2015 Compliance Hot Topics

By, Mikel Dunnagan

Every year, regulators send out their list of most common compliance findings, and this year’s list was not significantly different. The following list broadly and generally covers what examiners are finding and some remedies to keep them from finding these items in your institution.

BSA/AML

Regularly appears on examiner’s hot topic list
Trouble areas
- Where there are new or changed products or services, lack of procedures and/or monitoring
- Where there is an increase in number or amount of ACH, prepaid access and wire transactions along with lack of sufficient monitoring
- Insufficient monitoring of higher risk customers
Address these issues by:
- Noting the BSA/AML risk to the institution caused by the particular trouble area
- Develop procedures based on risk
- Perform adequate internal/external testing to verify risk mitigation

FLOOD

Regularly appears on examiner’s hot topic list
Trouble areas
- Covered loans
  - Ag land with outbuildings – make sure vacant land is actually vacant land
  - Commercial loans with multiple structures – each structure in flood zone requires insurance
  - Structures with no value – document value or inability to obtain hazard insurance coverage
- Obtain timely flood hazard determinations – generally, whenever a loan is made, increased, renewed or extended
- Insurance coverage amount – verify sufficient coverage based on the lesser of:
  - Flood insurance maximum coverage
  - Loan amount
  - Value of collateral minus land (document)
- Insurance lapses and cancellations
  - Notice of force-placement must be timely
  - Force-place insurance in an amount sufficient to meet the Flood requirements
- Resolve insurance policy conflicts
  - Different address from loan file
  - Different flood zone from determination
- FEMA map changes
  - Requires notice if in change puts property into a special flood hazard area
  - May require force-placed insurance
- Escrow – Determine whether your institution is required to maintain escrow account
Address these issues by:
- Regular review of covered loans
- Develop adequate procedures
- Adequate staff training

FAIR LENDING

Many regulators are “recommending” internal Fair Lending (FL) reviews.
If not already performing internal FL reviews, make plans to do so.
Areas of focus are comparisons of loans to covered populations with those made to non-covered populations, including:
- Interest rates
- LTV
- DTI
- Location within the institution’s CRA assessment area
- Exceptions to policy
- Approvals/denials

HMDA

Trouble areas
- Significant increase in data requirements beginning in 2018 for every covered loan
- Software considerations to accommodate the data gathering requirements
- If not currently a HMDA bank, must consider whether the institution will become a HMDA bank through expansion or purchase and begin making plans
- HMDA data errors in LAR submissions

Address these issues by:

Solid planning if HMDA is in your future
Developing adequate LAR review procedures
Implementing adequate staff training

REG. E ERROR RESOLUTION

The significant increase in the number of electronic funds transfers (EFTs) leads to increased examiner scrutiny
Trouble areas
- Timing
  - Documenting when a customer gives notice to the institution
  - When provisional credit is provided to the customer
  - When error is resolved and notice is provided to the customer
- Provisional credit amount
- Required verbiage
  - Provisional credit notice (verbal or written)
  - Final credit notice
  - Notice there was no error

Address these issues by:

Regular review of reported errors
Develop adequate procedures
Adequate staff training

REG. DD O/D PROTECTION

Regularly appears on examiner’s hot topics list
CFPB’s solutions for consumer complaints are the same things that bankers have done for decades
- Tie savings accounts to checking account
- OD LOC
- Regularly review transaction account
Trouble spots
- Assessment of fees
- OD program explanation not well documented
- Daily fees not limited
- UDAAP concerns

Address these issues by:

Regular review of the reported program
Develop adequate procedures
Adequate staff training
Assess of fees fairly – no playing favorites
Clearly explain OD program in brochures and disclosures
Limit the amount of daily fees the customer can accrue

ECOA, REG. B

Regularly appears on examiner’s hot topics list
Trouble spots
- Joint intent – obtain at time of application
- Spousal signatures
- Government monitoring information (GMI)
  - Principal residence secured loan with purpose of purchase or refinance
  - Obtain GMI when required
  - Don’t obtain when not required
- Documentation of delivery of appraisal
  - By procedure
  - By customer signature
- Declined loans
  - Credit score information must appear on adverse action notices when a credit score is obtained
Address these issues by:
- Regular review of covered loans
- Develop adequate procedures
- Adequate staff training

TILA/RESPA INTEGRATED DISCLOSURES (TRID)

Probably no more written guidance from CFPB
As examinations occur this year, more information will become available with regard to how regulators are handling TRID
Potential trouble spots
- Loan purpose
  - Purchase
  - Refi
  - Construction
  - Home Equity
- Forms – Vendors continue to struggle between meeting regulatory requirements and needs of bankers
- Loan Estimate (LE) and Closing Disclosure (CD) tolerances – CD doesn’t clearly identify when tolerance violation occurs
- Timing – Delivery of CD three business days prior to closing
- Revised LE and CD
  - Rules are complex
  - Understand when and if a revised LE/CD can be provided
  - Revised LE must be provided at least 1 business day prior to issuance of CD
Address these issues by
- Having good communication with doc prep provider
- Regular review of covered loans
- Develop adequate procedures
- Adequate staff training

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