CFPB Integrated Disclosure Guidance

Great morning to you!


Here is the initial guidance from the CFPB (also known as the Bureau of Full Employment for Attorneys and Consultants) on the new RESPA/TIL forms (formerly known as the GFE and HUD-1) that will be required in 2015.  Currently at +2,000 pages of rules, guides, and interpretations, the process of information and misinformation will continue to dribble out for the next year or so, but here is our first glimpse of what the regulators are thinking (if you can call it that).
 
The guidance may be found here:
 
http://files.consumerfinance.gov/f/201403_cfpb_tila-respa-integrated-disclosure-rule_compliance-guide.pdf
 
Your partner in the madness,




Mikel

A Realization

The signs were all there – I’m walking my dog in the dark, mowing my leaves rather than my lawn, and firing up the furnace – but it didn’t hit me until I walked into the store last weekend. There in aisle three, right behind the Halloween costumes are the Holiday decorations! Where has the year gone?

Well, for most of us, the year was spent reading the CFPB’s new rules, amendments to the new rules, amendments to the amendments of the new rules, and technical corrections to the rules and amendments! And, while it’s scary that there are only 62 shopping days until Christmas, it’s downright frightening that there are only 53 working days until the effective date of all those rules and amendments – January 10, 2014!

But what’s even more terrifying than that – there are only 85 working days until your HMDA is due to be filed! So why am I thinking about HMDA now? Well, given the significance of the changes required to implement the CFPB’s new rules, amendments and technical clarifications, come January 10, compliance officers are going to be buried in testing for compliance with the new regulations! So, effectively you have just 53 working days to get your HMDA right!

While 2013 has brought significantly fewer HMDA-related civil money penalties than prior years, the CFPB’s HMDA bulletin, released in October, reiterates the regulatory focus on getting HMDA right. CFPB Bulletin 2013-11 sets forth the Bureau’s expectation that covered entities maintain effective HMDA compliance management systems, defines the error tolerance that the CFPB will enforce beginning in 2014, and discusses the factors the CFPB will evaluate when considering potential enforcement action.

Clearly, prudence dictates an evaluation of your institution’s HMDA compliance management system against the Bureau’s stated program expectations. But, given the time-crunch, I recommend focusing on the expected “comprehensive and regular internal, pre-submission HMDA audits, to test and evaluate data accuracy, and that include a reasonable amount of transactional analysis, written reports detailing findings, and recommendations for corrective action.”

Those of you who perform quarterly HMDA data accuracy verifications are probably in pretty good shape. But those of you who schedule data verifications just prior to submission may want to complete the testing on the year-to-date data now rather than waiting.  In either case, some HMDA testing will have to be done in 2014, preferably prior to January 10!

You’ll want to be sure that your data verification covers at least the “key fields,” but given that resubmission can be required for errors in non-key fields “if, in the examiner’s judgment, these errors prevent an accurate analysis of the institution’s lending” you may want to validate all fields. Here are a few HMDA review tips to consider:

1.      Make sure ALL reportable applications are included. Reconcile the LAR entries you have back to new loan reports, denial or second review reports, and/or reports from your application processing system. Be sure all lending areas are included. And, if you implemented a new mortgage loan product make sure those applications are hitting the LAR.

2.      Be sure to validate the LAR data back to the source document in the application file, even if you use a HMDA data input form.

3.      Include system-filled fields in your validation: remember if the system is doing it wrong, it will be wrong 100% of the time.

4.      In addition to the sampling you do, perform an “eye ball” test of the LAR. Scan the LAR for data fields with values that don’t make sense. For example:

a.      If you implemented a pre-approval program on July 1, you shouldn’t see entries prior to that date coded as pre-approval not requested.

b.     If you don’t accept manufactured homes as collateral, none of the LAR entries should be coded as manufactured loans.

c.      If you don’t sell loans, you shouldn’t see applications with a purchaser type other than 0.

d.      An application for a multi-family dwelling with a reported income.

e.      An action taken date prior to the application taken date.

f.       ETCETERA

5.      Expand your testing to include a higher proportion of those files with problematic codes – such as approved not accepted, withdrawn and closed for incompleteness – to confirm they are accurately coded.

6.      If accuracy of denial reasons was noted in your prior Regulation B review, you may want to validate a larger sample of the denial reasons on the LAR back to the underwriting file.

Clearly your 2013 HMDA data responsibilities can’t all be completed by year end, but by doing the lion’s share now, you’ll have more time in early 2014 to focus on verifying compliance with the new regulations.

Reg. E Remittance Rule - This Time for Sure

Good morning!

Football season is just around the corner and along with it comes…the new Reg. E Remittance Transfer Rule, effective October 28, 2013?!?!?

That’s right.  As the rule was ready to implement in February, 2013, the CFPB jerked the reins and stopped the wagon just in the nick of time before it went over the cliff.  So, here’s a quick reminder about what needs to happen in case you’re more interested in ESPN than Reg. E.

DEFINITIONS

Like a program at a ballgame, the definitions make it possible to know who is responsible for what.  So, here are a couple of important ones.

1005.30(e) A "remittance transfer" means the electronic transfer of funds requested by a sender to a designated recipient that is sent by a remittance transfer provider. The term applies regardless of whether the sender holds an account with the remittance transfer provider, and regardless of whether the transaction is also an electronic fund transfer, as defined in § 1005.3(b) which is “including, but is not limited to: (i) Point-of-sale transfers; (ii) Automated teller machine transfers; (iii) Direct deposits or withdrawals of funds; (iv) Transfers initiated by telephone; and  (v) Transfers resulting from debit card transactions, whether or not initiated through an electronic terminal.”

Most likely, your bank provides remittance transfers for consumers.  These include wires, international ACH, bill-pay (unless ALL international payments are made by check), and some prepaid card transactions that are initiated by a consumer and payable to a person or entity in a foreign country.  Transactions that debit a consumer account at your bank (international ACH debit, for example), are not counted as a covered transaction for your bank because they are not “sent” by your bank.  The regulatory commentary on 1005.30(e) is quite helpful in giving examples of what is and what isn’t a remittance transfer.  We encourage you to peruse that section.

12 CFR 1005.30(f) A "remittance transfer provider" or "provider" means any person that provides remittance transfers for a consumer in the normal course of its business, regardless of whether the consumer holds an account with such person. =

A person (bank) is deemed not to be providing remittance transfers for a consumer in the normal course of its business if the person provided 100 or fewer remittance transfers in the previous calendar year and provides 100 or fewer remittance transfers in the current calendar year.

Most likely, your bank is a remittance transfer provider.  The “100 per year” exception, however, may or may not apply to your bank and includes all forms of remittance transfers.  You’ll need to do the math to determine whether you exceed the threshold.

12 CFR 1005.30(g) "Sender" means a consumer in a State who primarily for personal, family, or household purposes requests a remittance transfer provider to send a remittance transfer to a designated recipient.

The remittance transfer rules apply only to remittance transfers initiated by consumers, but the transfer can be payable to another consumer or a business.

EXCEPTIONS

In order for the remittance transfer rule to apply, your bank must be a remittance transfer provider for consumers and make more than 100 consumer remittance transfers per year.  Also, transactions of $15 or less are not to be included in the total.

In addition, some securities and commodities transfers are excluded from coverage of the rule.

RULES

For covered transactions, the bank must provide initial disclosures that disclose any bank fees, third party fees/taxes, dollars to be received after exchange rates are applied, error resolution remedies available to the sender, and a host of other rights and responsibilities.  There are safe harbor disclosure formats that should be used, and 12 CFR 1005.31-1005.34 provide the gory details of what is required of remittance transfer providers.

BEST PRACTICE

Your bank should count the foreign remittance transfers to determine whether your bank is exempt from the disclosure rules.  In addition, a best practice would be to log or code the transactions in such a way that you can verify for examiners the number of covered transactions because they will most likely ask how you know that your bank hasn’t met the “100 per year” threshold, if you claim this exemption.

If the remittance transfer is a covered transaction for Reg. E purposes (it meets the 1005.3(b) definition), the bank is responsible for performing its Reg. E error resolution responsibilities even though the transaction is not covered by the remittance transfer rules.

Please let us know if you have questions about this new rule.

Your partner in the madness,

American Bank Systems, headquartered in Oklahoma City, OK extends their heartfelt concern and prayers for those impacted by the terrible and tragic tornado yesterday.

CompliancEX Exclusive: Interview with Ernie Springer from CompliancePro    CompliancEX recently sat down with Ernie Springer, a former Compliance Officer who now works with CompliancePro, a compliance monitoring tool on the development side to find out more of his former background in compliance and his work now with CompliancePro.    Continue to article

Adverse Actions Webninar Q&A

In our recent Adverse Action webinar, the following questions came up.  We provide them and the accompanying answers for your edification.

What reason for taking the adverse action should the bank use if the applicant is 18 years old and has no credit history?

I would probably choose “no credit file” or “limited credit experience” as the box to check on the Reg. B form.  Whichever you choose, your institution should be consistent in using the same reason in like circumstances.

Can you be more specific on what a completed application is and when it is “received”?

Except for “Will you marry me?”, “Is this beer free?”, and “Where’s the bathroom?”, these are two of the more important questions asked, with regard to Reg. B.

12 CFR 1002.9(a) requires a creditor (YOU) to notify an applicant (THEM) of action taken within 30 days after receiving a completed application concerning the creditor's approval of, counteroffer to, or adverse action on the application. 

For Reg. B purposes, a completed application occurs as soon as a creditor has everything that it needs to make a credit decision.  What information is needed to make a credit decision?  The financial institution gets to decide, within reason, what it needs to make a credit decision.  Generally, and depending upon the type of loan, any of the following information would be deemed reasonably necessary in making a credit decision: evaluation of credit history (consumer report or bank history), verification of collateral value (appraisal or other form of valuation), verification of income (paystub, tax return, profit and loss statement), verification of identity of applicant (driver’s license, documentation of existence of entity), determination of likelihood of repayment (cash flow analysis), etc.  The loan application is most often a process; not just a document. 

It is usually much easier to obtain the information necessary to make a credit decision for a consumer loan request than for a business or ag loan request.  Once in a while, an applicant will have everything that the bank needs to make its credit decision at the same time the application is provided.  When this occurs, bells ring in heaven and all the world is right.  Usually, though, the application process is more prolonged and the information needed to make the credit decision comes in in bits and pieces (a 2011 tax return today; the 4^th Quarter 2012 P&L a couple of weeks later; the appraisal three weeks later) until finally, the lender has all the information needed to make the credit decision.  Now that you have the stuff, make the decision because Section 1002.2(f) requires that the institution “exercise reasonable diligence” in obtaining the required information.  Unlike the fragrance of Mr. Too-Much-Cologne-Wearer after walking through the bank lobby, the completed application should not linger long.  In other words, git’r done ‘cause that 30-day clock is tickin’!

Unfortunately, obtaining completed applications often take time, and therein lies the rub.  Bank determines the completed application was received on date X; Examiner determines the completed application was received on date Y; Adverse action notice sent on date Z.  Per the bank, date Z is timely; per the examiner, date Z is out of compliance.  And this brings us to our next question.  

What is the best way to document when a bank has a completed application?

The best way is the way the works best for the bank.  I shamelessly plug our imaging system software, Bank Manager, as an excellent and affordable tool to document what you have and when you received it.  A manual or computerized log for documents received and the process of the application also has merit.  Time/date stamps to record when “this stuff” came to the bank is another means.  Whatever method the bank chooses, make sure that the method fits the bank’s loan process, or it will be forgotten like yesterday’s convenience-store sandwich that you find way stuck way back in the corner of the refrigerator about six weeks after the “best by” date on the wrapper.  Now that you have a completed application that was received, finally, on April 1, 2013, the credit decision needs to be made and, if adverse to the applicant, the notice must be sent within 30 days of April 1^st.

In the Adverse Action Webinar this morning you stated that the adverse action notice should reflect the dollar amount.   Is this a requirement to have the dollar amount on the denial, or if you put the dollar amount on the denial just make sure the amount is correct?

The dollar amount isn’t required to be shown on the AAN, but some loan operating systems input it as a means of further identifying the application.  So long as the transaction for which the applicant applied is adequately identified on the AAN (by name, date, purpose, amount, etc.), the bank is in compliance with the Regulation.  My point was that information that is input on the AAN should match what is on the application and in the file.

What should we do when an adverse action notice is not provided with the time limits?

Some compliance officers, and examiners, will want the responsible party put in stocks in the public square and a scarlet “L”, for LOSER, branded on their forehead.  A better solution, however, is to document the error (AAN didn’t get sent to applicant timely), how it occurred (employee didn’t understand procedures, bank has no procedures, short-staffed due to vacation and inadvertent error), and what was done to make sure that the same error doesn’t happen again (provided training, changed procedures).  Something like the following could be memorialized in the minutes of the compliance committee or Compliance Officer’s report:  Discovered 2 instances where adverse action notices were not provided timely – Jones, application date 01/02/13; Smith, application date 03/04/13.  Supervisor of department was notified and Bank procedures were reviewed with employee.  Incident appears to be an isolated error due to employee being new to the department and not a systemic issue.  Adverse action notices will be reviewed monthly for the next 60 days to verify that error is not being repeated. 

Join us for effective and affordable training via our webinars.  Upcoming sessions may be found at http://www.americanbanksystems.com/training.aspx

CFPB and Indirect Lending

Today, the CFPB released a bulletin explaining that certain lenders that offer auto loans through dealerships may be responsible for unlawful and discriminatory pricing.  As Robin, Batman’s young sidekick might say, “Holy Fair Lending violations, Batman!”.  If your bank is involved in any type of dealer financing, you should review the parameters and determine whether changes need to be made.  The announcement, bulletin, and a cool little chart may be found here http://www.consumerfinance.gov/blog/buying-a-car-heres-what-you-need-to-know/

To combat the scourge of unfair pricing in auto financing, the CFPB bulletin recommends that bank take steps to curtail such activity, including, but not limited to:

• Imposing controls on dealer markup, or otherwise revising dealer markup policies;

• Monitoring and addressing the effects of markup policies as part of a robust fair lending compliance program; and

• Eliminating dealer discretion to markup buy rates, and fairly compensating dealers using a different mechanism that does not result in discrimination, such as flat fees per transaction.

Let’s see, in its short tenure, the CFPB has singlehandedly impacted the consumer real estate, student loan, and auto lending markets (and not always for the better), caused jitters in the credit card industry, and is making the consumer reporting industry begin to shake.  Before long, Uncle Vito will be the only place to get a loan, and even the CFPB doesn’t want to make Uncle Vito mad.

ABS is helping as best we can so that you don’t get an offer from the CFPB that you can’t refuse.