On Friday, September 7, 2018, the Financial Crimes Enforcement Network (FinCEN) issued a ruling which grants certain exceptions for financial institutions from the Beneficial Ownership Rule. Specifically the ruling provides financial institutions relief from the obligations under the Beneficial Ownership Requirements of identifying Legal Entity Customers in the case of:
•A rollover of a certificate of deposit (CD)
•A renewal, modification, or extension of a loan (e.g., setting a later payoff date) that does not require underwriting review and approval;
•A renewal, modification, or extension of a commercial line of credit or credit card account (e.g., a later payoff date is set) that does not require underwriting review and approval; and
•A renew al of a safe deposit box rental.

FinCEN deems each of these account relationships to presents low risks for money laundering and terrorist financing because they make such activity impractical.

Prior to this action, on May 16, 2018, FinCEN issued a 90-day temporary exceptive relief, retroactive to May 11, 2018, which was then extended an additional 30 days on August 8, 2018. Similar to the September 7 ruling, the May 11 temporary rule provided exceptive relief from the Beneficial Ownership Rule for products and services that automatically rolled over or renewed (i.e., CD or loan accounts) and were established before the Beneficial Ownership Rule’s Applicability Date of May 11, 2018. This exceptive relief replaces and supersedes the May 16, 2018, temporary rule, as well as the August 8, 2018, 30-day extension.

FinCEN’s ruling is available here.

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On September 13, 2017 the Office and of the Comptroller of the Currency, Federal Reserve Board, and Federal Deposit Insurance Corporation (Agencies), proposed a rule to amend their respective Community Reinvestment Act (CRA) regulations. The amendments would conform their CRA regulations to changes recently made by the Consumer Financial Protection Bureau to Regulation C, which implements HMDA. The Agencies anticipate issuing the final rule to coincide with the January 1, 2018 effective date of the recent Regulation C changes

The rule proposes to amend the following:
• “Home Mortgage Loan” Definition: In 1995, the Agencies amended CRA regulations to add the definition of “home mortgage loan”, to describe a category of loans that examiners evaluate when assessing a financial institution’s performance under the retail lending test. In order to produce a less-burdensome CRA assessment process, the Agencies relied on the scope of loans reported under Regulation C to define “home mortgage loan.” To conform to the new revisions in Regulation C, the Agencies propose to revise the current definition of “home mortgage loan” in their CRA regulations to mean a closed-end mortgage loan or an open-end line of credit.
• “Consumer loan” Definition: Because the proposed change to the definition of “home mortgage loan” would refer to open-end lines of credit as well as closed-end mortgage loans, the Agencies propose to remove the term “home equity loan” from the list of consumer loan categories provided under the definition of “consumer loan”.
• Public File: Under the changes to Regulation C, effective January 1, 2018, financial institutions will no longer be required to provide the HMDA disclosure statement directly to the public and will only be required to provide a notice that clearly conveys to the public that they can obtain a copy of the financial institution’s disclosure statement on the Bureau’s website. The proposed rule would amend the CRA regulations to require HMDA reporting institutions to only maintain the notice required under Regulation C in their CRA public file, rather than a copy of the HMDA disclosure statement.

The proposed rule would also make technical amendments to remove unnecessary cross references as a result of the amended definitions and remove obsolete references to the Neighborhood Stabilization Program.

The proposed rule is available here.

Other recent HMDA/Regulation C blog articles are available here.

Other recent CRA blog articles are available here.

Semiannually the Consumer Financial Protection Bureau (CFPB) releases an agenda of its anticipated regulatory activities. The CFPB announced its 2017 Spring Agenda on July 20, 2017, and today, August 24, 2017, the Agenda was published in the Federal Register (FR). The Agenda outlines issues the CFPB planned/plans to address during the period of May 1, 2017 to April 30, 2018. The next agenda will be published in Fall 2017.

The Agenda includes 19 items (4 pre-rule stage, 9 proposed rule stage, and 6 final rule stage) on the CFPB’s to-do list. Some of the efforts outlined in the agenda that we have already seen action on or may see action on in coming months include:

Mortgage Servicing (Final and Proposed Rule Stages)
The CFPB is providing follow-up rulemakings to address issues that have arisen during the implementation process and to provide greater clarification to financial institutions. In line with this agenda the CFPB has already released the following:
• TRID – Final TRID amendments on July 7, 2017 with publication in the Federal Register (FR) on August 11, 2017.
• HMDA – A proposed rule issued on July 14, 2017 to temporarily increase the threshold for HELOC and a proposed rule issued on April 13, 2017 to clarify information financial institutions are required to collect and report about their mortgage lending.
• Mortgage Servicing – Final technical amendments to the 2016 mortgage servicing amendments to address two typographical errors, the authority citation for Regulation Z, and several amendatory instructions relating to certain official commentary to apply the correct effective date.

Arbitration (Final Rule Stage)
The CFPB issued a proposed rule on May 24, 2016 and a final rule on July 10, 2017 to regulate arbitration agreements in contracts for specified consumer financial products and services.

Regulation P (Final Rule Stage)
The Gramm-Leach-Bliley Act (GLBA) was amended to add new section 503(f)
(financial institutions are no longer required to provide annual privacy notices if they meet certain requirements). Section 503(f) was effective upon enactment. In consultation with other agencies, the CFPB issued a proposal in July 2016, to make modify Regulation P to incorporate section 503(f). A final rule is expected by November 2017.

Prepaid Rules (Proposed Rule Stage)
The CFPB delayed the effective date of the rule for six months, until April 1, 2018. The CFPB also issued a proposed rule on June 15, 2017, as a result of concerns regarding error resolution and linking to digital wallets.

Debt Collection (Proposed Rule Stage)
The CFPB plans to issue a proposed rule in September 2017 concerning FDCPA collectors’ communications practices and consumer disclosures. The Bureau intends to follow up separately at a later time about concerns regarding information flows between creditors and FDCPA collectors and about potential rules to govern creditors that collect their own debts.

Payday Loan, Title Loans and Other Similar Credit Products (Proposed Rule Stage)
The CFPB issued a proposed rule on June, 2 2016 with publication in the FR on July 22, 2016, to address consumer harms from practices related to payday loans and other similar credit products, including failure to determine whether consumers have the ability to repay without default or re-borrowing and certain payment collection practices. The CFPB is currently reviewing comments received. The CFPB has not indicated a date that we can expect to see a proposed rule.

Business Lending Data (Pre-Rule Stage)
Reporting of information concerning credit applications made by women-owned, minority-owned, and small businesses. The CFPB is focusing on outreach and research to develop its understanding of the players, products, and practices in the small business lending market and of the potential ways to implement the requirements under 1071 of the Dodd-Frank Act which amends ECOA. The CFPB then expects to begin developing proposed regulations.

Overdrafts (Pre-Rule Stage)
The CFPB is conducting research in preparation for a potential rulemaking regarding overdraft programs on checking accounts. The CFPB is currently testing newly released overdraft disclosure prototypes and considering whether other regulatory changes may be warranted to enhance consumer decision making.

Assess Effectiveness of Significant Rules
The Dodd-Frank Act directs the CFPB to assess the effectiveness of significant rules five years after they are implemented, including seeking public comment.
• The CFPB published a request for comment on its plan to assess the effectiveness of the remittance transfers rule.
• The CFPB expects to seek comment later this year on its plans to assess the effectiveness of certain of the Dodd-Frank Act mortgage rules.

Review of Inherited Regulations
The CFPB plans to begin the first in a series of reviews of existing regulations that it inherited from other agencies through the transfer of authorities under the Dodd-Frank Act.

The Spring 2017 Agenda is accessible here.
The CFPB Blog article announcing the 2017 Spring Agenda is available here.
The Federal Register document is available here.

On July 19, 2017, the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a notice of proposed rulemaking to raise the threshold for commercial real estate transactions requiring an appraisal to $400,000. This proposed rule is an effort by the agencies to address concerns about time and cost burdens related to real estate transactions without compromising the safety and soundness of financial institutions.

Under the current thresholds established in 1994, real estate-related financial transactions with a transaction value of $250,000 or less, as well as certain qualifying business loans with a transaction value of $1 million or less, do not require appraisals. This proposal, if finalized, would establish a separate threshold of $400,000 for commercial real estate transactions. The agencies determined that it would not be appropriate to increase the threshold for transactions secured by residential real estate at this time.

The proposed rule states that, “[f]or commercial real estate transactions with a value at or below the proposed threshold, the amended rule would require institutions to obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices if the institution does not obtain an appraisal by a state certified or licensed appraiser.”

The National Credit Union Association is considering a separate proposal to provide comparable relief for federally insured credit unions.

The Notice of Proposed Rulemaking is available here.

By Sonja Kriegsmann, JD, Guest Author

The Department of Labor (DOL) has issued its long awaited Fiduciary Rule. The Rule expands who is considered a fiduciary when giving retirement investment advice under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. Although a final rule was issued, the DOL has subsequently published several issuances that impact both when the Rule becomes effective and the content of the Rule itself. Here’s a timeline of those issuances:
• June 7, 2016 – the Rule was effective with an applicability date of April 10, 2017.
• February 3, 2017 – President Trump issues a Memorandum to the Secretary of Labor directing the DOL to determine whether the Rule might adversely affect consumer’s access to retirement information and financial advice, and requesting an updated economic and legal analysis regarding the impact of the Rule.
• March 2, 2017 – the DOL issues a proposed rule to extend the applicability date and invite comments on the issues raised in the President’s Memorandum.
• April 7, 2017 – the DOL issues a final rule extending the applicability of the Rule to June 9, 2017, with a transition period for complying with some requirements of the Rule and some provisions of the new exemptions until January 1, 2018.
• June 29, 2017 – the DOL issues another Request for Information. The Request indicates that the DOL is still in the process of reviewing comments to its March 2017 proposal, but that it also would like additional input about a further extension of the applicability date for certain parts of the Rule, alternate ways of handling the exemptions, and additional changes to the Rule. (Comments pertaining to a further extension of the applicability date are due 15 days after the Request is published in the Federal Register; all other comments, including those to specific questions raised by the DOL, are due 30 days after publication.)

The intent of the Rule is to require investment advisers to give advice that is in the best interest of their customers, while not prohibiting common compensation arrangements. Instead the DOL takes regulatory action in the form of Prohibited Transaction Exemptions (PTEs). In this case, the prohibited actions are certain types of compensation arrangements, and the PTEs will establish conditions to ensure the adviser is acting in a fiduciary capacity and following basic standards of fair dealing. The conditions and standards must be met before those compensation arrangements will be allowed.

There are several areas where the requirements of the Rule may impact a financial institution, including:
• IRAs consisting of your institution’s deposit products such as certificates of deposit
• Health Savings Accounts
• Archer Medical Savings Accounts
• Coverdell Education Savings Accounts
• Non-deposit investment products, such as insurance annuities, mutual funds, stocks or bonds (either offered through a department of the institution or an affiliate)
• Referring customers to unaffiliated investment advisers for retail non-deposit investment products under a bank networking arrangement

To understand when the bank may be impacted by the Rule, it is first necessary to be able to determine when the requirements of the Rule apply.

The fiduciary requirements under the Rule arise when a person provides investment advice, for direct or indirect fees or compensation, to an employee benefit plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owner. The investment advice must be in the form of a “recommendation as to the advisability of acquiring, holding, disposing of, or exchanging securities or other investment property” or how the securities or investment property should be invested after they are rolled over or distributed from the plan or IRA. Recommendations relating to managing the securities or investment property (including investment policies or strategies, portfolio composition, selecting other persons to provide investment advice or management services, selecting investment account arrangements) or those relating to rollovers, transfers, or distributions from a plan (such as a 401(k)) or IRA are also included.

Compensation is defined very broadly in the Rule, and includes every type of payment imaginable that is “paid in connection with or as a result of” the purchase or sale of a security or providing investment advice services, “if the fee or compensation would not have been paid but for the transaction or service or if eligibility for or the amount of the fee or compensation is based in whole or in part on the transaction or service.”

The key in determining if investment advice was given is whether a “recommendation” has been made. The Rule defines “recommendation” as “…a communication that based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.” This is a subjective determination based on the facts and circumstances of the situation. The Rule and prefatory materials include several examples and additional guidance for various circumstances such as providing advice to an independent fiduciary with financial expertise, offering investment education, or general information or communications, which are helpful in fleshing out the concept of a “recommendation.” The DOL has also issued 2 sets of FAQs and other materials that provide additional examples and explanation for the Rule and the new and amended PTEs. These materials are available by clicking on the links below.

In several instances, compliance with the Rule will be addressed by someone other than the institution’s compliance team. For example, compliance for the brokerage area will usually be handled by the broker-dealer the bank has contracted with. Likewise, compliance for the sale of insurance investment products will be led by the insurance company partner of the institution. In both of these instances, a review of the contracts with these vendors should clearly outline responsibilities for compliance. In other situations, the PTEs and various exemptions will outline requirements that must be met before a prohibited activity can occur or an exemption will apply. Unfortunately, these are the very areas that continue to be in a state of flux as the DOL completes its review of comments to its March proposal and June request for information.

Other changes (in addition to those expected from the DOL’s continued review of consumer input) may impact this area. Word is that the Trump Administration would like to see further changes, and that the Securities and Exchange Commission may also issue regulations covering this area.

The only certain thing about the Rule is that there are no clear answers to the critical questions at this time. The intent of this article is to make you aware of the key issues and concerns in this area. We will continue to monitor this topic and will provide guidance as it becomes available.

Read More – DOL Final Rule

Read More – Extension

Read More – FAQs

Read More – Request for Information

On June 27, 2017, the Consumer Financial Protection Bureau (CFPB) issued two pieces of information related to the 2016 Mortgage Servicing Final Rule: 1) an amendment making non-substantive corrections, and 2) policy guidance related to early compliance with the rule.

Final Rule Issuing Corrections
The 2016 Mortgage Servicing Final Rule was issued by the CFPB on August 4, 2016, to amend certain provisions of the 2013 Mortgage Servicing Rules. The CFPB is now making corrections to those 2016 amendments. The corrections pertain to: 1) two typographical errors relating to the early intervention requirements; 2) the effective date (April 19, 2018) of official commentary relating to servicers’ ability to remove certain language in periodic statement, sample periodic statement forms that servicers may use for certain consumers in bankruptcy, and official commentary relating to the bankruptcy periodic statement exemptions and modified statements; and 3) the CFPB’s authority citation for Regulation Z. The Final Rule outlining these corrections is available here.

Policy Guidance Related to Early Compliance
There are two effective dates that apply to requirements in the 2016 Mortgage Servicing Final Rule, Thursday, October 19, 2017, and Thursday, April 19, 2018. The CFPB heard from the financial industry that complying with mid-week effective dates could pose operational challenges due to having limited time from the close of business on Wednesday to the opening of business on Thursday to adjust and test systems.

In order to allow servicers time to properly implement the requirements, the CFPB has issued non-binding Policy Guidance allowing for compliance with the 2016 Mortgage Servicing provisions up to three days before the applicable effective dates. The Guidance states, “[t]he bureau does not, therefore, intend to take supervisory or enforcement action for violations of existing Regulation X or Regulation Z resulting from a servicer’s compliance with the 2016 Mortgage Servicing Final Rule…” during this period of early compliance. As a result, for amendments effective on Thursday, October 19, 2017, servicers may comply begin complying with the rules during the period of Monday, October 16, through Wednesday, October 18, 2017. And for amendments effective on Thursday, April 19, 2018, servicers may begin complying with the rules during the period of Monday, April 16, through Wednesday, April 18, 2018.

The Policy Guidance is available here.

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Beginning July 1, 2017, the three major credit bureaus – TransUnion, Experian, and Equifax – will exclude information on civil judgments and tax liens from consumer reports unless that information has been verified. In order to be included in the credit report, new and existing tax lien and civil judgment data must: 1) include a person’s name and address as well as Social Security number or date of birth; and 2) credit bureaus must verify public record information with courthouse visits at least every 90 days. The change is part of the National Consumer Assistance Plan.

Credit reporting has been an area plagued with complaints over the last several years. In its June 2017 Monthly Complaint Report, the Consumer Financial Protection Bureau (CFPB) noted that credit reporting complaints ranked third in overall volume, with the majority of those complaints related to incorrect information. The CFPB also issued a report on March 2, 2017 highlighting its oversight of consumer reporting companies, including problems and corrective actions. The NCAP’s goal of making credit reports more accurate and making it easier for consumers to correct errors should decrease the number of errors and, therefore, complaints related to credit reporting.

While this change will likely result in slightly better credit scores for affected consumers, there are concerns that excluding tax lien and civil judgements (that do not meet the criteria) could create an inaccurate picture of the risk associated with some consumers.

Information on the National Consumer Assistance Plan is available here.

On June 8, 2017, the Financial CHOICE Act of 2017 (H.R. 10 – 115th Congress) passed the house with a 233-186 vote adhering to party lines (233 of voting 234 Republicans voted for the bill while all 185 voting Democrats voted against the bill).

H.R. 10 was introduced to Congress on April 26, 2017, sponsored by Representative and Chairman of the House Financial Services Committee Jeb Hensarling (R-TX). If the bill becomes law it would amend the Dodd-Frank Wall Street Reform and Consumer Protection Act, reversing many of its provisions. Congress.gov and the Congressional Research Service note that among other changes the bill would:

• Repeal Volcker Rule restrictions on certain speculative investments by banks;
• With respect to winding down failing banks, eliminate the Federal Deposit Insurance Corporation’s orderly liquidation authority and establish new provisions regarding financial institution bankruptcy;
• Repeal Durbin Amendment limitations on fees that may be charged to retailers for debit card processing;
• Allow certain banks to exempt themselves from specified regulatory standards if they maintain a certain ratio of capital to total assets and meet other specified requirements;
• Removes the Financial Stability Oversight Council’s authority to designate non-bank financial institutions and financial market utilities as “systemically important” (also known as “too big to fail;
• Convert the Consumer Financial Protection Bureau into a consumer law enforcement agency;
• Subject the agency to the congressional appropriations process, expanded judicial review, and additional congressional oversight;
• Eliminate supervisory authority over financial institutions; and
• Limit the agency’s authority to take action against entities for abusive practices.

The bill now moves on to the Senate where it is likely to face more of a challenge due to the Republicans’ narrower majority in the Senate and the Senate’s rule requiring 60 votes to invoke cloture and move forward with an up-or-down vote.

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Legislative Action

The Consumer Financial Protection Bureau (CFPB) has begun to take steps toward implementing rules related to small business lending data collection. On May 10, 2017, the CFPB issued a Request for Information (RFI) regarding the small business lending market. This RFI coincides with a field hearing, on the same topic, set to take place later today in Los Angeles, California.

Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to compile, maintain, and submit to the Bureau certain data on credit applications by women-owned, minority-owned, and small businesses. The Dodd-Frank Act required final rules on this subject by July 2011. Although the CFPB did not meet that deadline, small business lending data collection has been listed on the Agency’s Rulemaking Agenda for many years now. As part of its Spring 2013 Rulemaking Agenda the CFPB listed business lending data as a “long term action”. It retained that status until the CFPB released its Fall 2015 Rulemaking Agenda, which moved business lending data to the primary Rulemaking Agenda with a status of “pre-rule” stage.

The RFI requests responses to questions related to five specific categories of information: 1) Definition of Small Business, 2) Data Points, 3) Financial Institutions Engaged in Business Lending, 4) Access to Credit and Financial Products Offered to Businesses, and 5) Privacy.

Through this RFI, and prior to issuing proposed rules on small business data collection, the CFPB seeks to gain a better understanding of products offered to women-owned, minority-owned, and small businesses as well as the financial institutions offering these products. The RFI notes, “[t]he Bureau is in its early stages with respect to implementing section 1071, and is currently focused on outreach and research to further develop its understanding of the small business lending market, including the institutions, credit products, recording systems, underwriting approaches, distribution channels, and types of applicants in that market.”

The CFPB also released, Key dimensions of the Small Business Lending
Landscape, a white paper reflecting the initial findings of the Bureau’s research and preliminary understanding of the small business lending environment.

The CFPB’s Request for Information is available here.

The CFPB White Paper is available here.

On April 20, 2017, the Consumer Financial Protection Bureau (CFPB) issued a final rule which delays the effective date of the Prepaid Accounts Rule under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z) for six months, until April 1, 2018. The CFPB issued the Prepaid Account Rule on October 6, 2016 with an effective date of October 1, 2017. On March 16, 2017, the CFPB proposed delaying the effective date until April 1, 2018. You can access our coverage of these actions in our blog.

In addition to delaying the Prepaid Accounts Rule, the CFPB also plans to release a separate notice of proposed rulemaking to address at least two issues within the Rule that may pose issues with implementation. The final rule delaying the effective date notes that, “[t]hose issues relate to the linking of credit cards into digital wallets that are capable of storing funds and to error resolution and limitations on liability for prepaid accounts that cannot be registered, have not yet been registered, or for which consumers have attempted but have not successfully completed the registration process.”

All of the CFPB’s actions related to the Prepaid Account Rule are available here.