Posts filed under ‘Compliance’
I had a great time the other night hanging out with the Association’s Young Professionals Commission. I even got to celebrate the birthday of one of their newest members. Regardless of age, one of the questions that always comes up at such gatherings is what issues are lurking out there to sneak up on the unsuspecting credit union. The one I keep coming back to is HMDA and yesterday Fannie and Freddie took a huge step to help those of you who have to comply with this data reporting regulation be ready when the expanded mandate becomes effective in January of 2018.
The uniform residential loan application which you may know as either Form 1003 or Freddie Mac Form 65 is a standardized document that has been around for 20 years. So many mortgages are connected in some way to Fannie and Freddie that the application is used by almost all lenders in the country. Yesterday, the GSEs announced that they have created a new, redesigned URLA form. Most importantly, for my purposes, the form includes the expanded data fields that impacted lenders will have to fill out to comply with the HMDA regulation. In addition, if the GSEs are correct, the new form will be easy to integrate into your existing lending systems and better suited for an online application process. For those of you dinosaurs who still rely on paper, the updated URLA will still be available in a hard copy.
Even though the form doesn’t become effective for over a year, you can use it as an easy way to cross reference the information you collect now against the information you will need to gather in the relatively near future. Don’t underestimate just how much more information you will have to collect. According to a summary provided by the CFPB, the new HMDA reporting requirements include data points for applicant or borrower age, credit score, automated underwriting system information, unique loan identifier, property value, application channel, points and fees, borrower-paid origination charges, discount points, lender credits, loan term, prepayment penalty, non-amortizing loan features, interest rate, and loan originator identifier as well as other data points. The HMDA Rule also modifies several existing data points.
The good news is that the CFPB narrows the scope of the institutions to which HMDA applies. Starting in 2018, if your institution didn’t originate 25 covered mortgage loans in each of the preceding two years, or at least 100 open-end lines of credit in each of the preceding two calendar years, HMDA doesn’t apply to you regardless of your asset size. Still, this is not the type of regulation you want to keep to the last second. The CFPB and Congress want this additional information for a reason and I doubt regulators are going to have much patience for those of you who aren’t prepared for this mandate. The new and approved application is a great way to get ready to comply.
The Bureau That Never Sleeps is at it again! On Friday, the Bureau released proposed amendments to its “know before you owe” TRID regulation, which took effect in October of 2015. I’m going to dub these proposed changes Death Wish classics because some of the amendments are so technical that the only way I am going to get through them is to drink Death Wish coffee, which for the uninitiated, makes Starbucks taste like your mother’s Chock full o’ Nuts.
At first glance, it doesn’t seem like there are any major changes. But there are several proposed amendments and clarifications including extending TRID’s coverage to all co-op units; clarifying the applicability of tolerances in early disclosures; and clarifying information that can be shared with third parties without violating a consumer’s privacy. According to this morning’s American Banker, this last one was put in at the urging of the National Association of Realtors. This is one to have your mortgage person take a look at.
Economic Growth Declines
Those of us of the opinion that the economic glass is half empty received further support for our negativity with the release of news on Friday from the Commerce Department that the U.S. economy grew at a seasonally adjusted annual rate of 1.2% in the second quarter. According to the WSJ, this means that economic growth is now at its weakest level since 2011.
The thing that really perplexes me is that business investment declined for the third straight quarter. American corporations are sitting on a record pile of cash. For years, optimists have been waiting for businesses to start spending some of this cushion and really jump start the economy. Wouldn’t it be something if business sits out an entire period of economic growth without making any sizable investments other than to buy back their shares?
On that note, grab your coffee and get to work.
I fully expected to tell you this morning that the CFPB was once again getting ready to wallop you with regulations by imposing new notice and collection restrictions on creditors with the audacity to collect debts from delinquent borrowers. The Fair Debt Collection Practices Act is a federal law that regulates the conduct of third-party debt collectors (i.e. not your frontline debt collector but the party you sell or outsource your debt collection efforts out to when you have given up all hope of collecting anything from your member).
This day still may come but, having just gone over the material, my first take is that credit unions received a stay of execution.
Today, when the CFPB outlines its proposals for enhanced regulation of debt collection, it won’t be seeking to make creditors subject to the FDCPA. In addition the Bureau is publishing an outline of its potential proposals instead of proposing a new regulation. It will take several more months before a regulation is even proposed. (A chart on page 12 outlines the major components of its proposal).
But not all is copasetic. Some of the Bureau’s proposals unveiled today would have an indirect impact on those of you who use third-party collectors.. More importantly, the Bureau signaled that it will most likely begin a separate regulatory process to address how best to regulate creditor collection activities In his prepared remarks the Director promises “ As part of our overhaul, we also plan to address first-party debt collectors soon, but on a separate track.”
I can hardly wait. It’s almost as exciting as seeing what hacked email Donald Trump coaxes Russia to release next. Still I’m extremely surprised that the CFPB has held its fire.
According to the CFPB it’s considering regulations that would Require debt collectors to “substantiate,” or possess a reasonable basis for, claims that a particular consumer owes a particular debt and impose higher standards for substantiating debts that are litigated; Mandate the transfer of information when a debt is transferred between debt collectors; and create a new and improved FDCPA validation notice and a Statement of Rights provided by debt collectors “to provide consumers with the most critical information needed to determine whether they owe a particular debt and to navigate the debt collection process more generally.”
After all no CFPB proposal would be complete without new and improved disclosures.
My time for posting a blog today is running a little short, courtesy of Albany’s woefully inconsistent transportation system. For me, Uber can’t come soon enough. But I wanted to give you a heads-up on a Q&A guidance issued by FINCEN yesterday clarifying the Customer Due Diligence requirements obligations of financial institutions that open accounts for entities such as corporations and trusts with beneficial owners. The rule has taken effect but you have until May 11 , 2018 to comply.
To demystify this regulation it’s important to put it in context. There have been a series of articles in the New York Times reporting on how corporations often act as fronts for shall we say, individuals with questionable backgrounds. Setting up corporations to open up accounts where ill-gotten gains can be stored and from which a Manhattan penthouse can be purchased is a classic form of money laundering. After all, public pensions only go so far and any prudent dictator has to put aside funds for safe keeping in the event of an ill- timed coup. In addition, businesses can be controlled by persons not readily identifiable.
It didn’t get all that much attention in the compliance world but in May FINCen finalized regulations requiring credit unions and banks to extend account opening customer identification due diligence procedures to the beneficial owners of legal entities. The Q & A is intended to further clarify these obligations.
By the way, a beneficial owner is:
“each individual, if any, who, directly or indirectly, owns 25% or more of the equity interests of a legal entity customer (i.e., the ownership prong); and a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer); or any other individual who regularly performs similar functions (i.e., the control prong). This list of positions is illustrative, not exclusive, as there is significant diversity in how legal entities are structured. ”
Hoping your journey to work was better than mine, your faithful blogger wishes you all a good day.
Hilary Clinton has inspired me.
This morning, as I was scrubbing the home server I have so I can pick and choose which of my communications are private and which are worthy of public disclosure, I realized that her handling of email can be instructive for all of us.
The truth is, that, with smartphones, it is getting harder and harder to delineate between work communications and private ones. Ambiguity is a breeding ground for litigation. If you don’t have policies and procedures for dealing with work related emails on personal devices here two reasons why you should:
Violations of the Fair Labor Standards Act: With the Department of Labor’s decision to increase the minimum salary threshold for a supervisor to be considered non- exempt, credit unions may well be faced with situations where that branch manager who responds to work related emails late into the night is suddenly a non-exempt salaried employee. Anytime she spends responding to that email is time counted against her 40 hour work week and overtime pay.
Appropriate Record retention policies: Of course, no matter how big or small you are you should have a policy that addresses electronic storage of information; regulators expect them and If you are ever sued by an employee, or investigated be an agency, your credit union is going to expected to have policies in place explaining what information is stored electronically, how it is stored and for how long. These policies will vary in size depending on the size, complexity and legal exposure of your credit union but everyone should have one. It’s something I would certainly work on with your attorney
A good example of why is Small v. Univ. Med. Ctr. of S. Nevada, No. 2:13-CV-00298-APG, 2014 WL 4079507, at *5 (D. Nev. Aug. 18, 2014). The university was sued by non-exempt employees who claimed that their work time was not being appropriately credited in violation of the Fair Labor Standards Act. When they sued they asked for the production of electronically stored information including any documents and data relating to time worked, labor allocation, and budgeting. The university initially responded that it didn’t send workplace requests to private phones and made no effort to access this information In fact, additional investigation revealed that several custodians were sent work requests on personal phones. The court concluded that personal phones had to be searched for relevant information. In addition, the University was sanctioned for having inadequate electronic storage procedures.
We have been dealing with email for two decades now and the days when you could simply neglect to properly classify these communications are over. The blending of personal devices into the workplace is inevitable and you should make sure that you have policies and procedures in place to demonstrate you are addressing issues raised by their proliferation.
In 2015, NCUA reacted to risk-weighting imposed on banks under the BASEL III framework by creating a capital risk-weighting system for federally insured credit unions with $100 million or more in assets. Wouldn’t it be funny if by its effective date in 2019, regulators and policy makers decide that the whole risk-weighted approach to protecting against systemic risk makes no sense, or, at the very least, needs to be substantially reformed? This could happen. Over the last month:
- Jeb Hensarling (R), Chairman of the House Finance Committee, proposed giving banks mandate relief from certain Dodd-Frank requirements in return for maintaining a 10% leverage ratio in which a firm’s capital is measured against its assets without including risk-weightings in the calculation.
- Federal Reserve Chairwoman Yellen indicated that she also supported higher capital requirements in return for simpler regulation, but added that the option should be open to community banks.
- And, an influential European advisory board urged regulators last Friday to use a leverage ratio as a primary means of measuring a bank’s capital strength instead of risk-weighted assets.
To me, this growing realization that risk-weightings may not be the best way of gauging capital adequacy comes in the better late than never category. Between World War I and World War II, the French built a huge trench called the Magnot Line to protect themselves against future German attacks. But when World War II came, the Germans used tanks to maneuver around this trench and crush the French.
Risk weightings are the financial equivalent of the Magnot Line. For instance, weightings are, by definition, an assessment of an assets risk based on historical experience. The problem is that we don’t know what the equivalent of the mortgage backed security is going to be by the time the next financial crisis rolls around. Risk-weighting actually allows financial institutions to engage in regulatory arbitrage. Hopefully, the momentum will continue to grow and we can develop a system that places emphasis on capital and not guesses as to what banking products and investments are safe.
One more thing, in my dream world, an emphasis on capital leverage ratios would be coupled with a breaking up of the big banks. No amount of capital can adequately protect us against the need to bail out the Goldman Sachs or BoAs of the world. However, a more rigorous emphasis on capital requirements is a step in the right direction that would provide relatively small banks and credit unions greater flexibility and, I believe, just as much protection against severe downturns as does the existing risk-weighted framework.
Right now it’s illegal for you to autodial a delinquent homeowner without their consent but that may be changing and not everyone is happy.
I’ve previously blogged about the Telephone Consumer Protection Act. It generally requires a caller to obtain the prior express consent of the called party when: making a non-emergency telemarketing call using an artificial or prerecorded voice to residential telephone lines.
The problem is that the TCPA was passed in the dark ages of 1991 when prerecorded computer generated phone calls sounded like…well prerecorded computer generated phone calls. Today’s technology makes these phone calls as soothing as talking to the HAL 9000 And they provide an awfully convenient way for a major holder of mortgages to reach out and touch someone.
So last year congress amended the TCPA to permit autodialing without consent ”if they are made solely pursuant to the collection of a debt owed to or guaranteed by the United States” which certainly covers loans being serviced on behalf of the GSE’s.
But in its comment letter the FHFA argued that all residential mortgage servicers should be exempt from the TCPA’s prohibition. This touched a nerve with Ohio Democratic Senator Sherrod Brown, whose name is mentioned as a possible VP pick for Hilary Clinton. He is quoted in yesterday’s American Banker as expressing concern that” the FHFA is pushing to subject Americans to more computer-generated phone calls and texts rather than ensuring servicers offer foreclosure alternatives.” Ouch.
Meanwhile, on June 16, the Mortgage Bankers Association petitioned the FCC to exempt all mortgage lenders from the consent requirements as applied to delinquent homeowners. It argues that the TCPA’s prohibition makes it more difficult for lenders to comply with federal and state regulations requiring lenders to reach out to delinquent homeowners.
Stay tuned. HAL may soon be making phone calls on your behalf.
No Blog tomorrow. Enjoy the holiday.