2010 Regulatory Compliance Changes – A Summary

2/3/2011

By Fran Sponsler, CRCM, CCBCO

Given that 2010 was a huge year for regulatory compliance reform, it hasn’t been easy keeping up with all of the changes. Some of the changes were easier to implement and some were more significant requiring changes to software, disclosures, procedures and additional training. In addition, the changes affected both the loan and deposit functions of financial institutions. There were regulatory changes that involved RESPA, the FACT Act, the SAFE Act and Regulations CC, DD, E, P and Z. Below is a more detailed summary of the major regulatory changes in 2010.

RESPA

We doubt you missed this one! Effective January 1, 2010, all financial institutions were required to implement the use of the revised Good Faith Estimate of Closing Costs (GFE) and HUD Settlement Statement. Although, many challenges still exist in providing complete and accurate disclosures, the U.S. Department of Housing and Urban Development (HUD) has provided guidance in answering the many questions that arise when originating consumer real estate secured loans. When utilizing the FAQs, be sure to read all the way through the section of questions to get the most accurate answer. The most recently issued FAQs can be found at the HUD’s website by clicking here.

Regulation Z

There were many changes to Regulation Z this year, affecting both closed-end and open-end credit.

Closed-End Credit

One of the changes to closed-end credit was the requirement for disclosures for Private Education Loans (PELs), which went into effect February 14, 2010. Many banks believe that they do not offer PELs, but be careful! The regulation applies to loans made expressly for post-secondary educational expenses and do not apply where educational expenses are funded by credit card advances or real-estate-secured loans. Therefore, a loan made for college textbooks and secured by a certificate of deposit, is a covered loan and subject to the PEL requirements. The regulation requires banks to provide disclosures about loan terms and features on or with the loan application and must also disclose information about federal student loan programs that may offer less costly alternatives. Disclosures must also be provided when the loan is approved and when the loan is consummated.

The requirements to establish escrow for high priced mortgage loans (HPMLs) also went into effect in 2010. The requirements for non-manufactured homes went into effect April 1, 2010, and the requirements for manufactured homes went into effect October 1, 2010. This means that any loan applications received on or after each of the applicable dates and are classified as HPMLs, must have an escrow account established for taxes, homeowners insurance, and if applicable, flood insurance.

Open-End Credit

For credit card issuers, Phase II and Phase III of the Credit Card Act went into effect February 22, 2010, and August 22, 2010, respectively.

Phase II included required periodic statement disclosures for minimum payments and repayment tables, the cut-off time for crediting payments, limitations on fees related to the method of payment, considering the consumer's ability to make the required payments, limitations on fees, allocation of payments, limitations on the imposition of finance charges, limitations on increasing APRs, fees, and charges, requirements for over-the-limit transactions, reporting and marketing rules for college student open-end credit, and internet posting of credit card agreements.

Phase III imposed further requirements regarding penalty and inactivity fees and required issuers that have increased rates since January 1, 2009, to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate.

There were additional revisions to open-end credit disclosures, including credit card and other open-end products. These changes went into effect July 1, 2010, and include requirements for the bank to make revisions to applications and solicitations, account-opening disclosures, and periodic statements. The changes also include the written notice that must be provided to consumers regarding the consumer’s interest rate and other account terms. A detailed description of these changes can be found here.

FACT Act

FACT Act section 312, effective July 1, 2010, requires furnishers of consumer information to establish reasonable written policies and procedures, utilizing the guidelines within the rule, regarding the accuracy and integrity of the information provided. The rule also addresses requirements for handling disputes submitted directly to the furnisher.

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act)

The SAFE Act went into effect October 1, 2010, and requires residential mortgage loan originators who are employees of agency-regulated institutions to be registered with the Nationwide Mortgage Licensing System and Registry. Although employees of agency-regulated institutions are not yet required to register, banks do need to establish SAFE Act policies and procedures to ensure compliance with the Act. The federal regulating agencies announced on Monday that the registry will begin accepting federal registrations.

Regulation DD

Effective January 1, 2010, this regulatory change required banks to disclose aggregate overdraft fees on periodic statements in a tabular format, which included both NSF and overdraft fees for the statement period and year-to-date. In addition, the change required an account balance disclosed to a consumer through any automated system to exclude additional amounts that the institution may provide or that may be transferred from another account of the consumer to cover an item where there are insufficient or unavailable funds in the consumer’s account. At the bank’s option, the disclosure of an additional balance that included funds from a discretionary overdraft service or a line of credit, or funds that could be transferred from a consumer’s linked individual or joint account, is permitted, so long as the disclosure clearly states that the balance includes these additional amounts.

Regulation CC

On February 27, 2010, the final change was made to combine all check processing districts into one and eliminated non-local items when placing a hold on deposited items. All items are now considered local and may only be held for two days on a case-by-case hold or seven days on an exception hold. This required banks to provide notice of the change within 30 days to consumers and update lobby, ATM notices, and funds availability disclosures.

Regulation E

This regulation change went into effect July 1, 2010, for new customers and August 15, 2010, for existing customers. The regulation requires banks to provide the consumer the opportunity to opt-in to overdraft service for ATM and one-time debit card transactions. The bank must provide consumers with a notice that outlines the bank’s overdraft service, the fees associated with the service, and the consumer’s choices. If the consumer chooses to opt-in, the bank must send the consumer a confirmation of their choice to opt-in along with notice that the consumer may opt-out at any time. The opt-in notice should be provided separately from any opt-in or opt-out for the bank’s overdraft privilege program.

Regulation P (Gramm Leach Bliley Act)

In 2010 the joint agencies provided a model privacy notice that describe a bank’s information-sharing practices and inform consumers of their right to opt out of certain sharing practices. Financial institutions are not required to use the new model format; however, the use of the model privacy notice will provide “safe harbor.” Instructions on filling out the appropriate model notice can be found at the Federal Reserve's website by clicking here.

The changes keep coming, and our goal is to keep you updated regarding any additional regulatory compliance modifications in 2011.