servicing rules: revisions & additions to...

InCompliance Update White Paper 2017

The Dodd-Frank Wall Street Reform and Consumer Protec-tion Act (the Dodd-Frank Act) added and revised many servic-ing rules in the Truth-in-Lend-ing Act (TILA) and Real Estate Settlement Procedures Act (RESPA). From the time these changes were implemented in Regulations Z and X, respec-tively, institutions have asked the Consumer Financial Protec-tion Bureau (CFPB or Bureau) to clarify or revise the rules in light of questions and uncer-tainties regarding certain ser-vicing procedures, particularly those that relate to consumers in bankruptcy.

Accordingly, the CFPB recent-ly finalized rules clarifying, revising, and amending provi-sions regarding a number of servicing provisions, including 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 un-

Martin (Marty) Mitchell has over 18years of experience in the regulatory compliance field. After retiring from a suc-cessful career as a U.S. Army officer, he served as a com-missioned federal compliance examiner with the FDIC eval-uating financial institution compliance with consumer protection laws and regula-tions. He also served at the FDIC Washington DC Head-quarters. During his tenure with Capital One, he led the design and implementation of their corporate level mortgage compliance program through a period of business closures,

der Regulation Z’s servicing provisions. The final rule also addresses proper compliance regarding certain servicing requirements when a person is a potential or confirmed suc-cessor in interest, is a debtor in bankruptcy, or sends a cease communication request under the Fair Debt Collection Prac-tices Act (FDCPA).

The final rule also makes tech-nical corrections to several provisions of Regulations X and Z. The Bureau issued concur-rently with the final rule aninterpretive rule under the FairDebt Collection Practices Actrelating to servicers’ compliancewith certain mortgage servicingrules.

The final rule is effective on October 19, 2017. However, the amendatory provisions regarding successors in inter-est and the modified periodic statements for consumers in bankruptcy will be effective April 19, 2018. The rule covers the following major topics:

About theAuthor...

Servicing Rules: Revisions & Additions to TILA/RESPA

PROFESSIONAL BANK SERVICES, INC.6200 Dutchmans Lane, Suite 305Louisville, Kentucky 40205

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PHONE800.523.4778Option 7

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Successors in interest. The Bu-reau finalized three sets of rule changes relating to successors in interest. First, the Bureau adopted definitions of succes-sor in interest. Second, the Bureau finalized rules relating to how a mortgage servicer confirms a successor in inter-est’s identity and ownership interest. Third, the Bureau is applying the Regulation X and Z mortgage servicing rules to successors in interest once a servicer confirms the successor in interest’s status.

Definition of delinquency. The Bureau finalized a general defi-nition of delinquency that ap-plies to all of the servicing pro-visions of Regulation X and the provisions regarding periodic statements for mortgage loans in Regulation Z. Delinquency means a period of time during which a borrower and a bor-rower’s mortgage loan obliga-tion are delinquent. A borrower and a borrower’s mortgage loan obligation are delinquent be-ginning on the date a periodic payment sufficient to cover principal, interest, and, if ap-plicable, escrow, becomes due and unpaid, until such time as no periodic payment is due and unpaid.

Requests for information. The Bureau finalized amendments that change how a servicer must respond to requests for information asking for own-ership information for loans in trust for which the Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac) is the owner of the loan or the trustee of the

securitization trust in which the loan is held.

Force-placed insurance. The Bureau finalized amendments to the force-placed insurance disclosures and model forms to account for when a ser-vicer wishes to force-place insurance when the borrower has insufficient, rather than expiring or expired, hazard insurance coverage on the property. Additionally, ser-vicers now will have the option to include a borrower’s mort-gage loan account number on the notices required under the force-placed insurance rules (§1024.37). The Bureau also finalized several technical edits to correct discrepancies be-tween the model forms and the text of force-placed insurance rules (§1024.37).

Early intervention. The Bureau clarified the early intervention live contact obligations for servicers to establish or make good faith efforts to establish live contact so long as the bor-rower remains delinquent. The Bureau also clarified require-ments regarding the frequency of the written early interven-tion notices, including when there is a servicing transfer. In addition, regarding certain borrowers who are in bank-ruptcy or who have invoked their cease-communication rights under the FDCPA, the Bureau finalized exemptions for servicers from complying with the live contact obliga-tions but requiring servicers to provide written early inter-vention notices under certain circumstances.

multiple acquisitions, and intense regulatory scrutiny. With PBS, Marty served the largest most complex clients nationwide. For the past six years, he has led the compli-ance consulting division. Marty and his colleague Robert (Bob) Mullenbach are in attendance at LendIt USA 2017, visit them at booth 136. They also welcome your call or text to their cell phones if you’d like to discuss further. Marty’s cell is 502-608-9627 and Bob’s cell is 502-475-1639. If email is preferred, please use: [email protected] or [email protected].



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Servicing Rules: Revisions & Additions to TILA/RESPA, cont’d.

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temporary loss mitigation programs, or have been per-manently modified, to con-form generally the disclosure of the amount due with the Bureau’s understanding of the legal obligation in each of those circumstances, in-cluding that the amount due may only be accurate for a specified period of time when a mortgage loan has been accelerated;

• Requires servicers to send modified periodic statements (or coupon books, where servicers are otherwise per-mitted to send coupon books instead of periodic state-ments) to consumers who have filed for bankruptcy, subject to certain exceptions, with content varying depend-ing on whether the consumer is a debtor in a Chapter 7 or 11 bankruptcy case, or a Chapter 12 or 13 bankruptcy case, and includes proposed sample periodic statement forms that servicers may use for consumers in bankruptcy to ensure compliance with the periodic statement rules; and

• Exempts servicers from the periodic statement require-ment for charged-off mort-gage loans if the servicer will not charge any additional fees or interest on the ac-count and provides a period-ic statement including addi-tional disclosures related to the effects of charge-off.

Small servicer. The Bureau finalized certain changes to the small servicer determination. The small servicer exemption generally applies to servicers who service 5,000 or fewer mortgage loans for all of which the servicer is the creditor or assignee. The final rule ex-cludes certain seller-financed transactions and mortgage loans voluntarily serviced for a non-affiliate, even if the non-affiliate is not a creditor or assignee, from being counted toward the 5,000 loan limit, allowing servicers that would otherwise qualify for small ser-vicer status to retain their ex-emption while servicing those transactions.



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Loss mitigation. The Bureau finalized several amendments and clarifications relating to the loss mitigation require-ments.

Prompt payment crediting. The Bureau clarified how servicers must treat periodic payments made by consumers who are performing under either tem-porary loss mitigation pro-grams or permanent loan mod-ifications. Periodic payments made pursuant to temporary loss mitigation programs must continue to be credited ac-cording to the loan contract and could, if appropriate, be credited as partial payments, while periodic payments made pursuant to a permanent loan modification must be credited under the terms of the perma-nent loan agreement.

Periodic statements. The Bu-reau finalized several require-ments relating to periodic statements. The final rule: • Clarifies certain period-

ic statement disclosure requirements relating to mortgage loans that have been accelerated, are in

Flood Certification RevisedThe Federal Emergency Man-agement Agency (FEMA) revised the Standard Flood Hazard De-termination Form, Form 086-0-32 (SFHDF) as of June 1, 2016. The SFHDF is required for all federally-backed loans and is used by lenders to determine the flood risk for their building loans.

The SFHDF is authorized by the National Flood Insurance Reform Act of 1994 (NFIRA) and is imposed on lenders by

their regulatory entities. The previous form that expired on May 30, 2015 can continue to be used during the phase in period of the new form.

For more information or to obtain a copy of the form to download and print, please visit FEMA’s website at: www.fema.gov/media-library/as-sets/documents/225.

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The Uniform Residential Loan Application (URLA) is used by the mortgage industry to col-lect certain information when a consumer requests a mortgage loan. This collected information includes an applicant’s ethnici-ty, race, and gender in order to comply with Section 1002.13 of Regulation B.

Regulation B Section 1002.13 governs the collection of this information on an application for credit primarily for the pur-chase or refinance of a dwelling occupied or to be occupied by the applicant as a principal residence and where the exten-sion of credit will be secured by the dwelling. The URLA may also be used to collect informa-tion on an applicant’s marital status and age, among other applicant information, which is also governed by Regulation B.

On August 23, 2016, the Fed-eral National Mortgage Asso-ciation (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) is-sued a revised and redesigned Uniform Residential Loan Ap-plication. Although the federal lending compliance rules do not require a creditor to use the URLA, the Consumer Financial Protection Bureau (CFPB) has provided that a creditor who does so without modification would not violate the Equal Credit Opportunity Act or Reg-ulation B.

In particular, the CFPB ap-proved the revised URLA in two ways:• The URLA is in compliance

with: • Regulation B Section

1002.5(b) rules concerning requests for information about race, color, religion, national origin, or sex;

• Section 1002.5(c) rules concerning requests

for information about a spouse or former spouse; and

• Section 1002.5(d) rules concerning requests for in-formation regarding mar-ital status, income from alimony, child support, or separate maintenance, and childbearing or childrear-ing.

• The CFPB provided notice that at any time from Jan-uary 1, 2017 through De-cember 31, 2017, a creditor may, at its option, permit applicants to self-identify using disaggregated eth-nic and racial categories as instructed in Appendix B to Regulation C, as amend-ed by the 2015 HMDA final rule. During this period, a creditor adopting the prac-tice of permitting appli-cants to self-identify using disaggregated ethnic and racial categories will not be deemed to violate Regulation B Section 1002.5(b) rules. The revised URLA includes such disaggregated ethnic and racial categories.

The redesigned URLA provides:• A consumer-friendly format

and supports accurate data collection;

• A dynamic electronic form in a fillable format where sec-tions expand/contract based upon information provided;

• Collection of loan application details that are relevant and useful in making an under-writing decision;

• Consistent and simplified organization of fields and labels;

• Clearer upfront instructions to enable borrower self-ser-

vice; • New and updated fields to

reflect today’s mortgage lending business and elimi-nates obsolete fields; and

• Updated government moni-toring information, as re-quired by the new HMDA amendments.

In response to industry inqui-ries, Fannie Mae and Freddie Mac have clarified the effective date for the redesigned URLA and have republished the forms with the footer “Not for Current Use” rather than “Ef-fective 1/2018.” As a reminder, the redesigned URLA should not be used until Fannie Mae and Freddie Mac have estab-lished final effective and man-date dates. Lenders may use the published forms to identify required changes to their pro-cesses and procedures.

On October 15, 2015, the CFPB published a final rule amending Regulation C and the Home Mortgage Disclosure Act (HMDA), which modifies the reportable data require-ments related to the collection of borrower ethnicity, race, and sex. Lenders arerequired to collect the new and amended borrower demo-graphic information on loan applications taken on or after January 1, 2018. However, lenders may begin collecting the expanded demographic information in 2017 as part of their preparation to meet the January 2018 mandate date.

Fannie Mae and Freddie Mac have also published a Demo-graphic Information Addendum to provide lenders the ability to collect the new and expanded

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race and ethnicity subcatego-ries while still using the cur-rent URLA dated 7/05 (revised 6/09). The Addendum replaces the existing Section X, Informa-tion for Government Monitor-ing Purposes, which must be crossed-out, shaded-out, or otherwise deleted if the Ad-dendum is used. Lenders may begin using the Addendum at any time on or after January 1,

2017.

For updates on the URLA and various information doc-uments, visit Fannie Mae’s website at: www.fanniemae.com/singlefamily/uniform-resi-dential-loan-application#.

SCRA Protections ExtendedOn March 31, 2016, the Fore-closure Relief and Extensions for Servicemembers Act of 2015 was signed into law. The Act once again extended, until December 31, 2017, protec-tions provided to servicemem-bers under Section 303 of the Servicemember Civil Relief Act (SCRA). The extensions provide that:• Any sale, foreclosure, or

seizure of property based on a breach of a secured obli-gation is not valid if made during the period of military service or one year thereafter (unless made pursuant to a court order or servicemember waiver); and

• A stay of proceedings or adjustment of an obligation may be made during the period of military service or one year thereafter.

Beginning January 1, 2018, unless Congress passes an-other extension, there will be a period of 90 days after the end of the servicemember’s military service during which a foreclosure, sale, or seizure of the servicemember’s prop-erty based on a breach of a mortgage, trust deed, or other security, without a court order or waiver, will not be valid. During this period, a court may also stay proceedings en-

CFPB Prepaid Accounts RuleThe Consumer Financial Pro-tection Bureau (CFPB or the Bureau) issued a final rule to create comprehensive con-sumer protections for prepaid accounts under Regulation E, which implements the Elec-tronic Fund Transfer Act; Reg-ulation Z, which implements the Truth in Lending Act; and the official interpretations to those regulations. The final rule modifies general Regula-tion E requirements to create tailored provisions governing

forcing such obligations.

The Housing and Urban Development Act of 1968 requires lenders to send a notice of servicemembers’ rights to borrowers with-in 45 days of the date a missed payment was due on a mortgage secured by the borrower’s princi-pal residence, unless the borrower pays the past-due amount before the expira-tion of the 45-day period. The contents of the notice are prescribed in HUD’s Servicemembers Civil Relief Act Notice Disclosure.

disclosures, limited liability and error resolution, and peri-odic statements, and adds new requirements regarding the posting of account agreements.

Additionally, the final rule regulates overdraft credit features that may be offered in conjunction with prepaid accounts. Subject to certain

exceptions, such credit fea-tures will be covered under Regulation Z where the credit feature is offered by the prepaid account issuer, its affiliate, or its business partner and credit can be accessed in the course of a transaction conducted witha prepaid card.

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Except for the rule requiring submission of prepaid account agreements to the CFPB, the rule is effective October 1, 2017.

OverviewThe final rule’s definition of prepaid accounts specifically includes payroll card accounts and government benefit ac-counts that are currently sub-ject to Regulation E. In addi-tion, it covers accounts that are marketed or labeled as “pre-paid” that are redeemable upon presentation at multiple, unaf-filiated merchants for goods or services, or are usable at auto-mated teller machines (ATMs). It also covers accounts issued on a prepaid basis or capable of being loaded with funds, whose primary function is to conduct transactions with multiple, un-affiliated merchants for goods or services, or at ATMs, or to conduct person-to-person (P2P) transfers, and are not checking accounts, share draft accounts, or negotiable order of with-drawal (NOW) accounts.

The final rule adopts a num-ber of exclusions from the definition of prepaid account, including gift cards and gift certificates; accounts used for savings or reimbursements re-lated to certain health, depen-dent care, and transit or park-ing expenses; accounts used to distribute qualified disaster relief payments; and the P2P functionality of accounts estab-lished by or through the Unit-ed States government whose primary function is to conduct closed-loop transactions on U.S. military installations or vessels, or similar government facilities.

Pre-Acquisition DisclosuresThe final rule establishes pre-acquisition disclosure requirements specific to pre-paid accounts. Under the final rule, financial institutions must generally provide both a “short form” disclosure and a “long form” disclosure before a consumer acquires a pre-paid account. The final rule provides guidance as to what constitutes acquisition for pur-poses of disclosure delivery; in general, a consumer acquires a prepaid account by purchas-ing, opening, or choosing to be paid via a prepaid account. The final rule offers an alter-native timing regime for the delivery of the long form dis-closure for prepaid accounts acquired at retail locations and by telephone, provided certain conditions are met. For this purpose, a retail location is a store or other physical site where a consumer can pur-chase a prepaid account in person and is operated by an entity other than the financial institution that issues the pre-paid account.

The final rule also includes requirements to disclose cer-tain information such as any purchase price or activation fee outside, but in close prox-imity to, the short form disclo-sure, disclosures required to be printed on the prepaid card itself, and short form and long form disclosure requirements for prepaid accounts with mul-tiple service plans.

The final rule requires finan-cial institutions to provide pre-acquisition disclosures in a foreign language if the finan-

cial institution uses that same foreign language in connec-tion with the acquisition of a prepaid account in certain circumstances. The financial institution must also provide the long form disclosure in English upon a consumer’s re-quest and on its website where it discloses this information in a foreign language.

Access to Account Informa-tionThe final rule adopts an alter-native to Regulation E’s peri-odic statement requirement that permits financial insti-tutions to make available to consumers certain methods for accessing information about their prepaid accounts in lieu of sending periodic statements. The final rule also adopts a requirement that financial institutions provide summa-ry totals of the fees they have assessed against the prepaid account on a monthly and an-nual basis.

Limited Liability and Error Resolution Including Provi-sional Credit The final rule extends Regu-lation E’s limited liability and error resolution requirements to all prepaid accounts, re-gardless of whether the finan-cial institution has completed its consumer identification and verification process with re-spect to the account, but does not require provisional credit for unverified accounts. Once an account has been verified, the financial institution must comply with the provisional credit requirements, for both errors that occur prior to and

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after account verification, within the provisional credit time frame.

Submission and Posting of PrePaid Account AgreementsUnder the final rule, prepaid account issuers must submit their prepaid account agree-ments to the Bureau. The final rule also requires that prepaid account issuers publicly post on their own websites prepaid account agreements offered to the general public. Financial institutions must make any agreements not posted on their own websites available upon request for consumers who have prepaid accounts under those agreements.

Remittance TransfersThe final rule makes several revisions to the rules govern-ing remittance transfers in Subpart B of Regulation E that are intended to continue the current application of those rules to prepaid products. Specifically, they clarify that for prepaid accounts other than payroll card accounts and government benefit ac-counts, the location of these accounts does not determine where funds are being sent to or from for purposes of appli-cation of the rules in Subpart B. They also clarify that the temporary exception allowing insured institutions to use es-timates when providing certain disclosures does not apply to prepaid accounts, unless the prepaid account is a payroll card account or government benefit account.

Overdraft Credit FeaturesThe final rule amends Regu-lations E and Z generally to regulate prepaid accounts that offer overdraft credit features. Specifically, the

final rule generally covers un-der Regulation Z’s credit card rules any credit feature offered in conjunction with a prepaid account where the credit fea-ture is offered by the prepaid account issuer, its affiliate, or its business partner and credit can be accessed in the course of a transaction conducted with the prepaid card to obtain goods or services, obtain cash, or conduct P2P transfers.

The final rule generally re-quires that such credit fea-tures be distinct from the asset portion of the prepaid account—structured as a separate credit account or a credit sub-account to the asset account—to facilitate trans-parency and compliance with various Regulation Z require-ments. The final rule uses the term “hybrid prepaid-credit card” to refer to a prepaid card that can access both an overdraft credit feature that is subject to the Regulation Z credit card rules and the asset portion of a prepaid account.

An issuer may not extend credit via a negative balance on the prepaid account except in several limited circumstanc-es where the credit is inciden-tal and the issuer generally does not charge credit-related fees for that credit. In these circumstances, the incidental credit is not subject to Regula-tion Z. These exceptions for in-cidental credit cover situations where the issuer has a general established policy and practice of declining to authorize trans-actions when the consumer has insufficient or unavailable

funds to cover the transac-tion, but credit is nonetheless extended as a result of so-called “force pay” transactions, transactions that will not take the account negative by more than $10 (i.e., a de minimis “purchase cushion”), or certain transactions that are conduct-ed while incoming deposits to the prepaid account are pend-ing.

The final rule’s provisions regarding hybrid prepaid-cred-it cards are largely housed in new Regulation Z, Sec-tion 1026.61. To effectuate these provisions and provide compliance guidance to the industry, the final rule also amends certain other existing credit card provisions in Reg-ulation Z. The final rule does not adopt the proposal’s pro-visions that would have made certain account numbers into credit cards where the credit could only be deposited direct-ly to particular prepaid ac-counts specified by the credi-tor.

The final rule subjects over-draft credit features accessible by hybrid prepaid-credit cards to various credit card rules un-der Regulation Z. For open-end products, this includes rules restricting certain fees charged in the first year after account opening, limitations on pen-alty fees, and a requirement to assess a consumer’s ability to pay. In addition, the final rule requires issuers to wait at least 30 days after a prepaid account is registered before soliciting a consumer to link


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a covered credit feature to the prepaid account and to obtain consumer consent before link-ing such a credit feature to a prepaid account. The final rule permits issuers to deduct all or a part of the cardholder’s credit card debt automatically from the prepaid account or other deposit account held by the card issuer no more frequently than once per month, pursuant to a signed, written authori-zation by the cardholder to do so, and requires that issuers

allow consumers to have at least 21 days to repay the debt incurred in connection with using such features. It also amends the compulsory use provision under Regulation E so that prepaid account issuers are prohibited from requiring consumers to set up preautho-rized electronic fund transfers (EFTs) to repay credit extend-ed through an overdraft credit feature accessible by a hybrid prepaid-credit card.


Update on Recent Proposed Rules TRID Clarifications and Revisions The Consumer Financial Pro-tection Bureau (CFPB or Bu-reau) published a proposed rule to implement informal guidance and make technical amend-ments regarding the rules and guidance on the TILA-RESPA integrated disclosure.

The proposed amendments me-morialize the Bureau’s informal guidance on various issues and include clarifications and tech-nical amendments.

The Bureau also proposed toler-ance provisions for the total of payments, extension of cover-age of the integrated disclosure requirements to all cooperative units, and guidance on sharing the disclosures with various parties involved in the mortgage origination process.

Acceptance of Private Flood Insurance The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), Office of the Comp-troller of Currency (OCC), and National Credit Union Adminis-tration (NCUA) recently issued a joint proposal to amend their regulations regarding loans in areas having special

flood hazards to implement the private flood insurance pro-visions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act).

Specifically, the proposed rule would require regulated lending institutions to accept policies that meet the statu-tory definition of private flood insurance in the Biggert-Wa-ters Act and permit regulated lending institutions to accept flood insurance provided by private insurers that does not meet the statutory definition of ‘‘private flood insurance’’ on a discretionary basis, subject to certain restrictions. In addition, the agencies included in the proposed rule a compliance aid provision, which would allow institutions to rely upon certain criteria in assisting institutions in accepting private flood insur-ance. Comments to the pro-posed rule must be received on or before January 7, 2017.

Payday, Vehicle Title, High-Cost Installment LoansThe CFPB proposed consumer protection regulations for pay-

day loans, vehicle title loans, and certain high-cost install-ment loans (81 FR 47864). Two types of loans would be covered (subject to a number of excep-tions):• Short-term loans that have

terms of 45 days or less, and• Longer-term loans with terms

of more than 45 days that have:

• a total cost of credit that exceeds 36 percent; and

• either a lien or other se-curity interest in the con-sumer’s vehicle or a form of “leveraged payment mechanism” that gives the lender a right to initiate transfers from the consum-er’s account or to obtain payment through a payroll deduction or other direct access to the consumer’s paycheck.

The proposed rule focuses on practices involving consumers’ ability to repay their loans and other practices related to with-drawing payments from con-sumers’ accounts.

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TILA: Annual Threshold AdjustmentsThe Consumer Financial Pro-tection Bureau (CFPB) and, as applicable, the other federal banking agencies, have pub-lished final rules amending regulations that implement the Truth-in-Lending Act (TILA).

With respect to the following rules, thresholds and dollar amounts are required to be ad-justed annually by the annual percentage change reflected in the Consumer Price Index (CPI).

2017 Truth-in-Lending/ Regulation Z Exemption ThresholdCertain consumer credit trans-actions are exempt from Regu-lation Z requirements. Among others, consumer loans above a certain dollar threshold will be exempt. This exemption does not apply to private edu-cation loans or loans secured by real property or a principal dwelling.

The exemption threshold will remain at $54,600 for 2017.

2017 Points and Fees Threshold RevisionFor 2017, the points and fees thresholds for the High-Cost Mortgage and Ability-to-Re-pay rules were adjusted to the amounts shown in the chart to the right.

2017 HPML Appraisal ExemptionIf a transaction is a “high-er-priced mortgage loan” under Section 35, then the transaction must comply with certain appraisal require-ments. However, among other loan types, transactions of $25,000 or less are exempted from these requirements. This loan amount is to be adjusted annually based on any annu-al percentage increase in the CPI.

Based on the CPI-W in effect as of June 1, 2016, the exemp-tion threshold will remain at $25,500 through December 31, 2017.

2017 Credit Card Account-ability and Disclosure Act of 2009Pursuant to the CARD Act, Regulation Z was amended to establish new requirements with respect to open-end consumer credit plans, in-cluding requirements for the disclosure of minimum inter-est charge amounts and the establishment of a safe harbor provision allowing card issuers to impose penalty fees for vio-lating account terms without violating the restrictions on penalty fees established by the CARD Act.

Specifically, for open-end consumer credit plans under the CARD Act, the threshold that triggers requirements to disclose minimum interest

charges will remain unchanged in 2017. The adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $27 in 2017; the adjusted dollar amount for the safe harbor for a subsequent violation penal-ty fee will remain unchanged in 2017 from the corrected amount of $38 applicable in 2016.

2017 Consumer Leasing Act/Regulation M Exemption ThresholdCertain consumer leasing transactions are exempt from Regulation M requirements. Currently, if the lessee’s total contractual obligation under the lease exceeds $54,600, the Consumer Leasing Act and Regulation M do not apply.

The exemption threshold will remain at $54,600 through December 31, 2017.

LOAN AMOUNT TOTAL POINTS AND FEESEXCEED

$20,579 or more 5% of Total Loan Amount

< $20,579 The lesser of 8% of the Total Loan Amount or $1,029

LOAN AMOUNT TOTAL POINTS AND FEESEXCEED

$102,894 or more 3% of Total Loan Amount

≥ $61,737 but less than $102,894 $3,087

≥ $20,579 but less than $61,737 5% of Total Loan Amount

≥$12,862 but less than $20,579 $1,029

< $12,862 8% of Total Loan Amount

High-Cost Mortgage (12 CFR 1026.32)

Ability-to-Repay (12 CFR 1026.43)



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CFPB Reissues Guidance on Service Providers

On October 31, 2016, the Consumer Financial Protec-tion Bureau (CFPB or Bureau) reissued its guidance on ser-vice providers, formerly titled CFPB Bulletin 2012-03: Service Providers, on it’s website as Compliance Bulletin and Poli-cy Guidance 2016-02, Service Providers. This Guidance ap-plies to supervised banks and non-banks supervised by the CFPB.

The CFPB recognizes that the use of service providers is often an appropriate business decision for these entities. Su-pervised banks and nonbanks may outsource certain func-tions to service providers due to resource constraints, use service providers to develop and market additional prod-ucts or services, or rely on ex-pertise from service providers that would not be otherwise as a means without significant investment.

However, working with a ser-vice provider does not absolve the supervised bank or non-bank of responsibility for com-plying with federal consumer financial law to avoid consum-er harm. A service provider that is not familiar with the legal requirements applicable to the products or services offered or that does not imple-ment those requirements ef-fectively, can harm consumers and create potential liabilities

for both the service provider and the entity.

To limit the potential for statutory or regulatory viola-tions and related consumer harm, supervised banks and nonbanks should take steps to ensure that their business arrangements with service providers do not present un-warranted risks to consumers. These steps should include, but are not limited to:• Conducting thorough due

diligence to verify that the service provider under-stands and is capable of complying with federal con-sumer financial law;

• Requesting and reviewing the service provider’s pol-icies, procedures, internal controls, and training ma-terials to ensure the service provider conducts appropri-ate training and oversight of employees or agents that have consumer contact or compliance responsibilities;

• Including in the contract with the service provider clear expectations about compliance, as well as ap-propriate and enforceable consequences for violating any compliance-related re-sponsibilities, including en-gaging in unfair, deceptive, or abusive acts or practices;

• Establishing internal con-trols and monitoring to de-termine whether the service provider is complying with federal consumer financial law; and

• Taking prompt action to address fully any problems identified through the mon-itoring process, including terminating the relationship

where appropriate.

For more information pertain-ing to the responsibilities of a supervised bank or nonbank that has business arrange-ments with service providers, please review the CFPB’s Supervision and Examination Manual: Compliance Man-agement Review and Unfair, Deceptive, and Abusive Acts or Practices.

The new guidance clarifies that the depth and formal-ity of the risk management program for service providers may vary depending upon the service being performed, its size, scope, complexity, importance and potential for consumer harm and the performance of the service provider in carrying out its activities in compliance with federal consumer financial laws and regulations.

For more information, visit the CFPB’s website at: www.consumerfinance.gov/pol-icy-compliance/guidance/implementation-guidance/compliance-bulletin-and-pol-icy-guidance-2016-02-ser-vice-providers.

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FDIC Issues Affordable Mortgage Lending GuideThe Federal Deposit Insurance Corporation (FDIC) recently published the Affordable Mort-gage Lending Guide to help make community banks aware of the wide range of mortgage products available to them. In many areas, community banks play an important role in meet-ing the demand for mortgage credit. The programs outlined in the Guide can provide com-

munity banks with additional pathways to provide home-ownership opportunities for creditworthy borrowers in their communities, especially those with affordability challeng-es. These programs may also provide business opportunities for community banks seeking prudent, sustainable financial products to incorporate into their mortgage business line.

The FDIC hopes this Guide will provide useful information to assist bankers in considering options to serve their commu-nities. For more information about the Affordable Mortgage Lending Guide visit the FDIC’s website at: www.fdic.gov/con-sumers/community/mortgage-lending/guide.html.

Summary of Recent Fair Lending ComplaintsFollowing is a summary of recent allegations involving various fair lending violations.

Charter Bank (September 2016)The Department of Justice announced that Charter Bank of Corpus Christi, Texas, will maintain uniform pricing policies and pay more than $165,000 as part of a settle-ment to resolve allegations that it engaged in a pattern or practice of discrimination on the basis of national origin.

The complaint alleges that Charter violated the Equal Credit Opportunity Act (ECOA) between 2009 and 2014 by charging higher interest rates to Hispanic borrowers than to similarly situated non-His-panic borrowers on vehicle-se-cured consumer loans.

The discrimination affected approximately 500 loans made through the bank’s branches. A vehicle-secured consumer loan allows a customer to bor-row from the bank by tapping the equity in a car the custom-er already owns. The complaint alleges that the discrimination occurred because Charter gave its employees discretion to adjust interest rates upward

or downward by approximately three percentage points, which was not based on the borrow-er’s credit risk.

Under the settlement, Charter will pay $165,820 to Hispan-ic victims of discrimination, monitor its loans for potential disparities based on nation-al origin and provide equal credit opportunity training to its employees. Prior to the settlement, Charter revised its loan pricing policies to include objective, non-discretionary and non-discriminatory stan-dards for determining interest rates for consumer loans. This settlement requires Charter to maintain the revised policies for at least four years.

BancorpSouth (June 2016)The Consumer Financial Pro-tection Bureau (CFPB) and the DOJ made the following allega-tions against BancorpSouth:• Illegally redlined in Mem-

phis. The complaint alleged that from at least 2011 to 2013, BancorpSouth ille-gally redlined in the Mem-phis area—the market from which the bank received the

most applications—by struc-turing its business to avoid and discourage consumers in minority neighborhoods from accessing mortgag-es. Specifically, the agen-cies alleged that the bank placed its branches outside of minority neighborhoods, excluded nearly all minority neighborhoods from the area it chose to serve under the Community Reinvestment Act, and directed nearly all of its marketing away from minority neighborhoods. As a result, BancorpSouth generated relatively few applications from minority neighborhoods as compared to its peers.

• Discriminated in under-writing certain mortgages. The agencies also alleged that one of BancorpSouth’s lending units discriminated against African-American applicants by denying them mortgage loans—including loans with consumer as well as business purposes—more often than similarly situated white applicants. Specifical-

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Summary of Recent Fair Lending Complaints, cont’d.ly, the agencies alleged that BancorpSouth granted its employees wide discretion to make credit decisions on mortgage loans. This discretion resulted in Afri-can-American applicants be-ing denied certain mortgag-es at rates more than two times higher than expected if they had been white.

• Discriminated in pricing certain mortgage loans. The agencies also alleged that one of BancorpSouth’s lending units discriminat-ed against African-Amer-ican borrowers that it did approve by charging them higher annual percentage rates than white borrowers with similar loan qualifica-tions. Specifically, the agen-cies allege that Bancorp-South granted its employees wide discretion to set the prices of mortgage loans. This discretion resulted in African-American bor-rowers paying significantly higher annual percentage rates than similarly situated white borrowers, costing Af-rican-American consumers hundreds of dollars more each year they held the loan.

• Implemented an explicitly discriminatory denial policy. The complaint alleged that BancorpSouth required its employees to deny applica-tions from minorities and other “protected class” ap-plicants more quickly than those from other applicants and not to provide credit assistance to “borderline” applicants, which may have improved their chances of getting a loan. The bank generally permitted loan officers to assist marginal

applicants, but the explicit-ly race-based denial policy departed from that prac-tice. An audio recording of a 2012 internal meeting at BancorpSouth clearly artic-ulates this discriminatory policy, as well as negative and stereotyped perceptions of African Americans. As part of its investigation, the CFPB sent testers to several BancorpSouth branches to inquire about mortgages, and the results of that test-ing support the CFPB and DOJ allegations. The agen-cies allege that, in several instances, a BancorpSouth loan officer treated the Af-rican-American tester less favorably than a white coun-terpart. Specifically, the complaint alleges that Ban-corpSouth employees treat-ed African-American testers who sought information about mortgage loans worse than white testers with similar credit qualifications. For example, BancorpSouth employees provided infor-mation that would restrict African-American consum-ers to smaller loans than white testers. This is the CFPB’s first use of test-ing, sometimes referred to as “mystery shopping,” to support an allegation of discrimination. Other gov-ernment agencies, including the DOJ and the Depart-ment of Housing and Urban Development, as well as fair housing organizations, have used testers for decades as a method of identifying discrimination. Courts have long recognized testing as a reliable investigative tool.

Hudson City (September 2015) The complaint alleged that from at least 2009 to 2013, Hudson City illegally red-lined by providing unequal access to credit to neigh-borhoods in New York, New Jersey, Connecticut, and Pennsylvania. Specifically, Hudson City structured its business to avoid and there-by discourage residents in majority-Black-and-Hispanic neighborhoods from accessing mortgages.

According to the complaint, Hudson City illegally avoid-ed and thereby discour-aged consumers in ma-jority-Black-and-Hispanic neighborhoods from applying for credit by: • Placing branches and loan

officers principally outside of majority-Black-and-His-panic communities;

• Selecting mortgage brokers that were mostly located outside of, and did not effectively serve, major-ity-Black-and-Hispanic communities;

• Focusing its limited mar-keting in neighborhoods with relatively few Black and Hispanic residents; and

• Excluding majori-ty-Black-and-Hispanic neighborhoods from its credit assessment areas.

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Summary of Recent UDAP/UDAAP ComplaintsFollowing is a summary of recent allegations involving unfair, deceptive, or abusive acts or practices.

CFPB/Navy Federal – Debt Collection/Access to Accounts (October 2016)The Consumer Financial Pro-tection Bureau (CFPB) alleged that Navy Federal:• Contacted hundreds of

thousands of consumers by letter or phone expressly or impliedly threatening to take legal action on their delin-quent accounts, when the credit union only filed 5,000 debt collection lawsuits during this period. There-fore, the CFPB determined Navy Federal’s threats to sue were deceptive as they lacked intent to sue.

• Deceptively threatened to contact some consumer’s/servicemember’s command-ing officers about their delinquent account when it lacked effective borrower consent to do so.

• Deceptively advising con-sumers they could improve their credit scores or ability to access credit without any basis to make such asser-tions.

• Had an unfair practice of freezing consumers’ ability to access their electronic ac-counts and disabling certain electronic services after they became delinquent.

CFPB/OCC/Wells Fargo – Creation of Deposit and Credit Card Accounts(September 2016)The CFPB and the Office of the Comptroller of the Curren-cy (OCC) alleged that Wells Fargo:

• Opened nearly 1.5 million deposit accounts potentially unauthorized by consum-ers and transferred funds from consumers’ authorized accounts.

• Applied for about 565,000 credit card accounts that may not have been autho-rized by consumers.

• Requested and issued debit cards without consumers’ knowledge or consent.

• Created phony email ad-dresses to enroll consumers in online banking services without their knowledge or consent.

• Developed an incentive compensation program misaligned with local branch traffic, staff turnover, or customer demand.

• Failed to establish an enter-prise-wide sales practices oversight program to pre-vent and detect unsafe or unsound sales practices, or mitigate the risks resulting from such sales practices.

• Failed to establish a compre-hensive customer complaint monitoring process assess-ing customer complaint activity across the bank; adequately monitor, man-age and report on customer complaints; and analyze and understand the potential sales risk.

OCC/HSBC Bank USA, N.A. –Add-On Products(March 2016)The Banks and a credit protec-tion product vendor, on behalf

of the Banks, marketed and sold CreditKeeper, a credit pro-tection product, to customers of the Banks. The CreditKeep-err product included credit monitoring services. The OCC alleged:• Customers of the Banks who

enrolled in the CreditKeep-er product were required to provide sufficient personal verification information and consent before their cred-it bureau reports could be accessed. Customers of the CreditKeeper product were provided the materials nec-essary to submit this infor-mation and consent. Cus-tomers could not receive the credit monitoring services of the CreditKeeper product in which they were enrolled until the information and consent were submitted.

• The Banks, through their vendors, billed CreditKeeper customers for the full fee of the product, even though not all customers were re-ceiving the credit monitoring services of the product.

• The Banks retained a por-tion of the fees paid by the CreditKeeper customers, including fees paid by cus-tomers who were not receiv-ing the credit monitoring services.

FDIC/Comenity Capital Bank (September 2015)The Banks offer credit cards through various retailers nationwide that are typically co-branded with these re-tailers. For these cards, the banks offer Account Assure and Account Assure Pro, which

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Summary of Recent UDAP/UDAAP Complaints, cont’d. are payment protection/debt cancellation add-on products to the credit cards. The prod-ucts allow consumers who enroll to request certain bene-fit payments following specific life events including, but not limited to, involuntary unem-ployment and disability.

The FDIC determined the Banks violated Section 5 by,

among other things:• Representing to consumers

they would not be charged a fee for the products if their accounts had no balances, but charging fees to con-sumers in those circum-stances.

• Making material misrepre-sentations and omissions regarding the refund pro-

cess for consumers’ can-cellations of the products within the first 30 days of enrollment.

• Making material misrepre-sentations and omissions regarding the conditions for receipt of the gift cards or account statement credits offered as incentives for en-rolling in the products.

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Revised Interagency CRA Questions and AnswersThe Office of the Comptroller of the Currency, the Feder-al Reserve Board, and the Federal Deposit Insurance Corporation (the Agencies) adopted final revisions to the Interagency Questions and Answers Regarding Communi-ty Reinvestment (Q&As). These revised Q&As address alter-native systems for delivering retail banking services, com-munity development-related issues, and qualitative aspects

of performance, including innovative or flexible lending practices and the responsive-ness and innovativeness of an institution’s loans, qualified investments, and community development services.

The Agencies clarified nine of the ten proposed Q&As, re-vising four existing Q&As for consistency, and adopting two new Q&As. The Agencies did not adopt one of the proposed

revisions to guidance that addressed the availability and effectiveness of retail banking services. The Agencies have also made technical correc-tions to update cross-refer-ences and removed obsolete references related to the Office of Thrift Supervision. The final revised Q&As were effective July 25, 2016 and are available on the FFIEC’s website at: www.ffiec.gov/cra/.

2017 HMDA Data Collection Changes ReviewedThe Federal Financial Insti-tutions Examination Council (FFIEC) has issued a state-ment to help financial institu-tions in preparation to collect HMDA data in 2017, for sub-mission beginning in 2018.

The statement highlights one of the changes to the HMDA submission process described in the Filing Instructions Guide for HMDA Data Collected in 2017 (FIG). Beginning with HMDA data collected in 2017, filers will submit their HMDA data to the Consumer Finan-

cial Protection Bureau (CFPB) using a web interface known as the HMDA Platform. HMDA filers will interact directly with the HMDA Platform to file their HMDA data. Information regarding the HMDA Plat-form can be found at: www.consumerfinance.gov/hmda/for-filers. It is recommended that HMDA filers use a mod-ern browser, such as the latest version of Google Chrome or Mozilla Firefox, Internet Ex-

plorer 11, Microsoft Edge, or other modern browsers when accessing the HMDA Plat-form.

The following submission methods will not be permitted for data collected in or after 2017:• PC Diskette and CD-ROM;• Submission via Web (from

the Data Entry Software (DES));

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2017 HMDA Data Collection Changes Reviewed, cont’d.• E-mail to HMDASUB@FRB.

GOV; nor• Paper submissions.

It’s important to note that the data entry software (DES) cur-rently provided by the FFIEC will no longer be available as a method of data entry or data submission for HMDA data. Some institutions, particularly those with small volumes of reported loans, that current-ly manually enter each loan into the DES for submission will need a software solution to create an electronic file that will be compatible to be submitted to the new HMDA Platform. Many solutions are available to credit this elec-tronic file, such as:• A financial institution’s cur-

rent Loan Origination Soft-ware (LOS) may meet this need.

• Software commonly available on desktop computers, such as Microsoft Access or Excel, may also be used for data entry and formatting.

• The CFPB will provide a Mi-crosoft Excel HMDA Loan/Application Register (LAR) data entry formatting tool.

Beginning with the data col-lected in 2017, financial in-stitutions will submit data collected in a pipe delimited text file (.txt). Data fields will be separated by a pipe charac-ter, “|”, and will not be a fixed length, meaning zeros will not need to be added for the sole purpose of making a data field a specific number of charac-ters. The CFPB’s data entry formatting tool will help filers enter and format their HMDA data into a pipe delimited text file required to submit the data to the CFPB’s HMDA Platform. It is expected this tool will be available for filers in early January 2017.

The FFIEC encourages HMDA filers that use vendor software to prepare their HMDA data for submission to contact their vendor to confirm their soft-ware will format HMDA data collected in 2017 according to the new specified require-ments. The specified require-ments are included in Section 3 of the FIG document. These new requirements include the creation of the pipe delimited text file that may be uploaded to the HMDA Platform.

HMDA filers should also ref-erence Section 2 of the FIG for information on additional changes to the filing process, such as:• The agency with which you

file your HMDA data has changed. Financial institu-tions will file HMDA data collected in or after 2017 with the CFPB beginning January 1, 2018. The HMDA agencies have agreed that filing HMDA data collected in or after 2017 with the CFPB will be deemed sub-mission to the appropriate Federal agency.

• The agency to which you file resubmissions of your HMDA data has changed. A resubmission means that you have already filed your HMDA submission and received a confirmation receipt, but you are submit-ting again. Beginning with data collected in 2017, filers will resubmit their HMDA data by filing with the CFPB.

• Text entries in alphanumeric fields do not need to use all uppercase letters with the exception of “NA” used when

the reporting requirement is not applicable and two-letter state codes.

• The process by which you validate the edit report has changed. Financial institu-tions must address all edits prior to submitting their HMDA data collected in or after 2017. The edit report will be web-based and will be viewed and can be down-loaded from the HMDA Plat-form.

• Beginning with the data collected in 2017, as part of the submission process, an authorized representative of your institution with knowl-edge of the data submitted shall certify to the accura-cy and completeness of the data submitted.

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