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The 2018 Regulatory Update - Are You Ready?
This document summarizes a presentation on 2018 regulatory updates given by Doug Johnson and Melissa Sewell. The presentation covered new HMDA and small dollar lending regulations, including key data fields examiners will focus on and new transaction testing guidelines. It also discussed upcoming regulatory hot topics like CECL accounting standards and electronic signatures.
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The 2018 Regulatory Update - Are You Ready?
- 1. 2018 REGULATORY UPDATE Presenters: DougJohnson and Melissa Sewell
- 2. Confidential & PrivilegedDocumentConfidential & Privileged Document Introductions Doug Johnson Director of Product Management. Doug is responsible for directing and managing the Baker Hill product strategy, market research, as well as client user community interaction. Melissa Sewell, MBA, NCCO Studied Finance and Economics at Indiana University and is pursuing Doctor of Jurisprudence Degree from IU McKinney School of Law. Background is predominantly in the financial industry with a focus in areas of Internal Audit and Regulatory Compliance.
- 3. Confidential & PrivilegedDocumentConfidential & Privileged Document Legal disclaimer The materials made available for or during this presentation are for informational purposes only and not for the purpose of providing legal advice. Neither of the presenters are attorneys. You should contact your attorney to obtain advice with respect to any particular issue or problem.
- 4. AGENDA 1. New Regulations& Advisory Bulletins 2. New Solutions & Compliance 3. Future Compliance Hot Topics
- 5. 1. NEW REGULATIONS& ADVISORY BULLETINS HMDA Examiner Transaction Testing Guidelines Small Dollar Rule
- 6. Confidential & PrivilegedDocumentConfidential & Privileged Document HMDA key fields interagency statements • Examiners identified 37 Key HMDA Data Fields for 2018 filings. • Fields selected were chosen as most important for CRA and HMDA examination purposes. • Also, considered likeliness of being recorded correctly based upon past examinations.
- 7. Confidential & PrivilegedDocumentConfidential & Privileged Document 37 key HMDA fields Universal Loan Identifier (ULI) Application Date Loan Type Loan Purpose Occupancy Type Loan Amount Action Taken Action Taken Date Census Tract Income Race of Applicant or Borrower: 1 Race of Applicant or Borrower: 2 Race of Co-Applicant or Co-Borrower: 1 Race of Co-Applicant or Co-Borrower: 2 Ethnicity of Applicant or Borrower: 1 Sex of Applicant or Borrower Sex of Co-Applicant or Co-Borrower Age of Applicant or Borrower Age of Co-Applicant or Co-Borrower Ethnicity of Co- Applicant or Co- Borrower: 1 Lien Status Credit Score of Applicant or Borrower Credit Score of Co- Applicant or Co- Borrower Origination Charges Discount Points Lender Credits Interest Rate Debt-to-Income Ratio Total Units Loan Term Automated Underwriting System Result: 1 Manufactured Home Secured Property Type Combined Loan-To- Value Ratio Property Value Reverse Mortgage Open-End Line of Credit Business or Commercial Purpose
- 8. Confidential & PrivilegedDocumentConfidential & Privileged Document FFIEC HMDA Examiner Transaction Guidelines • Thresholds for errors, size of sampling size, and tolerances for minor errors. • Discusses compliance management system and considerations to HMDA data errors. • Applies to all institutions
- 9. Confidential & PrivilegedDocumentConfidential & Privileged Document FFIEC’s HMDA Sample Size and Error Thresholds LAR Count Stage 2 Sample Size Stage 1 Sample Size Stage 1 Error Threshold Resubmission Threshold (#/%) 25-50 30 15 2 3 10.0 51-100 30 20 2 3 10.0 101-130 47 29 2 3 6.4 131-190 56 29 2 3 5.4 191-500 59 30 2 3 5.1 501-100,000 79 35 2 4 5.1 100,000+ 159 61 2 4 2.5
- 10. Confidential & PrivilegedDocumentConfidential & Privileged Document FFIEC Tolerance Statement But there is relief…. • 3 calendar days for date received vs date shown on application. • $1,000 for loan amount and gross annual income (rounding errors). • 3 calendar days for date action taken.
- 11. Confidential & PrivilegedDocumentConfidential & Privileged Document FFIEC Ethnicity or Race Data Field Errors But wait, it gets better…. The group of Ethnicity or Race data field equate to one data field for error purposes. Statement: “If one or more of the six ethnicity of applicant or borrower fields have errors, they would count as one (and only one) error for that data field group.”
- 12. Confidential & PrivilegedDocumentConfidential & Privileged Document HMDA & Compliance Management Update Compliance Management Systems: • Policy • Procedures • Compliance Audit Plan • Training • Board Oversight • Risk Assessment • Etc.
- 13. Confidential & PrivilegedDocumentConfidential & Privileged Document Geocoding tool https://www.consumerfinance.gov/data- research/hmda/tech-preview
- 14. Confidential & PrivilegedDocumentConfidential & Privileged Document CFPB announcement
- 15. Confidential & PrivilegedDocumentConfidential & Privileged Document Small Dollar Rule implementation
- 16. Confidential & PrivilegedDocumentConfidential & Privileged Document Small Dollar Rule Scope 12 CFR 1041 Short-term • Repay obligation within 45 days Longer-term balloon • Closed-end: At least one payment that is more than twice as large as any other payment • Open-end: Repay substantially the entire amount of an advance in a single payment more than 45 days after the advance is made or is required to make at least one payment on the advance that is more than twice as large as any other payment(s) Other longer-term • The cost of credit for the loan exceeds 36 percent per annum, and; • The lender or service provider obtains a leveraged payment mechanism.
- 17. Confidential & PrivilegedDocumentConfidential & Privileged Document Excluded from Scope • Purchase money security interest loans (“sole-purpose”) • Real estate and dwelling secured loans • Credit card loans • Student loans • Overdraft services • No cost advances
- 18. Confidential & PrivilegedDocumentConfidential & Privileged Document Conditional exclusions • Accommodation Loans: fewer than 2,500 loans in each of the current and previous years and less than 10 percent of revenues. • Alternative loans: P.A.L. previously approved by the NCUA for credit unions.
- 19. Confidential & PrivilegedDocumentConfidential & Privileged Document UDAAP and Small Dollar Rule • Consumer’s ability to repay • Short-term or longer-term balloon-payment loans • Not imposing a ban on any “product” but instead is simply prescribing rules to prevent the acts or practices so identified
- 20. Confidential & PrivilegedDocumentConfidential & Privileged Document Baker Hill and Small Dollar Rule • Reviewed the Rules • Considered the Rules and the implications to clients in designing NextGen • Monitoring Congress and CFPB actions
- 21. 2. CURRENT HOTTOPICS CECL Electronic Signatures
- 22. Confidential & PrivilegedDocumentConfidential & Privileged Document CECL overview and purpose • CECL stands for Current Expected Credit Loss • Allows the leveraging of current internal credit risk systems to estimate expected credit losses. • Purpose is to provide more decision-useful information to users of financial statements.
- 23. Confidential & PrivilegedDocumentConfidential & Privileged Document CECL changes • Changes the ALLL “probable” loss threshold to an “expected” threshold • Recognizes potential credit losses earlier in the life of the loan. • Does not change total amount of net charge-offs on loans or loan is placed in nonaccrual status.
- 24. Confidential & PrivilegedDocumentConfidential & Privileged Document CECL “Expected” vs “Incurred” • CECL is a risk based approach. • Life of loan loss expectation vs annual loss rates. • At origination vs incurred • Historic losses + forecast adjustment + an adjusted historic loss estimate after the forecast period.
- 25. Confidential & PrivilegedDocumentConfidential & Privileged Document CECL effective dates Type US GAAP Effective Date Call Report Effective Date PBE SEC Filers After 12/15/2019 3/31/2020 Other PBEs After 12/15/2020 3/31/2021 Non-PBEs After 12/15/2020 12/31/2021
- 26. Confidential & PrivilegedDocumentConfidential & Privileged Document Electronic signatures • E-Sign Act (15 USC 7001) applies to electronic signatures when federal law applies. • States laws are often modeled after the Uniform Electronic Transactions Act. (model law)
- 27. Confidential & PrivilegedDocumentConfidential & Privileged Document ESIGN Act Notice (before consenting) • Option to receive a paper copy. • Right to withdraw consent and consequences if revoke consent. • Extent of consent. • How to obtain a paper copy of an electronic record and fees/repercussions if elect paper copies. • Hardware and software requirements for access and retention of the electronic disclosures.
- 28. Confidential & PrivilegedDocumentConfidential & Privileged Document ESIGN ACT Consumer Consent • Reasonably demonstrates that the consumer will be able to access required notices or disclosures electronically. • Re-consent for changes to hardware and software requirements in a way that demonstrates can access.
- 29. Confidential & PrivilegedDocumentConfidential & Privileged Document Additional requirements with UETA – attribution • Procedures applied to the determine the person who “clicked” is the person who “signed.” • Look at the context and the surrounding circumstances.
- 30. Confidential & PrivilegedDocumentConfidential & Privileged Document Additional regulations & guidance • National Banks: – 12 CFR 7.5002, Furnishing of products and services by electronic means and facilities. – OCC Bulletin 99-20 • Federal Credit Unions – NCUA Regulatory Alert 01-RA-03 • All Financial Institutions: – FFIEC E-Banking Booklet – NIST Digital Identity Guidelines, SP 800-63-3
- 31. 3. FUTURE HOTTOPICS Debt Collection Small Business Lending and Recordkeeping Bills to Change Dodd-Frank
- 32. Confidential & PrivilegedDocumentConfidential & Privileged Document Debt collection • CFPB Director Mulvaney’s memo statement. – “More formal rulemaking and less regulations by enforcement.” – “We will be prioritizing…almost a third of complaints into this office related to debt collection.” • 2017 Annual Report, types of complaints: – Collecting the right amount from the consumer. – Consumer’s understanding the debt collection process and their rights. – Consumer’s treatment during the collection process.
- 33. Confidential & PrivilegedDocumentConfidential & Privileged Document Debt collection Fair Debt Collection Practices Act, CFPB Annual Report 2018
- 34. Confidential & PrivilegedDocumentConfidential & Privileged Document Debt collection Fair Debt Collection Practices Act, CFPB Annual Report 2018
- 35. Confidential & PrivilegedDocumentConfidential & Privileged Document Small business lending Dodd-Frank Section 1071 amended ECOA • Whitepaper issued, “Key dimensions of the small business lending landscape.” May 2017 • Some comments indicate additional outreach is needed before issuance of proposed rules. Others have sought repeal. • Future is uncertain.
- 36. Confidential & PrivilegedDocumentConfidential & Privileged Document Mortgage Choice Act of 2017 H.R.1153 • House passed the bill on February 8, 2018. • Proposed amendment to qualified mortgage cap on points and fees. • Fee must be bona fide third-party charge not retained by the mortgage originator, creditor, or an affiliate of the creditor or mortgage originator. • If becomes law, CFPB will have 90 days to issue final regulations.
- 37. Confidential & PrivilegedDocumentConfidential & Privileged Document Regulatory Relief, Senate Bill S.2155 • Senate passed the bill on March 16, 2018. • Relief changes to Ability to Repay, Integrated Disclosure Rules (“TRID”), HMDA, and Safe Act. • Social Security Administration database tools. • Assets size changes for Volker Rule ($10 billion and 5%) • Expansion of the types of credit scores available for Fannie Mae and Freddie Mac • SIFI/Holding Company threshold changes ($3 billion and $50 billion)
- 38.
Editor's Notes
- #7 “For the purpose of evaluating financial institutions’ compliance with HMDA requirements, examiner staff will focus primary attention on the Designated Key HMDA Data Fields during transaction testing pursuant to HMDA for data collected on or after January 1, 2018.” FIL-51-2017
- #10 Select a random sample from the LAR. Then verify the accuracy of the data entries in the LAR sample (Stage 1) against the corresponding loan files. If the number of errors identified in the Stage 1 Sample falls below the Stage 1 Error Threshold for each and every data field reviewed, no further sample review is required and the examiners may conclude the transaction testing. If the number of errors in any data field reviewed equals or exceeds the Stage 1 Sample Threshold, examiners should proceed to Stage 2 and review the remainder of the Total Sample. In Stage 2, examiners must review all data fields that had one or more errors in the Initial Sample and may review any or all Initial Sample data fields reviewed and found to have no errors in Stage 1. If, after reviewing the remainder of the Stage 2 Sample, the total number of errors in any data field equals or exceeds the Resubmission Threshold, examiners should direct the financial institution to correct any such data field in its full HMDA LAR and resubmit its HMDA LAR with the corrected data field(s). If examiners have a reasonable basis, a financial institution may be directed to correct one or more individual data fields and resubmit its HMDA LAR even if errors do not meet Resubmission threshold. For complete details refer to FIL-36-2017, pages 3-4
- #11 “Examiners should not count the following differences between data in the HMDA LAR and in the loan files as errors: Three calendar days or less in the date the application was received or the date shown on the application form reported pursuant to 12 CFR 1003.4(a)(1)(ii); One thousand dollars or less in the amount of the covered loan or the amount applied for, as applicable, reported pursuant to 12 CFR 1003.4(a)(7); Three calendar days or less in the date of the action taken by the financial institution reported pursuant to 12 CFR 1003.4(a)(8)(ii), provided that such differences do not result in reporting data for the wrong calendar year; and Rounding errors in reporting the dollar amount, rounded to the nearest thousand, of the gross annual income relied on in making the credit decision or, if a credit decision was not made, the gross annual income relied on in processing the application, reported pursuant to 12 CFR 1003.4(a)(10)(iii).” FIL-36-2017, page 5
- #12 For an applicant who indicates “Hispanic or Latino” and “Mexican” in response to the question of ethnicity, a financial institution reports the information in two FIG fields, for example, Ethnicity of Applicant or Borrower: 1 (1: Hispanic or Latino) and Ethnicity of Applicant or Borrower: 2 (11: Mexican). If one or more of the six Ethnicity of Applicant or Borrower FIG fields have errors, they would count as one (and only one) error for that data field group. If the Ethnicity of Applicant or Borrower data field group has errors in the Total Sample that meet or exceed the Resubmission Threshold in Column D of the HMDA Table, examiners should direct the institution to correct the six Ethnicity of Applicant or Borrower FIG fields and resubmit its HMDA LAR with those FIG fields corrected. FIL-36-2017, page 5
- #13 “Examiners may direct the financial institution to make any appropriate changes in its policies, procedures, audit processes, or other aspects of its compliance management system needed to prevent the reoccurrence of errors identified within the sample that are—absent such changes—capable of repetition, even if number of errors does not equal or exceed either the Initial Sample Threshold or the Resubmission Threshold.”
- #17 (c) Leveraged payment mechanism. For purposes of paragraph (b) of this section, a lender or service provider obtains a leveraged payment mechanism if it has the right to initiate a transfer of money, through any means, from a consumer's account to satisfy an obligation on a loan, except that the lender or service provider does not obtain a leveraged payment mechanism by initiating a single immediate payment transfer at the consumer's request. iv. Transfer by account-holding institution. A lender or service provider that is an account-holding institution has a right to initiate a transfer of funds between the consumer's account and an account of the lender or affiliate, including, but not limited to, an account-holding institution's right of set-off.
- #30 UETA §9 “An electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable…determined from the context and surrounding circumstances at the time of its creation, execution, or adoption…” www.uniformlaws.org
- #33 1/3 of all complaints relate to debt collection. CFPB: 84,500 debt collection complaints.
- #35 In 2017: credit card debt rose by $55 billion, student loan debt grew by $68 billion, and auto loan debt grew by $64 billion.
- #36 The Consumer Financial Protection Bureau (CFPB or Bureau) seeks information about the small business lending market. Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amends the Equal Credit Opportunity Act (ECOA) to require financial institutions to compile, maintain, and report information concerning credit applications made by women-owned, minority-owned, and small businesses. In an effort to inform the Bureau’s work on the business lending data collection rulemaking to implement section 1071, the Bureau seeks to learn more about the small business financing market, including understanding more about the products that are offered to small businesses, including women-owned and minority-owned small businesses, as well as the financial institutions that offer such credit.
- #37 Govtrack provides a likelihood of being enacted at 34%
- #38 Likelihood 61% of being enacted