Regulatory Concerns for 2017
The TILA-RESPA Integrated Disclosure Rules became effective in October 2015. Most banks fully immersed themselves into changing policies, practices and systems to ensure compliance; leaving not much time to keep abreast of other immerging guidance and regulatory hot buttons in 2016.
Below are some guidelines that have been issued or are hot topics that may raise concerns or red flags that may have slipped through the cracks or may not have registered on your bank’s list of priorities for the coming year.
Interagency Guidance: Deposit-Reconciliation Practices:
On May 18, 2016, the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (FRB), the Consumer Financial Protection Bureau (CFPB), the National Credit Union Administration (NCUA) and the Office of the Comptroller of the Currency (OCC) (collectively, the Agencies) issued joint guidance to ensure that banks are aware of the Agencies’ supervisory expectations regarding deposit-reconciliation practices that may be detrimental to customers (FIL-35-2016).
The Agencies expect banks to adopt deposit reconciliation policies and practices that are designed to avoid or reconcile discrepancies, or designed to resolve discrepancies such that customers are not disadvantaged. Banks are expected to effectively manage their deposit reconciliation practices to comply with Regulation CC and other applicable laws or regulations and to prevent potential harm to their customers. Information provided to customers about the bank’s deposit reconciliation practices should be accurate.
Banks should implement effective compliance management systems that include appropriate policies, procedures, internal controls, training, and oversight and review processes to ensure compliance with applicable laws and regulations, and fair treatment of customers. These actions will help minimize exposure to potential financial loss and supervisory action.
Regulation B and Appraisal Disclosure Requirements:
When the TILA-RESPA Integrated Disclosure rules became effective, the appraisal disclosure requirement pursuant to Regulation B was added to the newly implemented Loan Estimate (LE) making it easier and less burdensome to provide a separate and distinct disclosure. In addition, the regulation provided relief of providing an LE on a covered loan request, if the loan request was denied within three business days of receipt of the application.
However, what most banks may not have realized is that for applications subject to the appraisal disclosure rules, Regulation B (1002.14 (a) (2)) provided no relief or exceptions for applications that are denied within any timeframe.
What does that all mean? It means that although a covered consumer loan request on a first lien dwelling is not subject to an LE if denied within three business days of receipt of the request, the appraisal disclosure is still required to be provided.
If your bank’s practices have only relied on the LE to provide the appraisal disclosure, additional procedures must be implemented for those covered loan requests that are denied within the three business days to avoid being caught in the murky waters this regulatory glitch has created.
As a side note, the above requirements will also apply to commercial loan requests where a first lien on a dwelling will be taken as collateral, regardless of adverse action, within three business days of receipt of the application.
Continuous Overdraft Fees and When/How They are Assessed
Assessing continuous overdraft fees became a common way for banks to recoup some of the lost revenue from no longer being able to assess overdraft fees on one- time point of sale (POS) and ATM transactions. However, that too seems to be a source of red flags for the never ending and “catch-all” bucket that is UDAAP (Unfair, Deceptive or Abusive Acts or Practices).
The first concern is when the fees are assessed. Regulation DD – Truth in Savings requires disclosure of all applicable fees, terms and conditions associated with consumer accounts. In order to comply, banks were judicious in ensuring that fees schedules and other account disclosures included the continuous overdraft fees and when the fees would be assessed. However, what was not considered was whether the number of days included the weekend when considering the time of overdraft. In other words, if the fee is to be assessed after three consecutive days of being overdrawn, does that include calendar days or business days? Regulatory concerns that consumers would not be permitted to cure an overdraft during a weekend has resulted in UDAAP concerns and possible reimbursement requirements.
The second area of concern is how the fee is assessed. If the account becomes overdrawn due to a bank fee, such as a return item fee or service charge fee, is the continuous overdraft fee assessed? If so, does the account disclosures clearly state that regardless of what caused the account to be overdrawn that subsequent fees (continuous overdraft) will be assessed? If not, additional UDAAP concerns and risks must be addressed to avoid potential regulatory criticism and customer reimbursement.
Maintaining compliance in an ever-changing regulatory landscape is more difficult now than ever. Staying abreast of regulatory changes, best practices and issued guidelines is not only required but key in minimizing regulatory issues and other significant risks. Regulatory publications, newsletters, training and external resources (Fortner, Bayens, Levkulich & Garrison P.C.) are excellent tools in assisting banks in achieving or maintaining its targeted level of compliance performance.