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.
- Procedures for Bureau Debt Collection. The Consumer Finance Protection Bureau (CFPB) has implemented its debt collection regulations, which conform to requirements set forth in laws applicable to the collection of nontax debts owed to the United States. This was published in the July 11, 2013 Federal Register and is effective immediately.
Accordingly, these regulations govern:
- Prompt demand of payment of the claim from the debtor
- Review of whether the amount claimed is accurate
- Collection of debts in installment payments
- Assessment of interest, penalties, and administrative costs on debts claimed
- Compromise of claims
- Determinations whether to suspend or terminate collection action
- Referral of delinquent debts to the Secretary of the Treasury for collection
- Reporting of debts to consumer reporting agencies
- Use of credit reports
- Sale of delinquent debts
- Agencies Encourage Lenders to Work with Student Loan Borrowers. In light of the recent discussions surrounding the student loan debt, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board (Fed), and the Office of the Comptroller of the Currency (OCC) (collectively, the federal bank regulatory agencies) issued a statement on July 25th encouraging financial institutions to work constructively with private student loan borrowers experiencing financial difficulties.
Current interagency guidance permits prudent workout and modification programs for retail loans, including student loans, and provides that extensions, deferrals, renewals, and rewrites may be used to help borrowers overcome temporary financial difficulties. Institutions that have private student loan workout programs should provide borrowers with information that clearly explains the programs, including eligibility criteria and the process for requesting a modification.
For more information, see the news release on the Fed's website.
- Telephone Consumer Protection Act. The October 16, 2013 deadline for compliance with new Telephone Consumer Protection Act (TCPA) regulations draws nigh. The new regulations, which were approved last year, were adopted by the Federal Communications Commission (FCC) as additional protections for consumers concerning unwanted autodialed and/or robocalls. The changes address:
- Prior express written consent
- No "established business relationship" exemption
For more information, visit the FCC's website.
- Basel III and the United States. The Federal Reserve Board approved a final rule to help ensure that financial institutions maintain strong capital positions that will enable them to continue lending to creditworthy households and businesses even after unforeseen losses and during severe economic downturns.
The final rule minimizes the burden on smaller, less complex financial institutions, and implements in the U.S. the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Find more information on the rule here.
Take a look at regulatory changes and improvements manifesting in the next quarter!
- Truth in Lending Act (TILA) Exemptions. The CFPB has issued a proposed rule to create additional exemptions from TILA requirements. The proposal provides exemptions to the Regulation Z appraisal requirements for the following three types of higher-priced mortgage loans:
- Loans of $25,000 or less
- Certain “streamlined” refinancings
- Certain loans secured by manufactured housing
Comments must be received on or before September 9, 2013.
- New Fair Housing Rule. The Department of Housing and Urban Development (HUD) has published in the Federal Register a new proposed rule to Affirmatively Further Fair Housing (AFFH). Under the proposed new rule, HUD would provide program participants with:
- A more clearly articulated definition of what it means to affirmatively further fair housing
- An assessment template that replaces the current, loosely defined Analysis of Impediments
- Nationally uniform data and a geospatial tool
- Clear guidance and technical assistance
The public comment period will last for 60 days starting on Friday, July 19th.
Trends to Watch
Our compliance and regulatory subject matter experts have been closely monitoring important trends in the financial community.
- Dodd-Frank 3 Years Later. The passing of Dodd-Frank reached the 3-year mark on July 21, 2013. The act was hyped as a solution to end “Too Big to Fail” and promised to make the financial industry safer and more consumer-friendly. However, the following has actually occurred since the passing of this act:
- As of July 15, a total of 279 rulemaking requirement deadlines have passed. Of these 279 passed deadlines, 172 have been missed and only 107 actually met with finalized rules being issued. The regulatory agencies have not yet released proposals for 64 of the 172 missed rules.
- Of the 398 total rulemaking requirements, 158 have been met with finalized rules, and more rules have been proposed that would meet 113 more requirements. Additionally, rules have not yet been proposed to meet 127 outstanding rulemaking requirements.
- The Dodd Frank Act has actually halted the growth of smaller financial institutions. According to the FDIC, there have been no community financial institution charters granted since 2011, mostly due to the ambiguity in Dodd-Frank requirements. Community bankers are unclear on what is required to comply with the law and are unsure if they will pass an examination. Dodd-Frank provides vague guidelines to the regulators, who are tasked with producing the actual rules to follow.
- During the past 12 months, the biggest change is that the mortgage rules have started rolling out, and, since issuance in January, the CFPB has had to clarify and modify these rules several times.
The fact is, there has not been a lot of “finalization” or “clarification” to the rules, which continues to provide frustration and lack of clarity to many.
- The Top Three Compliance Issues Concerning Mortgage Origination Applications. The number one compliance problem in the origination and retail side of mortgage lending happens during the initial 1003 application.
Mortgage loan officers should exercise more thoroughness in the completion and accuracy of an application. Consistently, issues can be found with incomplete borrower information. Mortgage Officers are not matching up liabilities properly against the credit report, forgetting to include HMDA (Home Mortgage Disclosure Act) data, and missing borrower signatures.
The second highest compliance problem is the error rate in the initial disclosures for the Truth in Lending and Good Faith Estimate (GFE).
Finally, the third largest compliance problem is missing disclosures required by the Federal Housing Administration (FHA) and disclosures not prepared properly.
As the refinance market reduces and the purchase market returns, more government lending programs will be used which will push more compliance responsibilities on to Mortgage Lenders.