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iReverse Home Loans. Employee Compliance Orientation Revised 6/6/2009. iReverse Home Loans.
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iReverse Home Loans Employee Compliance Orientation Revised 6/6/2009
iReverse Home Loans Welcome to iReverse Home Loans. As you get used to your new surroundings and try to absorb or remember everything you’re given in your first few days, please take a moment to look over this material. It contains some very important and sometimes critical information that will help you do your job better, and avoid regulatory problems. Think of iReverse Home Loans as a business. Unlike a retailer who sells shoes, tires, or groceries, iReverse Home Loans doesn’t offer goods for sale. What does iReverse Home Loans provide? In a word – “TRUST”. iReverse Home Loans “sells” services, “offers” integrity, and “is” a for-profit business that depends on customer confidence and the quality delivery of its services. That’s where you come in. The way iReverse Home Loans operates says a lot about the way it prospers. Safe, sound, and prudent banking is not just the “norm” at iReverse Home Loans – it’s the standard by which we operate, and by which we set our expectations. One of the underlying principles of this philosophy is that iReverse Home Loans is committed to the spirit and letter of the law and implementing regulations. It means complying with the most minute, tedious and technical detail as well as with the more substantive requirements and restrictions. Banking is one of the most highly regulated industries in the country, and often challenges us to remember the goals of our commitment to compliance. But if it means preserving the customer’s rights, preventing illegal acts such as discrimination or criminal activities, and supporting the integrity of the customer relationship, then “compliance” is more than just abiding by banking rules. It involves meeting our challenges with the delivery of superior products, with unsurpassed quality, customer service, and in a manner that maximizes employee and company value. Several elements of iReverse Home Loans Compliance Program are summarized in this training session. Please feel free to ask your supervisor about additional questions.
Training to Include: • Basic regulatory introduction • Highlights from regulations that require annual training • Internal policies to maintain regulatory compliance • Overview of the internet based training program
What’s in It for Me? Knowledge • Is Power • Is an Investment • Can Lead to Advancement • Builds Self-Confidence • Stays with You
Fulfillment (n) Observance Conformity Disobedience (antonym) Obedience (n) Acquiescence Agreement Falling in line Submission Resistance (antonym) Compliance Defined
What Is Compliance? Compliance is • Doing it right the first time • Attempting to adhere to internal policies and procedures • Maintaining a standard that is in accordance with the laws and regulations
Basic Regulatory Introduction Laws & Regulations Much of what we do on a daily basis is dictated by various laws and regulations imposed by federal authorities. These rules change with some regularity, and are in place for a variety of reasons – consumer protection, fairness and equal treatment, law enforcement needs, or routine reporting of vital lender–specific or industry related information. The following sections highlight a few of the compliance and community related issues that need to be understood in order to optimize your performance.
Basic Regulatory Introduction Lending Regulations Regulation Z – Truth in Lending Regulation Z was designed to help consumers “comparison shop” for credit by requiring uniform methods of computing the cost of consumer credit, disclosure of credit terms, and procedures for resolving errors on certain credit accounts. The regulation gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling. The regulation requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer’s dwelling. It also imposes limitations on certain home equity and mortgages.
Basic Regulatory Introduction Lending Regulations (cont.) Flood Disaster Protection Act The Flood Disaster Protection Act establishes a process the federal and local governments to identify flood prone areas and provide flood hazard insurance for properties located in those areas. Lenders are required to determine, before making a loan, whether the property is located in a flood zone and notify the applicant of any need to purchase flood insurance. The lender also must ensure that flood insurance is maintained during the life of the loan.
Basic Regulatory Introduction Lending Regulations (cont) Real Estate Procedures Act (RESPA) -- HUD’s Reg X RESPA sets forth rules and procedures for pertinent and timely disclosures pertaining to the real estate settlement process. It also protects against illegal kickbacks and abusive practices and places limits on loan servicing and the use of escrow accounts.
Basic Regulatory IntroductionLending Regulations (cont) Fair and Accurate Credit Transactions Act of 2003 (FACT Act) • The FACT Act was implemented to provide an extensive revision to the Fair Credit Reporting Act (FCRA). • The primary purpose of the FCRA is to regulate the consumer reporting industry to ensure fair, timely, and accurate reporting of credit information.
Basic Regulatory IntroductionLending Regulations (cont) Fair and Accurate Credit Transactions Act of 2003 (FACT Act) The seven key provisions of the FCRA address the following: • The nature and extent of information that consumer credit report may contain. • The duties of financial institutions or other parties that furnish in formation to a consumer reporting agency (CRA). • The duties of financial institutions other parties to provide notice of action taken to consumers in connection with the use of a consumer credit report. • The procedures that a CRA must follow should a consumer dispute the accuracy of information in a consumer credit report. • The activities that involve the use of consumer credit reports for credit or insurance transactions that are not initiated by a consumer. • The exchange of information among affiliated institutions. • The form of content of the summary of a consumer’s rights that a CRA must provide to a consumer when the CRA provides the consumer with information in the consumer’s credit file.
Basic Regulatory IntroductionLending Regulations (cont) Fair and Accurate Credit Transactions Act of 2003 (FACT Act) The new preemptive provisions of the FACT Act cover the following: • Expanded obligations of financial institutions that furnish credit information to CRAs. • Notification to consumers of reports of negative information. • Risk-based credit pricing programs. • Marketing solicitations that involve information from an affiliate. • Prevention of identity theft. • Other provisions, including the availability of free credit reports and disclosures of credit scores to consumers. • Reference the FACT Act Policy & the Identity Theft Policy for additional information. • Please check with your supervisor for further details on how the FACT Act may affect your current job function.
Basic Regulatory Introduction Fair Lending and Equal Treatment The laws and regulations relating to fair lending provide a foundation for fair and equal treatment of ALL creditworthy applicants, regardless of various physical or ingenuous characteristics. There is no single regulation, rather a series of regulations and statues that comprise fair lending. Regulation B Regulation B prohibits creditor practices that discriminate on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); to the fact that all or part of the applicant’s income derives from a public assistance program; or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The regulation also requires creditors to notify applicants of action taken on their applications; to report credit history in the names of both spouses on an account; to retain records of credit applications; to collect information about the applicant’s race and other personal characteristics in applications for certain dwelling-related loans; and to provide applicants with copies of appraisal reports used in connection with credit transactions.
Basic Regulatory Introduction Fair Lending and Equal Treatment (cont) Regulation C – Home Mortgage Disclosure (HMDA) Regulation C requires certain mortgage lenders to disclose data regarding their home loan related lending patterns. The information is intended to provide the public with loan data that can be used to help determine whether financial institutions are serving the housing needs of their communities; to assist public officials in distributing public-sector investments so as to attract private investment to areas where it is needed; and to assist in identifying possible discriminatory lending patterns and enforcing anti-discrimination statues. The gathering of the information requires certain lenders to compete Loan Application Registers (LAR) to track home purchase loans, home improvement loans and refinancing.
Basic Regulatory Introduction Fair Lending and Equal Treatment (cont) Regulation AA – Unfair Consumer Credit Practices Regulation AA establishes consumer complaint procedures and defines unfair or deceptive acts or practices in connection with extensions of credit to consumers. Americans with Disabilities Act (ADA) The ADA prohibits discrimination against individuals with disabilities and requires us to take affirmative steps to ensure that individuals with disabilities have access to our services, as well as to employment opportunities. Fair Credit Reporting Act (FCRA) FCRA establishes rules and procedures for obtaining and using information about a consumer. The law requires us to provide a notice if we deny credit because of information obtained in the applicant’s credit report.
Basic Regulatory Introduction Fair Lending and Equal Treatment (cont) Fair Housing Act The Fair Housing Act prohibits discrimination on the basis of race, color, religion, handicap, familial status, or national origin, in any aspect of a housing transaction, including sale, rental, and financing.
Basic Regulatory Introduction Money Laundering and Anti-Money Laundering Bank Secrecy Act (BSA) and Anti-Money Laundering Program The existence of money laundering to advance the presence and profits of illicit activities has long been a concern in the lending industry. In 1986, Congress created the Money Laundering Control Act, which strengthened the tools used by law enforcement, created the federal crimes of money laundering, and mandated that we adopt a program of Bank Secrecy Compliance. In 1992, additional legislation prompted the expectation of an effective anti-money laundering component to these programs, as now reflected in the examination guidelines used by federal agencies. BSA also includes “Know Your Customer” which is the basis for recognizing and responding to the possibility of suspicious or suspected illegal activity. Along with the passage of the USA Patriot Act, BSA was expanded to include a Customer Identification Program (CIP) that is inclusive in the BSA Program.
Basic Regulatory Introduction Customer Privacy Right To Financial Privacy The Right to Financial Privacy Act restricts the federal government’s access to a customer’s financial records and activities. Note: This is different than Regulation P – Privacy of Consumer Financial Information created from the passage of the Graham Leach Bliley Act (GLBA). Regulation P – Privacy of Consumer Financial Information Regulation P, Privacy, was created from the passage Graham-Leach-Bliley Act (GLBA). Privacy requires a financial institution to provide notice to customers about its privacy policies and practices; describes the conditions under which a financial institution may disclose nonpublic personal information about consumers to nonaffiliated third parties; and provides a method for consumers to prevent a financial institution from disclosing that information to most nonaffiliated third parties by "opting out" of that disclosure.
Basic Regulatory Introduction Customer Privacy (cont) Safeguarding Customer Information The Interagency Guidelines Establishing Standards for Safeguarding Customer Information (Guidelines) set forth standards pursuant to sections 501 and 505 of the Gramm-Leach-Bliley Act (GLBA). The Guidelines apply to customer information maintained by or on behalf of state member banks and bank holding companies and their non-bank subsidiaries, except for brokers, dealers, persons providing insurance, investment companies, and investment advisors. The Guidelines require each institution to implement a written information security program that includes administrative, technical, and physical safeguards appropriate to the size and complexity of the entity and the nature and scope of its activities. The program should be designed to ensure the security and confidentiality of customer information, protect against unanticipated threats or hazards to the security or integrity of such information, and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. We are required to assess risks to customer information and implement appropriate policies, procedures, training, and testing to manage and control these risks. We must also report annually to the board of directors or a committee of the board of directors.
Basic Regulatory Introduction International Sanctions Office of Foreign Asset Control (OFAC) OFAC is the agency that administers and enforces the laws of the U.S. pertaining to international sanctions and related activities.
Basic Regulatory Introduction Information Reporting Requirements Bank Secrecy Act (BSA)/Money Laundering/Large Currency Transaction Reporting BSA is a “public purpose” statute, which uses entities to report large currency transactions to the IRS to facilitate the identification and investigation of criminal money laundering activities.
Basic Regulatory Introduction Various Laws & Regulations (cont) Consumer Protections for Depository Institution Sales of Insurance The Gramm-Leach-Bliley Act (GLBA), Section 305, requires the Agencies jointly to prescribe and publish consumer protection regulations that apply to retail sales practices, solicitations, advertising, or offers of insurance products by depository institutions or persons engaged in these activities at an office of the institution or on behalf of the institution. It directs the “Agencies to include specific provisions relating to sales practices, disclosures, and advertising, the physical separation of banking and non-banking activities, and domestic violence discrimination.
Regulations that Require Annual Training Fair Lending and Equal Treatment The interagency examination council (FFIEC) has issued and subscribes to a general policy statement of what is expected of financial institutions relating to fair lending practices. Among these expectations are fair and equal treatment of all prospective customers and the avoidance of unequal or disparate treatment. Also called for are expectations of equal outcomes or results of lending practices and policies, including but not limited to: • Underwriting policies • Targeted advertising and promotions • Hiring practices • Guarding against even subtle forms of illegal discrimination, such as inadvertently discouraging applicants that may have the unintended effect of discriminating on an illegal basis. • The laws and regulations pertaining to fair lending and equal treatment provide for technical as well as substantive compliance requirements.
Regulations that Require Annual Training Fair Lending and Equal Treatment (cont) Laws associated with fair lending include Regulation B – Equal Credit Opportunity Act, Regulation C - Home Mortgage Disclosure Act (HMDA), the Fair Housing Act, and the Americans with Disabilities Act (ADA).
Regulations that Require Annual Training Bank Secrecy Act and Anti-Money Laundering Program (BSA) Introduction to Bank Secrecy and Money Laundering Deterrence The BSA Program should include four fundamental components: • Effective controls to ensure full compliance, including timely and accurate reporting and record keeping of information required by law. • The Continuing support of adequate resources to achieve and ensure a satisfactory level of compliance. This extends to the appointment of a senior official to oversee the BSA compliance function, including the maintenance of the BSA program, vigilance as to money laundering dangers, and oversight over relevant policy/procedures issues. • Training of appropriate personnel as to Bank Secrecy impact points and awareness of money laundering deterrence opportunities. The training curriculum is developed and implemented by management, and is sensitive to the demands of both compliance as well as risk-management. BSA training schedules are developed in concert with other training needs, and are focused on both the technical as well as substantive aspects of Bank Secrecy Act and Anti-Money Laundering efforts. • Independent testing is periodically conducted of the BSA program and the integrity of its related systems and controls. This is performed by our internal auditors, and augments the independent review of suspicious transaction activity performed continuously by compliance personnel.
Regulations that Require Annual Training Bank Secrecy Act and Anti-Money Laundering Program (BSA) Money Laundering/Anti-Money Laundering Detection and Prevention Programs Money is “laundered” in order to conceal criminal activity associated with it, and/or to finance terrorist activity. It is generally driven by criminal activities and enterprises. Money Laundering is the act of converting dirty money into clean money. Anti-Money Laundering is the act of converting clean money into dirty deeds. Lending entities are considered to be the key to deterring this type of criminal activity. As such, we are expected to recognize this responsibility and to develop practices to identify and respond to possible money laundering and/or anti-money laundering activities. The process usually breaks down into three general areas or “processes”: • Placement • Layering • Integration.
Regulations that Require Annual Training Bank Secrecy Act and Anti-Money Laundering Program (BSA) What is Money Laundering? Money Laundering is the converting of money gained from “Dirty Deeds” into “Clean Money.” The motivation is Greed. Dirty Deeds • “Placement” of funds – Money is placed into the Banking System through deposits, wire transfers, or other means, unlawful proceeds into traditional financial institutions. • “Layering” – Funds are moved from account to account, country to country, and/or bank to bank. It is separating the proceeds of criminal activity from their origin through the use of layers of complex financial transactions; such as converting cash into travelers checks, money orders, letters of credit, stocks and bonds, or purchasing valuable assets such as art or jewelry. • “Integration” – The money is placed into the economy. Items are bought to sell for profit, such as real estate or commercial business. It is using an apparently legitimate transaction to disguise the illicit proceeds allowing the laundered funds to be disbursed back to the criminal. Different types of financial transactions such as sham loans or false import/export invoices are used. Clean Money
Regulations that Require Annual Training Bank Secrecy Act and Anti-Money Laundering Program (BSA) What is Anti-Money Laundering Anti-Money Laundering is the use of legitimate funds for illegal activities such as Terrorism. Charities represent all that is good about mankind helping others in need. However, for the terrorist, charities are a perfect cover for collecting money for terrorist acts. It is the usage of “Clean Money” for “Dirty Deed.” The motivation is Destruction. Clean Money • “Integration” – The money is placed into the banking system. • “Layering” – Funds are moved into the economy through purchase and/or donation. • “Placement” – Money (donation or purchase) is placed into other groups (Terrorists). Dirty Deeds
Regulations that Require Annual Training Bank Secrecy Act and Anti-Money Laundering Program (BSA) The first 2 elements, “Placement” and “Layering” represent high risk to the conductor of the transactions (the likelihood of detection by a bank or law enforcement official). The likelihood of tracing the funds back to the true owner is relatively good. The last element, “Integration” however, is relatively risk-free. Once placed in the financial system, access to the funds would be relatively free from scrutiny and would be unencumbered by probing questions from bankers and law enforcement. The vigilance of bankers at the initiation of these transactions (engaging in loan) is critical to detecting and preventing us from being used to access the financial system.
Regulations that Require Annual Training Bank Secrecy Act and Anti-Money Laundering Program (BSA) Role of Employees As bankers, it is fully expected that all officers, directors, and employees be aware of and abide by the spirit and letter of the law. This demands constant vigilance for evidence of possible money laundering behavior or transaction activity. It extends to being familiar with our procedures, controls, and “best practices” to assist in this vigilance, as well as being prepared to respond to unusual activity in a manner as called for by our policy.
Regulations that Require Annual Training Bank Secrecy Act and Anti-Money Laundering Program (BSA) Bank Secrecy Training iReverse Home Loans provides regular training opportunities, internally and through the Internet, for all employees affected by the Bank Secrecy Act and Anti-Money Laundering laws and regulations. This training extends to every employee of affected departments or functions, and covers the various reporting and record-keeping rules, updates, recent cases or schemes, and any related changes to policy, procedures, controls, or practices. It is expected that all appropriate personnel participate in training as applicable. In addition to the employee training, all employees are encouraged to review and consider the issues discussed in the Bank Secrecy Act/Anti-Money Laundering Policy/Procedures, Office of Foreign Asset Control Policy/Procedures, and the Customer Identification Policy/Procedures. A thorough understanding of the our procedures and practices are necessary to ensure an effective Secrecy posture and to minimize the risks of unnecessary exposure.
Regulations that Require Annual Training Bank Secrecy Act and Anti-Money Laundering Program (BSA) Designated BSA Officer iReverse Home Loans has established a regulatory compliance function to oversee and coordinate the various aspects of our compliance program. iReverse Home Loans Compliance Officer is also appointed by the Board of Directors as BSA Officer. The BSA Officer regularly reports to management and the Board, as well as to the appropriate standing committees for Compliance and BSA matters. Although employees are encouraged to bring suspicious activity or general questions to the attention of their immediate supervisor, each employee has direct access to the BSA Officer should the need arise. The responsibility for overseeing the BSA Program is that of the BSA Officer, but the direct and ultimate responsibility for full compliance with the regulations and policy is that of each employee.
Regulations that Require Annual Training Bank Secrecy Act and Anti-Money Laundering Program (BSA) Independent Testing To preserve the integrity of the process and of the components of the BSA Program, and audit should be performed at least annually by our Internal Auditor. This involves testing various transactions, the adequacy of internal controls and management reports, and reviews of our practices against established (and Board-approved) policy, protocol, and procedures. Recommendations may be warranted depending on the findings and the severity of the exposure to risk.
Regulations that Require Annual Training Bank Secrecy Act and Anti-Money Laundering Program (BSA) What is Expected of us In addition to the program elements required by law, we are expected to develop and maintain a strong commitment to Secrecy and Anti-Money Laundering efforts. This includes adopting policies and practices to know its customer, refusing to do business with those customers who are reluctant to provide information, and diligently responding to possible indications of suspicious or suspected criminal activity. Regulators encourage us to adopt policies and procedures consistent with the regulatory principles. Among others, these principles include knowing the customer, identity verification, cooperating with law enforcement, ascribing to the highest ethical standards, and communicating an awareness of related developments to its employees.
Regulations that Require Annual Training Bank Secrecy Act and Anti-Money Laundering Program (BSA) Suspicious Activity Reporting In accordance with regulations calling for mandatory reporting of suspicious or suspected criminal activity, employees should report all suspicious activity or transactions in a series of financial activities to their supervisor immediately. This information is then reported to the Compliance and/or Security Officer, who in turn will investigate or research the allegation. If appropriate, the BSA Officer will file a Suspicious Activity Report (SAR), and maintain records as appropriate. Under no circumstance may any employee ever notify any subject of a SAR (even a suspected SAR) as to the existence of a suspicious activity report or internal maintenance of a file relating to a SAR. Information Reporting, Record-keeping and Retrieval iReverse Home Loans has an obligation to maintain systems which are capable of fulfilling the requirements of BSA and related regulations. Both manual and automated means can be used to capture and report, as well as maintain and retrieve records of this information as required by law. BSA and related regulations have specific retention requirements for maintaining specific documents.
