We are a small creditor and currently do evaluations for our mortgage loans and do not order appraisals unless the amount is over $250,000. The chairman of our board is the person who does the evaluations. He is paid per evaluation opposed to per hour. My question is should we be providing an opt out?

I believe that this triggers the opt out notice. The answers on our privacy notice should be "yes" and "yes" For our affiliates' everyday business purposes-information about your creditworthiness.


Is this the way others are seeing this?

If we were to pay him per hour instead of per evaluation, would this eliminate the need to provide an opt out notice?

Are you actually sharing credit information with this individual?

He is on our BOD. The BOD approves all of our mortgage loans... so I would say that we are.

But that is in his capacity as a Board member, not as an evaluator. I will ponder. Not that I am thrilled with a chairman doing this on the side, of course.

I am not thrilled with the process either but "this is the way that they have always done it" so I'm pretty certain that's the way they will do it until an examiner tells them not to. I posed the question at a conference recently and the instructor stated that if the chairman of your board is doing your appraisals they are an affiliate. I had asked if it is the same for evaluations, and they said yes. The instructor then asked if we paid the evaluator hourly or per evaluation, and stated that if we paid per evaluation we would need to have an opt out for sharing with affiliates.

I understand the affiliate thing, it is just the per hour vs. per evaluation pay where it gets blurry for me.
From reg V:

(b) Affiliate means any company that is related by common ownership or common corporate control with another company. For example, an affiliate of a Federal credit union is a credit union service corporation, as provided in 12 CFR part 712, that is controlled by the Federal credit union.

(c) [Reserved]

(d) Common ownership or common corporate control means a relationship between two companies under which:

(1) One company has, with respect to the other company:

(i) Ownership, control, or power to vote 25 percent or more of the outstanding shares of any class of voting security of a company, directly or indirectly, or acting through one or more other persons;

(ii) Control in any manner over the election of a majority of the directors, trustees, or general partners (or individuals exercising similar functions) of a company; or

(iii) The power to exercise, directly or indirectly, a controlling influence over the management or policies of a company, as determined by the applicable prudential regulator (as defined in 12 U.S.C. 5481(24)) (a credit union is presumed to have a controlling influence over the management or policies of a credit union service corporation if the credit union service corporation is 67% owned by credit unions) or, where there is no prudential regulator, by the Bureau; or

(2) Any other person has, with respect to both companies, a relationship described in paragraphs (d)(1)(i) through (d)(1)(ii).

(e) Company means any corporation, limited liability company, business trust, general or limited partnership, association, or similar organization.

https://www.bankersonline.com/regulations/12-1022-003

The affiliate opt out for sharing is the FCRA opt out for sharing with an affiliate for marketing purposes.

https://www.bankersonline.com/regulations/fcra-624

I don't see that you are sharing for marketing purposes, thus have not triggered this opt out.

Under Privacy, Regulation P, performing evaluations will come under an exception -Sec. 1016.14 Exceptions to notice and opt out requirements for processing and servicing transactions.

https://www.bankersonline.com/regulations/12-1016-014

There is no opt out for exception sharing for privacy.

Under RESPA, the bank does have an affiliate relationship with the Chairman and must give the AfBa disclosure. Yes it is clunky but the customer could choose another provider for this service by going elsewhere for the mortgage.

https://www.bankersonline.com/regulations/12-1024-015

The chairman is an associate under RESPA.

(8) the term “associate” means one who has one or more of the following relationships with a person in a position to refer settlement business: (A) a spouse, parent, or child of such person; (B) a corporation or business entity that controls, is controlled by, or is under common control with such person; (C) an employer, officer, director, partner, franchisor, or franchisee of such person; or (D) anyone who has an agreement, arrangement, or understanding, with such person, the purpose or substantial effect of which is to enable the person in a position to refer settlement business to benefit financially from the referrals of such business; and


If he was not being paid other than as chairman and receiving a return on shares, it would be different, but he is being paid to do evaluations. It doesn't matter if hourly or per unit.

Review the payment information in RESPA re affiliates.

https://www.bankersonline.com/regulations/12-1024-015

Are the payments comparable to what other non-affiliates would receive? Is that documented?

Thank you for the responses Kathleen, they have been very helpful. I believe they are less than what we would be paying for an outside appraiser. I think we charge $125 for the evaluation and he gets $30 of that fee. There are lots of issues with this process that would be eliminated if we just ordered an appraisal from an outside source and passed the fee on to the customer. I don't see that happening though.

Does the hourly vs. per evaluation have to do with who ultimately receives the money for the evaluation? Paying him per evaluation, technically he should be the recipient of the money. Paying him hourly, the bank is the recipient of the money and he is being treated as our employee instead of an outside agent? I am still trying to get this straight in my head.

I don't know why the person at the conference mentioned hourly vs per evaluation.

$30 per evaluation is dirt cheap for a third party (even an affiliated one) to perform evaluations. It still needs to be documented to demonstrate a market (or below market) rate.

I think I figured out what the per hour vs. per evaluation was relating to. We were discussing the Loan Estimate and where fees go when I brought this question to the instructors attention. I believe what he was saying was if we were paying the evaluator per evaluation, the fee would go in Box B on the Loan Estimate, and the list the fee to the individual, not the bank. If we were paying him hourly as an employee, the fee would go in Box A, and list the fee to our bank, not the individual.

This still may be wrong, but I believe that was what he was referring to. I am going to email him for clarification for purposes of my sanity.