fms boston chapter regulatory compliance update january 22 2013 presented by stephen king jd n.
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FMS – Boston Chapter Regulatory Compliance Update January 22, 2013 Presented by : Stephen King, JD. Regulatory Compliance Issues. HMDA Flood Insurance Bank Secrecy Act Fair Lending UDAAP Dodd-Frank Act Recent Rules GOOD NEWS. Regulatory Environment.

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FMS – Boston Chapter Regulatory Compliance Update January 22, 2013 Presented by : Stephen King, JD

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fms boston chapter regulatory compliance update january 22 2013 presented by stephen king jd

FMS – Boston ChapterRegulatory Compliance UpdateJanuary 22, 2013Presented by: Stephen King, JD

regulatory compliance issues
Regulatory Compliance Issues
  • HMDA
  • Flood Insurance
  • Bank Secrecy Act
  • Fair Lending
  • Dodd-Frank Act Recent Rules
regulatory environment
Regulatory Environment

Consumer Finance Protection Bureau Mission

“Above all, this means ensuring that consumers get the information they need to make the financial decisions they believe are best for themselves and their families—that prices are clear up front, that risks are visible, and that nothing is buried in fine print. In a market that works, consumers should be able to make direct comparisons among products and no provider should be able to build, or feel pressure to build, a business model around unfair, deceptive, or abusive practices.”

regulatory environment1
Regulatory Environment

CFPB 2013-2018 Strategic Plan

“If we achieve our mission, then we will have encouraged the development of a consumer finance market place…in which no one can build a business model around unfair, deceptive, or abusive practices;”

“Whether informal supervisory measures or formal enforcement action is necessary will depend on the type of problem(s) found and the severity of harm to consumers, among other factors.”

  • Over $400,000 CMPs imposed in 2012
  • Increased Regulatory Scrutiny
  • New 2013 threshold = $41 million
  • New Reporting Requirements
    • Not until Jan 1st 9 months after new Regulations promulgated

For originated loans, new data collection and/or reporting will include:

  • Borrower(s) age(s)
  • The number and dollar amount of loans grouped according to:
  • Total points and fees paid at origination;
  • The difference between the loan's APR and a benchmark for all loans; and
  • The term in months of any prepayment penalty.

For originated loans plus applications that do not result in originations, new data collection and reporting will include the number and dollar amount of loans and applications grouped by:

  • The value of real property used or intended to be used as collateral;
  • The term in months for which any introductory rate applies;
  • Loans that have contractual terms that reflect other than fully amortizing loans;
  • The mortgage term in months;
  • The applicant(s) or borrower(s) credit score(s); and
  • The application receipt channel (e.g., retail, broker, etc.).

AND at the Bureau's discretion:

  • A unique identifier for the originator (possibly the originator's license number);
  • A universal loan identifier; and
  • A parcel number for the real property used or proposed as collateral.
flood insurance
Flood Insurance
  • Over $380,000 CMPs imposed in 2012
  • Increased Regulatory Scrutiny
  • New Interpretations (Commercial Content)
  • Biggert - Waters FIRA (2012 and 2013)
    • Increased penalties from $300 to $2000
    • Other new requirements delayed until further action
bank secrecy act
Bank Secrecy Act
  • 4/12:Citibank $1.3 billion - Enhanced Due Diligence
    • Deficiencies in controls, audit program, monitoring
  • 7/12: HSBC $700m -2b - Money Laundering (Mexico)
    • OCC Curry: BSA affecting CAMEL Mgmt score
  • 8/12: Standard Charter Bank $340m – AML (Iran)
    • NYS DFS: Bank actively “schemed” and “hid”
  • 11/12: First Bank of Delaware $15m - pymt processors
    • Terminated State Charter / Terminated FDIC insurance
  • 1/13 JPMorgan Chase Cease & Desist Order
    • Critical deficiencies with SARs, EDD, monitoring, audit
fair lending
Fair Lending

Overt Discrimination: a specific, observable action taken against a person or class of persons because of protected status, e.g., national origin.

Disparate Treatment: an established practice based on discriminatory intent that adversely impacts a protected group.

Disparate Impact: a facially neutral practice that causes a substantial adverse impact on a protected group, and which cannot be justified as serving a legitimate business goal.

fair lending1
Fair Lending
  • July: CapitalOne $12m SCRA
    • Did not provide protections regarding interest rates; foreclosures/repossessions
  • July: Wells Fargo $175m - Pricing Discrimination
  • “Know or had reason to know”
  • Aug: GFI $3.5m - Pricing Discrimination
  • Automated pricing software program
  • Sept: Luther Burbank $2m: Minimum Loan Amount
  • Disparate Impact case proven by statistical analysis
  • Oct: AMEX $113m - Discrimination
  • Failure to “…. implement an effective employee training program” and failure to “adequately monitor consumer complaints and inquiries”.

Formal Action

  • Capital One $210m / Discover $215m
  • Deceptive Telemarketing Practices on Add-on products
  • Responsible for 3rd party activities
  • AMEX
  • Deceptive Structuring of Product
  • Fair Credit Reporting Act violations


EFT Processing

Advertising: 11/19/12 CFPB Press Release

dodd frank act recent rules
Dodd-Frank Act Recent Rules

January 10 - 20, 2013, CFPB issued these final rules:

  • Escrow (June 1, 2013)
  • Qualified Mortgages – Ability to Repay (Jan 10, 2014)
  • Loan Servicing (Jan 10, 2014)
  • HOEPA / HUD (Jan 10, 2014)
  • MLO Compensation (Jan 10, 2014)
  • Appraisals for Higher Priced Loans (Jan 18, 2014)
  • ECOA Appraisal Notices (Jan 18, 2014)
dodd frank act recent rules1
Dodd-Frank Act Recent Rules

Escrow Rules (June 1, 2013)

  • Creditors must establish and maintain a tax/insurance escrow account after originating a “higher-priced mortgage” for at least 5 years (previously 1 year).
  • Escrow requirement exemption for portfolio loans if:
    • More than 50% of 1st lien covered loans in rural or underserved counties;
    • Prior year originated 500 or fewer 1st lien covered transactions;
    • Asset Size less than $2 billion (adjusted annually); AND
    • Generally does not escrow for any mortgage that it or its affiliates currently services.
dodd frank act recent rules2
Dodd-Frank Act Recent Rules

Qualified Mortgages – Ability to Repay (Jan 10, 2014)

  • 8 factors to evaluated and verified during underwriting
  • Special rules for certain circumstances

Qualified Mortgages (Jan 10, 2014)

  • Safe harbor (“Normal”) or Rebuttable presumption of ability to repay (“Higher Priced Loans”)
  • Debt-to-income < = to 43%; term <= 30 yrs
  • Prohibits interest-only; negative amortization and balloons
dodd frank act recent rules3
Dodd-Frank Act Recent Rules

Loan Servicing (Jan 10, 2014)

  • Prompt payment crediting and payoff statements
  • Error Resolution and information requests
  • Disclosures / Notices (ARMs, per stmts)
  • Force-Placed Insurance Rules
  • Early Intervention & continual contact with delinquent Borrowers
  • Loss Mitigation / Foreclosure
  • General servicing policies and procedures
dodd frank act recent rules4
Dodd-Frank Act Recent Rules

HOEPA / HUD (Jan 10, 2014)

  • HOEPA coverage expanded to include open-end loans secured by principal dwelling and adjusts High Cost Mortgage thresholds (8.5% if 1st < $50,000).
  • New Restrictions/Prohibitions
  • 3 new exemptions (refinance initial construction, Housing Finance Agency loan, USDA loan).
  • HUD Homeownership Counseling requirements
dodd frank act recent rules5
Dodd-Frank Act Recent Rules

Mortgage Loan Originators (Jan 10, 2014)

  • Clarifies Regulation Z prohibition on basing MLO compensation on “any term or condition of the transaction.”
  • Additional MLO restrictions / prohibitions
  • Loan Originator Qualifications (SAFE Act)
  • Prohibits Mandatory Arbitration clauses in a residential mortgage or Home Equity Line of Credit.
  • Prohibits the financing of any premiums or fees for credit insurance in a consumer loan secured by a dwelling
dodd frank act recent rules6
Dodd-Frank Act Recent Rules

Appraisals for Higher Priced Loans (Jan 18, 2014)

  • Lender must obtain a written licensed appraisal on security collateral prior to making Higher-Priced Mortgage (1.5% 1st lien, 2.5% Jumbo, 3.5% Junior lien)
  • Must provide model disclosure at application
  • Must provide free copy at least 3 days prior to closing
  • Certain conditions when additional appraisal required
  • Exemptions = QMs, bridge loans, reverse mortgages initial construction, Mfr homes, mobile homes, o-e loans
dodd frank act recent rules7
Dodd-Frank Act Recent Rules

ECOA Appraisal Notices (Jan 18, 2014)

  • ALL applications secured by 1st lien on a dwelling
  • Provide Disclosure 3 days after application
  • Provide free copy of appraisal the earlier of:
    • “promptly upon completion”;
    • 3 days prior closed-end loan consummation; or
    • Open-end loan account closing.
good news

November 27, 2012

CFPB announced that it will issue a proposal in December 2012 to delay the February 7, 2013 Regulation E Remittance rule requirements. The Bureau stated that the new effective date will be 90 days after the issuance of final rules by the Bureau.

December 21, 2012

CFPB issued the proposed rules and is separately soliciting comments on the extension of the effective date and the 90-day implementation period.

last thought

“I doubt that any single area of risk management has occupied as much of my time since I became Comptroller in April as operating risk. From the foreclosure processing mess to fair lending violations to credit card marketing issues, the risk of loss that results from the failures of people, processes, systems, and external events has become a significant safety and soundness issue.”

- Comptroller of the Currency Thomas J. Curry 11/9/12



Stephen R. King, JD

Wolf & Company

Director, Regulatory Compliance Services