FDIC Regulatory Update Bank Compliance Association of Connecticut October 2014

FDIC Regulatory Update Bank Compliance Association of ConnecticutOctober 2014

Hot Topics, Exam Findings and Best Practices

Sherry AntonellisField SupervisorNew England South Territory

FDIC Regulatory Update

Servicemembers Civil Relief Act (“SCRA”) Protecting Tenants at Foreclosure Act Aftermath of Mortgage Rules Overdraft Protection EFT Error Disputes Flood Insurance Reform Social Media CHFA and HMDA Reporting Most Common Violations Some Common CMS Issues

FDIC Regulatory UpdateHot Topics

SCRA Protections for servicemembers on active

duty (and their spouses) in relation to interest and fees charged on certain types of credit

Certain protections in the foreclosure process as well

Applies to credit cards, student loans, mortgages and consumer loans acquired prior to service date


SCRA Effective the date that the servicemember begins

active duty status. Must be made retroactive to that date if request

is made within 180 days of active duty beginning. Cannot require specific documents; must accept

any official document that includes date of active duty.

Lenders and servicers cannot in any way discourage servicemembers from requesting to asserting their SCRA protections.


SCRA Expectation from DOD and DOJ that lenders and

servicers be proactive in the use of the DOD web site to determine if active duty status has ended or been extended. https://www.dmdc.osd.mil/appj/scra/welcome.xhtml

Contacting servicemembers on active duty via letter at last known address alone is not considered adequate.


SCRA Best Practices Have detailed, written procedures and training

that provide employees with specific guidance and expectations.

Track all SCRA requests. Detail outcome and maintain documentation for each request received whether granted or not. Create an audit trail.

Include use of DOD web site in all aspects of process. This will help to ensure that expectation of proactivity is being met.

Provide for regular audits for SCRA compliance and compliance with your own procedures across all loan types and departments.


Protecting Tenants at Foreclosure Act Originally passed in May 2009. Was to expire in December 2012; extended to

December 31, 2014. Applies to any residential property in foreclosure. Bank assumes responsibility for ensuring the rights of

any tenants occupying the property. Tenants must receive written notice of eviction at least

90 days prior to effective eviction date. Tenants must be allowed to maintain residence until

the end of any lease unless the property is sold to someone who will occupy as primary residence (assuming no breach of lease by tenant).


Protecting Tenants at Foreclosure Act If no lease, tenants must still receive 90-day notice. Currently no pending legislation to extend. No prohibition to pay tenants to vacate (“Cash for

Keys”). Connecticut General Statutes section 47a-20f

applicable. Tenants must receive the greater of:

Double the total of security deposit plus unpaid interest; Two months’ rent; or $2,000.


PTF Act Best Practices Have detailed, written procedures and training

that provide employees with specific guidance and expectations If no lease, tenants must still receive 90-day notice.

Ensure that Compliance Officer is notified of any foreclosure involving tenants.

Maintain applicable disclosures on hand to avoid confusion.

Ensure consideration of State laws and regulations in the process.


Aftermath of Mortgage Rules Amendments to Regulation Z enacted to preclude

making of unaffordable mortgage loans to consumers. “Ability to Pay” requirements have made it more

difficult to originate low- or no-documentation loans. We are starting to see community banks making these

loans again. Banks are relying on Verifications of Income from

employers as the sole form of income verification or are making Stated Income loans.

These loans are then being maintained in the banks’ own portfolios.


Aftermath of Mortgage Rules The requirements of applicable guidance on

nontraditional mortgage products (FIL-2006-031) still need to be followed in these cases.

Appropriate risk mitigation practices must still be followed (e.g., reasonability of income related to profession).

These products can also expose the bank to additional Fair Lending risks such as steering.


Aftermath of Mortgage Rules Best Practices Ensure that formal written procedures include

details regarding risk mitigation practices outlined in FIL-2006-031.

Provide for appropriate monitoring and audit of these procedures and the loans themselves to ensure that procedures are followed and “red flags” were recognized and addressed.

Include these products in any Fair Lending reviews and provide training on applicable risks to employees.


Overdraft Protection We continue to see issues in this area whether in

formal or ad hoc programs. Disclosures do not match actual practices of the bank. Use of disclosures provided with programs purchased

from third-party vendors that do not accurately portray the bank’s program.

New fees are instituted without proper disclosure ahead of time or at account opening.

“Continuous overdraft fees” are assessed daily and these customers are not included in monitoring for abuse or excessive negative balances.


Overdraft Protection These issues can be violations of Truth-in-Savings

(Regulation DD) or Section 5 of the Federal Trade Commission Act (UDAP).

In some cases, restitution can be required based on the type of violation or the level of consumer harm.


Overdraft Protection Best Practices Ensure that disclosures accurately reflect the

parameters of your ODP program. If changes are made to your ODP program from a

systems standpoint, ensure that they are accurately reflected in the applicable disclosures.

If fees are added to the ODP program, ensure that appropriate notice is given to depositors as required by applicable law and regulation.

Ensure that high balance/abuse reviews include those primarily caused by the assessment of daily fees and that bank policy is followed in these cases.


EFT Error Disputes We continue to see issues with banks regarding the

processing of EFT error disputes. Customers are being required to complete additional

steps in order to have their error claims investigated. These include:

Requiring police reports, notarized statements, or other formal documents before acceptance of the dispute;

Requiring the completion of bank-developed forms before an investigation will be commenced;

Charging a fee for investigating a dispute. These are violations of Regulation E but in some cases

may also be violations of Section 5 (UDAP) and may require customer restitution.


EFT Error Disputes Best Practices Have detailed, written procedures and training

that provide employees with specific guidance and expectations.

Track all error disputes regardless of how they are received (e.g., in-person, telephonically, via e-mail). Detail outcome and maintain documentation for each dispute received whether granted or not. Create an audit trail.

Provide for regular audits and monitoring for EFT compliance and compliance with your own procedures. across all loan types and departments.


Flood Insurance Reform Homeowner Flood Insurance Affordability Act of 2014

Limits annual flood insurance premium rate increases, imposes an annual surcharge, and refunds excess premiums paid under Biggert-Waters.

Restores “grandfathered” status to certain properties. Permits assumption of an NFIP policy upon sale of a home. Introduces optional high-deductible policies. Requires escrow of FI premiums on a “tripwire” approach. Excludes detached structures on residential property from FI

requirements.


Flood Insurance Reform Best Practices Ensure that affected employees are trained on the

new requirements as well as the actual procedures used by the bank.

Provide for regular monitoring of all loans requiring flood insurance. Track all policies on a monthly basis.

Develop detailed, written procedures that reflect the new requirements.

Provide for regular audits of loan files.


Social Media Final FFIEC Guidance issued December 11, 2013 Provides a guide highlighting the applicability of

existing requirements and supervisory expectations. No new regulatory requirements were created. Social media defined as:

A form of interactive online communication in which users can generate and share content through text, images, audio or video;

Excludes e-mails and texts not sent through social media platforms;

Includes Facebook, Twitter, Yelp, LinkedIn.


Social Media Existing laws and regulations apply to activities

conducted through social media as they would when conducted through other channels.

Address disclosures, marketing, privacy: Truth in Lending; Truth in Savings; Fair Lending; Section 5 of Federal Trade Commission Act and Sections 1031

an 1036 of Dodd-Frank (UDAAP); Electronic Funds Transfer; GLB Privacy; Advertisement of Membership; and CRA.


Social Media Best Practices Management of third parties through due diligence,

monitoring, and contract. Regular monitoring of bank-owned or -sponsored

sites, pages, blogs, e-mails, texts, etc. for compliance with applicable laws, regulation and guidance.

Training of employees to ensure that any bank-related social media for which they are responsible is compliant.


Connecticut Housing Finance Agency and HMDA Reporting Are loans made through the CHFA reportable on a

bank’s HMDA LAR? Some banks have been cited for not reporting, others

for doing so. No clear guidelines to follow. \ CRA credit?


Connecticut Housing Finance Agency and HMDA Reporting Best Practices Contractually, who is making the loan decision? If

the bank makes the credit decision, it must report the loan.

Consult legal counsel with regard to existing contracts and ask their assistance in drafting new ones.

Review different loan products/programs separately as requirements may be different for reporting.

Please feel free to contact FDIC with any questions and for assistance.


Most Common Violations RESPA TILA Flood Insurance TISA ECOA HMDA FCRA EFT


Common CMS Issues Training not reflecting actual bank procedures. Procedures too general. Lack of independence in monitoring. Scope, breadth, and frequency of audit. Lack of authority for Compliance Officer. Lack of planning for employee absence/turnover. Lack of follow-up ion audit/exam findings. Lack of compliance involvement in new/revised

products or services. Lack of third-party oversight. Lack of appropriate realistic risk assessment.


Questions/Comments?


Thank you!

Sherry [email protected], x8012

FDIC Regulatory Update Bank Compliance Association of Connecticut October 2014

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Transcript of FDIC Regulatory Update Bank Compliance Association of Connecticut October 2014