Regulatory Bulletin: August 2009


We Hear That…

  • Regulators have shifted resources to enhance examinations of Consumer Protection. There is a greater emphasis in “Washington” for regulators to be “consumer watchdogs.” Also, several significant consumer protection laws become effective in the second half of 2009, e.g. TILA/Regulation Z Early Disclosure Rule (07/30/09); TILA/Regulation Z Higher Priced Loans Rule (10/01/09); and RESPA/Regulation X GFE disclosures, new HUD-1 (01/01/10).
  • Regulators are taking a very close look at ID Theft Red Flags policies, procedures, service provider analyses, handling of business accounts (in addition to consumer accounts), training, and periodic updating of the program. They are also focusing on the bank’s documentation of its risk management process, e.g. identify accounts at the most risk, which red flags pose the greatest risk to the bank, and controls to mitigate the risks.
  • Fair lending has taken center stage as a result of the mortgage crises. Regulatory concerns about pricing discrimination and allegations of disparate treatment and disparate impact have bankers justifiably anxious.
  • New consumer disclosures for credit cards and home equity lines of credit accessed by credit cards went into effect on August 20 requiring earlier notifications. The Truth in Lending Act’s final rules on open-end consumer credit were adopted on July 15 by the Federal Reserve Board as part of the Credit Card Accountability Responsibility and Disclosure Act. See below
  • According to the Federal Reserves’ 2009 annual report compliance with the Truth in Lending Act, Truth in Savings Act, and the Expedited Funds Availability Act dropped in 2008. The Truth in Savings Act saw a two percent increase in violations to 14%. The Truth in Lending Act experienced a one percent increase up to 19%, and the Expedited Funds Availability Act also had an increase of one percent to 11%.
  • Audits of anti-money laundering activity by federal watchdog agencies have declined as the Treasury Department has refocused its resources on monitoring for safety and soundness issues at financial institutions.
  • The number of Suspicious Activity Reports (SARs) filed in 2008 continued to rise, but at a slower pace than 2007. According to the SAR Activity Review the number of SAR filings rose by three percent in 2008 in comparison to an increase of 16% in 2007.

Are You Planning For…

  • Final Amendments were approved on 07/30/09 to Regulation Z that revised disclosure requirements under the Higher Education Opportunity Act (HEOA). Creditors extending private education loans must provide disclosures at the time of application, when the loan is approved, and when the loan is consummated. The Regulation Z amendments will become effective September 14, 2009; however, compliance is optional until February 14, 2010.

Tip of the Day…

  • Regulators are still keeping a very close eye on SAR filings. They expect a bank to have documentation not only for all SARs filed, but also for those not filed – instances of potential suspicious activity where management determines that a SAR is not required. When in doubt, it is prudent for an institution to file the SAR. Severe penalties can be levied if a SAR is not filed and the regulators disagree with the bank.
  • The Office of the Comptroller of the Currency updated its exam procedures for the Servicemembers Civil Relief Act and payday lending rules in the electronic versions of its “Other Consumer Protection Laws and Regulations” as illustrated in their Comptroller’s Handbook.
  • The Federal Trade Commission (FTC) will delay its enforcement of the identity theft red flags rule under the Fair and Accurate Credit Transaction (FACT) Act until November 1, 2009. Compliance for banks became effective November 1, 2008. The FTC released Frequently Asked Questions regarding FACTA on June 22, 2009.
  • In July the four federal banking agencies and the Farm Credit Administration issued an update of the Interagency Questions and Answers Regarding Flood Insurance. This was the first update in 12 years and took 16 months to finalize.
  • Civil money penalties for violations of the Home Mortgage Disclosure Act have recently surpassed that of the Flood Disaster Protection Act. The increase is due to a change in focus by federal regulators. Bank examiners are scrutinizing HMDA data in conjunction with CRA exams, fair lending exams, and compliance exams. Bankers should prepare themselves for even greater scrutiny in 2010 given the implementation of “High Price Mortgage Loans.”
  • Regulators are pushing banks to consider enterprise risk management as a means of understanding and controlling risks at their institution. Departments and managers tend to assess risk only as it applies to their own individual areas whether that involves lending, investments, operations, or compliance. There is a real need for a higher-level review taking into consideration all the risks a bank faces and how those risks align with a bank’s overall goals.

The New Truth-in-Lending Act Credit Card Rules

The new consumer disclosure rules for Regulation Z became effective August 20, 2009 for credit cards and home equity lines of credit. The highlights of the Act are as follows:

  • Creditors must offer 45 days of advance written notice of increases in the annual percentage rate or significant changes in terms such as increases in the finance charges or fees.
  • The 45-day notice must be clear and conspicuous and notify the customer of their right to cancel the account before the rate change takes effect. Creditors cannot treat customers who cancel their accounts as if they are in default or charge them a penalty fee; and may not require instant pay off of the balance.
  • Creditors must mail or deliver periodic statements at least 21 days before the due date and on the same day each month. If the creditor does not mail or deliver the periodic statement at 21 days prior to the due date than the creditor cannot treat payments as late. Creditors who offer a grace period and wish to impose additional finance charges must mail or deliver the change notice at least 21 days before the due date, or the additional charges cannot be added.

Why You Need an Effective Compliance Program – What To Do

  • Regulators have taken an increasingly critical view of the effectiveness of a bank’s Compliance Program. In response to negative findings, they have issued Cease and Desist Orders or a Memorandum of Understanding, with findings such as “Operating with inadequate management and Board of Directors oversight.”
  • Banks regulated by the OTS should ensure they have a robust SMAART Compliance Program (Systems, Monitoring, Assessment, Accountability, Response, and Training).
  • Banks regulated by the FDIC need to have an effective Compliance Management System (CMS Program) (Board and Management Oversight, Compliance Program and Compliance Audit Process).
  • The regulators expect management to take steps to develop a mature compliance program, along with proactive risk assessment and monitoring for compliance with applicable laws and regulations.

This entry was posted on Tuesday, September 1st, 2009 at 9:23 pm and is filed under Compliance - General, Compliance Program, Consumer Credit, Consumer Disclosures, FACTA, Fair Lending Risk Assessment, Flood Determination, HMDA, Lending, NYS 296a, Human Rights Law, Regulation Z - Credit Card Rules, Regulation Z - HEOA, Regulatory Bulletins, RESPA, Servicemembers Civil Relief Act. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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