HMDA: Preapproval vs Prequalification

Are you a HMDA bank?  Do you have a preapproval program?  What’s a prequalification?

When it comes to HMDA, pre-approvals and pre-qualifications are completely different animals.  Your bank might use the terms interchangeably but it’s important you understand the difference so you don’t end up in hot water with your examiners!  If you have a pre-approval program, it’s a big deal because it’s something you are required to report on your HMDA-LAR.

Click on the video to listen to David explain.

On July 7th, we hosted a webinar, “HMDA Advanced Lessons”, where we get into the more complicated issues related to being a HMDA reporting institution.  Things like mixed-use properties, demographic information, complicated data fields, etc.  The webinar is available now On Demand so be sure to check it out!

Published
2020/07/27

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Compliance Reviews

It’s true! We provide the best compliance training around.  But did you know that Banker’s Compliance Consulting was born out of the desire to serve financial institutions by doing compliance reviews?

Our compliance reviews are designed to complement your compliance monitoring program and provide independence when necessary (BSA, etc.).  There’s nothing better than having a second set of eyes to ensure your program is not only effective and running smoothly but also to identify any weaknesses.  A little “checkup” from time to time, just like with your car, will help prevent problems in the future.  Identifying your weaknesses; however, is just the beginning and we don’t stop there.  A good compliance review will also provide you with solutions to fix your problems, train you in areas of concern and consult you on other ways to improve/enhance your program going forward.  That’s what we do!

A compliance review is only as good as the person(s) conducting it and we have a team of compliance rock stars. 

Our consultants have many years of experience in the compliance trenches.  They review hundreds of institutions, of varying size, each year which gives them a unique perspective and valuable insights as to what works and what doesn’t.  Our consultants don’t just sit in an office and study compliance regulations, they are out in the field experiencing them first-hand.

So, what does a compliance review look like? 

The answer is, whatever you want it to look like.  We offer full reviews, limited reviews, targeted reviews, risk-based reviews, independent BSA audits, etc.  Any review we do can be customized to your needs and/or budget and conducted onsite, offsite or a combination of both.  Whatever type of review you decide on, we always conduct an exit meeting to discuss our findings, recommendations and corrective actions and issue a formal written report.

Contact us today and discover how much better you’ll feel knowing you have experts on your side!

See the regulations we cover – https://www.bankerscompliance.com/regulations-we-cover/

Danger Ahead: Reg E Model Opt-In and Available Balance

If you charge overdrafts for ATM and one-time debit card transactions under Regulation E, chances are you provide Regulation E’s model opt-in form to obtain a customer’s consent prior to charging those fees.  It would make sense, as using model forms are supposed to provide us with a sense of security, right? 

Well, apparently that’s not always the case.  

A class-action lawsuit has successfully claimed the Regulation E Opt-In model form was not “clear and readily understandable”.  The reason was because it stated an overdraft occurs where there is “not enough money in your account”.  Since the institution actually used the available balance to determine if an overdraft occurred, the plaintiff successfully claimed the account would not have been overdrawn had the ledger balance been used, as described in the notice.

While the case was dismissed at first, that decision was later reversed.  The ruling also found a possible violation for not giving consumers a reasonable opportunity to affirmatively consent to the overdraft services because of their inability to know whether the service would be based on the available or ledger balance.  In other words, they couldn’t have known what they were getting into.

The court ruled the model form did not protect the institution from liability when communications within its overdraft disclosure inadequately inform the consumer of the overdraft policy that the institution actually follows.

Do your customers know what they’re getting into? 

It’s your job to know they do!  If you use the available balance to determine whether customers incur overdrafts, it’s apparent from this ruling that the language on the model opt-in consent form can put you at risk.

If you want to learn more about the Reg E Opt-In and/or overdraft compliance as a whole, be sure to join us for our Overdraft Webinar on July 30th!

Published
2020/07/10

Lending Recap 7/13/2020

It seems like proposals, final rules, guidance, etc., have been coming at us in full force lately.  Here is a quick recap of some noteworthy items related to your lending function.

Supreme Court Ruling on Sexual Orientation

Recently, in Bostock v. Clayton County, Georgia, the U.S. Supreme Court ruled that firing an employee based on sexual orientation constitutes discrimination based on the employee’s “sex” and that the protections found in Title VII of The Civil Rights Act of 1964 extend to LGBTA employees.  Under Title VII, it is unlawful for an employer to refuse to hire, discharge or otherwise discriminate against any individual because of race, color, religion, sex, or national origin.

In the credit arena, The Equal Credit Opportunity Act (ECOA) makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract)….  The Fair Housing Act (FHA) makes it unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.

The Bostock decision further supports that ECOA and/or FHA discrimination prohibitions on the basis of “sex” include discrimination based on sexual orientation.

HPML Escrow Exemption Proposal

The CFPB recently issued a Proposal that seeks to expand eligibility for the Higher-Priced Mortgage Loan (HPML) escrow exemption.  It proposes that insured institutions meeting the following criteria would be allowed to originate HPMLs without being required to escrow:

  • Had an asset size of no more than $10 billion (adjusted annually) as of the previous December 31st (or as of either of the two prior year-ends for applications received prior to April 1st);
  • Together with any affiliates, originated no more than 1000 first-lien, closed-end loans secured by a principal dwelling in the previous calendar year (or in either of the two prior calendar years for applications received prior to April 1st);
  • During the previous calendar year (or in either of the two prior calendar years for applications received prior to April 1st) originated one closed-end transaction secured by a first lien on a dwelling that’s located in a rural or underserved area; and,
  • Neither the institution or any affiliates maintain escrow accounts other than those for HPMLs or to help distressed borrowers.  To maintain eligibility, an institution is allowed to have established HPML escrows for applications received on or after April 1, 2010, as long as it stops establishing those escrow accounts for applications received after a final rule is published in the Federal Register.  An institution would need to stop establishing HPML escrow accounts for applications received before 90 days have passed after a final rule is issued in the Federal Register.  For example, if a final rule is published in the Federal Register on September 1, 2020, an institution could only establish escrow accounts for applications received before November 30th.

This additional HPML escrow exemption eligibility criteria is a result of The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).  It’s proposed the existing exemptions would also remain in place, with the revised dates for establishing HPML escrows as noted above.

The proposal still requires that an escrow account be established for any first-lien HPML subject to a “forward commitment” at or before closing.  In other words, when an institution has entered into an agreement to transfer or sell an HPML to an entity that doesn’t qualify for an exemption, an escrow account must be established.

We’ll bring you more once a Final Rule is issued.

Payday Lending Final Rule

On July 7, 2020, the CFPB issued a Final Rule revoking the mandatory underwriting provisions found in the Payday, Vehicle Title, and Certain High-Cost Installment Loans rule (Payday Rule).  If you recall, back in February 2019, the CFPB issued a proposal to delay the compliance date and ultimately revoke the underwriting provisions in the Payday Rule.  Essentially, while the other portions of the Payday Rule were to technically go into effect on August 19, 2019, the underwriting provisions did not.  This Final Rule definitively ends the mandatory underwriting provisions.

The rest of the Payday Rule remains unchanged by the Final Rule.  Institutions making covered loans that do not fall into one of the exceptions under the 2019 Payday Rule must comply with the remaining provisions.  Keep in mind; however, there is still a court-ordered stay in effect which restricts the Payday Rule from going into effect but that stay could be lifted at any time.

If you are unsure about whether the Payday Rule affects you, we have a half-hour “flash webinar” laying out the coverage rules to help you determine whether or not it applies to your institution.  We also addressed the coverage rules in our May 2019 Magazine!

Published
2020/07/10

Lending Compliance Update

In case you missed it, there have been several recent developments related to Lending compliance.

Credit Card Disclosures Relief

In light of COVID-19, the CFPB recently stated it does not intend to cite violations for credit card issuers who are unable to obtain a consumer’s electronic consent to receive certain disclosures in compliance with E-SIGN.  Card issuers are still expected to obtain a consumer’s verbal consent to electronic delivery of the disclosures as well as verbal confirmation that the consumer can access and review the electronic, written disclosures.  Card issuers are also expected to verify the accuracy of the email address used for communications.  

CFPB Issues COVID-19 Credit Reporting FAQ’s

The CFPB recently released FAQs on credit reporting in light of the COVID-19 pandemic.  These FAQs largely restate the information the CFPB gave us on April 1st; however, there are a few  additional details.

If you defer payments, allow partial payments or otherwise modify a loan obligation or credit agreement because a borrower is impacted by COVID-19, you cannot advance the delinquent status.  This means, a borrower who is current at the time of a payment “accommodation” is to remain current during the timeframe covered by the accommodation.  For example, a borrower 30 days past due at the time of accommodation should not be reported as 60 days past due during the accommodation timeframe.  However, if a borrower 30 days past due at the time of accommodation is brought current as a result of a modification or otherwise, the borrower must be reported as current.  This will apply to any COVID-19 modifications from January 31, 2020 until 120 days after the end of the declared national emergency.

The CFPB reminds furnishers to make sure all information provided is accurate.  Additional information, such as the scheduled payment, amount past due, etc., may also need to be updated.  It’s not sufficient to only provide a code to indicate an account is impacted by a disaster or in forbearance.

Remember, not only do you need to get credit reporting accurate for regulatory reasons but this is also, understandably so, an area where many complaints occur!

Interagency Principles for Small-Dollar Lending

In May, the Federal Reserve, FDIC, OCC and NCUA issued a statement on “Interagency Lending Principles for Offering Responsible Small-Dollar Loans” to encourage responsible small loans to both individuals and small businesses.  Per the statement, loan policies, practices and controls related to small-dollar loans should generally address the following:

  • Structures
  • Pricing
  • Underwriting
  • Marketing and Disclosures
  • Servicing and Safeguards

Around the same time of this statement, the CFPB issued No-Action Letter (NAL) Templates for Loss Mitigation and Small-Dollar Loans.  The intent of an NAL is to offer some regulatory protection to institutions looking to develop new, innovative ways to improve products and services believed to benefit consumers.  Per the CFPB, NALs provide increased regulatory certainty through a statement that the Bureau will not bring a supervisory or enforcement action against a company for providing a product or service under certain facts and circumstances. 

These are essentially application templates for institutions wanting to apply for their own NALs using some groundwork previously established to:

  1. Assist struggling borrowers to avoid foreclosures; or
  2. Offer Small-Dollar loan products.  

There is no requirement for you to do anything with these NALs.  In fact, the one geared towards small-dollar loans is limited to those institutions with more than $10 billion in assets or those affiliated with such entities.  The NALs are just a potential option if you’re interested in pursuing one of these programs and are looking for some regulatory protections. 

HMDA Data

The FFIEC announced the availability of 2019 HMDA data.  Aggregate and Disclosure reports are available as well as Modified LARs and a HMDA Data Browser to help filter and analyze data.  You can read the CFPB’s observations as well.

Loss Mitigation Proposal

The CFPB released an interim final rule related to offering certain loss mitigation options based on an incomplete loss mitigation application.  The rule is effective July 1st.  We’ll be digging into this and bringing you anything you need to know.

Qualified Mortgage Proposals

The CFPB issued two new proposals related to the Qualified Mortgage Rule.  The first proposal would add a rate spread threshold for standard QMs but remove Appendix Q and the 43% DTI limit, although requirements to consider and verify applicants’ DTI would remain.  The second proposal would extend the temporary category of QMs for loans eligible for purchase or guarantee by Fannie or Freddie until a revised final rule for the standard QM definition goes into effect or the GSE’s exit conservatorship, whichever occurs first.  This temporary QM category would otherwise expire no later than January 10, 2021.  Again, these are just proposals at this point.


Published
2020/07/02

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