By: Nash Cullens

On December 3, 2019, the Board of Governors of the Federal Reserve System, the FDIC, FinCEN, the OCC in consultation with the Conference of State Bank Supervisors issued a statement regarding the legal status of commercial growth and production of hemp and requirements of Banks relative to the Bank Secrecy Act.  Due to the 2018 Farm Bill removing hemp from the Schedule I controlled substance list under the Controlled Substance Act, Banks are no longer required to file Suspicious Activity Reports on legal hemp related activities solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. Banks are still required to follow standard SAR filing procedures and/or file a SAR in the case any suspicious activity arises.  Bank customers participating in hemp-related business activities are responsible for complying with the requirements of the 2018 Farm Bill and applicable state regulations.  Banks should consider filing SARs as appropriate when hemp related businesses are found to be operating in contravention of state and federal requirements.

Key points per the joint press release:

• Consistent with the USDA interim final rule, hemp may be grown only with a valid USDA issued license or under a USDA-approved state or tribal plan. Research and development initiatives authorized under the Agricultural Act of 2014 (2014 Farm Bill) remain in effect until one year after the effective date of the USDA interim final rule.
• A state or tribal government may prohibit the production of hemp, even though it is legal under federal law. The 2018 Farm Bill provisions related to USDA-approved state or tribal plans did not preempt state or tribal laws regarding the production of hemp that are more stringent than federal law.
• Separately, marijuana is still a controlled substance under federal law. The 2018 Farm Bill amended the definition of marijuana only to exclude hemp from the Controlled Substances Act.

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For more guidance in relation to Marijuana Related Businesses Banks should reference FinCEN guidance FIN-2014-G001.

For more information relative to SARs and legal hemp related activities please refence the following link. https://www.fdic.gov/news/news/press/2019/pr19115.html

If your bank operates in Georgia, the Department of Agriculture’s website notes that hemp related agriculture licenses are not available at this time and will not be available until the state finalizes its hemp guidelines. http://agr.georgia.gov/georgia-composing-plan-to-comply-with-federal-and-state-hemp-guidelines.aspx

 By James M. Moore, CRCM
 
One more year has passed, and we are faced with the new challenges of 2020.  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 2019 and make plans to provide Reg. CC training during 2020.
• Annual privacy training should have been provided for 2019 to all bank personnel and make sure annual privacy training is scheduled for 2020.  Furthermore, ensure that the Board of Directors has received privacy training.
• Ensure annual privacy disclosures will be mailed during 2020 or verify the bank’s exemption status for 2020.   
• 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.

 Loan Compliance:

• The 2019 HMDA LAR and CRA LAR for large institutions must be submitted by March 1, 2020.
• 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, 2020.
• 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 2020 HOEPA points and fees test will use the following:
  • > 5% of loan amounts of $21,980 or more
  • > lesser of 8% of loan amounts under $21,980 or $1,099
• The 2020 QM points and fees test will use the following:
  • For a loan amount greater than or equal to $109,898: 3% of the total loan amount
  • For a loan amount greater than or equal to $65,939 but less than $109,898: $3,297
  • For a loan amount greater than or equal to $21,980 but less than $65,939: 5% of the total loan amount
  • For a loan amount greater than or equal to $13,737 but less than $21,980: $1,099
  • For a loan amount less than $13,737: 8% of the total loan amount
• The 2020 Truth In Lending threshold increases to $58,300 for loans not secured by real property and private education loans.
• The 2020 “small creditor” threshold is $2.202 billion as of December 31, 2019.
• The 2020 “small loan” exemption for HPML appraisal rules is $27,200.
• 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 2019.  Further, ensure that the Board of Directors has received annual fair lending and CRA training for 2019.  Training should be planned for 2020.
• CRA asset size thresholds for 2020 are under $326 million for small bank, at least $326 million up to $1.305 billion for intermediate small bank, and $1.305 billion and over for large bank (based on the last two calendar years).
• The HMDA asset size threshold for depository institutions for 2020 is $47 million.
• 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 2020 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 2018 and 2019 transaction data is conducted for 2020 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 2019, 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.

 BSA Compliance:
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• Schedule a Board review and approval of current BSA/AML and OFAC program policies.
• Update the BSA/AML and OFAC Risk Assessments.
• Ensure annual training was conducted for all employees during 2019 and is scheduled for 2020.  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.

By: Brad Washburn, CRCM, CAMS

On Wednesday, December 18, 2019, the CFPB published two guides on preparing TRID disclosures for construction-only and construction-permanent loans as required by Regulation Z.  Under Regulation Z, a creditor may treat a construction-permanent loan as either one combined transaction or as two or more separate transactions.  If the loan is treated as one combined transaction, the creditor discloses both the construction phase and the permanent financing phase combined on each disclosure.  If the loan is treated as separate transactions, the creditor provides a separate set of disclosures for each phase of the construction-permanent loan.  The “Combined Guide” provides guidance for disclosing the construction and permanent phases together and the “Separate Guide” provides guidance for disclosing the phases separately, including disclosures for construction only loans.

The Construction Loan Guides (the Guides) were designed to address industry requests for clarification or more formal guidance on the completion of TRID disclosures for construction loans due to the complexity of disclosures for such transactions.  The Guides break down the regulatory requirements for each section of the form into plain language and provide examples to illustrate compliant completion of the forms based upon various scenarios.  The Guides work with other CFPB general TRID resources, including the TILA-RESPA Integrated Disclosure Small Entity Compliance Guide and the TILA-RESPA Integrated Disclosure Guide to the Loan Estimate and Closing Disclosure Forms, to review how to provide particular disclosures on the TRID forms for construction-only and construction-permanent loans.

The Guides do not provide a complete review of the TRID Rule, but instead highlight particular sections of the Loan Estimate and Closing disclosures based on the questions received by the CFPB regarding correct form completion for construction loan disclosures.  At the end of the Guides, there is more information about the TRID Rule and related implementation assistance from the CFPB that can support any of the other pieces not addressed by these guides.

While the Guides pertain to compliance with the TRID Rule, they are not a substitute for the rule.  Only the TRID Rule, its Official Interpretations (also known as commentary), and Appendix D provide complete and definitive information regarding the requirements for construction loans.  However, the discussions, tables, and examples in the Guides provide citations to the sections of the TRID Rule on the subject being discussed for proper reference.

Financial institutions that offer construction only loans and construction-permanent loans may find the Guides helpful to better understand the Loan Estimate and Closing Disclosure requirements for these complex transactions.
 
Follow the link below to access the Combined Guide:
https://files.consumerfinance.gov/f/documents/cfpb_trid-combined-construction-loan-guide.pdf    

​Follow the like below to access the Separate Guide:
https://files.consumerfinance.gov/f/documents/cfpb_trid-separate-construction-loan-guide.pdf 

By: Brad Washburn, CRCM, CAMS

​On December 13, 2019, the FDIC and OCC issued a joint Notice of Proposed Rulemaking (NPR) to comprehensively amend the Community Reinvestment Act's (CRA) implementing regulations, which have not been significantly changed in nearly 25 years.  This proposal builds upon previous efforts by the U.S. Department of the Treasury who released recommendations on April 3, 2018 to modernize the CRA, and previous efforts by the OCC who released an Advanced Notice of Proposed Rule (ANPR) on August 28, 2018 seeking comment on the best ways to modernize the regulatory framework implementing the CRA.
​
Per the NPR, the proposed revisions would seek to modernize and update CRA regulations to better achieve the law's underlying purpose of encouraging banks to serve their communities and are intended to make the regulatory framework more objective, transparent, consistent, and easy to understand. 
 
Consistent with the current CRA framework, the proposed rule would include different performance standards applicable to banks of different sizes by total assets. The proposal would also allow small banks, redefined as banks with $500 million or less in total assets, to continue to be evaluated under the current CRA small bank test or opt into the new general performance standards.  Banks with total assets over $500 million would be evaluated under the new general performance standards and the proposed rule would not include a separate classification for intermediate small banks.  Finally, the proposed regulations would include a strategic plan option available to address the unique needs of banks of any size with business models that could not be effectively evaluated under the proposed standards, such as banks that do not have retail domestic deposits or small banks that do not originate retail loans. 
 
The NPR would seek to modernize the CRA regulations by:
 

• Clarifying and expanding what qualifies for CRA credit

 
Specifically, the proposal provides that the agencies would maintain a publicly available non-exhaustive, illustrative list of examples of qualifying activities that meet the criteria in the rule, as well as examples of activities that the agencies have determined, in response to specific inquiries, do not qualify.  In addition, the proposal would establish a process for a bank to submit a form through the agency’s website to seek agency confirmation that an activity is a qualifying activity.
 

• Expanding where CRA activity counts by creating additional "assessment areas" tied to where deposits originate

 
To ensure that CRA activity continues to have a local community focus where banks maintain a physical presence and conduct a substantial portion of their lending activity, the proposal would still require banks to delineate “facility based” assessment areas around their main office, branches, or non-branch deposit-taking facilities as well as the surrounding areas where banks have originated or purchased a substantial portion of their loans.  However, to recognize the evolution of modern banking services (e.g. mobile banking, online banking, Internet banks, etc.) and the fact that many banks receive large portions of their deposits from outside their facilities-based assessment areas, the proposed rule would require some banks to delineate additional, non-overlapping “deposit-based” assessment areas where they have significant concentrations of retail domestic deposits as defined in the rule, if applicable. 
 

• Providing a more objective method to measure CRA performance by establishing activity thresholds as a percentage of domestic deposits

 
The new general performance standards would assess two fundamental components of a bank’s CRA performance: (1) the distribution (i.e. number) of qualifying retail loans to low-to-moderate income (LMI) individuals, small farms, small businesses, and LMI geographies; and (2) the impact of a bank’s qualifying activities, measured by the value of a bank’s qualifying activities relative to its retail domestic deposits.  Both components would be compared to specific benchmarks and thresholds that would be established prior to the beginning of a bank’s evaluation period.  Banks evaluated under the general performance standards would also be required to meet a minimum community development lending and investment requirement in each assessment area and at the bank level to achieve a satisfactory or outstanding rating.  The proposal would preserve and standardize consideration of performance context in concluding the overall rating, which would allow the agencies to recognize and account for specific facts and circumstances relating to a bank’s CRA capacity and opportunities in a transparent manner.
 

• Revising data collection, recordkeeping, and reporting requirements

 
The proposal would require banks evaluated under the small bank performance standards to collect and maintain, but not to report, data related to their retail domestic deposits so that the agencies could validate their deposit-based assessment area delineations, as applicable.  Banks evaluated under the general performance standards would be required to collect, maintain, and report certain data related to their qualifying activities, certain non-qualifying activities, retail domestic deposits, and assessment areas.  Those banks would also be required to use that information to make the calculations necessary to determine their ratings, based on the application of the performance standards in the proposal.  Prior to a CRA performance evaluation, the evaluating agency would validate the data used in determining a bank’s ratings.  The agencies would provide additional guidance on the data that banks need to collect and maintain under the proposed rule that would standardize the information collected and help banks ensure that they meet the requirements of the rule.  The agencies have also indicated that the data-based evaluation method would reduce the lag time in preparing CRA exam reports.
 
The proposal would also retain many of the current regulation’s provisions related to the public file, planned examination schedules, public notice by banks, and the CRA notice.  Banks would still need to provide public notice to the communities they serve that community members are entitled to CRA-related information. Banks would also need to provide the requested CRA-related information to the community members. CRA-related information would still include information about banks’ branches, locations, and services, comments received from the public related to assessment area needs and opportunities, and responses to those comments. However, banks would not have to provide data reported through HMDA in the public file because the proposal would collect home mortgage data directly instead of relying on HMDA data.  Additionally, recognizing the advances in technology over the past couple of decades, banks would no longer be limited to providing public notice or making available the CRA information through physical means. Instead, banks would have the option to provide public notice or make available CRA-related information on their websites. If a community member who has requested CRA-related information does not have access to the Internet, banks could offer to print out the information at that person’s expense, instead of copying the information from a physical file.
 
Many stakeholders agree the CRA rules need to be modernized to continue working intended, but there have been differences on the recommendations on exactly how to change the rules.  Noticeably absent from the joint proposal is the Federal Reserve who has not yet weighed in on CRA reform by joining this proposal or issuing its own proposal.  If the OCC and FDIC move forward without agreement from the Federal Reserve, banks could be faced with different rules to achieve CRA compliance depending on their primary federal regulator.  However, there is still the possibility that a final interagency rule that includes the Federal Reserve can be achieved, which would provide a consistent regulatory framework for all banks.
 
All financial institutions should carefully review the proposal and begin planning for potential significant impacts to compliance programs and strategic direction stemming from CRA regulatory reform rule changes.  Financial institutions should also consider issuing comments to the regulators to consider improving the rules before finalizing the proposal.  Comments on the NPR must be received  no later than 60 days after publication in the Federal Register.
 
We will closely monitor for additional developments in the CRA reform efforts and will issue an updated newsletter addressing this topic in the future as necessary. 
 
View the entire notice at the following link:
 
https://www.fdic.gov/news/board/2019/2019-12-12-notice-dis-a-fr.pdf