CONSUMER COMPLIANCE UPDATE David Wright, Field Supervisor
AGENDA Introduction Consumer Harm Making compliance examinations more effective and efficient Compliance Emerging Issues Updated FFIEC Compliance Rating System HMDA Changes CRA Assessment Areas Dallas DCP Quarterly Newsletter Questions
Consumer Protection Topics Consumer Harm
What is Consumer Harm? CONSUMER HARM Caused by Wrongful Act of a Financial Institution OR a Third-Party ACTUAL or POTENTIAL Injury or Loss Caused by Disregard for Supervisory Guidance Quantifiable, Non- Quantifiable Caused by Violation of Consumer Protection Laws
Preventing Consumer Harm Consumer Harm Communication and technical assistance to supervised institutions is an important component of the FDIC s supervisory approach in preventing consumer harm by supporting institutions efforts to maintain an effective Compliance Management System (CMS).
Types of Consumer Harm Quantifiable Harm Economic harm to a consumer where the injury or loss can be measured. Examples: Deceptive Marketing Practices AS A BOARD MEMBER Fee-based add-on product not received Difference in credit report fees based on marital status
Types of Consumer Harm Non- Quantifiable Harm Injury or loss to the consumer that cannot be measured, or is very difficult to measure, yet the consumer still suffers some form of economic or other harm. Examples: Economic injury from wrongful denial or discouragement AS A BOARD MEMBER Unnecessary requirements for errors or disputes
Types of Consumer Harm Potential Harm Action or inaction on the part of the financial institution that creates the possibility that a consumer may be harmed. Example: AS A BOARD MEMBER Flood Insurance Violations
Supervisory Impact of Consumer Harm Examination Activities Examination strategy and scope Assessment of the bank s Compliance Management System (CMS) Presentation in the Report of Examination Potential enforcement actions General Communication
Consumer Protection Topics Compliance Emerging Issues
Uniform Interagency Consumer Compliance (CC) Rating System FFIEC Final Guidance
Revisions to the CC Rating System FFIEC revised CC rating system Originally adopted in 1980 Effective Date March 31, 2017 Reflects current, risk-based supervisory approach Focused on sufficiency of CMS Tailored to bank s size, complexity & risk profile Recognizes proactive compliance management Promotes coordination, communication and consistency among the agencies
Elements of the New CC Rating System CC Ratings matrix includes 3 broad categories: 1. Board and management oversight 2. Compliance program 3. Violations of law and consumer harm Twelve individual assessment factors (four factors in each category)
CC Rating Assessment Factors Board and Management Oversight 1. Oversight and commitment 2. Change management 3. Comprehension, identification and management of risks 4. Self-identification and corrective action
CC Rating Assessment Factors Compliance Program 1. Policies and procedures 2. Training 3. Monitoring and/or audit 4. Consumer complaint response
CC Rating Assessment Factors Violations of Law and Consumer Harm 1. Root cause 2. Severity 3. Duration 4. Pervasiveness
Self-Identification of Violations & Consumer Harm Reflects strength in institution s CMS Proactive Preventive Self-identify issues Effectively and promptly address issues CC rating system provides incentives for proactive self-identification and prompt corrective action
Questions?
SIGNIFICANT HMDA CHANGES
SIGNIFICANT HMDA CHANGES Effective January 1, 2018, simplified/expanded transactions to report: Adopted a dwelling-secured standard for loans/lines of credit for personal, family or household purposes (eliminates need to determine loan purpose) Commercial purpose transactions are subject to HMDA only if for home purchase, improvement, or refinancing Note: See final rule for details and some exclusions
SIGNIFICANT HMDA CHANGES Changes in Institutional Coverage: For 2017 only depositories that originated at least 25 home purchase loans (including refinancings) in 2015 and 2016 are subject to Reg C Effective 2018 not required to report unless at least 25 closedend dwelling-secured loans or 100 open-end dwelling-secured lines/applications in each of the last two calendar years Note: Will result in a significant number of community banks being relieved of their current obligation to report
SIGNIFICANT HMDA CHANGES New Data Property Address Age Credit Score Loan Term Origination Charges Discount Points Lender Credits Interest Rate Total Loan Costs, or Total Points and Fees Property Value Debt-to-Income Ratio Combined Loan- to-value Ratio Prepayment Penalty Term Introductory Rate Period Manufactured Home Secured Property Type Manufactured Home Land Property Interest Non-Amortizing Features Application Channel Total Units Multifamily Affordable Units Automated Underwriting System Mortgage Loan Originator NMLSR Identifier Reverse Mortgage Open-End Line of Credit Business or Commercial Purpose
CRA Assessment Areas - Reminders
Defining Assessment Areas (AAs) Generally consist of one or more MSA or contiguous political subdivisions, such as counties, cities, or towns Include geographies of main office/branches, and deposit taking ATMs May adjust to include only the portion it can reasonably serve
Issues with Assessment Areas Not reasonable size and scope for the bank AA definitions were not based on bank s lending pattern but on other trade area designations AA has not been updated in many years and lending pattern has changed AA does not reflect a new strategic direction the bank is implementing AA borders majority-minority (MM) CT or LMI CT but does not include an explanation from management on why that is appropriate
Consumer Protection Topics Dallas DCP Quarterly Newsletter
DCP Newsletter Articles 2017 Q1: Linked Savings Accounts & CRA Notice Changes 2016 Q4: Affordable Mortgage Program Resource 2016 Q3: Expansion of Small Creditor Exemption 2016 Q2: Third Party Oversight of Bill Payment Activities 2016 Q1: Regulation E Error Resolution Responsibilities & Garnishment of Accounts Containing Federal Benefits Payments 2015 Q4: Loan Originator Compensation in a Multi-Channel Lending Environment 2015 Q2: Written Policies and Procedures A Compliance Perspective 2014 Q1: UDAP Activities Tied to Overdrafts and Fees
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References Consumer Harm Reference: FDIC Compliance Examination Manual: Evaluating Impact of Consumer Harm https://www.fdic.gov/regulations/compliance/manual/2/ii-2.1.pdf Directors' Resource Center Technical Assistance Video Program: https://www.fdic.gov/regulations/resources/director/video.html Community Banking Initiatives (includes Regulatory Calendar): https://www.fdic.gov/regulations/resources/cbi/ Supervisory Insights: https://www.fdic.gov/regulations/examinations/supervisory/insights/
Questions?
FOR YOUR PARTICIPATION AND FOR WHAT YOUR BANK DOES FOR YOUR COMMUNITY!!