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/
​

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.
​
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. 

By:  Brad Washburn, CRCM, CAMS

In response to increasing concerns from community banks and credit unions over challenges and costs presented, on July 14, 2017 the Consumer Financial Protection Bureau (CFPB) issued a proposal that would impact HMDA reporting requirements for home-equity lines of credit (HELOCs) and other open-end lines of credit secured by a lien on a dwelling.  Under rules that are scheduled to take effect in January 2018, a financial institution is generally required under the Regulation C (HMDA) to report HELOCs and other open-end lines of credit secured by a lien on a dwelling if they made 100 of such loans in each of the last two years.  This is a significant change from the current rule where reporting of HELOCs and other open-end lines of credit secured by a lien on a dwelling is optional. 

The new proposal would increase that threshold to 500 loans per year through calendar years 2018 and 2019 to give the CFPB more time to consider whether to make a permanent adjustment to the institutional coverage and transactional reporting threshold for HELOCs and similar loans.  The proposal also includes transitional rules and optional reporting for institutions that exceed the threshold in either of the last two years.   

The proposed rule is available here.

​The public comment period is open until July 31, 2017. The CFPB has indicated it will issue a separate proposal with a longer notice and comment process to consider adjustments to the permanent threshold at a later date.

By:  Brad Washburn, CRCM, CAMS
​
On July 7, 2017, the Consumer Financial Protection Bureau (CFPB) issued a final rule (2017 Rule) to amend and clarify certain TRID mortgage disclosure provisions implemented by Regulation Z.  The 560-page final rule codifies previous informal guidance and some of the proposed changes provided by the CFPB in July 2016.  These changes provide greater certainty for stakeholders to facilitate implementation. The CFPB also released a limited follow-up proposal to address an unresolved implementation issue related to using revised Closing Disclosures to reset tolerances for changed circumstances occurring near consummation.   

In addition to clarifications and technical corrections, the amendments address several implementation issues within the rule, including:  

• Partial Payment Disclosures and Escrow Closing Notices
• Loans Secured by Cooperatives
• Loans to Certain Trusts
• Partial Exemption for Certain Housing Assistance Loans
• Construction Loans
• Simultaneous Subordinate Lien Loans
• Tolerances for Total of Payments Disclosure
• Good Faith and Revised Disclosures
• Decimal Places and Rounding
• Calculating Cash to Close
• Other Disclosures in Loan Estimates and Written Lists of Providers
• Other Disclosures in Closing Disclosures
• Sharing Disclosures with Various Parties During the Origination Process

The 2017 Rule will be effective 60 days after its publication in the Federal Register; however, mandatory compliance will be required for an application received on or after October 1, 2018, with one exception. The rules relating to the escrow closing notice and partial payment disclosure requirements apply starting October 1, 2018 without regard to when the creditor or mortgage broker receives the application. 

The 2017 Rule also includes an optional compliance period, which begins on the to-be-determined effective date.  Beginning on the effective date, a financial institution may choose to comply with the 2017 Rule for an application received before October 1, 2018.  Generally, during this optional compliance period, a financial institution may comply with the changes outlined in the 2017 Rule all at one time or phase in the changes over time.  Additionally, for an application received prior to October 1, 2018, optional compliance continues to apply to that transaction after October 1, 2018 except as noted above for the escrow closing notice and partial payment disclosure. 

As previously mentioned, the CFPB is issuing a proposal addressing when a creditor may use a revised Closing Disclosure to determine if an estimated closing cost was disclosed in good faith and within tolerance.  This proposal reopens an issue that the CFPB previously attempted to address in its July 2016 proposal.  If finalized, the proposal would allow creditors to use either the initial or a revised Closing Disclosure within three business days of learning of a changed circumstance to reset tolerances for purposes of determining if a revised estimated closing cost was disclosed in good faith, regardless of when the Closing Disclosure is provided relative to consummation.  Comments are due 60 days after the proposal’s publication in the Federal Register and will be reviewed by the CFPB before a final regulation is issued.  

In addition, the CFPB has announced it will update the TILA-RESPA Integrated Disclosure Rule Small Entity Compliance Guide and Guide to the Loan Estimate and Closing Disclosure Forms.  To see the complete final rule and proposal, follow the links below.  

The finalized amendments are available here.

The proposal is available here.

Consistent with previous TRID rules, the 2017 Rule is complex, and contains many technical requirements which can present significant implementation challenges.  As such, Steve H. Powell and Company is excited to announce we will be hosting a 2017 TRID Final Rule Webinar to break down the new rules and provide practical tips to assist stakeholders in preparation for the new rules.  Stay tuned for more information regarding this learning opportunity.  

The Georgia Department of Banking and Finance recently released their May 2017 bulletin which contains a new interpretation on financial institutions’ responsibility when cashing checks for non-customers.  The DBF’s announcement does not appear to be based on any new rulemaking.   The bulletin states,

“Financial institutions are still responsible for the verification of a person’s identity when processing a transaction, such as cashing checks. The institution should verify the identity of the person receiving the proceeds and obtain and retain a record of the name and address, the type of identification reviewed, the number of the identification document (e.g., driver’s license), and the person’s taxpayer identification number (e.g., social security or employer identification number) or, if none, alien identification number or passport number and country of issuance. Verification of the identity of an individual who indicates that he or she is an alien or is not a resident of the United States may be made by passport, alien identification card, or other official document evidencing nationality or residence (e.g., a foreign driver’s license with identification of home address).”

This commentary would require many institutions to increase the documentation currently obtained for non-customer check cashing.  However, the bulletin states institutions should establish limits and utilize a risk-based approach to the category of checks the institution will accept.  Although acknowledging that certain checks pose less of a risk, it is unclear whether the bulletin’s identification procedures will be an agency expectation of all non-customer check cashing procedures or will be risk-based depending on the check cashing services offered by the bank. 

At this time, it is our recommendation that institutions consider implementing these verification procedures for non-customer check cashing for items other than on-us, payroll, or government checks.  Institutions may also want to consider applying the verification procedures when cashing on-us, payroll, or government checks above a determined dollar threshold. 


To read the DBF’s bulletin. Click here.