On Wednesday, May 16th, FinCEN issued a ruling that provides covered institutions a 90-day period of limited exceptive relief to their requirements under the Beneficial Ownership Rule. This exception applies to products and services that are set to automatically rollover or renew (CD or loan accounts) that were established before May 11, 2018. This exception came just five days after the mandatory compliance date of the Beneficial Ownership Rule had passed. This relief period will retroactively begin on May 11, 2018 and end on August 9, 2018.

The ruling says that, during this time, “FinCEN will determine whether and to what extent additional exceptive relief may be appropriate for such financial products and services that were established before May 11, 2018, but are expected to rollover or renew after such date.”

FinCEN issued this ruling due to the understanding that some covered institutions have not been treating rollovers or renewals as new accounts. According to the CIP rules, when a rollover or renewal of an account occurs, there has been a new account created. As stated in the Customer Due Diligence Frequently Asked Questions released on April 3, 2018, information on beneficial owners of legal entities must be collected with any new account or formal banking relationship established, even if they are an existing customer. It is understood that you do in fact know the customer, but it is possible that the beneficial owners of the legal entity have changed since the original account was created.

Assume, for example, a 90-day automatic renewal certificate of deposit issued on February 15, 2018. Under the exception, beneficial owners do not have to be determined when the CD automatically renews on May 15, 2018. However, when the CD automatically renews on August 15, 2018, and every three months thereafter the beneficial owners must be verified. FinCEN may, or may not, issue additional future guidance on this issue. Many financial service trade associations are lobbying for a change in the rules for the renewal process.

Procedures must be adopted to assure that your institution contacts an individual with substantial control of the legal entity customer to identify the beneficial owners and complete the certification form prior to the date of the automatic renewal.

The footnote in the ruling contains FAQ #12 on this subject from the April 3, 2018 guidance. This is a PORTION of that footnote:
At the time of each subsequent renewal, to the extent that the legal entity customer and the financial service or product (e.g., loan or CD) remains the same, the customer certifies or confirms that the beneficial ownership information previously obtained is accurate and up-to-date, and the institution has no knowledge of facts that would reasonably call into question the reliability of the information, the financial institution would not be required to collect the beneficial ownership information again.

You can view the official ruling here https://www.fincen.gov/sites/default/files/administrative_ruling/2018-05-17/FinCEN%20Ruling%20CD%20and%20Loan%20Rollover%20Relief_FINAL%20508-revised.pdf

On May 11, 2018, the effective date of the Beneficial Ownership requirements, the Federal Financial Institutions Examination Council (FFIEC) issued new examination procedures on the final rule, “Customer Due Diligence Requirements for Financial Institutions,” issued by the Financial Crimes Enforcement Network (FinCEN) on May 11, 2016.

The examination procedures apply to banks, savings and loan associations, savings associations, credit unions, and branches, agencies, and representative offices of foreign banks.

The new examination procedures replace those in the current “Customer Due Diligence — Overview and Examination Procedures” section of the FFIEC’s Bank Secrecy Act/Anti-Money Laundering Examination Manual. In addition, a new overview and examination procedures were developed for the beneficial ownership requirements for legal entity customers.

The FFIEC member agencies created these procedures in close collaboration with FinCEN and the U.S. Department of the Treasury.

FinCEN’s 2016 final rule clarifies customer due diligence requirements and also includes a new requirement for covered financial institutions to identify and verify the identity of beneficial owners of certain legal entity customers. Banks and other covered financial institutions were required to comply with the rule beginning on May 11, 2018.

For more information regarding the new procedures please refer to the following sections of the FFIEC BSA/AML Examination Manual:

• Customer Due Diligence – Overview and Examination Procedures https://www.ffiec.gov/press/pdf/Customer%20Due%20Diligence%20-%20Overview%20and%20Exam%20Procedures-FINAL.pdf
• Beneficial Ownership for Legal Entity Customers – Overview and Examination Procedures https://www.ffiec.gov/press/pdf/Beneficial%20Ownership%20Requirements%20for%20Legal%20Entity%20CustomersOverview-FINAL.pdf

On May 10, 2018 the Consumer Financial Protection Bureau (CFPB) published its semi-annual regulatory agenda. The agenda includes rulemaking actions in pre-rule, proposed rule, final rule, long-term, inactive, and completed stages. Priorities are clearly changing.

The agency’s Acting Director has decided to reclassify as “inactive” certain rulemakings that had been listed in previous editions of the agenda in the expectation that final decisions on whether and when to proceed with such projects will be made by the  next permanent director. The CFPB claims that the changes in designation is not intended to signal a substantive decision on the merits of the projects.

The CFPB is:

• Issuing a final rule to implement changes to the Privacy Rules. The final rule is expected in June 2018
• Conducting follow-up rulemakings as warranted to address issues that have arisen during the process of implementing various mortgage requirements under the Dodd-Frank Act.
• Working to implement section 1071 of the Dodd-Frank Act, which amends the Equal Credit Opportunity Act to require financial institutions to collect, report, and make public certain information concerning credit applications made by women-owned, minority-owned, and small businesses. Pre-rule activities are scheduled to begin in March 2019.
• Tweaking Regulation CC, which implements the Expedited Funds Availability Act. Action is expected in June 2018.
• Engaging in research and pre-rulemaking activities regarding the debt collection market, which continues to be a top source of complaints to the CFPB. A proposed rule will focus on Fair Debt Collection Practices Act (FDCPA) collectors may address issues such as communication practices and consumer disclosures. A Notice of Proposed Rulemaking is expected in March 2019.
• Reconsidering various aspects of a 2015 final rule that amended regulations implementing the Home Mortgage Disclosure Act. The reconsideration could involve such issues as the institutional and transactional coverage tests and the rule’s discretionary data points. A Notice of Proposed Rulemaking is expected in January 2019.
• Reconsidering the 2017 rule titled Payday, Vehicle Title, and Certain High-Cost Installment Loans. At present most of the provisions of that rule are not effective until August 2019. A Notice of Proposed Rulemaking is expected in February 2019.

The agency has moved to the long-term action list a review of subparts B and G of Regulation Z, which implement provisions related to open-end credit generally and credit cards in particular. The CFPB had announced in 2017 that it had decided to engage in a series of reviews of existing regulations inherited from other agencies through the transfer of authorities under the Dodd-Frank Act. The CFPB has reclassified its review of subparts B and G of Regulation Z (the first review in the planned series of reviews) as a long-term action.

Also included on the long-term action list are changes to the Fair Credit Reporting Act, regulations to implement the amendments made by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning appraisals (AVMs), and modernization of Regulation E and the Electronic Fund Transfer Act.

Clarification of regulatory expectations for overdraft protection plans apparently has been completely dropped from the agenda.

On April 28, 2018 the Consumer Financial Protection Bureau (CFPB) finalized an amendment to its Truth in Lending/Real Estate Settlement Procedures Act Integrated Disclosures (TRID) that addresses when a creditor may compare charges paid by or imposed on the consumer to amounts disclosed on a Closing Disclosure, instead of a Loan Estimate, to determine if an estimated closing cost was disclosed in good faith.

Under the current rule, circumstances may arise in which a cost increases but the creditor is unable to use an otherwise permissible revised estimate on either a Loan Estimate or a Closing Disclosure for purposes of determining whether an estimated closing cost was disclosed in good faith. This situation, which may arise when the creditor has already provided a Closing Disclosure to the consumer when it learns about the cost increase, occurs because of the intersection of timing rules regarding the provision of revised estimates. This has been referred to in industry as a “gap” or “black hole” in the TILA-RESPA Rule.

In response, in July 2017 the Bureau proposed an amendment removing that particular timing restriction. The final rule specifically allows creditors to use Closing Disclosures to reflect changes in costs for purposes of determining if an estimated closing cost was disclosed in good faith, regardless of when the Closing Disclosure is provided relative to consummation.

The final rule will take effect 30 days after publication in the Federal Register.

A copy of the 65-page final rule is available at:  https://files.consumerfinance.gov/f/documents/cfpb_tila-respa_final-rule_amendments-to-federal-mortgage-disclosure-requirements.pdf

A copy of a CFPB Executive Summary is available at:  https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/cfpb_2018-TILA-RESPA-rule_executive-summary.pdf

On April 19, 2018 the Federal Reserve Board published a Consumer Affairs Letter (CA 18-3) regarding Revised Interagency Examination Procedures for Regulation X and Regulation Z.

The Task Force on Consumer Compliance of the Federal Financial Institutions Examination Council recently developed the interagency examination procedures for the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). The revised examination procedures supersede the examination procedures transmitted with CA Letter 15-6.

The procedures reflect the following amendments to Regulation Z and Regulation X published by the Consumer Financial Protection Bureau (CFPB):

• Amendments to Regulation Z and Regulation X related to mortgage servicing that were effective in October 2017, unless otherwise specified; and
• Other amendments to Regulation Z published through April 2016, including rules related to mortgage lending by small creditors serving rural and underserved areas.

The procedures do not incorporate the 2017 amendments to Regulation Z regarding the CFPB’s TILA-RESPA integrated disclosure rule or regarding prepaid accounts. Those amendments will be addressed in a future update.

The revised procedures are available at

• Revised Interagency Examination Procedures for Regulation Z
• Revised Interagency Examination Procedures for Regulation X

On April 9, 2018 the Office of the Comptroller of the Currency (OCC); Board of Governors of the Federal Reserve System (Board); and Federal Deposit Insurance Corporation (FDIC) published a final rule to amend the agencies’ regulations requiring appraisals of real estate for certain transactions. The final rule increases the threshold level at or below which appraisals are not required for commercial real estate transactions from $250,000 to $500,000 and makes other changes. The final rule was effective upon publication in the Federal Register on April 9th.

For more information see: https://www.jackscomplianceresource.com/change-in-appraisal-threshold/

A copy of the rule is available at https://www.gpo.gov/fdsys/pkg/FR-2018-04-09/pdf/2018-06960.pdf

On April 3, 2018 the U.S. Department of the Treasury released recommendations to modernize the Community Reinvestment Act (CRA). The recommendations were issued to the primary CRA regulators, the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation.  Treasury’s objective in developing these recommendations is to better align CRA activity with the needs of the communities that banks serve, while being conducted in a manner consistent with a bank’s safety and soundness.

Treasury’s recommendations include:

• Updating the definitions of geographic assessment areas to reflect the changing nature of banking arising from changing technology, customer behavior, and other factors;
• Increasing clarity and flexibility of CRA examinations to increase transparency and effectiveness of CRA rating determinations;
• Improving the examination process to increase timeliness of evaluations and increasing accountability for banks’ planning of their CRA activity; and
• Incorporating performance incentives to better serve the CRA’s intended purpose of encouraging banks to meet the credit and deposit needs of their communities.  Treasury’s recommendations will incentivize bankers to do more for low- and moderate-income communities, especially in cases where the bank has underperformed in prior assessment periods.

A copy of Treasury’s Memorandum to the primary CRA regulations is available at: https://home.treasury.gov/sites/default/files/2018-04/4-3-18%20CRA%20memo.pdf

Information about Compliance Resources’ upcoming webinar entitled Identifying and Documenting Community Development Activities is available at: https://www.jackscomplianceresource.com/event-registration/?ee=169

The wait is finally over as FinCEN released Frequently Asked Questions to the CDD requirements published on May 11, 2016.  In the nearly two years since being published, we have also seen amendments to the requirements on September 29, 2017 ahead of the May 11, 2018 mandatory compliance date.

The 24-page document includes 37 questions ranging from thresholds; identification and verification steps; collection and retention of beneficial ownership information; as well as exclusions and CTR reporting.  In a recent survey of our Compliance Masters Group members we discovered that 90% of our members were had not completed their implementation of the Beneficial Ownership rules.  Where are you in your implementation?  As the deadline approaches these FAQs should assist you in your understanding of the requirements.

The materials for our April 9^th webinar, Critical CDD Changes for Beneficial Ownership Rules – Are You Prepared for May 11, 2018?, are currently being updated to include these recently released FAQs.  You can sign up HERE.

On March 20, 2018 the FDIC board of directors approved a final rule to raise the appraisal thresholds for commercial real estate transactions from $250,000 to $500,000. The threshold for loans secured by one-to-four family residential properties will remain at $250,000.

The final rule increases the commercial real estate appraisal threshold with three modifications from the proposal.

• First, the agencies have increased the commercial real estate appraisal threshold to $500,000 rather than $400,000 as proposed.
• Second, the final rule also makes a conforming change to the section requiring state certified appraisers to be used for federally related transactions that are commercial real estate transactions above the increased threshold.
• Third, the final rule changes the definition of commercial real estate transaction, which no longer includes construction loans secured by a single 1-to-4 family residential property, regardless of whether the loan is for initial construction only or includes permanent financing. Thus, under the final rule, a loan that is secured by a single 1-to-4 family residential property, including a loan for construction, will remain subject to the $250,000 threshold. A loan that is secured by multiple 1-to-4 family residential properties (for example, a loan to construct multiple properties in a residential neighborhood) would meet the definition of commercial real estate transaction and thus be subject to the higher threshold.

The final rule continues to require regulated institutions entering into commercial real estate transactions at or below the commercial real estate appraisal threshold to obtain evaluations that are consistent with safe and sound banking practices unless the institution chooses to obtain an appraisal for such transactions.

The final rule must be approved by the Federal Reserve and the OCC; once approved by the other agencies, it will be effective on the date it is published in the Federal Register.

A copy of the final rule is available at:  https://www.fdic.gov/news/board/2018/2018-03-20-notice-sum-c-fr.pdf.

On March 20, 2018 the Consumer financial Protection bureau (CFPB) updated the Mortgage Servicing FAQs. The updated FAQs pertain to compliance with Regulation X and Regulation Z, effective April 19, 2018.

The updates deal primarily with recent revisions to Regulation that are effective on April 19, 2018.

Read More:

A copy of the FAQs is available at:  https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing_frequently-asked-questions.pdf

More information about the recent changes to Regulation Z are available at:  https://www.jackscomplianceresource.com/last-minute-revisions-to-regulation-z-servicing-rules/