotiable items and instruments payment drawn on eligible institutio or Bank members; and (b) to drawees of checks, drafts, and oth negotiable and nonnegotiable ite and instruments issued by eligible stitutions or Bank members.

§ 534.4 Incidental powers.

In connection with the collecti processing, and settlement of ite and instruments drawn on or issued eligible institutions or Bank memb a Federal Home Loan Bank may a perform the following services, as fined in § 534.2:

(a) Statement packaging; and

(b) Any other activity that Board shall, from time to time, a notice and comment, find necess for the exercise of the authority this part.

§ 534.5 Operations.

A Federal Home Loan Bank may lize the services of a Federal Rese Bank and may become a member use the services of a clearingho public or private financial institut or agency in the exercise of powers or functions under this part § 534.6 Pricing of services.

(a) General. Federal Home L Banks shall charge for services thorized in this part in a manner sistent with the principles of sect 11(A)(c) of the Federal Reserve Act interpreted by this part and as proved by the Board or its designee.

(b) Payment instrument acco services. (1) In determining the f for services provided under this par Federal Home Loan Bank must ta into account all direct and indir costs of providing the services.

(2) Prices must reflect the imput rate of return that would have be earned and the taxes that would ha been paid if the Bank were a priva corporation, by using a cost of capi adjustment factor applied to th assets used in providing services a thorized under this part.

(3) All costs must be fully recover within a period not exceeding fi years. The prices charged for colle