9 Banking Compliance Changes You Can't Afford to Miss
Learn these 9 important changes to the compliance landscape that may impact your bank, credit union, or mortgage company. You can't afford to miss these banking compliance headlines! Read on to learn the details, and take the right steps to prepare.
As the spring heats up into summer, compliance is heating up, too. We've noticed a lot of important changes and regulatory updates recently, and are happy to share those with you here. From CRA to Flood Insurance, there has been a lot of movement in the industry.
Learn the 9 banking compliance updates you can't afford to miss in this post!
These headlines are gathered from regulatory agencies and industry thought leaders. To learn more, we have included links to each resource in the sections below. As always, feel free to leave your questions and ideas in the comments section below this post, and we will do our best to respond there.
Let's get started...
1. CRA Update Could be Done Within the Year, Regulators Say
At the Consumers Bankers Association conference earlier this month, FDIC Chairwoman Jelena McWilliams said that she is hopeful that the FDIC, OCC, and FRB will have a plan for CRA modernization by next March.
OCC Chairman Joseph Otting projected an earlier timeframe: December 2019.
The regulatory agencies have likely already begun to create the formal rulemaking proposal; we are looking forward to seeing whether the CRA reform is as focused on clarity and metrics as we've heard.
Here at Ncontracts, we will continue monitoring the progress. In the meantime, know that we can help with all of your CRA compliance analysis and risk management needs!
Source: Law360, sign-in required
2. Fannie Mae and Freddie Mac to Begin Accepting the Revised URMLA in July
Earlier this year, Fannie Mae and Freddie Mac announced they will begin accepting the revised Universal Residential Mortgage Loan Application (Form 1003) on July 1, 2019. Starting on February 1, 2020, use of this form will be required.
According to the URLA Fact Sheet, the URLA/Form 1003 is a "standardized document used by borrowers to apply for a mortgage. The URLA is jointly published by the GSEs and has been in use for more than 20 years in all U.S. States and Territories."
In addition, Fannie and Freddie also released an updated DU Spec that you can begin using in July, if desired.
You can view the different versions of this form on the Fannie Mae website here.
3. HUD Charges Facebook with Housing Discrimination Over Company's Targeted Advertising Practices
After last year's bombshell news that HUD was investigating social media giant Facebook for its advertising practices that may have allowed "digital redlining," HUD charged Facebook with housing discrimination in March.
In response to last year's investigation, Facebook did update their advertising practices significantly. Apparently, they didn't go far enough.
“Facebook is discriminating against people based upon who they are and where they live. Using a computer to limit a person’s housing choices can be just as discriminatory as slamming a door in someone’s face.”
- Ben Carson, HUD Secretary
According to the Charge, Facebook:
- Enabled advertisers to exclude individuals classified by Facebook in groups that closely aligned with the FHAs protected classes (i.e. "non-American born," "interested in accessibility").
- Allowed advertisers to exclude people based on geography by drawing a red line around areas on a map.
- Let advertisers show ads to only men, or only women.
- Used/uses protected characteristics to determine who will see certain advertisements, even if an advertiser wants to reach a broad or narrow audience, through methods such as machine learning.
April is Fair Housing Month at HUD; we will keep an eye out on any other Fair Lending, Redlining, or CRA-related news from the agency this month.
Source: HUD Press Release
4. FDIC Updated the Consumer Compliance Examination Manual
In March, the FDIC announced updates to their Consumer Compliance Examination Manual. The FDIC does regularly update this essential resource, usually once per year or so.
According to their newsletter, the following was updated:
- "SOURCE Violation Codes (II-14.1): Some SOURCE violation codes were updated to reflect current references to the United States Code (U.S.C.) and to update verbiage. No new violation codes were added or deactivated in this release.
- Truth in Lending Act (V-1.1): The TILA chapter was updated to incorporate the CFPB’s amendments to Regulation E and Regulation Z related to Prepaid Accounts, effective April 1, 2019. The chapter was also updated to reflect several annual threshold changes. The escrow exemption and the appraisal exemption thresholds for higher priced mortgages and the credit card penalty fee safe harbor amount were increased.
- Home Mortgage Disclosure Act (V-9.1): The asset size exemption thresholds were updated.
- Consumer Leasing Act (V-10.1): The exemption threshold for consumer credit and lease transactions were increased.
- Electronic Fund Transfer Act (VI-2.1): The EFTA chapter was updated to incorporate the CFPB’s amendments to Regulation E and Regulation Z related to Prepaid Accounts, effective April 1, 2019.
- Community Reinvestment Act (XI-1.1): Asset-based definitions for Small Banks and Intermediate Small Banks were updated.
CRA Data Review Timeframes and Sampling Guidelines (XI-11.1): The chapter was updated to provide updated examination instructions on review timeframes and sampling procedures for CRA evaluations."
Source: FDIC Exam Manual
5. NCUA May Dig Deeper on Vendor Management
Some credit unions are sharing that the NCUA is spending more time on vendor management in compliance examinations, according to industry group NAFCU.
The NCUA has highlighted the following as potential problem areas for credit unions, according to recent guidance:
- Risk Assessment and Planning.
- Due Diligence.
- Contract issues and legal review
- Risk Measurement, Monitoring and Control.
The FDIC has also indicated an increased focus on vendor risk management.
6. Agencies Release Private Flood Insurance Acceptance Final Rule
Nearly 7 years have elapsed since the Biggert Waters Act was passed, which requires financial institutions to accept private flood insurance if it meets certain criteria. Finally, the agencies have released a final rule about private flood insurance acceptance.
This new rule becomes effective this summer, on July 1, 2019.
According to industry experts, here are a few of the essential highlights to know:
- Lenders are required to accept flood insurance that meets both the statutory definition of private flood insurance and the mandatory purchase requirement.
- The final rule contains a “compliance aid” in each section to help lenders more easily accept private policies. To learn more about this compliance aid, simply search for "compliance aid" in the Final Rule.
- Lenders are also permitted to accept private policies that don't meet the exact statutory criteria, but offer enough coverage (in the lender's opinion) from a safety and soundness perspective.
- The Final Rule allows lenders to use their discretion in accepting flood insurance coverage issued by “mutual aid societies,” such as agreements by Amish communities to cover flood losses to members’ property, subject to agency approval.
Here is a brief fact sheet from the FDIC that may provide even more helpful details on this private flood insurance rule.
7. Congress and Regulators Push to Allow Banks to Serve Marijuana Companies
Earlier this month, more than 20 Senators filed bipartisan legislation to allow marijuana-related businesses access to banking services. This legislation, called the Secure and Fair Enforcement (SAFE) Banking Act, would allow federally regulated banks to serve with state-licensed marijuana growers, processors, and dispensers without threat of legal or compliance repercussions.
The House Financial Services Committee already approved a similar marijuana banking bill last month, indicating that there is momentum behind the reform.
Finally, top regulators are also pushing for Congress to reform marijuana banking. More than 25 leading regulators in states and territories signed a letter urging Congress to provide financial services to state-authorized marijuana businesses, and clarity on regulatory authority and enforcement.
Federal regulators have not been silent on the issue, either. Leaders of the Federal Reserve and Treasury have also urged Congress to take action and provide clarity.
8. FTC and CFPB Release Report on Joint Illegal Debt Collection Practices Work
The Federal Trade Commission (FTC) and the CFPB have long collaborated on joint enforcement initiatives. In March, the agencies released their annual report to Congress about their work on the Fair Debt Collection Practices Act (FDCPA). The report showcases: efforts to stop unlawful debt collection practices, including law enforcement; education and public outreach; and policy initiatives.
The FTC and the CFPB collectively obtained approximately $60M in judgements, civil money penalties, and monies returned to consumers.
In addition, the CFPB also announced its intention to issue a Notice of Proposed Rulemaking on debt collection in the annual report.
Source: FTC Press Release
9. Zillow Expands Home Buying and Selling Services to Dallas
Zillow, the real estate company from Seattle, WA, recently expanded their home buying and selling service into the ninth market. The service, called Zillow Offers, is currently available in Phoenix, AZ; Las Vegas, NV; Atlanta, GA; Denver, CO; Charlotte, NC; Raleigh, NC; Houston, TX; Riverside, CA; and now Dallas, TX.
Launched last year, Zillow Offers allows homeowners to request a no-obligation offer on their home from Zillow. If they accept it, Zillow will purchase the house and then list it for sale. Billed as on-demand real estate, Zillow Offers focuses on convenience and reducing the stress of buying and selling a home.
While Zillow will work with local brokers, agents, and mortgage companies, they also have their own mortgage company called Zillow Home Loans.
Tech start-ups have a strong appetite to enter into banking and financial services, but their compliance obligations remain somewhat unclear.
Companies like Zillow and Square, who have already or are planning to open traditional financial institutions, will be treated like any other mortgage company or bank. However, there are companies on the edges of FinTech and banking that are not covered by the same regulatory requirements that might burden banks, credit unions, and mortgage companies.
Traditional financial institutions already face a lot of competition, and this is only expected to increase as FinTech companies become more sophisticated and agile in serving consumers - and their wallets.
Ncontracts Viewpoint: Here at Ncontracts, we are always trying to keep you up-to-date and in-the-know! We hope that this article helped do just that.
Please know that if you need help with your financial institution's consumer compliance or vendor management, Ncontracts is here to help.