What s On the Horizon?

Transcription

1 What s On the Horizon? Our Quarterly Look Ahead on Banking Compliance

2 Agenda FIU/Regulatory Reform Ted Dreyer Mortgage Lending Jeanne Erickson Consumer Lending Jane Jarnis Indirect Lending Chip Zyvoloski Commercial Lending Sheila dela Cruz Deposit Kurt Stertz Tax-Advantaged Accounts Kurt Stertz

3 FIU/Regulatory Reform Ted Dreyer

4 Customer Due Diligence What: FinCEN is proposing to require financial institutions to do due diligence on the beneficial owners of business entities Status: Proposed regulation. When: Comment deadline was October 3, Impact: Will change the way that financial institutions do account opening for business entities.

5 Flood Insurance Escrow Regulations What: Regulations regarding escrow requirements and exclusion of detached structures Status: Final When: Escrow requirements will be effective January 1, Impact on disclosures: Will result in new language for flood insurance disclosures

6 Regulatory Process S What: The Regulatory Accountability Act of 2015 would make major changes in the way that regulators issue regulations and regulatory guidance Status: Proposed Legislation introduced and referred to Committee When: Introduced August 2015 Impact: Would have major effect on the regulatory process

7 Vermont Privacy Regulations What: Changes to privacy requirements for customers in the state of Vermont Status: Proposed regulations When: Comments being taken until October 30, 2015 Impact: Would affect state-specific text on privacy disclosures as well as ability to use alternative delivery method for customers in Vermont

8 Mortgage Lending Jeanne Erickson

9 Industry Issues TILA-RESPA Final Rule Qualified Mortgage Final Rule HDMA Proposed Rule Mortgage Servicing Proposed Rule Legislation in Congress

10 TILA-RESPA Final Rule What: Major changes to mortgage disclosure documents Status: Final rule When: Mandatory compliance date October 3, Impact: New disclosures, workflow, processes, technology changes, etc.

11 Qualified Mortgage Final Rule What: Amendments to certain definitions in the Qualified Mortgage requirements (Regulation Z) Status: Final rule Impact: This would increase the number of banks that are able to benefit from the CFPB s small creditor and rural or underserved area exemptions When: Mandatory compliance date: January 1, 2016

12 Home Mortgage Disclosure Act (HMDA) Proposed Rule What: HMDA data reporting Collection and reporting of additional data Scope changes Would apply to all financial institutions (depository and nondepository) that originate 25 or more mortgage loans in previous year Status: Proposed rule

13 Mortgage Servicing Proposed Rule What: Minor changes to 2014 servicing rules Status: Proposed rule; awaiting final rule (spring 2016) When: Late 2016? Impact: Would affect notice requirements and procedures

14 Legislation in Congress Congress is talking about TILA-RESPA grace period Regulatory reform Housing finance reform Amendments to Qualified Mortgages Points and fees definition Portfolio loans would have QM status Etc.

15 Consumer Lending Jane Jarnis

16 DoD Advanced Notice of Proposed Rulemaking re: Military Lending Act of 2006 What: Department of Defense issued final rule expanding the scope of its Military Lending Act regulations. Status: Published in the Federal Register on July 22, When: Effective October 1, Mandatory compliance date is October 3, For credit card accounts, the mandatory compliance date is October 1, Impact: Scope has been expanded to include most forms of closed-end and open-end consumer credit transactions that are subject to TILA. Among the exceptions are residential mortgages and purchase money auto loans. New calculations, recordkeeping and disclosure requirements. Revisions to loan documents.

17 Prepaid Accounts under Regulations E and Z What: Consumer Financial Protection Bureau issued proposed rule that would create consumer protections for prepaid financial products. Status: Comment period ended March 23, When: CFPB is expected to issue final rule in early Impact: Prepaid cards that access overdraft services or credit features for a fee would be considered credit cards subject to Regulation Z credit card rules.

18 CFPB Outline of Payday Lending Proposal What: CFBP submitted outline of the proposal to the Small Business Advisory Review Panel. Review Panel to provide recommendations to Bureau. When: Outline submitted to panel on March 26, CFPB expects to issue notice of proposed rulemaking in Impact: Proposal is expected to impact small dollar loans made by banks and credit unions.

19 CFPB Request for Information Re: Credit Card Market What: Consumer Financial Protection Bureau conducting a review of the consumer credit card market as required by the Credit CARD Act. Status: Request for Information released March Comment period in ended in June. Impact: After review is completed, the Bureau will issue a report to Congress. Future CFPB rulemaking is a possibility.

20 CFPB Telephone Survey Re: Arbitration Provisions in Credit Card Agreements What: CFPB conducted a survey of credit card holders as part of its study of mandatory pre-dispute arbitration agreements. Status: Data collection completed in December of Results were part of the CFPB Arbitration Study released in March and submitted to Congress. Impact: CFPB rulemaking expected.

21 CFPB ANPR re: Debt Collection Practices What: CFPB issued an Advanced Notice of Proposed Rulemaking in the form of 162 questions seeking comment, data and information about debt collection practices. Status: Comment period ended February 28, When: Possibly December of Impact: In addition to impact on third party debt collectors, CFPB rulemaking may have significant impact on banks and credit unions.

22 CFPB: Student Loan Servicing What: CFPB issued results of its public inquiry into student loan servicing practices. CFPB and U.S. Departments of Education and Treasury issued Joint Statement of Principles on Student Lending Servicing. When: Issued September 29, Impact: CFPB future rulemaking is likely.

23 NCUA Member Business Loan Proposal What: National Credit Union Administration issued a proposed rule to amend Part 723, Member Business Loans; Commercial Lending. Status: Proposal issued June 18, 2015 and comment period ended August 31, Impact: Modernization of MBL rule a shift from a prescriptive rule to a principles-based rule.

24 Credit Union Member Business Lending H.R and S. 2028, Credit Union Small Business Jobs Creation Act Member business lending cap would remain at percent of a credit union s total assets. Bill would grant authority to the NCUA to increase the cap for certain well-capitalized credit unions to 27.5 percent of the total assets. H.R and S. 1440, Credit Union Residential Loan Parity Act Would amend the Federal Credit Union Act to exclude a loan secured by a non-owner occupied 1-to 4-family dwelling from the definition of a member business loan. H.R Would amend the Federal Credit Union Act to exclude business loans to veterans from the definition of a member business loan.

25 Indirect Lending Chip Zyvoloski

26 H.R.1565 and S.838 Protecting Consumers from Unreasonable Credit Rates Act of 2015 What: Act would amend the Truth in Lending Act to create a national usury rate. Would apply to consumer indirect lending transactions as well. Status: Introduced and referred to committee in March Impact: TBD. Usury limit calc is an all in type approach if loan repayment is fewer than 3 installments with repayment in under 90 days. Calc is APR calc for loans with longer repayment terms.

27 H.R.650 and S. 682, Preserving Access to Manufactured Housing Act of 2015 What: Bills would amend the Truth in Lending Act to revise the definition of a high-cost mortgage (increase rate so fewer MH transactions covered). Would also revise the exclusion from the meaning of "mortgage originator" relating to manufactured home retailers. Status: Passed in House. In Banking, Housing and Urban Affairs Committee in Senate. Impact: TBD. Will make it easier for MH creditors to avoid high-cost mortgage compliance requirements.

28 H.R Reforming CFPB Indirect Auto Financing Guidance Act of 2015 (Dealer Rate Markup) What: Rescinds CFPB s March 2013 guidance on dealer rate markup (Bulletin ) Amends Consumer Financial Protection Act of Before issuing guidance related to indirect auto financing, CFPB would be required to follow public notice and comment process and consult with other regulators. Status: House Financial Services Committee reported to full chamber recommending further consideration by House. (7/29/15) Impact: TBD. Would temporarily relax compliance risk with dealer rate markup practices. (Since 2013, 13 Congressional letters to CFPB signed by over 90 members of Congress with concern on this issue.)

29 CFPB and DOJ Consent Order with Honda What: American Honda Finance Corp. to pay $24 million in restitution on ECOA disparate impact claim Alleged African-American, Hispanic and Pacific Islander borrowers paid higher interest rates than whites on auto loans (retail sales) Honda will reduce dealer markup discretion from 2.25% to 1.25% and other changes Impact: Discretionary dealer rate markup continues to be a hot compliance issue. Assignees (lenders) need to focus on this issue as part of buying dealer contracts.

30 CFPB and DOJ Consent Order w/ Fifth Third What: Fifth Third Bank to pay $18 million in restitution on ECOA disparate impact claim Alleged African-American and Hispanic borrowers paid higher interest rates than non-hispanic white borrowers on auto loans (retail sales) Fifth Third Bank will reduce dealer markup discretion from 2.5% to 1.25% and other changes Impact: (Again) Discretionary dealer rate markup continues to be a hot compliance issue. Assignees (lenders) need to focus on this issue as part of buying dealer contracts.

31 Consumer Pre-Dispute Arbitration Provisions What: CFPB released its required arbitration study March 10, Concluded arbitration agreements restrict consumers relief for disputes with financial service providers by limiting class actions. AFSA review of study concluded research points to opposite conclusion that arbitration helps consumers resolve disputes faster and with better results (i.e., larger awards). Status: CFPB evaluating feedback we received and considering whether rules governing arbitration clauses may be warranted. Update expected in its next semi-annual agenda (Fall 2015). Impact: TBD. No changes likely for a 6+ months. Possible prohibition or restriction of arbitration provisions in retail sales contracts.

32 Commercial Lending Sheila dela Cruz

33 Small Business Administration Update The SBA s new fiscal year began on October 1, The SBA has released several policy notices that are effective as of October 1. The SBA has released Information Notice regarding certain changes to fees. Most of the fees for the 7(a) and 504 loan programs remain unchanged. However: For 7(a) loans greater than $150,000 approved in FY16, the annual service fee will be percent (47.3 basis points) of the guaranteed portion of the outstanding balance of the loan. Lenders will need to manually adjust this fee in the current Authorization Wizard.

34 Small Business Administration Update, cont d. Information Notice provides information about reduced fees for certain 7(a) loans approved under SBA Veterans Advantage: The up-front guaranty fee for 7(a) loans (other than SBA Express) of $150,001 up to and including $5,000,000 approved to qualified small businesses is reduced by 50%, as follows: For loans with a maturity in excess of 12 months: For loans of $150,001 to $700,000: 1.5% of the guaranteed portion; For loans of $700,001 to $5,000,000: 1.75% of the guaranteed portion up to $1,000,000 PLUS 1.875% of the guaranteed portion over $1,000,000; and For loans with a maturity of 12 months or less: 0.125% of the guaranteed portion. The lender s annual service fee for $150,000+ loans are not reduced. Note: multiple 7(a) loans made within 90 days of one another to same borrower are considered as 1 loan in determining the guaranty amount and guaranty fees.

35 Small Business Administration Update, cont d. Information Notice : The up-front guaranty fee on SBA Express loans to veterans and/or their spouses is now waived in years when the subsidy rate for the 7(a) program is zero. For only SBA Express loans approved on or after October 1, 2015 through September 30, 2016 to businesses owned by a veteran and/or a veteran s spouse, the up-front guaranty fee will be zero; thus, lenders may not charge a guaranty fee to any veteran and/or related spouse for these loans. To qualify for this fee waiver, businesses must be 51% or more owned and controlled by an individual or individuals in one or more of the following groups: Veteran; Service-Disabled Veteran; Transitioning Active Duty Military Member; Reservists and National Guard; Current Spouse of Veteran; Current Spouse of Transitioning Active Duty Military Member or Current Reservist/National Guard Member; and Widow of Active Duty Service Member who died in service or Widowed Spouse of Veteran who died of a service connected disability.

36 Small Business Administration Update, cont d. Information Notice , cont d.: This policy notice also amends the credit elsewhere test for 7(a) loans in general. The SBA may not guarantee a 7(a) loan if the lender determines that the borrower is unable to obtain credit elsewhere solely based on either of the following factors: The liquidity of the lender depends upon the guaranteed portion of the loan being sold on the secondary market; or The guaranty is to allow the lender to exceed its legal lending limit. The changes addressed in Information Notice are the result of the Veteran s Entrepreneurship Act of 2015, which was passed on July 28, The statutory language of the Act supersedes the existing language in 13 CFR and SOP (H). Appropriate revisions to reflect these legislative changes are expected to be incorporated into the next update to SOP

37 Uniform Commercial Code Update New York: Senate Bill 5502 makes technical corrections relating to state s 2014 adoption of the 2010 Amendments to Article 9 of the UCC. The bill includes the following filingrelated changes: Deletes 9-516(b)(5)(C) so organization information will no longer be required on UCC records. Updates terms used in 9-516(b) ( information statement and surname instead of debtor s last name). Adopts changes to relating to Information Statements. Deletes non-uniform fraudulent filing provisions from 9-518(d). Incorporates the 4/20/2011 national safe harbor forms in Contains transition language regarding the effectiveness of financing statements and transactions entered into before or after Chapter 505 became law in December Status: Introduced earlier in 2015 and is still pending; no further action expected until 2016.

38 Uniform Commercial Code Update, cont d. New Jersey: The New Jersey Department of Revenue and Enterprise Services switched to an exclusive electronic UCC filing process effective July 1, Unless exempted, all UCC filings and associated fee payments must be submitted electronically. North Dakota: The Secretary of State will also adopt an exclusive e-filing system for UCC forms and is required to do so by no later than July 31, 2016 pursuant to state law. Once the Secretary certifies that such system is operational, any record not e-filed must be rejected.

39 Dodd-Frank Wall Street Reform and Consumer Protection Act, Section 1071 What: Section 1071 amends the Equal Credit Opportunity Act (ECOA) by requiring financial institutions to collect data on loan applications made by small businesses and women- and minority-owned businesses. Such data includes the race, sex, and ethnicity of the principal owners of a business. Why: The new requirements are meant partly to assess whether lending patterns reflect fair and equitable treatment or possibly discriminatory practices. When: While the effective date of Section 1071 is July 21, 2011, the Consumer Financial Protection Bureau has not yet issued regulations needed to implement the data collection requirements. Status: Although the CFPB is under growing pressure to issue the implementing regulations, it is unlikely that proposals on small business and women- and minority-owned business reporting will come out this year.

40 Texas Department of Housing and Community Affairs v. The Inclusive Communities Project: Disparate Impact Ruling What: Disparate impact claim: A plaintiff may establish liability, without proof of intentional discrimination, if an identified business practice has a disproportionate effect on certain groups of individuals and if the practice is not grounded in sound business considerations. When: In its June 25, 2015 decision in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., a divided U.S. Supreme Court held that disparate impact claims can be brought under the Fair Housing Act (FHA). However, Inclusive Communities does not resolve the question of whether disparate impact claims are cognizable under the ECOA.

41 Inclusive Communities, cont d. Why: The Court s basis for allowing disparate impact claims under the FHA highlights key differences between the FHA and the ECOA: Specifically, section 804(a) of the FHA provides that..to refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin (emphasis added). The Court stated, the phrase or otherwise make unavailable is of central importance to its analysis, characterizing the phrase as results-oriented language that refers to the consequences of an action rather than the actor s intent. In contrast, the phrase or otherwise make unavailable does not appear in the ECOA discrimination proscription. Instead, ECOA declares it unlawful for any creditor to discriminate against any applicant... on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract. 15 U.S.C. 1691(a)(1).

42 Inclusive Communities, cont d. The Court also said that it is of critical importance that the existence of disparate-impact liability is supported by amendments to the FHA that Congress enacted in This critically important fact is likewise inapplicable to the ECOA, as is the Court s reference to Congress ratification of disparateimpact claims [under the FHA] in 1988 against the backdrop of the unanimous view of nine Courts of Appeals....

43 Inclusive Communities, cont d. Impact: When the U.S. Supreme Court decided to review the Inclusive Communities case, senior officials from the CFPB and DOJ made it clear that they would continue to enforce the disparate impact theory under the ECOA, even if the Supreme Court held that disparate-impact claims were not cognizable under the FHA. The Court s decision will likely embolden the agencies and/or private litigants to more aggressively pursue the disparate impact theory under the ECOA. However, the Court s analysis in Inclusive Communities provides lenders with powerful arguments against disparate impact claims brought under the ECOA, given the material differences between the text and history of the FHA and the ECOA.

44 Deposit Kurt Stertz

45 CFPB Proposed Rule on GPR Cards What: CFPB issued proposed rule addressing general purpose reloadable cards. GPR Cards would become subject to Reg. E. Requires short form and long form disclosures. Creates error resolution procedure. Establishes various limitations on card features. GPR cards subject to Reg. Z if they include credit features. Status: Comments due March 23, 2015 Impact: Significant substantive, procedural and disclosure changes involving GPR card products.

46 Regulation CC - Disclosures What: In March, 2011, the FRB published a proposed rule to revise Regulation CC. The proposal would make technical and substantive changes to the regulation, and would require changes to the content and format of disclosures. The FRB is working with the CFPB on the final rule and intends to conduct consumer-testing of proposed disclosures. Status: Awaiting final rule. When: CFPB semi-annual agenda indicates final rule by June Impact: If the final rule is similar to the proposed rule, nearly every institution will want new disclosures, and they will likely have adjust their availability to give notice to existing accountholders.

47 Regulation CC Check Return Process What: On February 4, 2014 the FRB published a proposed revision to Subpart C of Regulation CC. The FRB proposes two alternatives for revising the check return process each designed to promote increased electronic check processing Status: Comment period expired May 4, 2014; FRB semiannual agenda published 12/22/2014 indicates further action expected by March Impact: This will affect institutions payment processing (check return) processes.

48 HR 2099 Deposit Account Terms Model Disclosure What: Requires the CFPB to develop a simplified model disclosure for financial institutions to give to customers upon opening a checking account (somewhat similar to PEWS disclosure). It includes overdraft and processing policies and error resolution procedures. Institutions under $2B would be exempt Status: Introduced. The CFPB would be required to solicit input from institutions and trade groups representing institution, and non-profit consumer protection groups Impact: Too early to tell.

49 Overdraft Policies Debit Authorization Holds What: Institutions are being sued for failing to sufficiently disclosure the effects of debit hold authorizations on overdraft policies and overdraft fees. CUNA Mutual and the CFPB are warning institutions to review account documentation and make revisions if necessary Status: This is an immediate concern for institutions Impact: Overdraft practices continue to expose institutions to risk. We re revising the menu Terms and Conditions and creating a notice that can be used for e-forms customers and to notify existing account holders.

50 Tax-Advantaged Accounts Kurt Stertz

51 S. 101, S. 243, S. 195, S. 306, H.R. 553, H.R. 554, HR 701 Educational savings accounts What: Various bills have been introduced to amend Coverdell Education Savings Plans and 529 plans. Among the proposals: allow payment from CESA of home school expenses, annual inflation adjustment to CESA contribution limits, increase CESA contribution limit from $2000 to $5000, eliminate incomebased reduction of CESA contributions, allow tax-free rollovers from CESA to Roth, allow acquisition costs of first-time homebuyer, allow payment from 529 plans for prekindergarten, elementary and secondary education. Status: All bills were introduced in January and referred to committee. Impact: Institutions could offer a new type of tax-advantaged account.

52 S. 245, H.R. 506 Automatic IRA Act What: Amends the Internal Revenue Code to expand personal saving and retirement savings coverage by enabling employees not covered by qualifying retirement plans to save for retirement through automatic IRA arrangements. Status: Introduced in January and referred to committee Impact: Institutions could offer a new type of taxadvantaged account.

53 H.R. 1125; H.R Youth Savings Acts What: Start Saving Sooner Act and RAYS Act. They establish Roth IRA accounts for dependents or persons under 18. Status: Introduced in February and March and referred to committee Impact: Institutions could offer a new type of taxadvantaged account.

54 H.R Disaster Savings Accounts What: This bill would amend the Internal Revenue Code to create disaster savings accounts. Contributions would be pre-tax. Funds could be used to repair or replace residential property damaged or destroyed in a disaster or to pay for disaster mitigation expenses. There is a $5000/year maximum contribution. Status: Introduced May 1, 2015 Impact: Institutions could offer a new type of taxadvantaged account.

55 HR 3184, HR 3404 What: Revise to Internal Revenue Code to provide payment from HSA for fitness membership or classes or for medical expenses for dependent under the age of 26. Status: Introduced in July Impact: Institutions can offer a new type of Tax- Advantaged Account