the future of regulatory compliance

2021 Alumni Compliance School 6/24/2021

Intellectual Property of the IBA 1

The Future of Regulatory Compliance

June 24, 2021

Topics for Discussion

Setting the “Fair Banking” Tone• UDAAP Rescission Statement

• Fair Lending

• Mortgage Servicing

• Debt Collection Watch for…• HMDA Reporting – Open-end LOCs

• More CRA Reform

• NFIP Updates

• FinCEN’s Beneficial Ownership Registry

June 24, 2021 2021 Alumni Compliance School 2



Evolution of Fair & Responsible Banking

Deposits

Lending

Advertising

Add-on products

Overdrafts

Payment products

Loan servicing

Deposit servicing

Fair Banking

Unfair, Deceptive & Abusive Acts & Practices

Focus is on consumers

Looks beyond technical compliance to impact on consumers

Complaint driven

UDAAP

Established the CFPB

Focus on preventing consumer harm

Consumer education

Expanded scope beyond banks

Dodd Frank Act

Unfair

Deceptive

Protects consumers & businesses

UDAP

Dealer paper

Mortgage originations

Consumer installment

Credit cards

Fair Lending

3June 24, 2021 2021 Alumni Compliance School

Fair & Responsible Banking• Focus of “fair banking” is preventing consumer harm

• Applicable to all product & servicing offerings

• Consumer harm can occur EVEN when bank is

technically compliant


“Consumer Harm” is an actual or potential injury or loss to a

consumer, whether such injury or loss is economically quantifiable

(e.g., overcharge) or non-quantifiable (e.g., discouragement). It may

be caused by a financial institution’s violation of a federal consumer

protection law or regulation directly or through a third party or

reflects weaknesses in a financial institution’s compliance

management system.



Fair & Responsible Banking

5June 24, 2021 2021 Alumni Compliance School

UDAAP Policy Statement Rescission

2020 Policy Statement re: “Abusive”

- Harm must outweigh benefit

- No dual pleading of more than standard

- Monetary relief only for lack of good faith effort

2021 Rescission Statement

- Abusive is interfering with consumer’s ability to understand

- Taking advantage of vulnerable persons

- Dual pleading may be applicable

- “Vigorous” enforcement ahead




UDAAP Policy Statement Rescission

• Think UDAAP risk (consumer harm) in every facet of

your business strategy & compliance program

• Interaction with consumers (focus on vulnerable consumers)

• Create new products & services

• Develop and update disclosures

• Consider new vendor relationships

• Engage in new marketing efforts

• Create or update new training programs

• Implement audit/monitoring programs

• Review customer complaints


Fair Banking Fair banking is illustrated through UDAAP enforcement


2020 UDAAP

Enforcement

Deceptive Advertising

Misleading statements re: loan

costs & terms

Loan Servicing

Mitigation & foreclosure practices

Auto loan repo practices

Payment Processing

Misleading promotion of loan

acceleration payment plans

Deposits

Account opening practices related to overdraft services & opening accounts

w/out consent



CFPB Report to Congress

2020 Fair Lending Report to Congress

• CFPB takes risk-based approach to fair lending

supervision, focusing on areas that present substantial risk

of credit discrimination

• 13 targeted fair lending reviews in 2020

– Most common supervisory findings: weak or

nonexistent fair lending policies and procedures, risk

assessments, and training

• Future focus – ECOA & Reg. B compliance w/ rule-making

related to small business (women & minority owned) data

collection & HMDA data


FDIC on Fair Lending

FDIC Fair Lending Resource Center

• https://www.fdic.gov/resources/bankers/fair-lending/

• Links to Reg. B, ECOA, FHA & exam procedures, policy statements,

training videos, webcasts, teleconferences

• New article – “Identifying and Mitigating Potential Redlining Risks”

– Understand the bank’s market area, and the demographics of

the geographies within that area

– Evaluate the methods the bank obtains loan applications,

including any marketing or outreach efforts and branches

– Assess the bank’s lending performance within the market area


https://www.fdic.gov/resources/bankers/fair-lending/



Mortgage Servicing

Mortgage Servicing COVID-19 Proposal

• April 9, 2021 Federal Register

• Comment period closed: May 10, 2021

• Final rule expected July; Proposed effective date: Aug. 31, 2021

• Goal: to provide additional assistance to homeowners

experiencing COVID-19 related hardships

• Does not change coverage of existing Mortgage Servicing Rule

– Small servicers would NOT be subject to these new provisions

• Those, who with affiliates, service 5,000 or less mortgages

in preceding year, all of which the servicer is creditor or

assignee


Mortgage Servicing

Mortgage Servicing COVID-19 Proposal

• CFPB Fast Facts Summary of Proposal

– Require additional actions during early intervention live contact

– Permits services to act on incomplete loss mitigation applications for

short-term forbearance programs & requires they contact borrower to

ask if they want to complete application & proceed w/ full loss mitigation

evaluation

– Permits servicers to offer certain loan modifications based on

incomplete loss mitigation applications

– Prohibit servicer from making first filing or notice of foreclosure until

after Dec. 31, 2021 (Not limited to COVID hardships)


https://www.govinfo.gov/content/pkg/FR-2021-04-09/pdf/2021-07236.pdf

https://files.consumerfinance.gov/f/documents/cfpb_fast_facts_2021_mortage_servicing_COVID-19_NPRM.pdf



Debt Collection Rules• Dodd Frank Act mandate to CFPB related to debt collection

– CFPB issued interim final rule on temporary eviction protections

• Effective May 3, 2021

– CFPB issued two final rules (Oct. and Dec. 2020) to implement DFA mandates

• CFPB plans to delay effective date to January 29, 2022

• In general terms, the rules:

– Addresses communications in connection with debt collection

– Prohibits harassment or abuse, false or misleading representations, and unfair

practices in debt collection

– Clarifies consumer disclosure requirements

– Prohibits certain practices related to time-barred debt

• First party debt collectors (banks) are exempt from rule


Debt Collection Rules

• Call Frequency Limits

– Debt collectors may not place more than 7 collection-related

calls to person within 7 consecutive days

– After a successful telephone conversation re: the debt w/ the

debtor, debt collectors must wait 7 days before calling again

• Voicemails count toward the 7

• Subject to some exceptions:

– If debtor consents to calls

– To debtor’s attorney, credit reporting agency, etc.





• Time & Place Restrictions

– Rule prohibits debt collector from communication at any unusual

time or place the debt collector knows (or should know) to be

inconvenient

• Emails and text messages are covered

• Before 8 am and after 9 pm in consumer’s time zone are

presumed to be “inconvenient”

• Debtor can designate other “inconvenient” times/places

• Prohibition on contact applies whether on work phone or

debtor’s cell line while at work


Debt Collection Rules• Validation Information Requirements and

Disclosures

• Prohibition related to Time-Barred Debt

– Rule prohibits taking threatening legal action

on time-barred debts

– Time-barred debts – a debt for which the

applicable statute of limitations has expired

• Generally 7 years in Iowa

• Such debts may still be collected using

other practices such as telephone calls and

sending letters





Question of the day:

If the CFPB debt collection rule prohibits certain practices

by third-party debt collectors it views as abusive,

harassment or unfair, how does your bank justify the same

practices as acceptable?

• Could this be the future of UDAAP?

• How do your debt collection procedures align w/ rule concepts?

• If you hire debt collectors, does your oversight incorporate

monitoring for the CFPB’s new rule?


HMDA Reporting Open-end LOCs

• HMDA Open-end Threshold is Lowered to 200

– Starting 2022 reporting year

• Applications w/ final action dates on our after Jan. 1, 2022

• For LAR to be filed by March 1, 2023

– Must exceed threshold 2 consecutive years to trigger reporting

• Originated 200 or more reportable dwelling-secured open-

end LOCs in BOTH 2021 and 2020

• Open-end = ability to advance, pay down, advance again

– Don’t count closed-end, multiple advance loans




HMDA Reporting Open-end LOCs

Reportable Dwelling-Secured Open-end LOCs

Consumer purpose LOCs

• Dwelling secured

• For ANY consumer

purpose

Business purpose LOCs

• Dwelling secured

• Limited to Home

Purchase, Refinance or

Home Improvement


Subject to normal exceptions:• Original loan amounts less than $500

• Temporary loans

• Ag purpose or secured by dwelling located on property used for ag purpose

CRA Reform

• Per May 18, 2021 OCC Bulletin, the OCC:

– Will “reconsider” June 2020 Final Rule

– Permit suspension of development of systems to implement

rule provisions that would be effective Jan. 1, 2023 & Jan. 1,

2024

– Does not plan to finalize Dec. 2020 proposed rule that would

set exam benchmarks, testing thresholds, etc.

– Is discontinuing CRA information collection efforts related to

Dec. 2020 Federal Register notice

• New director of OCC to be appointed by Biden

– Interagency rule-making effort anticipatedJune 24, 2021 2021 Alumni Compliance School 20

https://www.occ.gov/news-issuances/bulletins/2021/bulletin-2021-24.html



CRA Reform• Does not affect rule requirements that went into effect

on October 1, 2020 for National Banks:

– New CRA Public Notice requirements (per June 2020 rule)

– CRA Public File contents

• Eliminates requirement for:

– CRA Disclosure Statements (Large/ISBs)

– HMDA Disclosure Statement Notice of Availability

– Quarterly Loan-to-Deposit ratios (Small Banks)

• Requires map of each AA showing boundaries of area

and identify counties or county equivalents (rather than

census tracts)


CRA Reform• Federal Reserve ANPR

– Issued October 19, 2020. Comment period closed

– Fact Sheet

• Goals– Strengthen regulation to ensure LMI banking needs are met

– Promote financial inclusion

– Address changes to banking industry

– Bring clarity, consistency, and transparency to tailored PEs

– Minimize data collection and reporting burden

– Clarify and expand eligible CRA activities focused on LMI

communities

– Recognize special circumstances for small banks in rural areasJune 24, 2021 2021 Alumni Compliance School 22

https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200921a1.pdf



NFIP Update

• Two pending set of Flood FAQ

– Update / Reorganization of existing Interagency Flood FAQ

• Issued June 2020, Comment period closed

– New Private Flood Insurance FAQ

• Issued March 2021, Comment period closed

– Anticipate final FAQ for both will be released together

– Likely in November or December

• Reauthorization of NFIP

– NFIP set to expire Sept. 30, 2021

– Senate Banking Hearing on May 18 on reauthorization


NFIP Update

FEMA Risk Rating 2.0

• Updates National Flood Insurance Risk Rating Methodology

• New rating methodology based on flood risk variables

2021 Alumni Compliance SchoolJune 24, 2021 24

August 1, 2021

NFIP policy holders can

contact insurance

company for info

October 1, 2021

New policies will be subject

to the new rating

methodology

October 1, 2021

Existing policy holders

eligible for renewal can

utilize decreased premiums

April 1, 2022

Remaining policies

renewed on or after this date will be subject to new rating methodology

https://www.fema.gov/flood-insurance/work-with-nfip/risk-rating



NFIP Update

Key Points:

• Rate increases limited to 18% per year, in general

• Premium discounts available for pre-FIRM subsidized and newly

mapped properties

• Transfers of discounts still allowed when policy is assigned to new

owner

• Discounts still available in communities participating in the

Community Rating System

• Risk Rating 2.0 Fact Sheet

2021 Alumni Compliance SchoolJune 24, 2021 25

Expired! No problem!

Standard Flood Hazard

Determination Form• Expired 10/31/18

• According to FEMA website,

updated version is pending approval

• Use version with 10/31/18 expiration

date until further notice


https://www.fema.gov/floodplain-management/community-rating-system

https://www.fema.gov/sites/default/files/documents/fema_rr-2.0-equity-action_0.pdf



Beneficial Ownership Registry

• FinCEN/Treasury issued ANPR 4/5/21. Comment period

closed.

• FinCEN is required to:

– Establish Beneficial Ownership Registry per Corporate

Transparency Act of 2020 (Part of National Defense Act for

Fiscal Year 2021)

– Maintain collected information in confidential, secure and non-

public database

– Disclose collected information to certain government agencies

for purposes defined in CTA and to FIs to assist in meeting CDD

obligations


Beneficial Ownership Registry

• CTA establishes new framework for reporting,

maintenance, and disclosure of Beneficial Ownership

Information

• Timeline:

– Within one year of CTA enactment (1/1/2022)

• Prescribe procedures / standards governing reporting of Beneficial

Ownership info and identifier

• Specify info required to be reported and reporting method

• Specify method of reporting changes to Beneficial Owners

• Specify reporting requirements for exempt subsidiaries and exempt

grandfathered entities that cease to be exempt




Beneficial Ownership Registry Exemptions

Reporting Companies

Highly Regulated

Sectors

501(c) Entities

Companies with at Least

Mid-Size Operations

Inactive Companies

Entities that

must register


Beneficial Ownership Registry• Timeline (cont.):

– On or after 1/1/2022

• Form and manner info must be provided by FinCEN to FI for CDD

purposes

• Protocols to protect security and confidentiality of BO info

• Safe harbor for persons seeking to amend previously submitted info

that is inaccurate

• Challenges:

– Registration method and timing

– Consent of reporting entity required prior to FI access

– Some definitions different between CTA and CDD rule




Anti-Money Laundering Act of 2020• More to come

– Immediate increase in penalties

• Double the maximum for repeat violations

• Three times violator’s profit resulting from violation

• Repayment of profits / bonuses

• Bars individuals convicted of egregious violations of BSA from

serving on BOD for 10 years

– Expanded purpose to emphasize preventative measures

• Includes antiquities dealers

• Covers virtual asset service providers

– Promotes information sharing between public and private sectors

• Requires examination of FI’s efforts to incorporate national

AML/CFT priorities into risk-based programJune 24, 2021 2021 Alumni Compliance School 31


the future of regulatory compliance

Documents