Regulatory Bulletin: June 2017


June 2017

In This Issue: 

  • What Are The Differences Between Adverse Notice Requirements Under The ECOA And The FCRA and How Does That Affect What You Need To Do?
  • What Can You Do To Resolve Limited Availability of Certified And Licensed Appraisers?
  • How Well Do You Know Your Employee? 
  • For Community Reinvestment Act Best Practices – How Do You Prepare For Your Next Exam?
  • Contact Our President or Marketing Director for More Information

 What Are The Differences Between Adverse Notice Requirements Under The ECOA And The FCRA And How Does That Affect What You Need To Do?

What are the Differences?
Two federal laws — the Equal Credit Opportunity Act (ECOA), as implemented by Regulation B, and the Fair Credit Reporting Act (FCRA) are designed to inform consumers who apply for credit the reasons a creditor declined their application. These regulations are similar but include a number of important differences.

The ECOA requires that the creditor inform the applicant of the reason for the declination. If the reason included information obtained from a Consumer Reporting Agency, the creditor must provide the name and contact information of the Agency. The consumer is directed to the Agency not to obtain the reason for the declination, but to obtain a copy of the report the creditor used.

The FCRA expands the requirements of the notification by requiring disclosure of the credit score obtained from the Consumer Reporting Agency.

Most banks have combined the two notices and are barely aware of the origin of the differing requirements.  Little noticed is that Regulation B and paragraph 615(a) of the FCRA refer to information obtained from Consumer Reporting Agencies. Typically, these are the big three – Experian, Equifax, and Transunion. Banks can go astray when they rely on information obtained from organizations that look like credit bureaus, but are not Consumer Reporting Agencies.

FCRA paragraph 615(b) imposes different requirements when the reason for the declination was based on information obtained from a source that is not a Consumer Reporting Agency. If the information is not from a Consumer Reporting Agency the consumer is direct not to the third party, but to the creditor.  The model form uses this language: “Our credit decision was based in whole or in part on information obtained from an affiliate or from an outside source other than a consumer reporting agency.  Under the Fair Credit Reporting Act, you have the right to make a written request, [directed to the creditor, not the third party] no later than 60 days after you receive this notice, for disclosure of the nature of this information [reason for decline].”

Organizations that look like credit bureaus but are not Consumer Reporting Agencies are not required to, and are not prepared to, provide a copy of the consumer’s report to the consumer.
Also note that some providers offer more than one service. Product A may be an FCRA compliant service while Product B may not. The creditor will want to understand into which category the product fits.

What to Do – If you are relying on information obtained from a Consumer Reporting Agency and take an adverse action, you will need to direct the consumer to the Agency to obtain a copy of his/her report.  However, if you are relying on a third party which is not a Consumer Reporting Agency, direct the consumer to yourself to obtain the reason for the declination.

If you need help in navigating these requirements and have any questions about how to ensure compliance with them, please contact FRC and we can help guide you how avoid regulatory pitfalls in this area.

(Brian Sayago, at FRC, contributed to this article). 

How Well Do You Know Your Employee? 

We hear over and over again how important it is to know your customer, but risks can also be substantial if you do not Know Your Employee (KYE).  There are instances where an employee draws attention by unusual behavior such as sudden obvious extravagant expenditures, but more likely, inappropriate behavior will be more subtle.  Banks need effective policies, procedures, job descriptions, internal controls, appropriate levels of authority, and dual controls for various functions.

Two recent cases illustrate what can go wrong if controls break down.  In one case, a former Senior Vice President of Maryland Bank was sentenced to 3 years in prison for a scheme to steal over $1.8 Million from Bank Customers.  What made it even worse was that she was in a the trusted position as the Bank Secrecy Officer in addition to her managing the bank’s savings department and used her position to cause more than 200 unauthorized transfers and withdrawals of funds from customer accounts.  Several of the customers were at least 80 years old and some were deceased.

In another case, the employee was a teller at regional bank and entered false transactions into the bank’s records to cover up over $1.1 million missing due to theft.  She faces over 5 years in prison.

These are just some of the scandals involving employees.  There have many instances of bank staff aiding and abetting money laundering or just making unauthorized trading or other financial transactions.  This may lead to financial, regulatory and reputation risks.  As someone once said to a young accountant charged with keeping the books for a company, “Never trust anyone and keep one on your mother.”  This was said in jest, or was it?  In any event, you can apply the concept to your employees.

If you need any assistance in developing procedures or training please contact FRC. 

For Community Reinvestment Act Best Practices – How Do You Prepare For Your Next Exam?

Just ask Mr. Kevin Kane, President and CEO of FRC.  Mr. Kane made a speech to the NY Bankers Association on May 17, 2017, which included the following areas:

• Intermediate Small Bank (ISB) Overview – Asset size of $307 Million to $1.2 Billion.
• Lending Test – Exam Criteria: seasonally adjusted loan-to-deposit ratio; percentage of loans in the institution’s assessment area(s); institution’s record of lending to individual borrowers of different income levels, businesses, farms of different sizes; geographic distribution of loans; and institution’s record of taking action in response to written complaints about its performance in helping to meet credit needs in its assessment area.
• Community Development Test – Examined on the number and amount of the institution’s: community development loans; qualified investments; and community development services
• Community  Development includes loans, investments, services and/or activities for community development purposes such as : community or tribal based child care; educational, health, or social services targeted to low – to – moderate income persons; and services that revitalize or stabilize low – to – moderate income geographies
• Community Development Loans include: community development as primary purpose; not reported or collected by the institution or an affiliate for consideration as a home mortgage, small business, small farm or consumer loan unless it is a multi-family dwelling; and must benefit the assessment area, however, if the institution has adequately addressed the community development needs, examiners will consider these activities even if they do not benefit the assessment area.
• Other topics included in the speech included Qualified Investment and How to Comply Under ISB.

For additional information on any of the above topics or would like customized guidance on how best to prepare your institution for its next CRA exam please contact FRC. 

What Can You Do To Resolve Limited Availability of Certified And Licensed Appraisers?

The financial institution regulatory agencies issued an advisory in May 2017 on Appraiser Availability.  Responding to concerns over the limited availability of state-certified and -licensed appraisers, particularly in rural areas, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency today issued an advisory that highlights two options to help insured depository institutions and bank holding companies facilitate the timely consideration of loan applications.
Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) requires appraisals for federally related transactions to be performed by individuals who meet certain state-certification or -licensing requirements.  The advisory points to alternatives that may help in areas facing a shortage of appraisers:
• The first option is to permit temporary practice permits, which allows appraisers credentialed in one state to provide their services on a temporary basis in another state experiencing a shortage of appraisers, subject to state law. The advisory also discusses reciprocity, in which one state allows appraisers that are certified or licensed in another state to obtain certification or licensing without having to meet all of the state’s certification or licensing standards.
• The second option is to establish temporary waivers, sets aside requirements relating to the certification or licensing of individuals to perform appraisals under Title XI of FIRREA in states or geographic political subdivisions where certain conditions are met. Temporary waivers may be granted when it is determined that there is a scarcity of state-certified or -licensed appraisers leading to significant delays in obtaining an appraisal.
If you need any assistance in implementing the actions noted in this advisory please contact FRC. 

Contact Our President or Marketing Director for More Information

• Mr. Kevin Kane, President, CEO and Founder of FRC, who has substantial legal, compliance and regulatory experience – (212) 849-6828  
• Ms. Shelly Berman, Marketing Director, who has substantial experience in assisting financial institutions obtain the products and services they need to meet their goals – (301) 262-6987

For more information visit our website at


This entry was posted on Friday, June 16th, 2017 at 8:09 am and is filed under Regulatory Bulletins, Regulatory Insights. 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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