WHAT IS AN EFFECTIVE DATE?

Whenever federal financial institution regulatory agencies issue new final regulations they include an effective date. We have all seen, “The rule is effective January 10, 2014” or “The rule is effective for applications received on or after January 10, 2014,” but what does that mean. Apparently the term “effective date” means different things to different people.

For financial institution regulatory agencies the term “effective date” apparently refers to the date by which a financial institution is deemed to be in compliance if it tries really hard to comply, but comes up short. Recently CFPB Director Richard Cordray stated, “Let me also assure you that our oversight of the new mortgage rules in the early months will be sensitive to the progress made by institutions that have been squarely focused on making good-faith efforts to come into substantial compliance on time – a point that we have also been discussing with our fellow regulators.” It is important to note that the regulatory agencies could not fully enforce the new requirements as of the effective dates in any event since their examination staff has not been adequately trained on the new requirements.

For loan origination software providers the term “effective date” seems to mean the date by which a partially tested version of the software update that contains part, but not all, of the new requirements and that is likely to contain numerous errors that will be corrected in the months following the effective date is released.

For creditors the meaning of the term “effective date” varies from one financial institution to another. For some it means the date by which the institution, after making an inhuman effort to complete all implementation tasks, is in full compliance with the requirements. For others it seems to mean the date by which efforts to implement compliance begin.

Whatever the meaning of the term, we certainly have had a bunch of those effective dates recently.

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