Author: Hunter Brown, CAMS
 
On February 27, 2023, FinCEN issued an alert pertaining to a surge in U.S. mail theft-related check fraud. Fraud schemes related to this issue have been on the rise since the COVID-19 pandemic first began; FinCEN notes that 280,000 check fraud SARs were filed in 2020, 350,000 in 2021, and 680,000 in 2022. Business checks may be more valuable because business accounts are often well-funded and it may take longer for the victim to notice the fraud. Fraudsters may deposit or cash these checks in a variety of ways but ATMs, remote deposit, or the use of money mules are more vulnerable to this type of illicit activity. The alert also includes a list of red flags and a reminder that financial institutions can assist FinCEN in their efforts to stop this activity by including the key term “FIN-2023- MAILTHEFT” in SAR field 2 (“Filing Institution Note to FinCEN”) and in the SAR narrative.
 
In addition to filing a SAR, as applicable, FinCEN is urging financial institutions to refer their customers who may be victims of mail theft related check fraud to the United States Postal Inspection Services (USPIS) at 1-877-876-2455 or https://www.uspis.gov/report.
 
For more information, please visit the link below:
FinCEN Alert, FIN-2023-Alert003, February 27, 2023
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On January 12, 2023, the Justice Department announced that it had secured $31 million dollars from City National Bank to combat redlining and discrimination allegations.  According to Attorney General, Merrick Garland, the Justice Department has secured approximately $75 million dollars to date from their “Combating Redlining Initiative.”

City National Bank is one of the 50 largest Banks in the United States and was criticized for its redlining in and around the Los Angeles, California community.  According to the Complaint that was filed in the Central District of California, US District Court, during the years 2017 through 2020, City National Bank avoided mortgage lending services in Black or Hispanic neighborhoods in the Los Angeles area.  The Bank also discouraged residents in the Black or Hispanic neighborhoods from obtaining mortgages loans.  It is alleged that during the same period, other Bank’s that serve the same area received approximately six times more mortgage applications than City National Bank from Black or Hispanic neighborhoods.  During the period listed above, City National Bank opened or acquired 11 branches.  Only one of these branches was in a majority Black or Hispanic neighborhood.

As part of the consent order City National Bank has agreed to additional concessions to help mitigate the potential of redlining.  For additional information on the Department of Justice announcement please see the DOJ press release: https://www.justice.gov/opa/pr/justice-department-secures-over-31-million-city-national-bank-address-lending-discrimination

The DOJ’s website states that:
This Initiative (Combating Redlining Initiative), which will be led by the Civil Rights Division’s Housing and Civil Enforcement Section in partnership with U.S. Attorney’s Offices, will build on the longstanding work by the division that seeks to make mortgage credit and homeownership accessible to all Americans on the same terms, regardless of race or national origin and regardless of the neighborhood where they live. The Initiative will: 

• Utilize U.S. Attorneys’ Offices as force multipliers to ensure that fair lending enforcement is informed by local expertise on housing markets and the credit needs of local communities of color.
• Expand the department’s analyses of potential redlining to both depository and non-depository institutions. Non-depository lenders are not traditional banks and do not provide typical banking services, but engage in mortgage lending and now make the majority of mortgages in this country. 
• Strengthen our partnership with financial regulatory agencies to ensure the identification and referrals of fair lending violations to the Department of Justice.
• Increase coordination with State Attorneys General on potential fair lending violations.

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More can be read about the DOJ’s redlining imitative here: Justice Department Announces New Initiative to Combat Redlining | OPA | Department of Justice

Author: Kyle Tucker

The Consumer Financial Protection Bureau (CFPB) has announced that the updated consumer publication, “What You Should Know about Home Equity Lines of Credit,” also known as the HELOC brochure, is now available. The HELOC brochure has been updated to improve readability and usability, with clear instructions on how consumers can use the pamphlet to explore their options. To further the goal of inclusion, the HELOC brochure is also available in Spanish.

Follow the link below for the updated consumer publication:
https://www.consumerfinance.gov/learnmore/

Author: Steve R. Shepherd, CRCM

The Office of the Comptroller of Currency (OCC) has issued version 1.0 of the “Fair Lending” booklet of the Comptroller’s Handbook. The revised booklet replaces the previous booklet that was issued in January 2010. The booklet provides information and examination procedures to assist in assessing fair lending risk and is a great educational tool for all institutions.  If you have any fair lending responsibilities at your institution, the OCC’s Fair Lending Handbook is worthy of a review.
 
Highlights of the revised booklet:

• Reflects changes to laws and regulations since this booklet was last published.
• Reflects the current OCC approach to fair lending examinations.
• Includes new and clarified details on examination scenarios.
• Includes clarified and expanded risk factors for a variety of examination types.
• Includes clarifying edits regarding supervisory guidance, sound risk management practices, and applicable legal standards.
• Revises certain content for clarity.

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Follow the link below to download the latest PDF version of the Fair Lending Handbook:
OCC’s Fair Lending Handbook

 By James M. Moore, CRCM
 
One more year has passed, and we are faced with the new challenges of 2023.  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 2022 and make plans to provide Reg. CC training during 2023.
• Regulation CC hold thresholds remain at $225 (next day) and $5,525 (exception) until July 1, 2025.
• Annual privacy training should have been provided for 2022 to all employees and ensure annual privacy training is scheduled for 2023.  Furthermore, ensure that the Board of Directors has received privacy training.
• Ensure annual privacy disclosures will be mailed during 2023 or verify the institution’s exemption status for 2023.   
• 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” of 500 consumer transfers.
• Ensure the ID Theft Program administrator has reported to the Board annually on the status of the ID Theft Program.

 Loan Compliance:

• The 2022 HMDA LAR and CRA LAR for large institutions must be submitted by March 1, 2023.
• Check the historic examples for HELOC and 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, 2023.
• 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 2023 HOEPA points and fees test will use the following:
  • 5% of loan amounts of $24,866 or more
  • For a loan amount less than $24,866, the lesser of 8% or $1,243
• The 2023 QM points and fees test will use the following:
  • For a loan amount greater than or equal to $124,331: 3% of the total loan amount
  • For a loan amount greater than or equal to $74,599 but less than $124,331: $3,730
  • For a loan amount greater than or equal to $24,866 but less than $74,599: 5% of the total loan amount
  • For a loan amount greater than or equal to $15,541 but less than $24,866: $1,243
  • For a loan amount less than $15,541: 8% of the total loan amount
• The 2023 General QM threshold will use the following:
  • 2.25 or more percentage points for a first lien covered transaction with a loan amount greater than or equal to $124,331
  • 3.5 or more percentage points for a first lien covered transaction with a loan amount greater than or equal to $74,599 but less than $124,331
  • 6.5 or more percentage points for a first lien covered transaction with a loan amount less than $74,599
  • 6.5 or more percentage points for a first lien covered transaction secured by a manufactured home with a loan amount less than $124,331
  • 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $74,599 and
  • 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $74,599.
• The 2023 Truth in Lending threshold is $66,400 for loans not secured by real property and are not private education loans.
• The 2023 “small creditor” threshold is $2.537 billion as of December 31, 2022.
• The 2023 “small loan” exemption for HPML appraisal rules is $31,000.
• Until further notice, the safe harbor credit card penalty fee is $30 for the first and $41 for subsequent late fees.  This remains unchanged from 2022.  The CFPB has not announced the inflation update for 2023.
• 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 employees and Directors have received fair lending and CRA training for 2022.  Training should be planned for 2023.
• Review the CRA asset size thresholds for 2023:
  • CRA asset size thresholds for 2022 are under $376 million for small bank (based on both of the last two calendar years), at least $376 million up to $1.503 billion for intermediate small bank (based on either of the two last calendar years), and $1.503 billion and over for large bank (based on both of the last two calendar years).
• The HMDA asset size threshold for depository institutions for 2023 is $54 million.
• Ensure a review of 2021 and 2022 transaction data is conducted for 2023 reporting requirements.  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.  This reflects a significant change from the previous year’s requirement.  
  • Dwelling secured open-end lines of credit must be reported if a covered institution originated 200 or more covered dwelling secured open-end lines of credit in each of the previous two calendar years. 
• Review HMDA small filer exemption for reduced field reporting criteria for 2023:
  • Originated less than 500 closed-end mortgages in each of the two preceding calendar years and received a “Satisfactory” or better CRA rating.
  • Originated less than 500 open-end mortgages in each of the two preceding calendar years and received a “Satisfactory” or better CRA rating.
• Ensure procedures are in place for performing escrow account analyses and that the financial institution 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 financial institution has documented whether they meet the definition of a small servicer, and that documentation of the determination is retained for record retention.
• Ensure the financial institution has documented whether 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 2022, calculate rural or underserved status by address on the CFPB’s website for covered loans, and ensure the financial institution has documented whether 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:

• 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 2022 and is scheduled for 2023.  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, MRBs, remote deposit capture, private ATM customers, deposit brokers, etc. in accordance with the financial institution’s BSA/AML program.
• Review 314(a) contact information transmitted with the call report for accuracy.
• For institutions that voluntarily share information, ensure 314(b) registration is completed annually.

Author: Steve Shepherd, CRCM

The 2020 HMDA reporting threshold of 100 closed-end mortgage originated loans has been reversed back down to the 2017 reporting threshold of 25 loans.  On September 23, 2022, the United States District Court of the District of Columbia issued an order vacating the 2020 HMDA (Home Mortgage Disclosure Act) final rule that eliminated the HMDA reporting requirements for a significant number of financial institutions.

Thus, financial institutions that originated more than 25 closed-end mortgage loans in each of the prior two years (2021 & 2022) will be required to report HMDA data for the 2023 HMDA reporting cycle which is required to be submitted March 1, 2024.  This would include loans originated from January 1, 2023, to December 31, 2023.  The reporting requirements still require the financial institution to have at least 1 branch located within a Metropolitan Statistical Area and the Bank must exceed the asset threshold for HMDA reporting.  The asset threshold was $50 million dollars for 2022.

According to the CFPB Press Release, the CFPB does not intend to initiate enforcement actions or cite HMDA violations for reporters who failed to report HMDA data in 2020, 2021, or 2022.   The open-end reporting threshold remains at 200 originated open-end mortgage secured transactions.  For more information, please see the CFPB press release below.

CFBP Revises Closed End Threshold

The Georgia Bankers Association will be hosting Steve H. Powell & Company President W. Brad Washburn in Macon, Georgia on Wednesday December 14, 2022, for a HMDA Workshop. The HMDA Workshop will cover all things HMDA.  For more information see the link below from the GBA. 
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GBA HMDA Workshop

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.