As we enter 2014, the following are some areas of Consumer Regulatory Compliance that are receiving particular focus from the Federal and state regulators.
New Mortgage Rules
A substantive re-working of mortgage rules under Regulations Z (Truth-in-Lending) and X (Real Estate Settlement Procedures), as well as expected mortgage loan servicing standards become effective on January 10, 2014. Our compliance advisors have years of experience reviewing mortgage loans for compliance with outstanding requirements.
We have staff that recently worked for the Consumer Financial Protection Bureau (CFPB) and the Federal Deposit Insurance Corporation (FDIC) and are familiar with the detailed back and forth discussions surrounding the Advanced Notice of Proposed Rule Making (ANPR) associated with these regulations as well as industry concerns and practices and the details of the resulting final rules.
Unfair Deceptive or Abusive Acts or Practices (UDAAP)
UDAAP is considered a large unknown by most financial institutions, not only because specific instances of UDAAP are difficult to identify or ascertain, but also due to the uncertainty surrounding examination standards for this critical aspect of bank operations. Our compliance advisors have worked for the FDIC, OTS, and CFPB and have been involved in many examinations where potential and actual UDAAP cases surfaced. They can assist in the identification of problems and recommend remedial steps.
Vendor Management
Third party Vendor Management oversight is a high priority item over recent history. For example, significant examination findings associated with credit card add-on products revealed weaknesses, in many cases, rooted in failures to properly oversee activities of contracted third parties involved in various aspects and regulatory requirements regarding these products. Our team not only has examined institutions and found them wanting in this important area but has also recommended policies and practices to better enable banks to control their vendor relationships.
Compliance Management System (CMS)/Corporate Governance
All federal and state banking regulators have implemented a “risk-focused” examination approach due to resource constraints. This approach sets an expectation that a regulated entity has a solid CMS and a robust corporate governance frame work in place. Our compliance advisors worked for several federal regulators, are very familiar with CMS expectations, and together with our governance experts can identify and recommend successful CMS approaches used by other financial institutions to fine-tune our clients’ compliance programs.
Debt Collection
Debt collection activities have been a very active target for regulatory scrutiny over the past year. Examination focus has gone well beyond the narrow scope of the Fair Debt Collection Practices Act (FDCPA). The CFPB has recently announced plans to introduce new rule making on this subject and recently announced enforcement actions how put a fine point on the importance of being current on compliance requirements . Our compliance advisors have been involved in regulatory activities targeting the debt collection functions of banks and non-banks and can advise our clients as to how to prepare for examinations in this area.
Fair Lending
Fair lending is always a high priority for each federal regulator. Our compliance advisors have been involved in numerous examinations where fair lending findings have been identified and referred to the Department of Justice (DOJ) for possible action. We can offer a “fair lending check-up” by reviewing lending policies and procedures, analyzing HMDA and other available loan data for anomalies, and interviewing lending personnel towards identifying fair lending “red flags” that are in need of management’s attention.
Home Mortgage Disclosure Act (HMDA) Accuracy
Federal regulators have heightened the importance of HMDA accuracy, and have tightened the allowable tolerance for discrepancies. Relatively low error rates, especially in key, data reporting columns, can result in civil money penalties and orders to scrub and re-submit HMDA data. The public availability provisions of Regulation C (Home Mortgage Disclosure) also place a financial institution’s reputation at risk, making the accuracy of these data a high priority issue. Our advisors have many years of experience reviewing loan files to ensure accurate HMDA reporting.
Regulation E (Electronic Funds Transfer – EFT), including error resolution and international money transfers
Regulators have increased their scrutiny of banks’ error resolution processes to ensure compliance with Regulation E. Additionally, Regulation E was expanded, effective October 28, 2013, to cover international money transfers.
Our compliance advisors are familiar with Regulation E and can review your policies and procedures and conduct transactional testing to ensure compliance with all Regulation E requirements, particularly the two high visibility aspects noted. Moreover, if BSA/AML compliance is your concern, our BSA/AML experts together with the SRS Compliance and Payments experts can team to provide state of the practice assistance.
Indirect Auto Lending
While the Dodd-Frank Act specifically carved out automobile dealers from CFPB jurisdiction, the bureau has expanded its efforts to review banks subject to its jurisdiction that provide indirect financing for auto dealers. Regulators expect such banks to have a robust fair lending program that monitors the interest rates and any allowed rate “overages” being applied by the dealers through their financing programs.
Dealers that are found to charge higher overages to borrowers based on one or more of the anti-discriminatory provisions of Regulation B, i.e. race, ethnicity, gender, are expected to warn the offending dealer and take steps to ensure that any potential discriminatory lending practices are halted. Our compliance advisors worked for several federal regulators and were regularly involved in examinations that focused on this area of lending.
Community Reinvestment Act (CRA)
The CRA continues to provide both opportunities and challenges to covered financial institutions in aspects such as:
- Refining delineated assessment areas
- Analyzing loan performance
- Identifying qualified community development (CD) opportunities
- Reaching out to the bank’s community to help refine existing products or identify new products that are needed
Our compliance advisors have evaluated the CRA performance of numerous Large, Intermediate Small, and Small banks over their many years of experience as consumer compliance examiners.
Pre-paid cards
While these products are not widely offered by all financial institutions, those that do face expanded scrutiny and regular attempts at new or revised regulations covering these increasingly popular products. Our compliance advisors have been involved in examinations of banks and non-banks that offer pre-paid cards and together with our payments experts present a formidable team to advise our clients.
