With regulatory uncertainty still looming due to changes in the senior leadership and agendas of many federal agencies, the opportunity to get insight from bank regulators about current trends in consumer compliance examinations and enforcement is invaluable to banks looking to understand their risk exposure and prioritize implementation projects.
This is precisely the value that was provided at the Regulator Panel session at the Florida Bankers Association’s 33rd Annual Consumer Compliance Seminar. The session offered attendees the rare opportunity to hear directly from federal bank regulators and enforcement officials about current and future consumer compliance examination and enforcement trends impacting the banking and financial services industry. The panel of bank regulators and enforcement officials included representatives from the FDIC, Federal Reserve Bank, and the OCC.
The session began with the panel discussing recent examination trends in consumer compliance examinations of banks in the Southeastern region of the U.S. The trends noted by the panel included several observations related to deposit and lending compliance:
- Deposit compliance
- Inconsistent terminology in account opening disclosures – Recent examinations revealed that certain banks were using inconsistent terminology to describe the terms in their account opening disclosures and account statements. Regulators reiterated the Truth in Savings Act requirement that banks use consistent terminology when describing the terms and/or features that are required to be disclosed in account opening disclosures and account statements.
- Error resolution procedures – Regulation E of the Electronic Funds Transfer Act includes certain error resolution procedures that banks must follow for resolving disputes related to electronic fund transfers. These procedures require banks to investigate and resolve a consumer dispute involving an electronic fund transfer transaction within a specified time frame. Recent examinations revealed that prior to investigating a customer’s dispute, certain banks were imposing additional requirements and conditions on customers beyond those required in Regulation E. Regulators stressed the importance of banks conducting their investigations of electronic fund transfer disputes in accordance with the error resolution procedures of Regulation E.
- Dynamic overdraft limits – Issues relating to the offering of dynamic overdraft limits were also addressed by the panel. Unlike fixed overdraft limits (i.e., where a bank assigns an unchanging overdraft limit to each customer), dynamic overdraft limits are calculated on an individual basis and may vary for each account holder. Regulators noted that disclosure issues were often observed in the conversion of a customer’s overdraft limit to a dynamic limit. Regulators, therefore, stressed the importance of providing customers with advance notice of any changes to their overdraft limit coverage to avoid potential confusion or surprise during conversions.
- Rewards checking – Although rewards checking programs can offer customers lucrative benefits, regulators on the panel found that some banks were failing to adequately disclose the terms and features of their rewards checking program (e.g., some banks were not properly disclosing that transactions have to post to an account in order to receive credit under their rewards program). Regulators emphasized the importance of banks ensuring that the terms and features of their rewards checking program are sufficiently disclosed to their customers.
- Lending compliance
- TILA-RESPA Integrated Disclosure (“TRID”) – Issues relating to TRID were also among the examination trends observed by regulators on the panel, though it was emphasized that the majority of TRID-related issues observed involved technical disclosure issues. These issues included discrepancies in the disclosure of adjustable rate mortgage terms; failing to include the name of any government entity that will be assessing transfer taxes; and failing to itemize transfer taxes on the closing disclosure.
- Adjustable Rate Mortgage (ARM) disclosures – ARM disclosures were also a challenge for at least some banks during recent examinations. Regulators on the panel noted that certain banks were providing incorrect disclosures of terms and costs for ARM products, such as providing inaccurate “look back periods” and incorrect index rates and caps. The panel stressed the importance of banks implementing appropriate internal controls to ensure the delivery of accurate disclosures of ARM terms and features.
- Home Equity Line of Credit (HELOC) disclosures – Regulators on the panel noted that HELOC disclosure violations were among the most frequently observed violations during recent examinations. To avoid potential violations of HELOC disclosure requirements, regulators stressed the importance of banks regularly reviewing their HELOC disclosures and statements to ensure that they comport with all the requirements of the Truth in Lending Act.
Community Reinvestment Act and fair lending
The panel also provided some insight on current trends in the Community Reinvestment Act (CRA) and fair lending compliance, as well as regulatory expectations. According to regulators on the panel, CRA compliance continues to be an issue for many banks in the Southeastern region. Some of the problem areas noted by regulators included issues related to borrower distributions, lending outside of the bank’s delineated assessment area, and managing risks associated with mergers and acquisitions.
Regulators on the panel acknowledged the implementation challenges facing institutions with regard to the new Home Mortgage Disclosure Act (HMDA) rules and offered some insight on future supervision related to the new rules. With regard to the amended HMDA rules, regulators indicated that future examinations will not be focused on transactional testing of the additional HMDA disclosure requirements, but instead will be focused on examining an institution’s internal processes and controls. Regulators also added that resubmissions of HMDA data collected in 2018 will not be required unless material errors are identified in the previously submitted data (which is consistent with recent guidance issued by federal banking regulators).
The FBA’s Regulator Panel session was packed with tangible insights about trends in consumer compliance. Although the session had much to offer banks in terms of prioritizing compliance issues, a key takeaway from the session is that consumer compliance remains important to bank regulators and this is unlikely to significantly change, though recent changes in regulations may provide certain banks with regulatory relief.
If you missed this year’s seminar, you won’t want to miss next year’s, currently set for April 3-5, 2019.
Contact me to learn more about trends and changes that may affect your financial institution.