By: Brian Taylor

As interest rates slowly climb back to pre-2008 levels, financial institutions are encouraged to evaluate the effects of a rising rate environment on deposit compliance. Specifically, banks should assess how rising interest rates impact their Regulation E error resolution procedures.

When a customer disputes a fraudulent transaction, the bank provisionally credits the customer’s account for the amount the customer claims is fraudulent. Following regulatory guidelines, the bank has 10 business days from the date the customer notifies the bank of the allegedly fraudulent transaction to either provisionally credit the customer’s account or issue final credit. Now, let’s suppose the account in question is an interest-bearing account. According to Section 1005.11(c)(2)(i), the provisional or final credit amount should include interest that would have been accrued. In recent years, the low rate environment has rendered any interest earned too small to calculate, even for institutions that wait the full 10 business days to provide credit.
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However, as interest rates trend upward, institutions need to pay attention to interest calculations for error disputes, especially for large dollar disputes. The intent of the regulation is to make the customer whole after the fraudulent activity has occurred. For customers with interest-bearing accounts, banks must return not only the amount disputed but interest that would have been earned as well.

By: Kyle Davis CRCM CAMS

FinCEN has issued a ruling to provide a 90-day limited exceptive relief to covered financial institutions from the obligations of the Beneficial Ownership Requirements.  This relief applies only to financial products and services that automatically rollover or renew (i.e., certificate of deposit (CD) or loan accounts) and were established before  May 11, 2018. This exception begins, retroactively, on May 11, 2018, and will expire on August 9, 2018. During this time, FinCEN states they will determine whether and to what extent additional exceptive relief may be appropriate for such financial products and services that were established before May 11, 2018, but are expected to rollover or renew after such date.

To see the ruling in full, click here. 

By: Steve Shepherd CRCM

On April 26, 2018, the CFPB (Consumer Financial Protection Bureau) issued a final rule to provide clarification on when a revised Closing Disclosure can be used to reset TRID applicable tolerances when a changed circumstance or other triggering event has occurred.  Similar to the proposed rule issued in July 2017, the final rule attempts to correct the “black hole” issue by addressing when mortgage lenders with a valid justification may pass on increased closing costs to consumers and disclose them on a Closing Disclosure.  In addition to addressing this issue, the final rule also includes some additional technical clarifications.  The final rule is effective on June 1, 2018.

Under the existing rule, a creditor may only use a Closing Disclosure to reset tolerances if there are fewer than four business days between the time the creditor is required to provide the Closing Disclosure reflecting the revised estimate and consummation. The final rule removes the four-business day limit on a creditor’s ability to reset tolerances with a Closing Disclosure. Therefore, if a changed circumstance or another triggering event has occurred, the 2018 final rule permits a creditor to reset tolerances with either an initial or corrected Closing Disclosure regardless of the number of days between consummation and the date the Closing Disclosure reflecting the revised estimate is required to be provided to the consumer. In any case, the creditor must provide the consumer with the Closing Disclosure reflecting the revised estimate at or before consummation and within three business days of receiving information sufficient to establish that the changed circumstance or other triggering event has occurred. Additionally, the consumer must still receive an initial Closing Disclosure at least three business days prior to consummation. Consistent with the existing rules, a new three-day waiting period is only required for a corrected Closing Disclosure if the APR becomes inaccurate, a prepayment penalty is added, or the loan product changes from the loan product previously disclosed. 

To view the rule in its entirety, please click on the following link:
https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/federal-mortgage-disclosure-requirements-under-truth-lending-act-regulation-z/

To view the executive summary of the rule and other implementation resources, please click on the following link:
https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/tila-respa-disclosure-rule/  

By: Kyle Davis CRCM, CAMS

FinCEN finally issued the long-awaited FAQs concerning the upcoming Beneficial Ownership and customer due diligence rule. The FAQs address multiple implementation questions posed by the industry following the release of the final rule and first set of FAQs.  Important highlights include clarification on requirements when a business is identified as a beneficial owner (FAQ 3),  using previously gathered CIP information for verifying beneficial owners (FAQ 7), and what is required when a CD rolls over or a loan is renewed (FAQ 12).   It is highly recommended that institutions review the FAQs as soon as possible as implementation and training changes will be required prior to the May 11, 2018 required compliance date.  The FAQs can be found here.  ​

By: Kyle Davis CRCM, CAMS

On January 26, 2018,  FinCEN finalized several proposed updates to the Suspicious Activity Report (SAR).  FinCEN anticipates that the new SAR will be available for discrete filers in June 2018.  Batch filing institutions will be required to submit the updated SAR data in an XML based file, rather than the current ASCII based fixed-length delimited file. However, the BSA E-Filing System will continue to accept ASCII based batch files until January 1st, 2019. Batch filers will have six months from the go-live date in June to adhere to the new XML specification. To see a detailed listing of the changes, click here to see FinCEN's announcement. 

By: Tyler Youmans

On January 25, 2018, the Consumer Financial Protection Bureau (CFPB) issued a final rule related to Regulation E and Regulation Z. The final rule amends and clarifies the rules governing prepaid accounts under the two regulatory statutes. The 2018 Prepaid Amendments extend the effective date of the 2016 Prepaid Rule and all other provisions to April 1, 2019.

The 2018 Prepaid Amendments eliminate Regulation E’s error resolution and limited liability requirements for unverified prepaid accounts (other than payroll card accounts or government benefit accounts). The exception applies to prepaid accounts meeting the following criteria: 

1. the financial institution has not concluded the consumer identification and verification process,
2. the consumer identification and verification process has concluded but for which the consumer’s identity could not be verified,
3. programs for which there is no consumer identification and verification process, provided that the financial institution has made the alternative disclosure described in 12 CFR 1005.18(d)(1)(ii) and discussed below.

Items 1 & 2 only apply if the financial institution has disclosed the risks of not registering and verifying the account using a notice that is substantially similar to the model notice in revised Appendix A–7(c).

For financial institutions operating a prepaid account program that has a customer identification and verification process, the exception only applies to the extent a prepaid account remains unverified. A financial institution must limit liability and resolve errors that occur after a consumer’s identity is verified, in accordance with the Prepaid Rule and Regulation E. However, the financial institution is not required to limit liability and resolve errors with regard to disputed transactions that occurred prior to successful completion of the consumer identification and verification process.

The 2018 Prepaid Amendments also revised the model notice in Appendix A-7(c) to address unverified prepaid accounts. For prepaid accounts that are part of a program that does not have an identification and verification process, the amendment requires financial institutions to disseminate the revised notice. The revised notice must inform consumers of the error resolution process (if any) and the limitations on a consumer’s liability for unauthorized transfers (if any) that apply to the prepaid account. In addition, if the financial institution does not offer limited liability or error resolution protections on prepaid accounts, the initial disclosures must state that there are no such protections.

The amendment also makes minor provisions when consumers acquire prepaid cards electronically or by telephone and for hybrid prepaid-credit cards that can access overdraft credit features offered by a prepaid account issuer.

​To review the entire 2018 Prepaid Amendments please visit, https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/prepaid-rule/
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By James M. Moore, CRCM
 
One more year has passed, and we are faced with the new challenges of 2018.  Anyone with a compliance background understands there is no such thing as a fresh start for a new year.  The following is a list of reminders and updates to make sure you are heading in the right direction for the New Year. 
 
Deposit Compliance:

• Regulation CC training should have been provided during 2017 and make plans to provide Reg. CC training during 2018.
• Annual privacy training should have been provided for 2017 to all bank personnel and make sure annual privacy training is scheduled for 2018.  Furthermore, ensure that the Board of Directors has received privacy training.
• Ensure annual privacy disclosures will be mailed during 2017 or verify the bank’s exemption status for 2017.   
• Determine the number of remittance transfers under Regulation E from the previous calendar year to ensure the institution has not exceeded the threshold for “normal course of business.”
• Ensure the ID Theft Program administrator has reported to the Board annually on the status of the ID Theft Program.
• NEW Regulation CC Rule: Effective July 1, 2018. Brings remotely deposited checks under the purview of Regulation CC and provides a restrictive indorsement feature to determine indemnity for mobile deposited checks.

 Loan Compliance:

• The 2017 HMDA LAR and CRA LAR for large institutions must be submitted by March 1, 2018.
• Check the historic examples for HELOC and/or ARM application disclosures to ensure the most recent 15 years are used in the examples.
• The CRA Public File should be updated by April 1, 2018.
• Check the accuracy of the affiliated business disclosures to ensure all affiliated businesses are disclosed along with the current range of fees and the current ownership interest of each affiliated business.
• The 2018 HOEPA points and fees test will use the following:
  • > 5% of loan amounts of $21,032 or more
  • > lesser of 8% of loan amounts under $21,032 or $1,052
• The 2018 QM points and fees test will use the following:
  • For a loan amount greater than or equal to $105,158: 3% of the total loan amount
  • For a loan amount greater than or equal to $63,095 but less than $105,158: $3,155
  • For a loan amount greater than or equal to $21,032 but less than $63,095: 5% of the total loan amount
  • For a loan amount greater than or equal to $13,145 but less than $21,032: $1,052
  • For a loan amount less than $13,145: 8% of the total loan amount
• The 2018 Truth In Lending threshold remains $55,800 for loans not secured by real property and private education loans.
• The 2018 “small creditor” threshold is $2.112 billion.
• The 2018 “small loan” exemption for HPML appraisal rules is $26,000.
• If the creditor allows borrowers to shop for any required services for TRID loans, it should update (as necessary) the written list provided with the Loan Estimate to identify at least one available provider for each settlement service for which the consumer is permitted to shop. 
• Ensure that bank personnel have received fair lending and CRA training for 2017.  Further, ensure that the Board of Directors has received annual fair lending and CRA training for 2017.  Training should be planned for 2018.
• CRA asset size thresholds for 2018 are under $313 million for small bank, at least $313 million up to $1.252 billion for intermediate small bank, and $1.252 billion and over for large bank (based on both of the last two calendar years).
• The HMDA asset size threshold for depository institutions for 2018 is $45 million.
• NEW REQUIREMENT for 2018 HMDA reporting:  In addition to meeting the above HMDA asset threshold, an institution must have in each of the two preceding calendar years, originated at least 25 or more covered closed-end dwelling-secured loans to report closed-end loans.  Dwelling secured open-end lines of credit must be reported in 2018 if a covered institution originated 500 or more covered dwelling secured open-end lines of credit in each of the previous two calendar years.  Ensure a review of 2016 and 2017 transaction data is conducted for 2018 reporting requirements. 
• Ensure procedures are in place for performing escrow account analyses and that the bank has implemented procedures for providing annual escrow account notices.
• Ensure loan officers completed S.A.F.E. Act license renewal procedures.
• Ensure an annual independent S.A.F.E. Act audit has been performed.
• Ensure lenders who receive compensation based on insurance sales (credit life/disability) complete license renewal procedures.
• Ensure the bank has documented whether or not they meet the definition of a small servicer and that documentation of the determination is retained for record retention.
• Ensure the bank has documented whether or not they meet the definition of a small creditor and that documentation of the determination is retained for record retention.
• Review the final list or rural or underserved counties for 2017, calculate rural or underserved status by address on the CFPB’s website for covered loans, and ensure the bank has documented whether or not it qualifies for the rural / underserved TILA exemption by originating at least one covered loan in a rural or underserved area and that documentation of the determination is retained for record retention.  Click here to see the rural and underserved list.

 BSA Compliance:

• Ensure annual training was conducted for all employees during 2017 and is scheduled for 2018.  Furthermore, the Board of Directors should also be receiving annual BSA training, which should be documented in the Board minutes.
• Annual reviews should be conducted of all exempt customers for suspicious activity and continued eligibility.
• Update procedures for monitoring high-risk customers and reevaluate the risk levels of each customer designated as high risk.
• Ensure annual due diligence is completed for MSBs, remote deposit capture, private ATM customers, and deposit brokers in accordance with the bank’s BSA/AML program.
• NEW Beneficial Ownership and Fifth Pillar Rule: Effective May 11, 2018. The new rule requires covered financial institutions to identify and verify the identity of the beneficial owners of all legal entity customers. It also codifies customer due diligence as a fifth pillar to the traditional four pillars of an effective anti-money laundering (AML) program. The BSA program should be updated for procedures to identify beneficial owners of legal entity customers.  Additionally, institutions should review their existing BSA program for adequate risk-based procedures for customer due diligence.

 

By: James Moore, CRCM

The CFPB recently updated the Real Estate Settlement Procedures Act and Truth in Lending Act Mortgage Servicing Rules Small Entity Compliance Guide.  The update includes guidance for the October 2017 interim final rule and the 2016 Mortgage Servicing Rule.

The 2017 interim final rule makes clarifications to the 2016 Mortgage Servicing Rule to address questions with early intervention requirements in regards to ceasing communication protection under the Fair Debt Collection Practices Act and provides periodic statement commentary for borrowers in bankruptcy. 

The 2016 Mortgage Servicing Rule became effective October 19, 2017 and makes significant changes to The 2016 Mortgage Servicing Rule effective October 19, 2017 clarifies, revises, or amends provisions regarding force-placed insurance notices, policies and procedures, early intervention, and loss mitigation requirements under Regulation X’s servicing provisions; and prompt crediting and periodic statement requirements under Regulation Z’s servicing provisions.  The final rule also addresses proper compliance regarding certain servicing requirements when a person is a potential or confirmed successor in interest, is a debtor in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act. 

Small servicers should pay close attention to changes in the wording of force-placed hazard insurance notices that are now required.  In addition, a definition for “delinquency” has been added and clarification in the form of commentary has been made for the definition of primary residence as it relates to loss mitigation procedures. 

The Small Entity Compliance Guide is available at: https://www.consumerfinance.gov/documents/1549/201611_cfpb_Mortserv_guide_v3.pdf

On June 29, 2017 the Georgia Department of Banking and Finance (DBF) adopted Final Rules that were originally proposed in May 2017.  The issued rulemaking addresses a wide range of changes to State banking regulation.  A link to the rules can be found here. 

One BSA related change of note, the DBF slightly amended when state-chartered institutions must send a copy of a filed Suspicious Activity Report (SAR) to the Department.  The DBF removed the requirements to forward the SAR when the report involves a loss or potential loss of $100,000 or more and when filing on a money-service business (MSB) that is a customer of the institution.  The DBF also added additional notification requirements.  See below for the current notification requirements.

Chapter 80-9-1-.02 (1) A state chartered financial institution filing a suspicious activity report (SAR) with a federal authority must send a copy of such report to the Department promptly after filing the SAR if:

(a) The SAR involves a director, officer, employee, or principal shareholder of the state chartered financial institution, or a known immediate family member, related interest, or an affiliate of a director, executive officer, or principal shareholder of the state chartered financial institution;

(b) The SAR indicates that a financial institution is a suspect or otherwise indicates the possibility that such financial institution violated the law; or

(c) The SAR involves an affiliate or subsidiary of the financial institution.

(2) Along with any SAR forwarded to the Department, a financial institution shall also notify the Department when law enforcement or the financial institution's insurers, including, but not limited to surety companies, have been notified of the underlying activity.
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It is recommended that state-chartered institutions update their BSA procedures for the changes. 

By: Jeremy Clifton, CRCM, CAMS

On July 10, 2017 the CFPB issued its final rule which limits financial institutions’ ability to utilize arbitration agreements.  The rule prohibits the compulsory waiver of class action suits via pre-dispute arbitration agreements.   The rule takes effect on September 18, 2017 but compliance is not mandatory until on or after March 19, 2018.  Institutions should review consumer deposit, credit card, and loan agreements as pre-dispute arbitration agreements are quite common.  It may be necessary for institutions to update these documents manually or to contact providers to determine if these forms are available without the pre-dispute language.  If an institution is to retain allowable types of pre-dispute arbitration agreements, such agreements must now contain new model language and require submission of certain arbitration records to the CFPB.  See the CFBP’s page for further guidance here. 

​While the House passed a resolution on July 26, 2017 to override the arbitration rule, there is no word from the Senate on an impending vote.  We will provide updates on any changes of the status of these rules.