Author: Jeremy Clifton, CRCM, CAMS

On October 26, 2022, the CFPB published a Compliance Bulletin, Bulletin 2022-06, which makes the case that Returned Deposited Item fees should be considered unfair under the Consumer Financial Protection Act. Returned Deposited Item fees or Chargeback Item fees are generally assessed when a check is returned to the consumer because it could not be processed against the account from which it was drawn. This could happen for various reasons including insufficient funds in the account where funds were drawn, stop payments, and missing signatures. The CFPB sees the fee as unfair noting that consumers generally cannot anticipate which item might be returned, thus they cannot reasonably avoid the fee.  Financial institutions should review this bulletin and practices relative to charging Returned Deposited Item fees. Community banks generally charge small, if any, fees for Returned Deposited Item fees on consumer accounts; therefore, ceasing to charge the fee would likely have little financial impact for most institutions.
 
For more information, please click the link below.
Bulletin 2022-06

Author: Andrew Howard

On October 26, 2022, the CFPB published a circular concerning the assessment practices of unanticipated overdraft fees, all financial institutions should read this guidance; however, its generally only applicable to institutions with an overdraft program which use the available balance for determining overdrafts. These are the same overdraft fees that the CFPB referred to as “surprise overdraft fees” in its recent $191 million order with Regions Bank. The FDIC has also weighed in on these types of overdraft fees in a 2019 Consumer Compliance Supervisory Highlights publication. “APSN” or, authorize positive settle negative, is the occurrence of a transaction that authorizes on a positive balance but settles on a negative balance, thus incurring a fee. The fee(s) charged for APSN transactions have been considered unfair and abusive by the CFPB and can be considered as such even with the presence of clear disclosures. The circular highlights that although a bank may provide disclosures related to transaction processing and overdraft assessment policies, these may still leave the consumer in doubt of when their transactions will post and will they incur fees. The October circular notes that considering the complex systems used by financial institutions, examiners should closely scrutinize whether and when charging overdraft fees may be contrary to Federal consumer financial law.  Considering the general policy statements and blog posts, banks should analyze their fee polices to identify any fees that could be considered “unanticipated” or “junk” fees.
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The CFPB continues to “promulgate” via policy statements, circulars, and the like; however, clear guidance via law or regulation seem to not be a priority. By only issuing these policy statements, which do not impose any legal requirements, the CFPB has made it difficult for banks that are seeking to comply with the rules.  However, in an October press release The White House has noted NSF fees, overdraft fees, and credit card late payment fees as “junk fees”. We will all have to wait and see if any law or regulation is promulgated or if additional guidance will be provided by the CFPB or any of the other prudential regulators on these issues.
 
For more information, please visit the following links:
Circular 2022-06
FDIC Consumer Compliance Supervisory Highlights
Regions Order

Author: Steve Shepherd, CRCM

On May 9, 2022, the OCC (Office of the Comptroller of the Currency) published a final rule that modified the Customer Assistance Group Address found within 12 CFR 14, 12 CFR 25, 12 CFR 128.5, and 12 CFR 1002.9(b)(1).  This address is used in the bank’s CRA (Community Reinvestment Act) notice, Equal Housing poster, and ECOA (Equal Credit Opportunity Act) notices. The ECOA notices affect the addresses used on certain ECOA disclosures including denial notifications. The updated address has changed to P.O. Box 53570, Houston, Texas 77052.
 
Follow the applicable address based on the bank’s asset size and/or geographic location for the CRA notice requirements. Please see the following URL for clarification: https://www.occ.treas.gov/news-issuances/bulletins/2021/bulletin-2021-35.html. CRA notices will also need to include an email address which consumers can utilize for CRA contact at the OCC. The email address for all OCC banks is CRAComments@occ.treas.gov.
 
ECOA Notice: OCC banks with less than $10 Billion in assets
Office of the Comptroller of the Currency
Customer Assistance Group
P. O. Box 53570
Houston, TX 77052
FHA Notice:
Office of the Comptroller of the Currency
Customer Assistance Group
P. O. Box 53570
Houston, TX 77052
 
For more information, please visit the following URL:
https://www.occ.gov/news-issuances/bulletins/2022/bulletin-2022-15.html

Author: Steve Shepherd, CRCM
 
On May 31, 2022, all five federal agencies issued a revised Interagency Questions and Answers Regarding Flood Insurance.  The Question & Answer Guidance is largely a context reorganization of the July 2020 proposed guidance and the March 2021 proposed guidance to make it easier for the compliance community to research topics regarding flood insurance requirements.  The new Question & Answer Guidance supersedes the 2009 and 2011 guidance.  For more information, please refer to the officer Federal Register entry at:
​
https://www.federalregister.gov/documents/2022/05/31/2022-10414/loans-in-areas-having-special-flood-hazards-interagency-questions-and-answers-regarding-flood
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Some noteworthy responses have been identified and are noted below; however, full detail is located in the Question & Answer Guidance. 

Applicability 6
The Agencies clarified whether modifications due to Covid repayment ability trigger a MIRE event subject to the flood rules.  Under the revised Q&A, “if a loan modification or restructuring involves recapitalizing delinquent payments and other amounts due under the loan, or amounts that were otherwise originally contemplated to be part of the loan pursuant to the contract with the borrower, into the loan’s outstanding principal balance and the maturity date of the loan otherwise stays the same, the Regulation would not apply because the modification or restructuring would not increase, extend, or renew the terms of the loan.”

Applicability 12
The Agencies clarified issues and cases where coverage under the NFIP is not available.  Under the new Q&A the Agency noted that lenders may originate loans without flood insurance coverage but must comply with all other parts of the regulation.  The Agency noted that there are other safety and soundness considerations and the option of obtaining private flood insurance is available.  Additionally, the Agency expects flood insurance to be obtained, and if necessary, by force placement, once the NFIP coverage becomes available.

Applicability 14
The Agencies provided clarification on what, if any, portfolio-wide flood insurance policies meet the flood insurance purchase requirements.  The Q&A states: “A lender may not rely on an insurance policy providing portfolio-wide coverage to meet the flood insurance purchase or force placement requirements if the policy only provides coverage to the lender (“single interest”). In contrast, lenders may purchase a master flood insurance policy that provides coverage for its entire portfolio and covers both the lender and the borrower (“dual interest”). Such policies provide coverage for the entire portfolio as well as individual coverage and include the issuance of an individual property policy or certificate after the required notice period.”

Exemptions 1
The flood Q&A offers three exemptions to obtaining flood insurance:  1) State-owned property covered under a policy of self-insurance satisfactory to the Administrator of FEMA; 2) loans where the original principal balance is less than $5,000 and the repayment term is one year or less; and 3) any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence.

Exemptions 3
Clarifies that even if the loan is secured by exempt structures that a flood determination must be pulled on that property.

Mandatory 4
The flood Q&A clarified that a lender is not required to accept a private flood insurance policy solely because the policy contains a compliance aid statement alone and may choose to make its own decision as to whether the policy meets the definition of private flood insurance.

Mandatory 6
Clarifies what additional due diligence needs to be conducted by the lender if the private flood insurance policy contains the compliance aid statement.  The additional review conducted would need to include the adequacy of coverage review to determine if the amount of flood insurance covered by the policy is sufficient. 

Discretionary 2
Clarifies the documentation requirements of discretionary acceptance.  Under the new Q&A, the lender is required to document their conclusions in writing and consistent with general safety and soundness principles.

Discretionary 4
Provides “some” safety and soundness principles to determine if the private flood insurance policy provides sufficient coverage.  These are enumerated as: “(1) a policy’s deductible is reasonable based on the borrower’s financial condition; (2) the insurer provides adequate notice of cancellation to the mortgagor and mortgagee to allow for timely force placement of flood insurance, if necessary; (3) the terms and conditions of the policy, with respect to payment per occurrence or per loss and aggregate limits, are adequate to protect the regulated lending institution’s interest in the collateral; (4) the flood insurance policy complies with applicable State insurance laws; and (5) the private insurance company has the financial solvency, strength, and ability to satisfy claims.”

SFHDF 4
Clarifies that a lender may rely on an old flood determination for the increase, renewal, or extension of a loan.  However, if the lender makes multiple loans to the same borrower, the lender may rely on previous flood determinations so long as the previous determination is no more than 7 years old and there have been no map revisions or map updates.

Zone 1
Clarifies that an institution no longer needs to reconcile differences between flood zones found on a flood determination and a flood insurance policy.  This is because the policies issued under FEMA’s Risk Rating 2.0 are no longer determined by the zone.  The flood zone will also no longer appear on the declaration page of NFIP policies.

Zone 3
Clarifies that if a dispute arises between the borrower and the lender as to if a property is located in an area requiring flood insurance, the dispute should be resolved through FEMA.

Notice 2
The Agencies indicated that 10 days prior to closing is regarded as a reasonable time to provide the notice but states that the timing requirement must be sufficient in that the borrower has the opportunity to be aware of their responsibilities timely and has the opportunity to purchase flood insurance before completion of the loan transaction.

Amount 2
The Agencies included the definition of “insurable value.”  According to the Q&A, “The insurable value of the building may generally be the same as 100 percent Replacement Cost Value (RCV), which is the cost to replace the building with the same kind of material and construction without deduction for depreciation. In calculating the amount of insurance to require, the lender and borrower (either by themselves or in consultation with the flood insurance provider or other appropriate professional) may choose from a variety of approaches or methods to establish the insurable value. They may use an appraisal based on a cost-value (not market-value) approach, a construction-cost calculation, the insurable value used on a hazard insurance policy (recognizing that the insurable value for flood insurance purposes may differ from the coverage provided by the hazard insurance and that adjustments may be necessary), the replacement cost value listed on the flood insurance policy declarations page, or any other reasonable approach, so long as it can be supported.”

Amount 8
Clarifies that a lender can require more flood insurance coverage than is required by the regulation; however, the financial institution should “assist the borrower in avoiding paying for coverage that exceeds the amount the insured would recover in the event of a loss.”

Construction 5
Clarifies that the 30-day waiting period for insurance applies when a construction loan borrower does not obtain flood insurance at the time of making, increasing, renewing, or extending the loan.

Other Security Interests 7
Clarifies that the amount of contents coverage must be reasonable based on the contents and the collateral value of the loan.  An example is given in the Q&A which limits flood insurance based on maximums but also takes into account the estimates of values of contents.

Other Security Interests 12
Clarifies that loans with personal guarantees that are secured by real estate located in a flood zone are subject to the flood requirements.

By: Jeremy Clifton, CRCM, CAMS

On Thursday, August 18, 2022, the FDIC provided additional formal supervisory guidance on multiple re-presentment NSF fees that goes much further than the initial guidance provided via the Spring 2022 FDIC Consumer Compliance Supervisory Highlights.  The initial guidance provided by the FDIC in March of 2022 gravitated more to the deceptive standard in UDAP and provided risk-mitigating steps such as providing clear disclosures as to whether multiple NSF fees may be assessed in connection with a single transaction, the maximum number of fees that can be assessed on a single transaction, and the frequency with which such fees can be assessed.  The August Supervisory Guidance also focuses on the unfairness standard and notes, “In particular, a risk of unfairness may be present if multiple NSF fees are assessed for the same transaction in a short period of time without sufficient notice or opportunity for customers to bring their account to a positive balance in order to avoid the assessment of additional NSF fees. While revising disclosures may address the risk of deception, doing so may not fully address the unfairness risks.”

It seems like charging multiple NSF fees on re-presented items is going to be a thing of the past or that at least most financial institutions should pause the practice until better disclosures of practices can be provided to customers.  However, not charging fees on multiple re-presentments appears to be the safe decision at this time as the guidance does not define “a short period of time” and financial institutions have little power to determine how quickly an item might be re-presented by a merchant or other individual. Further, the FDIC makes it clear that financial institutions which have not self-identified and fully remediated the issue prior to an exam will face possible UDAP violations, along with restitution and possible civil money penalties.

The August Supervisory Guidance indicates that examiners will generally not cite UDAP violations if the issue has been fully corrected prior to the start of the examination. Further, it notes that a two-year lookback period for restitution of fees charged on multiple re-presentments was generally acceptable because of limited access to prior information. You can read the full FIL here:
​Supervisory Guidance on Multiple Re-Presentment NSF Fees (fdic.gov)

By: R. Matthew Waters

On August 8, 2022, the FDIC announced that the former Consumer Response Center and the Deposit Insurance Section have been consolidated and renamed to the National Center for Consumer and Depositor Assistance (NCDA).  This change affects the Fair Housing Rule and the Consumer Protection in Sales of Insurance Rule.  The FDIC notes that this correction does not change any FDIC requirements affecting its supervised institutions.

Financial institutions should replace any mention of the outdated “Consumer Response Center” and “Deposit Insurance Section” with the current “National Center for Consumer and Depositor Assistance” as well as to correct web addresses.  This includes Equal Housing Lender Posters, any posting of the ECOA notice including adverse action notices, and any listing of the Customer Grievance Process under the Consumer Protection in Sales of Insurance rule.  The updated Equal Housing Lender Poster is available via FDIC Connect:
https://www.fdicconnect.gov/index.asp. 
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The updated mailing address is posted below:

Mailing address:
FDIC National Center for Consumer and Depositor Assistance
Consumer Response Unit
1100 Walnut Street, Box #11
Kansas City, MO 64106
 
To see the full article, click the following link:
Federal Register :: Fair Housing Rule, Consumer Protection in Sales of Insurance Rule; Technical Correction

By: Jeremy Clifton, CRCM, CAMS

On May 31, 2022, all five federal agencies issued a revised Q&A regarding flood insurance coverage. The Q&A is largely a context reorganization of the July 2020 Proposed Q&A and the March 2021 Proposed Q&A to make it easier for the compliance community to research topics regarding flood insurance requirements. The new Q&A supersedes the 2009 and 2011 Q&A responses which have been revised based on updated responses and recommendations from the compliance and banking community. For more information, please refer to the Federal Register entry at: https://www.federalregister.gov/documents/2022/05/31/2022-10414/loans-in-areas-having-special-flood-hazards-interagency-questions-and-answers-regarding-flood
 
The FDIC will be hosting an interagency webinar to discuss the 2022 Interagency Questions & Answers Regarding Flood Insurance on July 27, 2022. Registration is required and questions can be submitted for consideration before the presentation. For more information and registration see the FDIC’s bulletin: https://content.govdelivery.com/accounts/USFDIC/bulletins/31e467f

By: Steve Shepherd, CRCM

On July 7, 2022, the CFPB (Consumer Financial Protection Bureau) issued an advisory opinion on permissible purposes for obtaining and providing credit reports under section 604 of the FCRA (Fair Credit Reporting Act). The advisory opinion primarily focused on the information submitted to a credit reporting bureau by institutions requesting credit bureau information. The CFPB opinion made it clear that users and agencies have a responsibility to protect the privacy of consumer data.

Under the FCRA, users of consumer reports may request a consumer report only under the enumerated “permissible purposes” outlined within section 604 of the FCRA. That purpose is certified by section 607 of the FCRA through a general or specific purpose. Users of consumer reports submit certain information to the credit reporting bureau to ensure that the request pertains to the consumer of which the information is requested. The institution should ensure that the information identifiers being used contain sufficient information to conduct a search that would avoid obtaining a credit report on a different party or multiple parties. For example, if the institution obtains credit reports by inputting only the name of the party, the institution should develop stronger safeguards to ensure that the credit report belongs to the intended party. Some credit reporting agencies only use the name search options based on information placed in the request portal. The Bureau noted that such credit reports often contain a disclaimer indicating that the consumer report was obtained based on name only matching. The CFPB clarified that such disclaimers do not cure a permissible purpose issue.

Lastly, section 619 of the FCRA imposes criminal penalties on any person who knowingly and willfully obtains information from a consumer reporting agency under false pretenses. 

For more information, please visit the following link: https://www.consumerfinance.gov/rules-policy/final-rules/fair-credit-reporting-permissible-purposes-for-furnishing-using-and-obtaining-consumer-reports/

By: Hunter Brown, Financial Institution Specialist
 
On July 6, 2022, the FED, FDIC, FinCEN, NCUA, and OCC (collectively, the Agencies) released a joint statement clarifying their stance on the risk-based approach currently employed by financial institutions to satisfy customer due diligence requirements. The Agencies state that not all customers of a particular type present a uniform risk level. Instead, additional risk factors should be evaluated to generate a holistic risk-profile. The Agencies once again noted that financial institutions should consider risk at a customer level instead of declining to provide banking services to entire categories of customers (e.g. PATM, NRA, NGO, and MSB).
 
To read the full statement, please follow this link:
 
https://www.fincen.gov/sites/default/files/2022-07/Joint%20Statement%20on%20the%20Risk%20Based%20Approach%20to%20Assessing%20Customer%20Relationships%20and%20Conducting%20CDD%20FINAL.pdf

By Steven Shepherd, CRCM

HUD (Housing and Urban Development) has revised the SCRA notices that are generally sent along with mortgage loan statements and/or mortgage delinquency notices.  Financial institutions should ensure that the current revised form is being utilized. The revised version of the SCRA notice has an updated URL address to provide resources to members of the military and contains an updated expiration date of November 30, 2024.  The new notice contains all the original provisions designed to alert eligible servicemembers of their rights to exercise legal protections, including interest rate reductions. The form also provides instructions for servicemember dependents to obtain relief under the Servicemember Civil Relief Act. The revised HUD-92070 can be found on HUD’s form website at:
 
https://www.hud.gov/program_offices/administration/hudclips/forms/hud9
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