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AuditOne Compliance Advisory: 2017 Q4

AuditOne Advisory

From Bud Genovese, Chairman

In recent months, the CFPB has been very active releasing new proposals and final rules.  In this edition, we will highlight those that directly impact banks and credit unions, along with other noteworthy regulatory news, pronouncements and enforcement actions.  We hope you enjoy!

CFPB Moves One Step Closer to Small Business Data Collection

On May 10, 2017, the CFPB published a 42-page White Paper that seeks to advance efforts to collect small business data for the purpose of analyzing lending patterns and financing accessibility to underserved market segments.  Topics explored include:

  • What defines a small business?
  • What institutions lend to small businesses and what products are offered?
  • What types of business lending information are used by financial institutions?
  • Private impact of the public release of small business lending data

Efforts do not appear to be slowing down, so it wouldn’t hurt to begin examining existing processes, systems, and capabilities to determine what changes, if any, might be necessary in the event this initiative picks up steam and moves closer to formal regulation.  The CFPB White Paper can be found at
http://files.consumerfinance.gov/f/documents/201705_cfpb_Key-Dimensions-Small-Business-Lending-Landscape.pdf

KEY REGULATORY CHANGES AND
PRONOUNCEMENTS

Military Lending Act

Credit card provisions of MLA became effective October 3, 2017. Key provisions include a 36 percent Military Annual Percentage (MAPR) cap, what fees can be excluded from the MAPR calculation and how the financial institution’s
fees compare with fees charged elsewhere. A link to the rule follows:
https://www.gpo.gov/fdsys/pkg/FR-2015-07-22/pdf/2015-17480.pdf

October 3, 2017

CFPB Amends Regulation B requirements

Seeking to resolve certain differences between ECOA (Regulation B) and the revised HMDA (Regulation C) rule, the CFPB finalized a proposal to amend Regulation B requirements related to the collection of consumer ethnicity and race information.  Key revisions include:

  • Option to self-identify extended to additional (disaggregated) race and ethnicity
    categories.
  • Allows for collection of race and ethnicity data in certain cases where creditor is not required to report under HMDA.
  • Replaces the current (2004) Uniform Residential Loan Application (URLA) with a new, one-page data collection model form that can be used to collect the revised HMDA
    demographic data until the 2016 URLA prepared by Freddie Mac and Fannie Mae
    is implemented
  • Authorizes a financial institution that is subject to the requirement to report closed-end
    loans to voluntarily report home equity lines of credit (HELOCs), and those subject to the requirement to report HELOCs to voluntarily report closed-end loans.  Additionally, financial institutions may collect applicant demographic information for dwelling-secured business loans that are not reportable because the loans are not for the purposes of home purchase, refinancing, or home improvement (not applicable to a second or additional co-applicant; the HMDA rule requires the collection of the information for the applicant and first co-applicant only). For an overview, click on the
    following link:
    https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201709_cfpb_final-rule_regulation-b.pdf

September 21, 2017

Flood Program Suspension

The Federal Emergency Manage­ment Agency (FEMA) suspended the availability of flood
insurance in some markets because of noncompliance by local governments with
the floodplain management requirements of the program.  Although this puts
banks at risk if a property impacted by this suspension has a mortgage
against it, governments are allowed to prevent suspension or have it lifted
if they are able to provide required documentation demonstrating compliance
before the effective suspension date.  For a list of impacted areas, go to:
www.federalregister.gov/documents/2017/06/05/2017-11485/suspension-of-community-eligibility – or – www.fema.gov/national-flood-insurance-program-community-status-book for FEMA’s Status Book.

September 7, 2017

Mortgage Servicing Rules (Phase I)

On October 19, 2017, the first phase of the CFPB’s mortgage servicing rule changes under Regulations Z (Truth in Lending Act, or TILA) and X (Real Estate Settlement Procedures Act, or RESPA) become effective. The provisions clarify and amend requirements for force-placed
insurance notices, policies and procedures, early intervention, and loss mitigation. 
Also included is an interim Fiduciary final rule with a request for comment that gives mortgage servicers a 10-day window to notify borrowers that have requested that communication
cease under federal debt collection law about their foreclosure options.  A
link follows:
http://files.consumerfinance.gov/f/documents/201710_cfpb_amendments-to-2016-Servicing-Rule_interim-final-rule.pdf

October 19, 2017

Comments due November 15, 2017

Overdraft Disclosure Prototypes Released

To improve the current model form (A-9) that banks provide to consumers weighing
over­draft coverage, the CFPB released four Know Before You Owe overdraft disclosure
prototypes. The prototypes are designed to better explain a financial institution’s overdraft fees and the risks to consumers of opting in to over­draft coverage and fees for ATM and one-time debit card transactions. The CFPB is testing the prototypes as potential replacements for the current Regulation E disclosure form A-9, used to inform consumers of their financial
institution’s overdraft policies, fees, etc. The prototype forms:

  • Are designed to show more clearly the cost of the fees and when they can be charged
  • Describe key elements of the bank’s overdraft policies
  • Explain the opt-in decision applies only to one-time debit card and ATM transactions
  • Are designed to make clear that debit card and ATM overdraft protection is entirely optional

Important to note that as the CFPB tests the proposed prototypes, the current model
form (A-9) pro­vided in the 2010 rule continues to apply.  The current model
form (A-9) and prototypes are available at  
https://www.consumerfinance.gov/about-us/newsroom/cfpb-unveils-prototypes-know-you-owe-overdraft-disclosure-designed-make-costs-and-risks-easier-understand/

August 4, 2017

HMDA Final Rules/Examiner Testing Guidelines

On August 24, 2017 the CFPB published what is now known as the 2017 HMDA Final
Rule.  The rules contain guidance on reporting Mortgage Loan Originator identifiers
for purchased loans: property location, income, temporary financing, and new
funds on certain existing credit.  The guidance also more clearly defines
“extension of credit” and “automated underwriting systems”; clarifies impact
of census tract reporting errors; clarifies that a loan secured by five or
more separate dwellings in more than one loan location is not a loan secured
by a multifamily dwelling; raises applicability thresholds for open end lines
of credit from 100 to 500 covered loans until January 1, 2020; and clarifies
certain aspects of data collection around race and ethnicity. 

Federal banking agencies also issued guidelines for how examiners will test the accuracy of HMDA data collected and reported by financial institutions. The most notable change is that the old requirement that certain error rates trigger required LAR correction and
resubmission has been replaced with new sample review size standards driven
by a financial institution’s mortgage lending activity volumes.  All regulatory
examiners will use the same testing guidelines, which will apply to HMDA data
collected in or after 2018. HMDA Transaction Testing Guidelines are available
at
https://www.ncua.gov/regulation-supervision/Pages/policy-compliance/resource-centers/consumer/Documents/hmda-examiner-transaction-testing-guidelines.pdf

August 24, 2017 – Final Rules

August 23, 2017- Examiner Testing Guidelines

ON THE HORIZON *

Mortgage Servicing Rules (Phase II)

Some of the CFPB’s new Mortgage Servicing requirements will apply to a borrower’s successors in interest and the servicing of mortgages for borrowers in bankruptcy. http://files.consumerfinance.gov/f/documents/201710_cfpb_amendments-to-2016-Servicing-Rule_NPRM.pdf

October
2, 2017

Effective
April 19, 2018

Regulation CC

In an effort to keep pace with an evolving and increasingly electronic check
collection system, the CFPB amended Regulation CC to help create a consistent warranty chain regardless of the check’s form, including incentives for electronic presentment and return. The final rule is available at
www.federalreserve.gov/newsevents/pressreleases/files/bcreg20170531a1.pdf

The FRB is also requesting comment on a proposal to amend existing liability
provisions to include a presumption that a substitute or electronic check was
altered instead of forged in certain cases of doubt. Comments are requested
within 60 days of publication in the Federal Register.  To review the
proposed rule, go to the following link: 
www.federalreserve.gov/newsevents/pressreleases/files/bcreg20170531a2.pdf

May
26, 2017

Effective
July 1, 2018

Financial CHOICE ACT

Renaming and Rebranding the CFPB

The Financial Services Committee of the House of Representatives passed the
Financial CHOICE Act (the Act) amending many of the provisions of Dodd Frank – driven, in large part, by a desire to reform the Consumer Financial
Protection Bureau (CFPB), noting that the CFPB has not achieved its intended
purpose relative to availability and the cost of basic banking services and
credit. 

The CFPB’s new name would be the Consumer Financial Opportunity Commission, and would become an independent agency outside the Federal Reserve with a new a dual purpose: the protection of consumers and the promotion of market competition.  The Act makes specific changes to Dodd Frank surrounding complaint handling protocols, the definition of UDAAP, removing limits on debit card interchange fees, and prohibiting arbitration clauses.  It also establishes a new Board structure, sets employee compensation parameters, and introduces requirements for periodic review of the cost/benefit of existing regulations.  https://financialservices.house.gov/choice/

May
4, 2017

BSA/AML – Beneficial Ownership Rule

Final rule on customer due diligence from the Financial Crimes Enforcement Network (FinCEN) that affects the way financial institutions determine beneficial owners of “legal entity” accounts.  https://www.federalregister.gov/documents/2016/05/11/2016-10567/customer-due-diligence-requirements-for-financial-institutions

May
11, 2016

Effective
May 18, 2018

*Please note that this list is not intended to be inclusive; its focus is on key regulatory and
legislative actions pertaining to banking that are deemed worthy of note.

NOTEWORTHY NEWS & ENFORCEMENT ACTIONS


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