On December 29, 2016 the joint federal agencies issued a press release disclosing annual adjustments to the CRA asset size thresholds.  The definitions of small and intermediate small institutions for CRA examinations will change as follows:

• "Small bank" or "small savings association" means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.226 billion.
  
  
• "Intermediate small bank" or "intermediate small savings association" means a small institution with assets of at least $307 million as of December 31 of both of the prior two calendar years and less than $1.226 billion as of December 31 of either of the prior two calendar years.

Additionally, the press release included an FDIC administrative change to both the CRA main office and branch lobby notices.   The current notice states that Regional Managers are the proper agency officials responsible for making available the lists of the banks scheduled for CRA examination in any particular quarter and receiving any public comment regarding the CRA performance of any of those banks.  However, a technical change was made to the responsible official’s title from Regional Manager to Regional Director. In addition, since the original notice requirements were written, a website was designed to receive public comments electronically. The amendments made in this notice reflect those two changes.

The associated changes to the CRA notice requirements will compel covered institutions to print and post the revised CRA notices in their main and branch offices.
 
The Press Release can be found here.
 
The Federal Register notice with model CRA language can be found here. 

The Office of the Comptroller of the Currency (OCC) recently released two detailed publications regarding a Survey of Credit Underwriting Practices for 2016 and a Semiannual Risk Perspective from the National Risk Committee.  The Federal Reserve also recently released a new edition of The Beige Book.  These publications offer insight regarding the credit cycle, underwriting, regulatory compliance challenges, concentration management, interest rate risk, operational risks, cyber threats, and other topics.  For Steve H. Powell & Company updates regarding regulatory compliance issues, please subscribe to our Compliance Pipeline. 
 
Primary findings of the Survey of Credit Underwriting Practices note generally acceptable, but loosening, underwriting standards that are consistent with previous credit cycles:

• Banks continue to ease underwriting practices in response to competitive pressures, expanding credit risk appetites, and a desire for loan growth.
• While overall underwriting practices remain satisfactory, an increasing tolerance for looser underwriting has resulted in continued movement from more conservative underwriting practices to more moderate underwriting practices, a trend consistent with past credit cycles.
• Credit risk has increased since the 2015 survey in commercial and retail lending activities, and examiners expect the levels of credit risk in these areas to increase over the next 12 months. Primary areas of concern are aggressive growth rates, weaknesses in concentration risk management, deterioration in energy related portfolios, and the continued general easing of underwriting practices.

 
The Semiannual Risk Perspective (regarding the first half of 2016) noted increased revenue but decreased net income due to an increase in provision expenses.  The publication also notes stronger return on equity (ROE) in banks with assets of less than $10 billion as compared to banks with assets of more than $10 billion.  The report details:

• Strategic planning remains important as banks adopt innovative products, services, and processes in response to the evolving demands for financial services and the entrance of new competitors, such as out-of-market banks and financial technology firms (fintech firms).·        
• Continued incremental easing in underwriting standards is a concern as banks strive to achieve loan growth and to maintain or grow market share. Easing of underwriting standards in commercial, CRE, and auto lending presents increasing credit risk.
• Rapid CRE loan growth over the past year and recent underwriting reviews raise concern over the quality of CRE risk management, particularly managing concentrations.
• Operational risk remains a concern as banks deal with changing cyber security threats, increased reliance on third-party relationships, and address the need for sound governance over sales practices.
• Some banks continue to face challenges in complying with Bank Secrecy Act (BSA) requirements as money laundering and terrorism financing methods evolve.
• Change management processes are posing a challenge as banks allocate resources to implement processes and controls for multiple new or amended regulations including the integrated mortgage disclosures under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act
• (RESPA) and the new requirements under the amended regulation implementing the Military Lending Act (MLA).

 
 
Also, in additional detail, the publication discusses a mixed commercial real estate (CRE) outlook, potentially subdued GDP growth, expectations of farm income continuing to decline (in 2016 – per USDA projections), stable but historically low net income margins, segments leading commercial loan growth, and increasing loss severity in auto lending.

One more year has passed, and we are faced with the new challenges of 2017.  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 2016 and make plans to provide Reg. CC training during 2017.
• Annual privacy training should have been provided for 2016 to all Bank personnel and make sure annual privacy training is scheduled for 2017.  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.

 
Loan Compliance:

• The 2016 HMDA LAR and CRA LAR for large institutions must be submitted by March 1, 2017.
• 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, 2017.
• 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 2017 HOEPA points and fees test will use the following:
  • > 5% of loan amounts of 20,579 or more
  • > lesser of 8% of loan amounts under 20,579 or $1,029
• The 2017 QM points and fees test will use the following:
  • For a loan amount greater than or equal to $102,894: 3% of the total loan amount
  • For a loan amount greater than or equal to $61,737 but less than $102,894: $3,087
  • For a loan amount greater than or equal to $20,579 but less than $61,737: 5% of the total loan amount
  • For a loan amount greater than or equal to $12,862 but less than $20,579: $1,029
  • For a loan amount less than $12,862: 8% of the total loan amount
• The 2017 Truth In Lending threshold remains $54,600 for loans not secured by real property and private education loans.
• The 2017 “small creditor” threshold is $2.069 billion.
• The 2017 “small loan” exemption for HPML appraisal rules remains $25,500.
• 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 2016.  Further, ensure that the Board of Directors has received annual fair lending and CRA training for 2016.  Training should be planned for 2017.
• CRA asset size thresholds for 2017 are under $307 million for small bank, at least $307 million up to $1.226 billion for intermediate small bank, and $1.226 billion and over for large bank.
• The HMDA asset size threshold for 2017 remains $44 million
• NEW REQUIREMENT for 2017 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 home purchase loans, including refinancings of home purchase loans.  Ensure a review of 2015 and 2016 LAR data is conducted for 2017 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 complete S.A.F.E. Act license renewal procedures.
• Ensure annual independent S.A.F.E. Act audit has been performed.
• Ensure lenders who receive compensation based off of 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 of rural or underserved counties for 2016, 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:

• Ensure annual training was conducted for all employees during 2016 and is scheduled for 2017.  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.

 
Finally, ensure that all risk assessments are updated to reflect the Bank’s current risk profile (e.g. Regulatory Compliance Risk Assessment, Enterprise Wide BSA/AML Risk Assessment, OFAC Risk Assessment, Fair Lending Risk Assessment, etc.).  Ensure all policies and written programs have annual Board of Directors approval.