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Bank Name & Logo. Employee Compliance Orientation Revised 1/2005. Bank Name & Logo.
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Bank Name & Logo Employee Compliance Orientation Revised 1/2005
Bank Name & Logo Welcome to Bank Name. 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 Bank Name as a business. Unlike a retailer who sells shoes, tires, or groceries, Bank Name doesn’t offer goods for sale. What does Bank Name provide? In a word – “TRUST”. Bank Name “sells” money, “offers” integrity, and “is” a for-profit business that depends on customer confidence and the quality delivery of its products and services. That’s where you come in. The way Bank Name operates says a lot about the way it prospers. Safe, sound, and prudent banking is not just the “norm” at Bank Name – 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 Bank Name 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 shareholder value. Several elements of Bank’s Name 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 banks do on a daily basis is dictated by various laws and regulations imposed by federal and state 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 bank – 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 Deposit Regulations Regulation D – Reserve Requirements Regulation D imposes uniform reserve requirements on all depository institutions with transaction accounts or non-personal time deposits; defines “deposits” and requires reports of deposits. It also provides guidance on NOW account eligibility, MMDA and savings account transfer restrictions, and early withdrawal penalties. Regulation E – Electronic Funds Transfers Regulation E establishes rights, liabilities, and responsibilities of parties in electronic funds transfers and protects consumers using EFT systems. Regulation J – Check Collection and Funds Transfers Regulation J establishes procedures, duties, and responsibilities among Federal Reserve Banks and (1) the senders and payers of checks and other items, and (2) the senders and recipients of wire transfers of funds.
Basic Regulatory Introduction Deposit Regulations (cont) Regulation Q – Interest on Deposits Regulation Q provides guidelines and restrictions relating to interest on deposits and advertising. Regulation CC – Funds Availability & Collection of Checks Regulation CC implements the Expedited Funds Availability Act (EFA). Contains rules regarding the duty of banks to make funds deposited into accounts available for withdrawal, including availability schedules plus rules regarding exceptions to the schedules, disclosure of funds availability policies, payment of interest, and liability. Also contains rules to expedite the collection and return of checks by banks, including the direct return of checks, the manner in which the paying bank and returning banks must return checks to the depositary bank, notification of nonpayment by the paying bank, endorsement and presentment of checks, same-day settlement for certain checks, and other matters.
Basic Regulatory Introduction Deposit Regulations (cont.) Regulation DD – Truth in Savings Regulation DD requires banks to fully and accurately disclose the terms of deposit accounts to consumers and to be completely truthful in its disclosures, calculations, and advertising/promotion to enable consumers to make informed decisions about deposit accounts at depository institutions. Federal Deposit Insurance FDIC regulations for deposit insurance contain complex rules on insurance coverage limitations based on amounts on deposit in a single financial institution, and the ownership structure of those accounts.
Basic Regulatory IntroductionDeposit Regulations (cont.) Check 21 • Check 21 was designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation. • Affects ALL institutions. • Applies to money orders, controlled disbursements, and all government checks, including treasury checks and state warrants. • Applies to ALL checks, with the exception of foreign checks. • Check 21 will not affect the collection process (items sent for collection). • Does not apply to Savings Bonds.
Basic Regulatory IntroductionDeposit Regulations (cont.) Check 21 • Check 21 creates a new legal concept called the “substitute check.” It allows banks to convert paper checks into digital images and then back into paper “substitute checks.” The images will travel through the clearing system electronically, greatly reducing the time and expense of check clearing. • Banks, as well as their customers, are required to accept substitute checks. • There is no opt-out for consumers and/or banks. • While all types of customers may receive substitute checks, it is consumers who get the greatest protections. • They are entitled to written disclosures that explain their rights. • Their rights include “expedited recredit” if they incur a loss due to a substitute check and make a timely claim. • A consumer is a natural person, someone like you. A consumer account is an account held by a natural person for personal, family or household use. • Please ask your supervisor for further details on how Check 21 currently affects your specific job function.
Basic Regulatory Introduction Lending Regulations Regulation M Regulation M implements the consumer leasing provisions of the Truth in lending Act. Regulation O – Loans to Executive Officers of Member Banks Regulation O places restrictions on credit extended by a member bank to insiders which includes executive officers, directors, and principal shareholders and their related interests. Further, the regulation imposes reporting requirements relating to credit extended by a correspondent bank to a member bank’s executive officers and principal shareholders and their related interests. Regulation T Regulation T regulates extensions of credit by brokers and dealers. It imposes, among other obligations, initial margin requirements and payment rules on certain securities transactions.
Basic Regulatory Introduction Lending Regulations (cont.) Regulation U Regulation U imposes credit restrictions upon persons other than brokers or dealers that extend credit for the purpose of buying or carrying margin stock if the credit is secured directly or indirectly by margin stock. 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, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. 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. Lending Limits – Limits are placed on the total amount that can be loaned to a single borrower. The act provides a formula for calculating the limit.
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. Servicemembers Civil Relief Act (SCRA) --(amends/rewrites the Soldiers' and Sailors' Civil Relief Act of 1940) The purposes of this Act are-- (1) to provide for, strengthen, and expedite the national defense through protection extended by this Act to servicemembers of the United States to enable such persons to devote their entire energy to the defense needs of the Nation; and (2) to provide for the temporary suspension of judicial and administrative p proceedings and transactions that may adversely affect the civil rights of servicemembers during their military service.
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.s • 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 The Community Reinvestment Act (CRA) Each federal bank regulatory agency has issued regulations to implement the Community Reinvestment Act. Every commercial bank and thrift in the U.S. is expected to have policies and practices in place to assure that it is lending and investing in such a way as to help meet the credit needs of its local communities. Each institution will be examined periodically, and its performance measured against a series of test criteria. The examination will be determined by the size and type of institution. Regulation BB – Community Reinvestment (CRA) Each federal bank regulatory agency has issued regulations to implement the Community Reinvestment Act and are designed to encourage banks to help meet credit needs of their communities.
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. Regulation V Regulation V implements portions of the Fair Credit Reporting Act (FCRA). Includes model notices that can be used to notify customers either before or immediately following the delivery of negative information.
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 of banks in connection with extensions of credit to consumers. Prohibits certain practices, such as taking a non-purchase money security interest in household goods. Americans with Disabilities Act (ADA) The ADA prohibits discrimination against individuals with disabilities and requires banks to take affirmative steps to ensure that individuals with disabilities have access to bank products and services, as well as to bank employment opportunities. Fair Credit Reporting Act (FCRA) FCRA establishes rules and procedures for obtaining and using information about a consumer. The law requires a bank to provide a notice if it denies credit because of information obtained in the applicant’s credit report.
Basic Regulatory Introduction Fair Lending and Equal Treatment (cont) Fair Debt Collection Practices Act (FDCPA) FDCPA, passed to ban abusive practices by debt collectors. The law contains limitations on the time, frequency, and content of permissible communication with the debtor. 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 banking. 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 banks adopt a program of Bank Secrecy Compliance. In 1992, additional legislation prompted the expectation of an effective anti-money laundering component to these bank programs, as now reflected in the examination guidelines used by federal banking 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 Bank Protection Act and Bank Security The banking industry has long been expected to maintain systems and procedures to protect against robberies, burglaries, and larcenies. This expectation has been expressed in statutory and regulatory terms. Regulation H (formally Regulation P) -- Bank Protection Act and Security Standards Regulation P sets minimum standards for a security program state-charted member banks must establish to discourage robberies, burglaries, and larcenies and to assist in identifying apprehending persons who commit such acts.
Basic Regulatory Introduction Customer Privacy Right To Financial Privacy The Right to Financial Privacy Act restricts the federal government’s access to a bank customer’s financial records and activities. Note: This is different than Regulation P – Privacy of Consumer Financial Information created from the passage of the Gram 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. These Guidelines also apply to customer information maintained by or on behalf of Edge corporations, and uninsured state-licensed branches or agencies of foreign banks. 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 bank 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. Each institution must assess risks to customer information and implement appropriate policies, procedures, training, and testing to manage and control these risks. Institutions 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 banks and other entities to report large currency transactions to the IRS to facilitate the identification and investigation of criminal money laundering activities. The act calls for the monitoring and recording of cash transactions in excess of $3,000 for the sale of monetary instruments or the aggregate cash transactions of $10,000 in any given day. Detailed information about customers conducting transactions exceeding $10,000 must be reported to the IRS on a Currency Transaction Report (CTR). The regulation also specifies the circumstances under which the deposits of certain customers may be exempted from the reporting requirement, and specifies what type of customer may never be exempted.
Basic Regulatory Introduction Information Reporting Requirements (cont) IRS Information Reporting: Lending and Deposits; Backup Withholding; Mortgage Interest Reporting; Foreclosed/Abandoned Property Reporting Financial institutions are required to report certain information to the customer and to the IRS on an annual basis. Major reportable items include interest paid to the depositor, mortgage interest paid by the customer, and miscellaneous payments exceeding $600. The bank must obtain a tax ID number on a W-9, or a comparable certification, whenever an interest bearing account is opened or when a reportable transaction, such as cashing a savings bond, is processed. For certain taxpayers identified by the IRS, the bank must undertake backup withholding.
Basic Regulatory Introduction Information Reporting Requirements (cont) Notice of Branch Closure Financial institutions must adopt policies on branch closings, and give advance notice to their regulator of intent to close a branch office. The advance notice should include a detailed analysis of the reasons for closing the branch. In addition, banks must mail a notice to the customers of the branch at least 90 days before closing, and post a notice in the branch at least 30 days before closing.
Basic Regulatory Introduction Various Laws & Regulations Regulation A Regulation A relates to extensions of credit by Federal Reserve Banks to depository institutions and others. It establishes rules under which Federal Reserve Banks may extend credit to depository institutions and others. Regulation F Regulation F is designed to limit the risks that the failure of a depository institution would pose to other insured depository institutions. Provides requirements relating to interbank liabilities. Regulation G Regulation G provides disclosure and reporting of CRA-Related Agreements.
Basic Regulatory Introduction Various Laws & Regulations (cont) Regulation H Regulation H provides guidance on a variety of matters relating to state-chartered member banks, from real estate lending standards to standards for safety and soundness. Regulation I Regulation I implements the provisions of the Federal Reserve Act relating to the issuance and cancellation of Federal Reserve Bank stock upon becoming or ceasing to be a member bank, or upon changes in the capital and surplus of a member bank, of the Federal Reserve System. Regulation K Regulation K sets out rules governing the international and foreign activities of U.S. banking organizations, including procedures for establishing foreign branches and Edge corporations to engage in international banking and for investments in foreign organizations.
Basic Regulatory Introduction Various Laws & Regulations (cont) Regulation L Regulation L implements the Depository Institution Management Interlocks Act to foster competition by generally prohibiting a management official from serving two nonaffiliated depository organizations in situations where the management interlock likely would have an anticompetitive effect. Regulation N Regulation N governs relationships and transactions between Federal Reserve banks and foreign banks or bankers or groups of foreign banks, or bankers, or a foreign State. Regulation R Regulation R was repealed effective December 6, 1996. It dealt with interlocking relationships between securities dealers and banks.
Basic Regulatory Introduction Various Laws & Regulations (cont) Regulation S Regulation S establishes the rates and conditions for reimbursement of reasonably necessary costs directly incurred by financial institutions in assembling or providing customer financial records to a government authority pursuant to the Right to Financial Privacy Act. Regulation W Regulation W implements Sections 23A and 23B of the Federal Reserve Act which govern most transactions between banks and their affiliates. The term “banks” includes all national banks, as well as insured state member and nonmember banks and, for certain purposes, US branches and agencies of foreign banks. Regulation Y Regulation Y regulates the acquisition of control of banks by companies and individuals; defines and regulates the non-banking activities in which bank holding companies and foreign banking organizations with United States operations may engage; and sets forth the procedures for securing approval for these transactions and 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.
Basic Regulatory Introduction State Laws Alabama Consumer Credit Act (Mini-Code) The apparent purpose of the Mini-Code was to provide Alabama with its first comprehensive consumer protection legislation. The Mini-Code regulated many aspects of consumer transactions including loans, credit sales and leases. It provided for a new system of interest rates for both open and closed-end loans. It provided many restrictions on lenders and credit sellers, and protective measures for consumer borrowers and purchasers. Rev. 1997 Alabama Small Loan Act
