Regulatory Bulletin: December 2016



PHASE II of the HMDA Revisions

HeaderSadly, our crystal ball broke during the crash of 2008 and the digital replacement we bought on line has never been quite reliable, so while we may comment, at this time, on HMDA, and HMDA II, we are far from making prognostications, but here goes… The revised rules are an enormous undertaking. The first phase will find us learning new interpretations and process, while collecting ever more data and of course completing our timely submissions. The loans reportable have changed, the data set for each loan has changed and there are even some changes to reporting rules. And of course, the list of those who must report will be different. And just when we think we have adjusted to the new world, we will be faced with the changes that will arise from the universe of knowledge about our lending criteria that have never been considered before. Certainly, we cannot be alone in wondering what “facts” about our lending habits will be disclosed and what possible new embargoed practices will arise with TRID data, super ethnicity and the possibility of quantifying age discrimination now that the age of applicants will be captured. Implementing revised HMDA rules is a monumental task by any measure. The first phase is to determine scope and coverage, collect the data, and submit it to the CFPB. The second phase involves analyzing the data and determining the story told by that data. And, how will we interpret underwriting responses to loans combining widely divergent age, race and ethnicity characteristics. I tend to agree with others I have spoken with that HMDA II, will be a new frontier. As we don’t know what kind of picture will develop, it’s hard to suggest any guidance other than to pay attention to the data we collect and try, as early as possible, to gather trends. We will know more about our borrowers and more about the de facto results of our underwriting prejudices (and we are a firm believer that all, being human, have some). Prejudice against negative characteristics is a good thing. Prejudice related to protected classes, not so much. And as the CFPB and others begin to slice and dice the data we all submit, we may find characteristics, positive and negative that could never be considered previously. There are details about the process yet to be revealed by the CFPB. We would argue that just as we are encouraged to disclose the most information to our consumers at the earliest moment, CFPB should do the same for the lending community. This will allow time for consideration, constructive comment and the greatest leeway for learning and self correcting. As new information is developed, FRC will attempt to keep it’s clients and friends up to date.

Passed on mortgage fees

HeaderA client recently asked if it is permissible to pass minor fee changes on to a borrower. That would seem to be a fair idea, as the cost is incurred on the borrower’s behalf. But don’t be so sure. Easy questions can be fraught with difficulty and the devil is in the details. I this case the proposed pass-through fee was for credit “rapid rescore.” For those not directly involved in this part of the production cycle, a “rapid-rescore” is a service through the credit vendor that provides the possibility of an expedited update or correction of erroneous information to the consumer’s credit file. The correct or updated information is presented to the national bureaus and based on positive results of further investigation, the file may be corrected and the credit score improved. The benefit, to all involved, is receiving the revised report within 2-3 days rather than 30-45 days. The downside is that that a typical charge is $35.00 and in a high-volume production model where expeditious closings are a critical factor, those charges mount up. So is there a way to lay the charge off or pass it through to the consumer? The short answer is NO! 1. It is most likely that your contract with the credit vendor prohibits the pass-through of this charge. 2. The National Reporting Bureau (Equifax, Experian, Transunion) is required to investigate and correct errors within 30 days without charge, in response to a request from the consumer. No such free service for a request from the Lender. 3. The Fair Credit Reporting Act sets forth the procedures to be followed in a consumer dispute of the information contained in a reporting agency file. [15 U.S.C. § 1681i(a)(1)(A)] The procedures to be followed, if a consumer disputes information contained in his or her file, are set forth in the Fair Credit Reporting Act. It is clear that in instances in which the consumer directly notifies a national credit bureau dispute or indirectly, the bureau must investigate as above. However, nothing prevents a bureau from charging a reporting agency for expediting the dispute process. Likewise, there is no prohibition on passing that charge on to the mortgage lender. Unfortunately for our client, the FCRA provisions prohibit the mortgage lender from passing the charge on to the consumer. The penalties for this behavior can include loss of access to credit reporting as well as damages in the case of willful violations.

What’s coming from the CFPB on Reg C, HMDA

HeaderSummary Regulation C implements the Home Mortgage Disclosure Act (HMDA), which was amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). On July 24, 2014, the Bureau issued a proposed rule to amend Regulation C, which was published in the Federal Register on August 29, 2014 (the 2014 HMDA Proposal or the proposal). DATES: One amendment to the definition of “financial institution” is effective on January 1, 2017. The amendments to § 1003.5(b) through (f)and appendix Aare effective on January 1, 2018. Paragraphs (b) and (f) of § 1003.5, as revised effective January 1, 2018, are then revised again effective on January 1, 2019, at which time t he amendments to § 1003.5(a)(1)(i), (a)(1)(iii), and (a)(2) through (5), § 1003.6, the commentary to those paragraphs, and appendix Aare also amended. Appendix A is removed and reserved on January 1, 2019. The amendments to § 1003.5(a)(1)(ii) are effective on January 1, 2020. All other provisions of the rule are effective on January 1, 2018. Seven hundred ninety seven pages detailing this are available at: If you need assistance with interpreting this material as it applies to your institution, call Kevin Kane at FRC: 212-849-6828.

Final Rule for Prepaid Consumer Accounts

HeaderThe following is excerpted from CONSUMER COMPLIANCE OUTLOOK, Second Issue 2016, published by the Philadelphia Federal Reserve. They are to be commended for their reader friendly prose as well as timely information. On November 22, 2016, the CFPB issued a final rule under Regulations E (Electronic Fund Transfer Act) and Regulation Z (Truth in Lending Act) to provide consumer protections for prepaid accounts. 81 Fed. Reg. 83,934 (November 22, 2016). Prepaid accounts are defined to include payroll card accounts and government benefit accounts. In addi¬tion, prepaid accounts include: 1) an account marketed or labeled as prepaid that can be accepted at multiple unaffiliated merchants for goods and services or usable at automated teller machines (ATMs), and 2) an account issued on a prepaid basis or capable of storing and loading funds, whose primary function is to conduct transactions with multiple unaffiliated merchants for goods or services, to conduct transactions at ATMs, or to conduct person-to-person transfers, and that is not a checking, share draft, or negotiable order of withdrawal account. Certain accounts are excluded from the definition of pre¬paid account, including accounts for health savings, flexible spending, medical savings, health reimbursement, depen¬dent care, or transit or parking reimbursement. The rule also does not apply to gift certificates, store gift cards, loy¬alty, award, or promotional gift cards, and general-use pre¬paid cards marketed as gift cards or certificates. Gift cards and gift certificates are generally covered by provisions in the Credit Card Accountability, Responsibility and Disclo¬sure Act of 2009, as implemented in §1005.20 of Regulation E. The CFPB determined that the gift card market could be adversely affected if it was also subject to this prepaid rule. The protections in §1005.20, concerning expiration dates and fees, continue to apply to these products. The final rule includes two new disclosure forms specific to covered prepaid accounts and applies existing Regulation E substantive consumer protections, with some modifica¬tions, to these accounts. Before a prepaid product is ac-quired by a consumer, a financial institution must generally provide both short- and long-form disclosures in a tabular format, although in some cases, the long form can be provided after acquisition. The short form highlights key ac¬count information and certain fees, including periodic fees, per purchase fees, ATM withdrawal and balance inquiry fees, cash reload fees, customer service fees, and inactiv¬ity fees. The long form must list all fees along with certain other disclosures. If an account is purchased through a retail store, the short-form disclosure must be provided on or visible through the outside packaging material for the prepaid account access device. Model forms are available to facilitate compliance. The Regulation E substantive protections include error reso¬lution rights, liability limits for unauthorized transactions, and at least 21 days’ advance notice of certain changes to the terms and conditions of the account. The error resolu¬tion procedures and liability limits are generally similar to the existing requirements under Regulation E, with some modifications. For example, institutions may take up to 45 days to investigate an error without having to provide provi¬sional credit for an unverified account. Institutions must also provide periodic statements or alternatively can provide all of the following: account balance via telephone, 12 months of account transaction through the Internet, and 24 months of history upon request. The rule generally requires issuers to submit to the CFPB new and amended prepaid account agreements and notifi¬cation of withdrawn agreements no later than 30 days after the issuer offers, amends, or ceases to offer the agreement. If an issuer is required to submit a prepaid account agree¬ment to the CFPB, and the prepaid account is offered to the general public, the institution must also post the account agreement in a prominent and readily accessible location on its website. If a prepaid account agreement is not posted on the issuer’s website, the issuer must provide a consumer with a copy of the consumer’s prepaid account agreement no later than five business days after receiving the request. The rule also provides protections under Regulation Z if the issuer of the prepaid account allows the consumer to access a separate line of credit offered by the issuer, its affiliate, or partner, and the credit can be accessed during a transaction with the card, which the rule identifies as a hybrid prepaid-credit card. Issuers must wait 30 days after a prepaid account is registered before soliciting a credit feature and must obtain the consumer’s consent. Regula¬tion Z’s protections for credit cards apply to hybrid prepaid-credit cards, including the ability-to-repay requirement in §1026.51, monthly billing statements for credit transactions under §1026.7(b), limits on fees during the first year of the account under §1026.52, restrictions on raising rates for an existing balance under §1026.55, and 45-day advance no¬tice of changes to the credit account under §1026.9(c)(2). For prepaid accounts without a credit feature, the Regula-tion Z credit card protections would not apply. The rule is effective October 1, 2017, although the require¬ment to submit prepaid account agreements to the CFPB is not effective until October 1, 2018. The CFPB has created an implementation page, including an executive summary and coverage chart, at The complete publication can be found at: For assistance efficiently integrating this material into your institution’s program in a timely fashion, contact Kevin Kane at FRC, 212-849-6828.


On November 2, 2016 the CFPB and New York Attorney General Filed suit against what they described as an Illegal Nationwide Debt Collection Scheme

Header“Our lawsuit asserts that millions of consumers were harassed, threatened, and deceived as part of a massive scheme to collect inflated debts,” said CFPB Director Richard Cordray. “Today we are taking action against the ringleaders of this operation so they can no longer prey upon vulnerable consumers. We are pleased to be working in partnership with New York Attorney General Schneiderman to hold these companies accountable.” The lawsuit alleges that the Buffalo, NY based network of companies operated by Douglas MacKinnon and Mark Gray harass, threaten, and deceive millions of consumers across the nation into paying inflated debts or amounts they may not owe. If successful the their suit will shut the operations of the businesses and garner compensation for the alleged victims as well obtain civil monetary penalties against the companies and partners. The CFPB and the New York Attorney General allege that Northern Resolution Group LLC, Enhanced Acquisitions LLC, and Delray Capital LLC are interrelated collections companies based in Buffalo, N.Y. Together, the companies have purchased millions of dollars’ worth of consumer debt and collected some of those debts directly. The companies were created, operated, and are overseen by Douglas MacKinnon and Mark Gray. What does this mean to you or your institution? Well, if you are doing business with Mr. MacKinnon, Mr. Gray, Northern Resolution Group, Enhanced Acquisitions or Delray Capital you might want to look into whether you are about to be swept up in their conflict. But more important, if you are an institution that deals in consumer debt directly, or indirectly either as a seller or purchaser, you may want to review the practices they are being accused of and assure yourself that you are not on the same track. The results of the recent election may determine a change in direction down the road, but defending a lawsuit is almost as bad a losing one in a case like this. Forewarned is forearmed. The complaint alleges the defendants violated the Fair Debt Collection Practices Act, operated a massive collections scheme, inflatd consumer debts and violated the Dodd-Frank Wall Street Reform and Consumer Protection Act through unfair and deceptive acts or practices in the consumer financial marketplace. Specifically, the CFPB and the New York Attorney General allege that MacKinnon, Gray, and their network of debt collection companies including Northern Resolution Group, Enhanced Acquisitions or Delray Capital: Inflated consumer debts and misrepresented amounts consumers owed; Falsely threatened legal action; and Impersonated law-enforcement officials, government agencies, and court officers. The complaint alleges that the defendants knew about, directed, and encouraged these illegal collections practices. Debt collection is a necessary adjunct to our core businesses, but no legitimate business or person needs the monetary, psychic or reputational costs of this type of allegation. Make sure that you annually review your policies and practices related to consumer debt collection as well as the sale and purchase of consumer debt. Remember, you can be ultimately held responsible for what you purchase or sell to third parties as well as what you produce and manage in house. If you cannot say with assurance that your practices are compliant, not just well intentioned, contact Kevin Kane at FRC, 212-849-6828. The full text of the complaint can be found at:

What you need to know: The CFPB is teaching your customers about their Rights under the Equal Credit Opportunity Act; you need to educate your employees, too!

HeaderThe CFPB is hard at work informing your customers and potential customers, and it’s a good thing. Educated consumers make better decisions and in the long run are more profitable as customers. But it is essential that our institutions keep up with the same education in the face of our everchanging and more complicated consumer marketplace. Make sure that your employees are aware of what the public is being told and avoid the appearance of discrimination where there is none. Be aware of what CFPB refers to as warning signs. Make sure that the innocent behavior of your front line is not interpreted as discriminatory due to poor or incomplete communication. The following are highlighted as Warning signs for discrimination: 1. Being treated differently in person than on the phone 2. Being discouraged from applying for a loan or for a certain type of loan 3. Being refused a loan even though you qualify for it based on advertised requirements 4. Being offered a loan with a higher rate than the one you were originally offered, or a higher rate than you qualify for based on advertised requirements 5. Hearing negative comments about race, national origin, sex, or other protected statuses Making sure that your employees greet every customer or potential customer with the same welcoming manner Making sure that your advertising or promotional material accurately describes you’re your practices Making sure that a clear and complete explanation is given to each consumer if their initial request cannot be met or they do not qualify for a product Making sure that all consumers are given the same opportunities Making sure that every employee understands the list of protected classes and behaves accordingly in the business setting, no matter what their personal beliefs may be: • Race • Color • Religion • National origin – The country you or your ancestors were born in • Sex (including gender) • Marital status • Age (as long as the applicant is old enough to enter into a contract) • Receiving money from any public assistance program, such as Social Security Disability Insurance (SSDI) or the Supplemental Nutrition Assistance Program (SNAP) • Exercising your rights under certain consumer protection laws And finally, remember that your customers are being taught to “be on the lookout” so sometimes they will see discrimination where it doesn’t exist. They may come to you with a predisposition to believe they are victims. Some will file complaints of ECOA violations in the face of all your efforts to the contrary. Remember, the best defense is a complete and fair written policy with adequate documentation of all of your actions. Doing it right the first time is always less expensive than having to deal with complaints that snowball into investigations. All of your ECOA policies and practices should be in writing, reviewed for compliance and consistency at least annually, and if necessary updated in writing. If you have any question about these critical issues, Kevin Kane at FRC, 212-849-6828. n

A Reminder the 2017 Threshold for Exempting Small Loans from Special Appraisal Requirements Threshold will remain at $25,000.00

HeaderBackground The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the Truth in Lending Act to add special appraisal requirements for higher-priced mortgage loans. Included was a requirement that a written appraisal based on a physical visit to the home’s interior be obtained before making a loan. The rules contain an exemption for loans of $25,000 or less and also provide a mechanism for annual adjustment based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). On November 23, 2016, the Agencies CFPB, FRB and OCC issued a final rule detailing the method that will be used to make annual inflation adjustments to the threshold. The application of the final rule will not change the exemption threshold for 2017, which remains at $25,500, based on the CPI-W in effect on June 1, 2016.

Consumer Complaint Data

HeaderConsumer Financial Protection Bureau The CFPB issues a monthly report on complaints received in the prior rolling three months delineating change compared to the same three months in the prior year. As we are all aware, agencies that set out a wide net for complaints rarely have a small catch. Of course, we must remember that this data is for complaints unresolved at the provider level that escalate to the CFPB. However, there is some good news in the data for the period ending October, 2016. Complaints about Prepaid Cards is down over 50%. Payday loans Loan complaints are down 22% Mortgage Loan complaints one of the largest categories is down 6% The largest percentage increase is in Student Loans which more than doubled The category with the most complaints was Debt Collection which which rose 18% to 8,240 for the 3 months ending October 2016 The second largest increase was in Bank account or service at 39% followed closely by Credit Card at 35% Overall, complaints were up 13%. We all want to try to resolve consumer issues before they rise to the level of a CFPB complaint, but the 100% goal is hard to maintain. These national statistics may not directly relate to your portfolio or customers but it is a good idea to know if your institution is ahead of or behind the trends. The current report can be found at:

Thomas J. Curry, Comptroller of the Currency Spoke to CRA performance at the National Association of Affordable Housing Lenders Policy and Practice Conference on December 1, 2016

Header“Your bank’s performance related to CRA and fair lending is integral to its overall reputation and success, and your role within your organization can help your institution maintain a strong compliance culture. CRA performance can affect your bank’s ability to grow through merger or acquisition, which in turn can have a fundamental impact on your bank’s business goals.” It doesn’t get much clearer than that. Whether your goal is to acquire or be acquired, CRA performance is an important consideration when applications are considered. The OCC considers how well an institution serves its community and how well the resulting institution will serve in comparison. The quality of CRA performance and compliance can have negative impact. The Comptroller, in his remarks described an institution that withdrew two acquisition applications and delayed growth as a consequence of a downgraded CRA performance. Those acquisitions will be postponed until what are deemed shortfalls have been addressed. Even more bluntly, Mr. Curry stated “When a bank develops its CRA plan, the OCC expects the bank to seek public input and involve the communities they will serve to identify opportunities and address stakeholder concerns. The OCC also expects these CRA plans to include an in-depth analysis of community credit needs and to reflect a thoughtful, measurable strategy for addressing those needs.” If you have dreams of mergers or acquisitions in your future, you would do well to start building those strong CRA and compliance programs now. The Comptroller noted “Conditions for approval of corporate applications, such as CRA plans, become enforceable requirements, and the OCC will be carefully evaluating how well banks meet the obligations set forth in their approved plans.” Have plans that will meet the community needs and will be achievable. FRC is fortunate to be led by Kevin Kane, a recognized national expert on CRA issues and author of a significant book on the subject. Schedule a meeting with him at 212-849-6828 while you are still in the planning stages. The full text for the Comptroller’s remarks can be found at:

Cease and Desist Orders and Enforcement Actions

HeaderSadly, the pace of C&Ds, Civil Monetary Penalties, Removal/Prohibition Orders and Restitution Orders continues. All are corporate nightmares. Some can be personal disasters. Over eighty C&Ds have been issued in 2016. We all know how the system works, and clearly if some businesses are winners, some must be losers. However, the depth to which some fall is often unnecessary. Wake up and smell the coffee When you are in a hole, stop digging When it’s fourth and twenty and you’re on your own goal line, punt Learn from the experience of others If you have a regulatory challenge, talk to some experts before it gets bigger. Kevin Kane of FRC is available to sit down and talk with you about compliance, call him at 212-849-6828

FDIC Makes Public October Enforcement Actions

HeaderOn November 25, 2016 the Federal Deposit Insurance Corporation (FDIC) released the list of orders of administrative enforcement actions taken against banks and individuals in October 2016/ Of the total 24 orders, two consent orders; seven removal and prohibition orders; six Section 19 orders; four civil money penalties; and five terminations of consent orders and cease and desist orders. The list and detail of the orders can be found at: October 2016 Enforcement Decisions and Orders Don’t let a small problem become a big headache,. For guidance contact Kevin Kane of FRC at 212-849-6828

Updated Comptroller’s Handbook Booklet for Community Banks

HeaderThis booklet applies to examinations of all community banks. As you look forward to 2017 examinations prepare your managers with a look at the newest guidance The OCC states that the updated “Community Bank Supervision” booklet • incorporates updated concentration risk management procedures. • incorporates updated stress testing guidance for community banks. • incorporates procedures for the credit underwriting assessment. • enhances retail credit examination procedures. • enhances appraisal and evaluation examination procedures. • enhances allowance for loan and lease losses examination procedures. • enhances other real estate owned examination procedures. • enhances credit review examination procedures. • updates the standard request letter. • updates the asset quality references. • “Community Bank Supervision”

Revised “Bank Premises and Equipment” Comptroller’s Handbook

HeaderOn November 29, 2016 the Office of the Comptroller of the Currency (OCC) issued the “Bank Premises and Equipment” booklet of the Comptroller’s Handbook. This revised booklet replaces the booklet of the same name issued in March 1990. Note for Community Banks: This booklet applies to examinations of all national banks and federal savings associations engaged in the acquisition, management, and disposal of bank premises and equipment. If you are planning to build, rebuild, renovate, buy, dispose of or move a branch, you want to make this new guidance a part of your plans. This replaces a publication of the same name issued in 1990 as well as the “Investment in Bank Premises” booklet of the Comptroller’s Licensing Manual issued in December 2005 and section 252, “Fixed Assets,” of the former Office of Thrift Supervision Examination Handbook. A PDF copy of the full text can be found at:

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