Ready or not here it comes!  The House Financial Services Committee has introduced the “Overdraft Protection Act”.  First, it is important to note this is far from final but could be what the banking industry may be facing in the future.  The Overdraft Protection Act would require the following:

1. Enhanced overdraft related disclosures and an opt-in for checks, ACH and other transactions not covered by the Regulation E opt-in associated with ATM and one-time debit card transactions.
2. Limits on the number and amount of overdraft related fees that can be charged.  For example, one per month and no more than six per year.  Yikes!
3. Improve notice to customers who incur an overdraft.
4. Prohibit the manipulation of transaction posting orders that maximize fee income.
5. Grant overall rulemaking authority to the CFPB.

Again, this is by no means final.  However, it is a very real possibility and we don’t want anyone blindsided or left in the dark.  We ask that you compliance professionals please pass this information along to management so they understand what potentially lies ahead and encourage them to speak with their state representatives and share their concerns.

According to the American Bankers Association, as reported in their April 30, 2012, edition of “THE ABA Compliance Source” (subscription required), 15% of banks have been named in a lawsuit for not having a surcharge warning posted on ATMs.  We first discussed this in our May 18, 2011 blog. 

Be sure you review your ATMs to avoid such a frivolous lawsuit, not to mention a lot of headaches.

BCC is excited to announce our newly designed Fall Lending Seminar.  Why a new design?  Simple, you ask and you shall receive.  Over the last 20 years, BCC has learned a lot serving as your partner in the compliance industry.  We look forward to continuing to build on that relationship.  Whether it’s a seminar or a bank review, we have always emphasized the importance of client feedback.  It’s not about us; it’s ALL about YOU! 

The new design is about offering flexibility to accommodate different areas of lending expertise.  Consumer non-real estate lenders will be able to sign up for a limited portion of the Fall Lending Seminar.  Commercial and Ag lenders who dabble in consumer lending, deal with flood insurance compliance or are required to comply with the Home Mortgage Disclosure Act (HMDA) requirements will also be able to sign up for a limited portion of the Fall Lending Seminar.  And, as always we invite those of you who are lenders to all loan types or are charged with Lending Compliance oversight to sign up for the entire seminar. 

The information base and concept will be the same as always.  The seminar will consist of regulatory updates, hot button issues and common mistakes.  We’ve also included an “Ask The Experts” Q&A session due to your feedback.  Again we’re simply re-designing the order in which we present certain aspects of the seminar to allow you more flexibility.

The following is the schedule layout for the 2012 Fall Lending Seminar:

Consumer Non-Real Estate lenders and Commercial or Ag lenders may sign up for the single Day 1 seminar if they choose.  The other option will be to sign up for the entire seminar.  Registration will run from 8:00 a.m. to 8:30 a.m. on day one only.  Day one will start at 8:30 a.m. and conclude at 5:00 p.m.  Day 2 will run from 8:30 a.m. to 4:30 p.m. and Day 3 will run from 8:30 a.m. to 12:30 p.m.

As always we will be offering the Fall Lending Seminar in Sioux Falls, SD, Grand Island, NE and Omaha, NE locations.  Thank you for the valuable feedback and please keep it coming.

Please see the Seminar brochure for more information and register today!

Good luck out there and we hope to see you this fall!

The CFPB has passed along a reminder (CFPB Bulletin 2012-04) that Fair Lending will continue to be a compliance focal point.  This isn’t exactly new or revolutionary; in fact, Fair Lending has been a major hot button for quite some time.  Here at BCC, we look at Fair Lending as an unstable, constantly rumbling volcano that could erupt at any time.  You simply cannot afford to overlook Fair Lending.

Hopefully, you already have controls in place to mitigate Fair Lending risk at your bank.  If not, there’s lots of information out there about what to do and what not to do.  A simple Google search for “fair lending compliance” will get more than enough information to get started.  Better late than never.  Good luck out there!

During our recent compliance seminar in Omaha, NE, there were a lot of questions regarding the provisional credit requirements of MasterCard for transactions subject to Regulation E.  After some investigation and re-checking our facts, we still maintain that while Visa requires an aggressive 5 day provisional credit timeframe, MasterCard is silent on the issue.  Therefore, any disputed transaction processed through MasterCard should follow Regulation E’s 10 day timeframe for provisional credit.  If you have MasterCard debit cards and are using the 5 day Visa timeframe, it is not big deal from a regulatory perspective.  You’re simply giving the customer provisional credit sooner than you’re required to which is actually to their benefit.  On the flip side, you might want to discontinue the practice so you have a few more days to investigate before you give provisional credit.  It’s really up to you.

Just a friendly reminder that your Community Reinvestment Act (CRA) public file must be updated by April 1, 2012.  This includes the public files kept at both the main office and each branch (if applicable).  The following are some required file disclosures commonly overlooked:

• Any branches opened or closed by the financial institution in the current year and each of the prior two calendar years;
• Current services offered by the financial institution;
• Up to date transaction fees charged by the financial institution; and,
• For small and intermediate small financial institutions only, an up to date loan to deposit ratio for each quarter of the prior calendar year.

The branch file must include:

• A copy of the public section of the bank's most recent CRA Performance Evaluation and a list of services provided by the branch; and,
• Within five calendar days of the request, all the information in the public files relating to the assessment area in which the branch is located.

We have had numerous clients ask us over the course of the last couple months concerning how the CFPB is coming along with developing the combined TIL/RESPA disclosures.  Well, we picked the brains of some of our contacts at the American Bankers Association and here is what they relayed to us:

1. The proposal for the combined TIL/RESPA disclosure requirements is expected to be released by the CFBP no later than July 2012.
2. The CFBP is being encouraged to provide a 12 - 18 month implementation period once the combined TIL/RESPA requirements are finalized.

If we had to guess, we would expect a final rule being issued sometime around the end of 2012.  With this timeframe you could be looking an effective date of January 2013 and a mandatory compliance date anywhere from 6-12 months after that.  But, again, this is just a guess!

The Consumer Financial Protection Bureau (CFPB) is checking in on overdrafts.  In short, it doesn’t look good for banks.  While they didn’t reveal anything we didn’t already know, they did set their crosshairs.  The CFPB plans to concentrate their efforts in four areas with respect to overdrafts:

1. Manipulation of transactions to maximize fee income/customer costs.
2. Full disclosure of fees, options and how to avoid overdraft charges.
3. Deceptive of misleading information related to marketing materials and overdrafts.
4. Targeted consumer impact (low income and young consumers).

They also plan to add a “Penalty Box” to the periodic statement.  They even have a prototype sample for you to view and ask consumers to share their thoughts.  Be sure to check out the full press release.

Here is our third in a series of HMDA Blogs.  Today, I want to discuss mixed-use properties.  We also discussed this in our April 2011 newsletter.

The first example is that of a professional builder who applies for a loan to purchase a commercial property which he intends to convert into residential condominiums.  The bank will finance both the purchase of the commercial building and the construction.

The “type” of property is what the borrower “intends” it to be used for.  In this case, the property would be a dwelling because the intention is to convert the building into residential condominiums.  Since part of the proceeds are to purchase a dwelling and the loan is secured by a dwelling, the loan should be reported as a purchase. 

Now let’s twist that around a bit.  A local builder wants to finance the purchase of a three-family home and convert it into a mixed-use property where one unit is an apartment, one unit is an office and the third unit is a commercial store front.  The bank will finance the purchase of the three-family home and will also finance the renovations. 

The first step is to first determine the primary purpose of the property.  Is it primarily a dwelling or not?  This can be done using any reasonable method such as square footage (how much square footage is for the dwelling areas vs. the commercial use areas) or using the income approach (how much income is generated from the apartment vs. how much is generated from the commerical areas).  If the property is primarily a dwelling, then this would need to be reported as a purchase.

The FDIC-Washington DC and the FDIC-Kansas City Regional Offices had a Valentine’s Day meeting.  And no, I don’t believe Al Capone was involved in this meeting.  For those of you who are confused, Google “Saint Valentine’s Day Massacre”.  Anyway… 

We’re being told there will be consistent marching orders with respect to the Regulation E opt-in examination process.  First, as we’ve noted in our previous Overdraft blogs, banks that have provided an opt-in and have something to offer (i.e. Bounce Protection, Overdraft Defender, or other type of cushion, etc.) shouldn’t have any issues with the whole force pay transaction issue (see Overdraft Chaos article in the December 2011 Newsletter). 

Next, the FDIC will advise management of banks that provided an opt-in but did not or do not have anything to offer (referred to as “no pay” banks by the FDIC) of following: 

1. The potential civil liability risk involved with the practice.
2. The misleading nature/message of the opt-in notice.
3. To STOP providing the opt-in and charging overdrafts on force pay ATM and one-time debit transactions immediately.
4. Consider restitution for those who opted in and were charged an overdraft(s).

And, last but not least, the best news of all…if the bank agrees to stop the practice either prior to the examination or while the examiners are on site there will be no UDAP citation, enforcement action or restitution requirement!

So what should you do?  If you’ve already stopped providing an opt-in and the practice of charging for one-time debit card ATM force pay transaction, great!  If you haven’t stopped yet, do it now!  Either way, make certain that you document your efforts so you can show examiners exactly what you’ve done and how you did it.  Hopefully, this will be the end of the issue!

P.S. - The FDIC indicated they will be publishing some type of formal guidance on this issue.  Again, I’m not going to hold my breath.