The Consumer Financial Protection Bureau (CFPB), Board of Governors of the Federal Reserve System (Fed), Office of the Comptroller of the Currency (OCC), and other regulatory authorities in the financial industry are focusing on several key areas this year, and compliance professionals should take note. Recent trends in compliance have found enforcement changes in everything from previously released final rules to annual letters and financial data.
- Annual Letters Released. The Federal Trade Commission (FTC) has issued a Press Release announcing the issuance of its annual letter to the CFPB on the agency’s enforcement and related activities regarding the Truth in Lending Act (TILA), Consumer Leasing Act (CLA), Electronic Fund Transfer Act (EFTA), and Equal Credit Opportunity Act (ECOA). This year's letter also discusses the Dodd-Frank Act, and the Commission’s and CFPB’s memorandum of understanding that set forth a framework for coordinating certain law enforcement, rulemaking, and other activities.
- Federal Deposit Insurance Company (FDIC) Rate Caps Issued. The Federal Deposit Insurance Company (FDIC) has posted the national rates and rate caps for various deposit maturities and sizes to be used for restrictions applicable to less-than-well-capitalized institutions. The rates and rate caps are calculated by the FDIC to implement certain regulatory provisions.
- Public Documents. The Fed and CFPB have released several documents to educate the public on matters subject to agency rulemaking in implementation of the Dodd-Frank Act as well as Small Entity Compliance Guides for the 2013 Home Ownership and Equity Protection Act (HOEPA) Rule, ECOA Variations Rule, and TILA Higher-Priced Mortgage Loans Appraisal Rule. These guides, published by the CFPB, provide an overview of the rules for a broad array of industry constituents, especially smaller businesses with limited legal and compliance staff.
- Identity Theft Guidelines. In related regulatory news this quarter, the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) have issued final rules and guidelines related to identity theft red flags and regulation guidelines for entities with established programs addressing risks of identity theft. These rules and guidelines implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which amended the Fair Credit Reporting Act and directed the Commissions to adopt rules requiring entities that are subject to the Commissions' respective enforcement authorities to address identity theft.
- New Rule Impacting Mortgage Companies and Lenders. The CFPB is amending Regulation Z with the passing of a final rule which provides an exemption to certain requirements for creditors with particular designations, loans pursuant to certain programs, certain nonprofit creditors, and mortgage loans made in connection with specific Federal emergency economic stabilization programs.
Furthermore, the final rule provides a definition for a “qualified mortgage” for certain loans made and held in portfolio by small creditors and a temporary definition for a qualified mortgage for balloon loans.
Lastly, the rule modifies the requirements regarding the inclusion of loan originator compensation in the points and fees calculation.
- Final Rule Issued Delaying June 1 Effective Date. The CFPB is addressing creditors who finance credit insurance premiums in connection with certain consumer credit transactions secured by a dwelling by delaying the June 1, 2013, effective date of the prohibition on these creditors.
The prohibition was adopted in the Loan Originator Compensation Requirements under the Truth in Lending Act (Regulation Z) Final Rule issued on January 20, 2013. This delay permits the Bureau to clarify, before the provision takes effect, its applicability to transactions other than those in which a lump-sum premium is added to the loan amount at closing.
These rules were announced on May 29, 2013 and are set to go into effect on January 10, 2014. For additional information, please visit CFPB’s official website at http://www.consumerfinance.gov/.
Trends to Watch
Our compliance and regulatory subject matter experts have been closely monitoring important trends in the financial community.
- Compliance and the U.S. Foreign Corrupt Practices Act. In November of 2012, the U.S. Department of Justice and the Securities and Exchange Commission released their guidance on the U.S. Foreign Corrupt Practices Act. Compliance is discussed in depth in Chapter 5 and the focus is on a risk-based approach. The guidance indicates that, the “DOJ and SEC will give credit to a company that implements, in good faith a comprehensive, risk-based compliance program, even if that program does not prevent an infraction in a low risk area because greater attention and resources had been devoted to a higher-risk area.”
To implement the risk-based program, companies must identify the activities that pose greater risk and assign the proper amount of resources to mitigate the risk. This would mean predicting the future based on trends from past. For corruption, it includes analyzing potential corruption in a given area, and then making a prediction about the potential for a compliance failure and assigning the right resources to that risk.
- Final Escrow Mortgage Rule. The CFPB has issued guidance to the Final Escrow mortgage rules that were finalized in January 2013. The CFPB is proposing that the determination of “rural” and “underserved” status be based on the current Urban Influence Codes (UICs) established by the United States Department of Agriculture, Economic Research Service (USDA-ERS) for the “rural” component, or based on Home Mortgage Disclosure Act (HMDA) data for the “underserved”. This proposal also provides illustrations to enable compliance with the rule. For example, a county is considered "underserved" during a calendar year based on HMDA data for "the preceding calendar year" instead of "that calendar year" as stated in the final escrow rule. The proposal is also looking to place protections for higher-priced mortgage loans (HPML) to avoid a six-month period when the protection will not apply.
As the January 2013, Final Escrow Rule currently reads, the existing protections would cease six months before the new expanded protections take effect. However, the proposal would restore these protections and expand the scope of the protections to apply to most mortgage transactions, rather than just HPMLs.