We Told You So...Did You Listen? CompliancePro is STILL the ANSWER!

Last year American Bank Systems SOUNDED THE ALARM to thrifts formerly regulated by the OTS that trials lay ahead with future oversight by the OCC. Our solution then...CompliancePro...Our solution today, STILL CompliancePro.  The consequences of inaction by some institutions can be seen in the recent NY TIMES article.  Our blog entry from June 2011 is still valid today.  Let American Bank Systems help you avoid the trials of institutions like those in the article that are running for the hills, or on their way to failure.

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Thursday, June 23, 2011

From the OTS to the OCC - Are You Ready?

From the OTS to the OCC - Are You Ready?

With CompliancePro^® from American Bank Systems Your Answer is YES!

As a result of the Dodd-Frank Act, which became law in 2010, all OTS thrift institutions will come under the oversight of the OCC on July 21, 2011. You may be unclear as to some of the differences between these two regulators. Below are some of the questions you should be asking yourself to assess your state of preparedness for this change, along with answers that we believe you should consider.

 

Should we expect a higher level of scrutiny according to OCC examination philosophy?

Maintaining satisfactory or better compliance examination ratings is essential to financial institution stability, especially in our current and expanding regulatory culture. The OCC has a reputation of being more assertive and intense than the OTS. They place a lot of weight on the institution’s internal compliance audits with emphasis also on written policies and procedures, and training. Comparatively, the OCC performs very little transactional testing, especially if they have confidence in the institution’s compliance risk management system and controls. Whereas the OTS may look at thirty loans during an examination, the OCC may look at as few as five. However, if deficiencies are discovered, the OCC will typically provide lower examination ratings. CompliancePro® is a time tested and proven tool to strengthen regulatory compliance programs, and ready financial institutions for examination preparedness.

 

Are we prepared to meet the OCC’s supervisory expectations for compliance risk management?

The OCC employs a risk-based supervisory philosophy focused on evaluating risk, identifying material and emerging problems, and ensuring that individual institutions take corrective action before problems compromise their safety and soundness. Institutions are expected to have a compliance risk management system which assesses risk by products/services offered and which monitors and manages compliance risk by performing regular monitoring between examinations. CompliancePro® can help you meet these expectations with its risk assessment and monitoring and issue management capabilities which provide for regular and consistent review and testing for all consumer regulated activity across lines of business, bank products and regulation.

 

Will our risk assessment process meet the standards of the OCC?

Simply speaking, the OCC’s focus on risk management is huge. This is their starting point for examinations. Whatever policies, procedures, training, or controls you have in place; it has to follow the risk assessment. While regulatory consumer compliance risk processes in large institutions are relatively well established, some small and medium sized institutions may need to improve upon their risk assessments to satisfy the OCC. If your current risk process is informal, rudimentary and undocumented, the CompliancePro® Risk Module is what you need to prepare a sound risk assessment process with our Inherent Risk and Risk Mitigation Analysis functionality, reporting and dashboard capability.

Email us at: espringer@abs-ok.com or call at 405-607-7000.

A Blog to Nowhere (being totally irrelevant but, perhaps, interesting reading)

Here is a blog entry that will have absolutely no relevance to the vast majority of banks about a form that very few Compliance Officers will ever search for in their loan files. Yet, perhaps you’ll find this interesting nonetheless. The form I mention is the Small Business Jobs Act Certification, and I mention it only because, as General Counsel for American Bank Systems, I learned about this form while adding it to our new CompliancePro® Loans system.

The certification form is required when a community bank, participating in the Small Business Lending Fund (SBLF), makes a small business loan. The SBLF is a source of capital created by the Small Business Jobs Act of 2010 to encourage community banks to make loans to small businesses. The sole purpose of the certification form is to document that none of the principals of the borrower receiving funds under the SBLF have been convicted of, or pleaded nolo contender to, a sex offense against a minor.

Now, don’t get me wrong, I am completely in favor of not loaning taxpayer money to any business run by a sex offender. But I find it interesting that, somewhere in the making of the legislation that was intended to jolt the Nation’s lagging economy, some Congress member read the bill and thought to himself or herself, “A $30 billion fund to encourage lending to small business will help put our economy back on track. Great! But wait! No funds for sex offenders!”

Again, I think that’s a good thing. It just strikes me as odd that something like that would be so important to a member of Congress in the midst of a national debate about what our economy needs. It also strikes me as odd that not all sex offenders are excluded from receiving funds; apparently Congress was not as concerned about lending to persons who commit a sex offense against an adult.

By the way, if you are a Compliance Officer and your bank is one of the few that participated in this program, you have to certify annually that the principals of the businesses that received loans are not sex offenders of the ilk described. And if you have to make such an annual certification, wouldn’t you be glad to have the borrower certification form in your loan system?

Guilty Until Proven Innocent

CFPB's announcement trumpeting their bank attack, I mean consumer help, efforts struck a chord with me, and I want to share not jus the chord but whole chorus with you.

WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau (CFPB) began accepting consumer complaints about bank accounts, including checking accounts, savings accounts, CDs, and related services.
Apparently, the consumer complaint practices of the states, OCC, FRB, and FDIC, along with those of the dreaded trial lawyers, weren’t enough to beat financial institutions into submission. The phrase from the movie, Animal House, “Thank you sir, may I have another.”, comes to mind as I consider what the Bureau (J. Edgar would be mortified at the use of this term) intends for all financial institutions.

“Deposit accounts play a critical role in the lives of most Americans, but these products and the laws governing them are complicated,” said CFPB Director Richard Cordray. “Consumers need someone on their side to keep banks and credit unions accountable—that is our job.”
Complicated? Complicated? The regulatory process has burdened the institutions and the consumers with so many rules that what once was a two-line account agreement (We’ll hold your money until you want it) has become a document the size of an Obama state-of-the-union speech, complete with applause lines. (…subject to the requirements of §229.10(c)(1) (i) through (v) and §229.10(c)(2) only with respect to the first $5,000 of funds deposited on any one banking day; but the amount of the deposit in excess of $5,000 shall be available for withdrawal not later than the ninth business day following the banking day on which funds are deposited; and…) The Bureau can uncomplicate the products by repealing a boatload of the regulations that caused the complification (to quote Pres. Bush 43).

By the way, Mr. Courderoy, “your job” hasn’t even been established yet. Your recess appointment was a clear violation of congressional rules and served to further advance the anti-business sentiment of the current administration.

Almost nine out of ten American households have at least one checking account, and many also maintain a savings account. Yet, despite the fact that they are commonplace, bank accounts can be complex and confusing.
Flying an F-16 is complex and confusing. Adding and subtracting is neither complex nor confusing. If I cannot understand how to fly an F-16, I should not be allowed to get in the cockpit. If I cannot understand how to add and subtract, I should not be allowed to open a deposit account. Maybe a new law, "No Consumer Left Behind" is in order.

Consumers can file a bank account complaint with the CFPB using the Bureau’s website, or by mail, fax, or telephone. The CFPB’s U.S.-based call centers handle calls with little or no wait times, provide services for the hearing- and speech-impaired, and have the ability to assist the public in 187 languages.
187 languages??? God bless America! The Bureau is diligently working to make it “super easy” to file a frivolous complaint against a financial institution. They, at the same time, are making it “super hard” for institutions to comply, earn a profit, and provide the necessary products and services that the consumers need and want.

The CFPB recently redesigned its website to provide a more seamless customer experience when filing a complaint or checking the status of an existing complaint. In addition, the consumerfinance.gov homepage prominently features the work the Bureau is doing to make the costs and risks of financial products clear to consumers. A new navigation bar makes it easier for all of the site’s visitors – consumers, financial institutions, and others – to access the information and tools available online.
Shouting louder in a language the hearer doesn’t understand will not help with understanding. If the regulatory language of the existing regulations (required by the regulators) is not understood by the consumer, how will adding more regulatory language help? You are simply shouting louder in a language that the consumer does not understand.

The Bureau expects banks to respond to complaints within 15 days and seeks to close all complaints within 60 days. Consumers are given a tracking number after submitting a complaint. They are then able to log in to the CFPB website at any time and check the status of their case. Each complaint will be processed individually and consumers will have the option to dispute a bank’s resolution. Sadly, the Bureau is the “ambulance chasing lawyer” (and my apologies to all ambulance chasing lawyers) of the regulatory agencies. With all the free time most bankers have, we can now spend it responding to complaints about bank pens not working, bank calendars not having pretty enough pictures, and why an overdraft fee was charged on an account where the owner spends more than he makes (sort of like Congress).

The CFPB began taking credit card inquiries and complaints when it launched on July 21, 2011. In December, the Bureau began handling complaints on mortgages and other home loans. Today’s announcement represents the third phase of the Bureau’s Consumer Response complaints program.
The Bureau’s Consumer Response team has already received and resolved thousands of complaints on mortgages and credit cards. As of February 22, 2012, the Bureau had received over 20,000 complaints, including nearly 7,000 on mortgages and almost 12,000 on credit cards. The Bureau has seen three major issue areas with respect to credit cards: consumer confusion, third-party fraud, and factual disputes between the consumer and the card issuer. For mortgages, the biggest complaint source has been foreclosures, and the majority of those complaints have been sent to companies for review and response.
A good statistic to show, and one which will never be shown, is how many of the complaints were frivolous or fraudulent on the consumer’s part. Maybe we should start our own website and trumpet these findings.

On the topic of banking accounts, the Bureau anticipates receiving complaints in five categories:
• Account opening, closing, and management;
• Deposits and withdrawals;
• Using a debit or ATM card;
• Making or receiving payments and sending money to others; and
• Problems related to low account funds.
And if we don’t receive them, we’ll manufacture the complaints so as to justify our existence. Vee haf vays (“we have ways” for all you non-German speakers) of getting the evidence to match our conclusions.

Consumers with complaints on bank accounts, credit cards, and mortgages should contact the Bureau at ConsumerFinance.gov or call 1-855-411-CFPB.
Or 1-728-662-2265 (RAT ON A BANK)

Re-Use of Credit Reports

I do not want a new credit report.
I do not want to have to retort
Or even begin to resort
To saying, “I do not like you new credit report”.

This old one seems to work just fine.
I wish the federales wouldn’t mind
If I used it just one more time
Because this old one seems to work just fine.

Oh for the “halcyon days” of yesteryear when our customers’ financial and credit information stayed the same for decades and “just a little dab (of credit research) would do ya”. In the golden years of lending, we would obtain a consumer report (we called them credit reports back then) once a year whether we needed to or not. We would happily lend, using that same credit bureau over and over and over again, oblivious to the pending storm clouds brewing in what was to become known as the Fair Credit Reporting Act. Regulators became enamored with changing how we did things here in Hooterville and wanted us to do things the big city way. So we stumbled and we bumbled and we fumbled and found ourselves more confused than we could ever have imagined.

We’ll try and sort through the confusion, give citations for extra credit reading, and come to some sense of what the FCRA expectations are with regard to two topics: Reuse of existing credit reports; Annual review of customer credit.

Can the lender reuse an existing consumer report to underwrite a new request for credit? We believe the answer to the question is “no”.

FCRA 604(a) Permissible purposes of consumer reports: …Any consumer reporting agency may furnish a consumer report under the following circumstances and no other:
(3) To a bank which it has reason to believe
(A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer

FCRA 607(a) Compliance procedures: …These procedures shall require that prospective users of the information identify themselves, certify the purposes for which the information is sought, and certify that the information will be used for no other purpose…

The foregoing FCRA sections mean that, in order to obtain a credit report, the lender must certify that it has a permissible purpose to obtain the report AND that the report will be used for that specific purpose and no other. If a report is "reused" to underwrite a later credit request, the credit report is being used for a purpose other than the purpose certified to at the time the report was obtained. Lenders are not permitted to obtain a credit report for the purpose of determining whether not a current credit application will be granted AND any future credit applications the customer might submit. Except in the instance of simultaneous applications for credit, one application for credit, one consumer report is the rule.

The prohibition cannot be removed by Bank policy (i.e.“Credit reports are considered valid for a period of one year from the date of the report.”) or by generic customer permission (i.e. “I understand that where appropriate, a consumer report may be obtained.”)

In addition to the regulatory prohibition, the lender may have a contractual restriction with the report provider that limits it from reusing a consumer report. The following is common verbiage found in most credit report contracts: “We certify that consumer reports, as defined by the Fair Credit Reporting Act, will be ordered only when intended to be used as a factor in establishing a consumer's eligibility for new or continued credit (i.e. modifications to existing accounts), collection of an account, insurance, licensing, employment purposes, or otherwise in connection with a legitimate business transaction involving the consumer and such reports will be used for no other purpose."

Another regulatory factor against reusing an existing consumer report to underwrite a new request is that the consumer may have placed a fraud alert or credit freeze on his or her consumer report to combat actual or suspected identity theft, and without a new credit report, a lender would be unaware of that action. The lender may perpetuate the consumer’s identity theft problem by granting credit underwritten by an old consumer report. Where a consumer report is obtained, Section 605.A(h) of the FCRA prohibits the lender from proceeding with any application for credit where a consumer report reveals that there is a fraud alert or credit freeze without first addressing the alert or freeze. The lender may find itself in legal hot water for granting credit while using an old consumer report without knowledge of the consumer’s freeze or alert or for granting credit using a new consumer report without regard to freeze or alert warnings on the consumer report.

Finally, there is the issue of providing accurate risk-based pricing (RPB) or exception notices as required by Regulation V. Without the benefit of a new consumer report, the Bank will not be able to provide an accurate risk-based pricing or exception notice. Because a consumer’s information can quickly change, using data from an old consumer report to create an RBP or exception notice could cause the Bank to violate the Regulation by providing inaccurate information in the notice with regard to credit score, factors influencing the score, etc.

Can the Bank obtain a new consumer report to review the credit of an existing loan customer? We believe that the answer to the question is generally “no”.

FCRA 604(a) Permissible purposes of consumer reports: …Any consumer reporting agency may furnish a consumer report under the following circumstances and no other:
(3) To a bank which it has reason to believe
(A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer

In the FTC’s informal Gowen staff opinion letter, it states “Your questions raise the issue of whether a creditor in a closed end credit transaction may exploit consumer reports obtained for "review" purposes in order to market its products or services. In the circumstances you described, we believe the answer is "no." The permissible purpose created by this provision, however, is limited to an account review for the purpose of deciding whether to retain or modify current account terms.

The terms of a closed-end credit transaction are predetermined and generally may not be changed unilaterally by the creditor unless the contract expressly provides for such action (e.g., in the event of default). Therefore, the creditor is unlikely to have a reason to consider "whether to retain or modify current account terms" and, thus, would not have any routine need to procure consumer reports to "review" its accounts. Second, the credit bureau must require the creditor to "certify the purposes for which the information is sought, and certify that the information will be used for no other purpose.”

In the FTC’s informal Benner staff opinion letter “Once an account is closed because the consumer has paid the debt in full (and also, in the case of an open-end account such as a credit card account, notified the creditor to close the account), it is our view that no permissible purpose exists for a CRA to provide file information on a consumer to the creditor. Because there no longer exists any account to "review" and the consumer is not applying for credit, the FCRA provides no permissible purpose for the creditor to receive a consumer report from a CRA.”

A recent FTC Staff Report notes, “A report from a CRA on the personal credit of a consumer to a business credit grantor is a “consumer report” regardless of the purpose for which the information may in fact be used. Reports obtained from CRAs on consumers retain their character as “consumer reports” even if they are subsequently furnished in connection with a commercial credit or insurance transaction.”

The regulatory cite along with the informal letters and staff report hold that review of a close-end account is not a permissible purpose to obtain a consumer report. Furthermore, use of a consumer report to review a closed-end, non-consumer credit account is also prohibited.

In order for a creditor to have a permissible purpose to obtain a consumer report to review an account, it must have an existing credit account with the consumer and must use the consumer report solely to consider taking action with respect to the account (e.g., modifying the terms of an open end account, changing the rate, etc.).

Lastly, the FCRA does not distinguish between “hard pulls”, where the credit score can be impacted and “soft pulls” where it cannot be impacted. The Bank must have a permissible purpose to obtain a consumer report in either instance. So for instances of account review, both “hard pull” and “soft pull” consumer reports come under the same restrictions.

So, as the cold, harsh regulatory climate in which we live drags us away from the cheerful warmth of the old credit report, we trudge onward with the new credit report, walking uphill both ways in waist-deep snow.

Twas the Night Before the Examiners

'TWAS THE NIGHT BEFORE THE EXAMINERS

'Twas a bright Monday morning and all through the bank,

We awaited the examiners, our spirits were dank,

The policies were bound in a book with great care,

Now all we could do was just mutter a prayer.

The staff was so nervous just thinking of Feds,

While visions of violations danced through their heads.

With the Chairman in Vegas, the President in Vail,

Would they come back to find us in jail?

When out in the lobby there arose such a clatter,

We sprang from our desks to see what was the matter.

And what to our unlucky eyes should appear,

But a man with a badge and eight of his peers.

With computers and briefcases and faces so numb,

We knew in a flash that our time had just come.

More rapid than soldiers he filed in his clan,

And he gathered them all in an office to plan.

"Be picky, be thorough, be tough, use your weight,

To let them all know you have control of their fate.

To Credit, to Audit, go make them feel small,

Now dash away, dash away, dash away all."

And then in a twinkling we heard through the door,

The sharpening of dozens of claws on the floor.

And as the door opened, our eyes grew quite large,

Out came the head honcho, the Examiner-in-Charge.

He was dressed up like Rambo, from his head to his feet,

He looked like he craved a good piece of raw meat.

A bundle of printouts he held close to his chest,

For two long weeks the copier would not rest.

His eyes did not twinkle; his brows did not bend,

Is there anyone out there this man could call friend?

He was calm and collected, so passive and cold,

He backed down to no one but God we are told.

The stub of a pencil he held tight in his teeth,

From his belt hung a calculator tucked in a leather sheath.

But first to the break room to fill up his large belly,

Free coffee and soft drinks and donuts with jelly.

He'd work for an hour and then break for some lunch,

Where he went for two hours, we don't have a hunch.

For the rest of the day he would talk on the phone,

And tie up the line 'til the time to go home.

For weeks this routine just seemed to drag on,

When finally his troops had even all gone.

And then the day came when he said we should meet,

We entered "his" office; he said "take a seat."

Regs have all changed, your policy stinks,

Our file samples should be doubled methinks.

Looking at HMDA, it's not your best year,

You need creative underwriting, it's all crystal clear.

Your Reg. DD schedule is wrong; you must cut your fees,

What do you mean who is TiLA, rethink your compliance strategies.

But what we won't stand for is legal infractions,

If you don't add controls, we could take further actions.

Now don't feel so badly, such problems aren't rare,

But I still feel impelled to give you a good scare."

He spoke no more words, but walked straight out the door,

We followed him wondering if he would be telling us more.

He then shook his finger at us from afar,

And nodding his head he got into his car.

And we heard him exclaim as he opened a beer,

"You passed your exam; I'll see you next year!"

Whistleblower

“Do you have information about a company that you think has violated federal consumer financial laws? Are you a current or former employee of such a company, an industry insider who knows about such a company, or even a competitor being unfairly undercut by such a company? If so, the CFPB wants to hear from you.”
- Recent CFPB blog post.

Like a siren’s song, the lure of tips from a whistleblower has sunken many a governmental investigatory ship. A scene like this will be sure to follow the CFPB’s post.

This is the city. There are thousands of stories here, and this is one.

It’s a rainy night in the big city. Under a dimly lit streetlight in the bad part of town, two characters in trench coats meet. One is nervous, chain-smoking, oblivious to the downpour. The other is me. I work here. I carry a badge and work for the CFPB. My name is Thursday.

“Psst. Thursday?”

“No, it’s Wednesday, why do you ask?”

“No, are you Thursday, the guy I talked to on the phone? I’ve some news for youse.”

“Oh. Yes, I’m Thursday. What do you have? Just the facts.”

“I hoid that Wurst National Bank sometimes pays customers into overdraft status and then charges them a fee for doing so.”

“You don’t say.”

"Yeah, and that’s not all. Some of them fat cat bankers have been seen driving new Lincolns. I think the bank is making a profit”

“What? Are you sure about this?”

“I seen it with my own eyes. I even got a free checking account there to see if it was true. I wrote a check when I didn’t have no money in the account, and they charged me a fee.”

“Was it reasonable? Was it representative of the actual cost to the bank for handling an NSF item or was it exorbitant, indicating unfair, deceptive, and abusive acts and practices? You know, UDAAP.”

“Huh?”

“Never mind. How much was the fee?”

“5 fins. $25 clams.”

"Huh?"

"$25."

“Those lowlifes! Don’t they know that you are underemployed due to the failed economic policies of Reganites and can’t afford the luxury of paying a fee for simply overdrawing your account, even though it was intentional?”

“Huh?”

“Never mind. What else you got for me?”

“Well…they gave me a toaster for opening the account, but it’s only a two-holer and a bagel won’t fit in it.”

“I knew it! I’m taking down those crooks. When bankers start handing out free toasters and without considering that you might need a bagel toaster for toasted bagels to go with your morning espresso, that makes my blood boil.”

“What are you going to do, Thursday?”

“Enforcement; outreach to civil rights, community, and industry groups; and consumer education and engagement. That’s what I do. Those bums will never know what hit them.”

“So, like is there a reward or something in this for me? You know I put myself out there for you. I might not be able to open another free account for six months.”

“Don’t worry, buddy. The CFPB will get you a new ID. We have ways of going around the CIP rules.”

“Great! I gotta go now. I don’t anyone to catch me standing around a G-man.”

“Wait. Where will I find you if I need you to answer some more questions?”

“10th tent down on the left at Occupy Wall Street. It’s right next to the free wireless tent and across from the free Starbucks tent.”

Thursday pulls the coat tighter around him and watches his tipster walk away into the dark, all the while knowing that he had used the man. Yes, it was heartless and cruel, but the CFPB doesn’t cater to weaklings. There are bad bankers out there, it was Thursday’s job to ferret them out and put them out of business, whatever the cost.

Faster than a speeding bullet. More powerful than a locomotive. Able to leap tall buildings in a single bound. Look! Up in the sky! It's a bird. It's a plane. It’s…OK, maybe ABS’ training isn’t able to save the world, but we think it’s “Super”. And, if the response to the recent Real Estate Lending Basics class was any indication, our banks do too. Community banks still want and need quality, cost-effective training, and ABS is pleased to deliver.

In this most recent group of participants, over half the class were either new to lending responsibilities or new to banking. The remainder simply wanted to refresh themselves in light of the many regulatory changes. With the recent deluge of new banking rules, regulations, guidance, and interpretation, bankers are more and more challenged with making sure that they know how to comply with the regulatory changes and still providing the great, timely service that their customers have come to expect. ABS remains a reliable training resource for bankers in the ever-changing environment of banking regulation. In addition, we provide regulatory compliance auditing and consulting services to assist our clients with their compliance responsibilities.

So, if your banking world is in need of some speeding-bullet and leaping-tall-building type help, it would be “super” if you would give us a call. We’d love to partner with you. Our 2012 training calendar is in process of being developed, so let us know what you’d like to see in the way of training.